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2008 (7) TMI 444 - AT - Income TaxDouble Taxation Relief - Taxability of income in India u/s 44B - Inland haulage charges (IHC) - main activity of transportation by the operation of ships in the international traffic - Applicability of art. 8 of the DTAA between India and Belgium - whether inland transportation charges can be brought within the ambit of "an activity directly connected with such transportation" - CIT(A) held that inland haulage charges are incidental and closely connected with direct operation of ships and hence not liable to tax in India in terms of art. 8 of the Indo-Belgium DTAA - HELD THAT:- Handling charges are the charges paid for loading/unloading/stacking, etc., of the containers and the demurrage charges are in nature of penalty for non-removal of the cargo in time. On the contrary, the IHC are towards transporting the goods from the exporter place to the port. The very nature of inland transportation charges clearly differentiates it from handling or demurrage charges, which are of a different genus. We therefore, do not find any substance in this submission made on behalf of the assessee that IHC are covered u/s. 44B as these are equal to or part and parcel of the amount or account if carriage of goods shipped at any port in or outside India, and hence are automatically covered under art. 8. This contention is therefore, repelled. It would not be out of place to take stock of the overall activity of the assessee company. Its business is to collect the cargo from the station of the exporter then bring it to Mumbai port from where its vessels carry it to the destination station out of India. paper book copy of bill of lading for the combined transport of the cycle parts from Ludhiana to Nairobi. The assessee is carrying the Hero Cycles parts, etc., in its containers from Ludhiana, bringing the same to Mumbai and then shipping them to Nairobi. Insofar as the assessee's income from Mumbai to the Nairobi is concerned, the AO has accepted the applicability of art. 8 on it and held it to be not taxable in India. Whether such inland transportation charges can be brought within the ambit of "an activity directly connected with such transportation" - HELD THAT:- Since the assessee is itself trans-shipping the goods to other destination countries, this small portion of its total receipts, which hardly accounts for 5 per cent. cannot be detached from the main activity of transportation by the operation of ships in the international traffic. It is not the case of the Revenue that the assessee earned freight for carrying the goods of other parties also upto Mumbai port for shipment by some third party. It, therefore, shows that all the IHC received by the assessee are in connection with the goods which are finally loaded on its own ships at Mumbai for shipping to the other countries - In the instant case, the assessee has gone by the provisions of DTAA and has also claimed that no tax is payable on its gross receipt. AO has accepted the assessee's point of view for the applicability of art. 8 on the gross receipts and has only put to tax the remaining, which represents IHC by estimating the profit @ 7.5 per cent. Thus, the assessee has opted to go by the DTAA and the AO has also accepted the same. We are of the considered opinion that in this treaty, the inland transportation if coupled with the further shipping of cargo also by the assessee from Indian port to the foreign country, would be construed as the 'activity directly connected with such transportation'. Hence, the case would squarely fall under art. 8(2)(b)(ii). We appreciate that in some treaties the income from journey between States connected with the Contracting States has been kept outside the purview of income from the operation of ships in the international traffic. For example, cl. 2 of art. 9 of DTAA between India and UK specifically provides that the provisions of para 1 of this article shall not apply to income from journeys between places situated in a Contracting State. In the absence of any similar clause in the DTAA between India and Belgium, we are of the considered opinion that the inland transportation would be covered within art. 8(2)(b)(ii). As the assessee has transported the containers for the purpose of transportation in international traffic, we find that the case is also caught within the sweep of cl. (c). Since the activity of transporting the goods from Ludhiana to Mumbai is incidental to the activity directly connected with the transportation of goods from Mumbai to Nairobi, we do not find any difficulty in granting the benefit of art. 8 under this clause as well. To sum up, we hold that the IHC earned by the assessee are covered within the scope of 'income derived from the operation of ships in the international traffic' as per art. 8 of the DTAA between India and Belgium and hence cannot be subjected to tax in India in the present circumstances. The view taken by the learned CIT(A) on this count is, therefore, upheld. In the result, the appeal is dismissed.
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