Case Law Details
DDIT M/s. Vodafone Essar Infrastructure Limited. Safmarine Container Lines NV, ITA No. 3073/Mum/10 (Mumbai ITAT)
Facts :-Assessee, a company incorporated in Belgium, is engaged in the business of operations of ships in international traffic.During the course of scrutiny assessment proceedings, the Assessing Officer (AO), inter alia, noticed that the assessee is collecting inland haulage charges, from its customers, in respect of goods being transported from the places where containers are stuffed, inland container depots (ICD), to the port where these goods are to be loaded in the ships for international traffic. For example, if the shipping company picks up export consignments, from say New Delhi for shipment to Mombasa, the assessee bills the exporter of such goods inland haulage charges from New Delhi to Mumbai, and also bills the exporter ocean freight from Mumbai to Mombasa through a consolidated single invoice.The amount billed for inland haulage charges included following services (i) placement of empty containers from empty yards to stuffing points, (ii) providing labour for all loading, carting and stuffing cargo, (iii) providing forklift and other equipment for carting and stuffing, (iv) movement of loaded containers from container freight station to loading port, (v) providing cargo inspection to surveyors, and (vi) transportation and movement of containers from inland container depot (ICD) to loading port (JNPT) in Mumbai.The AO was of the view that in such a case, the income from inland haulage charges, i.e. transportation cost of goods from New Delhi to Mumbai, should be taxed in India.
Issue before the Income Tax Appellate Tribunal (‘Tribunal ) :-Whether the income from inland haulage charges is incidental and clearly connected with direct operations of ships and therefore, not liable to tax in India in terms of Article 8 of the India-Belgium tax treaty?
Contentions of the Assessee
- The freight bill issued on the customer was for the entire transportation charges, i.e. ocean freight, inland haulage charges, detention charges etc., and the freight bill was issued for entire leg of transportation, including inland transportation.
- In view to retrospective amendment w.e.f. 1 April 1976, in section 44B of the Income-tax Act, 1961 (the Act), the scope of section 44B is extended to demurrage charges, handling charges or „any other amount of similar nature‟, which, according to the assess eeincluded inland hauage charges as wel.
- It was contended that since inland haulage charges was covered by section 44B and was required to be treated as „freight income , the same is not taxable in ndia in terms of the provisions of Article 8 of the India-Belgium tax treaty.
Contentions of the Revenue
- The income from inland haulage, not being in the nature of income from operations of ships in international traffic, is required to be taxed in the source country, i.e. India, and the provisions of Article 8 of the India-Belgium tax treaty will not come into play to affect the said taxability.
- It was also contended that since inland haulage charges are not covered by the specific provisions of section 44B, the income from such inland haulage charges is required to be taxed as a normal business profit.
- The AO also rejected assessee‟s contention that the inland haulage is „directly connected‟ to the activity of international operation of ships.
- The AO was of the view that as the assessee carried on business in India through a dependent agent, the dependent agent permanent establishment existed under Article 5, and the inland haulage charges were taxable under Article 7 on the net basis.
Observations and Ruling of the Tribunal
- The Tribunal found that the issues raised in this appeal are squarely covered by an earlier decision of the Mumbai Tribunal in assessee‟s own case (reported as DDIT vs. Safmarine Container Lines NV, 120 ITD 71).
- In the earlier ruling, the Tribunal observed that:
─ From the language of Article 8 it clearly emerges that the income derived from the operation of ships in international traffic shall also include income from “any other activity directly connected with such transportation”. This expression has not been further elaborated in tax treaties.
─ Any other activity directly connected with such transportation includes all such functions which facilitate the carrying of cargo from the place of origin to the place of destination in unison.
─ The Tribunal looked at a transaction where the assessee picked-up the goods from Ludhiana, transported them to the port at Mumbai and then shipped them to Nairobi. In that transaction the Tribunal observed that it is unrealistic to segregate this composite activity into two parts and contend that the transportation up to Mumbai port is a distinct activity de hors the further transportation by ship from Mumbai to Nairobi or other countries.
─The situation would have been otherwise if the assessee had only collected cargo from Ludhiana and dropped it at Mumbai without any further obligation of shipping it from Mumbai to Nairobi.
─ The Tribunal did not accept the contention of the AO that the words “connected with such transportation” for understanding to mean only the loading and unloading of the cargo at the port itself.
─ Therefore, the Tribunal, in that earlier ruling in the case of the assessee, held that the inland transportation if coupled with the further shipping of cargo also by the assessee from Indian port to the foreign country, would be construed as the „activity directly connected with such transportation‟. Hence, the case would squarely fall under Article 8(2)(b)(ii) of the India-Belgium tax treaty.
- Citing clause 2 of Article 9 of tax treaty between India and the UK as an example, the Tribunal held that in some treaties the income from journey between states connected with the Contracting State has been kept outside the purview of income from operation of ship in international traffic. In the absence of any similar clause in the treaty between India and Belgium, the inland transportation would be covered within Article 8(2)(b)(ii).
- In the present case, the Tribunal followed its earlier ruling in the case of the assessee and held that inland haulage charges are covered by Article 8 of the India-Belgium tax treaty and not taxable in India.
Conclusion:- The Mumbai Tribunal in this case has observed that unless there is a specific language in the tax treaty which keeps the income from inland transportation in connection with international traffic outside the purview of Article 8 of the tax treaty, inland haulage charges would be considered as directly connected with operation of ship in international traffic and thus are not taxable in India.
