Inland haulage charges under the shipping article were treated as integral to international traffic and exempt from Indian tax.

Inland haulage charges connected with transport of goods by ships in international traffic were treated as part of a single integrated shipping operation under Article 8(1) of the India-China DTAA. The absence of an express treaty clause covering directly connected activities did not prevent exemption, because the charges were not viewed as a separate inland business but as an integral component of the international shipping transaction. Relying on treaty interpretation, OECD commentary and prior tribunal decisions, the receipt was covered by the shipping article and not taxable in India.

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Issues: Whether inland haulage charges received in connection with transportation of goods by ships in international traffic are exempt from tax in India under Article 8(1) of the India-China DTAA.

Analysis: Inland haulage charges were held to form part of the integrated shipping operation where cargo is moved from the origin to the port and from the port to the destination as one composite commercial activity. The absence in the India-China DTAA of an express clause referring to other directly connected activities did not change the result, because the charges were not treated as a separate inland business but as an integral component of the international shipping transaction. Support was drawn from treaty interpretation, OECD commentary, and prior tribunal decisions holding that connected or ancillary receipts arising from shipping operations in international traffic remain within the shipping article.

Conclusion: The inland haulage charges were held to be covered by Article 8(1) of the India-China DTAA and not taxable in India.

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