TMI Blog2013 (11) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... olan, [reported in [2003 (10) TMI 5 - SUPREME Court], wherein the Hon'ble Apex Court held that "the provisions of the Treaty have to be applied and interpreted in a liberal manner so that the benefit contemplated for avoiding double taxation of the same income can be appropriately granted to the party". Taking into consideration the decision of Hon'ble Bombay High Court in the case of Balaji Shipping [2012 (8) TMI 681 - BOMBAY HIGH COURT], it is found that slot charter have been held to be charter per se. Even if observation is diluted that slot charter is different from charter, then the ratio of Azadi Bacho Andolan [2003 (10) TMI 5 - SUPREME Court], i.e., "expressions should be construed in the manner in which the contracting partners understood at the time of execution of treaty", prompts to hold that slot charter is charter - This lends force to observation that the inclusion of sub clauses (b), (c) and (d) to Article 8.4 is profit specified, generated from the operation of ships, aircrafts in international traffic by owner, lessess a charter ... which is directly connected with such transportation - Difference of the use of expression "business" used in India Brazil Treaty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. In effect, the factual position is: Allowed by AO in the assessment order 27 Allowed by AO in the appeal effect 59 Allowed by CIT(A) 25 No evidence submitted before CIT(A) 1 Evidence submitted before ITAT 6 Still without any evidence 7 125 7. By way of present appeals, the department in ITA no. 1702/Mum/2010 is disputing the allowance of claim of 25 vessels under article 8 of India Singapore DTAA and assessee is disputing the disallowance of claim of 1 vessel and 13 other vessels out of which, the assessee has submitted evidence before the ITAT as additional evidence with regard to 6 vessels and 7 vessels are still without any evidence. 8. The facts emanating from the assessment order are that the assessee, APL Company Pte. Ltd. is a tax resident of Singapore and is in the business of ship operations for carrying of cargo in international traffic throughout the world. The assessee owns ships operate them for cargo movement on international waters. 9. Since the assessee was liable to tax in Singapore on accrual basis under the Singapore Tax Laws, provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein the meanings of charter, lease, slot charter Bare boat charter had been given, according to the DR slot charter can be only a part of the charter of the ship, but it can never be the charterer of the ship/vessel, wherein the control is with the charterer. The DR to demonstrate the meaning of charter of a vessel, explained the distinctions of owner, lessee, charter and slot charter. The distinctions drawn by the DR on the words, the DR referred to the agreements entered into by the assessee, wherein, the DR referred to the APB wherein there was a ship validation, according to which risks and rewards were retained by the owner of the vessel. According to the DR, unless the risks and rewards are not taken by the hirer or charterer, which the assessee is not, assessee could never be said to be the owner or the charterer, even, for at that part of the voyage. 16. The DR referred to the slot swap agreement, which proved that the assessee being only slot charter and not the owner, could easily swap the slots it had hired at the time of voyage or at the time of loading being done at the hub with the mother vessel. The DR submitted that the assessee has never been able to estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular mother vessel. The assessee was also asked to file copies of the ship registration certificate and charter party agreements of all the mother vessels. In response to the same, a list of feeder vessels and mother vessels was furnished before the AO. It was noted by the AO that the assessee had shown 73 voyages from Mumbai port but it had not filed the ship registration certificates in respect of any vessel which it claimed to have operated. Accordingly, it was held by him that the assessee had failed to link and establish the voyage-wise that its feeder vessels were actually loading the goods into mother vessels which the assessee had claimed that it was operating. The claim of the assessee under art. 8 was, therefore, rejected. In view of the above finding, the AO was also of the view that the income arising from such freights was to be treated as business profits. Since the assessee had its agent, viz., Barwil Forbes Shipping Services Ltd., in India, it was also held by him that business place of such agent was to be treated as PE and consequently the assessee was liable to pay income-tax under the provisions of s. 44B of the IT Act, 1961 ('the Act'). As a result the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l while disposing the appeal of Delta Airlines Inc. (supra), following the decision of the Supreme Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar (supra), held that the expression "profits from operation of ships or aircrafts in the international traffic" must be understood in the sense in which it has been defined in para 2 of art. 8. Thus, in our opinion, there is no conflict between these two decisions. Therefore, following the decision of the Bench in the case of Delta Airlines Inc. (supra), it is to be held that benefit of art. 8 would be available to the assessee to the extent the activity carried on by the assessee falls within the parameter of the definition given in art. 8(2) of the Indo-US treaty. 