IT/ILT : UK Shipping company eligible for tax relief under article 9(1)
of DTAA in respect of slot chartering income if the company operates
ships whether owned by it or not
If slot hire agreements are ancillary to and complement the operation of ships by the enterprise and are not the primary and main activities of the enterprise, slot hire income entitled to relief under article 9
FACTS
• The respondent-assessee incorporated in the United Kingdom and engaged inter-alia in the international transportation of goods. It declared income from shipping operations in its return computed as per section 44B and claimed exemption under article 9(1) of Indo-UK DTAA in respect of its shipping income.
• 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.
• AO disallowed article 9(1) exemption in relation to freight earned from or attributable to the portion of voyage utilizing slot hire agreements. CIT(A) and ITAT had however held in respondent-assessee's favour and allowed respondent-assessee benefit under article 9(1).
• Hence the present Revenue appeal to the High Court.
HELD
• 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.
• In the present case the respondent admittedly is a charterer of at least two ships and owns and has leased a large quantity of containers. The respondents income from slot charters is therefore only a part of its total income.
• The words 'operation of ships' in article 9 not defined in DTAA nor under the Act.
• 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).
• Sections115VB and 172 of the Act not relevant to interpret 'operation of ships' in article 9.
• 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 slot hire agreements 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 the Court is not called upon to consider in the facts and circumstances of the present case.
EDITOR'S NOTE
• Court did not rule that if slot hire agreements are the primary and main activities relief under article 9 will not be available. Court only left this issue undecided as deciding the same was not required by the facts of the present case. The following observations of the Court may be noted:
"Although what we have said thus far may indicate that income from slot hire agreements fall within the ambit of article 9 (1) per-se we do not wish to go that far. We would restrict this judgment to cases such as those of the respondents in this case. In other words this judgment would not apply to assessees who carry on the business of shipping cargo only by availing the slot hire facilities obtained by them." - [2012] 24 taxmann.com 229 (Bombay)
If slot hire agreements are ancillary to and complement the operation of ships by the enterprise and are not the primary and main activities of the enterprise, slot hire income entitled to relief under article 9
FACTS
• The respondent-assessee incorporated in the United Kingdom and engaged inter-alia in the international transportation of goods. It declared income from shipping operations in its return computed as per section 44B and claimed exemption under article 9(1) of Indo-UK DTAA in respect of its shipping income.
• 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.
• AO disallowed article 9(1) exemption in relation to freight earned from or attributable to the portion of voyage utilizing slot hire agreements. CIT(A) and ITAT had however held in respondent-assessee's favour and allowed respondent-assessee benefit under article 9(1).
• Hence the present Revenue appeal to the High Court.
HELD
• 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.
• In the present case the respondent admittedly is a charterer of at least two ships and owns and has leased a large quantity of containers. The respondents income from slot charters is therefore only a part of its total income.
• The words 'operation of ships' in article 9 not defined in DTAA nor under the Act.
• 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).
• Sections115VB and 172 of the Act not relevant to interpret 'operation of ships' in article 9.
• 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 slot hire agreements 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 the Court is not called upon to consider in the facts and circumstances of the present case.
EDITOR'S NOTE
• Court did not rule that if slot hire agreements are the primary and main activities relief under article 9 will not be available. Court only left this issue undecided as deciding the same was not required by the facts of the present case. The following observations of the Court may be noted:
"Although what we have said thus far may indicate that income from slot hire agreements fall within the ambit of article 9 (1) per-se we do not wish to go that far. We would restrict this judgment to cases such as those of the respondents in this case. In other words this judgment would not apply to assessees who carry on the business of shipping cargo only by availing the slot hire facilities obtained by them." - [2012] 24 taxmann.com 229 (Bombay)
No comments:
Post a Comment