Sarad Beria (Proprietor) (32 Points)
20 July 2013Dear members
One of my logistic company in india has availed the services of a chinese company and has to make payment towards freight charges.
We have DTAA with china. My querry is whether i should deduct TDS in India on such amount and if yes the rate .
CA Ayush Agarwal
(Kolkata-Pune-Mumbai)
(27199 Points)
Replied 20 July 2013
Dear Friend,
If one examines the DTAA between
ARTICLE 8 : Shipping and air transport –
1. Profits derived by an enterprise which is a resident of a Contracting State from the operation by that enterprise of ships or aircraft in international traffic shall be taxable only in that Contracting State.
2. For the purposes of this Article, profits from the operation of ships or aircraft in international traffic shall mean profits derived by an enterprise described in paragraph 1 from the transportation by sea or air respectively of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of ships or aircraft including :
(a) the sale of tickets for such transportation ;
(b) the rental of ships or aircraft connected with such transportation; and
(c) income from use, maintenance, or rental of containers (including trailers, barges, and related equipment for the transport of containers) operated in international traffic.
3. For the purposes of this Article, interest on funds directly connected with the operation of ships or aircraft in international traffic shall be regarded as profits described in this Article, and the provisions of Article 11 (interest) shall not apply in relation to such interest.
4. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.
The term International Traffic is defined in Article 3(i) as “any transport by a ship or aircraft operated by an enterprise which is a resident of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;
Therefore it can be seen that only when the Ship is operated “Solely” between places in the other
The Authority for Advanced Rulings had an occasion to deal with almost a similar issue in Norasia Container Lines Ltd., In re (267 ITR 721). In this case the other country involved was
The CBDT has further explained in Circular No.732 dated 20-12-1995, the non-taxability of Income of the Non Resident Ship Owner in case ships are operated in International waters only and the relevant portions of the Circular are reproduced below:
“2. In cases where such ships are owned by an enterprise belonging to a country with which India has entered into an agreement on avoidance of double taxation, which provides for taxation of shipping profits only in the country of which the enterprise is a resident, no tax is payable by such ships at the Indian ports. Under such circumstances, a No Objection Certificate is to be obtained by the master of the ship from the concerned income tax authority.
3. It has been represented to the Board that in cases where no tax is payable in
4. The Board have considered the matter. It has been decided that in such cases, the Assessing Officer shall be competent to issue an annual NOC, valid for a year, in respect of taxation of shipping profits under section 172 of the Income-tax Act, 1961 after carefully verifying the applicability of the relevant provisions concerning taxation of shipping profits in the DTAA with the country of which the owner or the charterer is a resident.
5. While examining the relevant Articles of the DTAA, the Assessing Officer should ensure that the non-resident shipping company is engaged in international traffic, a term which is invariably defined in the DTAA itself. An undertaking from the non-resident company that during the period of the currency of the NOC, no ship belonging to it will be in any traffic other than international traffic, shall be obtained before the issue of the NOC.
You can also refer to the Judgement dated 13-08-2008 of Mumbai Tribunal in Deputy Director of Income Tax vs. Balaji Shipping (UK) Ltd reported in Direct Tax Reports Volume 12 Page 93 for an elaborate discussion on the subject of what constitutes “Operation of Ships” and how these are to be interpreted and understood with particular reference to Commentary on Double Taxation Convention by Klaus Vogel.
Now coming to the issue narrated by you, it is seen that the freight to be paid is in respect of goods shipped from
ARTICLE 8 : Shipping and air transport –
1. Profits derived by an enterprise which is a resident of a Contracting State from the operation by that enterprise of ships or aircraft in international traffic shall be taxable only in that Contracting State.
2. For the purposes of this Article, profits from the operation of ships or aircraft in international traffic shall mean profits derived by an enterprise described in paragraph 1 from the transportation by sea or air respectively of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of ships or aircraft including :
(a) the sale of tickets for such transportation ;
(b) the rental of ships or aircraft connected with such transportation; and
(c) income from use, maintenance, or rental of containers (including trailers, barges, and related equipment for the transport of containers) operated in international traffic.
3. For the purposes of this Article, interest on funds directly connected with the operation of ships or aircraft in international traffic shall be regarded as profits described in this Article, and the provisions of Article 11 (interest) shall not apply in relation to such interest.
4. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.
The term International Traffic is defined in Article 3(i) as “any transport by a ship or aircraft operated by an enterprise which is a resident of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;
Therefore it can be seen that only when the Ship is operated “Solely” between places in the other
The Authority for Advanced Rulings had an occasion to deal with almost a similar issue in Norasia Container Lines Ltd., In re (267 ITR 721). In this case the other country involved was
The CBDT has further explained in Circular No.732 dated 20-12-1995, the non-taxability of Income of the Non Resident Ship Owner in case ships are operated in International waters only and the relevant portions of the Circular are reproduced below:
“2. In cases where such ships are owned by an enterprise belonging to a country with which India has entered into an agreement on avoidance of double taxation, which provides for taxation of shipping profits only in the country of which the enterprise is a resident, no tax is payable by such ships at the Indian ports. Under such circumstances, a No Objection Certificate is to be obtained by the master of the ship from the concerned income tax authority.
3. It has been represented to the Board that in cases where no tax is payable in
4. The Board have considered the matter. It has been decided that in such cases, the Assessing Officer shall be competent to issue an annual NOC, valid for a year, in respect of taxation of shipping profits under section 172 of the Income-tax Act, 1961 after carefully verifying the applicability of the relevant provisions concerning taxation of shipping profits in the DTAA with the country of which the owner or the charterer is a resident.
5. While examining the relevant Articles of the DTAA, the Assessing Officer should ensure that the non-resident shipping company is engaged in international traffic, a term which is invariably defined in the DTAA itself. An undertaking from the non-resident company that during the period of the currency of the NOC, no ship belonging to it will be in any traffic other than international traffic, shall be obtained before the issue of the NOC.
You can also refer to the Judgement dated 13-08-2008 of Mumbai Tribunal in Deputy Director of Income Tax vs. Balaji Shipping (UK) Ltd reported in Direct Tax Reports Volume 12 Page 93 for an elaborate discussion on the subject of what constitutes “Operation of Ships” and how these are to be interpreted and understood with particular reference to Commentary on Double Taxation Convention by Klaus Vogel.
Now coming to the issue narrated by you, it is seen that the freight to be paid is in respect of goods shipped from
Dipjyoti Majumdar
(CA in service & CS. dipmaj@ rediffmail.com )
(3469 Points)
Replied 20 July 2013
Thanks Ayush for your elaborate illustration and explanation. Since responses to international taxation and DTAA are very few in this forum, I ma keeping this bookmarked.
Regards,
CAclubindia
