TMI Blog2017 (11) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Article 8 of the India Germany DTAA would also be available to the assessee in respect of the revenue earned by it from the feeder vessels obtained on slot hire arrangements, therefore, the Grounds of appeal Nos. 5 to 7 pertaining to the validity of the order of the A.O as regards including the service tax in the freight income for computing the income of the assessee under Sec. 44B would be rendered infructuous. We thus in terms of our aforesaid observations dismiss the Grounds of appeal No. 5 to 7 raised by the assessee before us. We are further of the view that as we have held that the the benefit of Article 8 of the India Germany DTAA would also be available to the assessee in respect of the revenue earned by it from the feeder vessels obtained on slot hire arrangements, therefore, the Grounds of appeal Nos. 8 to 10 as to whether the assessee had an agency PE in India are also rendered academic and we thus refrain from adjudicating the same. The Grounds of appeal No. 8 to 10 are dismissed in terms of our aforesaid observations. Interest levied on the assessee under Sec. 234B - Held that:- We find that the issue is covered in favour of the assessee by the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n including service tax, amounting to ₹ 1,57,29,380/- on freight income from feeder vessels, in the gross receipts for the purpose of computing income of the Assessee under section 44B of the Act; 6. failed to appreciate that service tax in India is a charge/levy by the Government and the same does not have any element of income which is chargeable to tax in the hands of the Assessee; 7. failed to appreciate that even if service tax on freight income is held to be taxable in India, the same is covered by Article 8 of India- Germany DTAA and thus, not taxable in India; Hapag Lloyd India Private Limited ('HLIPL') held to be agency permanent establishment ('PE') of the Assessee in India 8. erred in holding that HLIPL constitutes and agency PE of the assessee in India, without providing cogent reasons for the same; 9. without prejudice to the above, erred in not appreciating that HLIPL is not a dependent agent of the Assessee as per Article 5 of India-Germany DTAA. 10. without prejudice to the above, failed to appreciate that even if it is held that HLIPL constitutes an agency PE of the Assessee in India, no further profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of the assessment proceedings the A.O called upon the assessee to explain as to how the freight earned by it from the feeder vessels (i.e portion of freight income attributed to feeder vessels) which were neither owned, chartered or leased by the assessee was brought within the sweep of Article 8 of the Double Taxation Avoidance Agreement (for short DTAA ) between India and Germany. The assessee submitted before the A.O that as per Article 8 Clause 1 of the DTAA the profits from the operation of ships or aircraft in international traffic shall be taxable only in the contracting state in which the place of effective management of the enterprise was situated. The assessee taking support of the judgment of the Hon ble High Court of Bombay in the case of DIT (IT) Vs. Balaji Shipping Ltd. (UK) [77 DTR 361](Bom) and the OECD guidelines, therein submitted before the A.O that the Hon ble High Court of Bombay had held that the income from slot arrangement is to be construed as income from operation of ships and is an integral part of the business of the shipping companies. The assessee further deliberating on the issue that the assessee had no Permanent Establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions in Article 8 of India-Germany tax treaty, therefore, the ratio of the decision in the case of Balaji Shipping U.K. Ltd. (supra) would not be applicable to the case of the assessee. The A.O further being of the view that as the order of the Hon ble Bombay High Court in the case of Balaji Shpping U.K Ltd (supra) was not accepted by the department and a Special Leave Petition (for short SLP ) had been filed before the Hon ble Supreme Court, therefore, on the said count also declined to apply the ratio of the aforesaid decision. The A.O further placed heavy reliance on the order passed by his predecessor on the issue under consideration in the assesses own case for A.Y. 2007-08, wherein it was held that the income earned with respect to slot/feeder charges by the assessee would be taxable in India. 