Treaty protection for shipping income excludes Indian tax jurisdiction where the enterprise is effectively managed in Cyprus.

Article 8 of the India-Cyprus DTAA specifically governs profits from the operation of ships in international traffic and allocates taxing rights to the Contracting State where the place of effective management is situated. For a foreign shipping enterprise with effective management in Cyprus, that treaty rule prevails over the Income-tax Act charging provisions and over the more general business-profits article. The practical effect is that shipping income of such an enterprise is not taxable in India under the treaty, and Indian tax authorities lack jurisdiction to levy tax on that income where the DTAA applies.

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Issues: Whether the assessee's shipping income was taxable in India in view of Article 8 of the India Cyprus DTAA, and whether the Assessing Officer had jurisdiction to assess such income under the Income-tax Act, 1961.

Analysis: The assessee was a foreign company having its place of effective management in Cyprus and was engaged in shipping business. Article 7 of the DTAA deals with business profits attributable to a permanent establishment, whereas Article 8 specifically governs profits from the operation of ships or aircraft in international traffic. The latter provides that such profits are taxable only in the Contracting State where the place of effective management is situated. Since the DTAA contained a specific provision for shipping income, that provision prevailed over the general charging provisions relied upon by the Revenue. The Tribunal also noted the consistency of this interpretation with the Board circulars and the judicial view that treaty provisions governing shipping profits exclude Indian tax jurisdiction when the enterprise is resident in the other Contracting State.

Conclusion: The assessee's shipping income was not taxable in India under the DTAA, and the Assessing Officer had no jurisdiction to levy tax on it.

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