ORIENT SHIPPING SERVICES LLC, MUMBAI V. ADDL DIT (IT) RG 4, MUMBAI

ITA 4122/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1852 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 03-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 22-05-2013
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHA UHAN
• Keywords: Business income; Double taxation relief; Permanent establishment; Advance ruling

Judgement Text

, , L, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4122/MUM/2013 ASSESSMENT YEAR: 2007-08 ORIENT SHIPPING SERVICES LLC 1406/107 TECHNOPOLIS KNOWLEDGE PARK, 1 ST FLOOR, MAHAKALI CAVES RD, CHAKALA ANDHERI(E) MUMBAI-400015 / VS. A DDL. DIT (IT) RG 4 SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400038 ( APPELLANT ) (RESPONDENT ) P.A. NO. AAACO3855C APPELLANT BY SHRI JITENDRA JAIN ( A R) REVENUE BY SHRI JASBIR CHAUHAN ( CIT - DR) / DATE OF HEARING: 07/11/2016 / DATE OF ORDER: 18/11/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF DISPUTE RESOLUTION PANEL (DRP)-II, MUMBAI PASSED U/S 144C(V) OF THE ACT, AS WELL AS FINAL ASSESSMENT ORDER PASSED BY THE AO DATED 26.04.2013 PASSED U/S 143(3)/144C(13) OF THE ON THE FOLLOWING GROUNDS: ORIENT SHIPPING SERVICES 2 THE JOINT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), RANGE-4. MUMBAI (HEREINAFTER REFERRED TO AS THE AO) ERRED IN HOLDING THAT FREIGHT INCOME OF RS. 1,68,39,328 (USS 3,66,070) EARNED BY THE APPELLANTS FROM SLOTS TAKEN ON HIRE ('SLOT HIRE CHARGES') DURI NG THE YEAR WERE NOT COVERED BY THE ADVANCE RULING DATED 29.10.1997 OBTAINED BY THE APPELLANTS. THE AO FURTH ER ERRED IN HOLDING THAT THE SLOT HIRE CHARGES ARE NOT COVERED UNDER ARTICLE 8 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND UAE (DTAA) AND ACCORDINGLY TAXED 7.5% THEREOF AMOUNTING TO RS.12,6 2,942 AS THE APPELLANTS BUSINESS INCOME FOR THE ABOVE YEA R BY TREATING THE APPELLANTS AGENTS M/S. SAMSARA SHIPPIN G PRIVATE LIMITED AS THEIR PERMANENT ESTABLISHMENT (P E). THE APPELLANTS SUBMIT AS UNDER: I) THAT 'SLOT HIRE CHARGES' BEING COVERED BY ARTICL E 8 OF THE DTAA, ARE NOT LIABLE FOR TAX IN INDIA AS PER RULING OF THE AUTHORITY OF ADVANCE RULING (AAR) IN THE APPELLANTS OWN CASE (ORDER DATED 29.10.1997 IN AAR NO.356 OF 1997) . II) THAT 'SLOT HIRE CHARGES' RECEIVED BY THE APPELL ANTS DURING THE YEAR ARE IN THE NATURE OF INCOME EARNED FROM THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC AND IS ACCORDINGLY COVERED BY ARTICLE-8 OF THE DTAA. III) THAT WITHOUT PREJUDICE TO THE ABOVE, EVEN ASSU MING THAT THE SAID INCOME FROM 'SLOT HIRE CHARGES' IS NO T COVERED BY ARTICLE 8 AND IS IN THE NATURE OF BUSINE SS PROFITS COVERED BY ARTICLE 7 OF THE DTAA, THE SAME CANNOT BE BROUGHT TO TAX IN INDIA AS THE APPELLANTS DO NOT HAVE A PE IN INDIA. IV) THAT, M/S. SAMSARA SHIPPING PRIVATE LIMITED, AR E THE INDEPENDENT AGENTS OF THE APPELLANT IN INDIA AND DO NOT CONSTITUTE A PE OF THE APPELLANTS UNDER THE DTAA AS HELD BY THE AO AS NONE OF THE CONDITIONS IN ARTICLE 5 IS SATISFIED. