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2014 (7) TMI 686 - AT - Income TaxIndo-Malaysia Treaty – expression used in Article- 8 - Freight income from operation of shipping business - assessee is not the "owner", "lessee" or the "charterer" of the feeder vessels - Department has held that the chartering of some space or slot charter arrangement cannot be equated with chartering of a complete ship and just by issuing bill of lading for the entire voyage, the assessee cannot be said to be involved in operation of ships – Held that:- the operation of a ship can be done as charterer which does not mean to own or control the ship either as an owner or as a lessee - charterer is a hirer of a ship under an agreement or arrangement to acquire the right to use a vessel or a ship for the transportation of a good on a determined voyage, either the whole of the ship or part of the ship or some space of the ship in a charter party agreement - the word "charterer" includes a voyage charter of a part of a ship or a slot, as it is also arrangement or agreement to hire a space in a ship owned and leased by other persons. The facility of slot hire agreement with the feeder vessels to complete the voyage is not merely an auxiliary or incidental activity to the operation of ships, but inextricably linked. If the transportation of cargo by feeder vessels belonging to other enterprise is only a part of main voyage by the mother ship i.e., owned or leased by the assessee enterprise, then it has to be taken as a part and parcel of the operation, which is inextricably linked with the completion of the entire voyage - The linkage between the transportation by feeder vessels, mother vessels of the ship owned by the assessee has to be established - insofar as the issue of linkage between the voyage performed between the feeder vessels and mother vessels, the assessee has been able to establish before the AO which is evident from the observations of the AO - there is no ownership or control of entire ship because the risk under the charter party agreement or arrangement is upon the owner of the ship who generally assumes an operational risk for transporting the cargo of the person who has hired the ship and the hirer agrees to pay for conveyance of goods on a determined voyage - The risk of the assessee is towards its customers from whom he has agreed to transport the cargo/goods from the destination port of booking to the final destination port - such a strict interpretation of the word "charterer" as adopted by the Department cannot be sustained. Transportation of cargo in the container belonging to the assessee from Indian Port i.e., Port of booking to the Hub Port through feeder vessel by way of space charter/slot charter arrangement, falls within the ambit of the word "charterer" and, therefore, it cannot be segregated form the scope of "operation of ships" as defined in Article-8(2) of the Indo-Malaysian treaty - the voyage between the Indian Port to the Hub Port through feeder vessel and from Hub Port to final destination port through mother vessel owned/leased by the assessee are inextricably linked and there is complete linkage of the voyage and, therefore, the entire profits derived from the transportation of goods carried on by the assessee is to be treated as profits from operation of ships and, therefore, the benefit of Article-8, cannot be denied to the assessee on the part of the freight from voyage by the feeder vessels – Decided in favour of Assessee. Levy of interest u/s 234B of the Act – Held that:- The decision in DIT(IT) v. NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] followed - the assessee is not liable for levy of interest u/s 234B - the assessee was not liable to pay any advance tax on the basis of double income relief certificate issued by the Income-tax Department and the fact that the freight of the assessee was deductible at source having regard to the specific provisions of section 209(1)(d) and, therefore, the duty was cast upon the payer to deduct the tax at source and failure on the part of payer to do so, no interest can be imposed on the payee assessee under section 234B –Decided partly in favour of Assessee. Treatment of interest income – Income from other sources or not - nature of interest received on refund u/s 244A – Held that:- The decision in ACIT v. Clough Engineering Ltd., [Asstt. CIT Versus Clough Engineering Ltd.] followed - the tax on interest has to be at a beneficial rate under Article-11 of the Indo- Malaysian treaty – Decided against Revenue.
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