TaxTMI 
TaxTMI 
2026 (7) TMI 202
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....red in relying upon judicial precedents rendered in the context of DTAAS with materially different treaty language, such as India-Belgium, India-Denmark, and India-France treaties, which contain specific ancillary-activity clauses.". "3. Whether On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting of the addition of Rs. 10,86,70,566/- made on account of Inland Haulage Charges (IHC) without appreciating the fact that the correct Article applicable is Article 7 (Business Profits), read with Article 5, since IHC is a separate inland activity performed in India." "4. Whether On the facts and circumstances of the case and in law, the CIT(A) has erred in not adjudicating on the ground that Cosco Shipping Agencies (India) Pvt. Ltd being Dependent Agency Permanent Establishment (DAPE) of the assessee in India under article 5(4) of the India-China DTAA without appreciating the fact that the AO in the assessment order has concluded that assessee has agency PE in India as per article 5 of the India-China DTAA." 3. As could be seen from the grounds raised, the primary issue arising for consideration is whether the Inland Haulage Charges (....
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....dia. 5. Against the assessment order so passed, assessee preferred an appeal before learned First Appellate Authority. 6. After considering the submissions of the assessee in the context of facts and materials on record and relying upon the judicial precedents cited before him, learned First Appellate Authority concluded that, even, in absence of specific clause under Article 8(1) of India-China Treaty for exempting income derived from any other activities directly connected with transportation of goods in international traffic, still IHC would be covered under the said article as IHC is part of composite activity of transportation of goods in international traffic. In this context, he relied upon a decision of the coordinate bench in case of 'CMA CGM SA vs. DCIT' ITA No.6649/Mum/2017, wherein the bench, while considering pari materia provisions contained under India - France DTAA, which did not provide for any specific clause exempting income directly connected to transportation of goods in international traffic, allowed assessee's claim. In this context, learned First Appellate Authority further observed that the activity of IHC is not taken up as a separate business ac....
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....its derived by an enterprise described in paragraph 1 from the transportation by sea or air respectively of passengers, 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; (b) the rental of ships or aircraft connected with such transportation; and (c) income from use, maintenance, or rental of containers (including trailers, barges, and related equipment for the transport of containers) operated in international traffic. 3. For the purposes of this Article, interest on funds directly connected with the operation of ships or aircraft in international traffic shall be regarded as profits described in this Article, and the provisions of Article 11 (interest) shall not apply in relation to such interest. 4. The provisions of paragraph I shall also apply to profits from the participation in a pool, a joint business or an international operating agency." 10. Referring to the aforesaid provision, the Assessing Officer has held that since it refers only to profits derived from operation of ships in international traffic, the receipts from s....
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....n Article 8(2) of India Belgium treaty is missing in Article 8 of the India-China DTAA. However, facts on record reveal that the assessee has undertaken the activity of transportation of goods from the origin to the destination as a single composite activity. The bill of lading also demonstrates that it is from the origin to the destination. In this context, we may refer to the following extracts from Organization for Economic Cooperation and Development (OECD) [2017 Edition] on Article 8, which reads as under: "7. A further example would be that of an enterprise that transports passengers or cargo by ships or aircraft operated in international traffic which undertakes to have those passengers or that cargo picked up in the country where the transport originates or transported or delivered in the country of destination by any mode of inland transportation operated by other enterprises. In such a case, any profits derived by the first enterprise from arranging such transportation by other enterprises are covered by the paragraph even though the profits derived by the other enterprises that provide such inland transportation would not be." 12. Pertinently, Article 9 of In....
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....afmarine Container Lines N.V (Supra) also govern the case of A.P. Moller Maersk A/S (supra). There is no dispute that the Article 9 of India-France DTAA is identically worded to the corresponding Article in India-Denmark DTAA. 17. We shall now discuss in brief the facts available in M/s A.P. Moller Maersk A/S case. The said company was resident of Denmark and hence India-Denmark DTAA applied to it. In order to help its agents in booking cargo and carrying out clearing agent works, the assessee maintained a global telecommunication facility called MaerskNet, which is a vertically integrated "Communication system". The assessee recovered pro-rata costs from its agents and accordingly the Indian agents also remitted pro-rata costs to the above said assessee. Before AO, the assessee contended that it was merely a system of cost sharing and hence the amount recovered by it from its agents is in the nature of reimbursement of expenses. The AO, however, held to it to be fee for technical services. 18. Before the Hon'ble High Court, the assessee has also taken a plea that the communication system is very much an integral part of shipping business and therefore, the income....
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....y to it. Accordingly we uphold the order passed by Ld DRP in Ay 2012-13 on this issue and reverse the orders passed by it on this issue in AY 2013-14 and 2014-15. 8. Respectfully following the decision of the Co-ordinate Bench rendered in assessee's own case in the preceding assessment years, we hold that IHC, since, forms part of income from operation of ships in International Traffic, is covered under Article-9 of the India-France Tax Treaty, accordingly, not taxable in India. These grounds are decided allowed." 13. In case of Delmass SAS vs DCIT, being ITA No. 6649/Mum/2017 and others, the Coordinate Bench while considering identical nature of dispute arising out of India-France DTAA, has held as under: 15. We have heard rival contentions on this issue and perused the record. We notice that the ld DRP has mainly declined to follow its own order passed in AY 2012-13 in the subsequent two years for the reason that there is difference between Article 8 of India-Belgium DTAA and Article 9 of IndiaFrance DTAA. According to Ld DRP that the India-Belgium DTAA contains specific provisions to include "any other activity directly connected with such transportation", w....
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....e High Court held that the amounts paid by the agents for using the communication system arose out of the shipping business and cannot be brought to tax. 19. The decision so rendered by Hon'ble Bombay High Court in the context of India-Denmark DTAA clearly shows that the ancillary activities connected with the shipping business are also included in the shipping business. The above said decision has been followed by the co-ordinate bench in the case of same assessee, viz., A.P.Moller Maersk A/S (ITA No.1798/Mum/2015 dated 15-02-2017) for AY 2011-12 to hold that the Inland Haulage charges received by that assessee shall also form part of shipping income from international traffic. The decision so rendered for AY 2011-12 was followed by the coordinate bench in the above said assessee's case in AY 2012-13 in ITA No.1743/Mum/2016 dated 07-02-2018. 20. Before us, the ld A.R demonstrated that the Article 9 of India-France DTAA and Article 9 of India-Denmark DTAA are identically worded. Since the decision rendered by Hon'ble Bombay High Court in the case of Safmarine Containers Lines N.V (which was rendered in the context of India-Belgium DTAA) was held to be applicable t....
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....te bench of Mumbai Tribunal in the case of Safmarine Container LinesN.V. (supra), which was subsequently affirmed by the Hon'ble Bombay High Court reported in DIT (International Taxation) v. Safmarine Container Lines NV [2014] 48 taxmann.com 238/225 Taxman 299/367 ITR 209 (Bom.), wherein it is held as under:- 'By availing the facility of slot hire agreements, the enterprise does not arrange the shipment on behalf of the owner of the said vessel, but does so on its own account on a principal to principal basis with its clients. Such cases also have a nexus to the main business of the enterprise of the operation of ships. They are ancillary to and complement the operation of ships by the enterprise. If they are not merely ancillary to the main business of operation of ships but constitute the primary and main activities of the enterprise, it may be a different matter, which we are not called upon to consider in the facts and circumstances of the present case. 28. Our view is supported by the judgment of a Division Bench of the Delhi High Court. It is also in consonance with the various commentaries which deal with similar provisions. We will now refer to the....
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....railers and related equipment for the transport of containers) in connection with the transportation of goods or merchandise in international traffic. The Tribunal held that use of trucks in Inland haulage would come within the words ''trailers and related equipment's for the transport of goods". We find that the language of Article 9(4)(b) of the India-Denmark Tax Treaty is similar to Article 8(2)(c) of India-Belgium Tax Treaty which merely lists down certain income as mere example of items covered under this Article and therefore the present issues is fully covered by the decision of the Mumbai Tribunal and jurisdictional High Court in the case of Safmarine Container Lines N.V. (supra). In the case of Safmarine the term "operations of ships" was defined under Article 8(2) of the India - Belgium Tax Treaty specifically. This definition first narrows the definition and then expands to add any activity directly connected with such transportation. Under the India-Denmark Tax Treaty (identical to the India - UK Tax Treaty as in Balaji Shipping), there is no definition and hence one has to interpret according to the internationally accepted norms read with the commentary. T....
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....ould have some of its passengers or cargo transported internationally by ships or aircraft operated by other enterprises, e.g. under above 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.' 9. In view of the OECD commentary we have considered the issue that internationally and by the Tribunal and Hon'ble High Court accepted that any activity directly connected with such transportation will always be included within the term "operations of ships". The Activities of the IHC are connected directly or an ancillary activity that provides minor contribution and should not be regarded as a separate business to the operations of ships. Further, the decision of Hon'ble Bombay High Court in the case of DIT(International Taxation) v. Balaji Shipping(UK) Ltd. [2012] 24 taxmann.com 229/211 Taxman 535 (Bom.) the issue was whether receipts from slot chartering can be considered as shipping income eligible to the beneficial provisi....
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....laji Shipping (UK) Ltd. case (supra) followed the decision of the Hon'ble Delhi High Court in case of DIT v. KLM Royal Dutch Airlines [2009] 178 Taxman 291/[2010] 325 ITR 300. Hon'ble Delhi High Court which was followed by the Tribunal and Hon'ble Bombay High has held that where the activities are linked to each other, there is no scope for dissecting the activities. In that case, the recovery of rent from the Indian company was held to be income from international air traffic and not taxable in India as the same would construe activities directly and inextricably linked to the cargo handling business of the assessee. As per the ratio of this decision, activities which are linked or connected to each other such that one cannot be conducted efficiently without the other and which have a nexus to the main business of the assessee of operations of ships should be considered as integral part of income from shipping operations. As informed by ld. Counsel the fact that these issues are also decided in favour of the assessee in subsequent year even by the Dispute Resolution Panel for AY 2011-12 by placing reliance on the decision of Hon'ble Mumbai Tribunal and jurisdiction....