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI JITENDRA JAIN, AUTHORISED REPRESENTATIVES (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI JASBIR CHAUHAN, DEPARTM ENTAL REPRESENTATIVE (CIT-DR) ON BEHALF OF THE REVENUE. 3. THE MAIN THRUST OF THE ARGUMENTS MADE BY THE LD. C OUNSEL DURING THE COURSE OF HEARING WAS SAME AS HAS BEEN T AKEN IN ORIENT SHIPPING SERVICES 3 THE GROUNDS OF APPEAL REPRODUCED ABOVE I.E. SLOT H IRE CHARGES RECEIVED BY THE ASSESSEE WAS COVERED BY ARTICLE 8 O F THE INDO UAE DTAA, AND THUS NOT LIABLE TO TAX IN INDIA AS PE R RULING OF THE AUTHORITY OF ADVANCE RULING (AAR) IN THE ASSESS EES OWN CASE GIVEN VIDE ORDER DATED 29.10.1997 IN AAR NO.35 6 OF 1997. BUT THE DRP AS WELL AS AO WRONGLY OBSERVED TH AT NO RULING WAS GIVEN BY THE AAR WITH RESPECT TO THE AFO RESAID INCOME AND WRONGLY HELD THAT THE AFORESAID INCOME W AS NOT COVERED BY ARTICLE 8 AND WRONGLY TAXED THE SAME @ 7 .5 % BY TREATING THE SAME AS BUSINESS INCOME BY TREATING AS SESSEES AGENT NAMELY M/S. SAMSARA SHIPPING PRIVATE LIMITED AS ITS PERMANENT ESTABLISHMENT (PE). 3.1. IT WAS FURTHER STATED THAT THIS IS SECOND ROUND OF LITIGATION AND IN THE FIRST ROUND SAME GRIEVANCE WAS RAISED BE FORE THE TRIBUNAL. THE TRIBUNAL VIDE ITS ORDER DATED 27 TH JUNE, 2012 IN ITA NO.7307/MUM/2010 CONCURRED WITH THE SUBMISSIONS OF THE ASSESSEE AND FOUND THAT DRP WAS NOT CORRECT IN DISREGARDING THE ORDER OF AAR ON THIS ISSUE AND THE REFORE, MATTER WAS SENT BACK TO THE FILE OF DRP FOR PASSING A REASONED AND SPEAKING ORDER AFTER PROPERLY CONSIDERING THE O RDER OF AAR. SUBSEQUENTLY, THE DRP PASSED FRESH ORDER TO AG AIN COMMIT THE SAME MISTAKE, AS WAS DONE IN THE ORDER P ASSED IN THE FIRST ROUND, IN READING THE ORDER OF AAR. IT WA S SUBMITTED THAT THE TRIBUNAL HAS ALREADY EXPLAINED THE SCOPE O F ORDER OF AAR IN ITS EARLIER ORDER. THEREFORE, IMPUGNED ORDER OF DRP IS ERRONEOUS ON FACTS. LD. COUNSEL ALSO READ BEFORE US THE ORDER OF AAR TO IMPRESS UPON THE POINT THAT THE IMPUGNED INCOME HAS BEEN ALREADY COVERED BY THE AAR IN ITS ORDER, A ND ORIENT SHIPPING SERVICES 4 THEREFORE, THIS ISSUE WAS NO MORE OPEN BEFORE THE A O OR DRP AND THEIR ORDERS BEING ILLEGAL SHOULD BE QUASHED. 3.2. PER CONTRA, LD. DR RELIED UPON THE ORDERS OF THE L OWER AUTHORITIES. 3.3. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES, ORDER PASSED BY THE TRIBUNAL IN THE FI RST ROUND AS WELL AS ORDER OF THE AAR. THE BRIEF BACKGROUND IS T HAT ASSESSEE IS A LIMITED COMPANY, INCORPORATED IN UAE AND ENGAG ED IN THE BUSINESS OF SHIPPING OPERATIONS OF RUNNING FEEDER L INE BETWEEN INDIA AND DUBAI. THE ASSESSEE OPERATES THE FEEDER S ERVICES USING THEIR OWN VESSELS AS WELL AS VESSELS TAKEN ON CHARTER. DURING THE YEAR, THE ASSESSEE HAD RECEIVED SLOT HI RE CHARGES OF US $ 366070, WHICH IN TERMS OF INR COMES TO RS.1,68,39,220/-. THE ASSESSEES CASE BEFORE THE AO WAS THAT ITS SLOT HIRE CHARGES WAS FROM SHIPPING OPERATION S AND THUS COVERED BY ARTICLE 8 OF THE DTAA BETWEEN INDIA AND UAE, AND THEREFORE, THE SAME IS NOT TAXABLE IN INDIA. IT WAS FURTHER BROUGHT ON THE RECORD THAT IN ASSESSEES OWN CASE, THE AUTHORITY OF ADVANCE RULING (IN SHORT AAR) VIDE O RDER DATED 29-10-1987 HAS HELD THAT THE ASSESSEES BUSINESS IS FROM SHIPPING OPERATIONS AND BENEFIT OF ARTICLE 8 OF IN DIA AND UAE DTAA IS AVAILABLE TO THE ASSESSEE. RELYING ON THE S AID DECISION OF AAR, THE ASSESSEE SUBMITTED BEFORE THE AO THAT I TS FREIGHT RECEIPTS ARE NOT TAXABLE IN INDIA. ALTERNATIVELY, I T WAS ALSO SUBMITTED THAT IT IS NOT COVERED UNDER ARTICLE 7 OF DTAA AS THERE IS NO PE IN INDIA AND THEREFORE, BUSINESS INC OME CANNOT BE COMPUTED UNDER SECTION 44B. THE ASSESSEE REFERRE D THE DRAFT ASSESSMENT ORDER PROPOSING TO TAX THE ASSESSE E IN INDIA, ORIENT SHIPPING SERVICES 5 UNDER SECTION 144C(1) TO THE DRP. BEFORE THE DRP, T HE ASSESSEE SUBMITTED DETAILED OBJECTIONS ON VARIOUS A SPECTS. THE SUM AND SUBSTANCE OF SAID OBJECTIONS WAS THAT:- I) ITS CASE IS SQUARELY COVERED BY THE DECISION OF AAR (AAR NO.350/1957), ORDER DATED 29-10-1997, WHEREIN THE A AR HAS GIVEN A CATEGORICAL RULING THAT THE ASSESSEE IS ENG AGED IN SHIPPING OPERATION AND IS COVERED UNDER ARTICLE 8 O F DTAA AND, THEREFORE, BEING A RESIDENT OF UAE, NO TAX IS PAYABLE IN INDIA FROM ITS SHIPPING BUSINESS. IN THIS REGARD, V ARIOUS SUBMISSIONS AND FINDINGS GIVEN BY THE AAR WERE REFE RRED TO. II) THE ASSESSEES RECEIPTS FROM SLOT HIRE CHARGE S CANNOT BE TAXED AS BUSINESS INCOME UNDER ARTICLE 7 AS IT DID NOT HAVE ANY PE IN INDIA. III) VARIOUS DECISION WERE RELIED UPON IN SUPPORT O F THE CONTENTION THAT SLOT HIRE CHARGES RECEIVED FROM C HARTER OF SHIPS WHICH IN THE NATURE OF INCOME DERIVED FROM TH E OPERATION OF SHIPS ONLY. IV) THE ASSESSEES SHIPPING AGENT, NAMELY, M/S SAMS ARA SHIPPING PVT. LTD, IS A COMPLETELY INDEPENDENT AGEN T WITHIN THE MEANING OF ARTICLE 5, PARA 5 OF THE DTAA, HENCE , ARTICLE 7 READ WITH ARTICLE 5 IS NOT APPLICABLE IN CASE OF AS SESSEE. 4. THE DRP VIDE ITS DIRECTION DATED 16-8-2010 REJEC TED THE ASSESSEES CONTENTION IN A VERY BRIEF MANNER, FIRST LY, ON THE GROUND THAT SLOT HIRE CHARGES HAS NOT BEEN CONSID ERED BY THE AAR IN ITS RULING, AND SECONDLY, BUSINESS INCOME OF THE ASSESSEE EARNED THROUGH PE WAS A LEGAL ISSUE. THERE FORE, IT DID NOT FIND ANY REASON TO INTERFERE WITH THE AOS ACTI ON, AND LASTLY, RATE OF 15% UNDER SECTION 44B AS APPLIED BY THE ORIENT SHIPPING SERVICES 6 ASSESSING OFFICER WAS CORRECT. FOLLOWING THE DIRECT IONS OF THE DRP, THE ASSESSING OFFICER, THUS, TREATED THE RECEI PTS OF RS.1,68,39,200/- AS BUSINESS INCOME TO BE COMPUTE D UNDER SECTION 44B AND WORKED OUT THE TAXABLE INCOME OF RS.25,25,883/- BY APPLYING THE RATE OF 15%. 