TMI Blog2008 (6) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... le by it to Hero Shipping Co., i.e., US$ 17.42 PMT and the amount receivable from Aavanti Shipping Chartering Ltd. at US$ 17.60 PMT. It is, therefore, vivid that the assessee is only an agent between the owner of ship and the contractor of owner of cargo and hence cannot be characterised as the transporter as it is not satisfying the condition of actual transportation - Unless the main activity of transportation is carried on by the assessee, the question of other directly connected activity with transportation cannot arise. Under these circumstances. we are convinced that the learned CIT(A) erred in coming to the conclusion that the assessee is entitled to the benefit of art. 8 of the DTAA - As the nature of business carried on by the assessee does not satisfy the conditions laid down in art. 8, we are of the considered opinion that the learned CIT(A) was not justified in entitling the assessee to the benefit flowing therefrom. The impugned order, on this aspect of the matter is therefore, overturned. Applicability of art. 24 vis-a-vis art. 8 - HELD THAT:- It would be relevant to consider the impact of art. 24 being limitation of relief . This article stipulates that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndate of art. 7 should have been examined for the purpose of taxation. In our considered opinion, the ends of justice would meet sufficiently if the impugned order is set aside and the matter is restored to the file of the AO for de novo adjudication of the matter in terms of our decision rendered in earlier paras after allowing a reasonable opportunity of being heard to the assessee. Interest under s. 234B - HELD THAT:- Once it is held that the income of assessee is subject to TDS, no liability for payment of advance tax can be fastened on the assessee. An identical issue came up before the Mumbai Bench of the Tribunal in Dy. Director of IT vs. R. Liners Ltd. held that interest u/s. 234B cannot be charged under these circumstances. Both of us are party of this order. We, therefore, approve the action of the learned CIT(A) in holding that interest u/s. 234B cannot be charged in the present case. The appeals are partly allowed for statistical purposes. - K.C. Singhal J.M. And R. S.Syal A.M. For the Revenue : Rajiv Nabar. For the Assessee : Sunil M. Lala, Jitesh Jharkaria, Krishna Kanakia, Dhanesh Bafna. ORDER BY THE BENCH : This appeal by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission agent'. In the absence of any charter party agreements furnished on behalf of the assessee, the AO opined that the conditions laid down in art. 8(4) were also not fulfilled. From the material on record, the AO observed that some documents furnished vide assessee's letter dt. 22nd July, 2003 and 1st Sept., 2003, showed that some freight amounts were received in the bank account of the assessee in Singapore but there was no co-relation of the freight with the deposit in Singapore bank. He also perused art. 24 of DTAA and finally concluded that the benefit of art. 8 of DTAA would not be applicable in view of the art. 24 of the said treaty. By applying the provisions of s. 44B on the total freight collected by the assessee at Rs. 19,70,85,237, the income at the rate of 7.5 was determined at Rs. 1,47,81,393. Tax @ 48 per cent was charged. 3. Aggrieved thereby, the assessee carried the matter to the learned CIT(A). It was submitted on behalf of the assessee that due to lapse of time from the actual voyage, the charter party agreements could not be easily traced for submission before the AO. Copies of charter party agreements in respect of 12 voyages out of 19 voyage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not brought on record any charter party agreement on which basis the AO could form opinion as to whether or not the assessee was entitled to the benefit of art. 8 of DTAA. However, the learned CIT(A) entertained the additional evidence in the form of charter party agreements and FIRCs with respect of 12 voyages undertaken by the assessee and also accepted the co-relation of freight income received by the assessee in its bank account in Singapore. Rule 46A provides that the assessee shall not be entitled to produce before the first appellate authority any evidence other than that produced during the course of proceedings before the AO, except in the circumstances mentioned in cls. (a) to (d). These clauses deal with the situations where the AO had refused to admit evidences or where the assessee was prevented by sufficient cause from producing such evidences or the AO had not allowed sufficient opportunity to the assessee. Sub-r. (2) of r. 46A stipulates that no evidence shall be admitted under sub-rule (1) unless the first appellate authority records in writing for its admission. Sub-rule (3), which is material for our purposes, states that the learned CIT(A) shall not take int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Authorised Representative does not assist him for the reason that it dealt with the second situation in which the learned CIT(A) had directed to file additional evidence for the disposal of appeal pending before him. Adverting to the facts of the present case, we do not find any direction of the learned CIT(A) for making available the evidence necessary for disposal of appeal. Such evidence was voluntarily filed by the assessee in support of its claim for the relief. Be that as it may, we find that the question whether r. 46A is applicable or not is basically a question of law which requires the interpretation of its different clauses in the light of the facts taken note of by the learned CIT(A). In the present case, no fresh material is required to be examined before coming to the conclusion as to whether there is a violation of r. 46A by the learned CIT(A). Under these circumstances, we admit the above noted additional ground raised on behalf of the Revenue. 7. The assessee has also raised an additional ground in its cross objection, which reads as under: 4.1 On the facts and in the circumstances of the case and in law, the learned CIT(A)-VI, Mumbai has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Departmental Representative contended that it was rightly held that the benefit of art. 8 could not be provided. He questioned the view taken by the learned CIT(A) in holding that the assessee had satisfied the conditions laid down in art. 8 and its benefit could not be denied to the extent of 12 voyages undertaken during the period which co-related with the freight income received in its bank account in Singapore. 