CMA CGM SA, MUMBAI V. DCIT (IT) - 2(1)(2), MUMBAI

ITA 6095/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0322 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2015-2016
• Appeal Filed On: 25-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M.P. LOHIA AW; WAY OF INLAND HAULAGE CHARGES
• Keywords: Business income; Transfer pricing; Double taxation relief; Opportunity of being heard; Permanent establishment; Initiation of penalty proceedings; TDS
• Section: 6; 271(1)(c); 154; 2; 11; 143(3); 234B; 9(1); 115A; 9(1); 9(1); 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL , ACCOUNTANT MEMBER ITA NO . 6095 / MUM . /2018 ( ASSESSMENT YEAR : 20 15 16 ) CMA CGM SA INDIA BULLS FINANCE CENTRE TOWER 3, 8 TH FLOOR, SENAPATI BAPAT MARG ELPHISTON (WEST), MUMBAI 400 013 PAN AABCC9048G . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION CIRCLE 2(1)(2), MUMBAI . RESPONDENT ASSESSEE BY : SHRI M.P. LOHIA A/W SHRI NIKHIL TIWARI REVENUE BY : SHRI SAMUEL DARSE DATE OF HEARING 01 . 10 .2019 DATE OF ORDER 30.12.2019 O R D E R PER SAKTIJIT DEY, J.M . T HE CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE FINAL ASSESSMENT ORDER DATED 21 ST SEPTEMBER 2018 , PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) IN PURSUANCE TO THE DIRECTION S OF LEANED DISPUTE RESOLUTION PANEL (DRP) I, MUMBAI, PERTAINING TO THE A.Y. 2015 16. 2. WE HAVE HEARD SUBMISSIO NS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 2 CMA CGM SA 3. G ROUND NO.1 , BEING GENERAL IN NATURE DOES NOT REQUIRE SPECIFIC ADJUDICATION, HENCE, DISMISSED. 4. AS REGARDS GROUNDS NO.2 TO 17, AT THE OUTSET, SHRI M.P. LOHIA, THE LEANED COUNSEL FOR THE ASSESSEE SUBMITTED , THE ISSUES ARE COVERED BY THE DECISION S OF THE TRIBUNAL AND HIGH COURT IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEARS. 5. SHRI SAMUEL DARSE, THE LEARNED DEPARTMENTAL REPRESENTATIVE , THOUGH , AGREED WITH THE AFORESAID SUBMISSIONS OF THE LEANED C OUNSEL FOR THE ASSESSEE, HOWEVER, HE REL IED UPON THE OBSERVATIONS OF LEARNED DRP AND THE ASSESSING OFFICER. 6. THE ISSUE RAISED IN GROUNDS NO.2 TO 5, CONCERNS TAXABILITY OF INLAND HAULAGE CHARGES (IHC) IN INDIA. BRIEF FACTS ARE, THE ASSESSEE, AS STATED BY TH E ASSESSING OFFICER, IS A TAX RESIDENT OF FRANCE AND ENGAGED IN SHIPPING BUSINESS IN INTERNATIONAL WATERS. DURING THE YEAR UNDER CONSIDERATION, IT HAS CARRIED OUT ITS BUSINESS ACTIVITY IN INDIA THROUGH ITS AGENT CMA CGM AGENCIES INDIA PVT. LTD. FOR THE ASS ESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30 TH NOVEMBER 2015, DECLARING TOTAL INCOME OF ` 339,11,13,801, AND AS PER THE PROVISIONS OF SECTION 44B R/W SECTION 172 OF THE ACT . IN THE RETURN OF INCOME FILED, THE ASSESSEE CLAIMED B ENEFIT UNDER ARTICLE 9 OF THE INDIA FRANCE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) 3 CMA CGM SA INSOFAR AS IT RELATES TO REVENUE EARNED FROM THE SHIPPING BUSINESS IN INTERNATIONAL WATERS. THE AFORESAID BENEFIT CLAIMED BY THE ASSESSEE ALSO INCLUDED REVENUE EARNED FRO M IHC. