THE DDIT (IT) - 1(2), MUMBAI V. M/S. DELMAS FRANCE, MUMBAI

ITA 6878/MUM/2007

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6320 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 07-10-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 15-11-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Assessee Lawyers: MALLIKA APTE
• Keywords: Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI J.SUDHAK AR REDDY, AM ITA NO.6537/MUM/2007 : ASST.YEAR 2004-2005 M/S.DELMAS FRANCE C/O.CMG CGM GLOBAL (INDIA) PVT.LTD. HAMILTON HOUSE, 8 J.N.HEREDIA MARG BALLARD ESTATE, MUMBAI 400 038. PA NO.AABCD6672P. VS. THE DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION)-1(2) MUMBAI. (APPELLANT) (RESPONDENT) ITA NO.6878/MUM/2007 : ASST.YEAR 2004-2005 THE DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION)-1(2) MUMBAI. VS. M/S.DELMAS FRANCE C/O.CMG CGM GLOBAL (INDIA) PVT.LTD. HAMILTON HOUSE, 8 J.N.HEREDIA MARG BALLARD ESTATE, MUMBAI 400 038 (APPELLANT) (RESPONDENT) REVENUE BY : SHRI KESHAV SAXENA ASSESSEE BY : MS.MALLIKA APTE O R D E R PER J.SUDHAKAR REDDY, AM : THESE ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) XXXI, MUMBAI DATED 31.08.2007 FOR ASSESSMENT YEAR 2004-2005. 2. THE FACTS OF THE CASE IN BRIEF, BROUGHT OUT IN P ARA 1.1 OF THE APPELLATE ORDER ARE THAT, THE ASSESSEE IS A COMPANY REGISTERED IN F RANCE AND IS A TAX RESIDENCE OF FRANCE. IT IS ENGAGED IN THE BUSINESS OF OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC. DURING THE FINANCIAL YEAR 2003-2004 RELEVANT TO ASS ESSMENT YEAR 2004-2005, THE ASSESSEE HAD SENT CARGO FROM INDIA THROUGH FEEDER V ESSEL TO THE CARRIAGE VESSEL (MOTHER VESSEL). THE ASSESSING OFFICER EXAMINED WHE THER THERE WAS LINK BETWEEN THE FEEDER VESSEL TO MOTHER VESSEL IN RESPECT OF VESSELS SHOWN. THE A.O. THE HELD THAT THE ASSESSEE HAS FAILED TO LINK AND ESTABLISH VOYAGE-WISE, THAT ITS FEEDER VESSELS WERE ACTUALLY LOADING GOODS INTO THE MOTHER VESSELS AND THAT IT WAS OPERATING ALL ITA NOS.6537 & 6878/MUM/2007 M/S.DELMAS FRANCE. 2 THE MOTHER VESSELS. THE AO HELD THAT SINCE THERE WA S NO LINKAGE BETWEEN FEEDER VESSEL AND THE MOTHER VESSEL, THE ASSESSEE HAS FAIL ED TO DISCHARGE ITS ONUS AND ESTABLISH THAT IT IS OPERATING SHIPS, THE INCOME IN RESPECT OF WHICH IT IS CLAIMING DIT RELIEF AS PER ARTICLE 9 OF THE DTAA. THE AO ACC ORDINGLY DENIED THE BENEFIT OF ARTICLE-9 OF THE DOUBLE TAXATION AVOIDANCE AGREEMEN T BETWEEN INDIA AND FRANCE (DTAA). THE AO THEREAFTER HELD THAT THE ASSESSEE HA S A PERMANENT ESTABLISHMENT (PE) IN INDIA IN TERMS OF ITS AGENT M/S.BARWIL FROB ES SHIPPING SERVICES LIMITED. THE AO HELD THAT THE BUSINESS PROFITS FROM THE TRAN SPORTING OF CARGO WAS ASSESSABLE @ 10% (RS.2,32,80,560) OF GROSS RECEIPT (RS.23,28,0 5,588) SINCE SECTION 44B WAS NOT APPLICABLE. THE AO HAS FURTHER HELD THAT INLAND HAULAGE CHARGES OF RS.6,98,417 (10% OF GROSS 69,84,168) ARE ALSO TAXABLE IN INDIA. 3. THE ASSESSEE HAD FILED A LETTER DATED 04.12.2006 CERTIFYING THAT THE CARGO CARRIED ON VARIOUS FEEDER VESSELS DURING THE PREVIO US RELEVANT TO THE ASSESSMENT YEAR 2004-2005, WERE ENTIRELY LOADED ON THE VESSELS OWNED AND CHARTERED BY THE ASSESSEE FOR BEING TRANSSHIPPED TO THE PORT OF DEST INATION. IT WAS PLEADED THAT THE COMPLETE LINKAGE FROM FEEDER VESSELS TO MOTHER VESS EL CANNOT BE BROUGHT ON RECORD AS THE DETAILS WERE NOT READILY AVAILABLE. A CHART ESTABLISHING THE LINKAGE BETWEEN FEEDER VEHICLES AND MOTHER VEHICLES IN CASE OF TWO VOYAGES ALONG WITH THE RELEVANT BILLS OF LADING WERE FILED BEFORE THE A.O. AS WELL AS BEFORE THE CIT(A). 4. THE ISSUE WHETHER THE ASSESSEE IS ENTITLED TO RE LIEF UNDER ARTICLE 9 OF DTAA BETWEEN INDIA AND FRANCE HAS BEEN EXAMINED IN THE A SSESSMENT YEARS 2001-2002 AND 2003-2004. THE CIT(A) GRANTED RELIEF AND ON APP EAL THE TRIBUNAL HAD SET ASIDE THE ISSUE. 5. WHILE GRANTING RELIEF TO THE ASSESSEE, THE CIT(A ) HELD THAT (A) THE ASSESSEE IS ENTITLED TO RELIEF UNDER ARTICLE 9 OF THE DTAA. ITA NOS.6537 & 6878/MUM/2007 M/S.DELMAS FRANCE. 3 (B) THE ISSUE WHETHER THE ASSESSEE HAS PERMANENT ESTABL ISHMENT AND ATTRIBUTION OF INCOME TO SUCH PE IS AN ACADEMIC QU ESTION IN VIEW OF THE FACT THAT THE ASSESSEE IS ENTITLED TO RELIEF UN DER ARTICLE 9 OF THE DTAA. (C) THE ISSUE OF ANCILLARY CHARGES CONSISTING OF INLAND VOYAGE CHARGES, THE FIRST APPELLATE AUTHORITY FOLLOWED THE DECISION OF THE ITAT AND HELD THAT INLAND HAULAGE CHARGES ARE NOT COVERED BY THE EXPLANATION INTRODUCED BELOW SECTION 44B OF THE ACT AND THAT IN LAND HAULAGE CHARGES ARE NOTHING BUT FREIGHT RECEIPTS EARNED BY THE ASSESSEE IN CONNECTION WITH THE OPERATION OF SHIPS AND ARE COVE RED BY DEFINITION OF RECEIPT UNDER EXPLANATION TO SUB-SECTION (2) OF SECTION 44B OF THE ACT. (D) WHILE HOLDING SO THE FIRST APPELLATE AUTHORITY OBSE RVED THAT THE ASSESSEE HAD NOT BEEN ABLE TO SEGREGATE THE SAID IN LAND HAULAGE CHARGES FROM THE SO CALLED ANCILLARY CHARGES, EITHE R BEFORE THE A.O. OR BEFORE THE CIT(A) AND FOR THIS REASON SHE HELD THAT THE ASSESSEES CLAIM FOR THE ANCILLARY CHARGES ARE NOT TAXABLE AND CANNOT BE