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2016 (5) TMI 1025 - ITAT AHMEDABAD

2016 (5) TMI 1025 - ITAT AHMEDABAD - TMI - Assessment under section 172(4) - Shipping business of non-residents - Taxability of income in a situation in which transportation of goods has been done by using the slot charter - Held that:- The assessee is entitled to treaty protection, under article 9, from source taxation of income arising from transportation of goods by operation of ships in international traffic- irrespective of whether or not such ships were owned or chartered by the assessee T .....

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od Kumar, Accountant Member For The Appellant : None For The Respondent : Rajdeep Singh ORDER 1. By way of this appeal, the appellant has challenged correctness of the order dated 10th March 2014 passed by the learned CIT(A) in the matter of assessment under section 172(4) of the Income Tax Act, 1961, in respect of various vessels sailing during the previous year relevant to the assessment year 2012-13. 2. None appeared for the assessee. However, having regard to the fact that the appeal involve .....

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. There is no dispute that the assessee is a tax resident of Indonesia and that he has earned income from slot chartering in certain vessels sailing from the port of Mundra during the relevant previous year. During the course of the scrutiny of returns filed by the assessee under section 172, the benefits of India Indonesia Double Taxation Avoidance Agreement [(1988) 171 ITR (St) 27; India Indonesia tax treaty, in short], on the short ground that these vessels in which the containers were transp .....

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port in India. Thus, it is clear that when a non-resident owns or charters a ship and goods are shipped at a port in India, then the provisions of Section 172 in consonance with the DTA agreement of India with the country of ship owner or charterer has to be looked into. The benefit of DTA agreement will in any case not be available to the slot charterer or to those who have just loaded a few containers on board, since the vessel is neither owned or chartered by them Since the vessel has not bee .....

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benefit of DTAA is not available to the slot charterer , that the appellant has not proved, with evidences, that the above vessels are owned or chartered by them , and that it is held that the appellant is not the owner or charterer of the vessels, and, therefore, the action of the AO in rejecting the claim of exemption is justified . The assessee is not satisfied with the order of the CIT(A) and is in further appeal before me. 5. I find that Article 8 of the India Indonesia tax treaty, which d .....

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is Article, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft and the provisions of article 11 shall not apply in relation to such interest. 4. The term "operation of ships or aircraft" shall mean business of transportation of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of ships or aircraft, including the sale of tickets .....

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from operation of ships or aircrafts stands defined under Article 9(4) inasmuch as operation of ships or aircrafts shall mean to include not only transportation of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of a ship or aircraft but also sale of tickets for such transportation on behalf of other enterprises , the incidental lease of ships or aircrafts but also, rather most importantly, any other activity directly connected with such transportation . I .....

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activity directly connected with such operations, whether carried on by the assessee on his own or in collaboration with others e.g. in a pool, joint business or international operating agency, all such profits can only be taxed in the country in which the assessee is fiscally domiciled. The rule is clear, unambiguous and of widest scope. 7. Viewed in this light, the activity of carrying cargo in international traffic, irrespective of whether the vessels are owned or chartered by the assessee or .....

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Act, apply for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India 1631[* * *]. (2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in India, 1632[seven and a half per cent] of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or pa .....

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thereat : Provided that where the 1632a[Assessing Officer] is satisfied that it is not possible for the master of the ship to furnish the return required by this subsection before the departure of the ship from the port and provided the master of the ship has made satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf, the 1632a[Assessing Officer] may, if the return is filed within thirty days of the departure of the ship, deem the filing .....

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ome and determining the sum of tax payable thereon shall be made under sub-section (4) after the expiry of nine months from the end of the financial year in which the return under subsection (3) is furnished: Provided that where the return under sub-section (3) has been furnished before the 1st day of April, 2007, such order shall be made on or before the 31st day of December, 2008.] (5) For the purpose of determining the tax payable under sub-section (4), the 1632a[Assessing Officer] may call f .....

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revious year in which the date of departure of the ship from the Indian port falls, that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, livestock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessme .....

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from whom the tax will be recoverable under the other provisions of this Act" omitted by Finance Act, 1975, s. 19 (w.e.f. 1-6-1975). 1632. Subs. for "one-sixth" by Finance Act, 1975, s. 19 (w.e.f. 1-6-1975). 1632a. See "Abbreviations used". 1633. Subs. by Finance (No. 2) Act, 1967, s. 29 (w.e.f. 1-4-1967), for "rate or rates for the time being". 1633a. Ins. by Finance Act, 2007, s. 51 (retrospectively w.e.f. 1-4-2007). 1633b. "Collector of Customs" h .....

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iness of such carriage of passengers and goods, etc. 1633d. Ins. by Finance Act, 1997, s. 45 (retrospectively w.e.f. 1-4-1976). [Emphasis, by underlining, supplied by us] 8. It is only when the assessee is owner or charterer of the vessel that section 172 comes into play. If it is the case of the Assessing Officer that the assessee is not an owner or charterer of the vessel, section 172, under which the impugned assessment is framed, does not come into play at all, and the very foundation of the .....

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Court, and as it comes from a higher forum in the judicial hierarchy, it does constitute a binding judicial precedent for us. Hon ble Bombay High Court, in this case i.e. CIT Vs Balaji Shipping UK Ltd [(2012) 253 CTR 460 (Bom)], have categorically held that slot hire facility is an integral part of the contract of carriage of goods by sea , and, therefore, are eligible for treaty protection against source taxation of such income. Once Their Lordships are of the considered view that slot hire fa .....

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e shipping industry for decades. Whether they constitute a charter of a portion of a ship or not is a different matter. In a case of the first type, the carriage of goods by availing of the slot hire facility is an integral part of the contract of carriage of goods by sea. Without it, the enterprise / assessee would be greatly hampered in its business in relation to international traffic, carriage of goods by sea. Enterprises operating in any mode or manner, do not always ply their ships all ove .....

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