DDIT (IT) 1(1), MUMBAI vs. APL CO. PTE. LTD, MUMBAI

HI aitiyufE"tdt "TT"ixiz Income-tax Appellate Tribunal _"L"Bench Mumbai Tdat 7oz,ut TaRT 94, * Tv * ,7fTZ Member and Ram Lal Negi Judieial Member Before S/Shri Rajendra,Accountant E4/I2AMum/20L4feky 7f /Assessment_ Year: 2010-14 41TF 34 # /L] Asstt. Director of Income MX APL Director Co.Pte. Ltd. Taxation)-! ( !) Clo. APL (India) Pvt Ltd. Scinda acos), Mumbai-40o 038. 247 Park, Hincon House; B-Wing Vs. Sth Floor; LBS Marg, Vikroli (W) Mumbai-400 083. PAN:AAECA I501 B (Tateff Respondent) (ardfleiraf /Appellant) Aterfrwr arf /Assessment Year: 2010-1! 3RTF 3r # LLA /1928/Mum/2014 f APL Director CoPte. Ltd. ADIT (Intl. Taxation)-!( V) v/s Clo. APL (India) Pvt Ltd: Mumbai-83 . Mumbai-400 038. (Trreff Respondent) (rffaeff /Appellant) TTer/c.O. No.[Z/Mum/2015 Ltd. ADIT (Inl Taxation)-H)I) APL Director Co.Pte_ Vs. Scindia House_Mumbai-400 038 Mumbai-400 083. (Tarreff Respondent) (Cross objector/ 7777274T) Revenue by: Shri Samuel Darse-CIT-DR Assessee by: Shri Dharmesh Bafna & Ms; Chandini Shah Date of Hearing: 11.09.2017 TT4TS #arfta Date of" Pronouneement: 11.10.2017 #9vT #Trta _ 3Tttt affvw,,961 # ?TIT 254() $ &7ffv 3ra? Order 1/s.254()0f the Income-tax Act,1961(Act) JTIz T ETPER RAJENDRAAM: Officer (AO) passed in pursuance of Challenging the order dated 22/01/2014,of the Assessing filed the appeal for the above the order of' the DRP dated 18/12/2013,the Assessee has the directions of the Dispute Resolution(DRPJin his mentioned AY The AO has challenged has also filed eross objections(CO) for the year under appeal appeal The assessee the course of hearing before Us, the Authorised Representative(A R)stated that the 2 During Grounds 1-3, 5-6 and 8. Hence same stand dismissed assessee was nOl interested in pursuing as not pressed. ITN2L2AMu/20t: of' the DRP in holding it to have 3 First GOA raised by lhe assessee,is about direction meaning of Article -5(1) und Article -5(8) of Permanent Establishment(PEJin India within the Ground No2. It is about denying (he benefit of the Tax Treaty. Ground No.4 is extension of Article 8 of the Treaty with respect t0 freight of Rs.19.91 crores: ITA/ZIZAA/14(1O-|/),/928/14(10-|) CO//H/Mum/OIS-APL Co Pte LId Assessee-company is a tax resident of Singapore and is engaged in the business of opera tion of ships in International traffic It filed its return of income on 10/09/2010 declaring its income of Rs.Nil. In its return Of income,it Was claimed that gross freight earning including detention collection of Rs.968.22 crores was not taxable as per Article 8(1) of the Double Taxation Avoidance Agreement (DTAA)that the profit derived from operation of ships in international traffic by an enterprise of Singapore were taxabe only in Snagapore, that aS per Article -& of" the DTAA income arising from shipping(either from ship owned or from joint business or from participation in pool) was taxable in the State of which the assessec enterprise was resident. During the course of assessment proceedings the AO directed the assessee t0 file copies of ship registration certificatelcopies of chartered party agreements and pooling arrangements along with the proof" So as (0 prove that the income shown and claimed exempt in respect of such vessel Was in respect of shipping As per the AO the assessee produced ship registration certiticate and copies of chartered party Agreement in respect of 122 ships,that it could not produce any evidence about remaining 15 ships to substantiate the claim made by it for exemption He observed that benefit under Article -8 was only available to an enterprise that Was operating the ships; that the Onus t0 prove the income (rom particular ship shown by the assessce was in respect of shipping was on the assessee that the assessee had (ailed to subs ~tantiate its claim for 15 ships. The AO directed the assessee to explain iS (0 why the relief claimed under DTAA for 15 ships should not be rejected and that income should not be estimated as per Rule-10 of the Income tax rules, 1962 (Rules). After considering the submission of' the assessee,the AO held that the assessee had an exclusive agent and front office in the form of M/s. APL (India) Pvt. Ltd. (APL)that the case of the assessec was covered by Article-5(I) of the DTAA, that its business was carried OUt through a fixed place through its agent/front office in India Finallyhe held that assessee waS having a PE in India in the form of its agent/front office. 