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER AFTER VERIFYING THE MATERIALS ON RECORD OBSERVED THAT IHC IS RECEIVED ON ACCOUNT OF TRANSPORTATION IN DOMESTIC TRAFFIC AND NOT IN I NTERNAT IONAL T RAFFIC AS ENVISAGED UNDER ARTICLE 9 OF IN DIA FRANCE TAX TREATY. THEREFORE, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE BENEFIT CLAIMED UNDER ARTICLE 9 OF THE TAX TREATY IN RESPECT OF IHC SHOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE SUBMITTED THAT IHC IS IN CONNECTION WITH ACTIVITIES INT EGRALLY CONNECTED WITH THE SHIPPING BUSINESS IN INTERNATIONAL WATERS, HENCE, IS COVERED UNDER ARTICLE 9 OF THE TAX TREATY. IN THIS CONTEXT, THE ASSESSEE RELIED UPON CERTAIN DECISION S OF THE TRIBUNAL IN ITS OWN CASE AS WELL AS IN CASE OF SAF MARINE CONTAINE RS LINES N.V. AND FREIGHT SYSTEMS INDIA. THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. HE HELD THAT IHC RECEIVED BY THE ASSESSEE IS IN RELATION TO ACTIVITY RELATING TO INLAND T RANSPORTATION, HENCE, CANNOT BE CONSIDE RED AS INTERNATIONAL TRANSPORT. HE OBSERVED , BENEFIT PROVIDED UNDER ARTICLE 9 OF THE INDIA FRANCE TAX TREATY IS NOT AVAILABLE TO SUCH INCOME. FURTHER, HE OBSERVED , THE IHC IS TAXABLE IN INDIA AS BUSINESS PROFIT AS IT IS NOT COVERED BY THE PROVISIONS OF SEC TION 44B OF THE ACT. FURTHER, HE OBSERVED , SINCE THE ASSESSEE HAS AN EXCLUSIVE AGENT IN INDIA THROUGH WHOM IT CARRIES OUT SUCH ACTIVITY, IT 4 CMA CGM SA HAS AGENCY PERMANENT ESTABLISHMENT (PE) AS PER ARTICLE 5 OF THE TAX TREATY. ACCORDINGLY, HE BROUGHT TO TAX THE IHC A MOUNTING TO ` 345,86,81,619, AT THE HANDS OF THE ASSESSEE. WHILE DOING SO, THE ASSESSING OFFICER OBSERVED THAT THE FAVOURABLE DECISION OF THE DRP ON THE ISSUE IN THE ASSESSMENT YEAR 2012 13 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AS IT HAS FILED AN APPEAL BEFORE THE TR IBUNAL. FURTHER, HE OBSERVED , THE DRP HAS DECIDED SIMILAR ISSUE AGAINST THE ASSESSEE IN THE ASSESSMENT YEAR S 2013 14 AND 2014 15. AGAINST THE AFORESAID DECISION OF THE ASSESSING OFFICER, THE ASSESSEE FILED OBJECTIONS BEFORE LEARNED DRP. AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE, LEARNED DRP, HOWEVER, AGREED WITH THE ASSESSING OFFICER T HAT IHC IS TAXABLE IN INDIA. LEARNED DRP OBSERVED , THE DECISION RENDERED BY THE TRIBUNAL AND SUBSEQUENTLY UPHELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN DIT V/S SAF MARINE CONTAINER LINES NV , [2014] 367 ITR 209 (BOM.) WAS PRIMARILY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN DIT V/S BALAJI SHIPPING U.K. LTD., WHICH IS ON THE IS SUE OF SLOT CH ARTERING AND NOT ON IHC. IN THIS CONTEXT, LEARNED DRP ALSO REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN DIT V/S A.P. MOLLER MAERSK A/S , [2017] 392 ITR 186 (BOM.). LEARNED DRP ALSO OBSERVED , THE DECISION RENDERED BY THE HON'BLE JURISDICTIONAL HI GH COURT IN CASE OF SAF MARINE CONTAINER LINES NV (SUPRA) APPEARED TO BE DUE TO SOME CONFUSION. THUS, THE DRP ULTIMATELY CONCLUDED THAT THE DECISION OF THE TRIBUNAL AND THE DECISION OF THE HON'BLE JURISDICTIONAL 5 CMA CGM SA HIGH COURT IN SAF MARINE CONTAINER LINES NV (SUPRA) WOULD NOT BE APPLICABLE AS IHC IS NOT COVERED BY THE DEFINITI ON OF INTERNATIONAL TRAFFIC. LEARNED DRP OBSERVED , AS PER ARTI CLE 9 OF THE TAX TREATY, ONLY IN COME FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC IS EXEMPT. THAT BEING THE CASE, THE ACTIVITY OF INLAND TRANSPORTATION CANNOT BE CONSIDERED AS IN TERNATIONAL TRANSPORT. THUS, LEARNED DRP UPHELD THE DECISION OF THE ASSESSING OFFICER. 