Whether Inland Haulage Charges derived as income from operation of ships are taxable as business profits in India in accordance to Article 8 of India-Belgium DTAA?

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL NO.410 OF 2012

The Director of Income Tax

(International Taxation)-1

Appellant

Versus

M/s Safmarine Container Lines NV

Respondent

Mr.Tejveer Singh for the Appellant.

Mr.Porus Kaka Senior Counsel i/b Atul K Jasani for the Respondent

Before CORAM :

S.C. DHARMADHIKARI AND

B.P. COLABAWALLA JJ.

Reserved on: 9th July, 2014.

Pronounced on: 17th July, 2014.

JUDGMENT (Per B.P. Colabawalla J.):-

1. This Appeal under section 260A of the Income Tax Act 1961 has been filed by the The Director of Income Tax (International Taxation) –I challenging the order passed by the Income Tax Appellate Tribunal(hereinafter referred to as “the ITAT”) dated 5th August 2011. The A. Y. in question is 2006-2007. The ITAT dismissed the Appeal preferred by the Revenue challenging the order of the CIT(Appeals) dated 29th October 2009 under which the CIT(Appeals) held that Inland Haulage Charges earned by the Assessee were only a part of the income derived from the operation of ships, and therefore, were covered under Article 8 of the Double Tax Avoidance Agreement (DTAA)entered into between India and Belgium and consequently not taxable as business profits in India.

2. Mr Tejveer Singh, the learned counsel appearing on behalf of the Revenue, submitted that the dispute in the present Appeal is in relation to collection of Inland Haulage Charges by the Assessee from its customers in respect of transportation of goods kept in containers at Inland Container Depots (ICDs) to the port where the goods are loaded in ships for international traffic. He submitted that the Assessing Officer had correctly held that such Inland Haulage Charges are not within the purview of section44B of the Income Tax Act and were neither directly connected to the activity of international operations of ships. He submitted that such charges earned by the Assessee were therefore taxable as business profits in India and not covered under the Double Tax Avoidance Agreement between India and Belgium. He submitted that the CIT (Appeals) as well as the ITAT wherein error in deleting the addition made by the Assessing Officer to the income of the Assessee which has given rise to the following substantial questions of law that need to be answered by this Court and read as under :-

(I) Whether, on the fact and circumstances of the case and in law, the Hon'ble Tribunal was justified in upholding that Income from Inland Transport of Cargo within India was covered under Article 8(2)(b)(ii)and 8(2)(c) of the tax treaty between India and Belgium and therefore not liable to tax in India?

(II) Whether Article 8(2)(b)(ii) and 8(2)(c) of the tax treaty between India and Belgium includes within its Ambit the activity of Inland Transport of Cargo from various places within India?

3. The facts stated briefly are that the Assessee is engaged in the business of operation of ships in international traffic. It is incorporated in Belgium and is a tax resident of that country. The Assessee filed its return of income on 30th November 2006 declaring a total income of Rs. NIL.

During the course of its business, the Assessee collected Inland Haulage Charges from it’s customers in respect of transportation of goods from Inland Container Depots (ICDs) to the Port where the goods were loaded in the ships for international traffic. The Assessing Officer passed his Assessment Order on 15th December, 2008 and held that such Inland Haulage Charges are not within the purview of section 44B of the Act and therefore are chargeable to tax as business profits under the provisions of the Act.

4. Being aggrieved by the assessment order dated 15th December 2008,the Assessee filed an Appeal before the CIT (Appeals). Before the CIT(Appeals) the Assessee submitted that it was incorporated in Belgium and isa tax resident of that country. India had entered into a Double Taxation Avoidance Agreement (DTAA) with Belgium and that the Appellant disengaged in the business of the operation of ships. It was further submitted that during the business of handling of ships, the appellant had received Inland Haulage Charges from its clients and the same were included in receipts under the head “permanent handling charges”. The Assessee claimed that Inland Haulage Charges are part of its shipping business and are in the nature of “handling charges” and are therefore covered by phrase "any other amount of similar nature” mentioned in the explanation to section 44B of the Act. Since such charges were part of the shipping business of the Assessee, they were therefore eligible for DIT relief, was the submission of the Assessee. After examining the entire factual matrix, the CIT (Appeals) held that it was undisputed that the Assessee was charging freight from the place inside India where the goods were picked up and upto to the point of destination port or destination station. He therefore held thatthe Assessee was undertaking the job of transportation from the collecting station to the destination station which may be from the ports of loading or unloading of the cargo. From the freight so collected, the Assessee was arranging the transportation of the cargo from the port to the destination advice versa. For this activity, the Assessee issued a combined bill of lading and it was not disputed by the Assessing Officer that the Assessee wasengaged in the business of operation of ships in international traffic. After analysing article 8 of the DTAA between India and Belgium, the CIT(Appeals) held that it was clear beyond any doubt that the fraction of thefreight earned by the Assessee towards Inland Haulage Charges was with reference to cargo which was carried for onward international traffic by the Assessee and was only a part of the income derived from the operation ofships. In view thereof, the CIT (Appeals) held that the said income formed part of the income from the operation of ships in international traffic and therefore could not be taxed in the hands of the Assessee. The CIT(Appeals) also noted that the facts and circumstances in the current Assessment Year were identical and similar to that of Assessment Years2001-02, 2003-04 and 2005-06 where this very issue had been examinedand decided in favour of the Assessee. In view thereof, the CIT (appeals) by its order dated 29th October 2009 allowed the appeal filed by the Assessee and held that the Assessee was entitled to the benefit under Article 8 of theDTAA between India and Belgium.

5. Being dissatisfied with the order of the CIT (Appeals), the Revenue preferred an Appeal before the ITAT. The ITAT by its order dated 5th August2011, dismissed the Appeal of the Revenue. Whilst dismissing the Appeal, the ITAT observed that this very issue had been considered and adjudicated by the ITAT in the Assessee's own case for the Assessment Years 2001-02,2003-04 and 2005-06 and decided in favour of the Assessee. Accordingly, after relying upon its earlier orders, the ITAT decided the issue in favour of the Assessee and dismissed the appeal filed by the Revenue. It is this orderof the ITAT that is in challenge before us.

To read the full judgment, please find the attached file:

Attached file:

http://bombayhighcourt.nic.in/generatenewauth.php?auth=cGF0aD0uL2RhdGEvanVkZ2VtZW50cy8yMDE0LyZmbmFtZT1PU0lUWEE3NjEyLnBkZiZzbWZsYWc9Tg==