TaxTMI 
TaxTMI 
2014 (7) TMI 686
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.... 2. Since all these appeals pertain to the same assessee involving common issues arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. 3. We will first take up the issues which are arising in assessee's appeal and are permeating through in all the years. For the sake of ready reference, grounds of appeal for the assessment year 2004-05 are reproduced herein below:- "1. On the facts and in the circumstances of the case and in law, the Hon'ble Commissioner of Income-tax (Appeals) ['CIT(A)'] erred in confirming the action of the learned Assistant Director of Income-tax (International Taxation)-4(1) ['ADIT'] in reopening the assessment under section 147 of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of the learned ADIT in denying the benefit of Article 8 of the India-Malaysia Double Taxation Avoidance Agreemen....
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.... in the hands of Crescent, fully extinguishes the tax liability of the appellant in India. 6. On the facts and in the circumstances of the case and in law, the ADIT erred in estimating freight attributable to the feeder essels, by applying deemed rate of 10% instead of 7.5% under section 44B. 7. On the facts and in the circumstances of the case and in law, the. Hon'ble CIT(A) erred in confirming the action of the learned ADIT in levying interest of Rs. 36,60,770 under section 234B of the IT Act despite the fact that the appellant was not liable to pay any advance tax on the basis of (a) Double Income Tax Relief Certificate issued by the Tax Department itself and (b) the fact that freight income of the appellant was tax deductible at source having regard to the specific provisions of section 209(1)(d) of IT Act." Besides this, the assessee has also taken a additional ground which is common in the appeals for the assessment year 2004-05, 2005-06 and 2006-07 and 2007-08. The same reads as under:- "8. On the facts and in the circumstances of the case and in law the learned ADIT(IT), erred in passing the ....
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....he preliminary issue, the learned counsel though admitted that the issue of non-service of notice under section 143(2), has not been raised either before the Assessing Officer or before the learned Commissioner (Appeals), but raised for the first time before the Tribunal by way of additional ground, however, being a legal ground, arising from the facts and material on record which does not require any further investigation of facts, therefore, the same should be admitted. In support of the admission of the said ground, reliance has been placed on various decisions including that of the decision of the Hon'ble Supreme Court in National Thermal Power Co. Ltd. v. CIT, [1998] 229 ITR 383 (SC). 8. After hearing both the parties, the said additional ground, as raised in various years, challenging the validity of the assessment on the ground of non-issuance/service of notice under section 143(2), is hereby admitted as the same is purely a legal ground which goes to the root of the validity of the assessment. It is evident from the assessment records produced by the learned Departmental Representative before us, that though there is a notice under section 143(2) dated 7th September ....
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....wned by it or taken on lease. In India, the assessee has appointed an agent M/s. Crescent Shipping Pvt. Ltd., for booking of freights of cargo for transportation from one destination to other in international traffic. During the year under consideration, the assessee has received total freight of Rs. 1,54,59,46,952. In the computation of income filed along with the return of income on 9th September 2004, the assessee has sought for double tax relief @ 50%, as per Article-8 of India-Malaysia DTAA in the following manner:- Total Freight Collected Rs. 1,54,59,59,364 Income @ 7.5% Of Rs. 15,49,59,364 Rs. 11,59,46,952 Tax Payable @ 40% On Rs. 11,59,46,952 Rs. 4,63,78,780 Add: Surcharge On Rs. 4,63,78,780 Rs. 12,35,856 Total Tax Rs. 4,76,16,636 Less: Relief 05% As Per Double Taxation Avoidance Agreement Between India And Malaysia Rs. 2,38,08,318 Tax Payable On Freight Income Rs. 2,38,08,318 Taxes Already Paid Rs. 2,38,14,485 Refund Due Rs. 6,167 11. The said return of income was duly processed under section 143(1), vide intimation dated 29th November 2005. Thereafter, a notice under section 148 dated 10th March ....
