2017 (11) TMI 452 - AT - Income Tax

Feeder vessel revenue exempt under India-Germany DTAA. Interest levy upheld, penalty proceedings dismissed.

The Tribunal allowed the appeal of the assessee, confirming that revenue earned from feeder vessels obtained on slot hire arrangements was eligible for ... Benefit of Article 8 of DTAA between India and Germany - present assessee is a Foreign company engaged in the business of operation of ships internationally - whether the portion of freight income earned by the assessee in the course of its business of transportation of cargo to ports outside India and vice versa, to the extent the same is attributable to feeder vessels which were neither owned, chartered or leased by the assessee, would also fall within the sweep of Article 8 of DTAA - PE in India - Held that:- We have perused the orders and find ourselves to be in agreement with the view taken by the Tribunal in the aforesaid preceding years in the case of the assessee. We thus, finding no reason to take a different view, thus, are of the considered view that the benefits of Article 8 of the DTAA between India and Germany would also be available to the assessee in respect of the revenue earned from the feeder vessels obtained by the assessee by slot hire arrangements. The Grounds of appeal No. 2 to 4 raised by the assessee before us are allowed. As we have concluded that the benefit of Article 8 of the India–Germany DTAA would also be available to the assessee in respect of the revenue earned by it from the feeder vessels obtained on slot hire arrangements, therefore, the Grounds of appeal Nos. 5 to 7 pertaining to the validity of the order of the A.O as regards including the service tax in the freight income for computing the income of the assessee under Sec. 44B would be rendered infructuous. We thus in terms of our aforesaid observations dismiss the Grounds of appeal No. 5 to 7 raised by the assessee before us. We are further of the view that as we have held that the the benefit of Article 8 of the India–Germany DTAA would also be available to the assessee in respect of the revenue earned by it from the feeder vessels obtained on slot hire arrangements, therefore, the Grounds of appeal Nos. 8 to 10 as to whether the assessee had an agency PE in India are also rendered academic and we thus refrain from adjudicating the same. The Grounds of appeal No. 8 to 10 are dismissed in terms of our aforesaid observations. Interest levied on the assessee under Sec. 234B - Held that:- We find that the issue is covered in favour of the assessee by the decision of the Hon’ble High Court of Bombay in the case of DDIT(IT) Vs. NGC Network Asia LLC (2009 (1) TMI 174 - BOMBAY HIGH COURT), wherein it has been held that interest under Sec. 234B would not be applicable to a non-resident assessee Issues Involved:1. Assessment of total income.2. Taxability of freight charges from transportation of cargo through feeder vessels.3. Inclusion of service tax in gross receipts for computing income.4. Determination of agency permanent establishment (PE) in India.5. Levy of interest under section 234B.6. Initiation of penalty proceedings under section 271(1)(c).Issue-wise Detailed Analysis:1. Assessment of Total Income:The assessee challenged the AO's assessment of total income at Rs. 3,41,36,600 against the returned income of Nil. The AO's assessment was based on the inclusion of freight income from feeder vessels and service tax in the gross receipts.2. Taxability of Freight Charges from Transportation of Cargo through Feeder Vessels:The AO held that freight income from transportation of cargo through feeder vessels was not eligible for benefits under Article 8 of the India-Germany DTAA. The assessee argued that the freight income should be covered under Article 8, as supported by the Bombay High Court's decision in the case of DIT (IT) vs. Balaji Shipping Ltd. (UK). The Tribunal found that the issue was already settled in favor of the assessee in previous years, confirming that the revenue earned from feeder vessels obtained on slot hire arrangements was eligible for exemption under the treaty provisions.3. Inclusion of Service Tax in Gross Receipts for Computing Income:The AO included service tax amounting to Rs. 1,57,29,380 in the gross receipts for computing the income under section 44B. The assessee contended that service tax is a government levy and does not constitute income. The Tribunal, in light of its decision on the applicability of Article 8, found this issue to be rendered infructuous and dismissed the related grounds of appeal.4. Determination of Agency Permanent Establishment (PE) in India:The AO concluded that Hapag Lloyd India Private Limited (HLIPL) constituted an agency PE of the assessee in India. The DRP upheld this view, noting that HLIPL was not an independent agent under Article 5 of the India-Germany DTAA. However, the Tribunal, considering its decision on the applicability of Article 8, found this issue to be academic and refrained from adjudicating it.5. Levy of Interest under Section 234B:The AO levied interest under section 234B. The Tribunal referred to the Bombay High Court's decision in DDIT (IT) vs. NGC Network Asia LLC, which held that interest under section 234B is not applicable to non-resident assessees. Following this precedent, the Tribunal allowed the ground of appeal related to the levy of interest.6. Initiation of Penalty Proceedings under Section 271(1)(c):The AO initiated penalty proceedings under section 271(1)(c). The Tribunal dismissed this ground of appeal as premature.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the benefits of Article 8 of the India-Germany DTAA would be available for the revenue earned from feeder vessels obtained on slot hire arrangements. Consequently, the grounds related to the inclusion of service tax and the determination of agency PE were rendered infructuous or academic. The Tribunal also decided in favor of the assessee regarding the levy of interest under section 234B and dismissed the initiation of penalty proceedings as premature. The appeal was allowed in terms of these observations.