ADIT (IT) 2(1), MUMBAI V. SAFMRINE CONFAINER LINES NV, MUMBAI

ITA 570/MUM/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7279 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 28-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Deemed to accrue or arise in india

Judgement Text

1 ITA NO. 570/MUM/2010 (ASST YEAR 2006-07 ) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI P M JAGTAP, AM & SHRI VIJAY PAL RAO, JM ITA NO. 570/MUM/2010 (ASST YEAR 2006-07 ) THE ASST DIRECTOR OF INCOME TAX (INTERNTAIONAL TAXATION) 2(1), MUMBAI VS M/S. SAFMARINE CONTAINERS LINES N.V. C/O MAERSK INDIA PVT. LTD. CG HOUSE, 11TH FLOOR, AB ROAD WORLI, MUMBAI 400030 (APPELLANT) (RESPONDENT) PAN NO. AACCS 0472 A ASSESSEE BY SHRI PARESH SHAPARIA REVENUE BY SHRI SUHIL KUMAR SINGH DT.OF HEARING 28 TH JULY 2011 DT OF PRONOUNCEMENT 5TH AUG 2011 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 27.10.2009 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN T HIS APPEAL: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN HOLDING THAT INCOME FROM INLAND HAULAGE CH ARGES IS INCIDENTAL AND CLOSELY CONNECTED WITH DIRECT OPERATION OF SHIPS AN D HENCE NOT LIABLE TO TAX IN INDIA IN TERMS OF ARTICLE 8 OF THE INDO BELGIUM DTAA, WITHOUT APPRECIATING THE FACT THAT; A) THE ACTIVITY OF INLAND TRANSPORTATION CANNOT BE CONSIDERED AS INTERNATIONAL TRANSPORT AND BY VIRTUE OF THAT IS SH OULD BE TAXED IN THE SOURCE COUNTRY; B) THE INLAND HAULAGE CHARGES IS TABLE IN INDIA AS BUSINESS PROFITS AS IT IS NOT COVERED BY SEC. 44B OF THE ACT. 3 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE ASSESSEE AND PERUSED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, W E NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND ADJUDICATED BY THE TRIBUNAL IN ASSES SEES OWN CASE FOR ASSESSMENT 2 ITA NO. 570/MUM/2010 (ASST YEAR 2006-07 ) YEAR 2001-02 IN ITA NO.3701/MUM/205 VIDE ORDER DATE D 18 TH JULY 2008. WE FURTHER NOTE THAT THE TRIBUNAL HAS ALSO CONSIDERED THE ISSU E IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2003-04 AND 2005-06 NO.5460/MUM/2 006 AND ITA NO.728/MUM/2009 RESPECTIVELY. 3.1 THIS ISSUE HAS REPEATEDLY CONSIDERED AND ADJUDI CATED IN THE ASSESSEES OWN CASE FOR THE AYS 2005-06. THE TRIBUNAL HAS ADJUDICA TED THIS ISSUE WHILE DECIDING THE APPEAL OF THE REVENUE IN ASSESSEES OWN CASE IN ITA NO.728MUM/2009 AS UNDER: 2. AT THE OUTSET BOTH THE COUNSELS AGREED THAT THE IS SUE IS COVERED AGAINST THE REVENUE BY THE ORDER OF THE ITAT IN ITA NO. 5460/MU M/2006 FOR A.Y. 2003-04 ON IDENTICAL FACTS. 