TMI Blog2016 (10) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity of carrying cargo between mainland and a port in India, without any obligation of its transport on its ship in international waters. This issue is covered in favour of the assessee by decision of the Co-ordinate bench of Mumbai Tribunal in the case of Deputy Director Of Income Tax (International Taxation v. Safmarine Container Lines N.V. [2010 (5) TMI 670 - ITAT MUMBAI]. The entire IHC of the assessee is necessarily in connection with transport of containers either discharged or loadable at Indian ports for the purpose of delivery through international waters and is directly connected with such transportation will always be included within the term “operations of ships”. The activities of the IHC are connected directly or an ancillary activity that provides minor contribution and should not be regarded as a separate business to the operations of ships. These activities are linked or connected to each other and as such one cannot say that one is to be conducted efficiently without the other and which have a nexus to the main business of the assessee of operations of ships should be considered as integral part of income from shipping operations. Accordingly, we allow the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44C (13) of the Act. 2. The first common issue in this appeal of assessee and that of revenue is, whether, the assessee is entitled to the benefit of Article 9(1) of the Double Taxation Avoidance Agreement (DTAA) between India and Denmark in respect of Inland Haulage Charges (IHC) and also IHC related to movement of cargo from ICD/CFS from Indian Ports and Vice Versa within the context of section 44B of the Act. For this common issue Revenue has raised the following grounds:- 1. Whether on the facts and circumstances oft he case and in law the Ld. Dispute Resolution Panel is correct in holding that the Inland Haulage Charge is taxable in India only to the extent of and for the purpose of movement of cargo from OCD/IFS to Indian Port and vice versa, within the context of Sec. 44AB of the Act and Article 9 of the India Denmark DATAA. 2. Whether on the facts and circumstances oft he case and in law the Ld. Dispute Resolution Panel is correct in not interpreting the phrase in Explanation to section 44B ... any other amount of similar nature to only activities directly connected to international shipping which are loading, unloading terminal handling etc. 3. Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciating that IHC in respect of inland transportation carried out in the overseas territories (i.e. outside India) is not taxable in India. 3. Brief facts relating to the above issue are that assessee is a Danish Public Limited Company engaged into operations of ships across the globe. During the year under consideration the assessee was engaged in the business of operations of ships in international traffic and earned freight from such shipping operations with India amounting to ₹ 32,76,23,20,899/-. The Assessing officer (AO) accepted that the fright is taxable only in Denmark and not in India in accordance with Article 9(1) of the tax treaty between India- Denmark Double Tax Avoidance Agreement (DTAA). We find from the records that the AO vide draft assessment order dated 26.03.2013 treated IHC as chargeable to tax in India by denying the beneficial provisions of Article 9(1) of the Tax Treaty. Pursuant to the DRP directions, the AO in his order u/s 143(3) r.w.s. 144C (13) of the Act dated 22.1.2014 noted the fact that the assessee entered in to transportation contracts with shippers across the globe to carry on goods on board a ship owned or chartered by it, plying i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would include various charges like demurrage, detention charges, cargo handling charges at ports and ICDI CFS are concerned, such payment received by the assessee is part of its liability for transportation of goods through its business of shipping in international traffic. It therefore can be appreciated that IHC relating to movement of cargo from ICD/CFS to Indian port and vice versa is part of international voyage, since ICD/CFS constitute an inland port. This view is also in line with the decision of Hon ble Mumbai Tribunal in the case of Safmarine Container Lines NV(supra) which has also been upheld by Hon ble Bombay High Court. Accordingly, we hold that Inland Haulage Charges to the extent of and for the purpose of movement of cargo from ICD/CFS to Indian port and vice versa (which would also include various charges like demurrage, detention charges, cargo handling charges at ports and ICD/ CFS) shall not be taxable in the hands of the assessee in India as per provisions of Article 9 of the Treaty. 4. Further DRP also directed the AO that in view of Article 9(4)(b) the transportation of cargo from ICD/CFS to Indian port and vice-versa is an activity directly conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessable in the hands of the assessee inasmuch as the assessee has no PE in India. It has also been contended before the CIT(A) that the rate of tax would have been 35 per cent instead of 48 per cent, if the CIT (A) finds that a portion of the profit earned by the assessee is not exempt under art 9, then he would also adjudicate the above issues after giving adequate opportunity to the assessee. This would dispose of the grounds contained in the assessee s appeal. 5.12 The AO is therefore directed to ascertain the amount of inland luggage Charges to the extent of and for the purpose of movement if cargo from ICD/CFS to Indian port and vice versa (which may include various charges like demurrage, detention charges etc.) and grant exemption to the assessee as per the provisions of Article 9 of the Treaty. In this regard, the assessee has already furnished such details as additional evidence, which is hereby admitted. The AO s proposal to tax the amount of Inland Haulage Charges to the extent of the balance amount is upheld. Objection No. 2 is accordingly disposed of Aggrieved against the direction of DRP to the AO, both assessee as well as revenue preferred appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transport it to CFS/ICD or to other destination in India and/ or delivery the same to the destination of the consignee. 7. We are in agreement with argument of the assessee that the entire IHC of the assessee is necessarily in connection with transport of containers either discharged or loadable at Indian ports for the purpose of delivery through international waters, a fact which is undisputed. IHC is not only directly connected with the business of shipping but it is also a part of overall international voyage and hence it is directly covered within the definition of profits from operation of ships in international traffic. Accordingly, IHC earned by the assessee is taxable only in Denmark and not in India as per Article 9(1) of the India Denmark Tax Treaty. We also noted from the facts that single BL is issued by the assessee to its shippers for the entire combined transport i.e from the place of origin in India to final destination outside India. It is also a fact on records that the assessee is not carrying out separate business activity of carrying cargo between mainland and a port in India, without any obligation of its transport on its ship in international waters. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indo-U.K. DTAA. The Division Bench upheld the decision of the Tribunal to the effect that the adjustment was directly and inextricably linked to the cargo handling business of the assessee and was not in the course of a separate business of renting out the premises. As the assessee established a link between the renting of the premises and the business of operating an airline in international traffic, it was held that art. 8would apply. 9. In this view of the matter, we find that the reliance placed by Mr Porus Kaka on the order of this Court dated 17th January, 2013 in Income Tax Appeal N0.952 of 2011 with Income Tax Appeal No. 147 of 2009 is fully justified and squarely covers the issue raised in the present appeal We therefore find, that this Appeal does not give rise to substantial question of law as projected by the learned counsel appearing on behalf of the appellant. 8. Mumbai Tribunal in this case of Safmarine Container Lines N.V. (supra) has also held that IHC is also covered under Article 8(2)(c) of India-Belgium Tax Treaty which provides that income from the operation of ships in international traffic, includes income derived from the use, maintenance or ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the enterprise does not need to carry on for the purposes of its own operation of ships or aircraft in international traffic but which make a minor contribution relative to such operation and are so closely related to such operation that they should not be regarded as a separate business or source of income of the enterprise should be considered to be ancillary to the operation of ships and aircraft in international traffic. 4.3 In light of these principles, the following paragraphs discuss the extent to which paragraph i applies with respect to some particular types of activities that may be carried on by an enterprise engaged in the operation of ships or aircraft in international traffic. 5. xxxxxx 6 Profits derived by an enterprise from the transportation of passengers or cargo otherwise than by ships or aircraft that it operates in international traffic are covered by the paragraph to the extent that such transportation is directly connected with the operation, by that enterprise, of ships or aircraft in international traffic or is an ancillary activity. One example would be that of an enterprise engaged in international transport that would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational traffic operations. 36. As far as the first type of case is concerned viz. where the slot hire facility is availed of for carriage of goods from a port in India only up to the hub port abroad and is thereafter transshipped on vessels actually operated by the assessee up to actual destination, it is irrelevant whether slot hire agreements are considered to be directly connected with the operation of ships or not directly connected with the operation of ships by the enterprise. In such cases, the slot hire agreements are inextricably interlinked with and connected to the operation of ships by the enterprise. The first type of case would in fact be covered by paragraphs 4 and 4.1 of the commentary. The Hon ble High Court then concluded in para 42 as under:- 42. Our views on the two types of cases involved in the present appeal are in consonance with the view of the Delhi High Court, the OECD commentary and the commentaries referred to above. 10. We further noted that Hon ble Bombay High court in Balaji s case followed the decision of the Hon ble Delhi High Court in case of Director of Income-Tax v. KLM Royal Dutch Airlines [2009] 178 Taxman 291 (Del.)- Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome assessed in the hands of non-resident as laid down by the Hon ble Bombay High court in the case of DIT v. B4U International Holdings Limited [2015] 374 ITR.453 (Bom). 