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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEYAND SHRI G. MANJUNATHA
Date of Hearing – 19.06.2019 Date of Order – 28.06.2019
O R D E R PER SAKTIJIT DEY. J.M.
Captioned appeal has been filed by the assessee challenging the final assessment order dated 30th October 2017, passed under section 143(3) r/w section 144C(13) of the Income–tax Act, 1961 (for short "the Act") pertaining to the assessment year 2014–15, in pursuance to the directions of the Dispute Resolution Panel–I (DRP), Mumbai.
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Ground no.1, being general in nature does not require adjudication, hence, dismissed.
In grounds no.2, 3 and 4, the assessee has called into question the taxability of freight charges of ` 30,34,08,701, from transportation of cargo through Feeder Vessels.
Brief facts as culled out from the record are, the assessee company, a tax resident of Germany, is engaged in the business of transportation of cargo to Ports in various countries including India. Generally, the assessee transports cargo on vessels owned, chartered, pooled by it as well as on slot arrangement. Sometimes, it so happens that the vessels of the assessee cannot call at the Indian Ports on account of various reasons, such as, due to large size of Vessels which cannot enter into Ports. In such circumstances, the assessee transports the cargo on feeder vessels from the original port to the Hub Port where vessels of the assessee could be anchored. Thereafter, the cargo is transported from Hub Port to the destination Port inthevessels of the assessee. In course of assessment proceedings, the Assessing Officer called upon the assessee to explain why freight earned by it from the feeder vessels which are neither owned, chartered or leased by it should not be brought to tax as it does not come within the ambit of Article–8 of the India–Germany Double
3 Hapag–Lloyd AG Taxation Avoidance Agreement (DTAA). Further, he called upon the assessee to clarify whether it had a Permanent Establishment (PE) in India. In response to the query raised by the Assessing Officer, the assessee made elaborate submissions stating that as per Article–8(1) of the India-Germany Tax Treaty, profits from operation of ships and aircrafts in international traffic shall be taxable only in the contracting State in which the place of effective management of the enterprise is situated. It was submitted by the assessee that as per judicial precedents, income from slot arrangement is to be construed as income from operation of ships and is an integral part of the business of shipping companies. Further, it was submitted by the assessee that it neither had a fixed place PE nor agency PE in India as per Article–5 of India-Germany Tax Treaty. The Assessing Officer, however, did not find merit in the submissions of the assessee. Relying upon the observations made in the assessment order passed for the assessment year 2007–08, the Assessing Officer ultimately held that the freight charges received from feeder vessels is taxable in India both under section 44B of the Act as well as Article8 of the India-Germany Tax Treaty. He observed, the income earned by the assessee from feeder vessels will not qualify for exemption under Article–8 of the India Germany Tax Treaty. Accordingly, he brought to tax the amount under dispute. Further, the Assessing Officer held that the assessee has a PE in India as per Article–5 of the India Germany Tax Treaty.
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Being aggrieved with the aforesaid decision of the Assessing Officer, assessee raised objections before learned DRP. However, learned DRP did not entertain the objections raised by the assessee. Accordingly, the draft assessment order on the disputed issue was finalized.
At the outset, Shri Nishant Thakkar, learned Counsel for the assessee submitted, the issue has been consistently decided in favour of the assessee by the Tribunal right from the assessment year 2005– 06 onwards. In this context, he drew our attention to the orders passed by the Tribunal in assessment years 2005–06, 2006–07 to 2011–12, 2007–08 and 2013–14. The learned Counsel submitted, the Tribunal’s decision in assessment year 2007–08 was also upheld by the Hon'ble Jurisdictional High Court. Thus, he submitted, the issue is squarely covered in favour of the assessee.
Shri K. L. Kanak, the learned Departmental Representative, though, agreed that the issue has been decided in favour of the assessee in preceding assessment years, however, he relied upon the observations of learned DRP and the Assessing Officer.
We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. As could be seen, the dispute whether freight receipt from the feeder
5 Hapag–Lloyd AG vessels is taxable in India or not is a recurring dispute between the parties since the assessment year 2005–06. The Tribunal in the orders referred to by the learned Counsel has consistently held that the freight receipt from feeder vessels is not taxable as per Article–8 of the India-Germany Tax Treaty. In the latest order passed for the assessment year 2013–14 in ITA no.1441/Mum./2017, dated 31st October 2017, the Tribunal following its earlier decision has held as under:– “16. We are of the considered view that as we have concluded that the benefit of Article 8 of the India–Germany DTAA would also be available to the assessee in respect of the revenue earned by it from the feeder vessels obtained on slot hire arrangements, therefore, the Grounds of appeal nos.5 to 7 pertaining to the validity of the order of the A.O. as regards including the service tax in the freight income for computing the income of the assessee under Sec.44B would be rendered infructuous. We thus in terms of our aforesaid observations dismiss the Grounds of appeal no.5 to 7 raised by the assessee before us.”
9. Pertinently, against the order of the Tribunal for the assessment year 2007–08 holding that the freight income from feeder vessels is exempt from tax in India under Article–8 of the India-Germany Tax Treaty was challenged by the Revenue before the Hon'ble Jurisdictional High Court. However, the Hon'ble Jurisdictional High Court while deciding Revenue’s appeal in vide order dated 28th September 2016, upheld the decision of the Tribunal. In fact, the Assessing Officer as well as learned DRP have not disputed the aforesaid factual position. Thus, as per the decision of the Co–ordinate
6 Hapag–Lloyd AG Bench and the Hon'ble Jurisdictional High Court in assessee’s own case, as referred to above, the issue raised in these grounds stand decided in favour of the assessee. Therefore, respectfully following the same, we delete the addition made by the Assessing Officer. Grounds are allowed.
In view our decision herein above, grounds no.5, 6, 7, 8, 9 and 10, having become academic in nature, hence, they are dismissed.
Ground no.10, challenging the initiation of penalty proceedings under section 271(1)(c) of the Act being pre–mature at this stage, is dismissed.
In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 28.06.2019