Treaty protection for shipping and container income under the Indo-UK Treaty extends to slot-sharing and feeder-vessel receipts.

The treaty phrase "operation of ships" was construed by reference to contemporaneous international understanding and OECD commentary because it was not defined in the treaty or then-applicable domestic law. On that basis, freight income from slot chartering and feeder-vessel arrangements, being directly connected with international shipping operations, fell within Article 9(1) of the Indo-UK Treaty and was taxable only in the State of residence. Article 9(4) was also read broadly: income from the use of containers employed as an integral part of transport of goods was covered, even though "use" was not confined to rental or lease. The treaty benefit therefore extended to the disputed shipping and container receipts.

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Issues: (i) Whether freight income earned through slot chartering and feeder-vessel arrangements formed part of income from the operation of ships in international traffic under Article 9(1) of the Indo-UK Treaty; (ii) Whether income from the use of containers used for transport of goods fell within Article 9(4) of the Indo-UK Treaty.

Issue (i): Whether freight income earned through slot chartering and feeder-vessel arrangements formed part of income from the operation of ships in international traffic under Article 9(1) of the Indo-UK Treaty.

Analysis: The expression "operation of ships" was not defined in the treaty or in the domestic law then applicable, so its meaning had to be gathered from contemporaneous understanding and the OECD commentary. The relevant commentary treated not only direct transport by ships at the enterprise's disposal, but also transportation through other enterprises' ships where the activity was directly connected with, or ancillary to, the international shipping business. Slot-sharing and similar arrangements were specifically recognised as covered where they formed part of the transportation business in international traffic.

Conclusion: The freight income from slot chartering and feeder-vessel operations was covered by Article 9(1) and was taxable only in the State of residence, in favour of the assessee.

Issue (ii): Whether income from the use of containers used for transport of goods fell within Article 9(4) of the Indo-UK Treaty.

Analysis: Article 9(4) extends the shipping article to income from the use, maintenance or rental of containers used for transport of goods or merchandise. The word "use" was given a broad meaning and was not confined to rental or lease. Since the containers were employed as an integral part of the assessee's shipping operations, the container-related receipts fell within the treaty protection.

Conclusion: The container-related income was entitled to the benefit of Article 9(4), in favour of the assessee.

Final Conclusion: The treaty benefit was available for the disputed shipping and container receipts, so the Revenue's challenge failed and the relief granted by the appellate authority was sustained.

Ratio Decidendi: Where the treaty does not define "operation of ships", the expression is construed according to contemporaneous international understanding, and income from transportation through slot-sharing or other carrier arrangements directly connected with the shipping business is covered by the shipping article, along with container-use income expressly brought within the treaty provision.

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