7. HAVING HEARD THE PARTIES, WE FIND THAT WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN THE ASSES SMENT YEAR 2012 13, LEARNED DRP HAD CATEGORICALLY HELD THAT THE REVENUE EARNED FROM IHC IS PART OF SHIPPING BUSINESS IN INTERNATIONAL WATERS, HENCE, COVERED UNDER ARTICLE 9 OF THE TAX TREATY. HOWEVER, SUBSEQUENTLY, WHILE DECIDING THE IDENTICAL ISSUE IN ASS ESSEES OWN CASE FOR THE ASSESSMENT YEAR S 2013 14 AND 2014 15, LEARNED DRP TOOK A CONTRARY VIEW AND DECIDED THE ISSUE AGAINST THE ASSESSEE. WHEN THE APPEAL S PREFERRED BY THE REVENUE AND THE ASSESSEE FOR THE AFORESAID ASSESSMENT YEARS CAME UP FOR CONSIDERAT ION BEFORE THE TRIBUNAL, THE TRIBUNAL IN ITA NO.6649/ MUM./2017 & ORS., DATED 14 TH MARCH 2018, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING AS UNDER: 15. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE LD DRP HAS MAINLY DECLINED TO FOLLOW ITS OWN ORDER PASSED IN AY 2012 - 13 IN THE SUBSEQUENT TWO YEARS FOR THE REASON THAT THERE IS DIFFERENCE BETWEEN ARTICLE 8 OF INDIA - BELGIUM DTAA AND ARTICLE 9 OF INDIA - FRANCE DTAA. ACCORDING 6 CMA CGM SA TO LD DRP THAT THE INDIA - BELGIUM DTAA CONTAINS SPECIFIC PROVISIONS TO INCLUDE ANY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION, WHEREAS THE SAME IS ABSENT IN THE INDIA - FRANCE DTAA. THE LD A.R, ON THE CONTRARY, SUBMITTED THAT THE PRESENCE OR ABSENCE OF THE ABOVE SAID PROVISION WILL NOT MAKE ANY DIFFERENCE. IN SUPPORT OF THIS PROPOSITION, THE LD A.R PLACED RELIANCE ON OECD MODEL CONVENTIONS AND THE COMMENTARY THEREON, WHICH ARE EXTRACTED ABOVE. 16. WE NOTICE THAT THE DECISION IN THE CASE OF SAFMARINE CONTAINER LINES N. V (SUPRA) HAS BEEN RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CONTEXT OF INDIA - BELGIUM DTAA. HOWEVER, IN THE CASE OF DIT VS. A.P.MOLLER MAERSK A/S (ITA NO.1306 OF 2013 DATED 29 - 04 - 2015), TO WHICH INDIA - DENMARK TREATY WOULD APPLY, THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE PRINCIPLES INVOLVED IN THE DECISION OF SAFMARINE CONTAINER LINES N.V (SUPRA) ALSO GOVERN THE CASE OF A.P. MOLLER MAERSK A/S (SUPRA). THERE IS NO DISPUTE THAT THE ARTICLE 9 OF INDIA - FRANCE DTAA IS IDENTICALLY WORDED TO THE CORRESPOND ING ARTICLE IN INDIA - DENMARK DTAA. 17. WE SHALL NOW DISCUSS IN BRIEF THE FACTS AVAILABLE IN M/S A.P. MOLLER MAERSK A/S CASE. THE SAID COMPANY WAS RESIDENT OF DENMARK AND HENCE INDIA - DENMARK DTAA APPLIED TO IT. IN ORDER TO HELP ITS AGENTS IN BOOKING CARGO AND CARRYING OUT CLEARING AGENT WORKS, THE ASSESSEE MAINTAINED A GLOBAL TELECOMMUNICATION FACILITY CALLED MAERSKNET, WHICH IS A VERTICALLY INTEGRATED COMMUNICATION SYSTEM. THE ASSESSEE RECOVERED PRO - RATA COSTS FROM ITS AGENTS AND ACCORDINGLY THE INDIAN A GENTS ALSO REMITTED PRO - RATA COSTS TO THE ABOVE SAID ASSESSEE. BEFORE AO, THE ASSESSEE CONTENDED THAT IT WAS MERELY A SYSTEM OF COST SHARING AND HENCE THE AMOUNT RECOVERED BY IT FROM ITS AGENTS IS IN THE NATURE OF REIMBURSEMENT OF EXPENSES. THE AO, HOWEVER , HELD TO IT TO BE FEE FOR TECHNICAL SERVICES. 