Marine Links Shipping Agencies, Mangalore V. ADIT, Mangalore

ITA 184/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60794 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-07-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 23-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Double taxation relief

Judgement Text

PAGE 1 OF 9 ITA NO.1 84/BANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.184/BANG/2011 (ASSESSMENT YEAR 2009-2010) M/S MARINE LINKS SHIPPING AGENCIES, 1 ST FLOOR, ABCO TRADE CENTRE, KOTTARA CHOWKI, MANGALORE-575 006. PA NO. AAGFM0084N VS THE ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, MANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 04.07.2012 DATE OF PRONOUNCEMENT : 12.07.2012 APPELLANT BY : SHRI PADAMCHAND KHINCHA, C. A. RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JCIT ORDER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV, BANGALORE DATED 23.11.2011. THE RELEVANT ASSESSMENT YEAR IS 2009-2010. THE ORDER OF THE CIT( A) ARISE OUT OF THE ORDER OF THE ASST. DIRECTOR OF INCOME-TAX (INTERNAT IONAL TAXATION), MANGALORE PASSED UNDER SECTION 172(4) OF THE ACT. 2. THE CONCISE GROUNDS RAISED READ AS FOLLOWS :- I) THE LEARNED OFFICERS BELOW HAVE ERRED IN CONCLUDING THAT THE BENEFICIARIES OF THE FREIGHT ARE THE OWNERS AND NOT THE CHARTERERS OF THE SHIPS AND THUS, HAVE ERRED IN PAGE 2 OF 9 ITA NO.1 84/BANG/2011 2 ASSESSING THE APPELLANT AS THE AGENTS OF THE OWNERS OF THE SHIP, WITH WHOM THE APPELLANT HAD NO CONNECTION OF WHATSOEVER NATURE. II) THE LEARNED OFFICERS BELOW HAVE ERRED IN CONSIDERIN G THE APPELLANT AS THE AGENTS OF ISLAMIC REPUBLIC OF IRAN SHIPPING LINES, WHEN THEY ONLY ACTED AS THE AGENTS OF THE CHARTERER OF THE SHIP PUYVAST CHARTERING BV, NETHERL ANDS WHO HAD CHARTERED THE SHIP ON A VOYAGE CHARTER BASIS . III) THE LEARNED OFFICERS HAVE ERRED IN (A) NOT DISTINGUISHING BETWEEN BROKERAGE COMMISSION AND ADDRESS COMMISSION. (B) IN CONCLUDING THAT THE CHARTERER IS ENTITLED ONLY FOR A COMMISSION OF 2.5% AS AGAINST IT BEING ENTITLED TO THE ENTIRE FREIGHT. (C) HOLDING THAT THE TREATY BETWEEN INDIA AND NETHERLANDS IS NOT BE APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. (D) IGNORING THE CERTIFICATE FROM THE IRANIAN COMPANY THAT THE BENEFICIARY OF THE FREIGHT WAS THE CHARTERER OF THE SHIP. 