Shipping income treaty exemption extended to freight and inland haulage charges under Article 8 of the India-UAE DTAA.
Receipts derived from the operation of ships in international traffic were treated as covered by Article 8 of the India-UAE DTAA and therefore not taxable in India as business profits. The Tribunal followed earlier co-ordinate Bench rulings in the assessee's own case and held that freight income from the shipping chain, including feeder-vessel earnings, fell within the treaty exemption. Inland haulage charges were also held to be inextricably linked to the shipping operation and an integral part of the shipping business, so they could not be separately taxed under domestic law. The corresponding addition was deleted.
Issues: Whether shipping income, including inland haulage charges, derived from the operation of ships in international traffic was entitled to exemption under Article 8 of the India-UAE DTAA and not taxable in India.
Analysis: The assessee was engaged in the operation of ships in international traffic and had earned freight income and allied charges in India. The dispute was whether the freight receipts and inland haulage charges could be taxed in India under the Act or whether they fell within Article 8 of the India-UAE DTAA. The Tribunal followed the co-ordinate Bench decisions in the assessee's own case for earlier assessment years, which had held that Article 8 extended to the entire freight receipts, irrespective of whether the earnings related to feeder vessels or other vessels in the shipping chain. It also followed the earlier view that inland haulage charges were inextricably linked to the shipping business in international traffic and formed an integral part of the operation of ships, so they could not be separated from the shipping profits for domestic taxation.
Conclusion: The benefit of Article 8 was held to apply to the shipping income as well as inland haulage charges, and the corresponding addition was deleted.
Final Conclusion: The appeal was allowed on the merits of the treaty claim, while the remaining grounds were either consequential, general, or not adjudicated.
Ratio Decidendi: Where receipts are derived from the operation of ships in international traffic and inland haulage is integrally connected with that operation, Article 8 of the applicable tax treaty prevails and excludes such receipts from taxation as business profits in India.
TaxTMI 
AI Drafter ✕
TaxTMI 
