Inland Haulage Charges Exempt Under Article 8 of India-China DTAA: ITAT Mumbai

DCIT Vs COSCO Container Lines (ITAT Mumbai)

Dismisses Revenue Appeal Holding Inland Haulage Charges Covered Under Article 8 of India–China DTAA: ITAT Mumbai

The Mumbai ITAT dismissed the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2020-21. The principal issue was whether Inland Haulage Charges (IHC) received by the assessee, a tax resident of China engaged in international shipping, were exempt from tax in India under Article 8(1) of the India-China Double Taxation Avoidance Agreement (DTAA).

During the assessment proceedings, the Assessing Officer noted that the assessee had received Inland Haulage Charges of Rs.52,68,17,043 and incurred corresponding expenses of Rs.41,81,46,477, leaving Rs.10,86,70,566 claimed as exempt under Article 8(1). The Assessing Officer held that Article 8 exempted only profits from the operation of ships in international traffic and not inland transportation activities. He further treated Cosco Shipping Agencies (India) Pvt. Ltd. as the assessee’s dependent agency permanent establishment (PE) in India under Article 5 and attributed the profit of Rs.10,86,70,566 to the PE.

The Commissioner (Appeals) held that IHC formed part of the composite activity of transportation of goods in international traffic and, relying on judicial precedents, concluded that Article 8(1) covered such receipts. The issue relating to agency PE was treated as academic.

Before the Tribunal, the Revenue reiterated that the India-China DTAA did not contain the ancillary activity clause found in certain other treaties and that IHC should instead be taxed as business profits under Articles 5 and 7. The assessee supported the appellate order.

The Tribunal observed that IHC represents charges recovered for transportation of cargo between the customer’s location and the port as part of a single integrated transportation activity. It noted that the bill of lading covered transportation from origin to destination as one composite transaction. Referring to the OECD Commentary and earlier coordinate bench decisions dealing with similarly worded treaty provisions, including those under the India-France and India-Denmark DTAAs, the Tribunal held that Inland Haulage Charges formed part of the income from operation of ships in international traffic.

Following the earlier coordinate bench decisions, the Tribunal upheld the order of the Commissioner (Appeals), held that IHC was covered under Article 8 of the India-China DTAA, and dismissed the Revenue’s appeal. Since the primary issue was decided in favour of the assessee, the issue relating to the existence of a permanent establishment and attribution of profits was left open as academic.

Cases Discussed

• DCIT (Int. Taxation) vs. A.P. Moller Maersk AS (ITAT Mumbai), [2018] 90 taxmann.com 326 (Mumbai-Trib)
• CMA CGM SA vs. DCIT, ITA No.6649/Mum/2017
• CMA CGM SA vs Dy. CIT, ITA No. 6095/Mum/2018
• Delmass SAS vs DCIT, ITA No. 6649/Mum/2017 and others
• DIT v. B4U International Holdings Ltd. (Bombay HC), [2015] 374 ITR 453/231 Taxman 853/57 taxmann.com 146 (Bom.)
• DIT (International Taxation) v. Safmarine Container Lines NV (Bombay HC), [2014] 48 taxmann.com 238/225 Taxman 299/367 ITR 209 (Bom.)
• DIT Vs. A.P.Moller Maersk A/S (Bombay HC), ITA No.1306 of 2013 dated 29-04-2015
• DIT (International Taxation) v. Balaji Shipping (UK) Ltd. (Bombay HC), [2012] 24 taxmann.com 229/211 Taxman 535 (Bom.)
• Director of Income-tax v. KLM Royal Dutch Airlines (Delhi HC), [2009] 178 Taxman 291/[2010] 325 ITR 300
• Safmarine Container Lines N.V. (Bombay HC), referred to in the order
• A.P. Moller Maersk A/S, ITA No.1798/Mum/2015 dated 15-02-2017
• A.P. Moller Maersk A/S, ITA No.1743/Mum/2016 dated 07-02-2018

FULL TEXT OF THE ORDER OF ITAT MUMBAI

Captioned appeal by the Department arises out of order dated 28.10.2025 of learned Commissioner of Income Tax (Appeals), Mumbai pertaining to Assessment Year 2020-21.

2. The grounds raised by the Department are as under:

“1. Whether On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting of the addition of Rs. 10,86,70,566/-made on account of Inland Haulage Charges (IHC), by holding that the same is covered under Article 8 of the India-China DTAA without appreciating the fact that Article 8 of the India-China DTAA strictly restricts exemption only to profits “from the operation of ships in international traffic”.

