TMI Blog2008 (11) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... nation in Brazil or destination in sub-continent of South America by the ship owned/leased/chartered by the assessee would fall within the ambit of art. 8 of the above DTAA? - HELD THAT:- Such transportation would clearly fall within the ambit of expression 'operation of ships' as defined in art. 8(4). It has been shown from record that the assessee had issued one single bill of lading covering the entire transportation from Indian port to a destination in Brazil. The entire transportation is one and independent and the claim of the assessee regarding voyage between Durban to Brazil cannot be denied merely because the goods were not sent from Mumbai port through the ship owned/leased/chartered by it. Even if a part of the transportation is covered by the definition, assessee would be entitled to relief in respect of the profits attributable to the voyage covered by the ships owned/leased/chartered by the assessee. Hence, in our opinion, the assessee would be entitled to 100 per cent relief in respect of profits attributable to voyage between Durban to destination to Brazil or South America, as the case may be, transported by the ship owned, leased or chartered by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 per cent. However, the exemption from tax was claimed in respect of such income in view of the provisions of art. 8 of the DTAA between India and Brazil. In the course of assessment proceedings, the AO asked the assessee to file copies of the ship registration certificates and the charter party agreements of all the ships operated by it from India. Despite various opportunities given the assessee could not file the same. However, the assessee vide letter dt. 17th Feb., 2004 stated-(l) that none of the ships owned/chartered by it called at Indian ports, and (2) that all the vessels shown in the freight statement were feeder vessels which were owned by other shipping lines with whom the assessee had slot arrangements. In view of the above reply, the AO asked the assessee to link the feeder vessels with the mother vessels in respect of the voyages to establish that the particular feeder vessel was linked with particular mother vessel. The assessee was also asked to file copies of the ship registration certificate and charter party agreements of all the mother vessels. In response to the same, a list of feeder vessels and mother vessels was furnished before the AO. It was noted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of art. 8 of the DTAA. According to him, the assessee was entitled to exemption under art. 8 if two conditions were fulfilled firstly, that enterprises should be engaged in the international traffic and secondly, that enterprise should be engaged in operation of ships. After referring to the Commentary by Klaus Vogel and Philip Baker, it was held that feeder vessel fell within the definition of ship and therefore, the same could not be excluded while adjudicating the issue under art. 8 of the DTAA. Accordingly, it was also observed by him that as per the above commentaries, the expression "operation of ships" would include not only the transportation of cargo in the international traffic but also include the incidental activity. According to him, once the assessee was engaged as an international carrier, there could not be any doubt as to the treatment of entire income as income from operation of ships. It was further observed that linkage of feeder vessel with the mother vessel is not a condition for grant of exemption under art. 8 of the DTAA. It was held by him that so long as the assessee was shown to be engaged in the business of operating ships in the international traf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the CIT(A). Further, it is admitted by him that none of the feeder vessels was owned, leased or chartered by the assessee. He also drew our attention to various details filed in form of paper book to point out that bill of lading issued by the feeder vessel described the assessee as consignor as well as the consignee. The destination was shown from Mumbai port to Durban port in South Africa. He then referred to the bill of lading issued by the assessee wherein the Indian party was shown as consignor and party of Brazil in the sub-continent of America was shown as consignee. He also pointed out that the same container was transported by the mother vessel which was transported by the feeder vessel from Mumbai to Durban. In view of the same, it was contended that the entire voyage was integral one. It was also pointed by him that there was a consortium between various shipping companies and mother ships were owned/leased or chartered by the members of the consortium. Therefore, it was a pool arrangement which fell within the scope of art. 8(3). Hence, the claim of the assessee could not be rejected on the ground that all the mother vessels were not owned, leased or chartered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the first question to be considered is whether the controversy between the parties could be resolved on the basis of the views expressed in various commentaries ignoring the language employed by the Contracting States in the DTAA. In our opinion, the intention of the parties has to be first ascertained from the language of the agreement itself. If a particular term or expression used in the agreement has been defined