2018 (6) TMI 748 - AT - Income Tax

Tribunal rules IHC & service tax exempt under India-France DTAA

The Tribunal ruled in favor of the assessee, holding that Inland Haulage Charges (IHC) and the associated service tax are exempt under Article 9 of the ... Taxation of Inland Haulage Charges (IHC) u/s 44B - Taxability In India - India–France DTAA - Held that:- Assessee a tax resident of France is engaged in shipping business in international water - thus following the decision of the Co–ordinate Bench in assessee's own case we hold that IHC being part of the income derived from the operation of shipping in international traffic is exempt under Article–9 of India–France DTAA, hence, not taxable in India - Decided in favor of assessee. Taxation of service tax collected from customers u/s 44B - Held that:- following the identical identical issue in assessee’s own casefor assessment year 2012–13, we hold that service tax collected on IHC is not taxable in India as per Article–9 of India–France DTAA. Issues Involved:1. Taxability of Inland Haulage Charges (IHC) under section 44B of the Income Tax Act.2. Taxability of service tax collected on IHC under section 44B.3. Determination of Parekh Marine Agencies Pvt. Ltd. as the agency Permanent Establishment (P.E) of the assessee in India.4. Levy of interest under sections 234B and 234C.5. Initiation of penalty proceedings under section 271(1)(c).Issue-wise Detailed Analysis:1. Taxability of Inland Haulage Charges (IHC) under section 44B:The assessee, a tax resident of France engaged in international shipping, contested the inclusion of IHC in taxable income under section 44B, arguing it is exempt under Article 9 of the India-France DTAA. The DRP initially agreed with the assessee based on a previous year’s ruling but later diverged, citing differences between the India-Belgium and India-France treaties. The Tribunal, referencing its previous rulings and the OECD Model Convention, concluded that IHC is part of the income from international shipping operations and thus exempt under Article 9 of the India-France DTAA.2. Taxability of service tax collected on IHC under section 44B:The Assessing Officer included the service tax collected on IHC in the taxable income, a decision upheld by the DRP to protect revenue interests. However, the Tribunal, following its decision in the previous year and referencing the Delhi High Court’s ruling in Mitchell Drilling International (P) Ltd., held that since IHC is exempt, the associated service tax is also not taxable under Article 9 of the India-France DTAA.3. Determination of Parekh Marine Agencies Pvt. Ltd. as the agency Permanent Establishment (P.E):The issue of whether Parekh Marine Agencies Pvt. Ltd. constituted a P.E. of the assessee was deemed academic since the primary grounds were decided in the assessee’s favor. The Tribunal referenced its earlier decision for the assessment year 2010-11, confirming that Parekh Marine Agencies Pvt. Ltd. did not constitute a P.E. or agency P.E. of the assessee.4. Levy of interest under sections 234B and 234C:The Tribunal noted that the grounds concerning the levy of interest under sections 234B and 234C are consequential and thus dismissed them.5. Initiation of penalty proceedings under section 271(1)(c):The Tribunal found the ground against the initiation of penalty proceedings under section 271(1)(c) to be premature and did not require adjudication at this stage.Conclusion:The Tribunal ruled in favor of the assessee on the primary issues, holding that IHC and the associated service tax are exempt under Article 9 of the India-France DTAA. The determination of Parekh Marine Agencies Pvt. Ltd. as a P.E. was rendered academic, and the grounds concerning interest levy and penalty proceedings were dismissed or deemed premature. The assessee’s appeal was partly allowed.