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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI PAVAN KUMAR GADALE, JM Shri Nishant Thakkar Shri Milind Chavan, DR
Date of hearing : 08.12.2021 Date of Pronouncement: 31 .01.2022 ORDER PER PRASHANT MAHARISHI, AM:
This appeal is filed by Hapag-Lloyd AG [ the Appellant/ Assessee] against the order dated 19th April, 2021 passed by The Dy. Commissioner of Income Tax (International Taxation) 2(2)(2), Mumbai (the Learned Assessing Officer/ AO ) u/s 143 (3) rws 144C (13) of The Income tax Act [ The Act] pursuance to the directions of The Dispute Resolution Panel-1, Mumbai (the learned DRP), issued on 13/3/2021 wherein the total income of the assessee
2. The assessee has raised the following grounds of appeal:-
“1. erred in assessing the income of the appellant at Rs. 1,29,14,700/– as against Rs Nil returned income
Taxability of freight charges of INR 17,21,95,959/- from transportation of cargo through feeder vessels
2. erred in holding that freight income from transportation of cargo through feeder vessels is not eligible for benefit under Article 8 of India-Germany DTAA,
3. erred in holding that while income from feeder vessels would fall within the ambit of section 44B of the Act whereas the same shall not eligible for benefit under Article 8 of India-Germany DTAA:
4. erred in not taking cognizance of the decision of jurisdictional Bombay HC/ ITAT in the Assessees own case for AY 2005-06 to AY 2011-12, AY 2013-14, AY 2014-15, AY 2015-16 and AY 2016-17 wherein the Hon'ble HC/ Hon'ble ITAT has held that freight income from transportation of cargo through feeder vessels is eligible for benefit under Article 8 of the India- Germany DTAA;
Hapag Lloyd India Private Limited (HLIPL') held to be agency permanent establishment ('PE') of the Assessee in India
6. without prejudice to the above, erred in not appreciating that HLIPL is not a dependent agent of the Appellant as per Article 5 of India-Germany DTAA;
7. without prejudice to the above, failed to appreciate that even if it is held that HLIPL constitutes an agency PE of the Appellant in India, no further profits could be attributed to such PE since the Appellant has remunerated HLIPL on an arm's length basis;
Short grant of TDS credit of INR 25,06,606/-
8. erred in not adjudicating the ground and not following the directions of Hon'ble DRP wherein the Hon'ble DRP has clearly instructed the learned AO to verify the submissions and claims of the Appellant and accord TDS credit where legitimately due to the Appellant
failed to appreciate the written submissions and evidences filed by the Appellant before the learned AO;
10. erred in not granting TDS credit to the extent of INR 25,06606/- which was incorrectly deposited in the PAN No of the Agent of Appellant whereas Agent has not taken credit for the same;
Levy of interest u/s234 B of the Act
12 . erred in levying interest of ₹ 2,658,684/– u/s reboot B of the act as against rupees nil payable by the appellant initiation of penalty proceedings u/s 270A of the Act
13. erred in initiating penalty proceedings u/s 270 A of the Act
14 erred in law in levying penalty on account of furnishing inaccurate particulars of income which is not applicable u/s 270A of the Act
The fact shows that assessee is a limited liability company incorporated and is a tax resident of Germany. It is engaged in transportation of cargo to and from India. It also transports cargo on vessels owned/chartered/pooled on slot arrangement basis. The assessee has claimed that its income is not chargeable to tax in India as per the provisions of Double Taxation Avoidance Agreement [ DTAA] between India and Germany.
It filed original return of income on 30.11.2016, declaring a income of ₹186,92,78,320/- which was revised on
The learned Assessing Officer held that Revenue has not accepted the decision of Hon’ble Bombay High Court in the case of Balaji Shipping (supra) and in assessee’s own case
The assessee filed objection before the DRP, who rejected the objection of the assessee with respect to the taxability and applicability of Article 8 to the feeder vessels income. With respect to the permanent establishment, the learned DRP following its directions for Assessment Year 2016-17
Based on these directions, the learned Assessing Officer passed a final assessment order under section 143(3) read with section 144C(13) of the Act on 19.04.2021 determining the total income of the assessee at ₹1,29,14,697/-. The directions with respect to the grant of credit of tax deducted at source in the name of subsidiary company to the assessee was not at all dealt with by the assessing officer. Therefore, the assessee is aggrieved with that order has preferred the appeal before us.
8. The learned Authorized Representative submitted that whether assessee is eligible for the benefit of article 8 of India Germany Double Tax Avoidance Agreement for its slot charter income is covered in favour of the assessee in assessee’s own case for earlier years starting from Assessment Years 2006-07 to 2015-16. For Assessment
With respect to ground Nos. 8 to 11, it was stated that the learned Disputed Resolution Panel failed to appreciate the written submission of the assessee. He submitted that ₹25,06,606/- has been deposited in the PAN number of the agent of the assessee but agent of such assessee has not claimed credit of such tax as, it is deducted on freight payment which belongs to the assessee. Therefore, the credit of the same needs to be given to the assessee. He referred to the paper book filed containing 309 pages, which was part of the additional evidences filed before the learned Dispute Resolution Panel as well as the application before the learned Assessing Officer. He submitted that despite the direction of the learned dispute resolution panel the learned assessing officer has not carried out such directions. He further stated that on identical facts and circumstances in the case of the assessee for assessment year 2016 – 17 the coordinate bench vide its order dated 31st of January 2020 has set- aside the issue back to the file of the learned assessing officer as per paragraph number 16 of that order. He therefore submitted that with similar direction to the learned assessing officer this ground of appeal be allowed.
The learned Authorised Representative submitted that issue has been considered and decided by the co-ordinate Bench in assessee’s own case for earlier years.
We have carefully considered the rival contentions and perused the orders of the lower authorities.
Ground number 1 of the appeal is general in nature, no arguments advanced and therefore same is dismissed.
Ground number 2 – 4 is with respect to the taxability of freight charges amounting to ₹ 172,195,959/– from transportation of cargo through feeder vessels. During the year, assessee has earned total freight income of ₹ 24,923,710,917/–, out of which income from feeder vessels was ₹ 172,195,959/–. Which is approximately 0.69% of the total freight income earned by the assessee.
ARTICLE 8
SHIPPING AND AIR TRANSPORT
1. Profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
If the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship is a resident.
3. For the purposes of this Article, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of Article 11 shall not apply in relation to such interest.
On the basis of above it is required to be decided that whether the freight income received on account of transportation of cargo on vessel Under slot arrangement is eligible for benefit of exemption to the assessee or not. In assessee’s own case for assessment year 2007 – 08, identical issue arose wherein the honourable Bombay High Court in (2013) 31 taxmann.com 64 (Bombay) following the decision in case of DIT (International taxation) versus Balaji shipping UK Ltd (2012) 211 taxmann 535/24 taxmann.com 229, per paragraph number 2, in appeal filed by the assessee against the order of the coordinate bench which held that the agreements among consortium members were not cool/joint men’s business arrangements but were merely slot arrangements and that the freight income received on account of transportation of cargo on feeder vessel would be ineligible for benefit of article 8, the honourable High Court set aside the order of the coordinate bench and remanded the matter back to the coordinate bench for fresh consideration in the light of decision of the honourable court in case of Balaji sipping UK Ltd (supra).
Pursuant to above remand by the honourable High Court, the coordinate bench in ITA number 8854/MUM/2010 on 14/8/2013, while recording the fact of the order of the “7. We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of exemption of income Under the provisions of double taxation avoidance agreement. The assessee is a sipping company engaged in the operation of ships in the international traffic and is a tax resident of Germany. The assessee for the relevant year had declared gross freight collection of ₹ 6,879,957,893/– and the entire income was claimed as exempt Under the provisions of DTAA between India and Germany. Under article 8 of the India Germany treaty, profit from operation of ships or aircraft in international traffic is taxable only contracting State in which place of effective management of the enterprise is situated. Further clause 4 of article 8 also provides that these provisions will apply to the profit from participation in pool or a joint-venture business or in international operating agency. The AO took the view that the provisions of DTAA would apply only to income from operation of ships which were either owned or chartered by the assessee and not to income from other ship/vessels. AO noted that the freight in respect of Germany by the ship, owned, chartered by the assessee or through vessel was only to the extent of ₹ 3,007,821,923/–. He, therefore, granted
We find that the issue raised in this appeal as to whether the double taxation exemption provision will be available even in respect of sipping facilities used by the assessee on slot sharing arrangement basis has already been considered and decided by the honourable High Court of Delhi in case of Director Of Income Tax (International Taxation) Versus Balaji Shipping vide order dated 6 August 2012 in income tax appeal number 3024 and 3215 of 2009. In that case also the assessee in addition to own/chartered ships had also availed slot hire facilities Under connecting Agreements with owner/charter of feeder vessels. In some cases the cargo had been transported to the final international
8.1 The High Court referred to judgement of Honourable High Court of Delhi in case of Director Of Income Tax versus KLM Royal Dutch airline (178 taxmann 241) in which assessee was engaged in the business of operating an airline in international traffic had obtained license in respect of premises at Mumbai from airport authority of India. The assessee had entered into an agreement with CSC (P) Ltd for cargo handling. The assessee had adjusted the license fee/rent paid to the airport authority against the payment made to CSC (P) Ltd. The High Court held that the rental income was inexicably [sic. inextricably] linked to cargo handling business of the assessee and, therefore, it was the part of the income from business of operating an airline in international traffic and was eligible for exemption Under the treaty.
8.2 The High Court also referred to OECD model convention on avoidance of double taxation which provides that the treaty provisions relating to shipping will also apply to the activities directly connected with the operation of ships and also to activities indirectly connected which were ancillary to such operations. The article 4.1 of the model convention provided that any activity carried out primarily in connection with transportation by ships
8.4 The learned DR pointed out that the judgement in case of Balaji sipping UK Ltd (supra) was 8.5 Considering the facts and circumstances of the case and for the reasons given earlier, we hold that the assessee will be eligible for exemption Under the treaty provisions in respect of revenue earned from feeder vessels obtained by the assessee on slot hire arrangement basis. We, therefore, set-aside the order of CIT (A) and allow the claim of the assessee.”
The above order of the coordinate bench was subject matter of challenge before the honourable Bombay High