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2022 (11) TMI 1554 - AT - Income TaxTaxability of Inland Haulage Charges (IHC) - Income deemed to accrue or arise in India - HELD THAT - The issue in dispute is squarely covered in favour of the assessee by the decision of Safmarine Container Lines N.V. 2015 (8) TMI 1018 - BOMBAY HIGH COURT wherein held income from slot chartering falls within the ambit of Article 9 of the DTAA between India and the UK and is therefore exempt from taxation in India - Decided in favour of assessee. Short grant of TDS credit appearing in form 26AS of United Arab Shipping Company (UASC SAG) and United Arab Shipping Agency Company India Pvt. Ltd. (UASE India) - HELD THAT - This issue is no longer res integra in view of the decision of this Tribunal in the case of Hapag Lloyd AG 2022 (2) TMI 220 - ITAT MUMBAI wherein this issue was restored to the ld. AO as held assessee has shown the income involved in this TDS certificates and in turn also claimed benefit of Article 8 and the benefit of DTAA the credit for such tax should be granted to the assessee. The claim of the assessee is that Rule 37BA is required to be complied with. It is also submitted that merely because the deductor does not revise the TDS return it cannot go against the assessee for the claim of the above refund. The assessee raised this additional ground before the learned Dispute Resolution Panel. The Dispute Resolution Panel admitted the above additional ground along with additional evidences. It also obtained the comments from the Assessing Officer and rejoinder of the assessee thereon. The learned Dispute Resolution Panel directed the learned Assessing Officer to carry out the necessary verification and to grant credit. The assessee was also directed to submit all relevant details and clarification thereon. But AO did not consider and carry out such directions. Hence respectfully following the decision supra the ground restored to the file of the ld. AO with the same directions.
The core legal questions considered by the Appellate Tribunal (AT) in this appeal relate primarily to the taxability of Inland Haulage Charges (IHC) under the Income Tax Act, the applicability of the India-UAE Double Taxation Avoidance Agreement (DTAA), the existence and consequences of a permanent establishment (PE) in India, the entitlement to Tax Deducted at Source (TDS) credit, the levy of interest under section 234D, and the initiation of penalty proceedings under section 270A of the Act.
Specifically, the issues presented and considered include:
Issue-wise Detailed Analysis: 1. Taxability of Inland Haulage Charges (IHC) Legal framework and precedents: The taxability of income from shipping operations is governed by section 9(1)(i) of the Income Tax Act, which deals with income deemed to accrue or arise in India. Article 8 of the India-UAE DTAA exempts income derived from the operation of ships in international traffic from Indian taxation. The Safmarine Container Lines N.V. case, decided by the Bombay High Court and affirmed by the Supreme Court by dismissal of the revenue appeal, held that inland transportation charges ancillary to international shipping are exempt under Article 8. Court's interpretation and reasoning: The Tribunal noted that the appellant, a foreign company resident in UAE for the relevant assessment year, earned income from shipping operations including Inland Haulage Charges. The Assessing Officer (AO) had assessed 7.5% of the IHC as taxable income, rejecting exemption under Article 8. The appellant challenged this, relying on the Safmarine decision. The Dispute Resolution Panel (DRP) observed that the issue had not attained finality since the Supreme Court had dismissed the revenue appeal as withdrawn, leaving the question of law open. However, the DRP emphasized the need to keep the issue alive to protect revenue interests, citing the Malabar Industrial Co. Ltd. decision which underscores the Revenue's mandate to levy and collect tax as per the Act. The Tribunal, however, gave primacy to the binding decision of the jurisdictional Bombay High Court in Safmarine, which had held in favor of the appellant on this issue. The Tribunal observed that the facts of the present case were squarely covered by that decision and, therefore, allowed the grounds relating to taxability of IHC (grounds 2-4). Application of law to facts: Since the Inland Haulage Charges are directly connected to the operation of ships in international traffic, they fall within the exemption under Article 8 of the DTAA. The AO's addition was thus set aside. Treatment of competing arguments: The Revenue's argument that the issue was not final and could be reopened was considered but rejected in light of the binding High Court decision. The Tribunal respected judicial precedent over the DRP's concerns about revenue protection. Conclusion: Inland Haulage Charges are exempt from tax under Article 8 of the India-UAE DTAA, and the AO's addition is disallowed. 2. Permanent Establishment (PE) of UASAC in India Legal framework: Under the DTAA, a dependent agent PE arises if an agent habitually exercises authority to conclude contracts on behalf of the non-resident enterprise. Attribution of profits to such PE is governed by transfer pricing principles. Court's reasoning: Given the exemption of income under Article 8, the Tribunal held the issue of PE to be academic and allowed the grounds related to PE (grounds 5 and 6) accordingly without detailed adjudication. Conclusion: Since income itself is exempt, the question of PE and profit attribution does not arise. 3. Short Grant of TDS Credit Legal framework: Section 90(2) of the Act and Article 8 of the DTAA provide for relief from double taxation. Rule 37BA mandates that TDS credit can be claimed only if reflected in the Form 26AS of the deductee. Facts and submissions: The appellant claimed TDS credit aggregating Rs. 8,68,889/-, including amounts deducted under the PAN of its Indian subsidiary UASAC, which collects freight on its behalf. The AO denied credit citing non-reflection in Form 26AS and lack of documentary evidence of corrective action by deductors. The appellant filed additional evidence and contended that since the income on which TDS was deducted was claimed as exempt under the DTAA, credit should be granted. The DRP directed the AO to follow CBDT guidelines and verify the claim. Precedents and reasoning: The Tribunal relied on its earlier decision in Hapag Lloyd AG vs. DCIT, where a similar issue was restored to the AO for verification and grant of credit if legitimately due. The Tribunal noted that the AO had failed to comply with DRP directions in the earlier year. Application of law to facts: The Tribunal directed the AO to verify the claim in accordance with law, grant credit where due, and afford the appellant an opportunity to substantiate its claim. The grounds relating to TDS credit (grounds 7-9) were thus restored to the AO for fresh adjudication. Conclusion: The appellant is entitled to TDS credit subject to verification, and the AO is directed to comply with DRP and Tribunal directions. 4. Levy of Interest under Section 234D Reasoning: The ground challenging interest under section 234D was held to be consequential and did not require separate adjudication. 5. Initiation of Penalty Proceedings under Section 270A Reasoning: The Tribunal held that initiation of penalty proceedings at this stage was premature and dismissed the ground challenging penalty initiation. Significant Holdings: "From the above observations of the ld. DRP, it could be seen that the issue in dispute is squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in the case of Safmarine Container Lines N.V. ... Hence, respectfully following the decision of the Hon'ble Jurisdictional High Court, the ground Nos. 2-4 raised by the assessee are allowed." "Since income itself is exempt under Article 8 of the India UAE DTAA, the grounds relating to agency PE are allowed as academic." "The Assessing Officer may examine the TDS credit claim in accordance with law after granting sufficient opportunity to the assessee. The ground Nos. 8 to 11 are allowed with above directions." "The initiation of penalty proceedings under section 270A is premature and hence dismissed." The Tribunal established the principle that Inland Haulage Charges directly connected with international shipping operations are exempt under Article 8 of the India-UAE DTAA, binding on the Revenue by virtue of the jurisdictional High Court decision. It emphasized adherence to judicial precedents over speculative revenue concerns. The Tribunal also clarified the procedural correctness regarding TDS credit claims involving Indian agents of foreign companies and directed adherence to CBDT guidelines and prior Tribunal rulings. Issues of PE and penalty proceedings were disposed of on the basis of the primary findings on income taxability and procedural propriety, respectively.
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