12. In view of the facts of this case and precedence discussed above, we are of the view that the entire IHC of the assessee is necessarily in connection with transport of containers either discharged or loadable at Indian ports for the purpose of delivery through international waters and is directly connected with such transportation will always be included within the term operations of ships . The activities of the IHC are connected directly or an ancillary activity that provides minor contribution and should not be regarded as a separate business to the operations of ships. These activities are linked or connected to each other and as such one cannot say that one is to be conducted efficiently without the other and which have a nexus to the main business of the assessee of operations of ships should be considered as integral part of income from shipping operations. Accordingly, we allow the claim of assessee and hence, this common issue of assessee appeal is allowed and that of revenue is dismissed. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its shipping business. This was done in order to streamline operations with its group companies around the world, and FACT is provided by the assessee to its agents across the globe including India. To streamline operations of its group companies having Container Inland Services (CIS) operations around the world, APMM requires them to install and use FACT system software. The Fact system software is used by CIS Division of Maersk India Pvt. Ltd. (MIPL), an Indian agent of the assessee. The explained before us the broad nature of activities carried on by CIS division are as under;- Container Freight Station: This includes provisions of warehousing facilities to the customers of APMM by moving and storing container at the facility maintained on the Port. Equipment Maintenance and Repairs: This includes maintenance and repairs of containers used by AI MM in its business activities for carriage of cargo for its customers Trucking: This includes carriage of containers for APMM s Customers from port to the ultimate destination of the customers. 15. The facts explained by the assessee are that the cost incurred by the assessee for operation and maintenance of FACT system so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of reimbursement of cost for providing a particular system. The percentage of the payments received by the assessee towards reimbursement compared to the total receipts in the form of freight etc., from shipping business in India is less than 1%. The above order of the Hon ble Tribunal has been followed by Tribunal in orders for subsequent years in assesseefs own case in Aktieselskabet Dampskibsselskabet Svendborg v. ADIT order dated 31-08-2012 and in A.P. Moller Maersk A/S v. DDIT (International Taxation dated 14/12/2012. The orders of the Hon ble Tribunal referred above has been upheld by the Hon ble Bombay High Court order dated 29 April 2015 in Income Tax Appeal No. 1306 of 2013 in DIT(International Taxation v. A.P. Moller Maersk). No profit element in the Pro-rate cost by the agent to the assessee. Payments were made by the agent to use the factory of the assessee for the global shipping business. 17. Further, the Mumbai Tribunal has also decided the identical on the issue of FACT software system in assessee own case in Dy. Director of Income Tax (International Taxation) v. A.P. Moller Maersk A/S in ITA no. 1807/mum/2012 dated 08.11.2013, following its earlier decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te income chargeable to tax in the hands of the assessee. It is undisputed that the assessee is in business of conducting operation of ships in international traffic and not engaged in the business of providing communication services, and therefore, per se no separate royalty/FTS were rendered by the assessee. We are conscious of the fact that FACT cost represents mere 0.07% of the total freight income of the assessee during the year. Further, the DRP held the facilities/systems is a software and the payments to be royalty under the retrospectively amendment of the Act. Various judicial precedents decided this issue by Hon ble Delhi High Court in case of DIT v. Nokia Networks 253 CTR 417, Mumbai Tribunal in case of ADIT v. Baan Corp 71 [2016] 49 ITR(T) 73 and WNS Global Services (UK) Ltd. v. ADIT 52 SOT 121 wherein it has been held that any amendment is carried out under domestic law, same cannot be read into the treaty. Accordingly, we are of the view that The FACT cost represent merely allocation of cost incurred and hence in the nature of reimbursement of expenses not having any element of profit embedded in it. Such recovery only includes proportionate cost incurred by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment in Sedco Forex International Drilling Co. Ltd. (supra) a learned Bench of this Court was pleased to pass an order dated 16th July, 2008 in IT Appeal No. 1796 of 2007 in the case of the Director of IT (International Taxation) v. Morgan Gurantee International Finance Corporation, by applying the facts of that judgment. Our attention is also invited to the judgment of the Madras High Court in the case of CIT v. Madras Fertilisers Ltd. (1984) 149 ITR 703 (Mad), where the Madras High Court took the view thai the amount of tax deductible at source is to be taken into consideration to determine the liability to pay the interest under s. 215. In that case, the asses see had not paid advance tax on interest income. The payer of interest had not deducted the tax. The learned Bench of the Madras High Court was of the view that levy of interest under s. 215 on assessee was not justified. We are in respectful agreement with the view taken in the case of CIT Anr. v. Sedco For ex International Drilling Co. Ltd. (supra), by the Uttaranchal High Court. We are in respectful agreement with the view taken in the case of CIT Anr. v. Sedco For ex International Drilling Co. Ltd. (supra), by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