3. THE ASSESSEE IS A NON-RESIDENT. IT IS A TAX RESIDE NT OF BELGIUM. IT IS A COMPANY ENGAGED IN THE BUSINESS OF OPERATION OF SHIPS. THE STATEMENT OF COMPUTATION OF INCOME FOR A.Y. 2005-06 OF THE ASSESSEE WAS AS UNDE R :- BUSINESS INCOME AS PER SECTION 44B R.W.S. 172 : FREIGHT COLLECTION INCLUDING ANCILLARY CHARGES 4,9 04,845,111 (AS PER ANNEXURE 1&2) LESS : FEEDER FRIGHT COLLECTED BY ASSESSEE ON BEHALF OF OTHER SHIPPING COMPANIES AND PAID TO OTHER SHIPPING COMPANIES, THEREFORE NOT INCOME OF THE ASSESSEE (2,66,794,274) 4,638,051,437 INCOME UNDER SECTION 44B OF THE ACT @ 7.5% 347,853,858 UNDER SEC.44B OF THE ACT, THERE IS A SPECIAL PROVIS IONS FOR COMPUTING PROFITS OF SHIPPING BUSINESS IN THE CASE OF NON-RESIDENTS AND A PRESUMP TIVE SUM EQUAL TO 7.5% OF THE AMOUNT PAID OR PAYABLE TO THE ASSESSEE FOR CARRYING PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT ANY PORT IN INDIA AND AMOUNT RECEI VED OR DEEMED TO BE RECEIVED IN INDIA BY OR ON BEHALF OF THE ASSESSEE FOR CARRYI NG PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT ANY PORT OUTSIDE INDIA. THE ABOVE PROVISIONS ARE SUBJECT TO THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT W HICH ARE ENTERED INTO BETWEEN INDIA AND THE STATE OF WHICH THE NON-RESIDE NT ASSESSEE IS RESIDENT. THE ASSESSEE GAVE A NOTE TO THE COMPUTATION OF INCOME C LAIMING THAT ACCORDING TO ARTICLE 8(1) OF THE AGREEMENT FOR AVOIDANCE OF DOUB LE TAXATION BETWEEN INDIA AND BELGIUM, PROFITS DERIVED FROM THE OPERATION OF SHIP S IN INTERNATIONAL TRAFFIC BY THE ENTERPRISE RESIDENT OF BELGIUM ARE TAXABLE ONLY IN BELGIUM, THUS NOT TAXABLE IN INDIA. ARTICLE 8 OF DTAA BETWEEN INDIA AND BELGIUM IS AS F OLLOWS :- INCOME DERIVED FROM THE OPERATION OF SHIPS OR AIRC RAFT IN INTERNATIONAL TRAFFIC BY AN ENTERPRISE OF THE CONTRACTING STATE SHALL NOT BE TA XED IN THE OTHER CONTRACTING STATE : 3 ITA NO. 570/MUM/2010 (ASST YEAR 2006-07 ) FOR THE PURPOSES OF THIS ARTICLE :- (A) INTEREST ON FUNDS DIRECTLY CONNECTED WITH THE OPERA TION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE REGARDED AS INCOME F ROM THE OPERATION OF SUCH SHIPS OR AIRCRAFT AND THE PROVISIONS OF ARTICLE 11 SHALL NOT APPLY IN RELATION TO SUCH INTEREST; ACCORDINGLY, THERE WILL BE NO WITHHO LDING TAX ON SUCH INCOME. (B) INCOME DERIVED FROM THE OPERATION OF SHIPS OR AIRCR AFT IN INTERNATIONAL TRAFFIC SHALL MEAN INCOME DERIVED BY AN ENTERPRISE DESCRIBE D IN PARAGRAPH I FROM THE TRANSPORTATION BY SEA OR AIR RESPECTIVELY OF PA SSENGERS, MAIL, LIVESTOCK OR GOODS CARRIED ON BY THE OWNERS OR LESSEES OR CHARAC TERS OF SHIPS OR AIRCRAFT INCLUDING:- (I) THE SALE OF TICKETS FOR SUCH TRANSPORTATION ON BEHA LF OF OTHER ENTERPRISES ; (II) ANY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRA NSPORTATION; (III) THE LEASING OF SHIPS OR AIRCRAFT ON CHARTER FULLY E QUIPPED, MANNED AND SUPPLIED, OR ON A BARE BOAT CHARTER BASIS WHERE THE LEASING IS INCIDENTAL TO ANY ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION; (C) INCOME DERIVED FROM THE OPERATION OF SHIPS IN I NTERNATIONAL TRAFFIC INCLUDES INCOME DERIVED FROM THE USE, MAINTENANCE