TMI Blog2004 (5) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... of the India Netherlands DTAA (177 ITR St. 22), as a general principle, lays down that profits from the operation of ships in international traffic shall be taxed in that other State in which the place of effective management of the enterprise is situated . But, then, an exception to this general principle is set out in the immediately following sub-clause, i.e., 8A(2) which states that however, if the operation of ships in international traffic is more than casual, such profits may also be taxed in that other State and according to the laws of that State . . . It thus follows that as soon as operation of ships in international traffic is treated as more than casual , the assessee is saddled with the income-tax liability in the source country of the receipts as well. In this background of the legal provisions, let us take a look at the facts of this case. 3. The assessee filed its return under section 172(3), alongwith the manifest, on 27th November, 1996. It appears that the assessee's claim was that in view of the provisions of article 8A of the India Netherlands DTAA, and in view of the assessee's contention that its operation of ships in India was no more than ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a pre-determined schedule. Such operation of ships is termed as 'scheduled shipping' or 'liner shipping' which can surely not be termed as casual. However, according to the learned counsel, as opposed to this 'scheduled shipping', the ships owned or chartered by the assessee touch the Indian ports only when they have available cargo to load or unload. This activity of calling on a port only when there is a specific requirement for loading or unloading the cargo is termed as 'tramp shipping' in the shipping industry parlance. Our attention is also invited to the dictionary meaning of the expression 'casual' because this expression is not defined in the tax treaty. It is pointed out that the word 'casual' implies resulting from or accruing by chance, occurring without regularity, occasional, employed for irregular period. It is submitted that the word 'casual' is defined to mean subject to or produced by chance, accidentally, fortuitous, coming at uncertain times not to be calculated on, unsettled. It is thus reiterated that 'tramp shipping' activity cannot be said to be anything more than casual operation of ships and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aty. With a view to highlight the distinction between the scopes of section 172(2) and section 44B, the learned counsel for the assessee also referred to, and relied upon the Hon'ble Karnataka High Court's judgment in the case of V.M. Salgaocar Bros. Ltd. v. Dy. Controller, Reserve Bank of India (1991) 187 ITR 381. On the strength of these submissions, the learned counsel contends that the entire income of the assessee's shipping business in India, which is only in the nature of tramp shipping, is only taxable in the country of domicile, i.e., the Netherlands, and not in the source country, i.e., India. We are urged to hold so, and, to this extent, modify the orders of the authorities below. 6. Shri Vikey, on the other hand, dutifully relied upon the orders of the authorities below, took us through these orders, and contended that, by no stretch of logic, the assessee's business from operation of ships could be said to be casual. It is contended that whether the operation of ships is on the basis of fixed schedules or is 'as and when required basis', these facts would not have any bearing on the determination of the question whether the operation of shi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' which is explained as 'a design according to which things are, or intended to be, arranged' and as 'an organized and specially detailed method according to which something is to be done; a scheme of action, a design; an intention; a proposed proceeding'. In effect, it was pleaded that only scheduled visits of a vessel can be termed as 'planned visits'. 10. Thirdly, the learned counsel addressed our query that when a vessel comes, although without a specific schedule, all the way to an Indian port to pick up cargo or to unload cargo at an Indian port, it cannot but be planned on account of commercial expediencies, and, therefore, cannot be said to be casual. The Bench's proposition was that operation of a ship in the other State can be said to be casual only when the visit of such ship to the other State is merely fortuitous in the sense that the visits to the ports of call in the other Contracting State is neither planned nor scheduled and in effect, such a visit has to be dictated by non-commercial expediencies. The learned counsel's submissions on this issue were on the following lines: - As the very quantum of freight earned by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case any of such vessels is inclined to pick up the cargo, the freight etc. is negotiated. That is how, according to the learned counsel, tramp shipping business is carried out. The learned counsel further clarified that this tramp shipping business is not for the spare capacity on scheduled liners, but only for tramp vessels which happen to have the spare capacity. It was then submitted that the very activity of tramp shipping is such that there cannot be any scheduled, and for that purpose, even planned, visits to a port. 12. Finally, on our observations about the apparent anomaly in section 44BB vis-a-vis section 172, so far as the scope of taxability is concerned, the learned counsel suggested that there is no anomaly, for the reason that while section 172 undoubtedly excludes the payments for inward freight, that inward freight, at the time of payment, has to be the subject-matter of tax deduction under section 195. 13. We were thus once again urged to vacate the orders of the authorities below and hold that the freight earned by the assessee, which is in the nature of freight earned in the course of tramp shipping, is not exigible to tax in India. 14. We consider i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. No longer must they argue about the precise grammatical sense. They must look to the purpose or intent. . . . 18. Echoing these views and justifying his departure from the plain meaning of the words used in the treaty, Goulding, J, in IRC v. Exxon Corpn. (1992) STC 356 at page 359, observed: In coming to the conclusion, I bear in mind that the words of the Convention are not those of a regular Parliamentary draughtsman but a text agreed on by negotiations between the two contracting Governments. Although I am thus constrained to do violence to the language of the Convention, I see no reasons to inflict a deeper wound than necessary. In other words, I prefer to depart from the plain meaning of language only in the second sentence of article XV and I accept the consequence (strange though it is) that similar words mean different things in the two sentences. 