10. In other words, the learned CIT(A) held that the assessee was satisfying the conditions of art. 8 and was eligible for the benefit provided under this article and further art. 24 is subject to art. 8 and if the amount is not remitted in Singapore, then the benefit of art. 8 would be curtailed in view of art. 24. The Revenue is aggrieved against the first finding of the learned CIT(A) about the applicability of art. 8, whereas the assessee, in the additional ground, has assailed the finding of the learned CIT(A) qua the applicability of art. 24 on the benefit granted under art. 8. 11. B. Applicability of art. 8 B1. The learned Departmental Representative. in support of Departmental ground No. 1, contended that the first appellate authority erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational 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) For the purposes of this article, profits from the operation of ships or aircraft in international traffic shall mean profits derived from the transportation by sea or air of passengers, mail, livestock or goods carried on by the owners or lessees or charters of the ships or aircraft, including profits from: (a) the sale of tickets for such transportation on behalf of other enterprises; (b) the incidental lease of ships or aircraft used in such transportation; (c) the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) in connection with such transportation; and (d) any other activity directly connected with such transportation. B3. There is no dispute on the factual matrix of the case about the assessee being a company incorporated in and tax resident of Singapore. Clause (1) of art. 8 manifests that the profits derived by an enterprise of a Contracting State from the operation of ships or aircrafts in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke manner, if the assessee demonstrates a transaction in a particular way in its books of account, that would not make or mar his case without examining the real nature of transaction. Suffice to say, the way in which the assessee recorded transactions of the receipt of freight in its books of account, i.e., commission income or the gross freight, that way of recording, per se, cannot be decisive of the availability of the benefit of art. 8. B6. Now we will concentrate on the applicability or otherwise of art. 8 to the present situation. The learned Authorised Representative has contended that the assessee was engaged in the operation of ships in the international traffic and could be subjected to tax only in the country of residence, being Singapore in the present case. A copy of tax resident certificate issued by Singapore Revenue Authorities was also placed on record, which clearly depicts that Inland Revenue Authority of Singapore has certified that the assessee is resident of Singapore for Income-tax purposes. He placed on record copy of additional evidence furnished before the first appellate authority to demonstrate that the assessee was a charterer. On a representative b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproaches Thoresen through Fearnleys, Thailand to propose a suitable vessel to ship the cargo. Thoresen nominates vessels-M.V. Hero for the same cargo for which a charter party agreement is entered into between Thoresen and M/s Hero Shipping Co. Ltd. and after negotiations, a charter party/shippers agreement is signed between Thoresen Shipping and Avanti Shipping. After the contract or the charter party/shippers agreement is finalised, Thoresen appointed J.M. Baxi as their vessel agents in India for the said voyage through their managers. Thoresen Co. (Bangkok) Ltd. a letter/e-mail making the said appointment is attached herewith. B7. On the perusal of above note and the submissions made by the rival parties, it clearly emerges that there is a chain starting with the owner of cargo being Ruchi Soya Industries, who entered into contract with Aavanti Shipping Chartering Ltd. for the shipping of their cargo. Then there is a broker between Aavanti Shipping Chartering Ltd. and M/s Thoresen Chartering Singapore (Pte.) Ltd. Having entered into contract with Aavanti Shipping Chartering Ltd., the assessee then entered into agreement with Hero Shipping Co. Ltd. who is the real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arters of the aircrafts and ship owners. It is, therefore, clear that in order to be eligible for claim under art. 8, the assessee should derive profit from transportation of goods, etc. in the international traffic and such transportation should be carried on as the owner or lessee or charters. A charter simpliciter cannot have the benefit unless he is carrying on the business of transportation of passenger or goods, etc. The carrying on of the transportation by the assessee himself either in the capacity of owner or lessee or charter is sine qua non for the claim of benefit of art. 8. B8. Adverting to the facts of the case, we note that the assessee has not carried on the transportation of passenger or goods by itself but simply acted as one of the links between the actual transporter Hero Shipping Co. Ltd. and the owner of cargo (Ruchi Soya Industries). The activity of actual transportation was done by Hero Shipping. The assessee simply earned US$ 0.18 PMT as difference between the amount settled as payable by it to Hero Shipping Co., i.e., US$ 17.42 PMT and the amount receivable from Aavanti Shipping Chartering Ltd. at US$ 17.60 PMT. It is, therefore, vivid that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The review petition filed against this judgment also stands dismissed in CIT vs. P.V.A.L. Kulandagan Chettiar (2008) 300 ITR 5 (SC). Under these circumstances, we are of the considered opinion that there is no need for resorting to any commentary on the model convention when the language of the specific treaty clearly spells out the purport of the relevant art. 8. B11. As the nature of business carried on by the assessee does not satisfy the conditions laid down in art. 8, we are of the considered opinion that the learned CIT(A) was not justified in entitling the assessee to the benefit flowing therefrom. The impugned order, on this aspect of the matter is therefore, overturned. 12. C. Applicability of art. 24 vis-a-vis art. 8 C1. The assessee has raised additional ground as above challenging the finding of the learned CIT(A) in which he held that the limitation of relief clause as contained in art. 24 of the DTAA was applicable and the benefit of art. 8 could not be extended to the extent the amount of freight was not remitted to or received in Singapore. In other words, he came to hold that art. 24 was applicable on the benefit made available by art. 8 of DTAA. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the income which accrues or arises in Singapore and the offshore income is not taxable in Singapore unless it is received in Singapore. He submitted that if the contention of the assessee is accepted then the income earned by the tax resident of Singapore would go tax-free to the extent it was received and retained in India and it would escape taxation in Singapore because it was not received there-and hence would not attract taxation in any country. He contended that the object of DTAA is to tax one income in one country and thereby avoid double taxation of same income in both the countries and not to make it tax-free absolutely in both the countries by way of dubious planning. C4. In the rejoinder, the learned Authorised Representative relied on certain decisions led by Union of India vs. Azadi Bachao Andolan Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) for contending that double non-taxation was permissible. He submitted that if an income is taxable only in one State by virtue of DTAA and the tax cannot be levied on it in that State, then it cannot be taxed in the other country only on the ground that it has not suffered taxation in the State where it should ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income subject to the amount which is received or remitted in that Contracting State, then the exemption or reduction in tax shall apply only to so much of the income as is remitted or received in the other Contracting State. The emphasis has been laid on the income which is either exempt from tax or is taxed at a reduced rate in the Contracting State. The learned Authorised Representative has argued that art. 8 does not fall in either of these two groups i.e., the income generated from the shipping or air transportation business is neither exempt nor it is taxed at a reduced rate in India and, hence art. 24 cannot apply. He has invited our attention towards different Articles of DTAA to suggest that they contain either the words exempt from tax or tax income at a reduced rate . At this juncture, it is relevant to take note of the need for the DTAAs between two countries, which is to eliminate the double taxation of an income in both the States or to taxing the income in the other State at a lower rate. The underlining idea under the DTAA is that the assessee should not suffer taxation on one income in both countries. The intention is to provide relief to the assessee by reducin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts have proceeded on the same line in the other cases relied on behalf of the assessee. However, the present fact vis-a-vis the language of DTAA between India and Singapore put our case in a different compartment. A line of demarcation has to be drawn between the cases where income is not taxable in both the States by virtue of DTAA and the cases in which it would be subject to taxation in one State if it is not taxed in the other State. The facts of case fall in the second category because art. 24 clearly provides that under the laws enforced in the other Contracting State, the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof'. A simple reading of this clause brings out that the benefit of exemption would be restricted only to the extent to which such income has been subject to tax in the other State on receipt basis. In other words. the income would suffer taxation by virtue of art. 24 if it has not been subject to tax in the other Contracting State. As we have noted above that the offshore income is taxable in Singapore only on receipt basis and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licability of art. 24 on the income referred to in art. 8 would arise only when the income falls in the latter article In view of our finding that art. 8 is not applicable there is no point in extending or curtaining the relief in terms of art. 8. In the same manner the admission of the additional evidence by the learned CIT(A) and the grievance of the Revenue on this score is again of no avail because the benefit of art. 8 allowed by the first appellate authority. on the strength of such additional evidence, has been set aside. 13. Applicability or otherwise of art. 7 D1. Art. 7 provides that the profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a PE situated therein. It is further provided that if the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State, but only so much of them as is directly or indirectly attributable to the permanent establishment. Ground No. 2 of the assessee's cross objection is directed against not treating the income covered by the previsions of art. 7 of DTAA between India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income, which the AO will decide as per law. Needless to say, the assessee would extend full co-operation to the AO in the framing of such fresh assessment. 14. Interest under s. 234B E1. The AO charged interest under s. 234B. However, the learned CIT(A) came to the conclusion that at the time of filing the return of income, the assessee had bona fide belief that its profits from the operation of ships in the international traffic were not taxable in India after the issuance of DIT certificate for the asst. yr. 2001-02. It was therefore, held that the assessee cannot be said to be liable for advance tax under s. 209 of the Act. E2. After considering the rival submissions and perusing the relevant material on record, we observe that the assessee was issued DIT certificate for the assessment year under consideration and there is no finding by the AO that such certificate was withdrawn during the currency of year. Sec. 207 provides that tax shall be payable in advance during any financial year in accordance with the provisions of ss. 208 to 219 in respect of the total income of the assessee. Sec. 208 talks of the conditions of liability to pay advance tax. It provides ..... X X X X Extracts X X X X X X X X Extracts X X X X
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