ADIT (IT) 4(1), MUMBAI V. MISC BERHAD ( FORMERLY KNOWN AS M./S. MALAYSIA INTERNATIONAL SHIPPING COPORATION), MUMBAI

ITA 6431/MUM/2012

• Counselvise Citation: 643119914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 21-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 22-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR NARENDRA KUMAR
• Assessee Lawyers: FAIZAN NURS UMAR
• Keywords: Double taxation relief; Permanent establishment; Assessment record
• Section: 143(3); 234B; 147; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI . . , , , BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER . / ITA NO. 6499 /MUM./ 2012 ( / ASSESSMENT YEAR : 20 0 4 05 ) MISC BERHAD C/O MISC AGENCIES (I) PVT. LTD. HIMALAYAS, GEETMALA COMPLEX NEAR SHAH INDUSTRIAL ESTATE DEONAR, GOVANDI MUMBAI 400 088 .. / APPELLANT V/S ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 4(1), SCINDIA HOUSE MUMBAI 400 038 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACCM1736E . / ITA NO. 6500 /MUM./ 2012 ( / ASSESSMENT YEAR : 200 5 06 ) MISC BERHAD C/O MISC AGENCIES (I) PVT. LTD. HIMALAYAS, GEETMALA COMPLEX NEAR SHAH INDUSTRIAL ESTATE DEONAR, GOVANDI MUMBAI 400 088 .. / APPELLANT V/S ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 4(1), SCINDIA HOUSE MUMBAI 400 038 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACCM1736E MISC BERHAD 2 . / ITA NO. 6431 /MUM./ 2012 ( / ASSESSMENT YEAR : 200 5 06 ) ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 4(1), SCINDIA HOUSE MUMBAI 400 038 .. / APPELLANT V/S MISC BERHAD C/O MISC AGENCIES (I) PVT. LTD. HIMALAYAS, 2 ND FLOOR GEETMALA COMPLEX NEAR SHAH INDUSTRIAL ESTATE DEONAR, GOVANDI MUMBAI 400 088 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACCM1736E . / ITA NO. 6501 /MUM./ 2012 ( / ASSESSMENT YEAR : 20 06 07 ) MISC BERHAD C/O MISC AGENCIES (I) PVT. LTD. HIMALAYAS, 2 ND FLOOR GEETMALA COMPLEX NEAR SHAH INDUSTRIAL ESTATE DEONAR, GOVANDI MUMBAI 400 088 .. / APPELLANT V/S ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 4(1), SCINDIA HOUSE MUMBAI 400 038 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACCM1736E MISC BERHAD 3 . / ITA NO. 6502 /MUM./ 2012 ( / ASSESSMENT YEAR : 20 07 08 ) MISC BERHAD C/O MISC AGENCIES (I) PVT. LTD. HIMALAYAS, 2 ND FLOOR GEETMALA COMPLEX NEAR SHAH INDUSTRIAL ESTATE DEONAR, GOVANDI MUMBAI 400 088 .. / APPELLANT V/S ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 4(1), SCINDIA HOUSE MUMBAI 400 038 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACCM1736E . / ITA NO. 6432 /MUM./ 2012 ( / ASSESSMENT YEAR : 20 07 08 ) ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 4(1), SCINDIA HOUSE MUMBAI 400 038 .. / APPELLANT V/S MISC BERHAD (FORMERLY KNOWN AS M/S. MALA YSIA INTERNATIONAL SHIPPING CORPORATION) C/O MISC AGENCIES (I) PVT. LTD. HIMALAYAS, 2 ND FLOOR GEETMALA COMPLEX NEAR SHAH INDUSTRIAL ESTATE DEONAR, GOVANDI MUMBAI 400 088 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACCM1736E MISC BERHAD 4 . / ITA NO. 6503 /MUM./ 2012 ( / ASSESSMENT YEAR : 20 09 10 ) MISC BERHAD C/O MISC AGENCIES (I) PVT. LTD. HIMALAYAS, 2 ND FLOOR GEETMALA COMPLEX NEAR SHAH INDUSTRIAL ESTATE DEONAR, GOVANDI MUMBAI 400 088 .. / APPELLANT V/S ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 4(1), SCINDIA HOUSE MUMBAI 400 038 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACCM1736E / A SSESSEE BY : MR. KANCHAN KAUSHAL A/W MR. D HANESH BAFNA, MR. ALIASG E R RAMPURAWALA & MR. FAIZAN NURS UMAR / REVENUE BY : DR. NARENDRA KUMAR / DATE OF HEARING 2 9 . 0 4 .201 4 / DATE OF ORDER 16.07.2014 / ORDER / PER BENCH THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSESSEE AS WELL AS THE REVENUE AGAINST THE CONSOLIDATED IMPUGNED ORDER DATED 2 ND JULY 2012, PASSED BY THE LEARNED COMMISSIONER (APPEALS) XI, MUMBAI, FOR THE AFOREMENTIONED ASSESSMENT YEARS. THE APPEALS PREFERRED FOR THE ASSESSMENT YEAR 2004 05 TO 2007 08, RELATE TO THE QUANTUM OF MISC BERHAD 5 ASSESSMENT PASSED UNDER SECTION 143(3) R/W SECTION 147 R/W SECTION 144C (3) , WHEREAS, THE APPEAL FOR THE ASSESSMENT YEAR 2009 10, IS IN RELATION TO THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) R/W SECTION 144C(3). 2 . SINCE ALL THESE APPEALS PERTAIN TO THE SAME ASSESSEE INVOLVING COMMON ISSUES ARISING OUT OF IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 3 . WE WILL FIRST TAKE UP THE ISSUES WHICH ARE ARISIN G IN ASSESSEES APPEAL AND ARE PERMEATING THROUGH IN ALL THE YEARS. FOR THE SAKE OF READY REFERENCE, GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR 2004 05 ARE REPRODUCED HEREIN BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON' BLE COMMISSIONER OF INCOME - TAX (APPEALS) ['CIT(A)'] ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSISTANT DIRECTOR OF INCOME - TAX (INTERNATIONAL TAXATION) - 4(1) ['ADIT'] IN REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE INCOME TAX ACT, 1961 . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ADIT IN DENYING THE BENEFIT OF ARTICLE 8 OF THE INDIA - MALAYSIA DOUBLE TAXATION AVOIDANCE AGREEMENT (TAX TREATY) ON FREIGHT I NCOME EARNED BY THE APPELLANT FROM SHIPPERS FOR TRANSPORTING CARGO LOADED ON FEEDER VESSELS FOR ONWARD TRANSPORTATION BY VESSELS OWNED, LEASED OR CHARTERED BY THE APPELLANT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE C IT(A) ERRED IN NOT TREATING THE FREIGHT INCOME EARNED BY THE APPELLANT FROM SHIPPERS FOR CONTAINERS LOADED ON FEEDER VESSELS AS INCOME FROM USE / MAINTENANCE / RENTAL OF MISC BERHAD 6 CONTAINERS, ETC. AND THEREBY ERRED IN NOT GRANTING THE BENEFIT OF ARTICLE 8(3) OF THE TAX TREATY TO SUCH INCOME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED A DIT IN HOLDING CRESCENT SHIPPING PVT. LTD. ('CRESCENT') AS A PERMANENT ESTABLISHMENT' ('PE') OF THE APPELLANT IN INDIA UNDER ARTICLE 5 OF THE TAX TREATY. 4A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ADIT IN HOLDING CRESCENT AS A FIXED PLACE PE UNDER ARTICLE 5(1) OF THE TAX TREATY. 4B. WITHOUT PREJUDICE TO GROUND NO. 4(A) ABO VE, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ADIT IN HOLDING THAT THE PREMISES OF CRESCENT ARE BEING USED BY THE APPELLANT AS A SALES OUTLET', THEREBY CONSTITUTING A PE UNDER ARTICLE 5(2)(H) OF THE TAX TREATY. 4C. ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ADIT IN HOLDING CRESCENT AS AN AGENCY PE UNDER ARTICLE 5(5) OF THE TAX TREATY. 4D. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LA W, THE HON'BLE CIT(A) ERRED IN NOT APPRECIATING THAT CRESCENT IS NOT A PE WITHIN THE MEANING OF ARTICLE 5(7) OF THE TAX TREATY SINCE CRESCENT IS AN INDEPENDENT AGENT AS THE TRANSACTIONS BETWEEN THE APPELLANT AND CRESCENT ARE ON AN ARM'S LENGTH BASIS. FURT HERMORE, THE HON'BLE CIT(A) ERRED IN NOT APPRECIATING THAT CRESCENT IS A LEGALLY AND ECONOMICALLY INDEPENDENT ENTITY. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT APPRECIATING THAT NO INCOME OF THE APPE LLANT COULD BE BROUGHT TO TAX IN INDIA AS THE ARM'S LENGTH COMMISSION PAID TO CRESCENT, WHICH IS TAXABLE IN INDIA IN THE HANDS OF CRESCENT, FULLY EXTINGUISHES THE TAX LIABILITY OF THE APPELLANT IN INDIA. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ADIT ERRED IN ESTIMATING FREIGHT ATTRIBUTABLE TO THE FEEDER ESSELS, BY APPLYING DEEMED RATE OF 10% INSTEAD OF 7.5% UNDER SECTION 44B. MISC BERHAD 7 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE. HON'BLE CIT(A) ERRED IN CONFIRMI NG THE ACTION OF THE LEARNED ADIT IN LEVYING INTEREST OF RS.36,60,770 UNDER SECTION 234 B OF THE IT ACT DESPITE THE FACT THAT THE APPELLANT WAS NOT LIABLE TO PAY ANY ADVANCE TAX ON THE BASIS OF (A) DOUBLE INCOME TAX RELIEF CERTIFICATE ISSUED BY THE TAX DEPARTMENT ITSELF AND (B) THE FAC T THAT FREIGHT INCOME OF THE APPELLANT WAS TAX DEDUCTIBLE AT SOURCE HAVING REGARD TO THE SPECIFIC PROVISIONS OF SECTION 209(1)(D) OF IT ACT . BESIDES THIS, THE ASSESSEE HAS ALSO TAKEN A ADDITIONAL GROUND WHICH IS COMMON IN THE APPEAL S FOR THE ASSESSMENT YEAR 2004 05, 2005 06 AND 2006 07 AND 2007 08. THE SAME READS AS UNDER: 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ADIT(IT), ERRED IN PASSING THE ORDER UNDER SECTION 143(3) R/W SECTION 147 & 144C(3) OF THE ACT, WITHOUT SERVING THE NOTICE UNDER SECTION 143(2) OF THE ACT. 4 . GROUND NO.1, RELATES TO VALIDITY OF RE OPENING OF ASSESSMENT UNDER SECTION 147. 