OR RENTAL OF CONTAINERS (INCLUDING TRAILERS AND RELATED EQUIPMENT FOR THE TRANSPORT OF CONTAINE RS) IN CONNECTION WITH THE TRANSPORTATION OF GOODS OR MERCHANDISE IN INTERNATI ONAL TRAFFIC, WHERE THE INCOME IS DERIVED FROM AN ACTIVITY WHICH IS INCIDENTAL TO ANY ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION. 5. THE ASSESSEE THEREFORE CLAIMED THAT THERE WAS NO IN COME FROM OPERATION OF SHIPS THAT CAN BE BROUGHT TO TAX IN INDIA. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON THE BASIS OF DETAILS FILED BY TH E ASSESSEE, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECEIVED RS. 57,39,61 ,908/- AS INLAND HAULAGE CHARGES(IHC). ENTERPRISES WHICH OPERATE SHIPS IN IN TERNATIONAL TRAFFIC ALSO UNDERTAKE TO TRANSPORT CONTAINERS INLAND BY ARRANGING SUCH TRANS PORTATION THROUGH SERVICE PROVIDERS, RECOVERING THE COSTS FOR DOING SO FROM T HE EXPORTERS. THIS IS CALLED INLAND HAULAGE CHARGES (IHC). THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE IHC SHOULD NOT BE TAXED AS PER THE INCOM E TAX ACT SINCE THESE AMOUNTS ARE NOT COVERED BY THE DTAA (ARTICLE 8) BETWEEN IND IA AND BELGIUM. THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT : (I) THE FIGURE OF IHC MENTIONED IN THE RETURN OF I NCOME ARE GROSS RECEIPTS AND THERE ARE EXPENSES INCURRED FOR THE ABOVE RECEIPTS IN THE FORM OF LOADING AND UNLOADING CHARGES, TRANSPORTATION AND MOVEMENT OF CONTAINERS FROM INLAND LOCATION PORT AND VICE VERSA. THUS, THE COLLECTION OF IHC IS MAINLY T O RECOVER THE ACTUAL COST INCURRED. IN MANY CASES THERE WOULD BE LOSS. THUS, THERE IS E ITHER NO PROFIT OR VERY MINIMAL SURPLUS FROM IHC. (II) THE FRIGHT RECEIPT ALONG WITH IHC, PART OF PRO FITS DERIVED FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC AND ARE ALREADY TAXED IN BELG IUM. THUS THERE WOULD BE DOUBLE TAXATION OF THE SAME INCOME. (III) THERE WOULD BE NUMBER OF INSTANCES WHERE IHC FOR LO CAL TRANSPORTATION OUTSIDE INDIA (SAY FOR E.G. IHC ACTIVITIES IN UK) BUT BILLE D ON BILL OF LANDING IN INDIA, WHERE THE SERVICES ARE NOT RENDERED IN INDIA AND DOES NOT PER TAIN TO INDIAN ACTIVITIES. THE SAID IHC WOULD BE CONSIDERED BY THE ASSESSING OFFICER AS FREIGHT INCOME DERIVED NOT FROM INTERNATIONAL SHIPPING ACTIVITY AND TAXED IN I NDIA. DOING SO IS ILLOGICAL AND NOT WARRANTED. 4 ITA NO. 570/MUM/2010 (ASST YEAR 2006-07 ) 6. ACCORDING TO THE ASSESSING OFFICER, AS PER ARTICLE 8, ONLY INCOME FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC IS EX EMPTED. THE ACTIVITY OF INLAND TRANSPORTATION BY DEFINITION CANNOT BE CONSIDERED INTERNATIONAL TRANSPORT AND BY VIRTUE OF THAT, THE FISCAL OR TAX POWER SHOULD BE A TTRIBUTED EXCLUSIVELY TO THE SOURCE COUNTRY IN WHICH THE ACTIVITIES ARE CARRIED OUT. AC CORDING TO THE ASSESSING OFFICER, IT IS NOT AN ACTIVITY WHICH IS DIRECTLY CONNECTED WITH TH E