Treaty relief for shipping profits depends on treaty conditions, not worldwide loss or foreign tax payment.

Entitlement to relief under the India-Japan shipping profits article was examined with section 90(2), which gives effect to the more beneficial treaty provision. The Tribunal treated the decisive conditions as whether the profits arose from the operation of ships in international traffic and whether the ships operated between India and Japan. A worldwide loss and the absence of tax payment in Japan were not treated as conditions for denying relief. On that basis, treaty relief at the prescribed rate was sustained and the Department's objection failed.

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Issues: Whether the assessee was entitled to relief under the India-Japan double tax arrangement for shipping profits notwithstanding that it had suffered a worldwide loss and had paid no tax in Japan.

Analysis: The relief under the treaty was examined in the light of Article V(2) of the India-Japan arrangement and section 90(2) of the Income-tax Act, 1961, which gives effect to the more beneficial treaty provision. The Tribunal also relied on its earlier decision and the jurisdictional High Court's view that the decisive conditions were that the profits must arise from the operation of ships in international traffic and that the ships must operate between India and Japan. On that reasoning, a worldwide loss or the absence of tax payment in Japan did not negate the treaty entitlement, because those factors were not made conditions for relief.

Conclusion: The assessee was entitled to the treaty relief at the prescribed rate, and the Department's objection based on worldwide loss failed.

Final Conclusion: The order of the Commissioner of Income-tax (Appeals) granting the treaty-based relief was upheld and the Department's appeal was dismissed.

Ratio Decidendi: Where a double tax agreement grants relief for shipping profits, entitlement depends on the treaty conditions and section 90(2), and not on whether the assessee has suffered a worldwide loss or paid tax in the other contracting state.

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