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Facts
The assessee, incorporated in Singapore and engaged in shipping, received a sum of Rs. 986,40,16,080/- from India. While offering Rs. 2,94,74,074/- as income from coastal shipping under Section 44B, the balance was claimed exempt under the India-Singapore DTAA. The AO, however, treated the entire amount as royalty.
Held
The Tribunal held that the receipts from the shipping business were not royalty. It noted that previous appeals on similar issues for AY 2016-17 and 2017-18 were decided in favor of the assessee by the Tribunal and confirmed by the Delhi High Court.
Key Issues
Whether the receipts from shipping operations in international traffic, specifically inward and outward freight, are taxable as royalty in India, or exempt under the India-Singapore DTAA.
Sections Cited
147, 144C(13), 44B, 263
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Income Tax Appellate Tribunal, DELHI BENCH “D”, DELHI
Before: SHRI VIKAS AWASTHY & SHRI NAVEEN CHANDRA
अपीलाथ� �ारा/ Appellant by : S/Shri Ajay Vohra, Sr. Advocate with Aditya Vohra, Advocate �ितवादी�ारा/Respondent by : Shri Nikhil Kumar Govila, CIT-DR सुनवाई क� ितिथ/ Date of hearing : 09/07/2025 घोषणा क� ितिथ/ Date of pronouncement : : 23/09/2025 आदेश/ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the assessment order dated 24.12.2024 passed u/s. 147 r.w.s. 144C(13) of the Income Tax Act,1961(hereinafter referred to as ‘the Act’) for assessment year 2018-19.
The assessee in appeal has raised multiple grounds assailing assessment order. However, primary ground raised in the present appeal is against the findings of the Assessing Officer (AO) in bringing to tax amount of Rs.983,45,42,010/- as income from royalty.
(AY 2018-19) 3. The brief facts of the case as emanating from records are: The assessee was incorporated in Singapore and he is engaged in the business of owning, operating and chartering of ships to carry dry bulk and break bulk cargo. It is a joint venture between Tata Steel Ltd. an Indian Company and NYK Holding B.V, a company incorporated in the Netherlands which is a subsidiary of Japanese company, Nippon Yusen Kabushiki Kaisha (NYK Japan). During the period relevant to assessment year under appeal, the assessee received a sum of Rs.986,40,16,080/- from India. The assessee offered receipts amounting to Rs.2,94,74,074/- to tax under the head Profits and Gains of Business or profession under the provisions of section 44B of the Act stating it to be receipts from costal shipping. In respect of rest of the amount, the assessee claimed that the same is exempt under Article 8 of the India- Singapore DTAA. The claim of the assessee did not find favour with the Assessing Officer. The AO held the entire amount of Rs.986,40,16,080/- as royalty taxable in India at the rate of 10%. Hence, present appeal by the assessee.
Shri Ajay Vohra, Sr. Advocate, appearing on behalf of the assessee submits that the issue raised in the present appeal is squarely covered by the decision of the Coordinate Bench of the Tribunal in assessee’s own case in for AY 2016-17 decided on 09.03.2023 and by the decision in for AY 2017-18 decided on 07.06.2023. The Tribunal in aforesaid assessment years deleted the addition on merits. Against orders of the Tribunal, the Revenue filed appeal before the Hon’ble Delhi High Court in ITA No. 148/2024 and 162/2024, the Hon’ble Delhi High Court vide order dated 18.03.2024 dismissed both appeals of the Revenue. Hence, the issue has attained finality in favour of the assessee. The ld. Counsel for the assessee pointed that the DRP in its directions has recorded the fact that the issue has been decided in favour of the assessee by the (AY 2018-19) Tribunal, as well as, by the Hon’ble High Court in AY 2016-17 & 2017-18, and directed the AO to grant relief if the issue in the present appeal is identical to the one already decided in assessee’s case in the preceding assessment years. The AO in a mechanical manner and after referring to the decisions of the Tribunal and the Hon’ble High Court, still toed the old line and held the receipts as royalty taxable in India at the rate of 10% on gross basis. The AO failed to comply with the directions of the DRP.
Shri Nikhil Kumar Govila, representing the department fairly stated that the issue raised by the assessee in present appeal has been considered by the Tribunal in assessee’s own case for AY 2016-17 and 2017-18.
Both sides heard, orders of the authorities below examined. The short issue for consideration in present appeal is; Whether the receipts amounting to Rs.986,40,16,080/- are in the nature of royalty and taxable in India.
We find that this is a perennial issue arising since AY 2016-17 in assessee’s case. The CIT(A), International Taxation u/s. 263 of the Act vide order dated 25.03.2022 had initially raised this issue. The assessee filed appeal before the Tribunal assailing revisional proceedings in (supra), the Tribunal vide order dated 09.03.2022 set aside the revisional order passed u/s. 263 of the Act. On merits of the issue, the Coordinate Bench held as under:-
26. Lastly, we will deal with the decision of learned CIT in treating the receipts from operation of ships in international traffic to be in the nature of royalty income. As discussed earlier, the assessee owns substantial number of vessels for transportation of goods from the ports outside India to ports in India and vice versa. Invoices raised by the assessee demonstrate that the assessee charged fee for transportation of goods and not towards leasing of the vessels. Therefore, the (AY 2018-19) finding of learned CIT that the receipts from the shipping business is in the nature lease rental, hence royalty, appears to be contrary to facts on record. At this stage, we must observe, the assessee had three types of shipping income in the year under consideration, viz., income from coastal shipping, income from inward freight and income from outward freight. Insofar as, income from coastal shipping is concerned, the assessee has offered it to tax under section 44B of the Act. Whereas, income from inward freight and outward freight was claimed as exempt under Article 8 of the treaty. Interestingly, learned CIT has held the inward freight income as royalty and has directed the Assessing Officer to tax such income amounting to Rs.903,54,20,929/- by applying the rate of 10% on gross basis. However, in respect of income from coastal shipping and outward freight, learned CIT has accepted the claim of the assessee as his specific direction is only with regard to the income from inward freight. Further, though, in the show cause notice issued under section 263 of the Act learned CIT has observed assessee’s receipts are in the nature of FTS, however, ultimately he has treated a part of the receipts as royalty. Thus, there are gross inconsistencies in the approach of learned CIT. A conjoint reading of the show cause notice as well as order passed under section 263 of the Act coupled with the fact that ultimately he has restricted his directions only to inward freight income, thereby, accepting assessee’s claim under section 44B in respect of income from coastal shipping and claim of exemption under Article 8 of the treaty in respect of income from outward freight amounting to Rs.56,13,86,432/-, reveals the mechanical approach of learned CIT in invoking jurisdiction under section 263 of the Act. Meaning thereby, various inconsistencies in the approach of learned CIT gives an impression that he himself was not sure about the nature and character of shipping income earned by the assessee.
In AY 2017-18, the AO made addition on identical set of facts on this issue. The assessee filed appeal before the Tribunal in (supra) against the said assessment order. The Tribunal following the decision rendered in assessee’s case in (supra), allowed appeal of the assessee vide order dated 07.06.2023 9. Thereafter, the Revenue filed appeal against the aforementioned Tribunal orders before the Hon’ble Delhi High Court in ITA No. 148/2024 and 167/202, (AY 2018-19) respectively. The ld. Senior Standing Counsel representing the department fairly conceded before the Hon’ble High Court that the question of treaty shopping does not arise in the facts and circumstances of the present case. Thus, in light of statement made by Senior Standing Counsel for the department, both appeals by the Revenue were dismissed.
In the impugned assessment year, we find that the facts are no different. The DRP has taken note of the decisions of the Hon’ble High court and the Tribunal in assessee’s own case for AY 2016-17 & 2017-18 and thereafter directed the AO to examine whether the department is in appeal against the order of Hon’ble High Court. We are of considered view that such directions by the DRP are superfluous as the appeal of the Revenue before the Hon’ble High Court was dismissed on the statement made by Senior Standing Counsel for the Department. Therefore, no question of further appeal against such order arises were the same has been passed based on the statement by Counsel for the Department.