19. In a later judgment, Harman, J. in Union Texas Petroleum Corpn. v. Critchley (1988) STC 69, affirmed the above observations of Goulding, J. and added: I consider that I should bear in mind that this double tax agreement is an agreement. It is not a taxing statute, although it is an agreement about how taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely fortuitous. The phrase 'more than casual' meant a scheduled or planned visit of a ship to a particular country to pick up freight or passengers. . . . [Emphasis supplied] As the above commentary unambiguously indicates the expression more than casual , as used in the UN Model Convention, means scheduled or planned visits to a particular country and it includes 'regular and frequent' shipping visits, as also 'irregular and isolated visits', as long as the same are planned and not merely fortuitous, or, say, something happening completed by chance. Therefore, merely because a ship visits Indian ports at irregular intervals or only as and when required, it cannot be said that such operation of ships in India is no more than casual. As we have noted earlier, article 8A of the India Netherlands DTAA is on the lines of article 8B (Alternative B) of the UN Model Convention, and, therefore, the meaning given to the expression 'more than casual' by the UN Commentary on this model convention has to be treated as in the nature of 'contemporanea expositio'. As to what is the persuasive value of this Commentary, we can do no better than to quote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the case here. The very fact that the assessee accepts that the ships have called Indian ports on 'as and when required basis' implies that it is on account of commercial expediencies that the ships have operated in India. To that extent, visits of ships are, in our humble understanding, not merely fortuitous. 22. The learned CIT(A), in his impugned order, as also the learned counsel in his arguments, have relied upon Dr. Vogel's treatise on the double taxation avoidance agreements. We may, therefore, as well deal with Dr. Vogel's observations in this context. In this oft referred book 'Klaus Vogel on Double Taxation Conventions' (Third Edition), Dr. Klaus Vogel has, at page 490, elaborated upon this clause as follows: Under art. 8 (2) UN MC, alternative B, the State of the place of effective management has the exclusive taxation on profits from the operation of ships unless the shipping activities in the other Contracting State are no more than casual. If such shipping activities are more than casual, the latter State also has the right to tax. Shipping activities are deemed to be more than casual if the ship visits the other Contracting State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed' has the same connotations as 'scheduled', and that these expressions can be used interchangeably in the present context. There can be no doubt that there are some similarities between these two expressions but the very fact that the UN Model Convention Commentary has used the expression 'Scheduled or planned' would indicate that, in this particular context, these expressions have different, whether or not entirely mutually exclusive, connotations. This fact is more clear from a harmonious reading of the entire relevant observations which have been reproduced earlier in the order. Just because two terms have some similarities, it does not follow that their scope and connotations are the same. It does not appeal to us that what is not scheduled cannot be planned either. 25. It is not in dispute that tramp shipping, by its very nature, an organized business activity and it is one of the basic features of this line of business that the vessels do not follow a fixed schedule. The operations of tramp vessels in the international traffic cannot therefore be said to be, by any logic, 'casual' or 'fortuitous'. These vessels call on the ports as a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjected to tax under section 172 of the Act, even the Revenue's stand is that profits of the assessee constitute profits of non- residents from occasional shipping business and, for this reason also, the assessee's income from operation of ships in India cannot be treated as anything more than casual. This argument, however, proceeds on the fallacy that the expression occasional is interchangeable with the expression casual in the context of article 8A but then, as we understand and as we have expressed the view earlier in this order, the expression 'causal' in the context of article 8A is more akin to 'fortuitous' than 'occasional'. That is what we believe to be the contextual meaning and the contemporaneous exposition of that term. The very foundation of the learned counsel's argument, therefore, does not appeal to us. 28. Be that as it may, we also find that there is an anomaly in the terms of section 172 and section 44B, inasmuch as tax liability under section 172, which essentially is in the nature of ad hoc liability in special cases, is lesser in scope vis-a-vis the assessee's tax liability under section 44B of the Act. Yet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her. However, it is not for us to go further into this apparent anomaly, nor is it necessary to do so for our present purposes. The learned Counsel's reliance of V.M. Salgaocar Bros. Ltd.'s case (supra) is also of no avail because while we agree that in case section 172 is to be followed, only the procedure as contemplated under sections 172(3) and 172(7) should be followed and no other, we also find that the non-resident owner or charterer of the ship has an option under section 172 itself, to be assessed under the normal provisions of the Act and it is in exercise of this option, as evident from page 3 of the statement of facts before the CIT(A), that the assessee has preferred that option. Anyway, that does not make any difference to the situation before us, because whether the assessee is treated as in 'occasional shipping business', as is referred to in section 172 or not, this aspect, in our understanding, is not relevant in determining whether or not the operation of ships is 'casual' or 'more than casual'. The plea raised by the assessee does not meet our approval for this reason also. 30. For the detailed reasons set out above, we see n ..... 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