Treaty protection for slot hire shipping income applies to international traffic profits, barring section 172 denial where no charter exists.

Profits from slot hire and other directly connected shipping activities in international traffic were treated as covered by Article 8 of the India-Indonesia tax treaty, which allocated exclusive taxing rights to the residence State. The activity was regarded as part of the business of carriage of goods by sea, so treaty protection extended beyond carriage by an owner or charterer. Section 172 of the Income-tax Act could not be invoked to deny treaty relief unless the assessee was shown to be the owner or charterer of the vessel. On that basis, source taxation under section 172 was unsustainable and the assessment additions and demand were vacated.

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Issues: Whether income from slot hire operations and transportation of goods in international traffic was taxable only in the assessee's country of fiscal domicile under the India-Indonesia tax treaty, and whether section 172 of the Income-tax Act, 1961 could be invoked to deny treaty protection on the ground that the vessels were not owned or chartered by the assessee.

Analysis: Article 8 of the treaty gave exclusive taxing rights to the State of residence for profits derived from the operation of ships in international traffic, and the expression covered not only carriage by owners or charterers but also activities directly connected with such transportation, including slot hire arrangements. On the facts found, the assessee's income arose from transportation of goods in international traffic and was therefore within the treaty protection. Section 172 was relevant only where the ship belonged to or was chartered by a non-resident; if the assessee was not the owner or charterer, that provision could not be used as the foundation for denying the treaty benefit. The nature of slot hire activity was also treated as integral to the business of carriage of goods by sea and entitled to treaty protection.

Conclusion: The assessee was entitled to treaty protection, and the source taxation made under section 172 could not be sustained.

Final Conclusion: The additions and demand raised in the assessment were vacated, and the appeal succeeded.

Ratio Decidendi: Profits from slot hire or other directly connected shipping activities in international traffic are taxable only in the residence State under the treaty, and section 172 cannot be used to deny that protection where the assessee is not shown to be the owner or charterer of the vessel.

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