3.3. THE ASSESSEE WAS NOT SATISFIED WITH THE DIRECTIONS OF DRP AND ACCORDINGLY IT APPROACHED THE TRIBUNAL AND SUBM ITTED DURING THE COURSE OF HEARING THAT THE DRP HAS NOT P ROPERLY UNDERSTOOD AND APPLIED THE ORDER OF AAR AND WRONGLY TAXED THE IMPUGNED INCOME. THE TRIBUNAL, VIDE ITS ORDER D ATED 27 TH JUNE 2012, ACCEPTED THE SUBMISSIONS OF THE ASSESSEE PRINCIPALLY, BUT SENT THE MATTER BACK TO DRP FOR PA SSING A SPEAKING ORDER AFRESH AND OBSERVED AS UNDER: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL PLACED ON RECORD. FROM TH E PERUSAL OF THE DRPS DIRECTION, IT IS SEEN THAT THE ASSESSEES OBJECTION AND SUBMISSIONS ON VARIOUS ASP ECTS HAVE NOT BEEN PROPERLY CONSIDERED AND HAVE BEEN SUMMARILY REJECTED. THE ASSESSEES MAIN CONTENTION THAT ITS CASE IS COVERED BY AAR RULING, HAS NOT BEEN ANA LYZED AT ALL. AS POINTED OUT BY THE LEARNED AR, IN PARA 3 OF THE AAR RULING THERE IS A CATEGORICAL AVERMENT THAT THE ASSESSEE WOULD OPERATE SERVICES USING ITS OWN VESSE LS OR VESSELS ON CHARTER AND IT WOULD ALSO RESORT TO SLO T HIRE CHARGES ON VESSELS OWNED BY IT OR OPERATED BY OTHE RS. AT SEVERAL PLACES, IT HAS BEEN NOTED BY THE AAR THAT T HE ASSESSEE WILL NOT ONLY OPERATE SHIPS OWNED BY IT BU T ALSO DO BUSINESS AS AN AGENT AND OTHER INCIDENTAL BUSINE SS RELATING TO SHIPPING OPERATIONS. BASED ON THESE FAC TS, THE AAR HAS GIVEN A CATEGORICAL FINDING, FIRSTLY, THAT THE ASSESSEE IS A RESIDENT OF UAE AND ITS TAXATION OF I NCOME IN INDIA WOULD BE GOVERNED BY DTAA BETWEEN INDIA AND U AE AND SECONDLY, THE INCOME DERIVED BY THE ASSESSEE BY OPERATIONS OF SHIPS IN INTERNATIONAL TRAFFIC WOULD BE GOVERNED BY ARTICLE 8 OF THE DTAA AND THIRDLY, THE INCOME ORIENT SHIPPING SERVICES 7 OF THE ASSESSEE BY OPERATION OF SHIPS WOULD INCLUDE INCOME DERIVED BY IT ON ACCOUNT OF CHARTER HIGHER C HARGES, RENTAL OF CONTAINERS AND RELATED EQUIPMENTS DERIVED BY IT FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC AN D GAINS DERIVED FROM ALIENATION OF SHIPS, CONTAINERS AND RE LATED EQUIPMENTS. ALL THESE VITAL ASPECTS OF AAR RULING H AVE NOT BEEN DISCUSSED BY THE DRP, WHICH IT WAS REQUIRED TO DO SO, WHEN THE ASSESSEE IS HEAVILY RELYING UPON THE D ECISION OF AAR WHICH IS BINDING UPON THE ASSESSING OFFICER. IT IS FURTHER NOTICED THAT THE SECOND ASPECT THAT THE INC OME WOULD NOT BE TAXABLE IN INDIA DUE TO ABSENCE OF PE AND ALSO THE AGENT IN INDIA IS NOT A DEPENDENT AGENT AS PER PARA 5 OF ARTICLE 5, HAS NOT BEEN DISCUSSED AT ALL. 8. FROM THE PERUSAL OF THE ENTIRE DRPS ORDER, IT I S EVIDENT THAT THE ASSESSEES SUBMISSIONS AND OBJECTIONS HAVE BEEN BRUSHED ASIDE WITHOUT GIVING ANY PROPER REASONS AND SUFFICIENT CONSIDERATION. THE RELEVANT AND IMPORTAN T POINTS RAISED ON BEHALF OF THE ASSESSEE AND AS NOTED BY US , DO NOT FIND ANY MENTION OR PROPER DISCUSSION IN DRPS DIRECTION, WHICH IT WAS OBLIGED TO DO SO. THE DRP I S A QUASI-JUDICIAL AUTHORITY AND WHEN DEALING WITH A LI TIGATION BEFORE IT, IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND DETAIL REASONS AS TO WHY THE ASSESSEES CONTENTION IS NOT ACCEPTED. THIS CASUAL ATTITUDE OF THE DRP LEADS TO HARASSMENT OF THE ASSESSEE AND DRAG THEM TO PROTRAC TED LITIGATION. THIS CASUAL NATURE OF DRP HAS BEEN FROW NED UPON IN SEVERAL CASES NOT ONLY BY TRIBUNAL BUT ALSO BY HONBLE HIGH COURTS. IN THE CASE OF GAP INTERNATION AL SOURCING INDIA (P) LTD. VS. DCIT 113 TTJ (DEL.) 627 , THE COORDINATE BENCH OF THIS TRIBUNAL CAME ACROSS A SIM ILAR SITUATION WHEREIN VOLUMINOUS SUBMISSIONS MADE BY TH E ASSESSEE WERE FOUND TO BE BRUSHED ASIDE BY THE DRP WITHOUT EVEN A WHISPER IN THE ORDER. THE ORDER PASS ED BY THE DRP, THEREFORE, WAS HELD TO BE LACONIC BY THE T RIBUNAL AND THE MATTER WAS REMITTED BACK TO THE DRP TO CONS IDER THE SAME AGAIN AND TO PASS A PROPER AND SPEAKING OR DER. A SIMILAR SITUATION AROSE IN THE CASE OF VODAFONE E SSAR LTD. VS. DRP 196 TAXMAN 423 (DEL.) WHEREIN THE ORDE R PASSED BY THE DRP WAS QUASHED BY THE HONBLE DELHI HIGH COURT AND THE MATTER WAS REMANDED FOR FRESH ADJUDICATION OBSERVING THAT WHEN A QUASI JUDICIAL AUTHORITY DEALS WITH A LIS, IT IS OBLIGATORY ON ITS PART TO ORIENT SHIPPING SERVICES 8 ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS T HE HEART AND SOUL OF THE MATTER. THE HONBLE DELHI HIG H COURT FURTHER OBSERVED THAT A WELL REASONED AND WELL DISC USSED ORDER ALSO FACILITATES APPRECIATION WHEN THE SAME I S CALLED IN QUESTION BEFORE THE SUPERIOR FORUM. KEEPING IN V IEW THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF VODAFONE ESSAR LTD. (SUPRA) AS WELL AS THAT OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GA P INTERNATIONAL SOURCING INDIA (P) LTD. (SUPRA) AND H AVING REGARD TO THE FACT THAT THE DRP HAS PASSED THE ORDE R GIVING DIRECTIONS TO THE AO U/S 144C WITHOUT GIVING PROPER CONSIDERATION TO ELABORATE SUBMISSIONS MADE ON BEHA LF OF THE ASSESSEE, ON THIS MAIN PRELIMINARY ISSUE, WE SE T ASIDE THE ORDER AND REMIT THE MATTER TO THE FILE OF THE D RP WITH A DIRECTION TO CONSIDER THE OBJECTIONS OF THE ASSESSE E ON THIS ISSUE AS WELL AS THE OTHER ISSUES ONCE AGAIN AND PA SS A PROPER AND SPEAKING ORDER GIVING DIRECTION U/S 144C . ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. 3.4 . THUS, IN PURSUANCE TO THE ABOVE ORDER OF THE TRIB UNAL, THE DRP AGAIN PASSED ITS ORDER DATED 28.03.2013 WHE REIN THE STAND TAKEN BY THE DRP IN ITS EARLIER ORDER WAS REP EATED AND IT WAS INTER ALIA OBSERVED THAT THE IMPUGNED INCOME EARNED BY THE ASSESSEE IN THE FORM OF SLOT HIRE CHARGES WAS N OT COVERED BY THE AAR IN ITS RULING. 