2. Whether On the facts and circumstances of the case and in law, the CIT(A) has erred in relying upon judicial precedents rendered in the context of DTAAS with materially different treaty language, such as India-Belgium, India-Denmark, and India-France treaties, which contain specific ancillary-activity clauses.”.

3. Whether On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting of the addition of Rs. 10,86,70,566/-made on account of Inland Haulage Charges (IHC) without appreciating the fact that the correct Article applicable is Article 7 (Business Profits), read with Article 5, since IHC is a separate inland activity performed in India.”

4. Whether On the facts and circumstances of the case and in law, the CIT(A) has erred in not adjudicating on the ground that Cosco Shipping Agencies (India) Pvt. Ltd being Dependent Agency Permanent Establishment (DAPE) of the assessee in India under article 5(4) of the India-China DTAA without appreciating the fact that the AO in the assessment order has concluded that assessee has agency PE in India as per article 5 of the India-China DTAA.”

3. As could be seen from the grounds raised, the primary issue arising for consideration is whether the Inland Haulage Charges (‘IHC’) received by the assessee in connection with transportation of goods through shipping in international traffic is exempt from taxation in India under Article 8(1) of India-China Double Taxation Avoidance Agreement (‘DTAA’).

4. Briefly the facts relating to this issue are, the assessee is a non-resident corporate entity and is a tax-resident of China. As stated, the assessee is engaged in shipping business in International Waters. During the year under consideration, it has carried out transportation activity in India through its agent, Cosco Shipping Agencies (India) Pvt Ltd. For the assessment year under dispute, the assessee filed its return of income on 09-01-2021, declaring total income of Rs. 46,20,25,910/-. In course of assessment proceedings, the Assessing Officer noticed that during the year, the assessee had received IHC amounting to Rs.52,68,17,043/- whereas, it has incurred IHC expenses of Rs.41,81,46,477/-. Remaining amount of Rs.10,86,70,566/- was claimed as exempt from taxation in terms with Article 8(1) of the Treaty. It was the say of the assessee that since IHC is integrally connected to transportation of goods in international traffic, the receipts would get covered under Article 8(1) of the Treaty. In this context, the assessee relied upon certain judicial precedents involving similar issues under the DTAA, though relating to treaties between India and other countries, such as Belgium, France, etc. The Assessing Officer, however, was not convinced with the submissions of the assessee. Referring to Article 8(1) of India-China DTAA, he observed that exemption is only with reference to transportation of goods in international traffic. Hence, IHC not being received on account of transportation of goods in international traffic, would not be covered under Article 8(1) of the Treaty. He observed, the judicial precedents cited by the assessee are in relation to treaties with other countries and there is difference in language of the relevant Articles. Thus, ultimately, he held that IHC would not be covered under Article 8(1) of the Treaty. Having held so, he treated the Cosco Shipping Agencies (India) Pvt. Ltd. as agency Permanent Establishment (‘PE’) of the assessee in India and the receipts from IHC as a receipt from business and profession. Accordingly, he held the amount of Rs.10,86,17,566/- as the profit attributable to the PE in India.

5. Against the assessment order so passed, assessee preferred an appeal before learned First Appellate Authority.

6. After considering the submissions of the assessee in the context of facts and materials on record and relying upon the judicial precedents cited before him, learned First Appellate Authority concluded that, even, in absence of specific clause under Article 8(1) of India-China Treaty for exempting income derived from any other activities directly connected with transportation of goods in international traffic, still IHC would be covered under the said article as IHC is part of composite activity of transportation of goods in international traffic. In this context, he relied upon a decision of the coordinate bench in case of ‘CMA CGM SA vs. DCIT’ ITA No.6649/Mum/2017, wherein the bench, while considering pari materia provisions contained under India – France DTAA, which did not provide for any specific clause exempting income directly connected to transportation of goods in international traffic, allowed assessee’s claim. In this context, learned First Appellate Authority further observed that the activity of IHC is not taken up as a separate business activity by the assessee but is part of the entire process of transportation of goods in international traffic. Accordingly, he held that IHC would be covered under Article 8(1) of the India-China DTAA.

7. In so far as the issue whether Cosco Shipping Agencies (India) Pvt. Ltd. is an agency PE of the assessee in India, learned First Appellate Authority did not adjudicate the issue, by treating it as academic.

8. Before us, learned Departmental Representative relied upon the observations of the Assessing Officer. Whereas, learned Counsel appearing for the assessee strongly relied upon the reasoning of learned First Appellate Authority.