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....d mother vessel (which are owned/chartered/pooled by it). 9. As such, issue (which was also present in A.Y. 2008-09 on the basis of which the case has been reopened for A.Y. 2004-05 is regarding availability of Article-8 benefit to the portion of freight which is attributable to voyage performed on feeder vessels which are operated by third parties (and not the assessee). As per the details filed by the assessee, the total freight earned by the assessee from (ii) above is Rs. 43,22,62,275. This freight is for the entire voyage i.e., from the load port to the ultimate discharge port. 10. It is noticed that the assessee has used feeder vessels belonging to other shipping lines and with these line the assessee was not having pool arrangement. The container loaded on these feeder vessels are transhipped later at a hub port on the assessee's own ships or ships chartered/pooled by it. It is seen that in such cases, the assessee books some space in the ships operated by other shipping line (feeder operator) and such hip are also not covered by pool agreement. On the booked space, assessee loads its container and issues bill of lading to the shippers/customers. The assessee in su....
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....ntracting parties were very well aware of such a commentary of OECD and, therefore, have clearly intended that the business of transportation must be by the ships owned or leased or chartered by the assessee. In the present case, the Assessing Officer held that insofar as the transportation by feeder vessels, the assessee is neither the owner nor the lessee nor the charterer of the feeder vessels carrying the cargo up to the Hub port. Therefore, the income derived from such voyage would be outside the scope of Article-8, even though the assessee may be engaged in the business of carrying the goods in the international traffic. Thus, the freight derived from carriage of goods from Indian port to Hub port through feeder vessels will not qualified to be income derived from the "operation of ships". In support of his contention, he has strongly relied upon the decision of DIT(IT) v. Cia-De-Navegacao Norsul, [2009] 121 ITD 113 (Mum.). 13. The learned Commissioner (Appeals) too confirmed the reasoning and the conclusion of the Assessing Officer that the transportation through feeder vessels does not fall within the definition of "operation of ships" as contained in Article-8(2). He to....
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....el is nothing but a charter only, in a sense that the assessee has booked space charter/slot charter for its containers which are owned by it. For the purpose of explaining the meaning of "charter", as contemplated in Article-8(2) of the present treaty, he strongly referred and relied upon the decision of the Hon'ble Jurisdictional High Court in DIT v. Balaji Shipping U.K. Ltd., [2012] 253 CTR (Bom.) 460. In this case also, he explained that the assessee has transported the cargo through feeder vessels to the hub port and from hub port the cargo was transferred to vessel owned/leased/chartered by the assessee to the final destination. While adjudicating on these facts, their Lordships have examined the meaning and the definition of "charter"/"charterer". In this regard, he drew our attention to the specific observation made by the Court. From this judgment, he submitted that it can be clearly inferred that "charter" means "slot charter" also. If the goods have been transported by availing slot charter, then also it has to be considered as income from operation of ships. He also drew our attention to the decision of the Tribunal, Mumbai Bench, in APL Co. Pte. Ltd. v. DDIT, [2013....
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....he operation of ships has not been defined. The Indo-U.K. treaty is based on OECD model convention which also speaks about ancillary and incidental services. Article-9 of Indo-U.K. treaty does not define operation of ships and, therefore, the meaning and the scope as explained in the commentary of model convention has been adopted by the High Court. This aspect of the matter has been clearly brought out by the Assessing Officer and the learned Commissioner (Appeals) in their respective orders, that the commentaries of model convention cannot be applied in case of Indo-Malaysian treaty. He further submitted that in the context of India-USA treaty, wherein the similar definition has been given as in the Indo-Malaysia treaty, the Tribunal, Mumbai Bench, in ADIT v. Federal Express Corporation, has held that benefit of Article-8, would be available to the assessee, only when the assessee is the owner, lessee or a charterer of a ship or air craft. Any such transportation de-hors as owner charterer or lessee would be outside the scope of expression used in Article-8(2). The word "charterer" used in the Article has to be seen from the context of the meaning understood for the words "owner"....
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.... first issue. The assessee is a Malaysian company which is running a shipping line i.e., operating ships in the international traffic for carriage of goods. Insofar as the operation of shipping business from India is concerned, the assessee has been booking cargo from shippers/customers in India up till final destination port with all risks and responsibility. The bill of lading has been issued for the entire voyage. Since the assessee's ships owned/leased by it were not operating in the territorial waters of India, therefore, it has transported the cargos from Indian port to Hub port using the service of feeder vessels which are owned by the third party. The containers transported through feeder vessels have been sent by way of slot charter or space charter arrangement. From the hub port, the assessee's containers are transshipped on the mother vessel, which are owned/leased by the assessee and from there it is carried to the final destination port by the assessee's own ship. The Assessing Officer has very categorically held that there is linkage between the voyage performed through feeder vessels and finally by mother vessels. This is evident from Para-7 and 8 of the ....
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....ngers, mail, livestock or goods carried on by the owners or lessees or charterers of ships or aircraft including: (a) the sale of tickets for such transportation non behalf of other enterprises; and (b) the rental of ships or aircraft incidental to any activity directly connected with such transportation; 3. Profits of an enterprise of a Contracting State described in paragraph 1 from the use, maintenance, or rental of containers (including trailers, barges and related equipment for the transport of containers) used in connection with the operation of ships or aircraft in international traffic shall be taxable only in that State." 20. For the shipping income, the Para-2 categorically envisages that for the purpose of Article-8, profits from the operation of ships in the international traffic means, profit derived by an enterprise from the transportation by sea of goods carried on by the "owner" or "lessee" or "charterer" of ships. Thus, the profits from the "operation of ships" have been qualified by the words carried on by the "owner" or "lessees" or "charterer". This meaning as....
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.... or source of income of the enterprise should be considered to be ancillary to the operation of ships and aircraft in international traffic. 6. Profits derived by an enterprise from the transportation of passengers or cargo otherwise than by ships or aircraft that it operates in international traffic are covered by the paragraph to the extent that such transportation is directly connected with the operation, by that enterprise, of ships or aircraft in international traffic or is an ancillary activity. One example would be that of an enterprise engaged in international transport that would have some of its passengers or cargo transported internationally by ships or aircraft operated by other enterprises, e.g. under code-sharing or slot-chartering arrangements or to take advantage of an earlier sailing. Another example would be that of an airline company that operates a bus service connecting a town with its airport primarily to provide access to and from that airport to the passengers of its international flights." Thus, in the absence of any qualifying words in the OECD model convention Article-8, the scope of operation of ships has been expanded to include various activities....
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.... refers to the judgment is only to indicate what a slot charter is and that such agreements have been in use for decades. Needless to add that our reference to the same has no bearing upon Admiralty law including on the aspect of arrest of ships. The assessment order sets out clause 2 of the Connecting Carrier Agreement between the respondent and OEL, which reads as under:- "2(a) The carrier has offered container slots space to the line (respondent) and the line (respondent) has accepted to use such space on as/when required basis." [emphasis added] 22. Thereafter, their Lordships have also taken note of the fact that Article-9 does not define operation of ships and in that context they have referred to the commentary of model convention also. Under the scope of Article-9, their Lordships have held that where the goods are transported by an enterprise by availing a slot hire facility by it on the ship of another from a port in India up to a Hub Port abroad and from there transporting the goods further to the final destination upon a ship owned or chartered or otherwise controlled by it, will fall ....
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..... One who charters or hires or engages the whole or part of a ship under an agreement of Charter Party for a voyage". Here, the word "charterer" does not mean the owner or lessee of a ship. The word "charter Party" has been defined in Law Lexicon as "an indenture of covenants and agreements made between merchants and mariners concerning their sea affairs. It is a contract by which a ship or some principal part thereof, is let to a merchant for conveyance of goods on a determined voyage to one or more places". From this definition, it is amply evident that the word "charterer" means hiring of a ship for a voyage, either whole of the ship or a part of a ship. The word "charter" completely eludes the concept of ownership. A charterer of a ship cannot be the owner of a ship. Therefore, the contention of the learned Departmental Representative that the word "charterer" has to be understood in the context of owner or lessee that is having control of the ship is perhaps not the correct understanding of the word "charterer". The principle of noscitur-a-sociis i.e., the meaning of doubtful word may be ascertained by reference to the meaning of the words associated with it will also not appl....
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.... "A voyage charter whereby the ship owner agrees to place a certain number of container slots ("TEU and/or FEU) at the charterer's disposal." 24. From the above definitions of the term "charter" or "charterer", one thing is amply clear that it means hiring of vessels or a ship or a part of its space under an agreement for a voyage. Thus, even a part of a space in the vessels for a particular journey is also considered as "charter of ship" or "charterer". In the decision of Balaji Shipping U.K. Ltd. (supra), while referring to the judgment of Tychy (supra), the High Court have noted that a "slot charter" and a "voyage charter" of a part of a ship are in a sense charterers of a space in a ship. 25. From the above discussion, the following inferences can be deduced:- (i) Firstly, the operation of a ship can be done as charterer which does not mean to own or control the ship either as an owner or as a lessee; (ii) Secondly, charterer is a hirer of a ship under an agreement or arrangement to acquire the right to use a vessel or a ship for the transportation of a good on a determined voyage, either the whole of t....
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....g business in the present day shipping business. The said observations are as under:- "26. An enterprise may not ply the ships owned or chartered or otherwise controlled or managed by it in respect of certain routes. It would however, on account of the business exigencies, be required to carry cargo on such routes. Business expediency could arise on account of a number of reasons and different situations such as obliging regular clients, or cultivating new ones. If it were not to do so, it may well loose clientele. Ships owned or chartered or otherwise controlled or managed by an enterprise may not be available on the particular route on a given day or for a particular period. The enterprise may already have entered into contracts or may even be required to enter into contracts for the carriage of goods on that route on that day or during that period. The trade would expect, the enterprise to perform its contracts and/or ensure there is no break in its services. This it can do by availing slot hire agreements. Their refusal or failure to do so, may well affect their business and reputation adversely. 27. By availing the facility of slot hire agreements, the enterprise does no....
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....n the forgoing paragraphs, that chartering of some space or slot charterer in a ship is actually a part and parcel of charter of a ship. Under the charterer agreement, there is no ownership or control of entire ship because the risk under the charter party agreement or arrangement is upon the owner of the ship who generally assumes an operational risk for transporting the cargo of the person who has hired the ship and the hirer agrees to pay for conveyance of goods on a determined voyage. The risk of the assessee is towards its customers from whom he has agreed to transport the cargo/goods from the destination port of booking to the final destination port. Thus, in our opinion, such a strict interpretation of the word "charterer" as adopted by the Department cannot be sustained. 30. Now coming to the decision of Cia-De-Navegacao Norsul (supra), we find that in the said decision, the assessee had failed to link and establish the voyage wise transportation, whether the feeder vessels were actually loading the goods into the mother vessels, which the assessee had claimed that it was operating. This is evident from Para- 2 of the said Tribunal order. Further, as pointed out by the l....
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....f the Indo-Malaysian treaty. In the present case, the voyage between the Indian Port to the Hub Port through feeder vessel and from Hub Port to final destination port through mother vessel owned/leased by the assessee are inextricably linked and there is complete linkage of the voyage and, therefore, the entire profits derived from the transportation of goods carried on by the assessee is to be treated as profits from operation of ships and, therefore, the benefit of Article-8, cannot be denied to the assessee on the part of the freight from voyage by the feeder vessels. Thus, ground no.2, raised by the assessee in all the years under appeal is allowed. 32. Since the benefit of Article-8, has been given to the assessee on the freight income earned by it, therefore, we are not adjudicating upon the plea for the benefit under Article-8(3). Likewise, the issue of Permanent Establishment Article-5, is also not adjudicated upon as the same will come into question, once the benefit under Article-8 is denied and income is to be computed as per Article-7. Thus, ground no.3, 4, 4(a), 4(b), 4(c), 4(d) and 5, in all the appeals are treated as academic in nature. 33. Now, coming to the i....
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....431/Mum./2012, for the assessment year 2005-06, following ground has been raised:- "1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the interest levied u/s 234D without appreciating the fact that interest is chargeable on the excess amount so refunded." 40. Before the learned Commissioner (Appeals), it was submitted by the assessee that interest under section 234D, can be levied were the refund is granted under section 143(1) and no refund is due on regular assessment. In support of this contention, decision of the Tribunal, Vishakhapatnam Bench, in Dredging Corporation of India Ltd. v. ACIT, [2011] 142 TTJ 252 (Vizag), was relied upon. The learned Commissioner (Appeals) decided the issue in favour of the assessee following the Tribunal order. 41. Before us, the learned counsel further relied upon the decision of the Tribunal, Mumbai Bench, in ACIT v. BOR Ltd., ITA no.2246-2240/ Mum./2009 and the decision of Hyderabad Bench, in K. Anji Reddy v. DCIT, 59 SOT 92 (Hyd.) and submitted that in this case already assessment under section 143(3), was made accepting the retur....