Itxa/2175/2009 Of The Dirctor Of Income Tax v. Cma Cgm Sa France

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.2175 OF 2009 The Director of Income Tax (International Taxation)....AppellantV/s.M/s.CMA-CGM SA France....Respondent Mr.Tejveer Singh with Mr.Suresh Kumar for the Appellant. Mr.F.V. Irani with Mr.Divesh Chawla and Mr.Atul K. Jasani i/b Mr.Atul K. Jasani for the Respondent. CORAM : S.J. VAZIFDAR AND M.S. SANKLECHA, JJ.DATE : 6TH AUGUST, 2012. P.C. :- 1.This is an appeal under section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal dated 18.11.2008 dismissing the appellant's appeal being ITA Nos.1863/Mum/2006 pertaining inter-alia to the Assessment Year 2002-2003. 2.By an order dated 19.9.2011, a Division Bench of this Court admitted the appeal on the following question of law :- “Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in (a) holding that the slot charges are entitled to the benefit of the tax treaty between the India and France ? 3.The appeal was directed to be heard along with Income Tax Appeal Nos. 3024 of 2009 and 3215 of 2009. By a separate order and judgment passed today, we dismissed ITA Nos.3024 of 2009 and 3215 of 2009 but only after the conclusion of the arguments in this appeal as well. In fact much of what we said in that judgment was based, in addition to Mr.Singh and Mr.Kaka's submissions in these appeals or Mr.Singh and Mr.Irani's submission in this appeal. Those appeals concerned the India – U.K. Tax Treaty. This appeal concerns the India – France Treaty. The relevant provisions of the India – France Treaty and the India – U.K. Treaty are similar. The present appeal is therefore, liable to be dismissed. 4.We will therefore, deal with the present appeal only briefly as all the issues that arise in this appeal have been exhaustively dealt with in the other appeals. 5.The respondent is a company incorporated in France engaged in the business of operation of ships in international traffic. The respondent filed its return of income on 25.3.2003 declaring a total income of Rs.14,80,93,330/-. The assessment order was made on 23.3.2005 under section 143(3). The respondent earned gross freight and ancillary charges of Rs.197,45,77,740/- from its Indian operations. The profits from the shipping business were computed under section 44B of the Act at Rs.14,80,93,330/-. Relying upon itxa2175-09 section 44B, the respondent computed its profits and gains chargeable to tax at 7.5% of these receipts. The respondent claimed exemption under Article 9 of the “Convention between the Government of the Republic of India and the Government of the French Republic for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and capital” (hereinafter referred to as “the India – France 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(A).It was not disputed that the respondent owned or chartered or otherwise actually operated ships though not within the Indian territorial waters. In this appeal, the respondent arranged for the carriage of goods of its clients by sea from ports in India to foreign ports. As the respondent's vessels did not ply in Indian territorial waters, it availed of the slot hire facilities obtained by it on ships owned or chartered by others for the carriage of the goods from the ports in India upto the hub ports also abroad from where the goods were further carried on vessels owned or chartered or otherwise operated by the respondent to the final destination also being ports abroad. 8(A).It was not disputed that the respondent owned or chartered or otherwise actually operated ships though not within the Indian territorial waters. In this appeal, the respondent arranged for the carriage of goods of its clients by sea from ports in India to foreign ports. As the respondent's vessels did not ply in Indian territorial waters, it availed of the slot hire facilities obtained by it on ships owned or chartered by others for the carriage of the goods from the ports in India upto the hub ports also abroad from where the goods were further carried on vessels owned or chartered or otherwise operated by the respondent to the final destination also being ports abroad. (B).The income attributable to the slot hire facility was minuscule compared to the total income earned for the entire voyage in each case. During the relevant assessment year 2002-2003, the respondent earned total freight and ancillary charges of Rs.197,45,77,740/-. The amount pertaining to the slot hire arrangements was only Rs.5,97,51,061/- i.e. about 3.03%. It is this amount of Rs.5,97,51,061/- that the AO held did not qualify for the relief under Article 9 of the India – France DTAA. He however, admitted that the same fell within the ambit of section 44B of the Act which deals with the income from the operation of ships in case of non-residents. The AO further held that an amount of Rs.191,48,26,679/- would qualify for the relief under Article 9. 9(A).Article 9 of the India – France DTAA reads as under :- ARTICLE 9 – Shipping : 1.Profits derived by an enterprise of a Contracting State from the operation of ships in international traffic shall be taxable only in that Contracting State.Contracting State from the operation of ships in international traffic shall be taxable only in that Contracting State. 2.Notwithstanding the provisions of paragraph 1, such profits may be taxed in the other Contracting State from which they are derived provided that the tax so charged shall not exceed : (a)during the first five fiscal years after the entry into force of this Convention, 50 per cent ; and entry into force of this Convention, 50 per cent ; and (b)during the subsequent five fiscal years, 25 per cent ; of the tax otherwise imposed by the internal law of that Contracting State. Subsequently, only the provisions of paragraph 1 shall be applicable. 3.The provisions of paragraphs 1 and 2 shall also apply to profits from the participation in a pool, a joint business or an international operating agency engaged in the operation of ships. 4.For the purposes of this article, interest arising on funds connected with the operation of ships in international traffic shall be regarded as profits derived from the operation of such ships, and the provisions of Article 12 shall not apply in relation to such interest.” (B). Article 9(1) of the India – France DTAA is almost identical to Article 9 (1) of the India – U.K. DTAA. Article 9 of the India – U.K. DTAA reads as under :- “ARTICLE 9 – Shipping 1.Income of an enterprise of a Contracting State from the operation of ships in international trafficshall be taxable only in that State. 2.The provisions of paragraph 1 of this Article shall not apply to income from journeys between places which are situated in a Contracting State. 3.For the purposes of this article, income from the operation of ships includes income derived from the rental on a bareboat basis of ships if such rental income is incidental to the income described in paragraph 1 of this Article. 4.Notwithstanding the provisions of Article 7 (Business profits) of this Convention, the provisions of paragraphs 1 and 2 of this Article shall likewise apply DTAA reads as under :- “ARTICLE 9 – Shipping 1.Income of an enterprise of a Contracting State from the operation of ships in international trafficshall be taxable only in that State. 2.The provisions of paragraph 1 of this Article shall not apply to income from journeys between places which are situated in a Contracting State. 3.For the purposes of this article, income from the operation of ships includes income derived from the rental on a bareboat basis of ships if such rental income is incidental to the income described in paragraph 1 of this Article. 4.Notwithstanding the provisions of Article 7 (Business profits) of this Convention, the provisions of paragraphs 1 and 2 of this Article shall likewise apply to income of an enterprise of a Contracting State from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise. 5.The provisions of this Article shall apply also to income derived from participation in a pool, a joint business or an international operating agency. 6.Gains derived by an enterprise of a Contracting State from the alienation of ships or containers owned and operated by the enterprise shall be taxed only in that State if either the income from the operation of the alienated ships or containers was taxed only in that State, or the ships or containers are situated outside the other Contracting State at the time of the alienation.” (C). It would be convenient to juxtapose Article 9(1) of the India – France DTAA and Article 9(1) of the India – U.K. DTAA to indicate that the same are virtually identical :- Article 9(1) of the India – France Article 9(1) of the India – U.K. DTAADTAA 1.Profits derived by an 1.Income of an enterprise enterprise of a Contracting State of a Contracting State from thefrom the operation of ships inoperation of ships in internationalinternational trafficshall be trafficshall be taxable only in that taxable only in that Contracting State.State. 10.In Director of Income Tax (International Taxation) vs. Balaji Shipping UK Limited in Income Tax Appeal No.3024 of 2009 and Income Tax appeal No.3215 of 2009, we considered two types of cases. The present appeal is similar to the first type of case in itxa2175-09 Balaji Shipping UK Limited viz. 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 held that such cases fall within Article 9(1) of the India – U.K. DTAA. 11.The India - France DTAA being similar thereto, it follows that the respondent herein is also entitled to the benefit of Article 9(1) of the India – France DTAA. 12.Various other arguments including in respect of sections 44B, 115VB and 172 were also raised in that case and which have dealt with in our judgment. This case is therefore, clearly covered in favour of the respondent – assessee by our judgment in Director of Income Tax (International Taxation) vs. Balaji Shipping UK Limited in Income Tax Appeal No.3024 of 2009 and Income Tax appeal No.3215 of 2009. 13.The question of law is therefore, answered in the respondent's favour. The appeal is accordingly dismissed. There shall be no order as to cost. (M.S. SANKLECHA, J.) (S.J. VAZIFDAR, J.)