9. We have considered rival submissions and perused the materials on record. We have also applied our mind to the judicial precedents relied upon. There is no dispute between the parties that the assessee is a tax resident of China and is eligible to avail benefits provided under India-China DTAA. It is also not disputed that the assessee is engaged in the business of activity of transportation of goods through vessels in international traffic. The short issue arising for consideration is whether the IHC received by the assessee would be part of the main activity of the assessee being transportation of goods in international traffic. For better appreciation, one must understand the meaning of IHC. Basically, IHC is collected from customers towards recovery of cost incurred for movement of cargo from customer’s location to port and vice versa.

In other words, the entity engaged in shipping business undertakes transportation of goods from origin to destination as an integrated activity. The issue is whether the transportation charges received from origin to the port and from port to the destination can be considered as part of the activity of transportation of goods in international traffic. In this context, it is necessary to look into the provision contained under Article 8 of India-China DTAA, which is reads as under:

“Article 8 (Shipping and Air Transport).

1. Profits derived by an enterprise which is a resident of a Contracting State from the operation by that enterprise of ships or aircraft in international traffic shall be taxable only in that Contracting State.

2. For the purposes of this Article, profits from the operation of ships or aircraft in international traffic shall mean profits derived by an enterprise described in paragraph 1 from the transportation by sea or air respectively of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of ships or aircraft including:

(a) the sale of tickets for such transportation;

(b) the rental of ships or aircraft connected with such transportation; and

(c) income from use, maintenance, or rental of containers (including trailers, barges, and related equipment for the transport of containers) operated in international traffic.

3. For the purposes of this Article, interest on funds directly connected with the operation of ships or aircraft in international traffic shall be regarded as profits described in this Article, and the provisions of Article 11 (interest) shall not apply in relation to such interest.

4. The provisions of paragraph I shall also apply to profits from the participation in a pool, a joint business or an international operating agency.”

10. Referring to the aforesaid provision, the Assessing Officer has held that since it refers only to profits derived from operation of ships in international traffic, the receipts from such activities would only qualify for exemption and not receipts from any other activity directly connected to transportation of goods in international traffic. In this context, the Assessing Officer has referred to Article 8 of India-Belgium DTAA which reads as under:

Article 8 (Shipping and Air Transport)

1. “Profits derived by an enterprise which is a resident of a contracting State from the operation by that enterprise of ships or aircraft in international traffic shall be taxable only in that Contracting State.

2. For the purposes of this Article:-

(a) interest on funds directly connected with the operation of ships or aircraft in international traffic shall be regarded as income from the operation of such ships or aircraft and the provisions of Article 11 shall not apply in relation to such interest; accordingly there will be no withholding tax on such income;

(b) income derived from the operation of ships or aircraft in international traffic shall mean income derived by an enterprise described in paragraph 1 from the transportation by sea or air respectively of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of ships or aircraft including:-

(i) the sale of tickets for such transportation on behalf of other enterprises;

(ii) any other activity directly connected with such transportation;

(iii) the leasing of ships or aircraft on charter fully equipped, manned and supplied, or on a bare boat charter basis where the leasing is incidental to any activity directly connected with such transportation;

(c) income derived from the operation of ships in international traffic, includes income derived from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) in connection with the transportation of goods or merchandise in international traffic, where the income is derived from an activity which is incidental to any activity directly connected with such transportation.

3. The provisions of this Article shall also apply to income from the participation in a pool, a joint business or an international operating agency.”

11. If both the provisions are kept in juxtaposition, it can be seen that the words “any other activity directly connected with such transportation” appearing in Article 8(2) of India Belgium treaty is missing in Article 8 of the India-China DTAA. However, facts on record reveal that the assessee has undertaken the activity of transportation of goods from the origin to the destination as a single composite activity. The bill of lading also demonstrates that it is from the origin to the destination. In this context, we may refer to the following extracts from Organization for Economic Cooperation and Development (OECD) [2017 Edition] on Article 8, which reads as under:

“7. A further example would be that of an enterprise that transports passengers or cargo by ships or aircraft operated in international traffic which undertakes to have those passengers or that cargo picked up in the country where the transport originates or transported or delivered in the country of destination by any mode of inland transportation operated by other enterprises. In such a case, any profits derived by the first enterprise from arranging such transportation by other enterprises are covered by the paragraph even though the profits derived by the other enterprises that provide such inland transportation would not be.”

12. Pertinently, Article 9 of India-France DTAA is pari materia with Article 8 of India-China DTAA. There is no specific clause like India-Belgium DTAA, exempting income from other ancillary activities directly connected to transportation of goods in international traffic. However, while considering identical nature of dispute in case of CMA CGM SA vs Dy. CIT [ITA No. 6095/Mum/2018], the Coordinate Bench, in order dated 30-12-2019 held as under:

“7. Having heard the parties, we find that while deciding identical issue in assessee’s own case in the assessment year 2012–13, learned DRP had categorically held that the revenue earned from IHC is part of shipping business in International Waters, hence, covered under Article–9 of the Tax Treaty. However, subsequently, while deciding the identical issue in assessee’s own case for the assessment years 201314 and 2014–15, learned DRP took a contrary view and decided the issue against the assessee. When the appeals preferred by the Revenue and the assessee for the aforesaid assessment years came up for consideration before the Tribunal, the Tribunal in ITA no.6649/ Mum./2017 & Ors., dated 14th March 2018, decided the issue in favour of the assessee holding as under:–

“15. We have heard rival contentions on this issue and perused the record. We notice that the ld DRP has mainly declined to follow its own order passed in AY 2012-13 in the subsequent two years for the reason that there is difference between Article 8 of India-Belgium DTAA and Article 9 of India-France DTAA. According to Ld. DRP that the India-Belgium DTAA contains specific provisions to include “any other activity directly connected with such transportation”, whereas the same is absent in the IndiaFrance DTAA. The Ld A.R, on the contrary, submitted that the presence or absence of the above said provision will not make any difference. In support of this proposition, the Ld A.R placed reliance on OECD model conventions and the Commentary thereon, which are extracted above.

16. We notice that the decision in the case of Safmarine Container Lines N.V (supra) has been rendered by Hon ’ble Bombay High Court in the context of India-Belgium DTAA. However, in the case of DIT Vs. A.P.Moller Maersk A/S (ITA No.1306 of 2013 dated 2904-2015), to which India-Denmark treaty would apply, the Hon’ble Bombay High Court has held that the principles involved in the decision of Safmarine Container Lines N.V (Supra) also govern the case of A.P. Moller Maersk A/S (supra). There is no dispute that the Article 9 of India-France DTAA is identically worded to the corresponding Article in India-Denmark DTAA.

17. We shall now discuss in brief the facts available in M/s A.P. Moller Maersk A/S case. The said company was resident of Denmark and hence India-Denmark DTAA applied to it. In order to help its agents in booking cargo and carrying out clearing agent works, the assessee maintained a global telecommunication facility called MaerskNet, which is a vertically integrated “Communication system”. The assessee recovered pro-rata costs from its agents and accordingly the Indian agents also remitted pro-rata costs to the above said assessee. Before AO, the assessee contended that it was merely a system of cost sharing and hence the amount recovered by it from its agents is in the nature of reimbursement of expenses. The AO, however, held to it to be fee for technical services.

18. Before the Hon’ble High Court, the assessee has also taken a plea that the communication system is very much an integral part of shipping business and therefore, the income received by the assessee from the agents, did in fact, amount to income from the shipping business of the assessee and therefore, not chargeable to tax. The Hon’ble Bombay High Court held that the amount received by the assessee for using the communication system by the agents is part of shipping business and could not be captured under any other provisions of the Income tax Act except DTAA. The High Court further held that it does not amount to technical service. Finally the High Court held that the amounts paid by the agents for using the communication system arose out of the shipping business and cannot be brought to tax.

19. The decision so rendered by Hon’ble Bombay High Court in the context of India-Denmark DTAA clearly shows that the ancillary activities connected with the shipping business are also included in the shipping business. The above said decision has been followed by the co-ordinate bench in the case of same assessee, viz., A.P.Moller Maersk A/S (ITA No.1798/Mum/2015 dated 15-022017) for A Y 2011-12 to hold that the Inland Haulage charges received by that assessee shall also form part of shipping income from international traffic. The decision so rendered for AY 2011-12 was followed by the coordinate bench in the above said assessee’s case in AY 2012-13 in ITA No.1743/Mum/2016 dated 07-02-2018.

