HAPAG LLOYD AG, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 2(2)(2), MUMBAI

ITA 7331/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1954 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2014-2015
• Appeal Filed On: 22-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K L KANAK
• Keywords: Double taxation relief; Permanent establishment; Initiation of penalty proceedings
• Section: 271(1)(c); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI G. MANJUNATHA , ACCOUNTANT MEMBER IT A NO. 7331/MUM./2017 ( ASSESSMENT YEAR : 20 14 15 ) HAPAG LLOYD AG C/O HAPAG LLOYD INDIA PVT. LTD. 1121 & 1122, SOLITAIRE CORPORATE PARK BUILDING NO.11, 2 ND FLOOR, CHAKALA ANDHERI (E), MUMBAI 400 093 PAN AAACH0979G . APPELLANT V/S DY . COMMISSIONER OF INCOME TAX (I.T) RANG E 2(2)(2) , MUMBAI . RESPONDENT ASSESSEE BY : SHRI NISHANT THAKKAR A/W MS. JASMIN AMALSADVALA REVENUE BY : SHRI K.L. KANAK DATE OF HEARING 19 .06.2019 DATE OF ORDER 28.06.2019 O R D E R PER SAKTIJIT DEY. J.M. CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE FINAL ASSESSMENT ORDER DATED 30 TH OCTOBER 2017, PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) PERTAINING TO THE ASSESSMENT YEAR 2014 15, IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL I (DRP), MUMBAI . 2 HAPAG LLOYD AG 2 . GROUND NO.1, BEING GENERAL IN NATURE DOES NOT REQUIRE ADJUDICATION, HENCE, DISMISSED. 3 . IN GROUNDS NO.2, 3 AND 4, THE ASSESSEE HAS CALLED INTO QUESTION THE TAXABILITY OF FREIGHT CHARGES OF ` 30,34,08,701, FROM TRANSPORTATION OF CARGO THROUGH FEEDER VESSELS. 4 . BRIEF FACTS AS CULLED OUT FROM THE RECORD ARE, THE ASSESSEE COMPANY, A TAX RESIDENT OF GERMANY, IS ENGAGED IN THE BUSINESS OF TRANSPORTATION OF C ARGO TO PORTS IN VARIOUS COUNTRIES INCLUDING INDIA. GENERALLY, THE ASSESSEE TRANSPORTS C ARGO ON V ESSELS OWNED, CHARTERED, POOLED BY IT AS WELL AS ON SLOT ARRANGEMENT. SOMETIMES, IT SO HAPPENS THAT THE V ESSELS OF THE ASSESSEE CANNOT CALL AT THE INDIAN PORT S ON ACCOUNT OF VARIOUS REASONS , SUCH AS , DUE TO LARGE SIZE OF VESSELS WHICH CANNOT ENTER INTO PORTS. IN SUCH CIRCUMSTANCES , THE ASSESSEE TRANSPORTS THE C ARGO ON F EEDER V ESSELS FROM THE ORIGINAL PORT TO THE HUB PORT WHERE V ESSELS OF THE ASSESSEE COULD BE ANCHORED. THEREAFTER, THE C ARGO IS TRANSPORTED FROM HUB PORT TO THE DESTINATION PORT INTHEV ESSELS OF THE ASSESSEE. IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN WHY FREIGHT EARNED BY IT FROM THE F EEDER V ESSELS WHICH ARE NEITHER OWNED, CHARTERED OR LEASED BY IT SHOULD NOT BE BROUGHT TO TAX AS IT DOES NOT COME WITHIN THE AMBIT OF A RTICLE 8 OF THE INDIA GERMANY DOUBLE 3 HAPAG LLOYD AG TAXATION AVOIDANCE AGREEMENT (DTA A ). FURTHER, HE CALLED UPON THE ASSESSEE TO CLARIFY WHETHER IT HAD A PERMANENT ESTABLISHMENT (PE) IN INDIA. IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE MADE EL ABORATE SUBMISSIONS STATING THAT AS PER ARTICLE 8(1) OF THE INDIA - GERMANY TAX TREATY, PROFITS FROM OPERATION OF S HIPS AND A IRCRAFTS IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THE CONTRACTING S TATE IN WHICH THE PLACE OF EFFECTIVE MANAGEMENT OF THE EN TERPRISE IS SITUATED. IT WAS SUBMITTED BY THE ASSESSEE THAT AS PER JUDICIAL PRECEDENTS, INCOME FROM SLOT ARRANGEMENT IS TO BE CONSTRUED AS INCOME FROM OPERATION OF S HIPS AND IS AN INTEGRAL PART OF THE BUSINESS OF S HIPPING C OMPANIES. FURTHER, IT WAS SUBMITTED BY THE ASSESSEE THAT IT NEITHER HAD A FIXED PLACE PE NOR AGENCY PE IN INDIA AS PER ARTICLE 5 OF INDIA - GERMANY TAX TREATY . THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. RELYING UPO N THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 2007 08, THE ASSESSING OFFICER ULTIMATELY HELD THAT THE FREIGHT CHARGES RECEIVED FROM F EEDER V ESSELS IS TAXABLE IN INDIA BOTH UNDER SECTION 44B OF THE ACT AS WELL AS ARTICLE8 OF THE INDIA - GERMANY TAX TREATY. HE OBSERVED , THE INCOME EARNED BY THE ASSESSEE FROM F EEDER V ESSELS WILL NOT QUALIFY FOR EXEMPTION UNDER ARTICLE 8 OF THE INDIA GERMANY TAX TREATY. ACCORDINGLY, HE BROUGHT TO TAX THE AMOUNT UNDER DISPUTE. FURTHER, THE ASSESSIN G OFFICER HELD THAT THE ASSESSEE HAS A PE IN INDIA AS PER ARTICLE 5 OF THE INDIA GERMANY TAX TREATY. 