ENTERTAINED. (E) SHE HELD THAT TAXES PAID U/S.172(4) HAVE TO BE TREA TED AS ADVANCE TAX. ON THE ISSUE OF RATE OF TAX, THE LEARNED CIT HELD T HAT HIGHER RATE OF TAXES TO FOREIGN COMPANY DOES NOT AMOUNT TO DISCRIM INATION IN VIEW OF EXPLANATION BELOW SECTION 90(2). SHE HELD THAT ARTICLE 26(1) OF THE INDO-FRANCE DTAA IS SIMILAR TO THE INDO-KOREA DTAA AND HENCE THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE CHOHUNG BANK [(2006) 6 SOT 144 (MUM.)] IS APPLICABLE IN THI S CASE. SHE, THEREFORE, PARTLY ALLOWED THIS APPEAL. 6. AGGRIEVED BY THIS ORDER, BOTH THE REVENUE AS WEL L AS THE ASSESSEE ARE IN APPEAL BEFORE US. THE ASSESSEE FILED ITS APPEAL ON THE FOLLOWING GROUNDS:- ITA NOS.6537 & 6878/MUM/2007 M/S.DELMAS FRANCE. 4 1. THE COMMISSIONER OF INCOME-TAX (APPEALS)-XXXI [ HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN DISMISSING THE GROU ND PERTAINING TO INCLUSION OF ANCILLARY CHARGES IN GROSS RECEIPTS. YOUR APPELLENTS SUBMIT THAT THE CIT(A) OUGHT TO HA VE HELD THAT ANCILLARY CHARGES ARE NOT TO BE INCLUDED IN GROSS R ECEIPTS IN ACCORDANCE WITH THE DECISION OF THE INCOME-TAX APPE LLATE TRIBUNAL (ITAT) IN THEIR OWN CASE IN APPEAL NO.9674/B/95 FOR ASSESSMENT YEAR 1993-94. YOUR APPELLANTS PRAYS THAT THE ASSESSING OFFICER ( AO) BE DIRECTED TO EXCLUDE ANCILLARY CHARGES FROM THE GROSS RECEIPTS. 2. THE CIT(A) ERRED IN HOLDING THAT INLAND HAULAGE CHARGES ARE RECEIPTS UNDER SECTION 44B(2) OF THE INCOME-TAX ACT , 1961 (THE ACT). YOUR APPELLANTS SUBMITS THAT THE CIT(A) OUGHT TO H AVE FOLLOWED THE ITAT DECISION IN OWN CASE CITED ABOVE. YOUR APPELLANTS PRAYS THAT THE AO BE DIRECTED ACCO RDINGLY. 3. THE CIT(A) ERRED IN HOLDING THAT THE RATE OF IN COME-TAX APPLICABLE IN CASE OF YOUR APPELLANTS IS 40%. YOUR APPELLANTS SUBMIT THAT IN ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND FRANCE, THE CIT(A) OUGHT TO HAVE HELD THAT THE RATE OF TAX APPLICABLE IN YOUR APPELLANTS CASE IS 35%. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED ACCOR DINGLY. 7. THE REVENUE FILED ITS APPEAL ON THE SOLITARY GRO UND AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ENG AGED IN THE BUSINESS OF OPERATION OF SHIPS AND IS ENTITLED TO B ENEFIT OF DTAA BETWEEN INDIA AND FRANCE AS PER ARTICLE 9 OF THE TR EATY. 8. THE LEARNED COUNSEL FOR THE ASSESSEE MS.MALLIKA APTE SUBMITTED THAT GROUND NOS.1 AND 2 OF THE ASSESSEES APPEAL IS COVERED BY THE DECISION OF THE TRIBUNAL IN ITA NOS.6537 & 6878/MUM/2007 M/S.DELMAS FRANCE. 5 ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-20 02. SHE FURTHER SUBMITTED THAT AS FAR AS GROUND NO.3 IS CONCERNED THE ISSUE HAS BE EN CONSIDERED AT PARA 16 OF THE AFORE-NOTED TRIBUNAL ORDER IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2001- 2002. 9. COMING TO THE REVENUES APPEAL, SHE SUBMITTED TH AT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ITA NO.5824 & 6076/MUM/2 006 IN ASSESSMENT YEAR 2001-2002 IN PARA 14 PAGE 10 AND RESTORED THE MATTE R TO THE FILE OF CIT(A) FOR FRESH ADJUDICATION IN THE LINE WITH THE DECISION OF THE EARLIER YEAR. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT HE HAS NO OBJECTION FOR RESTORING THE MATTER TO THE FILE OF CIT(A) FOR DECISION AFRESH IN THE LINE WITH THE DECISION OF THE TRIBUNAL IN EA RLIER ASSESSMENT YEARS. 11. RIVAL CONTENTIONS HEARD. THE D BENCH OF THE M UMBAI TRIBUNAL IN ITA NO.5824 & 6076/MUM/2006 ORDER DATED 28 TH NOVEMBER, 2008 HAS CONSIDERED SIMILAR ISSUE THAT ARISES IN THIS REVENUE APPEAL AT PARA 15 PAGE 11 OF THE ORDER, WHEREIN IT HAS BEEN HELD AS UNDER:- 15. THE ONLY ISSUE WHICH REMAINS TO BE ADJUDICATED RELATES TO THE TREATMENT OF INLAND HAULAGE CHARGES. THIS REPRESENT S LOCAL TRANSPORT FROM CUSTOMERS PLACE TO INDIAN PORT. THI S ISSUE STANDS COVERED BY OUR DECISION IN THE CASE OF SAFMARINE CO NTAINER LINES N.V. 24 SOT 211 (MUM.) WHEREIN IT HAS BEEN HELD THA T SUCH CHARGES WOULD FALL WITHIN THE SCOPE OF THE EXPRESSION PROF ITS FROM OPERATION OF SHIPS IF SUCH AMOUNT IS MINOR IN COMPARISON TO FREIGHT RELATING TO MAIN VOYAGE. ADMITTEDLY, THE AMOUNT OF HAULAGE CHAR GES OF RS.11,65,400/- IS NEGLIGIBLE AND, THEREFORE, WOULD FALL UNDER ARTICLE 9(1) ITSELF. HOWEVER, SUCH TREATMENT WOULD DEPEND O N THE TREATMENT OF FREIGHT RELATING TO THE VOYAGE BY FEEDER VESSELS . IF THE CIT(A) FINDS THAT FREIGHT ATTRIBUTABLE TO FEEDER VESSEL FALLS UN DER ARTICLE 9(1) THEN SUCH CHARGES WOULD ALSO FALL UNDER ARTICLE 9(1). OT HERWISE, SUCH CHARGES WOULD BE TREATED AS BUSINESS PROFITS FALLIN G UNDER ARTICLE 7 OF THE DTAA. ACCORDINGLY, THE CIT(A) WOULD PASS APP ROPRIATE ORDER IN THIS REGARD. ITA NOS.6537 & 6878/MUM/2007 M/S.DELMAS FRANCE. 6 12. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE G ROUND NOS.1 AND 2 TO THE FILE OF THE LEARNED CIT(A) FOR ADJUDICATION AFRESH IN LI NE WITH THE DECISION OF THE TRIBUNAL IN EARLIER YEARS. 13. COMING TO GROUND NO.3, THE TRIBUNAL VIDE PARA 1 6 PAGE 11 OF THE AFORE-NOTED ORDER HELD AS UNDER:- BEFORE PARTING WITH THIS ORDER, IT MAY BE MENTIONE D THAT THE ASSESSEE HAD ALTERNATIVELY CLAIMED BEFORE THE CIT(A ) THAT IF THE EXEMPTION IS NOT ALLOWABLE UNDER ARTICLE 9, THEN SU CH BUSINESS PROFITS FALLING UNDER ARTICLE 5 WOULD NOT BE ASSESS ABLE IN THE HANDS OF THE ASSESSEE INASMUCH AS THE ASSESSEE HAS NO PERMAN ENT ESTABLISHMENT IN INDIA. IT HAS ALSO BEEN CONTENDED BEFORE THE CIT(A) THAT THE RATE OF TAX WOULD HAVE BEEN 35% INSTEAD OF 48%. IF THE CIT(A) FINDS THAT A PORTION OF THE PROFIT EARNED BY THE ASSESSEE IS NOT EXEMPT UNDER ARTICLE 9, THEN HE WOULD ALSO ADJUDICA TE THE ABOVE ISSUES AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASS ESSEE. THIS WOULD DISPOSE OF THE GROUNDS CONTAINED IN THE ASSESSEES APPEAL. 14. CONSISTENT WITH THE VIEW, WE SET ASIDE THE ISSU E ALSO TO THE FILE FOR CIT(A) FOR FRESH ADJUDICATION. THUS, THE ASSESSEES APPEAL IS SET ASIDE FOR STATISTICAL PURPOSES. 15. COMING TO THE REVENUES APPEAL, THE TRIBUNAL AT PAGE 10 PARA 14 HELD AS FOLLOWS:- 14. IT MAY ALSO BE MENTIONED THAT THE CIT(A) HAS R EFERRED TO CERTAIN SHIPS NAMELY, CAROLINE DELMAS, BLANDINE DEL MAS, ADELINE DELMAS AND THERESE DELMAS WHICH ARE STATED TO BE OW NED BY THE ASSESSEE BUT THESE SHIPS DO NOT FIND PLACE IN THE L IST FURNISHED BEFORE THE ASSESSING OFFICER (PAGE 2 OF THE ASSESSMENT ORD ER) WHICH CARRIED THE CARGO. THEREFORE, THE OWNERSHIP OF SUCH SHIPS W OULD NOT BE RELEVANT IN ADJUDICATING THIS ISSUE. IT IS FURTHER NOTED THAT THE ASSESSEE HAD FURNISHED REGISTRATION CERTIFICATES IN RESPECT OF THREE MOTHER SHIPS, OUT OF WHICH THE SHIP NAMELY, SAINT R OCH, ALSO DOES NOT FIND PLACE IN THE LIST OF MOTHER SHIPS. IT IS ALSO NOT KNOWN WHETHER THE OTHER MOTHER SHIPS GIVEN IN THE ABOVE LIST ARE OWNE D OR LEASED OR CHARTERED BY THE ASSESSEE OR NOT. ALL THESE ASPECTS NEED VERIFICATION. ITA NOS.6537 & 6878/MUM/2007 M/S.DELMAS FRANCE. 7 AS ALREADY STATED, THE ASSESSEE WOULD BE AT LIBERTY TO ESTABLISH THAT THE TRANSPORTATION OF CARGO WAS CARRIED OUT BY MOTH ER VESSEL EITHER OWNED OR LEASED OR CHARTERED BY THE ASSESSEE. THE O RDER OF THE CIT(A) IS, THEREFORE MODIFIED AND THE MATTER IS RES TORED TO HIS FILE FOR FRESH ADJUDICATION IN THE LIGHT OF THE OBSERVATIONS MADE IN THE PRECEDING PARAGRAPHS. 16. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE T HE MATTER TO THE FILE OF CIT(A) FOR FRESH ADJUDICATION. 17. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 26 TH DAY OF NOVEMBER, 2010. SD/- SD/- ( R.V.EASWAR ) ( J.SUDHAKAR REDDY ) PRESIDENT ACCOUN TANT MEMBER MUMBAI : 26 TH NOVEMBER, 2010. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) XXXI, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.