5 . BEFORE US, THE LEARNED COUNSEL, MR. KANCHAN KAUSHAL, APPEARING ON BEHALF OF THE ASSESSEE , AT THE OUTSET, SUBMITTED THAT THE GROUND NO.1, RELATING TO VALIDITY OF RE OPENING OF ASSESSMENT UNDER SECTION 147, WHICH IS COMMON IN ALL THE APPEALS PREFERRED BY THE ASSESSEE , EXCEPT FOR THE ASSESSMENT YEAR 2009 10 , IS NOT PRESSED. CONSEQUENTLY, GROUND NO .1, IS TREATED AS DISMISSED AS NOT PRESSED FOR ALL THE ASSESSMENT YEARS 2004 05, 2005 06, 2006 07 AND 2007 08 . MISC BERHAD 8 6 . ON A PERUSAL OF THE OTHER GROUNDS OF APPEAL AND ALSO THE ADDITIONAL GROUND, FOLLOWING ISSUES ARE CULLED OUT IN THE ASSESSEE S APPEALS WHICH C AN BE SUMMARISED AS UNDER: I ) DENIAL OF BENEFIT OF ARTICLE 8 OF IND O MALAYSIA DTAA ON THE FREIGHT INCOME EARNED BY THE ASSESSEE FROM SHIPPING OF CARGO THROUGH FEEDER VESSELS FOR ONWARDS TRANSPORTATION BY MOTHER VESSELS I.E., SHIPS OWNED AND LEASED BY THE AS SESSEE . IN OTHER WORDS, TRANSPORTATION OF CARGO FROM INDIAN PORT TO HUB PORT BY FEEDER VESSELS, HAS NOT BEEN CONSIDERED AS OPERATION OF SHIPS WITHIN THE MEANING OF ARTICLE 8(1) AND 8(2). II ) DENIAL OF TREATY BENEFIT UNDER ARTICLE 8(3), ON THE FREIGHT INCOME E ARNED BY THE ASSESSEE FROM SHIPPING OF CONTAINERS LOADED ON FEEDER VESSELS AS INCOME FROM USE / MAINTENANCE OR RENTAL OF CONTAINERS USED IN CONNECTION WITH THE OPERATION OF SHIPS; III ) TREATING M/S. CRESCENT SHIPPING PVT. LTD., AS A P ERMANENT ESTABLISHMENT (P. E) IN INDIA UNDER VARIOUS PARAGRAPHS OF ARTICLE 5; MISC BERHAD 9 IV ) THE ASSESSING OFFICER HAS ERRED IN ESTIMATING FREIGHT ATTRIBUTABLE TO FEEDER VESSELS BY APPLYING DEEMED RATE OF 10% INSTEAD OF 7.5% UNDER SECTION 44B; V ) CHARGING OF INTEREST UNDER SECTION 234B; AND LASTLY VI ) VALIDITY OF THE ASSESSMENT ORDER AND THE ADDITIONS MADE ON THE GROUND OF NON ISSUANCE / SERVICE OF NOTICE UNDER SECTION 143(2), AFTER FILING OF THE RETURN OF INCOME IN RESPONSE TO THE NOTICE UNDER SECTION 148, AS RAISED IN THE ADDITIONAL GROUND. 7 . REGARDIN G THE PRELIMINARY ISSUE, THE LEARNED COUNSEL THOUGH ADMITTED THAT THE ISSUE OF NON SERVICE OF NOTICE UNDER SECTION 143(2), HAS NOT BEEN RAISED EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE LEARNED COMMISSIONER (APPEALS) , BUT RAISED FOR THE FIRST TIME B EFORE THE TRIBUNAL BY WAY OF ADDITIONAL GROUND, HOWEVER, BEING A LEGAL GROUND , ARISING FROM THE FACTS AND MATERIAL ON RECORD WHICH DOES NOT REQUIRE ANY FURTHER INVESTIGATION OF FACTS, THEREFORE, THE SAME SHOULD BE ADMITTED. IN SUPPORT OF THE ADMISSION O F T HE SAID GROUND, RELIANCE HAS BEEN PLACED ON VARIOUS DECISIONS INCLUDING THAT OF THE DECISION OF THE HON'BLE SUPREME COURT IN NATIONAL THERMAL POWER CO. LTD. V/S CIT, [1998] 229 ITR 383 (SC). MISC BERHAD 10 8 . AFTER HEARING BOTH THE PARTIES, T HE SAID ADDITIONAL GROUND , AS RAISED IN VARIOUS YEARS, CHALLENGING THE VALIDITY OF TH E ASSESSMENT ON THE GROUND OF NON ISSUANCE / SERVICE OF NOTICE UNDER SECTION 143(2), IS HEREBY ADMITTED AS THE SAME IS PURELY A LEGAL GROUND WHICH GOES TO THE ROOT OF THE VALIDITY OF THE ASSESSMENT. IT IS EVIDENT FROM THE ASSESSMENT RECORDS PRODUCED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE US, THAT THOUGH THERE IS A NOTICE UNDER SECTION 143(2) DATED 7 TH SEPTEMBER 2011, FOR COMPLIANCE ON 21 ST SEPTEMBER 2011, HOWEVER, NEITHER THERE IS ANY EVIDENC E OF SERVICE OF SUCH NOTICE NOR THERE IS ANY MENTION IN THE ORDER SHEET ENTRY BY THE ASSESSING OFFICER ABOUT THE ISSUANCE AND SERVICE OF NOTICE UNDER SECTION 143(2). THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT EVEN THOUGH THE RE IS NO EVIDENCE OF ISSUANCE OR SERVICE OF NOTICE UNDER SECTION 143(2), HOWEVER, THE SAME CANNOT BE RAISED AT THIS STAGE , BECAUSE THE PROCEEDINGS UNDER SECTION 148, HAVE BEEN COMMENCED AFTER 1 ST APRIL 2008, AND IN VIEW OF THE PROVISIONS OF SECTION 292BB, THE SERVICE OF NOTIC E UNDER SECTION 143(2), CANNOT BE CHALLENGED IF THE SAME HAS NOT BEEN RAISED BEFORE THE AUTHORITIES BELOW . W HEREAS THE LEARNED COUNSEL SUBMITTED THAT THE PROVISIONS OF SECTION 292BB, WILL NOT BE APPLICABLE IN THE PRESENT CASE, AS THE SAME HAS BEEN MADE APP LICABLE FROM 1 ST APRIL 2008, I.E., ASSESSMENT YEAR 2008 09. HERE, IN THESE APPEALS, THE ASSESSMENT YEARS INVOLVED ARE PRIOR TO THE ASSESSMENT YEAR 2008 09 , THEREFORE, THIS ISSUE CAN BE RAISED AT THIS STAGE IN THE IMPUGNED MISC BERHAD 11 ASSESSMENT YEARS. BOTH THE PARTIES HAVE FILED HUGE COMPILATION OF CASE LAWS IN SUPPORT OF THEIR CONTENTIONS AND HAVE ALSO MADE THEIR DETAIL ARGUMENTS BEFORE US. 9 . HOWEVER, A T PRESENT, WE ARE NOT DISCUSSING THE ISSUE VALIDITY OF PASSING OF ASSESSMENT DUE TO NON ISSUANCE / NON SERVICE OF NOTICE UNDER SECTION 143(2), AS IN THE ASSESSMENT YEAR 2009 10, TH IS ISSUE OF NON SERVICE OF NOTICE UNDER SECTION 143(2), IS NOT IN DISPUTE AND IN ANY WAY, WE HAVE TO DECIDE THE ISSUE ON MERIT S IN THAT YEAR. THEREFORE, WE ARE TAKING UP THE MAIN ISSUE OF DENIAL OF BENEFIT OF ARTICLE 8, WHICH IS A CORE ISSUE PERMEATING THROUGH IN ALL THE YEARS UNDER APPEAL AND ARE BASED ON IDENTICAL SET OF FACTS . ACCORDINGLY, WE ARE PROCEED ING WITH THE MERITS OF THE CASE , ESPECIALLY THE ISSUE RELATING TO DENIAL OF BENEFIT UNDER ARTICLE 8 OF INDO MALAYSIA TREATY ON THE FREIGHT INCOME EARNED BY THE ASSESSEE FROM OPERATION OF SHIPPING BUSINESS. BEING THE FIRST YEAR OF DISPUTE BEFORE US, WE ARE NARRATING THE FACTS OF THE ASSES SMENT YEAR 2004 05. 10 . FACTS IN BRIEF : THE ASSESSEE, M/S. MISC BERHAD, IS A COMPANY INCORPORATED UNDER THE LAWS OF MALAYSIA HAVING ITS REGISTERED OFFICE IN MALAYSIA AND IS ALSO A TAX RESIDENT OF MALAYSIA. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHIPPING IN INTERNATIONAL TRAFFIC AND IS ALSO THE OWNER OF SHIPS EITHER OWNED BY IT OR TAKEN ON LEASE. IN INDIA, THE ASSESSEE HAS APPOINTED AN AGENT M/S. CRESCENT SHIPPING PVT. LTD., FOR MISC BERHAD 12 BOOKING OF FREIGHTS OF CARGO FOR TRANSPORTATION FROM ONE DESTINATION TO OTHER IN INTERNATIONAL TRAFFIC . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED TOTAL FREIGHT OF ` 1,54,59,46,952. IN THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INCOME ON 9 TH SEPTEMBER 2004, THE ASSESSEE HAS SOUGHT FOR DOUBLE TAX RELIEF @ 50% , AS PER ARTICLE 8 OF INDIA MALAYSIA DTAA IN THE FOLLOWING MANNER: TOTAL FREIGHT COLLECTED ` 1,54,59,59,364 INCOME @ 7.5% OF ` 15,49,59,364 ` 11,59,46,952 TAX PAYABLE @ 40% ON ` 11,59,46,952 ` 4,63,78,780 ADD: SURCHARGE ON ` 4,63,78,780 ` 12,35,856 TOTAL TAX ` 4,76,16,636 LESS: RELIEF 05% AS PER DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND MALAYSIA ` 2,38,08,318 TAX PAYABLE ON FREIGHT INCOME ` 2,38,08,318 TAXES ALREADY PAID ` 2,38,14,485 REFUND DUE ` 6,167 11 . THE SAID RETURN OF INCOME WAS DULY PROCESSED UNDER SECTION 143(1), VIDE INTIMATION DATED 29 TH NOVEMBER 2005. THEREAFTER, A NOTICE UNDER SECTION 148 DATED 10 TH MARCH 2011, WAS ISSUED FOR RE OPENING THE ASSESSMENT PRIMARILY ON THE BASIS OF REASON S GIVEN IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2008 09, WHEREIN I T WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS EARNED FREIGHT FIRSTLY, FROM THE TRANSPORTATION OF CARGO OF GOODS IN THE INTERNA TIONAL TRAFFIC BY OPERATION OF SHIPS OWNED BY IT OR POOLED BY IT AND SECONDLY, MISC BERHAD 13 FROM CARRIAGE OF GOODS BY FEEDER VESSELS BELONGING TO OTHER SHIPPING LINE , WHEREIN THE ASSESSEE DID NOT HAVE POOL ARRANGEMENTS. THUS, ON ENTIRE FREIGHT BENEFIT OF ARTICLE 8, CAN NOT BE GIVEN. THE CARGO / GOODS IS TRANSPORTED IN TWO STAGES, FIRST FROM INDIAN PORT TO HUB PORT THROUGH FEEDER VESSELS AND AT THE SECOND STAGE , T HE CARGO / GOODS WHICH ARE LOADED ON THE FEEDER VESSELS ARE TRANSHI P PED LATER AT THE HUB PORT TO THE ASSESSEE S SHIP OWNED BY IT TO THE FINAL DESTINATION . THUS, THE ASSESSEE HAS EARNED THE FREIGHT WHICH IS ALSO ATTRIBUTABLE TO VOYAGE PERFORME D ON FEEDER VESSELS WHICH ARE OPERATED BY THIRD PARTY AND ON THIS RECEIPT ALSO, THE ASSESSEE HAS CLAIMED A BENEFIT OF ARTICL E 8 , WHICH CANNOT BE GIVEN ON THE CORRECT INTERPRETATION OF THE SAID ARTICLE IN INDIA MALAYSIA DTAA. THE RELEVANT OBSERVATION S OF THE ASSESSING OFFICER IN THIS REGARD, ARE AS UNDER: 7. THE ASSESSEE IS RUNNING SHIPPING LINE. THE ASSESSEE IS TAX RESIDENT OF MALAYSIA. FROM THE DETAILS FURNISHED, IT IS NOTICED THAT THE ASSESSEE HAS EARNED FREIGHT FROM THE FOLLOWING: ( I ) CARRIAGE OF GOODS IN INTERNATIONAL TRAFFIC BY OPERATION OF SHIPS (OWNED / CHARTERED / POOLED BY IT). ( II ) CARRIAGE OF GOODS IN INTERNATIONAL TRAFF IC BY OPERATION OF SHIPS (OWNED / CHARTERED / POOLED BY IT) INCLUDING FEEDER VESSELS OPERATED BY THIRD PARTY FEEDER VESSEL OPERATOR. 