TRANSPORTATION OF GOODS OR MERCHANDISE IN THE INTERNATIONAL TRAFFIC. ACCORDING TO THE ASSESSING OFFICER, THE REVENUES EARNED BY THE ASSESSEE ON ACCOUNT OF RECEI PT OF IHC IN INDIA IS TAXABLE IN INDIA AS BUSINESS PROFITS AND THE SAME IS NOT COVER ED BY SECTION 44B OF THE ACT OR ARTICLE 8 OF THE DTAA BETWEEN INDIA AND BELGIUM. UN DER THE TREATY, THE SAME WOULD BE TAXABLE UNDER ARTICLE 7 AS BUSINESS INCOME. SINC E, THE ASSESSEE HAS AN EXCLUSIVE AGENT IN INDIA THROUGH WHOM SUCH BUSINESS WAS CARRI ED OUT, THE ASSESSEE HAS AN AGENCY PE AS PER ARTICLE 5 OF THE TREATY. THEREFORE THE ENTIRE AMOUNT OF IHC OF RS. 34,31,259/- WAS TAXED AS THE BUSINESS PROFITS OF TH E ASSESSEE DEEMED TO ACCRUE OR ARISE IN INDIA AS PER SECTION 9(1)(I) OF THE ACT. T HE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO GIVE DETAILS OF VARIOUS EXPENSES INCURR ED ON ACCOUNT OF INLAND TRANSPORTATION. THE ASSESSEE SUBMITTED THAT THERE W ERE VARIOUS EXPENSES INCURRED AND THAT COLLECTION OF IHC IS MAINLY TO RECOVER THE ACT UAL COST INCURRED. THE ASSESSEE COULD NOT FILE THE DETAILS IN THIS REGARD. IN THE C IRCUMSTANCES, THE ASSESSING OFFICER ESTIMATED THE INCOME OF THE ASSESSEE BY TAKING A VI EW THAT ALTHOUGH THE INLAND TRANSPORTATION, REFUNDS AND FEEDER FREIGHT, IS NOT COVERED U/S. 44B OF THE ACT, BUT STILL FOR THE PURPOSE OF ESTIMATION OF PROFIT, THE RATE IS TAKEN @ 7.5% OF THE GROSS COLLECTION OF THESE THREE ITEMS. ON THIS BASIS, THE ASSESSING OFFICER ESTIMATED THE INCOME OF THE ASSESSEE AT @ 7.5% OF THE TOTAL OF TH E RECEIPT OF IHC. 7. ON APPEAL BY THE ASSESSEE, LEARNED CIT(A) HELD THAT INCOME DERIVED FROM IHC ARE ONLY INCIDENTAL AND CLOSELY WITH THE DIRECT OPE RATION OF SHIPS AND HENCE, IT IS COVERED BY ARTICLE 8 OF THE DTAA BETWEEN INDIA AND BELGIUM. LEARNED CIT(A) FOLLOWED THE ORDER OF LEARNED CIT(A) FOR A.Y. 2001- 02 IN ASSESSEES OWN CASE WHEREIN SIMILAR VIEW HAD BEEN EXPRESSED. AGGRIEVED BY THE O RDER OF LEARNED CIT(A), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. IT IS NOT IN DISPUTE BEFORE US THAT THE ITAT CONSID ERED THE ISSUE IN ASSESSEES OWN CASE IN A.Y. 2001-02. IN A.Y. 2001-02, THE TRIB UNAL AT THE OUTSET NOTICED THAT SECTION 90(2) GIVES AN OPTION TO AN ASSESSEE TO WHO M DTAA APPLIED EITHER TO BE GOVERNED BY THE REGULAR PROVISIONS OF THE I.T. ACT, 1961 OR TAKE RESORT TO DTAA. THE OPTION WAS WITH THE ASSESSEE AND HE HAD A RIGHT TO BE GOVERNED BY THE IT ACT, 1961 OR THE TREATY WHICHEVER IS MORE BENEFICIAL TO IT. T HE TRIBUNAL NOTED THAT THE ASSESSEE HAD OPTED TO BE GOVERNED BY THE PROVISIONS OF DTAA AND HAS ALSO CLAIMED THAT NO TAX IS PAYABLE ON ITS GROSS RECEIPTS. THE TRIBUNAL NOTED THAT EVEN THE ASSESSING OFFICER HAS ACCEPTED THE ASSESSEES POINT OF VIEW FOR THE A PPLICABILITY OR ARTICLE 8 ON THE GROSS RECEIPTS AND HAS ONLY PUT TO TAX THE REMAININ G AMOUNT