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
Contentions of the Revenue
Observations and Ruling of the Tribunal
─ 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.
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.