8 . AS REGARD THE FREIGHT EARNED FROM (I) ABOVE I.E, CARRIAGE OF GOODS IN INTERNATIONAL TRAFFIC BY OPERATION OF HIPS OWNED / CHARTERED / POOLED BY IT, THERE IS NO DISPUTE REGARDING THE CLAIM OF BENEFIT OF ARTICLE / OF DTAA. EVEN AS REGARDS (II) ABOVE, THE PORTION OF THE FREIGHT ATTRIBUTABLE TO VOYAGE PERFORMED ON OWNED / CHARTERED / POOLED SHIPS OF THE ASSESSEE, THE ASSESSEE IS ALLOWED TO ARTICLE 8 BENEFIT SINCE THE ASSESSEE HAS FURNISHED DOCUMENTARY PROOF T O SUBSTANTIATE THE LINKAGE BETWEEN THE VOYAGE PERFORMED ON FEEDER VESSEL AND MOTHER VESSEL (WHICH ARE OWNED / CHARTERED / POOLED BY IT). MISC BERHAD 14 9. AS SUCH, ISSUE (WHICH WAS ALSO PRESENT IN A.Y. 2008 09 ON THE BASIS OF WHICH THE CASE HAS BEEN REOPENED FOR A.Y. 2004 05 IS REGARDING AVAILABILITY OF ARTICLE 8 BENEFIT TO THE PORTION OF FREIGHT WHICH IS ATTRIBUTABLE TO VOYAGE PERFORMED ON FEED ER VESSELS WHICH ARE OPERATED BY THIRD PARTIES (AND NOT THE ASSESSEE). AS PER THE DETAILS FILED BY THE ASSESSEE, THE TOTAL FREIGHT EARNED BY THE ASSESSEE FROM (II) ABOVE IS ` 43,22,62,275. THIS FREIGHT IS FOR THE ENTIRE VOYAGE I.E., FROM THE LOAD PORT TO T HE ULTIMATE DISCHARGE PORT. 10. IT IS NOTICED THAT THE ASSESSEE HAS USED F EEDER VESS ELS BELONGING TO OTHER SHIPPING LINES AND WITH THESE LINE THE ASSESSEE W AS NOT HAVING POOL ARRANGEMENT. THE CONTAINER LOADED ON THESE FEEDER VESSELS ARE TRANSHIPPED LATER AT A HUB PORT ON THE ASSESSEE S OWN SHIPS OR SHIPS CHARTERED / POOLED BY IT. IT IS SEEN THAT IN SUCH CASES, THE ASSESSEE BOOKS SOME SPACE IN THE SHIPS OPERATED BY OTHER SHIPPING LINE (FEEDER OPERATOR) AND SUCH HIP ARE ALSO NOT COVERED BY POOL AGREEMENT. ON THE BOOKED SPACE, ASSESSEE LOADS ITS CONTAINER AND ISSUES BILL OF LADING TO THE SHIPPERS / CUSTOMERS. THE ASSESSEE IN SUCH CASE DOES NOT HAVE ANY CONTROL ON THE RUNNING OR THE SHIPS. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE FREIGHT ATTRIBUTABLE TO VOYAGES PERFORMED ON THESE FEEDER VESSELS SHOULD NOT BE DENIED BENEFIT OF DTAA. THE ASSESSEE FILED DETAILED S UBMISSION STATING THAT SINCE IT IS ENGAGED IN SHIPPING BUSINESS AND THIS FREIGHT OF RS.432,262,275 HAS BEEN EARNED FROM SHIPPING OPERATIONS, IT SHOULD BE ALLOWED BENEFIT UNDER ARTICLE 8 OF DTAA. IT WAS ALSO STATED THAT INCOME FROM USE, MAINTENANCE, ETC. OF CONTAINERS IS EXEMPT UNDER ARTICLE 8(3) OF DTAA AND SINCE THE ASSESSEE IS USING ITS OWNED / LEASED CONTAINERS WHICH ARE LOADED ON THESE FEEDER VESSELS AND FOR WHICH NO SEPARATE CHARGES ARE RECOVERED FROM SHIPPERS / CUSTOMERS, THE FREIGHT ATTRIBUTABLE TO VOYAGE PERFORMED ON FEEDER VESSELS IS COVERED UNDER ARTICLE 8(3) OF DTAA AS INCO ME FROM USE OF CONTAINERS, ETC. 12 . THEREAFTER, THE ASSESSING OFFICER NOTED THAT THE WORDINGS OF ARTIC L E 8 , IN THE INDO MALAYSIA TREATY IS DIFFERENT FROM SHIPPING A RTICLE OF OECD MODEL CONVENTION WHICH GOES TO SHOW THAT THE TWO CONTRACTING PARTIES AT THE TIME OF SIGNING OF DTAA WERE WELL AWARE OF THE RESTRICTIVE MEANING OF THE TERM USED IN ARTICLE 8(1) AND 8(2). THE MEANING OF PROFITS DERIVED FROM THE OPERATION OF SHIPS HAS BEEN RESTRICTED TO PROFITS DERIVED FROM T RANSPORTATION OF GOODS CARRIED ON BY MISC BERHAD 15 THE OWNER OR LESSEE OR CHARTERER OF SHIPS. IT CANNOT BE EXTENDED TO ANY ANCILLARY ACTIVITIES OR THE ACTIVITIES WHICH ARE SUPPLEMENTARY IN NATURE. THE OPERATION OF SHIPS COMPRISES OF PURCHAS ING OF SHIPS OR HIRING IT ON TIME CHARTER BASIS , EMPLOYING THE C APTAIN AND THE CREW AND MOST IMPORTANTLY ASSUMING THE RISK S BOTH FINANCIAL AND OPERATION. THE ASSESSEE BY TRANSPORTING THE CARGO IN ITS CONTAINER WHICH ARE ALLOWED ON THE SHIPS OF 3 RD PARTY I.E., FEEDER VESSELS IS NOT ASSUMING SUCH RISK. THE CHARTERING OF SOME SPACE ON FEEDER VESSELS CANNOT BE EQUATED WITH CHARTERING OF COMPLETE SHIP. JUST BY ISSUING OF BILL OF LADING, THE ASSESSEE CANNOT BE SAID TO BE INVOLVED IN THE OPERATION OF SHIPPING AS IT HAS NO CONTROL OF SUCH SHIPS (I.E., FEEDER VESSELS) WHICH ARE USED IN THE TRANSPORTATION ACTIVITIES. HE FURTHER NOTED THAT THE PRESENT INDO MALAYSIA TREATY IS DIFFERENT FROM OECD MODEL CONVENTION BECAUSE IN THE TREATY ITSELF THE OPERATION OF SHIPS HAS BEEN DEFINED. THE W IDE INTERPRETATION GIVEN IN THE OECD COMMENTARY CANNOT BE IMP O RTED HERE. THE CONTRACTING PARTIES WERE VERY WELL AWARE OF SUCH A COMMENTARY OF OECD AND, THEREFORE, HAVE CLEARLY INTENDED THAT THE BUSINESS OF TRANSPORTATION MUST BE BY THE SHIPS OWNE D OR LEASE D OR CHARTERED BY THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSING OFFICER HELD THAT INSOFAR AS THE TRANSPORTATION BY FEEDER VESSELS, THE ASSESSEE IS NEITHER THE OWNER NOR THE LESSEE NOR THE CHARTERER OF THE FEEDER VESSELS CARRYING THE CARGO UP TO THE HUB PORT . THEREFORE, THE INCOME DERIVED FROM SUCH VOYAGE WOULD BE OUT SIDE THE SCOPE OF ARTICLE 8 , MISC BERHAD 16 EVEN THOUGH THE ASSESSEE MAY BE ENGAGED IN TH E BUSINESS OF CARR YING THE GOODS IN THE INTERNATIONAL TRAFFIC. THUS, THE FREIGHT DERIVED FROM CARRIAGE OF GOODS FROM INDIAN P ORT TO HUB P ORT THROUGH FEEDER VESSELS WILL NOT QUALIFIED TO BE INCOME DERIVED FROM THE OPERATION OF SHIPS . IN SUPPORT OF HIS CONTENTION, HE HAS STRONGLY RELIED UPON THE DECISION OF DIT( I T) V/S CIA DE NAVEGACAO NORS U L, [2009] 121 ITD 113 ( MUM .). 13 . THE LEARNED COMMISSIONER (APPEALS) TOO CONFIRMED THE REASONING AND THE CONCLUSION OF THE ASSESSING OFFICER THAT THE TRANSPORTATION THROUGH FEEDER VESSELS DOES NOT FALL WITHIN THE DEFINITION OF OPERATION OF SHIPS AS CONTAINED IN ARTICLE 8(2). HE TOO RELIED UPON THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN C IA DE NAVEGACAO NORSUL (SUPRA) . ONE OF THE MAIN PLANK S OF THE ARGUMENT OF THE ASSESSEE BEFORE THE LEARNED COMMISSIONER (APPEALS) WAS THAT THERE WAS A LI NKAGE OF GOODS FROM INDIA TO HUB PORT AN D FINALLY TO THE DESTINATION PORT FOR WHICH THE CARGO WAS BOOKED AND, THEREFORE, THE ASSESSEE WAS ELIGIBLE FOR THE TREATY BENEFIT UNDER ARTICLE 8 , AS THE ENTIRE VOYAGE HAS TO BE TAKEN INTO CONSIDERATION, QUA THE PROFIT DERIVED FROM OPERATION OF SHIP . THIS CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE LEARNED COMMISSIONER (APPEALS) ON THE GROUND THAT TRANSPORTATION OF GOODS FROM INDIA PORT TO HUB PORT CAN AT BEST BE REGARDED AS INCIDENTAL OR ANCILLARY TO MAIN TRANSPORTATION OF GOODS WHICH IS NOT PERMITT ED WITHIN MISC BERHAD 17 THE DEFINITION OF OPERATION OF SHIPS AS DEFINED ARTICLE 8(2) OF INDO MALAYSIA N TREATY. 14 . BEFORE US, T HE LEARNED COUNSEL , MR. KANCHAN KAUSHAL, SUBMITTED THAT T HE ASSESSEE OWNS SHIPPING LINE AND IS ENGAGED IN OPERATION OF SHIPS IN THE INTERNATIONAL TRAFFIC. AS A PART OF ITS SHIPPING BUSINESS, IT USED TO BOOK THE CARGO FROM INDIA UP TILL FINAL DESTINATION PORT. FOR THIS PURPOSE, IT ISSUED BILL OF LADING TO THE SHIPPERS AND CUSTOMERS FOR THE ENTIRE VOYAGE. FOR THE PURPOSE OF ITS TRANSPORT ATION OF CARGO, THE ASSESSEE USED THE SERVICES OF FEEDER VESSELS OPERATED BY THIRD PARTIES BY USING SPACE CHARTER / SLOT CHARTER FROM INDIAN PORT TO HUB PORT. AT THE HUB PORT, THE CONTAINERS WHICH WERE OWNED BY THE ASSESSEE WERE TRANSFERRED TO MOTHER VESSE LS I.E., THE SHIP S OWNED BY THE ASSESSEE AND FROM THEREON , THE CARGOS / CONTAINERS WERE TRANSPORTED BY ITS OWN SHIPS TO THE FINAL DESTINATION PORT. THE ENTIRE VOYAGE FROM INDIA PORT TO HUB PORT AND FROM THERE TO FINAL DESTINATION PORT , IS INEXTRICABLY LINK ED AND CANNOT BE SEGREGATED AS HELD BY THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS, IN FACT, ADMITTED THAT THE ASSESSEE HAS FURNISHED PROOF TO SUBSTANTIATE THE LINKAGE OF THE VOYAGE PERF ORMED ON FEEDER VESSELS AND MOTHER VESSELS (I.E., SHIPS OWNED BY THE ASSESSEE) . THE REVENUES CASE IS THAT SINCE THE FEEDER VESSEL IS NOT OWNED / LEASED BY THE ASSESSEE, THEREFORE, THE BENEFIT OF ARTICLE 8, CANNOT BE GIVEN ON MISC BERHAD 18 THE GOODS CARRIED THROUGH THE FEEDER VESSEL IS NOT A CORRECT INTERPRETATION OF ARTICLE 8(2) . THE CARRIAGE OF GOODS FROM THE FEEDER VESSEL IS NOTHING B U T A CHARTER ONLY , IN A SENSE THAT THE ASSESSEE HAS BOOKED SPACE CHARTER / SLOT CHARTER FOR ITS CONTAINERS WHICH ARE OWNED BY IT. FOR TH E PURPOSE OF EXPLAINING THE MEANING OF CHARTER , AS CONTEMPLATED IN ARTICLE 8(2) OF THE PRESENT TREATY, HE STRONGLY REFERRED AND RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN DIT V/S BALAJI SHIPPING U.K. LTD., [2012] 253 CTR (BOM.) 460. IN THIS CASE ALSO, HE EXPLAINED THAT THE ASSESSEE HAS TRANSPORTED THE CARGO THROUGH FEEDER V ESSELS TO THE HUB PORT AND FROM HUB PORT THE CARGO WAS TRANSFERRED TO VESSEL OWNED / LEASED / CHARTERED BY THE ASSESSEE TO THE FINAL DESTINATION. WHILE ADJUDICATING ON THESE FACTS, THEIR L ORDSHIPS HAVE EXAMINED THE MEANING AND THE DEFINITION OF CHARTER / CHARTERER . IN THIS REGARD, HE DREW OUR ATTENTION TO THE SPECIFIC OBSERVATION MADE BY THE COURT. FROM THIS JUDGMENT, HE SUBMITTED THAT IT CAN BE CLEARLY INFERRED THAT CHARTER MEANS SLOT CHARTER ALSO . I F THE GOODS HAVE BEEN TRANSPORTED BY AVAILING SLOT CHARTER, THEN ALSO IT HAS TO BE CONSIDERED AS INCOME FROM OPERATION OF SHIPS. HE ALSO DREW OUR ATTENTION TO THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN APL CO. PTE. LTD. V/S DDIT, [2013] 35 CCH 255, WHEREIN THE TRIBUNAL, AFTER DISCUSSING MEANING OF THE WORD CHARTER GIVEN IN VARIOUS DICTIONARIES, HAS HELD THAT SLOT CHARTERER I S TO BE HELD AS CHARTER PER SE. MISC BERHAD 19 15 . REGARDING THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN CIA DE NAVEGACAO NORSUL (SUPRA), WHICH HAS BEEN HEAVILY RELIED UPON BY THE ASSESSI NG OFFICER AND THE LEARNED COMMISSIONER (APPEALS) , HE SUBMITTED THAT, FIRST OF ALL, IN THIS CASE, THERE IS A CATEGORICAL FINDING BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS FAILED TO LINK AND ESTABLISH THE VOYAGE WISE TRANSPORTATION AND WHETHER THE FEED ER VESSEL WERE ACTUALLY LOADING THE GOODS INTO MOTHER VESSELS OR NOT, WHICH THE ASSESSEE HAD CLAIMED THAT IT WAS OPERATING AND SECONDLY, THE TRIBUNAL HAS NOT EXAMINED THE MEANING OF CHARTER WHICH HAS NOW BEEN DISCUSSED AND EXPLAINED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN BALAJI SHIPPING U.K. LTD. (SUPRA). FURTHER, THERE IS A CATEGORICAL FINDING BY THE TRIBUNAL THAT THE ASSESSEE COULD NOT PROVIDE ANY MATERIAL OR EVIDENCE THAT THERE WAS A SLOT CHARTER AGREEMENT WITH THE FEEDER VESSEL. THUS, THE SAID DECISION CANNOT BE HELD TO BE APPLICABLE EITHER IN LAW OR ON FACTS IN THE PRESENT CASE . HE ALSO REFERRED TO THE DECISION OF THE TRIBUNAL IN HAPAG LLOYD CONTAINER LI N E GMBH V/S ADIT (IT) , [2012] 146 TTJ (MUM.) 279, WHEREIN THE TRIBUNAL DENIED THE BENEFIT OF ARTICLE 8 ON THE GROUND THAT NO LINK BETWEEN THE TRANSPORTATION OF CARGO BY THE FEEDER VESSEL AND TRANSPORTATION BY MOTHER VESSEL OWNED BY THE ASSESSEE COULD BE ESTABLISHED. THUS, IF THE ASSESS EE IS ABLE TO ESTABLISH THE LINK BETWEEN THE TWO, THEN THE BENEFIT OF ARTICLE 8 HAS TO BE GIVEN. HE ALSO FILED SMALL NOTE GIVING THE MEANING OF THE TERM MISC BERHAD 20 CHARTER AND CHARTERER , AS APPEARING IN VARIOUS DICTIONAR IES WHICH HAVE BEEN REFERRED TO BY THE TRIB UNAL, IN APL CO. PTE. LTD. (SUPRA). 16 . PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE, DR. NARENDRA KUMAR, SUBMITTED THAT THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN BALAJI SHIPPING U.K. LTD. (SUPRA), CANNOT BE REFERRED AND RELIED UP ON IN THE PRESENT TREATY OF INDO MALAYSIA , WHERE THE OPERATION OF THE SHIPS HAS BEEN CLEARLY DEFINED TO MEAN PROFITS DERIVED FROM THE TRANSPORTATION CARRIED ON BY THE OWNERS OR LESSEES OR CHARTERERS OF SHIPS. WHEREAS, IN BALAJI SHIPPING U.K. LTD. (SUPRA), THE DECISION WAS RENDERED IN THE CONTEXT OF INDO U.K. TREATY, WHEREIN THE OPERATION OF SHIPS HAS NOT BEEN DEFINED. THE INDO U.K. TREATY IS BASED ON OECD MODEL CONVENTION WHICH ALSO SPEAKS ABOUT ANCI LLARY AND INCIDENTAL SERVICES. ARTICLE 9 OF INDO U.K. TREATY DOES NOT DEFINE OPERATION OF SHIPS AND, THEREFORE, THE MEANING AND THE SCOPE AS EXPLAINED IN THE COMMENTARY OF MODEL CONVENTION HAS BEEN ADOPTED BY THE HIGH COURT. THIS ASPECT OF THE MATTER HAS B EEN CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) IN THEIR RESPECTIVE ORDERS, THAT THE COMMENTARIES OF MODEL CONVENTION CANNOT BE APPLIED IN CASE OF INDO MALAYSIAN TREATY. HE FURTHER SUBMITTED THAT IN THE CONTEXT OF IN DIA USA TREATY, WHEREIN THE SIMILAR DEFINITION HAS BEEN GIVEN AS IN THE INDO MALAYSIA TREATY, THE TRIBUNAL, MUMBAI BENCH, IN ADIT V/S FEDERAL EXPRESS CORPORATION, HAS HELD THAT MISC BERHAD 21 BENEFIT OF ARTICLE 8, WOULD BE AVAILABLE TO THE ASSESSEE , ONLY WHEN THE ASSESSE E IS THE OWNER, LESSEE OR A CHARTERER OF A SHIP OR AIR CRAFT. ANY SUCH TRANSPORTATION DE HORS AS OWN ER CHARTERER OR LESSEE WOULD BE OUTSIDE THE SCOPE OF EXPRESSION USED IN ARTICLE 8(2). THE WORD CHARTERER USED IN THE ARTICLE HAS TO BE SEEN FROM THE CONTEXT OF THE MEANING UNDERSTOOD FOR THE WORDS OWNER AND LESSEE I.E. , A PERSON WHO HAS SUBSTANTIAL CONTROL OVER ON THE SHIP. IN OTHER WORDS, T HE WORD CHARTERER HAS TO DERIVE ITS MEANING FROM THE OTHER TWO WORDS USED IN THE ARTICLE I.E., OWNER OR LESSEE . HE FURTHER REFERRED TO THE DECISION OF THE TRIBUNAL IN ADIT V/S M/S. SIMATECH SHIPPING FORWARDING LLC, ITA NO.3819 3820/MUM./2011, ORDER DATED 17 TH JULY 2013, WHEREIN THE TRIBUNAL HELD THAT THE DECISION OF BALAJI SHIPPING U.K. LTD. (SUPRA), CANNOT BE RELIED UPON ON ARTICLE 8 OF INDO UAE TREATY WHICH IS SIMI LARLY WORDED WITH THAT OF INDO MALAYSIA TREATY AND IS DIFFERENT FROM INDO U.K. TREATY. LASTLY, HE REFERRED TO THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN DDIT V/S UNITED PARCEL SERVICES CO., ITA NO.2808 2809/MUM./2006, ORDER DATED 14 TH MARCH 2012, WHEREIN THE TRIBUNAL, ON SIMILAR WORDING OF ARTICLE 8(3) OF INDO US DTAA, HAS DISTINGUISHED THE CASE OF BALAJI SHIPPING U.K. LTD. (TRIBUNAL ORDER) AND O ECD COMMENTARY AND HELD THAT THE SAME WOULD NOT BE APPLICABLE. THE TRIBUNAL , IN THIS DECISION, HAS HEAVILY RELIED UPON THE DECISION OF FEDERAL EXPRESS (SUPRA). THUS, THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN BALAJI SHIPPING U.K. LTD. (SUPRA) CANNOT BE MISC BERHAD 22 HELD TO BE APPLICABLE IN THE CONTEXT OF THE PRESENT CASE. TO SHOW THE DISTINCTION OF THE WORDS USED IN DIFFERENT TREATIES, HE FILED A COMPARATIVE CHART OF EXPRESSION USED IN ARTICLE 8 OF VARIOUS TREATIES TO PROVE HIS POINT THAT WHEREVER OPERATI ON OF SHIPS HAVE BEEN D EFINED AS TRANSPORTATION CARRIED ON BY THE OWNER , LESSEE OR CHARTERER , THE SAME HAVE TO BE DIFFERENTLY INTERPRETED WHEREIN THERE IS NO SUCH QUALIFYING MEANING OF OPERATION OF SHIPS . 17 . IN THE REJOINDER, THE LEARNED COUNSEL SUBMITTED THAT THE DECISION OF FEDERAL EXPRESS, CANNOT BE RELIED UPON AS THIS DECISION IS RENDERED PRIOR TO THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN BALAJI SHIPPING U.K. LTD. (SUPRA), WHERE THE HIGH COU RT HAS CONSIDERED THE MEANING OF THE TERM CHARTERER IN EXTENSIVE MANNER TO HOLD THAT EVEN THE SLOT CHARTER FALLS WITHIN THE AMBIT OF THE WORD CHARTERER . SIMILARLY, IN OTHER DECISIONS ALSO, THE MEANING OF CHARTERER HAS NOT BEEN TAKEN INTO CONSIDERAT ION OR THE CONCEPT OF THE LINKAGE OF VOYAGE. 18 . WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT ORDER OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) AND ALSO THE MATERIAL PLACED ON RECORD QUA THE FIRST ISSUE. THE ASSESSEE IS A MALAYSIAN COMPANY WHICH IS RUNNING A SHIPPING LINE I.E., OPERATING SHIPS IN THE INTERNATIONAL TRAFFIC FOR CARRIAGE OF GOODS. INSOFAR AS THE OPERATION OF SHIPPING BUSINESS FROM INDIA IS CONCERN ED , THE ASSESSEE HAS BEEN BOO KING CARGO FROM SHIPPERS / CUSTOMERS IN INDIA UP TILL FINAL MISC BERHAD 23 DESTINATION PORT WITH ALL RISKS AND RESPONSIBILITY. THE BILL OF LADING HAS BEEN ISSUED FOR THE ENTIRE VOYAGE. SINCE THE ASSESSEES SHIPS OWNED / LEASED BY IT WER E NOT OPERATING IN THE TERRITORIAL WATERS OF INDIA, THEREFORE, IT HAS TRANSPORTED THE CARGOS FROM INDIAN PORT TO HUB PORT USING THE SERVICE OF FEEDER VESSELS WHICH ARE OWNED BY THE THIRD PARTY. THE CONTAINERS TRANSPORTED THROUGH FEEDER VESSELS HAVE BEEN SENT BY WAY OF SLOT CHARTER OR SPACE CHARTER ARRANGEMENT. FROM THE HUB PORT, THE ASSESSEES CONTAINERS ARE TRANSSHIPPED ON THE MOTHER VESSEL , WHICH ARE OWNED / LEASED BY THE ASSESSEE AND FROM THERE IT IS CARRIED TO THE FINAL DESTINATION PORT BY THE ASSESSEES OWN SHIP. THE ASSESSING OFFICER H AS VERY CATEGORICALLY HELD THAT THERE IS LINKAGE BETWEEN THE VOYAGE PERFORMED THROUGH FEEDER VESSELS AND FINALLY BY MOTHER VESSELS. THIS IS EVIDENT FROM PARA 7 AND 8 OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2004 05, THE RELEVANT TEXT OF WHICH HAS ALREADY BEING INCORPORATED IN THE EARLIER PART OF THE ORDER. INSOFAR AS THE VOYAGE BETWEEN HUB PORT AND FINAL DESTINATION PORT , THERE IS NO DISPUTE AS THE DEPARTMENT HAS ACCEPTED THAT TRANSPORTATION OF GOODS AND FREIGHT RECEIPTS FROM SUCH VOYAGE ARE FROM O PERATION OF SHIP AS ENVISAGED IN ARTICLE 8 (2) , FOR WHICH THE BENEFIT OF ARTICLE 8 HAS BEEN GIVEN. HOWEVER, THE DISPUTE IS WITH REGARD TO THE TRANSPORTATION OF GOODS FROM INDIAN PORT TO HUB PORT THROUGH FEEDER VESSELS WHICH HAVE BEEN HELD TO BE INCOME NOT D ERIVED BY OPERATION OF SHIPS , BECAUSE THE ASSESSEE IS NOT THE OWNER , LESSEE OR THE CHARTERER OF THE FEEDER MISC BERHAD 24 VESSELS. THE DEPARTMENT HAS HELD THAT THE CHARTERING OF SOME SPACE OR SLOT CHARTER ARRANGEMENT CANNOT BE EQUATED WITH CHARTERING OF A COMPLETE SHIP AND JUST BY ISSUING BILL OF LADING FOR THE ENTIRE VOYAGE, THE ASSESSEE CANNOT BE SAID TO BE INVOLVED IN OPERATION OF SHIPS INSOFAR AS THE TRANSPORTATION THROUGH FEEDER VESSELS ARE CONCERNED , BECAUSE THE ASSESSEE HAS NO CONTROL OF SUCH SHIPS. A DISTINC TION HAS ALSO BEEN MADE ON THE MEANING OF THE WORDS USED IN ARTICLE 8 OF INDO MALAYSIA DTAA FROM THE OECD MODEL CONVENTION . LASTLY, S TRONG SUPPORT HAS BEEN DERIVED FROM THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN C IA DE NAVEGACAO NORSUL (SUPRA). THE ASSESSEES CASE ON THE OTHER HAND HAS BEEN THAT THE WORD CHARTERER ALSO INCLUDES SPACE CHARTERER OR SLOT CHARTERER AND THE SAME CANNOT BE SEGREGATED FROM THE MEANING OF OPERATION OF SHIPS. HEAVY RELIANCE HAS BEEN PLACED ON THE CONCEPT OF CHARTERER GIVEN BY THE HON'BLE BOMBAY HIGH COURT IN BALAJI SHIPPING U.K. LTD. (SUPRA) AND THAT THERE IS AN INEXTRICABL E LINKAGE BETWEEN TRANSPORTATION OF GOODS FROM INDIAN PORT TO FINAL DESTINATION PORT. 19 . FIRST OF ALL, WE HAVE TO UNDERST AND THE EXPRESSION USED IN ARTICLE 8 OF INDO MALAYSIA DTAA WHICH READS AS UNDER: ARTICLE 8 SHIPPING AND AIR TRANSPORT 1. PROFITS DERIVED BY AN ENTERPRISE OF A CONTRACTING STATE FROM THE OPERATION BY THAT ENTERPRISE OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THAT STATE. MISC BERHAD 25 2. FOR THE PURPOSES OF THIS ARTICLE, PROFITS FROM THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL MEAN PROFITS DERIVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 FROM THE TRANSPOR TATION BY SEA OR AIR RESPECTIVELY OF PASSENGERS, MAIL, LIVESTOCK OR GOODS CARRIED ON BY THE OWNERS OR LESSEES OR CHARTERERS OF SHIPS OR AIRCRAFT INCLUDING: ( A ) THE SALE OF TICKETS FOR SUCH TRANSPORTATION NON BEHALF OF OTHER ENTERPRISES; AND ( B ) THE RENTAL OF SHI PS OR AIRCRAFT INCIDENTAL TO ANY ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION; 3. PROFITS OF AN ENTERPRISE OF A CONTRACTING STATE DESCRIBED IN PARAGRAPH 1 FROM THE USE, MAINTENANCE, OR RENTAL OF CONTAINERS (INCLUDING TRAILERS, BARGES AND RELATED EQUIPMENT FOR THE TRANSPORT OF CONTAINERS) USED IN CONNECTION WITH THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THAT STATE. 20 . FOR THE SHIPPING INCOME , T HE PARA 2 CATEGORICALLY ENVISAGES THAT FOR THE PURPOSE OF ARTICLE 8, PROFITS FROM THE OPERATION OF SHIPS IN THE INTERNATIONAL TRAFFIC MEANS , PROFIT DERIVED BY AN ENTERPRISE FROM THE TRANSPORTATION BY SEA OF GOODS CARRIED ON BY THE OWNER OR LESSEE OR CHARTERER OF SHIPS. THUS, THE PROFITS FROM THE OPERATION OF SHIPS HAVE BEEN QUALIFIED BY THE WORDS CARRIED ON BY THE OWNER OR LESSEES OR CHARTERER . THIS MEANING ASSIGNED TO OPERATION OF SHIPS IN THE INDIA MALAYSIA TREATY IS IN CONTRA DISTINCTION WITH OECD MODEL CONVENTION , WHERE THE OPERATION OF SHIPS HAS NOT BEEN DEFINED. THE ARTICLE 8 OF OECD MODEL CONVENTION READS AS UNDER: ARTICLE 8 SHIPPING, INLAND WATERWAYS TRANSPORT AND AIR TRANSPORT 1. PROFITS FROM THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THE CONTRACTING STATE IN WHICH THE PLACE OF EFFECTIVE MANAGEMENT OF THE ENTERPRISE IS SITUATED. MISC BERHAD 26 2. PROFITS FROM THE OPERATION OF BOATS ENGAGED IN INLAND WATERWAYS TRANSPORT SHALL BE TAXABLE ONLY IN THE CONTRACTING STATE IN WHICH THE PLACE OF EFFECTIVE MANAGEM ENT OF THE ENTERPRISE IS SITUATED. IN THE AFORESAID ARTICLE, OPERATION OF SHIPS HAVE NOT BEEN DEFINED OR QUALIFIED BY ANY SUCH WORDS WHICH HAVE BEEN SPECIFICALLY USED IN ARTICLE 8 OF INDO MALAYSIA DTAA. THE COMMENTARY ON ARTICLE 8 OF OECD MODEL CONVENTIO N EXPLAINS THE SCOPE OF ARTICLE 8 IN THE FOLLOWING MANNER: 4. THE PROFITS COVERED CONSIST IN THE FIRST PLACE OF THE PROFITS DIRECTLY OBTAINED BY THE ENTERPRISE FROM THE TRANSPORTATION OF PASSENGERS OR CARGO BY SHIPS OR AIRCRAFT (WHETHER OWNED, LEASED OR OTHERWISE AT THE DISPOSAL OF THE ENTERPRISE) THAT IT OPERATES IN INTERNATIONAL TRAFFIC. HOWEVER, AS INTERNATIONAL TRANSPORT HAS EVOLVED, SHIPPING AND AIR TRANSPORT ENTERPRISES INVARIABLY CARRY ON A LARGE VARIETY OF ACTIVITIES TO PERMIT, FACILITATE OR SUPP ORT THEIR INTERNATIONAL TRAFFIC OPERATIONS. THE PARAGRAPH ALSO COVERS PROFITS FROM ACTIVITIES DIRECTLY CONNECTED WITH SUCH OPERATIONS AS WELL AS PROFITS FROM ACTIVITIES WHICH ARE NOT DIRECTLY CONNECTED WITH THE OPERATION OF THE ENTERPRISE'S SHIPS OR AIRCRA FT IN INTERNATIONAL TRAFFIC AS LONG AS THEY ARE ANCILLARY TO SUCH OPERATION . 4.1 ANY ACTIVITY CARRIED ON PRIMARILY IN CONNECTION WITH THE TRANSPORTATION, BY THE ENTERPRISE, OF PASSENGERS OR CARGO BY SHIPS OR AIRCRAFT THAT IT OPERATES IN INTERNATIONAL TRAFFIC SHOULD BE CONSIDERED TO BE DIRECTLY CONNECTED WITH SUCH TRANSPORTATION. 4.2 ACTIVITIES THAT THE ENTERPRISE DOES NOT NEED TO CARRY ON FOR THE PURPOSES OF ITS OWN OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC BUT WHICH MAKE A MINOR CONTRI BUTION RELATIVE TO SUCH OPERATION AND ARE SO CLOSELY RELATED TO SUCH OPERATION THAT THEY SHOULD NOT BE REGARDED AS A SEPARATE BUSINESS OR SOURCE OF INCOME OF THE ENTERPRISE SHOULD BE CONSIDERED TO BE ANCILLARY TO THE OPERATION OF SHIPS AND AIRCRAFT IN INTE RNATIONAL TRAFFIC. 6. PROFITS DERIVED BY AN ENTERPRISE FROM THE TRANSPORTATION OF PASSENGERS OR CARGO OTHERWISE THAN BY SHIPS OR AIRCRAFT THAT IT OPERATES IN INTERNATIONAL TRAFFIC ARE COVERED BY THE PARAGRAPH TO THE EXTENT THAT SUCH TRANSPORTATION IS DIRE CTLY CONNECTED WITH THE MISC BERHAD 27 OPERATION, BY THAT ENTERPRISE, OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC OR IS AN ANCILLARY ACTIVITY. ONE EXAMPLE WOULD BE THAT OF AN ENTERPRISE ENGAGED IN INTERNATIONAL TRANSPORT THAT WOULD HAVE SOME OF ITS PASSENGERS OR CARGO TRANSPORTED INTERNATIONALLY BY SHIPS OR AIRCRAFT OPERATED BY OTHER ENTERPRISES, E.G. UNDER CODE - SHARING OR SLOT - CHARTERING ARRANGEMENTS OR TO TAKE ADVANTAGE OF AN EARLIER SAILING. ANOTHER EXAMPLE WOULD BE THAT OF AN AIRLINE COMPANY THAT OPERATES A BUS SERV ICE CONNECTING A TOWN WITH ITS AIRPORT PRIMARILY TO PROVIDE ACCESS TO AND FROM THAT AIRPORT TO THE PASSENGERS OF ITS INTERNATIONAL FLIGHTS. THUS, IN THE ABSENCE OF ANY QUALIFYING WORDS IN THE OECD MODEL CONVENTION ARTICLE 8 , THE SCOPE OF OPERATION OF SH IPS HAS BEEN EXPANDED TO INCLUDE VARIOUS ACTIVITIES DIRECTLY CONNECTED AND ALSO WHICH ARE NOT DIRECTLY CONNE CTED WITH THE SHIPS OR AIRCRAFT. THAT IS, ANCILLARY ACTIVITIES HA VE ALSO BEEN BROUGHT WITHIN THE AMBIT OF ARTICLE 8 . 21 . IN THE DECISION I N BALAJI SHIPPING U.K. LTD. (SUPRA) RENDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT, ARTICLE 9 OF INDO U.K. DTAA HAS BEEN EXAMINED , WHICH IS BASED ON OECD MODEL CONVENTION. IN THIS CASE ALSO, THE FACTS WERE QUITE SIMILAR TO THE ASSESSEES CASE, WHEREIN THE ASSESS EE HAD ENTERED INTO SLOT HIRE AGREEMENT FOR PROVIDING SLOT SPACES IN THE FEEDER VESSEL FO R TRANSPORTING OF GOODS FROM INDIAN PORT TO HUB PORT AND FROM HUB PORT, THE GOODS WERE TRANSFERRED TO THE VESSELS WHICH WERE OWNED / HIRED BY THE ASSESSEE. THE BILL OF LADING WAS ALSO ISSUED FOR THE ENTIRE VOYAGE. IN THIS CONTEXT, THE HON'BLE HIGH COURT HAS EXAMINED THE MEANING OF SLOT CHARTERER , CHARTERER AND ALSO THE VARIOUS WAYS IN WHICH THE GOODS CAN BE TRANSPORTED WHICH FALLS MISC BERHAD 28 WITHIN THE AMBIT OF OPERATION OF SHIPS . THE HIGH COURT HAS TAKEN NOTE OF THE MEANING OF SLOT CHARTERER IN THE FOLLOWING MANNER: 12. BEFORE REFERRING TO THE PROVISIONS OF THE ACT AND THE DTAA, IT IS NECESSARY TO UNDERSTAND THE NATURE OF CONNECTING CARRIER AGREEMENTS WHICH PROVIDES FOR THE HIRE OF CONTAINER SLOT SPACES. IN MARITIME LAW (6 TH EDITION) THE AUTHOR CHRISTOPHER HILL STATES: SLOT CHARTER PARTIES THIS HAS REFERENCE TO THE CARRIAGE OF CONTAINERS, OR TO USE CURRENT JARGON, TEUS (20 FOOT EQUIVALENT UNITS). THE SHIP OWNER OR OPERATOR RENTS OUT OR HIRES A PIECE OF SPACE (A PERCENTAGE OF THE TOTAL SPACE AVAILABLE ON THE VESSEL) FOR CARRYING TEUS IN RETURN FOR WHICH HE RECEIVES HIRE CALCULATED IN ACCORDANCE WITH THE NUMBER OF SLOTS (ACCOMMODATION FOR EACH TEU) PAYABLE WHETHER OR NOT THOSE SLOTS OR SPACES ARE ACTUALLY USED. IN HIS JUDGMENT IN THE TYCHY (1999) 2 LLOYDS REP.21) CLARKE LJ SAID THERE IS NO DISTINCTION IN PRINCIPLE BETWEEN A SLOT CHARTER AND A VOYAGE CHARTER OF A PART OF A SHIP. THEY ARE BOTH IN SENSE CHARTERERS OF A SPACE IN A SHIP. A SLOT CHARTER IS SIMPLY AN EXAMPLE OF A VOYAGE CHARTER OF PART OF A SHIP. CLARKE LJ FURTHER ON IN HIS JUDGMENT AT P. 22 GAVE HIS VIEW THAT A SLOT