WHICH REPRESENTS IHC BY ESTIMATING THE PROFIT @ 7.5%. THE TRIBUNAL THEREFOR E HELD THAT THE ASSESSEE HAS OPTED TO GO BY THE DTAA AND THE ASSESSING OFFICER HAS ALS O ACCEPTED THE SAME. THE FACTS ARE SIMILAR IN THIS YEAR ALSO. 9. WITH REGARD TO THE APPLICABILITY OF ARTICLE 8 OF DT AA TO IHC, THE TRIBUNAL AFTER REFERRING TO ARTICLE 8 OF DTAA HELD AS FOLLOWS :- FROM THE LANGUAGE OF ARTICLE 8 IT CLEARLY EMERGES THAT THE INCOME DERIVED FROM THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC SHA LL ALSO INCLUDE INCOME FROM ANY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPO RTATION. THIS EXPRESSION HAS NOT BEEN FURTHER ELABORATED IN THE DTAA IN AS MUCH AS S UCH OTHER ACTIVITIES HAVE NOT BEEN EXHAUSTIVELY SPELT OUT. UNDER THESE CIRCUMSTAN CES, IT IS IMPERATIVE TO GO BY THE COMMENTARIES FOR ASCERTAINING THE TRUE PURPORT OF THIS EXPRESSION. AT THIS STAGE, IT WOULD NOT BE OUT OF PLACE TO TAKE STOCK OF THE O VERALL ACTIVITY OF THE ASSESSEE- COMPANY. ITS BUSINESS IS TO COLLECT THE CARGO FROM THE STATION OF THE EXPORTER, THEN 5 ITA NO. 570/MUM/2010 (ASST YEAR 2006-07 ) BRING IT TO MUMBAI PORT FROM WHERE ITS VESSELS CARR Y IT TO THE DESTINATION STATION OUT OF INDIA. PAGE 7 OF THE PAPER BOOK IS A COPY OF BI LL OF LADING FOR THE COMBINED TRANSPORT OF THE CYCLE PARTS FROM LUDHIANA TO NAIRO BI. THE ASSESSEE IS CARRYING THE HERO CYCLES PARTS ETC. IN ITS CONTAINERS FROM LUDHI ANA, BRINGING THE SAME TO MUMBAI AND THEN SHIPPING THEM TO NAIROBI. IN SO FAR AS THE ASSESSEES INCOME FROM MUMBAI TO THE NAIROBI IS CONCERNED, THE ASSESSING O FFICER HAS ACCEPTED THE APPLICABILITY OF ARTICLE 8 ON IT AND HELD IT TO BE NOT TAXABLE IN INDIA. THE DISPUTE CENTERS AROUND THE TRANSPORTATION CHARGES RECEIVED BY IT FOR CARRYING THE CARGO FROM LUDHIANA TO MUMBAI. NOW, WE HAVE TO DETERMINE AS TO WHETHER SUCH INLAND TRANSPORTATION CHARGES CAN BE BROUGHT WITHIN THE AM BIT OF AN ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION. OECD COMMITTEE ON FISCAL AFFAIRS HAS DISCUSSED THIS ASPECT IN PARA 7 PAGE 134. ACCORDING TO IT, AN ENTERPRISE THAT TRANSPORTS PASSENGERS OR CARGO BY SHIPS OR AIRCRAFT S OPERATING IN INTERNATIONAL TRAFFIC WHICH UNDERTAKES TO HAVE THOSE PASSENGERS OR CARGO PICKED UP IN THE COUNTRY WHERE THE TRANSPORT ORIGINATES OR TRANSPORTED OR DE LIVERED IN THE COUNTRY OF DESTINATION BY ANY MODE OF INLAND TRANSPORTATION OP ERATED BY OTHER ENTERPRISE SHALL BE CONSIDERED AS AN EXAMPLE OF THE ACTIVITIES DIRECTLY CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFTS IN THE INTERNATIONA L TRAFFIC. KLAUS VOGEL ON DOUBLE TAXATION CONVENTIONS HAS REMARKED IN HIS COMMENTARY ON PAGE 480 THAT IF AN ENTERPRISE ENGAGED IN INTERNATIONAL TRANSPORT UNDER TAKES TO SEE TO IT THAT, IN CONNECTION WITH SUCH TRANSPORT, GOODS ARE DELIVERED DIRECTLY TO THE CONSIGNEE IN THE OTHER