18. BEFORE THE HONBLE HIGH COURT, THE ASSESSEE HAS ALSO TAKEN A PLEA THAT THE COMMUNICATION SYSTEM IS VERY MUCH AN INTEGRAL PART OF SHIPPING BUSINESS AND THEREFORE, THE INCOME RECEIVED BY THE ASSESSEE FROM THE AGENTS, DID IN FACT, AMOUNT TO INCOME FROM THE SHIPPING BUSINESS OF THE ASSESSEE AND THEREFORE, NOT CHARGEABLE TO TAX. THE HONBLE BOMBAY HIGH COURT HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE FOR USING THE COMMUNICATION SYSTEM BY THE AGENTS IS PART OF SHIPPING BUSINESS AND COULD NOT BE CAPTURED UNDER ANY OTHER PROVISIONS OF THE INCOME TAX ACT EXCEPT DTAA. THE HIGH COURT FURTHER HELD THAT IT DOES NOT AMOUNT TO TECHNICAL SERVICE. FINALLY THE HIGH COURT HELD THAT THE AMOUNTS PAID BY THE AGENTS FOR USING THE COMMUNICATION SYSTEM AROSE OUT OF THE SHIPPING BUSINESS AND CANNOT BE BROUGHT TO TAX. 7 CMA CGM SA 19. THE DECISION SO RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CONTEXT OF INDIA - DENMARK DTAA CLEARLY SHOWS THAT THE ANCI LLARY ACTIVITIES CONNECTED WITH THE SHIPPING BUSINESS ARE ALSO INCLUDED IN THE SHIPPING BUSINESS. THE ABOVE SAID DECISION HAS BEEN FOLLOWED BY THE CO - ORDINATE BENCH IN THE CASE OF SAME ASSESSEE, VIZ., A.P.MOLLER MAERSK A/S (ITA NO.1798/MUM/2015 DATED 15 - 02 - 2017) FOR AY 2011 - 12 TO HOLD THAT THE INLAND HAULAGE CHARGES RECEIVED BY THAT ASSESSEE SHALL ALSO FORM PART OF SHIPPING INCOME FROM INTERNATIONAL TRAFFIC. THE DECISION SO RENDERED FOR AY 2011 - 12 WAS FOLLOWED BY THE COORDINATE BENCH IN THE ABOVE SAID ASSES SEES CASE IN AY 2012 - 13 IN ITA NO.1743/MUM/2016 DATED 07 - 02 - 2018. 20. BEFORE US, THE LD A.R DEMONSTRATED THAT THE ARTICLE 9 OF INDIA - FRANCE DTAA AND ARTICLE 9 OF INDIA - DENMARK DTAA ARE IDENTICALLY WORDED. SINCE THE DECISION RENDERED BY HONBLE BOMBAY HIG H COURT IN THE CASE OF SAFMARINE CONTAINERS LINES N.V (WHICH WAS RENDERED IN THE CONTEXT OF INDIA - BELGIUM DTAA) WAS HELD TO BE APPLICABLE TO INDIA - DENMARK DTAA ALSO BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF A.P.MOLLER MAERSK A/S (ITA NO.1306 OF 2013) , THE LD A.R SUBMITTED THAT THE ABSENCE OF THE EXPRESSION ANY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION IN THE INDIA - FRANCE DTAA WILL NOT MAKE ANY DIFFERENCE. WE NOTICE THAT THE CONTENTIONS OF THE ASSESSEE ALSO GET SUPPORT FROM THE OECD MODEL CONVENTION DISCUSSED SUPRA. 21. IN VIEW OF THE FOREGOING DISCUSSIONS, WE AGREE WITH THE CONTENTIONS OF THE LD A.R ON THIS ISSUE. ACCORDINGLY WE HOLD THAT INLAND HAULAGE CHARGES RECEIVED BY THE ASSESSEE SHALL FORM PART OF INCOME FROM OPERATION OF SH IPS IN INTERNATIONAL TRAFFIC AND ACCORDINGLY ARTICLE 9 OF INDIA - FRANCE DTAA SHALL APPLY TO IT. ACCORDINGLY WE UPHOLD THE ORDER PASSED BY LD DRP IN AY 2012 - 13 ON THIS ISSUE AND REVERSE THE ORDERS PASSED BY IT ON THIS ISSUE IN AY 2013 - 14 AND 2014 - 15. 