Treaty protection for shipping freight income upheld where UK ownership and residency established despite a US bank account.

Freight income from a ship operating in international traffic was treated as covered by Article 8 of the India-UK DTAA rather than taxed in India under section 172, because the vessel was owned and operated by a UK company, was chartered for the relevant voyage, and the freight belonged to the UK resident owner. The residency and ownership position was supported by the record, and the Department did not dislodge it with any adverse finding. The existence of a bank account in the United States did not defeat treaty protection. On these facts, the income qualified for treaty relief and was not taxable in India.

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Issues: Whether the freight income from the ship operating in international traffic was taxable in India under section 172 of the Income-tax Act, 1961, or was entitled to the benefit of Article 8 of the India-UK DTAA.

Analysis: The assessee established that the ship was owned and operated by a United Kingdom company, that the vessel was chartered for the relevant voyage, and that the freight income belonged to the UK resident owner. The residency position was supported by the material on record, and no adverse finding was made by the Department to dislodge it. On these facts, the freight income was held to fall within the treaty protection for shipping profits in international traffic, and the mere maintenance of a bank account in the United States did not deny the treaty benefit.

Conclusion: The freight income was entitled to treaty relief under Article 8 of the India-UK DTAA and was not taxable in India on the facts found.

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