4 HAPAG LLOYD AG 5 . BEING AGGRIEVED WITH THE AFORESAID DECISION OF THE ASSESSING OFFICER, ASSESSEE RAISED OBJECTION S BEFORE LEARNED DRP. HOWEVER, LEARNED DRP DID NOT ENTERTA IN THE OBJECTIONS RAISED BY THE ASSESSEE. ACCORDINGLY, THE DRAFT ASSESSMENT ORDER ON THE DISPUTED ISSUE WAS FINALIZED. 6 . AT THE OUTSET, SHRI NISHANT THAKKAR, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , THE ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF TH E ASSESSEE BY THE TRIBUNAL RIGHT FROM THE ASSESSMENT YEAR 2005 06 ONWARDS. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE ORDER S PASSED BY THE TRIBUNAL IN ASSESSMENT YEAR S 2005 06, 2006 07 TO 2011 12, 2007 08 AND 2013 14 . THE LEARNED COUNSEL SUBMITTED , THE TRIBUNALS DEC ISION IN ASSESSMENT YEAR 2007 08 WAS ALSO UPHELD BY THE HON'BLE JURISDICTIONAL HIGH COURT. THUS, HE SUBMITTED , THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 7 . SHRI K. L. KANAK, THE LEARNED DEPARTMENTAL REPRESENTATIVE, THOUGH , AGREED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN PRECEDING ASSESSMENT YEARS, HOWEVER, HE RELIED UPON THE OBSERVATIONS OF LEARNED DRP AND THE ASSESSING OFFICER. 8 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. AS COULD BE SEEN, THE DISPUTE WHETHER FREIGHT RECEIPT FROM THE F EEDER 5 HAPAG LLOYD AG V ESSELS IS TAXABLE IN INDIA OR NOT IS A RECURRING DIS PUTE BETWEEN THE PARTIES SINCE THE ASSESSMENT YEAR 2005 06. THE TRIBUNAL IN THE ORDERS REFERRED TO BY THE LEARNED COUNSEL HAS CONSISTENTLY HELD THAT THE FREIGHT RECEIPT FROM F EEDER V ESSELS IS NOT TAXABLE AS PER ARTICLE 8 OF THE INDIA - GERMANY TAX TREATY. IN THE LATEST ORDER PASSED FOR THE ASSESSMENT YEAR 2013 14 IN ITA NO.1441/MUM./2017, DATED 31 ST OCTOBER 2017, THE TRIBUNAL FOLLOWING ITS EARLIER DECISION HAS HELD AS UNDER: 16. WE ARE OF THE CONSIDERED VIEW THAT AS WE HAVE CONCLUDED THAT THE BENEFIT OF ART ICLE 8 OF THE INDIA GERMANY DTAA WOULD ALSO BE AVAILABLE TO THE ASSESSEE IN RESPECT OF THE REVENUE EARNED BY IT FROM THE FEEDER VESSELS OBTAINED ON SLOT HIRE ARRANGEMENTS, THEREFORE, THE GROUNDS OF APPEAL NOS.5 TO 7 PERTAINING TO THE VALIDITY OF THE ORDER OF THE A.O. AS REGARDS INCLUDING THE SERVICE TAX IN THE FREIGHT INCOME FOR COMPUTING THE INCOME OF THE ASSESSEE UNDER SEC.44B WOULD BE RENDERED INFRUCTUOUS. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS DISMISS THE GROUNDS OF APPEAL NO.5 TO 7 RAISED BY TH E ASSESSEE BEFORE US. 9 . PERTINENTLY, AGAINST THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007 08 HOLDING THAT THE FREIGHT INCOME FROM F EEDER V ESSELS IS EXEMPT FROM TAX IN INDIA UNDER ARTICLE 8 OF THE INDIA - GERMANY TAX TREATY WAS CHALLENGED BY THE REVENUE BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT. HOWEVER, THE HON'BLE JURISDICTIONAL HIGH COURT WHILE DECIDING REVENUES APPEAL IN ITA NO.602/2014, VIDE ORDER DATED 28 TH SEPTEMBER 2016, UPHELD THE DECISION OF THE TRIBUNAL. IN FACT, THE ASSESSING OFFIC ER AS WELL AS LEARNED DRP HA VE NOT DISPUTED THE AFORESAID FACTUAL POSITION. THUS, AS PER THE DECISION OF THE CO ORDINATE 6 HAPAG LLOYD AG BENCH AND THE HON'BLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE, AS REFERRED TO ABOVE, THE ISSUE RAISED IN THESE GROUNDS STAN D D ECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. GROUNDS ARE ALLOWED. 10 . IN VIEW OUR DECISION HEREIN ABOVE, GROUNDS NO.5, 6, 7, 8, 9 AND 10, HAVING BECOME ACADEMIC IN NATURE, HENCE, THEY ARE DISMISSED. 11 . GROUND NO.1 0 , CHALLENGING THE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT BEING PRE MATURE AT THIS STAGE, IS DISMISSED. 12 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 28.06.2019 SD/ - G. MANJUNATHA ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 28.06.2019 7 HAPAG LLOYD AG 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 . TR UE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI