2024 (6) TMI 1490 - AT - Income Tax

Freight Earnings from Feeder Vessels Qualify for Relief Under Article 8 of India-Germany DTAA

Hapag-Llyod Aktiengesellschaft Versus The Deputy Commissioner of Income Tax International Tax Circle-2 (2) (2), Mumbai.

Hapag-Llyod Aktiengesellschaft Versus The Deputy Commissioner of Income Tax International Tax Circle-2 (2) (2), Mumbai. - TMI ISSUES: Whether freight earnings from transportation of cargo through feeder vessels qualify for relief under Article 8 of the India-Germany Double Taxation Avoidance Agreement (DTAA).Whether a Permanent Establishment (PE) exists in India under Article 5 of the India-Germany DTAA through the activities of an agent in India.Whether credit for Taxes Deducted at Source (TDS) amounting to Rs. 16,87,726 should be granted.Whether interest under sections 234A and 234B of the Income Tax Act, 1961 is leviable. RULINGS / HOLDINGS: Freight earnings from feeder vessels are eligible for relief under Article 8 of the India-Germany DTAA; the Court held that 'freight charges of Rs. 38,81,04,429 earned by assessee from transportation of cargo through feeder vessels is also eligible for benefit of Article 8.'The existence of a Permanent Establishment in India was rendered academic and not adjudicated, as the primary DTAA relief issue was decided in favour of the assessee.TDS credit of Rs. 16,87,726 is to be granted subject to verification by the Assessing Officer; the issue was restored to the AO for appropriate action.Interest levied under sections 234A and 234B was held to be consequential and requires no separate adjudication. RATIONALE: The Court applied the provisions of Article 8 of the India-Germany DTAA, which governs income from the operation of ships, and relied on binding precedents from coordinate benches of the Tribunal and the jurisdictional High Court which consistently held that income from feeder vessels is covered under Article 8.The Court noted that the facts for the relevant assessment year were substantially similar to those in prior years where relief was granted, and no change in law or material facts was demonstrated.The Court recognized that slot hire and feeder vessel arrangements are integral and directly connected to the operation of ships, thus falling within the scope of Article 8 as per prior judicial interpretations.The Court deferred the issue of Permanent Establishment and interest charges as they were either academic or consequential following the primary ruling on DTAA applicability.The TDS credit issue was remanded for verification, emphasizing adherence to statutory provisions and prior orders where similar TDS credits were allowed.