2019 (7) TMI 123 - AT - Income Tax

ITAT Mumbai: Freight Income Exempt under India-Germany Tax Treaty

Hapag–Lloyd AG C/o Hapag–Lloyd India Pvt. Ltd. Versus Dy. Commissioner of Income Tax (I.T) Range–2 (2) (2), Mumbai

The Appellate Tribunal ITAT Mumbai ruled in favor of the assessee, holding that the freight income from feeder vessels is exempt from tax in India under ... Taxability of freight charges from transportation of cargo through Feeder Vessels - AO held taxable in India both u/s 44B as well as Article 8 of the India-Germany Tax Treaty - HELD THAT:- Tribunal vide order for the assessment year 2007–08 hold that the freight income from feeder vessels is exempt from tax in India under Article–8 of the India-Germany Tax Treaty which was challenged by the Revenue before the Hon'ble Jurisdictional High Court. However, the Hon'ble Jurisdictional High Court while deciding Revenue’s appeal in [2016 (9) TMI 1519 - BOMBAY HIGH COURT] upheld the decision of the Tribunal. In fact, the Assessing Officer as well as learned DRP have not disputed the aforesaid factual position. Thus, as per the decision of the Co–ordinate Bench and the Hon'ble Jurisdictional High Court in assessee’s own case, as referred to above, the issue raised in these grounds stand decided in favour of the assessee. Therefore, respectfully following the same, we delete the addition made by the AO. - Decided in favour of assessee. Issues:Challenge to final assessment order under section 143(3) r/w section 144C(13) for AY 2014-15 - Taxability of freight charges from transportation of cargo through Feeder Vessels - Existence of Permanent Establishment (PE) in India - Application of Article 8 of India-Germany Double Taxation Avoidance Agreement (DTAA) - Dismissal of penalty proceedings under section 271(1)(c) of the Act.Taxability of Freight Charges from Feeder Vessels:The appeal challenged the final assessment order concerning the taxability of freight charges amounting to &8377;30,34,08,701 from transporting cargo through Feeder Vessels. The Assessing Officer contended that the income earned by the assessee from feeder vessels should be taxed in India under section 44B of the Act and Article 8 of the India-Germany Tax Treaty. The Assessing Officer also asserted that the assessee had a Permanent Establishment (PE) in India as per Article 5 of the India-Germany Tax Treaty. The assessee argued that profits from the operation of ships in international traffic should be taxable only in the contracting state where the place of effective management of the enterprise is situated, as per Article 8(1) of the India-Germany Tax Treaty. The Tribunal, in previous orders, consistently held that freight receipts from feeder vessels are not taxable under the India-Germany Tax Treaty. The Hon'ble Jurisdictional High Court also upheld the Tribunal's decision in a previous assessment year, confirming that the freight income from feeder vessels is exempt from tax in India under the India-Germany Tax Treaty. Consequently, the Tribunal deleted the addition made by the Assessing Officer, ruling in favor of the assessee.Existence of Permanent Establishment (PE) in India:The Assessing Officer contended that the assessee had a Permanent Establishment (PE) in India as per Article 5 of the India-Germany Tax Treaty. However, the assessee argued that it neither had a fixed place PE nor an agency PE in India as per the treaty. The Tribunal, following its earlier decisions and the decision of the Hon'ble Jurisdictional High Court, held that the assessee did not have a PE in India as per the India-Germany Tax Treaty. The Tribunal dismissed the grounds challenging the initiation of penalty proceedings under section 271(1)(c) of the Act as premature. Ultimately, the Tribunal partly allowed the assessee's appeal, deleting the addition made by the Assessing Officer regarding the taxability of freight charges from feeder vessels.This judgment by the Appellate Tribunal ITAT Mumbai addressed various issues, including the taxability of freight charges from feeder vessels, the existence of a Permanent Establishment (PE) in India, and the application of the India-Germany Tax Treaty. The Tribunal ruled in favor of the assessee, holding that the freight income from feeder vessels is exempt from tax in India under the treaty. The Tribunal also concluded that the assessee did not have a PE in India, as asserted by the Assessing Officer. The Tribunal dismissed the grounds challenging penalty proceedings as premature and partly allowed the assessee's appeal, deleting the addition made by the Assessing Officer.