2022 (2) TMI 220 - AT - Income Tax

ITAT grants DTAA benefit to assessee's freight income, directs AO to verify TDS credit.

Hapag-Lloyd AG Versus The Dy. Commissioner of Income Tax (International Taxation), Range-2 (2) (2) Mumbai

The ITAT allowed the appeal, granting the benefit of Article 8 of the India-Germany DTAA to the assessee's freight income from feeder vessels. The ITAT ... Taxability of freight charges from transportation of cargo through feeder vessels - DTAA between India and Germany - HELD THAT:- As per chart submitted by the learned authorized representative the percentage of income from feeder vessels to the total freight income for the impugned assessment year is merely 0.69%. All the arguments raised before us by the learned departmental representative has been considered in the decision of the coordinate benches as well as in the decision of the honourable High Court holding in favour of the assessee. Therefore, respectfully following the decisions of the honourable High Court [2012 (8) TMI 681 - BOMBAY HIGH COURT] and coordinate benches in assessee's own case starting from assessment year 2005 - 06 to assessment year 2016 - 07 we allow ground number 2 - 4 of the appeal holding that freight charges earned by assessee from transportation of cargo through feeder vessels is also eligible for benefit of Article 8 of the Double Taxation Avoidance Treaty between India and Germany. Short grant of TDS credit - assessee's claim is that the income involved in the TDS certificate does not pertain to Indian entity but to the assessee - HELD THAT:- TDS is claimed as credit by the assessee. The Indian entity did not claim any credit of the above TDS. The Tax Deducted At Source (TDS) in form No. 26 AS is shown in the name of the Indian entity. As the assessee has shown the income involved in this TDS certificates and in turn also claimed benefit of Article 8 and the benefit of DTAA, the credit for such tax should be granted to the assessee. The claim of the assessee is that Rule 37BA is required to be complied with. It is also submitted that merely because the deductor does not revise the TDS return, it cannot go against the assessee for the claim of the above refund. The assessee raised this additional ground before the learned Dispute Resolution Panel. The Dispute Resolution Panel admitted the above additional ground along with additional evidences. It also obtained the comments from the Assessing Officer and rejoinder of the assessee thereon. The learned Dispute Resolution Panel directed the learned Assessing Officer to carry out the necessary verification and to grant credit. The assessee was also directed to submit all relevant details and clarification thereon. But AO did not consider and carry out such directions. As the issue identical facts emerged in earlier year, we respectfully following the order of the coordinate bench in assessee's own case for assessment year 2016 - 17 also direct the Assessing Officer similarly. Issues Involved:1. Taxability of freight charges from transportation of cargo through feeder vessels.2. Eligibility for benefit under Article 8 of India-Germany DTAA for freight income.3. Recognition of Hapag Lloyd India Private Limited (HLIPL) as an agency permanent establishment (PE) of the assessee in India.4. Short grant of TDS credit.5. Levy of interest under section 234B of the Income Tax Act.6. Initiation of penalty proceedings under section 270A of the Income Tax Act.Issue-wise Detailed Analysis:1. Taxability of Freight Charges from Transportation of Cargo through Feeder Vessels:The assessee, a tax resident of Germany, claimed that its freight income from feeder vessels should be exempt under Article 8 of the India-Germany DTAA. The Assessing Officer (AO) disagreed, stating that Article 8 does not cover such income, and applied Section 44B of the Income Tax Act, taxing the income at 7.5% of total freight. The Dispute Resolution Panel (DRP) upheld the AO's view. However, the ITAT noted that the assessee's case for earlier years had been decided in its favor, confirming that freight income from feeder vessels is eligible for Article 8 benefits. The ITAT followed previous decisions, including those of the Bombay High Court, and allowed the assessee's claim for exemption under Article 8, thereby overturning the AO's assessment.2. Eligibility for Benefit under Article 8 of India-Germany DTAA for Freight Income:Article 8 of the DTAA specifies that profits from the operation of ships in international traffic are taxable only in the state where the enterprise's effective management is situated. The ITAT referred to the Bombay High Court's decision in the assessee's own case and similar cases, which held that income from slot hire arrangements and feeder vessels is closely connected to the operation of ships and thus eligible for Article 8 benefits. The ITAT concluded that the freight income of Rs. 17,21,95,959/- from feeder vessels qualifies for exemption under Article 8 of the DTAA.3. Recognition of Hapag Lloyd India Private Limited (HLIPL) as an Agency Permanent Establishment (PE) of the Assessee in India:The AO held that HLIPL constitutes an agency PE of the assessee in India, making the income taxable in India. The DRP upheld this view. However, the ITAT found that since the assessee's freight income is exempt under Article 8, the question of HLIPL being an agency PE and the attribution of profits to such PE becomes academic and does not require adjudication.4. Short Grant of TDS Credit:The assessee claimed a short grant of TDS credit amounting to Rs. 25,06,606/-, which was deposited under the PAN of its Indian agent, HLIPL. The DRP directed the AO to verify and grant the TDS credit if legitimately due. The AO failed to comply with this direction. The ITAT, following its decision in the assessee's case for the previous year, directed the AO to verify the claim and grant the TDS credit accordingly.5. Levy of Interest under Section 234B of the Income Tax Act:The AO levied interest under section 234B, which the assessee contested. The ITAT did not specifically address this issue, as it became academic following the decision on the primary issue of taxability under Article 8.6. Initiation of Penalty Proceedings under Section 270A of the Income Tax Act:The AO initiated penalty proceedings under section 270A for furnishing inaccurate particulars of income. The ITAT did not adjudicate this issue separately, as it became academic in light of the decision on the primary issue.Conclusion:The ITAT allowed the appeal partly, granting the benefit of Article 8 of the India-Germany DTAA to the assessee's freight income from feeder vessels and directing the AO to verify and grant the claimed TDS credit. The issues concerning the agency PE, interest under section 234B, and penalty proceedings under section 270A were rendered academic and dismissed.