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS AN AGENT OF M/S PUYVAST CHARTERING BV (PUYVAST), A NETHERLANDS BASED SHIPPING COMPANY. T HE SHIPS CHARTERED BY PUYVAST REGULARLY CALL INDIAN PORTS FOR LOADING EXPOR T CARGO. MV OCEAN CANDLE VOY 1 HAS BEEN CHARTERED BY PUYVAST IN OCTOBER, 2008. THIS SHIP IS OWNED BY M/S ISLAMIC REPUBLIC OF IRAN SHIPPING LINES , IRAN (OWNER). THE SHIP WAS ENGAGED TO CARRY GRANITE BLOCKS FROM MANGALORE TO ANTWERP, BELGIUM AND OTHER PLACES. THE SHIP REACHED MANGALORE PORT ON 7 .11.2008. IT SAILED FROM THE PORT ON 10.11.2008. PAGE 3 OF 9 ITA NO.1 84/BANG/2011 3 3.1 THE ASSESSEE FILED THE RETURN OF INCOME UNDER SECTION 172(3) ON BEHALF OF PUYVAST ON 26.11.2008, WHEREIN PUYVAST WAS SHOWN AS THE CHARTERERS OF THE SHIP AND BENEFICIARY OF THE FREIGH T. COPY OF TAX RESIDENCY CERTIFICATE ISSUED BY THE AUTHORITIES IN NETHERLANDS WAS ALSO FILED ALONG WITH THE RETURN OF FREIGHT. NOTICE UNDER SECTION 172(5) DATED 23.11.2009 WAS ISSUED. THE SAID NOTICE WAS ISSUED TO CLARIFY CERTA IN ASPECTS. THE INCOME- TAX AUTHORITIES NOTED THAT AS PER CHARTER PARTY DOCU MENT, THE IRANIAN COMPANY IS THE OWNER OF THE SHIP WHEREAS IN THE RETU RN OF FREIGHT, PUYVAST WAS SHOWN AS THE CHARTERER AND THE BENEFICIARY OF FR EIGHT. THE REVENUE CONTENDED THAT THE BENEFICIARY OF THE FREIGHT IS ISL AMIC REPUBLIC OF IRAN SHIPPING LINES, IRAN. 3.2 IN REPLY TO THE ABOVE NOTICE, THE ASSESSEE SUBM ITTED THE EMAIL CORRESPONDENCE RECEIVED FROM PUYVAST AND A CERTIFICA TE FROM THE OWNER OF THE SHIP CONFIRMING THAT PUYVAST WAS THE BENEFICIARY OF THE FREIGHT. THE ASSESSING OFFICER PASSED THE ORDER UNDER SECTION 17 2(4) ON 29.12.2009. IN THE SAID ORDER, IT WAS CONCLUDED THAT THE CHARTERER , M/S PUYVAST ACTS ONLY ON BEHALF OF HIS PRINCIPAL (ISLAMIC REPUBLIC) AND CHAR GES COMMISSION. THE INCOME-TAX AUTHORITY CONCLUDED THAT THE TREATY WITH N ETHERLANDS CANNOT BE APPLIED, SINCE ACCORDING TO HIM, THE OWNERS OF THE SHIP WERE THE BENEFICIARY AND NOT THE CHARTERERS. ACCORDINGLY, THE REVENUE PR OCEEDED TO PASS AN ORDER UNDER SECTION 172 OF THE ACT AND DETERMINED A SUM O F RS.3,38,208/- AS PAYABLE. SINCE THE TREATY WITH IRAN DID NOT PROVIDE FOR TAXATION OF INCOME FROM SHIPPING, THE ASSESSMENT WAS MADE AS PER THE I NCOME-TAX ACT. PAGE 4 OF 9 ITA NO.1 84/BANG/2011 4 4. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. THE CIT(A) FOR HIS REASONS MENTIONED IN THE IMP UGNED ORDER, DISMISSED THE APPEAL OF THE ASSESSEE. THE RELEVANT FINDING OF THE CIT(A) AT PARA 5 READS AS FOLLOWS:- THE ONLY ISSUE TO BE DECIDED IS WHETHER THE FREIGHT BENEFICIARY IS IRANIAN ENTITY OR THE NETHERLANDS ENT ITY AS THE RELIEF UNDER DTAA IS AVAILABLE FOR NETHERLAN DS ENTITY AND NOT FOR IRANS ENTITY. THE ASSESSING OFFI CER OBSERVED THAT IN THE NOC SL. NO.3 OF FORM NO.1, NETHERLANDS COMPANY WAS SHOWN AS CHARTERERS AND IRANIAN COMPANY WAS SHOWN AS OWNERS. AS PER COPY OF THE FIXTURE NOTE AT SL. NO. 14 IT WAS MENTIONED THA T 100% OF THE FREIGHT CHARGES GO TO THE ACCOUNT OF SHIP OW NERS AS REDUCED BY 2.5% OF ADDRESS COMMISSION TO M/S PUYVAST AND 1.25% TO M/S TRADE MARINE GLOBAL, THE SH IP