Treaty relief for slot arrangement shipping profits where cargo transport through third-party vessels qualifies as ship operation

Profits from transporting cargo in international traffic through slot chartering or slot arrangement can fall within the treaty expression "operation of ships" even where the enterprise neither owns nor charters the vessels. The Tribunal applied the DTAA rule that such profits are taxable only in the State of residence and treated the treaty language as wide enough to cover these arrangements. Domestic shipping income provisions could not override the treaty benefit where the DTAA applied. The receipts from slot arrangement voyages were therefore entitled to treaty relief, and the Revenue's challenge failed.

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Issues: Whether profits derived from the use of vessels on slot arrangement basis, though the vessels were neither owned nor chartered by the enterprise, were entitled to relief under the DTAA as profits from the operation of ships in international traffic.

Analysis: Article 9 of the DTAA provided that profits derived by an enterprise from the operation of ships in international traffic are taxable only in the State of residence. The expression "operation of ships" was not separately defined in the treaty. In construing the scope of the expression, the Tribunal followed the earlier view adopted with reference to the OECD Model Convention that transportation of cargo through ships operated by other enterprises under slot chartering or slot arrangement is still part of the operation of ships for treaty purposes. The treaty language was treated as covering profits from such arrangements, and the assessment under the domestic shipping income provision could not override the treaty benefit where the treaty applied.

Conclusion: The receipts from slot arrangement voyages were held entitled to treaty relief under Article 9, and the Revenue's challenge failed.

Ratio Decidendi: For treaty purposes, profits from transportation in international traffic through slot chartering or slot arrangement may fall within "operation of ships" and are taxable only in the State of residence where the treaty so provides.

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