CONTRACTING STATE, SUCH INLAND TRANSPORTA TION IS CONSIDERED TO FALL WITHIN THE SCOPE OF THE INTERNATIONAL OPERATION OF SHIPS O R AIRCRAFT AND, THEREFORE, IS COVERED BY THE PROVISIONS OF THIS ARTICLE. IN PARA 8, CERTAIN ACTIVITIES HAVE BEEN LISTED TO WHICH THIS PROVISION WOULD APPLY. IT, INT ER ALIA INCLUDES TRANSPORTATION OF GOODS BY TRUCK CONNECTING A DEPOT WITH A PORT OR AI RPORT. ON PAGE 486 OF THE COMMENTARY, IT HAS BEEN MENTIONED THAT TRANSPORTAT ION OF THE CONTAINERS FROM THE CONSIGNER TO THE ULTIMATE CONSIGNEE FALLS WITHI N THE SCOPE OF OPERATING SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC. FROM THE ABOVE DISCUSSION, IT IS VIVID THAT `ANY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATIO N INCLUDES ALL SUCH FUNCTIONS WHICH FACILITATE THE CARRYING OF CARGO FROM THE PLA CE OF ORIGIN TO THE PLACE OF DESTINATION IN UNISON. IT WOULD NOT ONLY INCLUDE TH E ACTUAL TRANSPORTATION BY SEA FROM MUMBAI PORT, IN THE PRESENT CASE TO NAIROBI BU T ALSO CARRYING THE GOODS FROM LUDHIANA TO MUMBAI PORT, AS WELL. IT IS ONE COMPOSI TE ACTIVITY WHICH HAS BEEN BIFURCATED FOR CONVENIENCE INTO TWO PARTS. IT HAS B EEN INFORMED BY THE LEARNED A.R. THAT THE STUFFING OF THE CARGO INTO THE CONTAI NERS IS DONE AT LUDHIANA AND THE GOODS ARE SEALED BY THE CUSTOM AUTHORITIES AFTER VE RIFICATION THERE ONLY. THIS SUBMISSION HAS NOT BEEN CONTROVERTED BY THE LEARNED D.R. IT IS FURTHER NOTED THAT THE BILL OF LADING ISSUED BY THE ASSESSEE IS FOR CO MBINED TRANSPORT FROM LUDHIANA TO NAIROBI. UNLESS THE GOODS ARE CARRIED UP TO THE MUM BAI PORT, THEY CANNOT BE SHIPPED TO NAIROBI. HENCE THE ACTIVITY OF BRINGING THE GOODS FROM LUDHIANA IS AN ACTIVITY WHICH IS DIRECTLY CONNECTED WITH THE TRANS PORTATION OF GOODS FROM MUMBAI TO NAIROBI. IT IS WHOLLY UNREALISTIC TO SEGREGATE T HIS COMPOSITE ACTIVITY INTO TWO PARTS AND CONTEND THAT THE TRANSPORTATION UP TO MUMBAI PO RT IS A DISTINCT ACTIVITY DE HORS THE FURTHER TRANSPORTATION BY SHIP FROM MUMBAI TO N AIROBI OR OTHER COUNTRIES. THE SITUATION WOULD HAVE BEEN OTHERWISE IF THE ASSESSEE HAD ONLY COLLECTED CARGO FROM LUDHIANA AND DROPPED IT AT MUMBAI WITHOUT ANY FURTH ER OBLIGATION OF SHIPPING IT FROM MUMBAI TO NAIROBI. IN SUCH AN EVENTUALITY, TH E INLAND TRANSPORTATION CHARGES WOULD OBVIOUSLY HAVE BEEN OUTSIDE THE PURVIEW OF `A NY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION. SINCE THE ASSE SSEE IN THE PRESENT CASE IS ITSELF TRANS-SHIPPING THE GOODS TO OTHER DESTINATION COUNT RIES, THIS SMALL PORTION OF ITS TOTAL RECEIPTS, WHICH HARDLY ACCOUNTS FOR 5%, CANNOT BE D ETACHED FROM THE MAIN ACTIVITY OF TRANSPORTATION BY THE OPERATION OF SHIP S IN THE INTERNATIONAL TRAFFIC. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE EARNE D FREIGHT FOR CARRYING THE GOODS OF OTHER PARTIES ALSO UP TO MUMBAI PORT FOR S HIPMENT BY SOME THIRD PARTY. IT, 6 ITA NO. 570/MUM/2010 (ASST YEAR 2006-07 ) THEREFORE, SHOWS THAT ALL THE INLAND TRANSPORTATION CHARGES RECEIVED BY THE ASSESSEE ARE IN CONNECTION WITH THE GOODS WHICH ARE FINALLY LOADED ON ITS OWN SHIPS AT MUMBAI FOR SHIPPING TO THE OTHER COUNTRIES. THE LEARNED D.R. HAS EMPHASIZED ON THE WORDS CONNECTED WITH SUCH TRANSPORTATION FOR UNDERSTANDING IT TO MEAN ONLY THE LOADING AND UNLOADING OF THE CARGO AT THE PORT ITSELF. WE ARE NOT CONVINCED WITH THIS VIEW CANVASSED BY HER FOR THE REASON THAT THE PRECEDING WORDS ANY OTHER ACTIVITY DIRECTLY JOINED BY CONNECTED WITH SUCH T RANSPORTATION, HAVE TO BE INTERPRETED IN A LOGICAL MANNER SO AS NOT TO RESTRI CT ITSELF ONLY TO THE ACTIVITIES DONE AT PORT OR DURING THE VOYAGE ONLY. THIS EXPRESSION WOULD EXTEND TO OTHER ACTIVITIES BEYOND PORTS ALSO IF THEY ARE DIRECTLY RELATED TO T HE MAIN ACTIVITY OF TRANSPORTATION BY SHIP. 10. ON THE EXPRESSION INTERNATIONAL TRAFFIC AS FOUND IN ARTICLE 8 OF THE DTAA, THE BENCH OBSERVED AS FOLLOWS :- THE SCOPE OF ARTICLE 8 IS NOT RESTRICTED ONLY TO T HE INCOME DERIVED FROM THE OPERATION OF SHIPS IN THE INTERNATIONAL TRAFFIC AS UNDERSTOOD IN THE LITERAL SENSE. IT HAS ELABORATED THE AMBIT OF INCOME DERIVED FROM THE OP ERATION OF SHIPS OR AIRCRAFTS IN THE INTERNATIONAL TRAFFIC BY ALSO, INTER ALIA INCL UDING INTEREST ON FUNDS DIRECTLY CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFTS IN THE INTERNATIONAL TRAFFIC, SALE OF TICKETS FOR TRANSPORTATION ON BEHALF OF OTHER ENTER PRISES AND INCOME DERIVED FROM THE USE, MAINTAINING, RENTAL OF CONTAINERS, ETC. T HIS DEMONSTRATES THE INTENTION OF THE CONTRACTING STATES IN GIVING A WIDER MEANING TO THE ABOVE EXPRESSION. 11. THE BENCH FINALLY CONCLUDED AS FOLLOWS :- WE HOLD THAT THE INLAND HAULAGE CHARGES EARNED BY T HE ASSESSEE ARE COVERED WITHIN THE SCOPE OF `INCOME DERIVED FROM THE OPERAT ION OF SHIPS IN THE INTERNATIONAL TRAFFIC AS PER ARTICLE 8 OF THE DTAA BETWEEN INDIA AND BELGIUM AND HENCE CANNOT BE SUBJECTED TO TAX IN INDIA IN THE PRESENT CIRCUMS TANCES. THE VIEW TAKEN BY THE LD. CIT(A) ON THIS COUNT IS, THEREFORE, UPHELD. 12. THE FACTS AND CIRCUMSTANCES AND THE BASIS FOR MAKIN G THE ADDITION BY THE ASSESSING OFFICER ARE IDENTICAL IN THIS YEAR. RESPE CTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL, WE UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS THIS APPEAL BY THE REVENUE. 4 ACCORDINGLY, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE EARLIER YEARS, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ALSO. 5 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 5 TH DAY OF AUG 2011. SD/- SD /- ( P M JAGTAP ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 5 TH AUG 2011 RAJ* 7 ITA NO. 570/MUM/2010 (ASST YEAR 2006-07 ) COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI