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Facts
The assessee, incorporated and domiciled in UAE, earned freight income from ship operations in international traffic, which they claimed as exempt under the India-UAE DTAA. The revenue authorities denied this benefit, taxing the income under Section 44B of the Income Tax Act and also denying benefits related to inland haulage charges.
Held
The Tribunal held that the shipping income, including inland haulage charges, earned by the assessee is exempt under Article 8 of the India-UAE DTAA. This is because the activity of transporting containers from inland to the port for further international shipping is an integral part of ship operations and cannot be separated from the shipping business profit.
Key Issues
Whether the shipping income and inland haulage charges earned by the assessee from international traffic are taxable in India or exempt under Article 8 of the India-UAE DTAA.
Sections Cited
144C(5), 143(3), 1440(13), 153, 44B, 5(1), 5(4), 5(5), 234B, 270A
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Income Tax Appellate Tribunal, “I” BENCH MUMBAI
Before: SHRI SAKTIJIT DEY, HONBLE & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Dispute Resolution Panel (DRP), Commissioner of Income Tax (Dispute Resolution Panel-1), Mumbai-2, vide order no. ITBA/DRP/F/144C(5)/2024-25/1071372618(1), dated 19.12.2024, passed u/s. 144C(5) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), for Assessment Year 2022-2023.
Grounds taken by the Assessee are reproduced as under: “(1) On the facts and in the circumstances of the case and in law, the learned Deputy Commissioner of Income Tax (International tax) 1(1)(2), Mumbai [DCTT(IT)] and Hon'ble Dispute Resolution Panel-1 (DRP) erred in denying the benefit of Article 8 of the Double Taxation Avoidance Agreement between India and UAE (Tax Treaty) on the shipping income [including inland haulage charges (IHC)] derived from operation of ships in international traffic. (2) On the facts and in the circumstances of the case and in law, the learned DCIT(IT) and Hon'ble DRP erred in not following the order of Hon'ble Income Tax Appellate Tribunal, Mumbai Bench passed in Appellant's own case for AY 2016- 17 and AY 2017-18. (3) On the facts and in the circumstances of the case and in law, the final assessment order dated 27 January 2025 passed by the Ld. DCIT(IT) under section 143(3) read with section 1440(13) of the IT Act, having been passed beyond the limitation period provided in terms of section 153 of the Income-tax Act, 1961 (IT Act), is illegal, being barred by limitation, void-ab-initio and is therefore liable to be quashed. (4) On the facts and in the circumstances of the case and in law, the learned DCTT(IT) and Hon'ble DRP erred in denying the benefit of Article 8 of the India- UAE Tax Treaty to the Appellant by holding it liable to tax in India under section 44B of the IT Act with respect to its shipping income of Rs. 43.58,36,295 [being 7.5% of total freight collections (including IHC) of Rs. 581,11,50,603] derived from operation of ships in international traffic. (5) On the facts and in the circumstances of the case and in law, the learned DCTT(IT) and Hon'ble DRP erred in not holding that the above shipping income earned by the Appellant under its arrangement with Transworld Feeders FZCO is also covered by Article 8(4) of the India-UAE Tax Treaty and hence not liable to tax in India. (6). On the facts and in the circumstances of the case and in law, the learned DCTT(IT) and Hon'ble DRP erred in denying the benefit of Article 8(2)(b) of the India-UAE Tax Treaty without appreciating that the income earned is derived from the rental of containers and used in connection with the Appellant's operation of ships international traffic covered under Article 8(2)(b) of the India- UAE Tax Treaty as per which they are not taxable in India. (7). On the facts and in the circumstances of the case and in law, the learned DCIT(IT) and land Haulage Charges of Rs. 20,37.59,089 earned by the Appellant and taxing the same at 10% as per Rule 10 of Income-tax Rules, 1962. (8). On the facts and in the circumstances of the case and in law, the learned DCTT(IT) and Hon'ble DRP erred in holding that the Appellant has a fixed place PE in India under Article 5(1) of the India-UAE Tax Treaty. (9). On the facts and in the circumstances of the case and in law, the learned DCIT(IT) and Hon'ble DRP erred in holding that Avana Logistek Limited (ALL) as Avana Global FZCO Assessment Year 2022-23 dependent agent PE of the Appellant in India under Article 5(4) of the Tax Treaty without appreciating that ALL is an independent agent within the meaning of Article 5(5) of the India-UAE Tax Treaty. (10). On the facts and in the circumstances of the case and in law, the learned DCTT(IT) and Hon'ble DRP erred in inadvertently denying the benefit of Article 8 of the India-UAE Tax Treaty on the entire freight income of Rs. 5,81,11,50,603 (including IHC of Rs. 20,37,59,089) instead of intended freight income of Rs. 4.55.67.59,260 being freight income earned by the Appellant from cargo/containers loaded on vessels of other operators of the Appellant's pooling partner i.e. Transworld Feeders FZCO. (11). On the facts and circumstances of the case and in law, the learned DCIT(FT) erred in levying interest of Rs. 4,50.43.438 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 100% Double Income-tax Relief Certificate issued by the learned DCIT(IT). (12). On the facts and circumstances of the case and in law, the learned DCTT(IT) erred in initiating penalty proceedings under section 270A of the IT Act without appreciating that the Appellant has not under-reported any income.”
Assessee has raised as many as 12 grounds. However, ground No. 4, 5 and 6, all relate to one issue in respect of denying the benefit of Article 8 under India-UAE Double Taxation Avoidance Agreement (DTAA) and holding it liable to be taxed in India u/s.44B in respect of shipping income of Rs. 43,58,36,295/-, derived from operation of ships in international traffic. Ground No.7 deals with denial of benefit under Article 8 of the same treaty of Inland Haulage Charges (IHC) of Rs.20,37,59,089/-.
3.1. Both the above stated issues are squarely covered by the decisions of the Co-ordinate Bench in assessee’s own case for A.Y.2016-17 in ITA No. No.7113/Mum/2019 dated 30.08.2021; for A.Y.2017-18 in ITA No. No.1079/Mum/2021 dated 16.06.2022 and for A.Y.2018-19 and 2021-22 in ITA No. No.2214 & 2239/Mum/2025 dated 18.07.2025, respectively.
3.2. Ground No. 1 and 2 are general in nature and therefore, needs no separate adjudication.
3.3. Ground No.3 is in respect of legal issue on the limitation period which is left open and not adjudicated upon as the case of the assessee is dealt on merits, being squarely covered by the decision of the Co-ordinate Bench in its own case noted above.
Brief facts of the case are that assessee is incorporated and physically domiciled in United States of Emirates (UAE). There is no dispute on the entitlement of benefits applicable under the India-UAE DTAA to the assessee who is engaged in the business of operation of ships in the international traffic and has earned freight income from the same. During the year under consideration assessee received an amount of Rs.581,13,50,603/- in the form of freight income and other related charges in India which were not offered to tax on the ground that the said income is exempt under Article 8 of the India-UAE DTAA as assessee is in the business of operation of ships in the international traffic. These income of the assessee include freight income, terminal handling charges, inland haulage charges and detention charges in India.
From the submissions made by the assessee, ld. Assessing Officer noted that such incomes were earned from multiple ports from India involving hundreds of ships voyages with ships of different names and charterers. While rejecting the claim of the assessee, ld. AO in his draft assessment order passed u/s.144C(1) noted in para 4.6 that similar addition have been upheld by ld. DRP in its directions in the case of the assessee for A.Y.2016-17, 2017-18 and 2018-19. He made reference to these assessment years which travelled up to the Co-ordinate Bench and findings were held in favour of the assessee.
5.1. Before the ld. DRP, assessee made detailed submissions raising its objections. On both the issues dealt in ground no. 4, 5, 6 and 7 of the present appeal, ld. DRP observed that the years involved had come up for directions in A.Y.2017-18 and on the basis of those directions, it held that basis of its directions shall be directions issued for A.Y.2017-18 and earlier years to apply mutatis mutandis.
We thus, note that authorities below have placed their reliance on their observations and findings made in the preceding assessments years in assessee’s own case to adjudicate on the matter before us on the two issues. In this context, we perused the orders of the Co- ordinate Bench in assessee’s own case (supra). From the perusal of the order for A.Y.2016-17, we note that benefit of Article 8 was extended to entire freight receipts irrespective of whether the earnings are relating to feeder vessels or by the ships in international traffic. Relevant paragraphs from the said decisions are extracted below:-
“As learned DRP fairly accepts the issue is covered, in favour of the assessee, by Hon'ble jurisdictional High Court's judgement in the case of Balaji Shipping (supra). The mere fact that an appeal against the said judgement is pending before Hon'ble Supreme Court does not dilate the binding nature of this precedent. Once Hon'ble jurisdictional High Court takes a view, we are bound to follow the same-in letter and in spirit. Respectfully following the same, we uphold the plea, of the assessee and direct that benefit of article 8 must be extended to entire freight receipts-irrespective of whether the earnings are relating to feeder vessels or by the ships in international traffic. The assessee gets the relief accordingly.” 6.1. In respect of inland haulage charges referred in ground No.7 of the present appeal, we refer to the decision of the Co-ordinate Bench for A.Y.2017-18 (supra) which held that these charges are inextricably Avana Global FZCO Assessment Year 2022-23 linked to shipping business in international traffic. According to the Co-ordinate Bench, activity of shipping a container from inland to the port for further shipping in international traffic, is an integral part of operation of ships which cannot be disintegrated from profit derived from shipping business as envisaged under Article 8 of India-UAE DTAA. It was thus, held that it is not taxable as business profit in India. Relevant para from the said decision is extracted below:-
“15. The Hon'ble Jurisdictional High Court in the case of CIT vs. Safmarine Container Lines NV (supra) reiterated the law expounded in the case of Balaji Shipping (UK) Ltd. (supra). Thus, in the facts of the case and the decisions referred above we find merit in ground No.5 of the appeal. We have no hesitation in holding that Inland Haulage Charges earned by the assessee are inextricably linked to shipping business in international traffic. The activity of shipping container from inland to the Port for further shipping it to international traffic is an integral part of operation of ships. Hence, 'IHC cannot be disintegrated from profit derived from shipping business as envisaged under Article -8 of India-UAE DTAA. Ergo, 'IHC' are not taxable as business profit in India. The ground No.5 of appeal is allowed.” 6.2. Later, the Co-ordinate Bench while dealing in appeals for A.Y.2018-19 and 2021-22 in assessee’s own case, followed earlier two decisions on both the issues, to allow the appeals by the assessee.
6.3. Before us nothing cogent was brought on record to controvert the factual matrix as well as position of the law both, under the Act and the DTAA. Since the material fact remains the same, we following the decision of the Co-ordinate Bench in assessee’s own case on both the issues dealt in ground no. 4, 5, 6 and 7 are allowed.
6.4. Ground no. 8, 9 and 10 are rendered academic in view of our finding given in the above paragraphs while dealing with ground no. 4, 5, 6 and 7. They are therefore, not adjudicated upon.
In the result, appeal of the assessee is allowed.