Feeder-vessel freight qualifies for Article 8 treaty relief, and section 234B interest is not leviable on a non-resident.

Freight earned from feeder vessels used under slot hire arrangements was treated as profits from the operation of ships in international traffic and therefore qualified for Article 8 relief under the India-Germany DTAA, even though the vessels were neither owned nor chartered by the assessee. The Tribunal followed its earlier view in the assessee's own cases and the Bombay High Court's ruling in Balaji Shipping. It also applied the principle that interest under section 234B is not leviable on a non-resident where tax was deductible at source, and held the interest levy unsustainable.

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Issues: (i) Whether the freight income attributable to feeder vessels used under slot hire arrangements was eligible for relief under Article 8 of the India-Germany DTAA and therefore not taxable in India; (ii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the non-resident assessee.

Issue (i): Whether the freight income attributable to feeder vessels used under slot hire arrangements was eligible for relief under Article 8 of the India-Germany DTAA and therefore not taxable in India.

Analysis: The dispute turned on whether the portion of freight linked to feeder vessels, though the vessels were neither owned nor chartered by the assessee, formed part of the profits from the operation of ships in international traffic. The Tribunal followed the earlier binding view taken in the assessee's own cases and the Bombay High Court's ruling in Balaji Shipping, and held that the feeder-vessel receipts were part of the shipping operations covered by Article 8. The Tribunal found no reason to depart from the consistent view adopted in the assessee's preceding assessment years.

Conclusion: The issue was decided in favour of the assessee and the freight income from feeder vessels was held eligible for Article 8 relief.

Issue (ii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the non-resident assessee.

Analysis: The Tribunal applied the Bombay High Court's view that where tax was deductible at source and the assessee was a non-resident, failure to pay advance tax could not attract interest under section 234B. On that footing, the levy of interest was found unsustainable.

Conclusion: The issue was decided in favour of the assessee and interest under section 234B was held not leviable.

Final Conclusion: The appeal succeeded on the principal treaty issue and on the levy of interest, while the remaining grounds did not alter the assessee's substantive relief.

Ratio Decidendi: Freight earned from feeder vessels used in slot hire arrangements can fall within Article 8 of the India-Germany DTAA as profits from the operation of ships in international traffic, and interest under section 234B is not leviable on a non-resident where tax was deductible at source.

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