3.5. BEING AGGRIEVED, THE ASSESSEE AGAIN APPROACHED THE TRIBUNAL. WE HAVE GONE THROUGH THE ORDER OF THE TRI BUNAL AS WELL AS ORDER OF THE AAR. IT IS PRIMARILY NOTED BY US THAT TRIBUNAL HAD CLEARLY OBSERVED IN ITS ORDER THAT INC OME DERIVED BY THE ASSESSEE BY OPERATIONS OF SHIPS IN INTERNATI ONAL TRAFFIC WOULD BE GOVERNED BY ARTICLE 8 OF DTAA, AND THAT TH E INCOME OF ASSESSEE BY OPERATIONS OF SHIPS WOULD INCLUDE IN COME DERIVED BY IT ON ACCOUNT OF CHARTER HIRE CHARGES, R ENTAL OF ORIENT SHIPPING SERVICES 9 CONTAINERS AND RELATED EQUIPMENTS DERIVED BY IT FRO M OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC AND GAI NS DERIVED FROM ALIENATION OF SHIPS, CONTAINERS AND RELATED EQ UIPMENTS. IT APPEARS THAT THE DRP HAS AGAIN OMITTED TO PROPERLY READ ORDER OF THE TRIBUNAL AS WELL AS ORDER OF THE AAR. 3.6. WITH THE ASSISTANCE OF BOTH THE PARTIES WE AGAIN P ERUSED THE ORDER OF AAR. PERUSAL OF THE ORDER OF AAR REVEA LS THAT AT MANY PLACES IN THE ORDER THE AAR HAS MADE REFERENCE TO INCOME FROM SLOT HIRE CHARGES ALSO. PARA 10 OF TH E ORDER OF AAR READS AS UNDER: ..10. THE PRESENT ACTIVITIES OF THE ORIENT SHIPP ING ARE LIMITED TO SHIPPING AGENCY AND ARE RESTRICTED TO TH E GULF REGION MAINLY IN THE EMIRATE OF DUBAI. IT IS OBSERV ED FROM A LETTER ADDRESSED BY THE APPLICANT TO ITS REPRESEN TATIVE M/S. RATAN S. MAMA & CO. IN INDIA AND PLACED ON REC ORD WITH THE AUTHORITY AND IT HAS NO INTENTION OF EXTEN DING THE SHIP AGENCY BUSINESS TO INDIA AND THAT THE COMPANY WAS CONTEMPLATING TO SET UP A SEPARATE DIVISION FOR ENG AGING IN THE BUSINESS OF OPERATION OF SHIPS WHICH WOULD INCL UDE INDIAN PORTS SUCH AS MUMBAI, COCHIN ETC. THIS IN TU RN WOULD RESULT IN GENERATION OF INCOME FROM INDIA REL ATING TO THE SHIPPING ACTIVITY IN THE FORM OF FREIGHT EARNIN GS, RENTAL OF CONTAINERS AND RELATED INCOME, INCOME BY WAY OF HIRE OF SLOTS ETC. ITEM 10 OF THE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31.12.1996, INDICATES THE GROSS OPERATING AND OTHER INCOME OF THE APPLICANT W HICH INCLUDES SHIPPING AGENCY AND RELATED INCOME THE B REAK- UP OF THE KIND OF SERVICES RENDERED UNDER THIS HEAD IS NOT GIVEN. 3.7 . AFTER HEARING BOTH THE PARTIES IN DETAIL AND AFTE R ANALYSING THE FACTS OF THE CASE THE AAR HELD AS UNDER: ON A CAREFUL PERUSAL OF ARTICLE 8 OF THE DTAA, THE AUTHORITY DOES NOT FIND MUCH MERIT IN THE DEPARTMEN TS VIEW AND ACCEPTS THE INTERPRETATION GIVEN BY SHRI D INESH ORIENT SHIPPING SERVICES 10 KANABAR THAT ARTICLE 8 OF DTAA IS CLEARLY APPLICABL E TO THE APPLICANTS CASE. 3.8. PARA 17 OF THE ORDER OF AAR IS ALSO RELEVANT AS UN DER: 17. GIVEN THUS THE AFORESAID BACKGROUND AND WIDE R ANGE OF SHIPPING SERVICES WHICH ARTICLE 8(2) OF THE DTAA BETWEEN INDIA AND UAE IS CAPABLE OF ENCOMPASSING WI THIN ITS PURVIEW, IT IS CLEAR THAT APPLICANTS PROPOSED S HIPPING ACTIVITIES WOULD FALL UNDER THAT PROVISION. AS SUCH UNDER ARTICLE 8(1), THE APPLICANT, BEING A RESIDENT OF UA E, WILL NOT BE LIABLE TO INCOME TAX IN INDIA ON THE INCOME FROM THE PROPOSED SHIPPING OPERATIONS . THE PROVISIONS OF THE DTAA, BEING MORE BENEFICIAL TO THE APPLICANT, WOULD PREVAIL OVER SECTION 44B OF THE INCOME TAX ACT, 196 1. 