Treaty shipping profits can include feeder-vessel operations, but only with proof of linkage to a qualifying mother vessel.

The expression "operation of ships" under the India-France DTAA is not confined to direct carriage by ships owned, leased or chartered by the assessee and can extend to ancillary or incidental feeder-vessel activity. That treaty relief, however, is available only where the assessee proves a factual nexus between cargo moved from the Indian port and transportation by a qualifying mother vessel; sample evidence alone is insufficient for the full claim. Inland haulage charges follow the same treaty characterisation as the related feeder-vessel freight and are treated as shipping profits only if that freight qualifies under Article 9, otherwise as business profits.

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Issues: (i) Whether the expression "operation of ships" in Article 9 of the India-France DTAA includes not only direct transportation by ships owned, leased or chartered by the assessee but also transportation by feeder vessels when such activity is ancillary or incidental to the main voyage. (ii) Whether relief under Article 9 can be granted without establishing a link between the feeder vessel movement from the Indian port and the mother vessel owned, leased or chartered by the assessee, and whether sample evidence is sufficient. (iii) How inland haulage charges are to be characterised where the main freight claim is examined under Article 9.

Issue (i): Whether the expression "operation of ships" in Article 9 of the India-France DTAA includes not only direct transportation by ships owned, leased or chartered by the assessee but also transportation by feeder vessels when such activity is ancillary or incidental to the main voyage.

Analysis: The expression "operation of ships" is not defined in Article 9. In that situation, the scope of the expression may be ascertained with reference to accepted treaty interpretation aids, including the OECD Commentary. The term is not confined to direct carriage by the assessee's own ships and may extend to activities that are ancillary or incidental to the main shipping operation.

Conclusion: The expression "operation of ships" is wide enough to include ancillary or incidental feeder-vessel transportation, provided the statutory and factual nexus is established.

Issue (ii): Whether relief under Article 9 can be granted without establishing a link between the feeder vessel movement from the Indian port and the mother vessel owned, leased or chartered by the assessee, and whether sample evidence is sufficient.

Analysis: The benefit of Article 9 is not available merely because the assessee is engaged in shipping business globally. For feeder-vessel movement to qualify, the assessee must establish that the cargo carried from the Indian port was linked to transportation by a mother vessel owned, leased or chartered by the assessee. Sample instances are insufficient where the entire claim has not been supported by complete evidence. The proper course is to give the assessee an opportunity to establish the linkage and to verify the relevant ownership or charter arrangements.

Conclusion: Relief under Article 9 cannot be granted without proving the feeder-vessel to mother-vessel linkage, and the matter was rightly restored for fresh verification.

Issue (iii): How inland haulage charges are to be characterised where the main freight claim is examined under Article 9.

Analysis: Inland haulage charges are local transport charges and may fall within Article 9(1) if they are minor and form part of the shipping operation. Their treatment, however, depends on how the feeder-vessel freight is finally characterised. If the related freight qualifies under Article 9(1), the haulage charges would follow the same treatment; otherwise, they would fall under business profits.

Conclusion: Inland haulage charges were directed to be assessed according to the final treatment of the feeder-vessel freight.

Final Conclusion: The core legal rule accepted was that feeder-vessel operations can fall within treaty shipping profits only when they are shown to be ancillary to the assessee's own shipping operation through a proved linkage with a qualifying mother vessel. The main issue was sent back for fresh adjudication, with consequential treatment of inland haulage charges to follow that finding.

Ratio Decidendi: In the absence of a definition in the treaty, "operation of ships" includes ancillary or incidental feeder-vessel activity only if the assessee proves a nexus with transportation by a mother vessel owned, leased or chartered by it.

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