6 . The A.O further deliberating on the facts of the case, further observed that the assessee had an agency PE in India in form of Hapag-Llyod India Ltd. The A.O in the backdrop of his aforesaid conviction concluded that the assessee was carrying out the business of operation of ships in India and was having a PE in India as per Article 5 of DTAA. Thus, the A.O held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-12 by following the order passed by the Tribunal in the assessees own appeal for A.Y. 2007-08 (after the issue was set aside by the Hon ble High Court of Bombay) and the decision in the case of Balaji Shipping (supra). However, the DRP observed that the department had not accepted either of the aforesaid orders, and while for the order of the Hon ble High Court of Bombay in the assesses case for A.Y. 2007-08 had been assailed before the Hon ble Supreme Court by way of a SLP , the order of the DRP for A.Y. 2011- 12 was also challenged before the Tribunal. The DRP holding a conviction that if the issue before him was decided in favour of the assessee, the same would tantamount to pre-judging the issue and bringing finality to the issue which was pending before a higher judicial authority. That on merits the DRP deliberated on the definition of the term International traffic and observed that the same as defined in Article 3(1)(i) of the DTAA, had to be construed as transport by the ship operated by an enterprise of a contracting state except when the ship is operated solely between places in the other contracting state. The DRP on the basis of his aforesaid observations conclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what were being taxed in the case were the receipts of the assessee from the activities carried out in India or activities attributable to India which were not covered by Article 8 of the treaty between India and Germany. The DRP thus concluded that while for the receipts on account of transport of goods etc. by ship in international traffic is not taxable in India in view of Article 8 of the India-Germany treaty, any other receipt of the nature referred to in sub-section (2) in the case of the assessee, being a non-resident, engaged in the business of operations of ships was liable to be brought to tax in India as per the provisions of Sec. 44B. 11. The DRP further declined to adjudicate upon the objection of the assessee as regards the validity of the interest charged by the A.O under Sec 234B and 234C, for the reason that as the same did not pertain to variation in the income, therefore, it was beyond the scope of his powers to adjudicate the same. 12. The A.O on receipt of the directions of the DRP, therein gave effect to the same and vide his order passed under Sec. 143(3) r.w.s 144C(13), dated. 31.01.2017 assessed the income of the assessee at ₹ 3,41,36,600/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own appeal for A.Y. 2007-08 in Hapag-Llyod AG vs. Additional Director of Income-tax (International Taxation) ( 2013) 84 CCH 0073 (Bom), had restored the matter to the Tribunal for fresh adjudication, in terms of the observations which were recorded by the High Court on the issue under consideration in the case of Director Of Income-tax (International Taxation) Vs. Balaji Shipping U.K Ltd. (2012) 211 Taxman 0535 (Bom). We find that the Hon ble High Court while disposing of the appeal of the assessee for A.Y. 2007-08 and restoring the matter to the Tribunal had observed as under: 2. Counsel for the parties states that in view of the decision of this Court in the matter of Director of income Tax (International Taxation) V/s. Balaji shipping UK Ltd. reported in 77 DTR 361, the impugned order be set aside in respect of the issue raised in the present appeal. Accordingly, the impugned order is set aside and the matter is remanded to the Tribunal for fresh consideration in the light of the decision of this Court in the matter of Balaji (supra). All contentions before the Tribunal are kept open. 15. We find that the Tribunal on the matter having been restored for fresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee before us are allowed. 16. We are of the considered view that as we have concluded that the benefit of Article 8 of the India Germany DTAA would also be available to the assessee in respect of the revenue earned by it from the feeder vessels obtained on slot hire arrangements, therefore, the Grounds of appeal Nos. 5 to 7 pertaining to the validity of the order of the A.O as regards including the service tax in the freight income for computing the income of the assessee under Sec. 44B would be rendered infructuous. We thus in terms of our aforesaid observations dismiss the Grounds of appeal No. 5 to 7 raised by the assessee before us. 17. We are further of the view that as we have held that the the benefit of Article 8 of the India Germany DTAA would also be available to the assessee in respect of the revenue earned by it from the feeder vessels obtained on slot hire arrangements, therefore, the Grounds of appeal Nos. 8 to 10 as to whether the assessee had an agency PE in India are also rendered academic and we thus refrain from adjudicating the same. The Grounds of appeal No. 8 to 10 are dismissed in terms of our aforesaid observations. 18. That as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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