8. RESPE CTFULLY FOLLOWING THE DECISION OF THE CO ORDINATE BENCH RENDERED IN ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEARS, WE HOLD THAT IHC , SINCE , FORMS PART OF INCOME FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC , IS COVERED UNDER ARTICLE 9 OF THE IND IA FRANCE TAX TREATY , ACCORDINGLY, NOT TAXABLE IN INDIA. THESE GROUNDS ARE DECIDED ALLOWED . 8 CMA CGM SA 9. APROPOS GROUNDS NO.6 TO 9, THE ISSUE RAISED IS TAXABILITY OF SERVICE TAX OF ` 46,42,15,427, COLLECTED ON IHC. 10. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER NOTICED THAT SERVICE TAX AMOUNTING TO ` 46,42,15,427 COLLECTED DURING THE YEAR UNDER CONSIDERATION WAS NOT INCLUDED IN THE GROSS RECEIPT WHILE COMPUTING INCOME UNDER SECTION 44B OF THE ACT . H OLDING THAT SERVICE TAX IS AN INTEGRAL PART OF ACCRUED INCOME FOR COMPUTING PROFIT UNDER SECTION 44B OF THE ACT, THE ASSESSING OFFICER INCLUDED THE SERVICE TAX COLLECTED OF ` 46,42,15,427, IN THE GROSS RECEIPT S FOR THE PURPOSE OF COMPUTING THE INCOME AND THE TAX THEREON AS PER SECTION 44B R/W SECTION 172. 11. LEARNED DRP ALSO UPHELD THE DECISION OF THE ASSESSING OFFICER. 12. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES, WE FIND THAT IDENTICAL ISSUE CONCERNING TAXABILITY OF SERVICE TAX CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2012 13, 2013 14 AND 2014 15, THE TRIBUNAL WHILE DECIDING THE ISSUE IN THE ORDER REFERRED TO ABOVE HAS HELD AS UN DER: 26. THE NEXT ISSUE RELATES TO THE INCLUSION OF SERVICE TAX AS PART OF GROSS RECEIPTS. THE ASSESSEE HAS COLLECTED SERVICE TAX ALSO ON INLAND HAULAGE CHARGES COLLECTED FROM ITS CLIENTS. SINCE WE HAVE HELD THAT THE INLAND HAULAGE CHARGES RECEIVED BY I T IS PART OF INCOME FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC AND IS ELIGIBLE FOR RELIEF UNDER ARTICLE 9(1), THE QUESTION OF ASSESSING THE SAME U/S 44B OF THE INCOME TAX ACT WOULD NOT ARISE. 9 CMA CGM SA CONSEQUENTLY THE QUESTION WHETHER THE SERVICE TAX WOULD FO RM PART OF GROSS RECEIPTS OR NOT IN THE CONTEXT OF SEC. 44B OF THE ACT WOULD BECOME ACADEMIC IN NATURE. IN ANY CASE, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF MITCHELL DRILLING INTER NATIONAL (P) LTD (2016)(380 ITR 130). WE HAVE NOTICED THAT THE LD DRP HAS CONSIDERED THE DECISION RENDERED BY HONBLE UTTARAKHAND HIGH COURT IN THE CASE OF CIT VS. HALLIBURTON OFFSHORE SERVICES (300 ITR 265). IT IS SETTLED PRINCIPLE OF LAW THAT IN CASE OF DIVERGENT VIEWS EXPRESSED BY NON - JURISDICTIONAL HIGH COURTS, THE VIEW IN FAVOUR OF THE ASSESSEE SHOULD BE TAKEN. ACCORDINGLY THE ASSESSEE WAS JUSTIFIED IN PLACING RELIANCE ON THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF MITCHELL DRILLIN G INTERNATIONAL (P) LTD . (SUPRA). ACCORDINGLY WE UPHOLD THE VIEW TAKEN BY THE LD DRP IN AY 2012 - 13 ON THIS ISSUE AND REVERSE ITS DECISION RENDERED IN AY 2013 - 14 AND 2014 - 15 ON THIS ISSUE. 