3.1.Aggrieved by the draft assessment order of AO the assessee filed objections before the DRP-I,Mumbai and relied upon certain case laws A fter considering the available material, the DRP held that the assessee had engaged !5 feeder vessels for transportation Of cargo to and from mother vessels that the AO had rightly denied the benefit of Article-8 0f the Tax Treaty,that it had not been able to furnish documents required by the AO.that it had 10 establish that journeys had been performed for its business i.e operation Of ships in inter national traffic, that during the proceeding before the DRP it had not furnished copies Of ship ITA/2I24MI4(IO-I1)1928/M/14I0-1/)& CO/I [7/Mum/2O1S-APL Co Pte Ltd registration certificates/copies of chartered party agreements and cooling arrangement along with the detail of journeys performed The DRP referred t0 the case of Delmas France (121 TTJSOI) and held that treaty benefit could not be given to the assessee in respect of freight collected from /5 vessels amounting to Rs./9.9 [ crores: 3.2 Before US, the AR argued that revenue from the !S vessels was nothing but income from operation of ships in international traffic;that all the vessels were chartered governed by pool relief under Article 8 of the tax Treaty was available for those ships also He arrangements referred to cases of(TA/443S/Mum/2013 dtd.16/2/2017) and AP Moller (76 taxmann: com 143) of the Hon"ble Bombay High Court Alternativelyit Was argued that the Transfer Pricing Officer(TPO)had accepted that international transactions, entered into by the assessee;with its Arm Length,that if the transactions were at ALP I1() Associate Enterprise(AE)were at further attribution was possible: He referred t0 case Of ANL Singapore Pte Ltd.( 145 ITD) 93). Representative(DR)supported the order of DRP and contended that the The Departmental assessee had nol filed necessary details about the 15 ships before the AO or DRP,that in earlier year the Tribunal had upheld the order of the revenue authorities for the income of the ships for which documents were not submitted. In his rejoinderthe AR stated that the DRP had relied upon the case of Delmas that Delmas that in the assessee $ Own case it was held that even was contrary (0 order of Balaji Shipping the assessee waS entitled t0 claim benefit of if entire journey WaS through other vessels Article-8 of' the DTAA Hc referred to case of Balaji Shipping U K Ltd.(253 CTR 460). rival submissions and perused thc material before us.In our opinion: 3,3,We have heard the adjudicated is as to whether the income carned by the assessee from the only issue to be operation of' 15 ships was taxable or not in India in light of the above-mentioned provisions not We find that the assessee was 0 tax resident of Singapore. that it was of" the DTAA or of ships in international traffic;that it had claimed that income engaged in the operation under appeal from the operations of ships was not taxable as per earned by it during the year Article 8 of the tax Treaty L that it had operated 137 ships for its business for the year under consideration that the AO and the DRP had held that income earned by it from operation of be taxed in India as it had not filed requisite detailsthat the AO had directed 15 ships was to the assessee to furnish copies of ship Registration Certificate copies of Charter Party agrec ments and Pooling agreements;etc for all the ships(137)that it had filed requisite document for 122 ships only, that the AO had given a categorical finding of fact that it ary evidences documents for 1S ships that he taxed the aggregale freight of Rs./9. 9 erores did not produce ITA/2I 24/M/14(10-/11./928//14(10-HHJ CQ/1!7/Mum/zo s-APL Co Pte Ld section 44B of the Actthat during the procecedings before the DRP it had filed 7.5%/ aS per bills of lading in respect of five ships and the copy of delivery note ofin respect of copies of the DRP had observed that it had not submitted necessary details about !5 one ship only that it had failed to establish the nexus of the income earned by it and operation of ships and that ships in international traffic. 3.3,1.Before proceeding further it will be useful to refer t0 the Article 8 of the tax Treaty and it reads aS under: "Shipping and Air Transport enterprise of Contracting State from the operation of ships or 1.Profits derived by Gn aircrafi in international traffic shall be taxable only in that State: T shall also apply to profits from the participation in & pool, 2. The provisions of paragraph joint business or and international operating agency engaged in the operation of ships or aircrafi that income arising to an assessee from the operation of ship or From the above,it is clear aireraft in international traffic has t0 be laxed in the contracting state In the case before Us incone from operation of shipping business Was to be taxed in Singapore provided that it had arisen Out of international traffic_ the taxation of shipping business under the DTAAs,lay down 3.3.2.Principlesgoverning prineiples have to appli lied t0 the peculiar facts of a certain guideline to decide issues But,the the foundation stone of any judgment In other words whether particular case,aS they are or case will be applicable or not depends upon the facts of that case In the case judgment has been Iaid down, by judicial forums,as stated carlier;that if a ship under appeal, principle in the business of operating in international traffic its income would or an aircraft in engaged be taxable in the place of its HQButthe facts of operation of ships in international traffic has Pre-condition for claiming exemption from Indian tax law,is to be established by the assessee. earned/accrued (0 an assessee had arisen from operati ion t0 establish the fact (hat the income traffic The onus was on the assessee to prove the fact: Under Section of ships in international Act when any fact is especially within the knowledge Of any person; the 106 of the Evidence himIn the case under consideration;fact of operation of burden of proving the fact is upon within the knowledge of the assessee and it was not ships in international traffic was specially about it So,it was duty of the assessee to prove possible for the AO to have any knowledge operation of ship for deduction We have taken note of the fact that it had not the factum of before the AO required by him Even before the DRPit filed produced any of the documents was submitted. bills of lading for five ships In case of one ship only copy of delivery note the evidentiary value of the documents produced by it,for Without commenting upon ITN2IZA/M/IA(IO-! /)/928/1/14(I0-HJ& COI [7/Mum/20 S-APL Co Pte Ltd claiming exemption from tax provisions of the Act,we would like t0 mention that it had not produced not even a single paper for nine ships that could prove that same were operating in international traffic. Before US also,the assessee had not produced any document to subslantiate its claim.So.as far income from nine ships are concerned,we are of the opinion that same should be taxed as as per the provisions of Act For remaining six ships.aS stated carlier;the assessee had filed some documents We find that while adjudicating the appeal for the AY. 2008-09(TA/ 4435/Mun/ 2013) the Tribunal had dealt the identical issue as under: hackground of the cuse are that the 4ssessee is non-resident 2, The brief facts and Singopore and is also & tax-resident Qf Singapore: It company incorporated under the laws is in the business %f operation of ships in international waters; mainly transportation engaged all across the globe: The business operations as weli Q5 the of cargo and comtainer ships tet are based in Singapore. The assessee- company also accepts cargo for Currigeenenernatonally csend fro from India: In India, (s essee has 4 shipping agent in the corriage form of a wholly owned subsidiary; APL India Pvt. Ltd" Being 4 tax-resident of Singapore 'of Article 4(1) of India- Singapore DTAA, %t sought the benefit of Artiele 8 for its in terms collected from India, Accordingly; 'he return of ineome was filed on gross freight earnings 28.9.2008 & NIL income on {he ground that the gross earnings of Rs;1106.88,52,343/-is nOf view %f Artiele 8(1) of DTAA The Assessing Officer in te coursc of taxable in India in assessment proceedings noted that assessee has shown income from shipping in respect of income &s exempt. The Assessing Officer called for 136 ships and claimed the entire freight details of shipping income and also copies %f ship Registration Certificate copies of Charter Party agreements and Pooling agreements, ete: The Assessing Officer noted that the assessee could produce ship Registration Certificates and copies of Charter Party agreements and of 128 ships and for the balance 8 ships assessee could not other evidences in respect evidences. Accordingly; Ive held that the freight proceeds from following ships produce any under Article 8, details of whieh have been given at para of" will not be entitled for benefit reproduced hereunder the assessment order and which for the sake of ready reference is XXXKK The Assessing' Officer further held that assessee could not establish that it is operating 8 ships On its" own (nd it iS quite possible that these ships might be operated by third these he applied the provistons of Sec: 44B of the Act ad taxed the said Darties dccordinthe receipt @ 7.5%/. Assessing Ofjicer further observed that assessee had an exclusive agent APL India Pvt. Ltd. who performed all the work relating (0 assessee in all in the form of" arrived. Afier detailed discussion, he came t0 xhe the Indian ports where the assessee ships is dependent agent PE in terms of Article 5 of Indid= conclusion that APL India Pvt. Lid. Accordingly, he brought t0 tax (Su of Rs.22,98,870/- in the following Singapore DTAA manner XkIXX Said order, Ussessee preferred an appeal before the Id. CII(A) whereby the Id. 'Tgaimas leuhaned ne incomee Krstly; Dy holaing that benefit of Article 8 cannot be given CIT(A) has total freight of Rs 98.67 crores On the ground that there is no linkage between in1 respect of the feeder vessel and mother vessel for transportation of cargo &S they have been transported throughethira party under Charter Party agreement and;secondly; she proceeded t0 deny the exemption/benefit of Article 8 by holding that the entire freight of Rs !106.89 crores is entire assessed in India by invoking the limitation clause of Article 24 of India-Singapore t0 be DTAA: Now,against the first appellate order assessee has raised various grounds and also various contentions which we shall discuss hereinafier: ITA/2I24/N/I4(10-11).1928/M/14(10-HH)& CO1 7/Munv2015-APL Co Fle Ltd it succinetly; out of total freight receipts of Rs:1106.89 crores from 136 ships, the To put Assessing Officer has the benefit of Article & in respect %f 128 ships for total freight of {held that ewesane % not axable in India: For the balance & ships: for Rs.104.58 crores and total freight of Rs.2.29 crores; AO denied the benefit of Article & XXXXX the freight receipt of Rs.1,36,89,191 - in respect %f ships is concerned, it iS (n 18, So far uS admitted faet that no evidence whatsoever or documents could be furnished hy the assessee either before the Assessing Officer or Ihe CIT(A) or even before US and; therefore; we hola thate HO the extent Qf freight receipt of Rs.1,36,89,19H-the benefit %f Article 8 will not be and same is directed t0 be (axed i India under the relevum available t0 the ussessee statutory provisions Considering the above; we hold that the order of the FAA does not suffer from any legal or has been brought on record t0 prove that facts of the case under factual infirmity Nothing appeal are different from the facts for the AY.2007-08.Effective Ground of appealraised by the assessee,is decided against il, 4.Second effective ground of appeal(GOA.7)is about charging of interest W/s.234B ofthe Act: During the assessment proceeding the AO proposed t0 levy interest Ws.234B.The assessee the issue before the DRP However;it held that same was not be adjudicate by the agitated DRP,as it was related to `variance in income LBefore US, the AR stated that the AO was not authorised to levy interest Ws.234B of the Actas per the provisons of DTAA The DR left the issue to the discretion ofthe Bench We have heard the rival submissions In our opinion,the DRP should have decided the issue speaki ing order But,that does not mean that we cannot decide iLlt raised by the assessee by remained unadjudicated lt Was brought to Our notice that the Depart- is legal issue and has ment had issued Double Income Tax Relief Certificate t0 the assessee Clearly,the assessee tax Besides,for freight income earned by it was liable for was not liable t0 pay advance deduction of tax at source as per the provisions Of section 209(1)dJof the Act: Considering the above we decide ground no.7 in favour ofthe assessee: ITA492SMum/204: S The solitary effective ground of appeal, raised by thc AO is about Inland Haulage Charges (IHC)amounting to Rs. 20 lakhs_ During the assessment proceedings, the AO found that 5.1.We find that the issue of IHC has been dealt with and has been decided by the Tribunal in the cases of Sufamrine Container Line NV (121 TTJ 50) and Freight Systems (India) (P) Ltd (103 TTJ 103) We are reproducing the relevant portion of the order of the Tribunal in the case Of Sufamrine Container Line NV(supra) which reads as under: ITA'2124/14/14(10-11},1928/M/14(10-1& con 7/Mum/zos-APL Co Pte Lid This appeal by the Revenue is directed against the order passed by the CIT(A) on Hth Feb 2005 in relation to the asst. yr: 2001-02. Following ground has been raised in this appeal XKKXX (ii) The inland haulage charges are taxable in India 4s business profits aS these are not covered by $. 44B of the Act. 6 We have heard the rival submissions and perused the relevant material on record First point raised by the learned Authorised Representative is that $ 44B includes [HC' also and by implication, such income is covered under art. 8 and hence not taxable in India due to the tax residency certificate issued by Belgium. In order to appreciate this contention, it would be relevant to refer to the language of $ 44B. It is special provision enshrined for computing the profits and gains %f shipping business in the case of non-residents: Sub-s: (1) provides that notwithstanding anything t0 the contrary contained in ss. 28 t0 434, an assessee being non- resident, engaged in the business Of operation of ships, 4 sum eqtal t0 7-1/2 per cent of the specified in sub-s. (2) shall be deemed to be the "business ineome Sub-s; aggregate amount (2) further provides that the amount paic OI" payable t0 the assessee on account of carriage of passengers; livestock mail or goods shipped at any port Qf India and the amoumt received or deemed t0 be received by the assessee on account of carriage of passengers, livestock; mail or goods shipped at any port outside India shall be deemed aS the business income The casc of the AO is that the IHIC are not covered under 44B The assessee has placed reliace on Explanation to contend that IHC would be covered within its Explanation. At this Stage, it would be relevant t0 consider the text of this Explanation, which 1S &S under "For the purposes of this sub-Section; the amount referred t0 in cl Or cl, (ii) shall inelude the onount paid payable or received or deemed t0 be received, aS the case may be; by wav of demurroge charges or handling charges or any other amount of similar nature: 7, A plain reading Of the Explanation reveals that the demurrage charges or handling churges Or" ty other amount of similar nature have been brougm within the aimbit "{usines income for applying the rate of' 7-1/2 per cent. The very nature of items prescribed in the Explanation being demurrage charges Or" handling charges; which precede (V' other amount of similar nature shows that the latter category has to draw & colour from the items referred t0 in the earlier part The expression 'any Other amount of similar nature Caot be read in isolation by disregarding ihe wafure Qf items preceding ic. Themeaning of the [< be understood in the context of the preceding words; The succeeding expression has doctrine of noscitur & sociis mandates that general word in the company of speeifie words has to be read in the context of the specific words with which it is associated In Such situation; the general words assume the character of the nature of items described in the specific words accompanying them: This doctrine hus been repeatedly affirmed by the Hon 'ble apex Court in several cases ineluding Stonecrafi Enterprises vs. CIT (1999} 153 CTR (SC) 86 (1999) 237 ITR 131 (SC)