Treaty relief for feeder-vessel freight income turns on proving linkage to mother-vessel carriage under the shipping article

Article 8 treaty relief for freight income from feeder-vessel movements depends on proving that the feeder leg was ancillary to transportation by a mother vessel owned, leased or chartered by the assessee. The Tribunal held that "operation of ships" is not limited to direct carriage, but mere participation in shipping business is insufficient without a clear consignment-wise linkage. Relief was accepted for consignments evidenced to have moved through the assessee's chartered mother vessel, while the remaining consignments required verification because the record did not conclusively show onward carriage to Australia.

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Issues: Whether freight income arising from cargo moved through feeder vessels under slot arrangements could qualify for relief under Article 8 of the Double Taxation Avoidance Agreement between India and Australia, and whether the assessee had established the necessary linkage between the feeder-vessel movement and the mother vessel transportation.

Analysis: The claim for treaty relief depended on whether the activity fell within the expression "operation of ships" as used in Article 8. The Tribunal held that the expression is not confined to direct carriage alone and may extend to activities that are ancillary or incidental to the main shipping operation. However, relief cannot be granted on a broad proposition that mere engagement in shipping business is sufficient. Where cargo is first moved by a feeder vessel owned or chartered by a third party, the assessee must show that such movement was ancillary to transportation by a mother vessel owned, leased, or chartered by the assessee. On the material produced, the Tribunal found that only the consignments supported by clear evidence established the required linkage. For the remaining consignments, further verification was necessary because the record did not conclusively prove that the feeder-vessel cargo was loaded onto the mother vessel for onward carriage to Australia. The Tribunal also accepted the assessee's claim in respect of the consignments shown to have moved through the mother vessel chartered by the assessee itself.

Conclusion: Treaty relief under Article 8 was not rejected in principle, but the assessee was required to prove the feeder-vessel and mother-vessel linkage for each consignment. The order of the first appellate authority was modified, the matter was remanded for verification of most consignments, and relief was sustained only for the consignments clearly shown to have moved through the assessee's chartered vessel.

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