in the agreement itself, then it would be illogical to ascertain the meaning of such term or expression by referring to the commentaries. However, if any term or expression is not defined in the agreement then only the judicial authorities can look into the commentaries prevailing at the time when the agreement was executed since commentaries have persuasive value and would represent the contemporaneous thinking. This aspect has been dealt with by us in the case of Balaji Shipping (UK) Ltd. after considering the observations of the Hon'ble Supreme Court in various cases namely Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC), CIT vs. P.V.A.L. Kulandagan Chettiar (Dead) Through LRs (2004) 189 CTR (SC) 193 : (2004) 267 ITR 654 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 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 is situated. 2. Profits from the operation of boats engaged in inland waterways transport shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. 3. If the place of effective management of a shipping enterprise or of an inland waterways transport enterprise is aboard a ship or boat, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship or boat is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship or boat is a resident. 4. The provisions of para 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency." The comparative study of both the provisions reveals that Contracting States have deviated from the OECD Model Convention while drafting DTAA. Since contracting parties have defined the expression 'operation of ships' in para 4 of art. 8, meaning of such expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's counsel for the reasons given hereafter. The learned counsel for the assessee has referred to half the definition by referring to the words 'business of transportation of persons, mail, livestock or goods' only. The definition does not stop there. Such words are further qualified by the words 'carried on by the owners or lessees or charterer of ships or aircraft including the sale of tickets for such transportation on behalf of other enterprises'. In our opinion, the intention of the parties is clear to the effect that the business of transportation must be by the ships owned or leased or chartered by the assessee. Had the intention of the parties what the learned counsel for the assessee has contended thus they would have not used the words "by the owners or lessees or charterers of the ships". If the particular expression has been defined by using particular words then due weightage has to be given to such words. The words, 'business of transportation' cannot be read in isolation. These words have to be understood as per the entire wordings used by the parties. 13, The contracting parties were well aware about the OECD Model Convention as well as the commentaries on such Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scope of art. 8 of Indo-Brazil treaty even though the assessee may be engaged in the business of transportation of goods in the international traffic. 16. It has also been contended by the learned counsel for the assessee that there was slot charter agreement with feeder vessel orally and, therefore, claim of the assessee cannot be rejected in view of the decision of this Bench in the case of Balaji Shipping (UK) Ltd. We are unable to accept such contention since such contention is not supported by any material or evidence. Further such contention was never raised before the lower authorities. It has also been admitted before us that there is no material or evidence to support such contention. Hence, the contention raised by him is rejected. 17. Now, the next question is whether the transportation of cargo from Durban to destination in Brazil or destination in sub-continent of South America by the ship owned/leased/chartered by the assessee would fall within the ambit of art. 8 of the above DTAA. In our opinion, such transportation would clearly fall within the ambit of expression 'operation of ships' as defined in art. 8(4). It has been shown from record that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansported through ships owned/leased/chartered by the assessee. Therefore, some verification is required. 19. The learned Departmental Representative has disputed the question of profit arising from participation in pool. We are unable to accept such contentions. Profits from pool arrangement arise because of participation of assessee in such arrangement. Therefore, any profit arising from such arrangement would be taxable only in the State of residence. There is no distinction between the profits from operation of ships falling under paras 3 and 4 of art. 8. Therefore, in our opinion, profits from such arrangement cannot be taxed in India. 20. Before parting with this order, we would like to mention that the AO has referred to art. 8 which does not find place in DTAA. It appears that by mistake, he has referred to an article from some other treaty. We have referred to the correct article in our order and parties to the dispute have also argued on that basis only. 21. In view of the above discussion, the order of the CIT(A) is modified by holding that the assessee would not be entitled to any relief in respect of profits arising from transportation of cargo through feeder ves ..... X X X X Extracts X X X X X X X X Extracts X X X X
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