CHARTERER COULD EVEN BE DESCRIBED AS THE CHARTERER OF THE SHIP, NOT MERELY A CHARTERER . T HE REFERENCE TO THIS COMMENTARY WHICH IN TURN REFERS TO THE JUDGMENT IS ONLY TO INDICATE WHAT A SLOT CHARTER IS AND THAT SUCH AGREEMENTS HAVE BEEN IN USE FOR DECADES. NEEDLESS TO ADD THAT OUR REFERENCE TO THE SAME HAS NO BEARING UPON ADMIRALTY LAW INCLUDIN G ON THE ASPECT OF ARREST OF SHIPS. THE ASSESSMENT ORDER SETS OUT CLAUSE 2 OF THE CONNECTING CARRIER AGREEMENT BETWEEN THE RESPONDENT AND OEL, WHICH READS AS UNDER: 2(A) THE CARRIER HAS OFFERED CONTAINER SLOTS SPACE TO THE LINE (RESPONDENT) AND THE LIN E (RESPONDENT) HAS ACCEPTED TO USE SUCH SPACE ON AS/WHEN REQUIRED BASIS. [ EMPHASIS ADDED ] 22 . THEREAFTER, T HEIR LORDSHIPS HAVE ALSO TAKEN NOTE OF THE FACT THAT ARTICLE 9 DOES NOT DEFINE OPERATION OF SHIPS AND IN THAT CONTEXT THEY HAVE REFERRED TO THE COMMENTARY OF MODEL CONVENTION ALSO . UNDER THE MISC BERHAD 29 SCOPE OF ARTICLE 9, T HEIR LORDSHIPS HAVE HELD THAT WHERE THE GOODS ARE TRANSPORTED BY AN ENTERPRISE BY AVAILING A SLOT HIRE FACILITY BY IT ON THE SHIP OF ANOTHER FROM A PORT IN INDIA UP TO A HUB PORT ABROAD AN D FROM THERE TRANSPORTING THE GOODS FURTHER TO THE FINAL DESTINATION UPON A SHIP OWNED OR CHARTERED OR OTHERWISE CONTROLLED BY IT , WILL FALL WITHIN THE MEANING OF OPERATION OF SHIPS UNDER ARTICLE 9. THEY HAVE ALSO TAKEN NOTE OF THE FACT THAT ARTICLE 9 DOES NOT REQUIRE THE SHIP TO BE OWNED BY THE ENTERPRISE AND IT MERELY REQUIRES THE INCOME TO BE FROM THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC AND IN THAT CONTEXT THEY HAVE HELD THAT WHERE THE GOODS HAVE BEEN TRANSPORTED BY THE ASSESSEE FROM A PORT IN IN DIA DIRECTLY TO THEIR FINAL DESTINATION TO A PORT ABROAD BY AVAILING OF SLOT HIRE FACILITY OBTAINED BY IT ON THE SHIP OF ANOTHER WILL ALSO FALL WITHIN ARTICLE 9. THUS, THE WHOLE OF THE RATIO LAID DOWN IN BALAJI SHIPPING U.K. LTD. (SUPRA) CANNOT BE APPLIED IN THE PRESENT CASE , AS THE PHRASES USED IN ARTICLE 8 IN INDO MALAYSIA TREATY IS INDEED DIFFERENTLY WORDED. HOWEVER, CERTAIN RELEVANT OBSERVATIONS AND INTERPRETATION OF WORD CHARTERER / CHARTER BY THE HONBLE HIGH COURT CAN BE TAKEN AS GUIDANCE FOR UNDERSTANDING THESE TERMS, WHICH SHALL BE DISCUSSED IN THE LATER PART OF THE ORDER. 23 . WE WILL NOW INDEPENDENTLY EXAMINE ARTICLE 8(1) AND ARTICLE 8(2) OF INDO MALAYSIA DTAA. THE CRUCIAL PHRASE OR WORDS WHICH NEED TO BE ANALYSED HERE ARE OPERATION OF SH IPS , TRANSPORTATION BY THE OWNER MISC BERHAD 30 OR LESSEES OR CHARTERERS OF SHIPS. FIRST OF ALL, T HE WORD OPERATION IS DIFFERENT FROM THE WORD OPERATE OR OPERATOR . THE WORD OPERATE MEANS TO CONTROL THE FUNCTION ING OF MACHINE, PROCESS OR SYSTEM. HERE, THE PERSON IN CONTROL IS IMPORTANT. THE WORD OPERATOR MEANS, A PERSON WHO OPERATES THE EQUIPMENT OR A MACHINE . HERE FOR OUR PURPOSE OPERATOR OF SHIP . WHEREAS, THE WORD OPERATION CONNOTES THE FACT OR CONDITION OF FUNCTIONING OR BEING ACTIVE I.E., SOME KIND OF ACTIVITY. THE OPERATION OF SHIPS CANNOT BE UNDERSTOOD MERELY AS AN OPERATOR OF SHIPS OR A PERSON WHO OPERATES THE SHIPS. THE WORD OPERATION OF SHIPS HAS TO BE UNDERSTOOD IN A BROADER SENSE OF CARRYING OUT SHIPPING ACTIVITY. THE CARRYING OF SHIPPING ACTIVITY COULD BE AS AN OWNER OF A SHIP OR AS A LESSEE OF A SHIP OR AS A CHARTERER OF A SHIP . HERE, THE WORD OWNER HAS TO BE INFERRED AS A PERSON WHO OWNS A SHIP AND THE WORD LESSEE AS A PERSON WHO OWNS TH E SHIP FOR A GIVEN LEASE PERIOD . T HE W ORD CHARTERER HAS TO BE UNDERSTOOD AS A PERSON WHO CHARTERS OR HIRES A SHIP FOR A VOYAGE. THE LAW LEXICON (P. RAMANATHA AYIER, 2 ND EDN. ), DEFINES THE WORD CHARTERER AS ONE WHO, BY CONTRACT ACQUIRED THE RIGHT TO USE A VESSEL BELONG ING TO ANOTHER. ONE WHO CHARTERS OR HIRES OR ENGAGES THE WHOLE OR PART OF A SHIP UNDER AN AGREEMENT OF C HARTER P ARTY FOR A VOYAGE . HERE , THE WORD CHARTERER DOES NOT MEAN THE OWNER OR LESSEE OF A SHIP. THE WORD CHARTER P ARTY HAS BEEN DEFINED IN LAW LEXICO N A S AN INDENTURE OF COVENANTS AND AGREEMENTS MADE BETWEEN MERCHANTS AND MARINERS MISC BERHAD 31 CONCERNING THEIR SEA AFFAIRS. IT IS A CONTRACT BY WHICH A SHIP OR SOME PRINCIPAL PART THEREOF, IS LET TO A MERCHANT FOR CONVEYANCE OF GOODS ON A DETERMINED VOYAGE TO ONE OR MORE PLACES . FROM THIS DEFINITION , IT IS AMPLY EVIDENT THAT THE WORD CHARTERER MEANS HIRING OF A SHIP FOR A VOYAGE , EITHER WHOLE OF THE SHIP OR A PART OF A SHIP. TH E WORD CHARTER COMPLETELY ELUDES THE CONCEPT OF OWNERSHIP . A CHARTERER OF A SHIP CANNOT BE THE OWNER OF A SHIP . THEREFORE, THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE WORD CHARTERER HAS TO BE UNDERSTOOD IN THE CONTEXT OF OWNER OR LESSEE THAT IS HAVING CONTROL OF THE SHIP IS PERHAPS NOT THE CORRECT UNDERSTANDING OF TH E WORD CHARTERER . THE PRINCIPLE OF NOSCITUR A SOCIIS I.E., THE MEANING OF DOUBTFUL WORD MAY BE ASCERTAINED BY REFERENCE TO THE MEANING OF THE WORDS ASSOCIATED WITH IT WILL ALSO NOT APPLY HERE. IN OTHER WORDS, T HE MEANING OF THE WORD CHARTERER CANNOT BE IMP O RTED FROM OR TO BE UNDERSTOOD FROM THE MEANING OF THE WORD OWNER OR LESSEE . THE LEARNED COUNSEL, BEFORE US, HAS ALSO FILED VARIOUS MEANING OF THE TERM CHARTER OR CHARTERER , WHICH ARE AS UNDER: I) DICTIONARY OF INTERNATIONAL BUSINESS TERMS (FINANCIAL WORLD PUBLISHING), DEFINES THE TERM CHARTER AS UNDER: TO RENT AN AIRCRAFT OR VESSEL, OR A PART OF ITS CARGO SPACE, FOR A PARTICULAR JOURNEY OR A PERIOD OF TIME. II) BLACKS LAW DICTIONARY (9 TH EDITION) DEFINES THE TERM CHARTER WHICH INCLUDES THE TERM SPACE CHARTER WHICH IS DEFINED AS UNDER : MISC BERHAD 32 A CHARTER FOR A PART OF A VESSELS CAPACITY, SUCH AS A SPECIFIED HOLD OR DECK OR A SPECIFIED PART OF THE VESSELS CARRYING CAPACITY. III) K.J. AI YARS JUDICIAL DICTIONARY (12 TH EDITION) DEFINES THE TERM CHARTER PARTY AS UNDER: AN AGREEMENT IN WRITING BY WHICH A SHIP OWNER AGREES TO LET AN ENTIRE SHIP OR PART THEREOF, TO A MERCHANT, FOR THE CARRIAGE OF GOODS ON A SPECIFIED VOYAGE, OR DURING A SPECIFIED PERIOD, FOR A SUM OF MONEY WHICH THE MERCHANT AGREES TO PAY AS FREIGHT FOR THEIR CARRIAGE. IV) CONCISE LAW DICTION ARY BY P. RAMANATHA AIYAR (YEAR 2005), DEFINES THE TERM CHARTERER AS UNDER: ONE WHO CHARTERS OR HIRES OR ENGAGES THE WHOLE OR PART OF A SHIP UNDER AN AGREEMENT OF CHARTER PARTY FOR A VOYAGE. V) CHAMBERS 20 TH CENTURY DICTIONARY DEFINES THE TERM C HARTERER AS UNDER: TO ESTABLISH BY CHARTER: TO LET OR HIRE, AS A SHIP, ON CONTRACT. VI) MODERN LEGAL USAGE DICTIONARY DEFINES THE TERM CHARTERER AS UNDER: A PERSON TO WHOM A VESSEL IS CHARTERED IN A CHARTERPARTY. VII) OXFORD DICTIONARY DEFINES THE TERM CHARTERER AS UNDER: A CONTRACT TO HIRE AN AIRCRAFT, SHIP, ETC. FOR A SPECIAL PURPOSE. VIII) MARITIME AND SHIPPING DICTIONARY 2012, DEFINES THE TERM CHARTER AS UNDER: A VOYAGE CHARTER WHEREBY THE SHIP OWNER AGREES TO PLACE A CER TAIN NUMBER OF CONTAINER SLOTS (TEU AND/OR FEU) AT THE CHARTERERS DISPOSAL. MISC BERHAD 33 24 . FROM THE ABOVE DEFINITIONS OF THE TERM CHARTER OR CHARTERER , ONE THING IS AMPLY CLEAR THAT IT MEAN S HIRING OF VESSELS OR A SHIP OR A PART OF ITS SPACE UNDER AN AGREEMENT FOR A VOYAGE. THUS, EVEN A PART OF A SPACE IN THE VESSELS FOR A PARTICULAR JOURNEY IS ALSO CONSIDERED AS CHARTER OF SHIP OR CHARTERER . IN THE DECISION OF BALAJI SHIPPING U.K. LTD. (SUPRA), WHILE REFERRING TO THE JUDGMENT OF TYCHY (SUPRA), THE HIGH COURT HAVE NOTED THAT A SLOT CHARTER AND A VOYAGE CHARTER OF A PART OF A SHIP ARE IN A SENSE CHARTERERS OF A SPACE IN A SHIP. 25 . FROM THE ABOVE DISCUSSION, THE FOLLOWING INFERENCES CAN BE DEDUCED: I ) FIRSTLY, THE OPERATION OF A SHIP CAN BE DONE AS CHARTERER WHICH DOES NOT MEAN TO OWN OR CONTROL THE SHIP EITHER AS AN OWNER OR AS A LESSEE; II ) SECONDLY, CHARTERER IS A HIRER OF A SHIP UNDER AN AGREEMENT OR ARRANGEMENT TO ACQUIRE THE RIGHT TO USE A VESSEL OR A SHIP FOR THE TRANSPORTATION OF A GOOD ON A DET ERMINED VOYAGE , E ITHER THE WHOLE OF THE SHIP OR PART OF THE SHIP OR SOME SPACE OF THE SHIP IN A CHARTER PARTY AGREEMENT ; AND III ) THIRDLY, THE WORD CHARTERER INCLUDES A VOYAGE CHARTER OF A PART OF A SHIP OR A SLOT, AS IT IS A LSO MISC BERHAD 34 ARRANGEMENT OR AGREEMENT TO HIRE A SPACE IN A SHIP OWNED AND LEASED BY OTHER PERSONS. THUS, IN OUR OPINION, THE WORD CHARTERER SHOULD NOT BE CONFUSED FROM THE WORD OWNER OR LESSEE OR HAVING CONTROL OF THE SHIP OR AS AN OPERATOR OF THE SHIP. THE OPE RATION OF SHIP CAN BE DONE AS A CHARTER ER, WHICH INCLUDES PART OF A SHIP OR PARTICULAR SPACE IN A SHIP. 26 . UNDER THE INCOME TAX ACT, 1961, THERE IS A SEPARATE CODE OF SHIPPING, CHAPTER XIIG, WHICH CONTAINS SPECIAL PROVISION RELATING TO INCOME OF SHIPPING CO MPANIES. SECTION 115VB, DEFINES OPERATING SHIPS IN THE FOLLOWING MANNER: SECTION 115VB : FOR THE PURPOSES OF THIS CHAPTER, A COMPANY SHALL BE REGARDED AS OPERATING A SHIP IF IT OPERATES ANY SHIP WHETHER OWNED OR CHARTERED BY IT AND INCLUDES A CASE WHERE EVEN A PART OF THE SHIP HAS BEEN CHARTERED IN BY IT IN AN ARRANGEMENT SUCH AS SLOT CHARTER , SPACE CHARTER OR JOINT CHARTER : PROVIDED THAT A COMPANY SHALL NOT BE REGARDED AS THE OPERATOR OF A SHIP WHICH HAS BEEN CHARTERED OUT BY IT ON BAREBOAT CHARTER - CUM - DEMISE TERMS OR ON BAREBOAT CHARTER TERMS FOR A PERIOD EXCEEDING THREE YEARS. 