Bombay High Court International Taxation Shipping Companies: Scope of Article 8/9 : Slot hiring charges income: Philip Baker/ OECD/ Klaus Vogel referred (Balaji Shipping case)

*Gist of Balaji Shipping order of Bombay High Court on :*

* *

"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 ?



*20. The question whether the income attributable to a voyage undertaken
from India by availing the slot hire facilities is liable to be taxed in
India must, in this case, be addressed qua these two situations referred to.
*

* *

*Firstly, where the goods are transported by an enterprise*

*by availing of the slot hire facility obtained by it on the ship of
another from a port in India upto a hub port abroad and from there*

*transporting the goods further to their final destination upon a ship*

*owned or chartered or otherwise controlled by it. (We will refer to this*

*as a case of first type).*

* *

*Secondly, where the goods are transported by the*

*assessee from a port in India directly to their final destination to a*

*port abroad by availing a slot hire facility obtained by it on the ship of*

*another. (We will refer to this as a case of the second type.)*



The respondent/assessee 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/assessee carried
the cargo onwards to the final destination.



11. The question that falls for consideration therefore, is

whether the freight earned from or attributable to the portion of the
voyage utilizing the Slot Hire Agreements falls within the ambit of

Article 9 of the DTAA. The phrase "operation of ships" is not defined in the

Convention. Nor is it defined in the Act. It has however admittedly

been considered while construing section 44B.



18. Article 9 (1) refers to "Income ... from the operation of

ships ... ". Section 44B refers to profits and gains of "the business of

operation of ships". The ambit of the identical phrases "operation of

ships" in section 44B and Article 9 (1) is the same Both

the provisions relate to the same subject namely taxation. The

comparison between Article 9 (1) and section 44 B is, therefore,

apposite and in accordance with the mandate of Article 3 (3) of the

DTAA. *The words not having been defined in the DTAA must be*

*given the meaning which they have under the laws of India relating to*

*taxes which are the subject of the Convention*. Thus as income from

slot hire agreements fall within section 44 B they must be held to be

within the ambit of Article 9 (1).



*23. A case of the first type clearly falls within Article 9 of the*

*DTAA.*

* *

*Firstly, Article 9 does not require the ship to be owned by*

*an enterprise / assessee. It merely requires the income to be "from*

*the operation of ships in international traffic". There is no warrant for*

*adding to the Article the requirement of the ship being owned by the*

*enterprise. A charter is certainly contemplated by Article 9. So would*

*an enterprise that controls the management/operation of the ship be*

*included in Article 9 even if it does not own the ship. Such enterprises*

*earn income from the operation of ships chartered or otherwise controlled
and managed by them. If Article 9 is to be construed*

*narrowly, as suggested by the appellant, it would be denuded of*

*much of its effect.*

* *

*26. The second type of case poses some difficulty. We are,*

*however, of the view that even such cases fall under Article 9(1).*

*Article 9 would apply in respect of an enterprise that carries on the*

*business of operation of ships in international traffic but for a valid*

*reason is required to transport the cargo availing entirely a slot hire*

*facility obtained by it on a ship of another*.



*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 .vs. KLM Royal Dutch Airlines (2009) 178*

*Taxman 291**.*