Treaty eligibility for shipping income and reasonable-time limits under section 172 barred the assessment.

Treaty eligibility under the India-UK DTAA depended on the ship-owning enterprise's residence and taxability, not on a charterer's contractual liability. On that basis, Article 9(1) applied and the shipping income remained taxable only in the UK, so denial of treaty benefit was unsustainable. The assessment under section 172(4) was also held time-barred because, even without an express limitation period, the power had to be exercised within a reasonable time; the later nine-month limit in section 172(4A) was treated as legislative recognition of that standard. Relief was therefore allowed on both issues.

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Issues: (i) whether treaty benefits under the India-UK Double Taxation Avoidance Agreement could be denied on the basis of the charterer's liability instead of the ship-owning enterprise's residence and taxability; (ii) whether the assessment under section 172(4) of the Income-tax Act, 1961 was barred by limitation as having been made after an unreasonable delay.

Issue (i): whether treaty benefits under the India-UK Double Taxation Avoidance Agreement could be denied on the basis of the charterer's liability instead of the ship-owning enterprise's residence and taxability.

Analysis: Treaty eligibility depends on taxability of a person as a resident of a contracting state under the treaty, not on contractual arrangements allocating liability between owner and charterer. The scheme of section 172 of the Income-tax Act, 1961 fastens tax on shipping income with reference to the ship and the income from carriage, and not on a private agreement shifting the burden of payment. Since the income was treated as belonging to the UK enterprise operating the ship, Article 9(1) of the India-UK Double Taxation Avoidance Agreement applied and made such income taxable only in the UK.

Conclusion: The denial of treaty benefit was unsustainable and the assessee succeeded on this issue.

Issue (ii): whether the assessment under section 172(4) of the Income-tax Act, 1961 was barred by limitation as having been made after an unreasonable delay.

Analysis: Although section 172(4A) prescribing a nine-month time limit came into force later, the absence of an express limitation period did not permit assessment at any indefinite point in time. The power had to be exercised within a reasonable time. The subsequently introduced nine-month period was treated as a legislative recognition of what constituted a reasonable time, and on that basis the assessment made years after the relevant return was held to be beyond reasonable time.

Conclusion: The assessment under section 172(4) was barred by limitation and this issue was also decided in favour of the assessee.

Final Conclusion: The assessee was entitled to relief both on treaty entitlement and on limitation, so the impugned assessment could not be sustained.

Ratio Decidendi: In shipping-tax assessments under section 172 of the Income-tax Act, 1961, treaty eligibility turns on the residence and taxability of the enterprise that earned the income, and even where no express statutory limitation exists, assessment must be completed within a reasonable time.

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