13. IT IS RELEVANT TO OBSERVE , LEARNED DRP IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2016 17 HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE CO ORDINATE BENCH IN ASSESSEES OWN CASE, WE HOLD THAT SERVICE TAX CANNOT FORM PART OF THE GROSS R ECEIPTS FOR COMPUTING INCOME FOR TAXATION PURPOSE AS PER SECTION 44B R/W SECTION 172 . 14. GROUNDS NO.10 TO 14, RELATE TO TAXABILITY OF FREIGHT CHARGES RECEIVED FROM TRANSPORTATION OF CARGO THROUGH FEEDER VESSELS. 15. BRIEF FACTS ARE, DURING THE ASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED FREIGHT INCOME OF ` 9,03,44,553, TOWARDS TRANSPORTATION OF GOODS BY FEEDER VESSELS WHICH TERMINATED IN OTHER PORTS WITHOUT THE CONSIGNMENT BEING ALLOTTED TO THE MOTHER VESSELS. NOTICING THAT THE ASSESSEE HAS CLAIMED BENEFIT 10 CMA CGM SA UNDER THE TAX TREATY IN RESPECT OF SUCH REVENUE WHI CH , ACCORDING TO THE ASSESSING OFFICER , IS NOT IN THE COURSE OF SHIPPING BUSINESS IN INTERNATIONAL TRAFFIC, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN WHY IT SHOULD NOT BE BROUGHT TO TAX. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE REVENUE EARNED FROM FEEDER VESSELS IS COVERED UNDER ARTICLE 9 OF THE TAX TREATY. REJECTING THE AFORESAID SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER HELD THAT THE INCOME EARNED FROM THE TRANSPORTATION IN FEEDER VESSELS IS TAXABLE IN INDIA. THE AFORESAID DEC ISION OF THE ASSESSIN G OFFICER WAS ALSO UPHELD BY THE DRP. 16. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES, WE FIND THAT IDENTICAL ISSUE ARISING IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2012 13, 2013 14 AND 2014 15 CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL. WHILE DECIDING THE ISSUE IN THE ORDER REFERRED TO ABOVE, THE CO ORDINATE BENCH HELD AS UNDER: 23. WE HEARD THE PARTIES ON THIS ISSUE. WE NOTICE THAT THE HONBLE BOMBAY HIGH COURT HAS DECIDED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE R EFERRED SUPRA) IN AY 2002 - 03. WE NOTICE THAT THE HIGH COURT HAS NOTED THE FACTS AS UNDER: - 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 APPEA L, THE RESPONDENT ARRANGED FOR THE CARRIAGE OF GOODS OF ITS CLIENTS BY SEA FROM PORTS IN INDIA TO FOREIGN PORTS. AS THE RESPONDENTS VESSELS DID NOT PLY IN INDIAN TERRITORIAL WATERS, IT AVAILED OF THE SLOT HIRE FACILITIES OBTAINED BY IT ON SHIPS OWNED OR C HARTERED BY OTHERS FOR THE CARRIAGE OF THE GOODS FROM THE PORTS IN INDIA UP TO 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 POR TS ABROAD. 11 CMA CGM SA THE AO HELD THAT INCOME FROM SLOT HIRE ARRANGEMENTS WOULD NOT QUALIFY FOR THE RELIEF UNDER ARTICLE 9 OF INDIA - FRANCE DTAA. 24. THE HONBLE HIGH COURT NOTICED THAT AN IDENTICAL ISSUE WAS DECIDED BY IT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) VS. BALAJI SHIPPING UK LIMITED IN INCOME TAX APPEAL NO.3024 OF 2009 AND INCOME TAX APPEAL NO3215 OF 2009 IN THE CONTEXT OF INDIA - UK DTAA. THEN THE HONBLE HIGH COURT COMPARED THE RELEVANT PROVISIONS IN INDIA - FRANCE DTAA WITH THE IN DIA - UK DTAA AND HELD THAT BOTH THE PROVISIONS ARE IDENTICAL IN NATURE. IN THE CASE OF BALAJI SHIPPING UK LIMITED (SUPRA), THE HONBLE HIGH COURT HAD HELD THAT WHERE THE GOODS ARE TRANSPORTED BY AN ENTERPRISE BY AVAILING OF THE SLOT HIRE FACILITY OBTAINED B Y IT ON THE SHIP OF ANOTHER FROM A PORT IN INDIA UP TO 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, WOULD BE COVERED BY ARTICLE 9(1) OF INDIA - UK DTA A. SINCE THE INDIA - FRANCE DTAA IS SIMILAR THERETO, THE HONBLE HIGH COURT HELD THAT THE DECISION RENDERED IN THE CASE OF BALAJI SHIPPING UK LIMITED (SUPRA) WOULD APPLY TO THE ASSESSEE ALSO. 25. ACCORDINGLY, BY FOLLOWING THE DECISION RENDERED BY HONBLE B OMBAY HIGH COURT IN THE ASSESSEES OWN CASE (REFERRED SUPRA), WE HOLD THAT THE FREIGHT CHARGES RECEIVED FOR TRANSPORTATION OF CARGO THROUGH FEEDER VESSELS IS PART OF SHIPPING INCOME ELIGIBLE FOR RELIEF UNDER ARTICLE 9(1) OF INDIA - FRANCE DTAA. ACCORDINGLY W E UPHOLD THE VIEW TAKEN BY THE LD DRP IN AY 2012 - 13 ON THIS ISSUE AND REVERSE ITS DECISION RENDERED IN AY 2013 - 14 AND 2014 - 15 ON THIS ISSUE. 17. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF T HE CO ORDINATE BENCH RENDERED IN ASSESSEES OWN CASE, WE HOLD THAT FREIGHT CHARGES RECEIVED FROM TRANSPORTATION OF CARGO THROUGH FEEDER VESSELS BEING PART OF SHIPPING INCOME IN INTERNATIONAL TRAFFIC IS COVERED UNDER ARTICLE 9(1) OF THE INDIA FRANCE TAX TREATY, HENCE, NOT TAXABLE IN IN DIA. IN FACT, THE AFORESAID VIEW OF THE TRIBUNAL WAS UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT WHILE DISMISSING REVENUES APPEAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2002 03 IN INCOME 12 CMA CGM SA TAX APPEAL NO. 2175 OF 2009, VIDE JUDGMENT DATED 6 TH AUGUST,2 012. ACCORDINGLY, T HESE GROUNDS ARE ALLOWED. 18. THE NEXT ISSUE RAISED IN GROUNDS NO.15 TO 17, IS CONTESTING THE DECISION OF THE REVENUE AUTHORITIES TH AT THE ASSESSEE HAS AN AGENCY PE IN INDIA. 19. HAVING HEARD THE PARTIES, WE FIND THAT IDENTICAL ISSUE CAME UP F OR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR S 2012 13, 2013 14 AND 2014 15. WHILE DECIDING THE ISSUE IN THE ORDER REFERRED TO ABOVE, THE TRIBUNAL HAS HELD AS UNDER: 27. IN THE CROSS OBJECTION FILED BY THE ASSESSEE FOR A Y 2012 - 13 AND IN THE APPEALS FILED FOR AY 2013 - 14 AND 2014 - 15, THE ASSESSEE IS CHALLENGING THE DECISION OF LD DRP IN HOLDING THAT ITS INDIAN AGENT, VIZ., M/S CMA CGM AGENCIES (INDIA) P LTD SHALL CONSTITUTE AGENCY PE OF THE ASSESSEE. THE QUESTION RELATING TO EXISTENCE OR OTHERWISE OF PERMANENT ESTABLISHMENT SHALL ARISE ONLY IF ANY PART OF ITS INCOME IS LIABLE TO BE TAXED AS BUSINESS INCOME OF THE ASSESSEE. SINCE WE HAVE HELD THAT THE INCOME RECEIVED BY THE ASSESSEE BY WAY OF INLAND HAULAGE CHARGES AND FEED ER VESSELS CHARGES ARE SHIPPING INCOME ELIGIBLE FOR RELIEF U/S 9(1) OF THE INDIA - FRANCE DTAA, NO INCOME OF THE ASSESSEE IS LIABLE TO BE TAXED AS BUSINESS PROFITS IN INDIA. HENCE THE QUESTION RELATING TO EXISTENCE OR OTHERWISE OF PERMANENT ESTABLISHMENT SHA LL ALSO BECOME ACADEMIC IN NATURE. IN ANY CASE, IT HAS BEEN HELD BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.9001/MUM/2010 (144 TTJ 273) THAT IF THE INDIAN AGENT IS REMUNERATED AT ARMS LENGTH, THEN THE AGENT SHALL BE CONSTRUED AS AGENT OF INDEPEND ENT STATUS AND ACCORDINGLY NO AGENCY PE WOULD EXIST IN THE CASE OF THE ASSESSEE IN INDIA. THE CASE OF THE LD A.R IS THAT THE INDIAN AGENT OF THE ASSESSEE HAS BEEN REMUNERATED AT ARMS LENGTH AND HENCE THERE DO NOT EXIST ANY AGENCY PE FOR THE ASSESSEE IN IND IA IN TERMS OF INDIA - FRANCE DTAA. ACCORDINGLY WE HOLD THAT THE INDIAN AGENT OF THE ASSESSEE CANNOT BE CONSIDERED AS AGENCY PE OF THE ASSESSEE, IF THE AGENT HAS BEEN REMUNERATED AT ARMS LENGTH IN ALL THE THREE YEARS UNDER CONSIDERATION. 13 CMA CGM SA 20. AS COULD BE SEEN F ROM THE AFORESAID DECISION, THE TRIBUNAL HA S HELD THAT IF THE INDIAN AGENT HAS BEEN REMUNERATED AT ARMS LENGTH, IT C ANNOT BE CONSIDERED AS AGENCY PE OF THE ASSESSEE. IT IS FURTHER RELEVANT TO OBSERVE , IN THE ADVANCE P RICING AGREEMENT BETWEEN THE CM A CGM A GENCIES INDIA PVT. LTD. AND CBDT ENTERED ON 24 TH NOVEMBER 2015, IT HAS BEEN AGREED THAT REMUNERATION @ 18% BETWEEN TH E ASSESSEE AND ITS INDIAN AGENT HAS TO BE CONSIDERED TO BE AT ARMS LENGTH. IN THE FACTS OF THE PRESENT CASE, IT HAS BEEN FACTUALLY DEMONST RATED BEFORE US THAT THE PAYMENT MADE BY THE ASSESSEE TO ITS INDIAN AGENT IS AT THE ARMS LENGTH PRICE OF 18%. THAT BEING THE CASE, FOLLOWING THE AFORESAID DECISION OF THE CO ORDINATE BENCH, WE HOLD THAT THE INDIAN AGENT OF THE ASSESSEE CANN OT BE CONSIDERE D AS AN AGENCY P E. THUS, GROUNDS ARE DECIDED IN FAVOUR OF THE ASSESSEE. 21. IN GROUNDS NO.18, THE ASSESSEE HAS RAISED THE ISSUE OF ERROR IN CALCULATING TAX ON INTEREST ON EXTERNAL COMMERCIAL BORROWING (ECB). 22. IT IS THE CASE OF THE ASSESSEE THAT AS PER SECTION 115A OF THE ACT, THE APPLICABLE INTEREST RATE IS 5%. 23. IN GROUND NO.19, THE ASSESSEE HAS RAISED THE ISSUE OF NON GRANT OF TDS CREDIT AS APPEARING IN FORM NO.26AS . W HEREAS , IN GROUNDS NO.20 AND 21, THE ASSESSEE HAS CHALLENGED LEVY OF INTEREST UNDER SECTION 234A OF THE ACT. 14 CMA CGM SA 24. AS COULD BE SEEN, IN RESPECT OF THE ISSUE S RAISED IN THE AFORESAID GROUND S , THE ASSESSEE HAS ALREADY MOVED AN APPLICATION FOR RECTIFICATION UNDER SECTION 154 OF THE ACT BEFORE THE ASSESSING OFFICER WHICH, AS STATED BEFORE US, IS STILL PENDING. CONSIDERING THE NATURE OF DISPUTE, WE DIRECT THE ASSESSING OFFICER TO VERIFY ASSESSEES CLAIM WITH REGARD TO GROUNDS NO.18 TO 21 ALONG WITH THE RECTIFICATION APPLICAT ION PENDING BEFORE HIM AND DECIDED AS PER LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 25. GROUNDS NO.22 AND 23 ON THE ISSUE OF LEVY OF INTEREST UNDER SECTION 234B OF THE ACT IS CONSE QUENTIAL IN NATURE , HENCE, DOES NOT REQUIRE ADJUDICATION AT THIS STAGE. 26. GROUND NO.24, IS AGAINST INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THIS GROUND BEING PRE MATURE IS DISMISSED. 27. IN THE RESULT, ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.12.2019 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 30.12.2019 15 CMA CGM SA COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI