CMA CGM SA ,MUMBAI vs. DY.COMMM OF INCOME TAX (INTERNATIONAL TAXATIONA)-2(1)(1), MUMBAI

The present appeal has been filed by the assessee challenging the final assessment order dated 19/05/2021, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (‘the Act’), pursuant to the directions dated 12/05/2021, issued by the learned Dispute Resolution Panel (“Ld. DRP”) under section 144C(5) of the Act, for the assessment year 2018–19.

In this appeal, assessee has raised following grounds: “

The brief facts are that he assessee company is a tax resident of France and is engaged in the business of operation of ships (i.e. transportation of cargo between ports in India and ports outside India). For the year under consideration, assessee filed its return of income on 30/11/2018 declaring total income at Rs.8,12,40,580/-. The case of the assessee was selected for scrutiny and vide draft order dated 24/09/2021 (hereinafter “the Draft Order”) passed under section 143(3) of the Act, total taxable income of the assessee was computed at Rs.46,94,25,922/-. The assessee filed detailed objections against the draft assessment proposed by AO before the Ld DRP which was pleased to reject the same vide directions dated 12/05/2021, issued under section 144C(5) of the Act. And in doing so, it followed the earlier directions issued in assessee’s own case for preceding assessment years. In conformity to the directions issued by Ld. DRP, the Assessing Officer (“AO”) passed the final assessment order dated 19/05/2022 under section 143(3) read with section 144C(13) of the Act (hereinafter the final assessment order). Being aggrieved, the assessee is in appeal before us.

The issue arising in ground No. 1 is general in nature and therefore need no separate adjudication.

The brief facts of the case pertaining to this issue, as emanating from the records, are during the year under consideration, out of the total Revenue of Rs.48,50,25,23,670/-, the assessee had collected a sum of Rs.377,56,83,161/-, from its customers on account of IHC. These charges were collected towards transportation of goods from the exporter’s warehouse to the port of loading and vice versa. As per the assessee, the IHC activity is directly connected to and ancillary to the transportation of cargo in international traffic and it falls under Article 9 of India France Double Taxation Avoidance Agreement (hereinafter “DTAA”). The AO rejected the claim of the assessee and held in the draft order that the IHC received for transportation of goods are in domestic areas. Further the AO held that the handling charges which are paid for loading/unloading/stacking etc. of containers are different from the charges incurred for transportation of goods. Accordingly, the AO held that IHC is taxable in India as business profit and these are not covered by Article 9 of DTAA or section 44B of the Act. In absence of details of expenditure incurred for IHC, the AO applied net profit rate of 10% on IHC receipts and accordingly added Rs.37,75,68,316/-, to the total income of the assessee. The Ld. DRP rejected the objection filed by the assessee, against the aforesaid addition, by following its own earlier directions rendered in assessee’s own case for preceding assessment years, after noting that in the year 8 A.Y. 2018-19 CMA CGM SA under consideration facts are pari-materia to the earlier assessment years and the issue is still pending before higher forums. In conformity with the earlier directions issued by Ld. DRP, the AO passed the final assessment order. Being aggrieved, the assessee is in appeal before us.

During the course of hearing, Ld. Authorised Representative (“Ld. AR”) submitted that this issue is covered in favour of assessee by decisions of the coordinate bench of the Tribunal rendered in assessee’s own case for preceding assessment years.

We have considered the rival submissions and perused the material available on record. We find that identical issue was decided in favour of assessee by the coordinate bench of the Tribunal in CMA CGM SA vs ACIT, in for assessment year 2017–18, vide order dated 03/11/2022, wherein the Tribunal followed its own decision for AY. 2016-17 (ITA. No. 5998/Mum/2019) which was passed taking note of earlier orders in assessee’s own case for preceding assessment years. The relevant findings of the coordinate bench of the Tribunal, in aforesaid decision, are as under: “7. We find that in assessment year 2015-16 similar ground was raised by the assessee before the Tribunal. The Tribunal following the order of Co ordinate Bench in assessee's own case in ITA No.6649/Mum/2017(supra) decided the issue in favour of the assessee. The relevant extract of the 9 A.Y. 2018-19 CMA CGM SA findings of Tribunal in assessment year 2015-16 are reproduced hereunder: “7. Having heard the parties, we find that while deciding identical issue in assessee's own case in the assessment year 2012-13, learned DRP had categorically held that the revenue earned from IHC is part of shipping business in International Waters, hence, covered under Article-9 of the Tax Treaty. However, subsequently, while deciding the identical issue in assessee's own case for the assessment years 2013-14 and 2014-15, learned DRP took a contrary view and decided the issue against the assessee. When the appeals preferred by the Revenue and the assessee for the aforesaid assessment years came up for consideration before the Tribunal, the Tribunal in ITA no.6649/ Mum./2017 & Ors., dated 14th March 2018, decided the issue in favour of the assessee holding as under: "15. We have heard rival contentions on this issue and perused the record. We notice that the Id 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 India France DTAA. According to Ld DRP that the India-Belgium DTAA contains specific provisions to include "any other activity directly connected with such transportation", whereas the same is absent in the India France DTAA. The Ld A.R, on the contrary, submitted that the presence or absence of the above said provision will not make any difference. In support of this proposition, the Ld A.R placed reliance on OECD model conventions and the Commentary thereon, which are extracted above.

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 AD, 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.

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 dated 07-02-2018.

Before us, the Id 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 to India-Denmark DTAA also by the Hon'ble Bombay High Court in the case of A.P.Moller Maersk A/S (ITA No.1306 of 2013), the Id A.R submitted that the absence of the expression "any other activity directly connected with such transportation" in the India-France DTAA 12 A.Y. 2018-19 CMA CGM SA will not make any difference. We notice that the contentions of the assessee also get support from the OECD model convention discussed supra.

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." No contrary material has been brought on record distinguishing facts or the aforesaid decision. Respectfully following the decision of Co-ordinate Bench in assessee's own case, grounds of appeal No.2 to 4 are allowed for parity of reasons.”

On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities.

We have considered the rival submissions and perused the material available on record. We find that similar issue was decided in favour of assessee by the coordinate bench of the Tribunal in CMA CGM SA vs ACIT (supra), for assessment year 2017–18, following judicial precedents especially that of AY. 2016-17 rendered in assessee’s own case for preceding assessment years. The relevant findings of the coordinate bench of the Tribunal, in aforesaid decision, are as under: “8. The Id.Authorized Representative of the assessee submitted that the Assessing Officer and DRP have erred in holding that freight charges for transportation of cargo through feeder vessels is income taxable in the hands of assessee under section 44B of the Act. The transportation of cargo through feeder vessels is inextricably linked to the international transportation of cargo. Therefore, freight charges for transportation of cargo through feeder vessels are covered by Article 9 of India-France DTAA. The Id.Authorized Representative of the assessee pointed that the issue is squarely covered by the order of Tribunal for the assessment years 2012-13 to 2014-15 and the order for assessment year 2015-16. The Id. Authorized Representative of the assessee further submitted that the Hon'ble Bombay High Court in 15 A.Y. 2018-19 CMA CGM SA assessee's own case in appeal filed by Department in Income Tax Appeal No.2175 of 2009 decided on06/08/2012 has decided this issue in favour of assessee and has dismissed the appeal of Revenue. We find that in assessment year 2015-16 the Co-ordinate Bench following the order of Tribunal in assessee's own case for assessment years 2012-13 to 2014-15 dated 14/03/2018(supra) and the decision of Hon'ble Bombay High Court in assessee's own case held as under: "17. Facts being identical, respectfully following the aforesaid decision of the Co ordinate Bench rendered in assessee's own case, we hold that freight charges received from transportation of cargo through feeder vessels being part of shipping income in International Traffic is covered under Article-9(1) of the India-France Tax Treaty, hence, not toxable in India. In fact, the aforesaid view of the Tribunal was upheld by the Hon'ble Jurisdictional High Court while dismissing Revenue's appeal in assessee's own case in Assessment Year 2002-03 in Income Tax Appeal no. 2175 of 2009, vide judgment dated 6th August 2012. Accordingly, these grounds are allowed." [Emphasized by us) No contrary material has been brought to our notice to take a different view. Following the order of Co-ordinate Bench on this issue, ground No. 6 to 10 of the appeal are allowed for similar reasons.”

We note that the issue arising in the present appeal is recurring in nature and has been decided in favour of the assessee for preceding assessment years. The Ld. DR could not show us any reason to deviate from the aforesaid decision since he could not point out any change in facts or law vis-a-vis earlier assessment years. Thus, respectfully following the order passed by the coordinate bench of the Tribunal which view was upheld by Hon’ble High Court in assessee’s own case 16 A.Y. 2018-19 CMA CGM SA cited supra, we uphold the plea of the assessee and direct the AO to delete the addition on account of freight charges for transportation of cargo through feeder vessels. As a result, grounds No. 7 – 12 raised in assessee’s appeal are allowed.

The brief facts pertaining to this issue, as emanating from the record, are that the AO noticed that the assessee’s agent in India is concluding the contract of cargo transport by issuing bill of lading, which is legally binding on the assessee. Further AO observed that agent in India is assessee’s own set up in India for the purpose of carrying out its shipping business activity in India. Therefore, according to him, the assessee is carrying out business of operation of ships in India and thus having PE in India as per Article 5 of DTAA. The Ld. DRP rejected the objection filed by the assessee, against the aforesaid findings, by following its earlier directions rendered in assessee’s own case for preceding assessment years, after taking note that in the year under consideration facts are pari materia to the earlier assessment years and the issue is still pending before higher forums. In conformity to the directions issued by Ld. DRP, the AO passed the final assessment order. Being aggrieved, the assessee is in appeal before us.

We have considered the rival submissions and perused the material available on record. We find that similar issue was decided in favour of assessee by the coordinate bench of the Tribunal in CMA CGM SA vs ACIT (supra), for assessment year 2017–18, which followed the decision of Tribunal is AY. 2016-17 after following judicial precedents rendered in assessee’s own case for preceding assessment years. The relevant findings of the coordinate bench of the Tribunal, in aforesaid decision, are as under:

The issue arising in the present appeal is recurring in nature and has been decided in favour of the assessee for preceding assessment years. The Ld. DR could not show us any reason to deviate from the aforesaid decision and could not point out any change in facts and law vis-à-vis earlier assessment year. Thus, respectfully following the order passed by the coordinate bench of the Tribunal in assessee’s own case cited supra, we uphold the plea of the assessee and accordingly, allow grounds No. 13 – 15 raised in assessee’s appeal.

Ground no. 16 to 20 pertaining to non-tax ability of income in the nature of IT support services (“FTS”) amount to Rs.7,60,05,380/-.

Facts in brief are that the AO noted that the assessee has earned income in the nature of FTS for IT support services totaling to 19 A.Y. 2018-19 CMA CGM SA Rs.8,12,40,574/- and that the assessee company has filed its return of income received in the form of fees for technical services amounting to INR 8,12,40,574/- to tax at the rate of 10% plus surcharge and education cess (as per section 115A of the Act). The said amount comprises of the following: Income from software maintenance charges INR 7,60,05,380/- (IT support fees) Income from Management fees INR52,35,194 Total income offered to tax INR 8,12,40,574/-

With respect to the IT support fees, the assessee company has entered into IT service agreement with its India agency company i.e. CMA CGM Agencies India Pvt. Ltd. Limited (‘CCAI’). Pursuant the agreement/s, the company has rendered IT support services to CCAI with regard to the following IT systems:  OCEAN — The financial IT system –  LARA & DIVA — The operational IT systems/ software The IT support services provided by the company to CCAI broadly included deployment as well as IT maintenance running services in relation to such systems. The assessee submitted before AO that the income earned in the nature of IT support fees (being FTS) amounting to INR 7,60,05,380/- from the company’s Indian Agency company [i.e. CCAI] is not chargeable to tax in India by virtue of the beneficial provisions of Article 9 of India-France tax treaty and for such a preposition it relied on the decision of Tribunal (Pune) in the case of its own Indian Agency company, CCAI (ITA No.2314/PUN/2017 dated 2 January 2020) wherein the Tribunal while adjudicating similar 20 A.Y. 2018-19 CMA CGM SA payment for AY 2012-13 has held that the said FTS paid by the assessee is not chargeable to tax in India as per the beneficial provisions of India-France tax treaty; and hence, on the same reasoning, the assessee was not liable to withhold any tax on the same in India. After hearing the assessee, the AO didn’t accept the contention. According to AO, the assessee has filed its return of income on 30th Nov 2018 which is well before the due date prescribed u/s139 (1) of the Act and further the assessee has not filed the revised return of income. Therefore, according to AO, without filing a revised return of income, the claim cannot be entertained by him in view of the judgement of Hon'ble Supreme Court’s decision in the case of Goetze India Ltd. V/s CIT reported in 157 TAXMAN 1(2006) wherein it has been held that for making a new claim for deduction before AO, an assessee has to file a revised return making the claim and not otherwise. Aggrieved, the assessee is before us.

According to Ld. AR, these grounds are relating to non- taxability of FTS received by the Appellant from its Indian agency company [CMA CGM Agencies India Private Limited ('CCAI')]. According to him, the Appellant/assessee had inadvertently offered the same to tax at the rate of 10% plus surcharge and education cess (as per section 115A of the Act) in the return of income filed for the year under consideration. In this context, he drew our attention to the decision of Co-ordinate Bench of this Tribunal (Pune) in case of CCAI (i.e. Indian agency company of the Appellant) (ITA No.2314/PUN/2017 dated 2 January 2020), wherein it was held that 21 A.Y. 2018-19 CMA CGM SA the FTS paid by the assessee is not chargeable to tax in India as per the beneficial provisions of India-France tax treaty and hence, the assessee was not liable to withhold any tax on the same in India. In light of the said judicial precedent, the assessee has raised this ground of appeal for non-taxability of FTS income in India as against tax rate of 10% (plus surcharge and education cess) as specified in under section 115A of the Act as offered by the Appellant in its return of income filed for the year under consideration. According to Ld. AR the effect of this claim would be that the assessed income to that extent would be lowered when compared with the returned income and also drew our attention to similar additional ground raised by assessee for AY. 2016-17 and the fact that Tribunal had set aside the issue for de- novo consideration of AO.

The Ld. DR vehemently opposed admission of additional grounds of appeal raised by the assessee and the additional evidences at this belated stage and according to him it is purely a factual issue and cannot be entertained.

We note that the assessee in its return of income has offered to tax FTS @ 10% + surcharge and educational cess. According to assessee FTS arising from IT Services is not taxable in the light of beneficial provision in India – France tax treaty and also in the light of decision rendered by Pune Bench of the Tribunal in the case of assessee’s Indian Agency Company CMA CGM Agencies India Pvt. Ltd.(supra). By raising these grounds of appeal