32. The contention of the learned counsel for the assessee that the ratio laid down by the Bench in the case of Delta Airlines Inc. (supra) is not in accordance with the decision of the Hon'ble Supreme Court in the case of P.V.A.L. Kulandagan Chettiar (supra), in our opinion, is without force. In that case two questions were raised by the Hon'ble Supreme Court which, inter alia, included a question "whether the capital gains should be taxable only in the country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with reference to the other materials which may be by way of domestic law or the commentaries available at the time of execution of the agreement by the contracting parties as held by the apex Court in the case c. Azadi Bachao Andolan (supra). Impliedly, it means that where any expression or term is defined then it would be unnecessary to refer to the commentaries or decisions of foreign jurisdiction as held by the apex Court in the case of P.V.A.L. Kulandagan Chettiar (supra). Therefore, the decision of the Bench in the case of Delta Airlines Inc. (supra) to the effect that commentaries on international law need not be looked into where the expression has been defined in the treaty itself is in accordance with the ratio laid down in the above decision. 35. The contention of the assessee's counsel that the decision in the case of Delta Airlines Inc. (supra) is contrary to the earlier decision of the Tribunal in the case of Safmarine Container Lines N.V. (supra) is also without force. Para 10 of the order in the case of Safmarlne Container Lines N.V. (supra) reads as under: "Now, we will examine the amount in dispute in the context of DTAA. Both the sides have taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than one meaning. It was also observed that in the absence of any law to the contrary, there is prima facie presumption that Parliament did not intend to act in breach of international law including the State treaty obligations. Similarly, in the case of T.N. Godavarman Thirumalpad (supra) it was observed that in the absence of any inconsistency regard must be had to, even in construing the domestic law. Therefore, these decisions do not support the contention of the learned counsel for the assessee that commentaries should be looked into even where the expression or term has been specifically defined in the treaty." The DR further quoted the case of Asstt. DIT(IT) v Delta Airlines Inc. [2010] 124 ITD 114 (Mum.), which was also the case under India US DTAA Treaty, wherein it was held, "profits from the operation of ships or aircraft in the international traffic described in para 1 of art. 8 has been defined in para 2. According to this definition, the profits from the operation of aircraft not only includes transportation of passengers in the international traffic by air but also includes various other activities which, inter alia, include an activity directly connected wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from India by availing the slot hire facilities is liable to be taxed in India must, in this case, be addressed qua these two situations referred to. Firstly, where the goods are transported by an enterprise by availing of the slot hire facility obtained by it on the ship of another from a port in India upto a hub port abroad and from there transporting the goods further to their final destination upon a ship owned or chartered or otherwise controlled by it. (We will refer to this as a case of first type). Secondly, where the goods are transported by the assessee from a port in India directly to their final destination to a port abroad by availing a slot hire facility obtained by it on the ship of another. (We will refer to this as a case of the second type." wherein, their Lordships were examining the ratio laid down by the Hon'ble Delhi High Court in the case of DIT v KLM Royal Dutch Airlines reported in 178 Taxman 291 it was observed, "Air Transport: 1. Profits from the operation of aircraft in international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated." Article 8(1) is si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Treaty in specifically there, there cannot be a reason for adopting the meanings from any other source, as has been held in the case of Delta Articles (supra). 22. The DR, therefore, submitted, that slot charter cannot be equated to the charter as such. Since the fact that the term charter has not been defined in the Treaty, then in that case, the meaning must be adopted from the glossary or the maritime dictionary, as has been mentioned and cited earlier. Since the fact that charter and slot hire does not come into the terms of Article 8 and hence the concession made available to the assessee by the CIT(A) must be withdrawn. 23. The AR on the other hand referred to the India Singapore DTAA Treaty and referred to the clause (4) and pointed out that in the case relied upon by the DR, that of CLE DE Navegacao Norsul (supra), is based on India Brazil treaty. The AR submitted that in so far as India Brazil DTAA was concerned it referred to "the operation of ships or aircrafts shall mean business of transportation of persons, mail, livestocks or goods carried on by the owners or lessee or charters of the ships or aircraft, including the sale of tickets for such transpiration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arterparty A charterparty under which the charterer puts own stores, fuel etc. on board and hires the crew. This type of charterparty is also known as a bareboat charterparty. Slot charter A voyage charter whereby the shipowner agrees to place a certain number of container slots (TEU and/or FEU) at the charterer's disposal. 25. The AR on reference to the Maritime Shipping Dictionary 2012, submitted that the assessee was a charter and since the expression is not defined in the treaty, the meaning extracted from the relevant dictionary need be taken. The AR also admits that the assessee entered into slot Charter Agreements for the conduct of its business. The AR submits that in the case of Balaji Shipping (supra) by the DR makes reference to the judgment of the Tychy (1999) 2 Lloyd Law Report 11, wherein the question was, "What was meant by "the charter of the ship" in s. 21(4) of the Supreme Court Act, 1981? In particular (a) was the expression confined to a demise charter or (b) could the expression include a slot charter? (ii) In the light of the answer to (i) were POL the charters of the particular vessel within the meaning of the section? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission but on balance I have reached the conclusion that it should not be accepted. The special circumstances referred to by Sir David Cairns were simply that in the vast majority of cases the person liable in personam will be the owner of the ship in connection with which the claim arises, but not the time charterer or the voyage charterer. It is accepted by Mr. Young that there can be more than one charterer at any one time who can properly be described as "the charterer" of this ship. For example, it is common to have a string of charter-parties. There might be a demise charterer, a time charterer, a sub-time charterer, a sub-sub time charterer, a voyage charter and even a sub voyage charter. There is no difficulty in describing each of the charterers under each of those contracts as the charterer of the ship' In all these circumstances, I do not see any difficulty in describing each of the two charterers of a ship as the charterer of the ship. Equally, for the reasons I have given, I do not see any difficulty in describing the charterer of part of a ship as the charterer of the ship. In all these circumstances I would hold that the expression "the charterer of the ship" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which says Singapore - Madras. The AR, reiterated that the assessee's operation of feeder vessels from India were either to Singapore or Sri Lanka hubs, which in any case would sail in the International waters, leaving Indian waters. 28. Having placed the arguments, the AR submitted that the expression charter/slot charter not having been defined in the Treaty, recourse must be taken from outside, as held by the Hon'ble Bombay High Court in the case of Balaji Shipping (supra). Taking that cue, the AR submits that the case of Tychy must be considered and applied to the case in hand to give a definite meaning to the expression. 29. Concluding her arguments, the AR pleaded that in case, the decision is to be taken against the assessee, an alternative plea may be considered, wherein, the assessee would be pleased with the decision of application of section 44B of the Income Tax Act, 1961, may be considered and applied and placed reliance on the decision of A.P. Moller, Maersk Agency India P. Ltd. v. Dy. CIT [2004] 89 ITD 563 (Mum.), wherein it has been accepted that if DTAA is silent over taxing the profits of shipping co. derived otherwise then from the operation of ships. In such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oordinate Bench concluded that "cargo transported to Durban by feeder vessels neither owned nor leased nor chartered by the assessee would not make the assessee eligible for relief under Article 8 for relief under that Article, as the assessee must be owner or lessee or charter of the ships employed in international traffic". This decision was based on India Brazil DTAA Treaty, whereas, we are seized with India Singapore DTAA Treaty. 37. When we compare the two Treaties, we find that the relevant Treaty Clause, i.e. article 8 is worded differently and on comparison of clause (4) of Article 8, India Brazil Treaty talks of business as such but India Singapore Treaty talks of "profits from the operation". Another difference is that India Singapore DTAA Treaty extends its arms to embrace, "any other activity directly connected with such transportation", which is not extended in the India Brazil Treaty. Taking note of this major difference in the Treaty language and taking into consideration the ratio laid down in the case of UOI v. Azadi Bachao Andolan, [reported in 263 ITR 706, wherein the Hon'ble Apex Court held that "the provisions of the Treaty have to be applied and interpreted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refer this comparison to understand that Wikipedia and legal definitions differ from actual maritime and shipping definitions. Taking into consideration the decision of Hon'ble Bombay High Court in the case of Balaji Shipping (supra) and more importantly the decision of HL in the case of Tychy, we find that slot charter have been held to be charter per se. Even if we have to dilute our observation that slot charter is different from charter, then the ratio of Azadi Bacho Andolan (supra), i.e., "expressions should be construed in the manner in which the contracting partners understood at the time of execution of treaty", prompts us to hold that slot charter is charter. This has been held so in the case of A.P. Muller Maersk (P.) Ltd. (supra), as well. This lends force to our observation made in earlier para that the inclusion of sub clauses (b), (c) and (d) to Article 8.4 is profit specified, generated from the operation of ships, aircrafts in international traffic by owner, lessess a charter ... which is directly connected with such transportation. It is important to take note of the difference of the use of expression "business" used in India Brazil Treaty and the use of expres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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