20. Before us, the ld A.R demonstrated that the Article 9 of IndiaFrance DTAA and Article 9 of India-Denmark DTAA are identically worded. Since the decision rendered by Hon’ble Bombay High Court in the case of Safmarine Containers Lines N.V (which was rendered in the context of India-Belgium DTAA) was held to be applicable to India-Denmark DTAA also by the Hon’ble Bombay High Court in the case of A.P.Moller Maersk A/S (ITA No.1306 of 2013), the ld A.R submitted that the absence of the expression “any other activity directly connected with such transportation” in the India-France DTAA will not make any difference. We notice that the contentions of the assessee also get support from the OECD model convention discussed supra.

21. In view of the foregoing discussions, we agree with the contentions of the Ld A.R on this issue. Accordingly we hold that Inland Haulage Charges received by the assessee shall form part of income from operation of ships in international traffic and accordingly Article 9 of India-France DTAA shall apply to it. Accordingly we uphold the order passed by Ld DRP in Ay 2012-13 on this issue and reverse the orders passed by it on this issue in AY 2013-14 and 2014-15.

8. Respectfully following the decision of the Co–ordinate Bench rendered in assessee’s own case in the preceding assessment years, we hold that IHC, since, forms part of income from operation of ships in International Traffic, is covered under Article–9 of the India–France Tax Treaty, accordingly, not taxable in India. These grounds are decided allowed.”

13. In case of Delmass SAS vs DCIT, being ITA No. 6649/Mum/2017 and others, the Coordinate Bench while considering identical nature of dispute arising out of India-France DTAA, has held as under:

15. We have heard rival contentions on this issue and perused the record. We notice that the ld DRP has mainly declined to follow its own order passed in AY 2012-13 in the subsequent two years for the reason that there is difference between Article 8 of India-Belgium DTAA and Article 9 of IndiaFrance DTAA. According to Ld DRP that the India-Belgium DTAA contains specific provisions to include “any other activity directly connected with such transportation”, whereas the same is absent in the India-France DTAA. The Ld A.R, on the contrary, submitted that the presence or absence of the above said provision will not make any difference. In support of this proposition, the Ld A.R placed reliance on OECD model conventions and the Commentary thereon, which are extracted above.

16. We notice that the decision in the case of Safmarine Container Lines N.V (supra) has been rendered by Hon’ble Bombay High Court in the context of India-Belgium DTAA. However, in the case of DIT Vs. A.P.Moller Maersk A/S (ITA No.1306 of 2013 dated 29-04-2015), to which India-Denmark treaty would apply, the Hon’ble Bombay High Court has held that the principles involved in the decision of Safmarine Container Lines N.V (Supra) also govern the case of A.P. Moller Maersk A/S (supra). There is no dispute that the Article 9 of IndiaFrance DTAA is identically worded to the corresponding Article in IndiaDenmark DTAA.

17. We shall now discuss in brief the facts available in M/s A.P. Moller Maersk A/S case. The said company was resident of Denmark and hence India-Denmark DTAA applied to it. In order to help its agents in booking cargo and carrying out clearing agent works, the assessee maintained a global telecommunication facility called MaerskNet, which is a vertically integrated “Communication system”. The assessee recovered pro-rata costs from its agents and accordingly the Indian agents also remitted pro-rata costs to the above said assessee. Before AO, the assessee contended that it was merely a system of cost sharing and hence the amount recovered by it from its agents is in the nature of reimbursement of expenses. The AO, however, held to it to be fee for technical services.

18. Before the Hon’ble High Court, the assessee has also taken a plea that the communication system is very much an integral part of shipping business and therefore, the income received by the assessee from the agents, did in fact, amount to income from the shipping business of the assessee and therefore, not chargeable to tax. The Hon’ble Bombay High Court held that the amount received by the assessee for using the communication system by the agents is part of shipping business and could not be captured under any other provisions of the Income tax Act except DTAA. The High Court further held that it does not amount to technical service. Finally the High Court held that the amounts paid by the agents for using the communication system arose out of the shipping business and cannot be brought to tax.

19. The decision so rendered by Hon’ble Bombay High Court in the context of India-Denmark DTAA clearly shows that the ancillary activities connected with the shipping business are also included in the shipping business. The above said decision has been followed by the co-ordinate bench in the case of same assessee, viz., A.P.Moller Maersk A/S (ITA No.1798/Mum/2015 dated 15-02-2017) for AY 2011-12 to hold that the Inland Haulage charges received by that assessee shall also form part of shipping income from international traffic. The decision so rendered for AY 2011-12 was followed by the coordinate bench in the above said assessee’s case in AY 2012-13 in ITA No.1743/Mum/2016 dated 07-02-2018.

20. Before us, the ld A.R demonstrated that the Article 9 of India-France DTAA and Article 9 of India-Denmark DTAA are identically worded. Since the decision rendered by Hon’ble Bombay High Court in the case of Safmarine Containers Lines N.V (which was rendered in the context of India-Belgium DTAA) was held to be applicable to India-Denmark DTAA also by the Hon’ble Bombay High Court in the case of A.P.Moller Maersk A/S (ITA No.1306 of 2013), the ld A.R submitted that the absence of the expression “any other activity directly connected with such transportation” in the India-France DTAA will not make any difference. We notice that the contentions of the assessee also get support from the OECD model convention discussed supra.

21. In view of the foregoing discussions, we agree with the contentions of the Ld A.R on this issue. Accordingly we hold that Inland Haulage Charges received by the assessee shall form part of income from operation of ships in international traffic and accordingly Article 9 of India-France DTAA shall apply to it. Accordingly we uphold the order passed by Ld DRP in Ay 2012-13 on this issue and reverse the orders passed by it on this issue in AY 2013-14 and 2014-15.

14. In case of ‘DCIT (Int. Taxation) vs. A.P. Moller Maersk AS’ [2018] 90 taxmann.com326 (Mumbai-Trib), the coordinate bench, while examining identical nature of dispute arising out of India-Denmark DTAA, which incidentally does not have provision like Article 8(2) of India Belgium DTAA has held as under:

“7. We are in agreement with argument of the assessee that the entire IHC of the assessee is necessarily in connection with transport of containers either discharged or loadable at Indian ports for the purpose of delivery through international waters, a fact which is undisputed. IHC is not only directly connected with the business of shipping but it is also a part of overall international voyage and hence it is directly covered within the definition of profits from operation of ships in international traffic. Accordingly, IHC earned by the assessee is taxable only in Denmark and not in India as per Article 9(1) of the India Denmark Tax Treaty. We also noted from the facts that single BL is issued by the assessee to its shippers for the entire combined transport i.e. from the place of origin in India to final destination outside India. It is also a fact on records that the assessee is not carrying out separate business activity of carrying cargo between mainland and a port in India, without any obligation of its transport on its ship in international waters. In view of the facts of the case we find that this issue is covered in favour of the assessee by decision of the Co-ordinate bench of Mumbai Tribunal in the case of Safmarine Container LinesN.V. (supra), which was subsequently affirmed by the Hon’ble Bombay High Court reported in DIT (International Taxation) v. Safmarine Container Lines NV [2014] 48 taxmann.com 238/225 Taxman 299/367 ITR 209 (Bom.), wherein it is held as under:—

‘By availing the facility of slot hire agreements, the enterprise does not arrange the shipment on behalf of the owner of the said vessel, but does so on its own account on a principal to principal basis with its clients. Such cases also have a nexus to the main business of the enterprise of the operation of ships. They are ancillary to and complement the operation of ships by the enterprise. If they are not merely ancillary to the main business of operation of ships but constitute the primary and main activities of the enterprise, it may be a different matter, which we are not called upon to consider in the facts and circumstances of the present case.

28. Our view is supported by the judgment of a Division Bench of the Delhi High Court. It is also in consonance with the various commentaries which deal with similar provisions. We will now refer to the same.

29. Mr. Kaka relied upon the judgment of the Delhi High Court in Director of Income-tax. v. KLM Royal Dutch Airlines [2009] 178 Taxman 291. Article 8 of the Indo-Netherlands DTAA which fell for the consideration of the Court reads as under:—

“Air Transport:

1. Profits from the operation of aircraft in international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated.

Article 8(1) is similar to art. 9(1). In that case the assessee had obtained a licence in respect of premises at Mumbai from the Airport Authority of India. This licence was for the purpose of cargo handling only. The assessee entered into an agreement with CSC (P.) Ltd. for cargo handling at Mumbai on its behalf. The agreement provided for payment by the assessee to CSC (P) Ltd. for cargo handling at Mumbai. The payment made by the assessee to CSC was after the adjustment of the licence fee/rent paid by the assessee to the Airport Authority of India. The adjustment was considered by the department as the income of the assessee chargeable to tax under art. 6 of the Indo-U.K. DTAA. The Division Bench upheld the decision of the Tribunal to the effect that the adjustment was directly and inextricably linked to the cargo handling business of the assessee and was not in the course of a separate business of renting out the premises. As the assessee established a link between the renting of the premises and the business of operating an airline in international traffic, it was held that art. 8 would apply. “

9. In this view of the matter, we find that the reliance placed by Mr. Porus Kaka on the order of this Court dated 17th January, 2013 in Income Tax Appeal No.952 of 2011 with Income Tax Appeal No. 147 of 2009 is fully justified and squarely covers the issue raised in the present appeal. We therefore find, that this Appeal does not give rise to any substantial question of law as projected by the learned counsel appearing on behalf of the appellant.’

8. Mumbai Tribunal in this case of Safmarine Container Lines N.V. (supra) has also held that IHC is also covered under Article 8(2)(c) of India-Belgium Tax Treaty which provides that income from the operation of ships in international traffic, includes income derived from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) in connection with the transportation of goods or merchandise in international traffic. The Tribunal held that use of trucks in Inland haulage would come within the words “trailers and related equipment’s for the transport of goods”. We find that the language of Article 9(4)(b) of the India-Denmark Tax Treaty is similar to Article 8(2)(c) of India-Belgium Tax Treaty which merely lists down certain income as mere example of items covered under this Article and therefore the present issues is fully covered by the decision of the Mumbai Tribunal and jurisdictional High Court in the case of Safmarine Container Lines N.V. (supra). In the case of Safmarine the term “operations of ships” was defined under Article 8(2) of the India – Belgium Tax Treaty specifically. This definition first narrows the definition and then expands to add any activity directly connected with such transportation. Under the India-Denmark Tax Treaty (identical to the India – UK Tax Treaty as in Balaji Shipping), there is no definition and hence one has to interpret according to the internationally accepted norms read with the commentary. The relevant para of the Organization of Economic Cooperation and Development (OECD) commentary on Article 8 reads as follows:

‘4 The profits covered consist in the first place of the profits directly obtained by the enterprise from the transportation of passengers or cargo by ships or aircraft (whether owned, leased or otherwise at the disposal of the enterprise) that it operates in international traffic. However, as international transport has evolved, shipping and air transport enterprises invariably carry on a large variety of activities to permit, facilitate or support their international traffic operations. The paragraph also covers profits from activities directly connected with such operations as well as profit from activities which are not directly connected with the operation of the enterprise’s ships or aircraft in international traffic as long as they are ancillary to such operation.

Any activity carried on primarily in connection with the transportation, by the enterprise, of passengers or cargo by ships or aircraft that it operates in international traffic should be considered to be directly connected with such transportation.

4.2 Activities that the enterprise does not need to carry on for the purposes of its own operation of ships or aircraft in international traffic but which make a minor contribution relative to such operation and are so closely related to such operation that they should not be regarded as a separate business or source of income of the enterprise should be considered to be ancillary to the operation of ships and aircraft in international traffic.

4.3 In light of these principles, the following paragraphs discuss the extent to which paragraph i applies with respect to some particular types of activities that may be carried on by an enterprise engaged in the operation of ships or aircraft in international traffic.

5. * * **

6. Profits derived by an enterprise from the transportation of passengers or cargo otherwise than by ships or aircraft that it operates in international traffic are covered by the paragraph to the extent that such transportation is directly connected with the operation, by that enterprise, of ships or aircraft in international traffic or is an ancillary activity. One example would be that of an enterprise engaged in international transport that would have some of its passengers or cargo transported internationally by ships or aircraft operated by other enterprises, e.g. under above sharing or slot chartering arrangements or to take advantage of an earlier sailing. Another example would be that of an airline company that operates a bus service connecting a town with its airport primarily to provide access to and from that airport to the passengers of its international flights.’

9. In view of the OECD commentary we have considered the issue that internationally and by the Tribunal and Hon’ble High Court accepted that any activity directly connected with such transportation will always be included within the term “operations of ships”. The Activities of the IHC are connected directly or an ancillary activity that provides minor contribution and should not be regarded as a separate business to the operations of ships. Further, the decision of Hon’ble Bombay High Court in the case of DIT(International Taxation) v. Balaji Shipping(UK) Ltd. [2012] 24 taxmann.com229/211 Taxman 535 (Bom.) the issue was whether receipts from slot chartering can be considered as shipping income eligible to the beneficial provision of the Tax Treaty between India and UK. The Hon’ble High Court observed that the slot hire agreements are at least indirectly, if not directly connected and interlinked with and is an integral part of the enterprise’s business of operating ships. The High Court further observed that the slot hire agreements also have a nexus to the main business of the enterprise of operation of ships. They are ancillary to and complement the operations of ships by the enterprise. Accordingly, Hon’ble Bombay High Court upheld the view that the benefit of the Tax Treaty would even be extended to income from such activities. Noting the OECD commentary the High Court held as follows:—

“35. Paragraph 4 of the commentary indicates that Article applies to profits directly obtained from the transportation of passengers or cargo by ships owned, leased or otherwise at the disposal of a person as well as the profits from the activities which are not directly connected with the acquisition of the assessee’s ships. In the latter case however, the activities must be ancillary to such operations viz. the operation of ships owned, leased or otherwise at the disposal of the assessee in international traffic. It indicates that the provision also applies to the activities that permit, facilitate or support the international traffic operations.

36. As far as the first type of case is concerned viz. where the slot hire facility is availed of for carriage of goods from a port in India only up to the hub port abroad and is thereafter transshipped on vessels actually operated by the assessee up to the final destination, it is irrelevant whether slot hire agreements are considered to be directly connected with the operation of ships or not directly connected with the operation of ships by the enterprise. In such cases, the slot hire agreements are inextricably interlinked with and connected to the operation of ships by the enterprise. The first type of case would in fact be covered by paragraphs 4 and 4.1 of the commentary. “

The Hon’ble High Court then concluded in para 42 as under:—

“42. Our views on the two types of cases involved in the present appeal are in consonance with the view of the Delhi High Court, the OECD commentary and the commentaries referred to above. “

10. We further noted that Hon’ble Bombay High court in Balaji Shipping (UK) Ltd. case (supra) followed the decision of the Hon’ble Delhi High Court in case of DIT v. KLM Royal Dutch Airlines [2009] 178 Taxman 291/[2010] 325 ITR 300. Hon’ble Delhi High Court which was followed by the Tribunal and Hon’ble Bombay High has held that where the activities are linked to each other, there is no scope for dissecting the activities. In that case, the recovery of rent from the Indian company was held to be income from international air traffic and not taxable in India as the same would construe activities directly and inextricably linked to the cargo handling business of the assessee. As per the ratio of this decision, activities which are linked or connected to each other such that one cannot be conducted efficiently without the other and which have a nexus to the main business of the assessee of operations of ships should be considered as integral part of income from shipping operations. As informed by ld. Counsel the fact that these issues are also decided in favour of the assessee in subsequent year even by the Dispute Resolution Panel for AY 2011-12 by placing reliance on the decision of Hon’ble Mumbai Tribunal and jurisdictional High Court in case of Safrnarine (supra).

11. Alternative argument was also made by ld. Counsel for the assessee that revenue erroneously taxed export freight relating to haulage charges carried out in foreign countries as under no taxation principle this can be brought to tax in India. He argued that these are payments for activity outside India and not for operations within India and excluded by the Explanation 1(a) to Section 9(1) of the IT Act which read as follows:

“Explanation 1.—For the purposes of this clause—

(a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India;”

In view of the above, he argued that under the Tax Treaty, only the income which is attributable to the activities of Permanent Establishment (PE) can be taxed in India and these could not be activities either attributable or carried out by any Indian PE and hence cannot be brought to tax. These would be carried out by foreign shipping agents and therefore, there can be no charge to tax in India. According to him the Maersk India Private Limited (MIPL) does not constitute a PE, since it is not disputed that so-called PE is remunerated at arm’s length, there can be no income assessed in the hands of non-resident as laid down by the Hon’ble Bombay High Court in the case of DIT v. B4U International Holdings Ltd. [2015] 374 ITR 453/231 Taxman 853/57 taxmann.com 146 (Bom.).

12. In view of the facts of this case and precedence discussed above, we are of the view that the entire IHC of the assessee is necessarily in connection with transport of containers either discharged or loadable at Indian ports for the purpose of delivery through international waters and is directly connected with such transportation will always be included within the term “operations of ships”. The activities of the IHC are connected directly or an ancillary activity that provides minor contribution and should not be regarded as a separate business to the operations of ships. These activities are linked or connected to each other and as such one cannot say that one is to be conducted efficiently without the other and which have a nexus to the main business of the assessee of operations of ships should be considered as integral part of income from shipping operations. Accordingly, we allow the claim of assessee and hence, this common issue of assessee appeal is allowed and that of revenue is dismissed.”

15. Thus, respectfully following the decisions of Coordinate Benches noted above, we uphold the decision of learned First Appellate Authority on the issue. In view of our decision on the primary issue, the secondary issue relating to existence of PE for attribution of profits has become academic, hence kept open.

16. In the result, appeal is dismissed.

Order pronounced in the open court on 30/06/2026.