HIGH COURT OF BOMBAY
Director of Income-tax (International Taxation)
v/s.
Balaji Shipping UK Ltd.
IT APPEAL NOs. 3024 and 3215 of 2009
AUGUST 6, 2012
JUDGMENT
S.J. Vazifdar, J.
These appeals under section 260-A of the Income Tax Act, 1961 are against a common order of the Income Tax Appellate Tribunal dated 13.8.2008 in Income Tax Appeal Nos.1540/Mum/05 and 2392/Mum/06 pertaining to the Assessment Years 2001-2002 and 2002-2003.
2. By an order dated 29.9.2010, the appeal was admitted on the following substantial questions of law, which we would add, are also of considerable general importance :-
“(1) Whether on the facts and circumstances of the case and in law the income of the assessee by way of slot chartering would form a part of income from operations of ships exempt under Article 9 of the Tax Treaty between India and UK ?
(2) Whether the income of the Respondent on account of slot chartering and use of containers in India is taxable under Section 44 B or 28 to 43 of the Act ?”
3. As regards the second question, we have proceeded on the basis of the appellant’s case that income on account of slot chartering is taxable under section 44B. The question is answered accordingly as regards income from slot chartering. It is not necessary to answer the question in respect of income from use of containers as the respondent’s case does not concern the same.
4. The CIT (A) dealt with the appeals filed by the respondent in separate orders. The Tribunal dealt with the appellant’s appeals and the respondent’s cross-objections by a common order.
5. The respondent – assessee is incorporated in the United Kingdom and is engaged inter-alia in the international transportation of goods by sea.
The facts of Income Tax Appeal No.3024 of 2009 pertaining to A.Y. 2001-2002 are these. The respondent filed its return of income on 5.10.2001 declaring a total income of Rs. 3,00,25,837/-. It showed gross receipts pertaining to freight in the sum of Rs. 40,03,44,489/-. Relying upon section 44B of the Act, the respondent computed its profits and gains chargeable to tax at 7.5% of these receipts to be Rs. 3,00,25,837/-. The respondent claimed exemption under Article 9 of the “Convention between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains” (hereafter referred to as the India-UK DTAA or the DTAA).
6. The Assessing Officer held that the respondent was not entitled to the benefit of the DTAA.
7. The Commissioner of Income Tax (Appeals) and the Tribunal however, held the respondent to be entitled to the benefit of the DTAA.
8. The respondent owned 5226 containers and had leased 2767 containers and used them in the course of its business. The respondent issued bills of lading to its customers for carriage of cargo from India to international ports. The vessels chartered by the respondent did not ply within Indian territorial waters. The respondent therefore, entered into Slot Hire Agreements (or Connecting Carrier Agreements) with M/s. Orient Express Lines Limited (OEL), Mauritius, under which OEL provided container slot spaces to the respondent on its ships (feeder vessels) on an as and when required basis. Availing the slot hire facility, the respondent arranged for the transportation of the goods from ports in India to their final destinations being international ports or to hubs, also ports outside India, from where the vessels chartered by the respondent carried the cargo onwards to the final destination.
The respondent had entered into a charter party agreement with M/s. Littleton Service Inc. in respect of the vessel Orient Aishwarya on which presumably the cargo was transported from the hub ports outside India to the final destination, also to ports outside India. The voyages from India to the final destination or to the hub ports was pursuant to the Slot Hire Agreements. The respondent admittedly earned freight of Rs. 38,12,57,139/- out of the Slot Hire Agreements which the Assessing Officer has taxed.
9. The facts relating to the A.Y. 2002-2003 according to the respondent are these :-
The respondent declared a total freight of Rs. 71,27,91,727/- from the business of operation of ships and claiming the benefit of Article 9 of the DTAA, filed a nil income return. The respondent carried on its business of transporting the cargo between the ports of India and abroad. The India operations were in the Gulf and the far eastern sectors by using the chartered vessels or availing container slot spaces on vessels owned or chartered by other operators pursuant to Connecting Carrier Agreements. The Connecting Carrier Agreements were entered into by the respondent with OEL, Bengal Tiger Line, GMBH, Germany, Oram Shipping(S) Pte Ltd. Singapore and Shreyas Shipping Limited. The respondent had also chartered two vessels – “Orient Stride” and “Trade Fast” from M/s. Balaji Shipping UK Limited, Dubai and M/s. Orient Express Lines, Mauritius respectively. The respondent owned about 5200 containers and had leased about 2750 containers.
A part of the cargo collected from the Indian ports was delivered to the ports outside India directly availing the slot hire agreements. A part of the cargo was also shipped from the Indian ports availing the slot hire agreements to the hubs outside India from where the same were carried to the ultimate destinations also abroad on vessels hired by the respondent. The bills of lading were however, always issued by the respondent in its own name and payment for transportation of the cargo even by connecting carriers on the feeder vessels was made by the respondent. The appellant, as directed by the CIT (A) furnished the details of the cargo collected from the Indian ports in respect of each connecting carrier/charter party agreements as under :-
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