BROKER. ACCORDING TO THE FIXTURE NOTE, THE PAYMENT SHALL BE MADE TO THE OWNERS ACCOUNT WITHIN 4 BANKING DAYS UPON COMPLETION OF LAST LOAD PORT. THE RAISING OF INVOICE BY THE CHARTERER HAS NO RELEVANCE SINCE THE FREIGHT BENEFICIARY IS THE OWNER OF THE SHIP. THOUGH IT IS AGREEABLE THAT M/S PUYVAST IS NOT JUST A COMMISSION AGENT BUT ALSO HAS UNDERTAKEN RISKS AND LIABILITIES IN THE EVENT OF TONNAGE BEING LESS THAN 19,500 TONNES SINC E THE CHARTERER CANNOT BE REGARDED AS THE FREIGHT BENEFIC IARY AS FREIGHT FINALLY GOES TO THE ACCOUNT OF THE OWNER BEING THE IRANIAN COMPANY. IN VIEW OF THIS, IT IS HELD TH AT THE ASSESSING OFFICERS CONCLUSION IS CORRECT THAT RELI EF UNDER THE DTAA IS NOT ALLOWABLE TO THE IRANIAN COMP ANY WHICH IS THE FREIGHT BENEFICIARY AND DENIAL OF DTAA BENEFIT IS UPHELD. 6. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFOR E US. PAGE 5 OF 9 ITA NO.1 84/BANG/2011 5 7. ELABORATE WRITTEN SUBMISSION WAS FILED BY THE LE ARNED AR TOUCHING UPON THE OECD COMMENTARY ON ARTICLE 8A BY TH E INDIA-NETHERLANDS TAX TREATY. IT WAS SUBMITTED THAT THE APPLICABILIT Y OF THE TREATY CAN BE TO THE OWNER OF THE VESSEL OR THE CHARTERER. IN THIS CASE, THE CHARTER M/S PUYAST CHARTERING BV, NETHERLANDS IS THE BENEFICIARY OF FREIGHT AND HENCE, IT WAS ENTITLED TO THE BENEFIT OF INDIA-NETHERLANDS DO UBLE TAXATION AGREEMENT, WHICH CLEARLY STIPULATE INCOME FROM OPERATION OF SHI PS IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THE STATE IN WHICH THE PLAC E OF EFFECTIVE MANAGEMENT OF THE ENTERPRISE IS SITUATED. THE TAX RESIDENCY CE RTIFICATE WITH REGARD TO PUYVAST ISSUED BY THE AUTHORITIES IN NETHERLANDS IS N EVER IN DOUBT. 7.1 WITH REFERENCE TO CLAUSES 13 AND 14 OF THE CHA RTER PARTY EXECUTED BY THE OWNER OF THE SHIP AND THE CHARTERER OF THE SHIP, IT WAS SUBMITTED THAT THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS ONLY MADE REFERENCE TO CLAUSE 14 OF THE CHARTER PARTY AND CONC LUDED THAT THE OWNER OF THE SHIP ARE THE FREIGHT BENEFICIARIES AND NOT THE CHARTERER. THE REVENUE AUTHORITIES HAD COME TO THIS CONCLUSION THAT THE CH ARTERER ACTS AS INTERMEDIARY AND GOT COMMISSION FOR THE SERVICES REN DERED BY THEM. IT WAS SUBMITTED THAT THE REVENUE AUTHORITIES FAILED TO AP PRECIATE THE FACT THAT THE RISK AND REWARD OF THE VOYAGE IS BORNE BY THE CHA RTERER OF THE SHIP. THE AUTHORITIES BELOW FAILED TO TAKE NOTE OF CLAUSE 13 OF THE CHARTER PARTY WHEREIN IT WAS CLEARLY STIPULATED THAT THE CHARTERER HAS TO PAY A MINIMUM FREIGHT FOR 19500 TONNES REGARDLESS OF THE LOAD AND THE OWNER OF THE VESSEL WERE ENTITLED FOR HIGHER FREIGHT IF THE LOAD EXCEED S THE MINIMUM TONNAGE, WHICH IS ESSENTIALLY LIKE A DEAD RENT AND THUS, THE ENTIRE RISK AND REWARD OF THE SHIP BELONGS TO THE CHARTERER AND THE OWNER IS ENTITLED FOR THE FIXED PAGE 6 OF 9 ITA NO.1 84/BANG/2011 6 RENT WITH AN INCREMENTAL RENT IF THE VESSEL SAILS W ITH A HIGHER LOAD. IT WAS SUBMITTED THAT CLAUSE 13 OF THE CHARTER PARTY HAS NO T BEEN TAKEN NOTE BY THE REVENUE AUTHORITIES AND CLAUSE 14 ONLY TALKS ABOUT T HE TIME OF PAYMENT WHEREIN, THEY USED THE WORD 100% FREIGHT. IT WAS SUBMITTED THAT THIS IS NOT 100% OF THE FREIGHT EARNED BY THE SHIP, BUT 100% OF THE FREIGHT AGREED TO BE PAID AS PER CLAUSE 13. THEREFORE, IT WAS SUB MITTED, THE REVENUE AUTHORITIES HAVE MISINTERPRETED CLAUSE 14 AS THE CL AUSE BASED ON WHICH THE OWNER IS REWARDED, WHILE IT ONLY DEALS WITH THE TIMI NG OF THE PAYMENT ENTITLED BY THE OWNER. 8. THE LEARNED DR FILED WRITTEN SUBMISSION, WHICH IS REPRODUCED BELOW:- THE APPEAL OF THE ASSESSEE IN THE CASE OF MARINE L INKS SHIPPING AGENCIES, MANGALORE RESTS ON THE SOLE QUES TION OF WHO IS THE FREIGHT BENEFICIARY IN THE CHARTER PAR TY EXECUTED BY THE OWNER OF THE SHIP AND CHARTERER OF T HE SHIP. AS PER CLAUSE 14 OF THE SAID DOCUMENT, THE E NTIRE FREIGHT PAYMENT IS TO BE REMITTED INTO THE BANK ACCO UNT OF THE OWNER I.E. M/S ISLAMIC REPUBLIC OF IRAN SUBJ ECT TO COMMISSION PAYMENTS TO M/S PUYVAST CHARTERING BV, NETHERLANDS; WHOSE AGENT IS THE PRESENT ASSESSEE. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE LIMITE D THEIR REASONING ONLY TO THIS POINT AS IS EVIDENT FRO M PARA 4.2 TO 4.4 OF THE ORDER UNDER SECTION 172(4) OF THE ASSESSING OFFICER AND PARA 5 OF THE CIT(A). TO THA T LIMITED POINT, THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO CONTROVERT OR BEING ANY MATERIAL DU RING HEARING ON 2/7/2012. HIS LENGTHY DISCUSSION ON OECD CHARTER AND DTAA WITH NETHERLANDS IS COMPLETELY BESI DE THE POINT AS THE ASSESSING OFFICER AND THE CIT(A) H AVE NOT EVEN DELVED INTO ANY OF IT. PAGE 7 OF 9 ITA NO.1 84/BANG/2011 7 AS REGARDS EMAIL OF THE OWNER THAT THE FREIGHT BENEFICIARY IS THE CHARTERER, SO LONG AS CLAUSE 14 O F THE CHARTER PARTY (A LEGAL DOCUMENT THAT HAS MUCH HIGHER EVIDENTIARY VALUE) TALKS OF FREIGHT PAYMENT TO GO TO THE OWNER, THE BENCH IS REQUESTED TO TAKE COGNIZANCE OF ONLY THE CHARTER DOCUMENT AND NOT THE EMAIL. AS IRAN AN D INDIA DO NOT HAVE DTAA BETWEEN THEM, THE ASSESSING OFFICER WAS RIGHT IN TREATING THE INCOME OF THE ASS ESSEE AS TAXABLE. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE SOLITARY ISSUE THAT ARISES FOR OUR C ONSIDERATION IS, WHO IS THE FREIGHT BENEFICIARY IN THE CHARTER PARTY EXECUTED BY T HE OWNER OF THE SHIP (IRANIAN ENTITY) AND THE CHARTERER OF THE SHIP (NETH ERLANDS ENTITY). IF THE CHARTERER (NETHERLANDS ENTITY) IS THE FREIGHT BENEFI CIARY, THE RELIEF UNDER DTAA BETWEEN INDIA AND NETHERLANDS IS AVAILABLE, WH EREAS THERE IS NO SUCH BENEFIT IF THE FREIGHT BENEFICIARY IS THE OWNER OF T HE VESSEL, THE IRANIAN PARTY. THE DISPUTE IS TO BE RESOLVED BY REFERENCE TO CLAUSE 13 AND 14 OF THE CHARTER PARTY EXECUTED BETWEEN THE OWNER OF THE SHIP AND THE CHARTERER. THE CLAUSE 13 AND 14 OF THE CHARTER PARTY READS AS F OLLOWS :- 13. FREIGHT RATE : (ALSO STATE WHETHER FREIGHT PRE PAID OR PAYABLE ON DELIVERY) EURO 46 PMT FLOAT L/S/D BASIS 3/3 OR 4/2 WITH FREE D/A TO OWNERS AT ALL POINTS, FREIGHT TO BE PAID BASIS MIN 19,500 TONS EXCEEDING 19500 MTS ADDITIONAL FREIGHT TO BE CALCULATED BASIS INTAKEN CARGO. 14. FREIGHT PAYMENT (STATE CURRENCY AND METHOD OF PAYMENT ALSO BENEFICIARY AND BANK ACCOUNT (CL.4). PAGE 8 OF 9 ITA NO.1 84/BANG/2011 8 100 PER CENT FREIGHT LESS 3.75% COMMISSIONS PAYABLE WITHIN 4 BANKING DAYS, UPON COMPLETION LAST LOAD PO RT BY CHARTERERS TO OWNERS BANK A/C. 9.1 CLAUSE 14 CLEARLY STIPULATES 100% FREIGHT CHARG ES REDUCED BY 3.75% COMMISSION IS PAYABLE WITHIN 4 BANKING DAYS UPO N COMPLETION OF LAST LOAD PORT BY THE CHARTERER TO THE OWNERS BANK A/C. OUT OF COMMISSION OF THE 3.75%, 2.5% GOES TO M/S PUYVAST (THE CHARTERER) AND 1.25% TO M/S TRADING MARINE GLOBAL, THE SHIP BROKER. 9.2 CLAUSE 13 STIPULATES MINIMUM FREIGHT IS TO BE PAID TO THE OWNER OF THE SHIP (THE IRANIAN PARTY) AT THE RATE OF 46 EU ROS OF MINIMUM OF 19500 TONNES. CLAUSE 13 FURTHER STIPULATES IF THE TONNAG E EXCEEDING 19500 M.TONNES, THE ADDITIONAL FREIGHT IS TO BE CALCULATE D DEPENDING UPON THE INTAKE OF THE CARGO. THUS, THE OWNER OF THE SHIP ( IRAN ENTITY) IS NOT ONLY ENTITLED TO FREIGHT OF A MINIMUM M. TONNES OF 19,50 0 BUT ALSO AN ADDITION FREIGHT DEPENDING ON INTAKE OF THE CARGO. THEREFOR E, THE RISK AND LIABILITIES UNDERTAKEN BY THE CHARTERER M/S PUYVAST IS ONLY IN THE EVENT OF THE TONNAGE BEING LESS THAN 19500 TONNES. RISING OF INVOICE BY THE CHARTERER AND CHARGING 49 EUROS PER M.TONN IS OF NO RELEVANCE, SI NCE SUBSTANTIAL PORTION OF THE FREIGHT IS PAID TO THE OWNER OF THE SHIP NAMELY, THE IRANIAN ENTITY. AS STATED EARLIER, THE RISK AND LIABILITIES UNDERTAKEN BY THE CHARTER M/S PUYVAST, THE NETHERLANDS ENTITY, IS LIMITED ONLY TO A SITUATION WHERE THE TONNAGE CARRIED BY THE VESSEL IS LESS THAN 19500 TON NES. THEREFORE, THE SUBSTANTIAL FREIGHT BENEFICIARY IS THE OWNER OF THE SHIP, THE IRANIAN ENTITY AND IN VIEW OF THIS, THE CONCLUSION OF THE REVENUE AUTHORITIES THAT RELIEF PAGE 9 OF 9 ITA NO.1 84/BANG/2011 9 UNDER DTAA IS NOT ALLOWABLE IS JUSTIFIED AND IN ACC ORDANCE WITH LAW AND NO INTERFERENCE IS CALLED FOR. IT IS ORDERED ACCORDIN GLY. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER PRONOUNCED ON THE 12 TH DAY OF JULY, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.