3.9. WHILE ANSWERING ALL THE QUESTIONS RAISED BEFORE TH E AAR, IT WAS CLEARLY ANSWERED AS YES WITH RESPECT TO ALL THE FOLLOWING QUESTIONS: QUESTION ANSWER 1. WHETHER, THE APPLICANT COMPANY ORIENT SHIPPING SERVICES LLC, UAE IS A RESIDENT OF UAE AND TAXATION OF ITS INCOME IN INDIA WOULD BE GOVERNED BY THE AGREEMENT FOR AVOIDANCE OF YES DOUBLE TAXATION BETWEEN INDIA AND UAE. 2. WHETHER THE INCOME DERIVED BY THE APPLICANT BY OPERATIONS OF SHIPS IN INTERNATIONAL TRAFFIC INCLUDING BETWEEN INDIAN AND UAE WOULD BE TAXABLE YES ONLY IN UAE IN TERMS OF ARTICLE 8 OF THE TAX TREATY BETWEEN INDIA AND UAE. 3. WHETHER THE INCOME OF THE APPLICANT COMPANY BY OPERATION OF SHIPS IN INTERNATION AL TRAFFIC, WHICH IS LIABLE TO TAX IN UAE, WOUL D INCLUDE INCOME DERIVED BY APPLICANT COMPANY ON ACCOUNT OF : A) CHARTER HIRE CHARGES AND RENTAL OF SHIPS RELATED TO OPERATIONS OF SHIPS IN INTERNATIONAL TRAFFIC. YES ORIENT SHIPPING SERVICES 11 B) RENTAL OF CONTAINERS AND RELATED EQUIPMENTS WHICH IS DERIVED FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC. YES C) GAINS DERIVED BY IT FROM ALIENATION OF SHIPS AND CONTAINERS AND RELATED EQUIPMENTS. YES 3.10. THUS, FROM THE PERUSAL OF THE ABOVE, IT IS CLEARLY EVIDENT THAT READING OF ORDER OF AAR IN ITS ENTIRETY MAKES IT CLEAR THAT AAR HAD DECIDED IN CLEAR WORDS THAT THE IMPUGNED IN COME I.E. INCOME FROM SLOT HIRE CHARGES SHALL BE PART OF INCO ME FROM SHIPPING OPERATIONS AND WOULD BE ELIGIBLE FOR THE B ENEFIT OF ARTICLE 8 OF DTAA BETWEEN INDIA AND UAE. THE DRP HA S GROSSLY ERRED IN NOT READING THE ORDER OF AAR PROPE RLY WHICH HAS CAUSED UNDUE HARDSHIP OF THE ASSESSEE. THE ORDE R OF THE AAR HAD ATTAINED FINALITY. THUS, THIS ISSUE WAS NO MORE OPEN TO BE DECIDED IN ANY OTHER MANNER BY THE AO OR DRP. UNDER THESE CIRCUMSTANCES, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 3.11. SINCE PRIMARY ISSUE HAS BEEN DECIDED IN FAVOUR BY THE ASSESSEE, WE DO NOT FIND IT NECESSARY TO ADJUDICATE OTHER ISSUES AT THIS STAGE. 3.12. AS A RESULT, APPLYING THE ORDER OF AAR, IT IS HELD THAT INCOME FROM SLOT HIRE CHARGES RECEIVED BY THE ASS ESSEE DURING THE YEAR IS COVERED UNDER ARTICLE 8 OF DTAA AND THU S NOT LIABLE FOR TAX IN INDIA. ORIENT SHIPPING SERVICES 12 4. IN THE RESULT, THE APPEAL FILED THE ASSESSEE IS AL LOWED SUBJECT TO THE DIRECTIONS GIVEN ABOVE. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED : 18/11/2016 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -. / (01 , * % 012 , / DR, ITAT, MUMBAI 6. / 34 5 / GUARD FILE. / BY ORDER, ) -% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI