Shipping income under the India-France DTAA excluded inland haulage and feeder vessel freight from Indian taxation.

Income from inland haulage charges and freight earned through feeder vessels was treated as shipping income connected with operations of ships in international traffic and, under Article 9 of the India-France DTAA, was held not taxable in India. The Tribunal also applied its earlier view that an Indian agent remunerated at arm's length does not ordinarily constitute an agency permanent establishment, and the PE finding was set aside. An additional treaty-based ground on IT support services was admitted because it required factual examination and was remanded to the Assessing Officer for de novo consideration.

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Issues: (i) Whether inland haulage charges formed part of income from the operation of ships in international traffic and were therefore not taxable in India under the India-France DTAA; (ii) Whether freight charges from transportation of cargo through feeder vessels were covered by Article 9 of the India-France DTAA and not taxable in India; (iii) Whether the Indian agent constituted an agency permanent establishment of the assessee in India; (iv) Whether the additional ground relating to IT support services should be admitted and restored for de novo examination.

Issue (i): Whether inland haulage charges formed part of income from the operation of ships in international traffic and were therefore not taxable in India under the India-France DTAA.

Analysis: The issue was treated as recurring and covered by earlier co-ordinate bench decisions in the assessee's own case. The Tribunal followed the settled view that inland haulage charges are inextricably linked to shipping operations in international traffic and fall within Article 9 of the India-France DTAA. On that basis, the addition made by applying a net profit rate was not sustainable.

Conclusion: The issue was decided in favour of the assessee and the addition on account of inland haulage charges was directed to be deleted.

Issue (ii): Whether freight charges from transportation of cargo through feeder vessels were covered by Article 9 of the India-France DTAA and not taxable in India.

Analysis: The Tribunal again followed the consistent view taken in the assessee's own earlier years that transportation through feeder vessels is part of shipping income in international traffic. The record disclosed no change in facts or law, and the prior judicial view was applied to hold that the receipt was covered by the treaty article governing shipping income.

Conclusion: The issue was decided in favour of the assessee and the addition on account of freight charges through feeder vessels was directed to be deleted.

Issue (iii): Whether the Indian agent constituted an agency permanent establishment of the assessee in India.

Analysis: The Tribunal followed its earlier decisions holding that where the Indian agent is remunerated at arm's length, it cannot be treated as an agency permanent establishment. The assessee also relied on the advance pricing arrangement showing arm's length compensation, and no contrary material was brought to show that the arrangement had changed in the relevant year.

Conclusion: The issue was decided in favour of the assessee and the finding of agency permanent establishment was set aside.

Issue (iv): Whether the additional ground relating to IT support services should be admitted and restored for de novo examination.

Analysis: The additional ground was based on income already offered in the return, supported by additional evidence, and raised a fresh treaty-based plea requiring factual examination. Following the approach adopted in the assessee's earlier year, the Tribunal admitted the ground and remanded it for fresh consideration by the Assessing Officer.

Conclusion: The additional ground was admitted and restored to the Assessing Officer for de novo examination.

Final Conclusion: The appeal succeeded on the core treaty-taxability and permanent establishment issues, while the additional ground was sent back for fresh adjudication, leaving the matter partly allowed overall.

Ratio Decidendi: Receipts integrally connected with shipping operations in international traffic are covered by the shipping article of the applicable treaty, and an Indian agent remunerated at arm's length cannot ordinarily be treated as an agency permanent establishment.

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