27 . THOUGH THE ABOVE DEFINITION OF OPERATING OF SHIPS IS FOR THE PURPOSE OF CHAPTER XIIG, HOWEVER, WE ARE REFERRING ONLY FOR A LIMITED INFERENCE FOR UNDERSTANDING THE CONCEPT THAT CHARTERER OF SHIPS INCLUDES EVEN A PART OF THE SHIP IN AN ARRANGEMENT SUCH AS SLOT CHA RTER , SPACE CHARTERER OR JOINT CHARTER. THE SLOT CHARTE RER OR SPACE CHARTERER IN A SHIP CANNOT BE READ IN ISOLATION OR SEPARATE FROM THE MISC BERHAD 35 MEANING OF CHARTERER. A S HELD EARLIER BY US, T HOUGH THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN BALAJI SHIPPING U.K. LTD. (SUPRA), CANNOT BE APPLIED IN A BLANKET MANNER IN THE PRESENT CASE, HOWEVER, FOR THE PURPOSE OF UNDERSTANDING THE MEANING OF CHARTER OR CHARTERER OR SLOT CHARTERE R , THE SAID DECISION GIVE S IN DEPTH ANALYSIS WHICH CAN BE ADOPTED IN THE PRESENT CASE ALSO ONLY FOR THE PURPOSE OF ASSIGNING THE TRUE MEANING OF THE WORD CHARTERER . 28 . ANOTHER VERY IMPORTANT OBSERVATION MADE BY THE HIGH COURT WHICH IS QUITE RELEVANT TO N OTE IS, HOW THE SLOT CHARTERER AGREEMENTS OR SPACE CHARTERER AGREEMENT ARE INEXTRICABLY LINKED WITH THE SHIPPING BUSINESS IN THE PRESENT DAY SHIPPING BUSINESS. THE SAID OBSERVATIONS ARE AS UNDER: 26. AN ENTERPRISE MAY NOT PLY THE SHIPS OWNED OR CHARTERED OR OTHERWISE CONTROLLED OR MANAGED BY IT IN RESPECT OF CERTAIN ROUTES. IT WOULD HOWEVER, ON ACCOUNT OF THE BUSINESS EXIGENCIES, BE REQUIRED TO CARRY CARGO ON SUCH ROUTES. BUSINESS EXPEDIENCY COULD ARISE ON ACCOUNT OF A NUMBER OF REASONS AND DIFFE RENT SITUATIONS SUCH AS OBLIGING REGULAR CLIENTS, OR CULTIVATING NEW ONES. IF IT WERE NOT TO DO SO, IT MAY WELL LOOSE CLIENTELE. SHIPS OWNED OR CHARTERED OR OTHERWISE CONTROLLED OR MANAGED BY AN ENTERPRISE MAY NOT BE AVAILABLE ON THE PARTICULAR ROUTE ON A GIVEN DAY OR FOR A PARTICULAR PERIOD. THE ENTERPRISE MAY ALREADY HAVE ENTERED INTO CONTRACTS OR MAY EVEN BE REQUIRED TO ENTER INTO CONTRACTS FOR THE CARRIAGE OF GOODS ON THAT ROUTE ON THAT DAY OR DURING THAT PERIOD. THE TRADE WOULD EXPECT, THE ENTERPRISE T O PERFORM ITS CONTRACTS AND/OR ENSURE THERE IS NO BREAK IN ITS SERVICES. THIS IT CAN DO BY AVAILING SLOT HIRE AGREEMENTS. THEIR REFUSAL OR FAILURE TO DO SO, MAY WELL AFFECT THEIR BUSINESS AND REPUTATION ADVERSELY. 27. BY AVAILING THE FACILITY OF SLOT HIRE AGREEMENTS, THE ENTERPRISE DOES NOT ARRANGE THE SHIPMENT ON BEHALF OF THE OWNER OF THE SAID VESSEL, BUT DOES SO ON ITS OWN ACCOUNT ON A PRINCIPAL TO PRINCIPAL BASIS WITH ITS CLIENTS. SUCH CASES ALSO HAVE A NEXUS TO THE MAIN MISC BERHAD 36 BUSINESS OF THE ENTERPRISE OF T HE OPERATION OF SHIPS. THEY ARE ANCILLARY TO AND COMPLEMENT THE OPERATION OF SHIPS BY THE ENTERPRISE. IF THEY ARE NOT MERELY ANCILLARY TO THE MAIN BUSINESS OF OPERATION OF SHIPS BUT CONSTITUTE THE PRIMARY AND MAIN ACTIVITIES OF THE ENTERPRISE, IT MAY BE A DIFFERENT MATTER, WHICH WE ARE NOT CALLED UPON TO CONSIDER IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 29 . FROM THE ABOVE OBSERVATIONS, IT CAN BE UNDERSTOOD THAT THE FACILITY OF SLOT HIRE AGREEMENT WITH THE FEEDER VESSELS TO COMPLETE THE VOYAGE IS N OT MERELY AN AUXILIARY OR INCIDENTAL ACTIVITY TO THE OPERATION OF SHIPS , BUT INEXTRICABLY LINKED. IF THE TRANSPORTATION OF CARGO BY FEEDER VESSELS BELONGING TO OTHER ENTERPRISE IS ONLY A PART OF MAIN VOYAGE BY THE MOTHER SHIP I.E., OWNED OR LEASED BY THE A SSESSEE ENTERPRISE , THEN IT HAS TO BE TAKEN AS A PART AND PARCEL OF THE OPERATION, WHICH IS INEXTRICABLY LINKED WITH THE COMPLETION OF THE ENTIRE VOYAGE. THE LINKAGE BETWEEN THE TRANSPORTATION BY FEEDER VESSELS, MOTHER VESSELS OF THE SHIP OWNED BY THE ASSE SSEE HAS TO BE ESTABLISHED. IN THE PRESENT CASE, INSOFAR AS THE ISSUE OF LINKAGE BETWEEN THE VOYAGE PERFORMED BETWEEN THE FEEDER VESSELS AND MOTHER VESSELS, THE ASSESSEE HAS BEEN ABLE TO ESTABLISH BEFORE THE A .O. WHICH IS EVIDENT FROM THE OBSERVATIONS OF T HE A .O. IN PARA 7 & 8, WHEREIN HE HELD THAT THE FREIGHT EARNED FROM CARRIAGE OF GOODS IN INTERNATIONAL TRAFFIC BY OPERATION OF SHIPS INCLUDING FEEDER VESSELS OPERATED BY 3 RD PARTY OPERATOR, THE ASSESSEE HAS FURNISHED DOCUMENTARY PROOF TO SUBSTANTIATE THE L INKAGE BETWEEN THE VOYAGE PERFORMED ON FEEDER VESSELS AND MOTHER VESSELS. THE ASSESSING OFFICERS CASE RESTS UPON MISC BERHAD 37 THE PREMISE THAT VOYAGE CARRIED ON BY THE FEEDER VESSELS HAS TO BE SEGREGATED FOR THE PURPOSE OF ALLOWING BENEFIT UNDER ARTICLE 8 , BECAUSE CHARTERING OF S O ME SPACE I.E., SLOT CHARTERING, FEEDER VESSELS CANNOT BE EQUATED WITH CHARTERING OF COMPLETE SHIP. BY THIS, THE ASSESSING OFFICER MEANS THAT THE ASSESSEE MUST HAVE COMPLETE CONTROL OF SUCH SHIPS EVEN UNDER THE CHARTER AGREEMENT. TH US, THE VIEW TAKEN BY THE ASSESSING OFFICER FOR DENYING THE BENEFIT UNDER THE PRESENT ARTICLE 8 IS NOT TENABLE AS PER OUR DISCUSSION IN THE FORGOING PARAGRAPHS , THAT CHARTERING OF SO ME SPACE OR SLOT CHARTERER IN A SHIP IS ACTUALLY A PART AND PARCEL OF CHAR TER OF A SHIP. UNDER THE CHARTERER AGREEMENT, THERE IS NO OWNERSHIP OR CONTROL OF ENTIRE SHIP BECAUSE THE RISK UNDER THE C HARTER P ARTY A GREEMENT OR ARRANGEMENT IS UPON THE OWNER OF THE SHIP WHO GENERALLY ASSUMES AN OPERATIONAL RISK FOR TRANSPORTING THE CAR GO OF THE PERSON WHO HAS HIRED THE SHIP AND THE HIRER AGREES TO PAY FOR CONVEYANCE OF GOODS ON A DETERMIN ED VOYAGE. THE RISK OF THE ASSESSEE IS TOWARDS ITS CUSTOMERS FROM WHOM HE HAS AGREED TO TRANSPORT THE CARGO / GOODS FROM THE DESTINATION PORT OF BOOKIN G TO THE FINAL DESTINATION PORT. THUS, IN OUR OPINION, SUCH A STRICT INTERPRETATION OF THE WORD CHARTERER AS ADOPTED BY THE DEPARTMENT CANNOT BE SUSTAINED. 30 . NOW COMING TO THE DECISION OF CI A D E NAVEGACAO NORSUL (SUPRA), WE FIND THAT IN THE SAID DECISION, THE ASSESSEE HAD FAILED TO LINK AND MISC BERHAD 38 ESTABLISH THE VOYAGE WISE TRANSPORTATION, WHETHER THE FEEDER VESSELS WERE ACTUAL LY LOADING THE GOODS INTO THE MOTHER VESSELS , WHICH THE ASSESSEE HAD CLAIMED TH AT IT WAS OPERATING. THIS IS EVIDENT FROM PARA 2 OF THE SAID TRIBUNAL ORDER. FURTHER, AS POINTED OUT BY THE LEARNED COUNSEL, THE PLEA OF THE ASSESSEE THAT THERE WAS A SLOT CHARTER AGREEMENT WITH THE FEEDER VESSEL ORALLY WAS NOT SUPPORTED BY ANY MATERIAL OR EVIDENCE. IT WAS IN THIS CONTEXT THAT THIS PLEA OF SLOT CHARTER AGREEMENT WITH THE FEEDER VESSEL WAS REJECTED. FURTHER, IN VIEW OF THE MENAING OF THE CONCEPT OF CHARTER AND SLOT CHARTER AS EXPLAINED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN BALAJI SHIPP ING U.K. LTD. (SUPRA), THE SAID DECISION MAY NOT APPLY HERE IN THIS CASE, PARTICULARLY WHEN I N THE SAID DECISION, THE TRIBUNAL HAS NOT DISCUSSED WHAT IS MEANT BY CHARTERER AS EXPLAINED LATER ON BY THE HON'BLE BOMBAY HIGH COURT. REGARDING OTHER DECISIONS RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE WHICH ARE MAINLY BASED O N THE DECISION OF THE F EDE RAL EXPRESS CORPORATION (SUPRA), WE FIND THAT IN THIS CASE ALSO, THE PLEA OF THE ASSESSEE THAT IT HAD BOOKED SPA CE ON AIR INDIAS AIRCRAFT AND SUCH BOOKING OF SPACE AMOUNTED TO CHARTER OF AIRCRAFT PARTLY , WAS REJECTED ON THE GROUND THAT THIS WAS NOT RAISED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. THE TRIBUNAL THUS, SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSI NG OFFICER TO EXAMINE WHEN A SPACE IS BOOKED WITH OTHER AIRLINES, THE QUESTION , WHETHER TRANSPORTATION THROUGH SUCH AIRLINES CAN BE SAID TO BE TRANSPORTATION BY AIRCRAFT CHARTERED BY THE ASSESSEE OR MISC BERHAD 39 NOT WITH REFERENCE TO THE FIRST PART OF THE DEFINITION OF ARTICLE 8(2) WITH INDO U.S. TREATY. SIMILARLY, THE DECISION OF M/S. SIMATECH SHIPPING FORWARDING LLC, AS RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WILL NOT APPLY BECAUSE IN THIS CASE ALSO, THE MATTER WAS SET ASIDE TO THE FILE OF THE ASSESSIN G OFFICER TO DECIDE THE CASE IN THE LIGHT OF THE DECISION OF THE FEDERAL EXPRESS CORP. (SUPRA). SIMILAR WAS THE CASE IN UNITED PARCEL SERVICE (SUPRA) ALSO . IN NONE OF THE DECISIONS, THE TRUE IMPORT OR MEANING OF THE WORD CHARTERER HAS BEEN TAKEN INTO CON SIDERATION AS ADOPTED BY THE SUBSEQUENT DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT. 31 . THUS, IN OUR CONCLUSION, WE HOLD THAT TRANSPORTATION OF CARGO IN THE CONTAINER BELONG ING TO THE ASSESSEE FROM INDIAN PORT I.E., PORT OF BOOKING TO THE HUB PORT THR OUGH FEEDER VESSEL BY WAY OF SPACE CHARTER / SLOT CHARTER ARRANGEMENT , FALLS WITHIN THE AMBIT OF THE WORD CHARTERER AND, THEREFORE, IT CANNOT BE SEGREGATED FORM THE SCOPE OF OPERATION OF SHIPS AS DEFINED IN ARTICLE 8(2) OF THE INDO MALAYSIAN TREATY . IN THE PRESENT CASE, THE VOYAGE BETWEEN THE INDIAN PORT TO THE HUB PORT THROUGH FEEDER VESSEL AND FROM HUB PORT TO FINAL DESTINATION PORT THROUGH MOTHER VESSEL OWNED / LEASED BY THE ASSESSEE ARE INEXTRICABLY LINKED AND THERE IS COMPLETE LINKAGE OF THE VO YAGE AND, THEREFORE, THE ENTIRE PROFITS DERIVED FROM THE TRANSPORTATION OF GOODS CARRIED ON BY THE ASSESSEE IS TO BE TREATED AS PROFITS FROM OPERATION OF MISC BERHAD 40 SHIPS AND, THEREFORE, THE BENEFIT OF ARTICLE 8, CANNOT BE DENIED TO THE ASSESSEE ON THE PART OF THE FR EIGHT FROM VOYAGE BY THE FEEDER VESSELS. THUS, GROUND NO.2, RAISED BY THE ASSESSEE IN ALL THE YEARS UNDER APPEAL IS ALLOWED. 32 . SINCE THE BENEFIT OF ARTICLE 8, HAS BEEN GIVEN TO THE ASSESSEE ON THE FREIGHT INCOME EARNED BY IT, THEREFORE, WE ARE NOT ADJUDICAT ING UPON THE PLEA FOR THE BENEFIT UNDER ARTICLE 8(3). LIKEWISE, THE ISSUE OF P ERMANENT ESTABLISHMENT ARTICLE 5, IS ALSO NOT ADJUDICATED UPON AS THE SAME WILL COME INTO QUESTION, ONCE THE BENEFIT UNDER ARTICLE 8 IS DENIED AND INCOME IS TO BE COMPUTED AS PER ARTICLE 7. THUS, GROUND NO.3, 4, 4(A), 4(B), 4(C), 4(D) AND 5, IN ALL THE APPEALS ARE TREATED AS ACADEMIC IN NATURE. 33 . NOW, COMING TO THE ISSUE OF NON SERVICE OF NOTICE UNDER SECTION 143(2), AS RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUND OF APPEAL, IN THE APPEAL FOR THE ASSESSMENT YEAR 2004 05 TO 2007 08, THE ISSUE IS LEFT OPEN AND WE ARE NOT ENTERING INTO THE SEMANTICS OF THE DISPUTE, WHETHER THE ISSUANCE AND SERVICE OF NOTICE CAN BE CHALLENGED ON THE PROCEEDINGS COMMENCED AFTER 1 ST APRIL 2008, ALBIET RELATING TO THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR 2008 09, OR NOT, AS ON MERITS WE HAVE ALREADY GRANTED THE RELIEF UNDER ARTICLE 8 TO THE ASSESSEE BY WHICH THE PROFIT FROM ITS SHIPPING INCOME IS HELD NOT TO BE TAXABLE IN INDIA. MISC BERHAD 41 34 . IN GROUND NO.6, THE ASSESSEE HAS CHALLENGED THE ESTIMATION OF FREIGHT ATTRIBUTABLE TO FEEDER VESSELS BY APPLYING DEEMED RATE OF 10% INSTEAD OF 7.5% UNDER SECTION 44B. 35 . THIS GROUND WILL ALSO BECOME INFRUCTUOUS IN VIEW OF OUR DECISION GIVEN FOR GROUND NO.2, WHEREIN WE HAVE HELD THAT THE PROFIT DERIVED BY THE ASSESSEE FROM ITS SHIPPING BUSINESS IS NOT TAXABLE IN INDIA. 36 . IN GROUND NO.7, THE ASSESSEE HAS CHALLENGED THE LEVY OF INTEREST UNDER SECTION 234B. 37 . AS ADMITTED BY BOTH THE PARTIES, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN DIT (IT) V/S NGC NETWORK ASIA LLC , [ 2009 ] 313 ITR 187 (BOM.), AND, THEREFORE, IN VIEW OF THIS ADMITTED POSITION, WE HOLD THAT THE ASSESSEE IS NOT LIABLE FOR LEVY OF INTEREST UNDER SECTION 234B . HENCE, IN THIS CASE ALSO, THE ASSESSEE WAS NOT LIABLE TO PAY ANY ADVANCE TAX ON THE BASIS OF DOUBLE INCOME RELIEF CERTIFICATE ISSUED BY THE INCOME TAX DEPARTMENT AND THE FACT THAT THE FREIGHT OF THE ASSESSEE WAS DEDUCTIBLE AT SOURCE HAVING REGARD TO THE SPECIFIC PROVISIONS OF SECTION 209(1)(D) AND, THEREFORE, THE DUTY WAS CAST UPON THE PAYER TO DEDUCT THE TAX AT SOURCE AND FAILURE ON THE PART OF PAYER TO DO SO, NO INTEREST CAN BE IMPOSED ON THE PAYEE ASSESSEE UNDER SECTION 234B. MISC BERHAD 42 38 . AS STATED IN THE OPE RATING PART OF THE ORDER, THE GROUNDS RAISED IN ASSESSEES APPEAL FOR ALL THE YEARS ARE IDENTICAL, THEREFORE, OUR FINDINGS, AS GIVEN ABOVE, WILL APPLY MUTATIS MUTANDIS WITH RESPECT TO SIMILAR GROUNDS RAISED IN ALL THE YEARS UNDER APPEAL . FINALLY, ALL T H E A PPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED IN THE MANNER INDICATED ABOVE. 39 . 3 9 . IN THE RESULT, ASSESSEES ALL THE APPEALS ARE PARTLY ALLOWED. IN REVENUES APPEAL BEING ITA NO.6431/MUM./2012, FOR THE ASSESSMENT YEAR 2005 06, FOLLOWING GROUND HA S BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE INTEREST LEVIED U/S 234D WITHOUT APPRECIATING THE FACT THAT INTEREST IS CHARGEABLE ON THE EXCESS AMOUNT SO REFUNDED.' 40 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED BY THE ASSESSEE THAT INTEREST UNDER SECTION 234D , CAN BE LEVIED WERE THE REFUND IS GRANTED UNDER SECTION 143(1) AND NO REFUND IS DUE ON REGULAR ASSESSMENT. IN SUPPORT OF THIS CONTENTION, DECISION OF THE TRIBUNAL, VISHAKHAPATNAM BENCH, IN DREDGING CORPORATION OF INDIA LTD. V/S ACIT, [2011] 142 TTJ 252 (VIZAG), WAS RELIED UPON. THE LEARNED COMMISSIONER (APPEALS) DECIDED THE ISSUE IN FAVO UR OF THE ASSESSEE FOLLOWING THE TRIBUNAL ORDER. MISC BERHAD 43 41 . BEFORE US, THE LEARNED COUNSEL FURTHER RELIED UPON THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN ACIT V/S BOR LTD., ITA NO.2246 2240/ MUM./2009 AND THE DECISION OF HYDERABAD BENCH, IN K. ANJI R EDDY V/S DCI T, 59 SOT 92 (HYD.) AND SUBMITTED THAT IN THIS CASE ALREADY ASSESSMENT UNDER SECTION 143(3), WAS MADE ACCEPTING THE RETURNED INCOME. THEREAFTER, THE CASE WAS RE OPENED AND THE ASSESSMENT UNDER SECTION 147 / 143(3) WAS MADE. THEREFORE, NO INTEREST UNDER SEC TION 234D, CAN BE LEVIED. 42 . THE LEARNED DEPARTMENTAL REPRESENTATIVE , ON THE OTHER HAND, JUSTIFIED THE LEVY OF INTEREST . 43 . AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN VARIOUS DECISIONS BY THE TRIBUNAL , WHEREIN IT HAS BEEN HELD THAT WHERE THE ASSESSMENT HAS ALREADY BEEN COMPLETED UNDER SECTION 143(3), IT CANNOT BE SAID THAT THE ASSESSMENT MADE UNDER SECTION 147, WAS A REGULAR ASSESSMENT IN TERMS OF EXPLANATION 1 TO SECTION 234D. ACCORDINGLY, NO INTEREST UNDER SECTION 234D, IS LEVIABLE ON THE ASSESSEE. THUS, GROUND RAISED BY THE DEPARTMENT STANDS DISMISSED. 44 . 2005-06 4 4 . IN THE RESULT, REVENUES APPEAL FOR THE ASSESSMENT YEAR 2005 06 IS DISMISSED. MISC BERHAD 44 WE NOT TAKE UP REVENUES APPEAL BEING ITA NO.643 2 /MUM./2012, FOR THE ASSESSMENT YEAR 2007 08. 45 . GROUND NO.1, RELATES TO TREATING OF INTEREST INCOME AS INCOME FROM OTHER SOURCES. 46 . THE ASSESSEE SUBMITTED THAT THE INTEREST HAS BEEN RECEIVED FROM INCOME TAX REFUND UNDER SECTION 244A. THE INTEREST INCOME WAS OFFERED TO TAX @ 20%. THE ASSESSING OFFICER HAS TAXED THE INTEREST @ 40% WITHOUT GRANTING BENEFIT OF ARTICLE 11. 47 . THE LEARNED COMMISSIONER (APPEALS), AFTER FOLLOWING THE SPECIAL BENCH DECISION OF THE TRIBU NAL, DELHI, IN ACIT V/S CLOUGH ENGINEERING LTD., [ 2011 ] 138 TTJ (DEL.) 385 (SB), DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 48 . BOTH THE PARTIES ADMITTED THAT THIS ISSUE IS COVERED BY THE SPECIAL BENCH DECISION OF THE TRIBUNAL CITED SUPRA AND, THEREFORE, TH E TAX ON INTEREST HAS TO BE AT A BENEFICIAL RATE UNDER ARTICLE 11 OF THE INDO MALAYSIAN TREATY . THUS, WE AFFIRM THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE . GROUND NO.1, THUS STANDS DISMISSED. MISC BERHAD 45 49 . GROUND NO.2, IS SIMILAR TO THE GROUND NO.1, RAISED BY THE REVENUE IN ITA NO.6431/MUM./2012, AND CONSISTENT WITH THE VIEW TAKEN BY THEREIN, GROUND NO.2, IS ALSO DISMISSED. 50 . 2007-08 50 . IN THE RESULT, REVENUES APPEAL FOR THE ASSESSMENT YEAR 2007 08 IS DISMISSED. 51 . , 2005-06 2007-08 5 1 . TO SUM UP, ALL THE ASSESSEES APPEALS ARE PARTLY ALLOWED AND REVENUES ALL THE APPEALS ARE DISMISSED. 16 TH JULY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH JULY 2014 SD / - . . P.M. JAGTAP ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 16 TH JULY 2014 MISC BERHAD 46 / 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 / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI MISC BERHAD 47 DATE INITIAL ORIGINAL DICTATION PAID IS ENCLOSED AT THE END OF FILE 1. DRAFT DICTATED ON 8.7.2014 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 10 14.7.2014 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 15.7.2014 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 15.7.2014 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 16.7.2014 SR.PS 6. DATE OF PRONOUNCEMENT 16.7.2014 SR.PS 7. FILE SENT TO THE BENCH CLERK 16.7. 2014 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER