MISC BERHARD,MUMBAI V. DCIT (IT) 3(2)(2), MUMBAI

CO 64/MUM/2018

AI Insights

The case involves the Income Tax Department of India (Revenue) appealing against the decision of the CIT(A) and the Assessing Officer, which favored M/s. MISC Berhard, a Singapore-based company. The core issue was whether the income derived by the assessee from shipping of cargo through feeder vessels, which were not chartered, leased, or owned by the assessee, should be taxed in India or could be considered as income from the operation of ships, thus taxable only in the country of residence under Article 8 of the DTAA between India and Malaysia. The Tribunal referenced previous similar cases and decisions, including those by the jurisdictional High Court, which supported the assessee's position.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 46914 (ITAT-MUMBAI)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-04-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Other Referred Cases: DIT Vs Balaji Shipping UK Ltd.
• Laws Referred To: Income Tax Act, DTAA between India and Malaysia
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: CHANDANI SHAH AWTEJALSARAF; WAY OF; WAY OF SHIPPING OF CARGO THROUGH FEEDER VESSEL WHICH IS NOT
• Keywords: Set aside; Double taxation relief; Permanent establishment

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & MS. PADMAVATHY S, ACCOUNTANT MEMBER ITA No. 6644/MUM/2016 (AY : 2012-13) (Physical Hearing) DCIT (IT) – 3(2)(2), Mumbai बनाम Vs M/s. MISC Berhard C/o MSC Agency (India) Pvt. Ltd., Himalayas, 2nd Floor, Geetmala Complex, near to Shah Industrial Estate, Deonar, Govandi, Mumbai – 400088. PAN: AACCM 1736 E अपीलाथ /Appellant थ /Respondent CO No. 64/MUM/2018 (AY : 2012-13 (Arising out of ITA No. 6644/MUM/2016) (Physical Hearing) M/s. MISC Berhard C/o MSC Agency (India) Pvt. Ltd., Himalayas, 2nd Floor, Geetmala Complex, near to Shah Industrial Estate, Deonar, Govandi, Mumbai – 400088. PAN: AACCM 1736 E बनाम Vs DCIT (IT) – 3(2)(2), Mumbai अपीलाथ /Appellant थ /Respondent िनधा\u000f\u0010रतीकीओरसे /Assessee by Ms. Chandani Shah a/wTejalSaraf, AR राज\u0018कीओरसे /Revenue by Shri Krishna Kumar, Sr. DR सुनवाईकीतारीख/Date of hearing 09.04.2025 उद ्घोषणाकीतारीख/Date of pronouncement 09.04.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by Revenue and Cross-Objection therein by assessee are directed against the order of learned CIT(A) -57, Mumbai dated 31.08.2016 for A.Y. 2012-13. The Revenue has raised the following grounds of appeal: ITA No. 6644/Mum/2016 CO No. 64/MUM/2018 M/s. MISC Berhard 2 1. Whether on facts and in circumstances of the case and in law, the Ld. CIT(A) was justified in holding that income of the assessee by way of shipping of cargo through feeder vessel (not chartered, leased or owned by the assessee) would form part of income from operation of ships\" and hence taxable in the country of residence under the Article-8 of the DTAA between India and Malaysia.\" 2. \"Whether on facts and in circumstances of the case and in law, the case of the assessee is not distinguishable from that decided by Hon'ble Bombay High Court in DIT Vs Balaji Shipping UK Ltd. (2012) 253 CTR(Bom.) 460], as the term \"operation of ships\" is a well defined term in Indo- Malaysian DTAA whereas there is no such definition in the Indo-UK DTAA which was dealt with by Hon'ble High Court in the case of DIT Vs Balaji Shipping UK Ltd..\" 3. \"Whether on facts and in circumstances of the case and in law, and in the context of the DTAA between India and Malaysia, the income derived by the assessee by way of shipping of cargo through feeder vessel(which is not chartered, leased or owned by the assessee) can be considered as profits derived from chartering of ships and thus from operation of ships in international traffic.\" 4. The Appellant prays that the order of the Ld. CIT(A) on the above ground(s) be set aside and that of the Assessing officer be restored. 5. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 2. The assessee, on services of memorandum of appeal, filed their cross- objections raising following grounds of cross-objections: “1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in not adjudicating on merits the following grounds of appeal raised before it – 2. That the Learned Assessing Officer ('AO') ought to have treated the freight income earned from shippers for containers loaded on feeder vessels as income from use/ maintenance/ rental of containers, etc. and consequently erred in not granting the benefit of Article 8(3) of the India-Malaysia Tax Treaty to such income; 3. That the Ld. AO erred in holding MISC Agencies India Pvt. Ltd. (MISC Agencies) as a 'permanent establishment (PE') of the assessee in Indía under Article 5 of the Tax Treaty; 4. That the Ld. AO erred in holding MISC Agencies as Fixed Place PE under Article 5(1) of the Tax Treaty; ITA No. 6644/Mum/2016 CO No. 64/MUM/2018 M/s. MISC Berhard 3 5. That the Ld. AO erred in holding that the premises of MISC Agencies are being used by the assessee as a 'sales outlet' thereby constituting a PE under Article 5(2)(h) of the Tax Treaty; 6. That the Ld. AO has erred in holding MISC Agencies as an agency PE under Article 5(5) of the Tax Treaty; 7. That the Ld. AO erred in not appreciating that Article 5(7) of the Tax Treaty applies in the present case since MISC Agencies is an independent agent and the transaction between the assessee and MISC Agencies are on an arm's length basis; 8. That the Ld. AO has erred in not appreciating that no income of the assessee could be brought to tax in India as the arm's length commission paid to MISC Agencies, which is taxable in India in the hands of MISC Agencies, fully extinguishes the tax liability of the assessee in India; 9. That the Ld. CIT(A) erred in not adjudicating (Ground no. 6), computing the taxable shipping income by applying the rate of 10% (and not 7.5%) on the premise that the assessee has not borne the risks related to operation of ships. The respondent craves leave to add, alter, amend or withdraw all or any of the Grounds of Cross Objections herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.” 3. Rival submissions of both the parties have been heard and record perused. At the outset of hearing, the ld. AR of the assessee submits that assessee is a non-resident, a Singapore based company. The assessing officer while passing the assessment order denied the benefit to Article 8 of Indo Malaysian Double Taxation Avoidance Agreement (DTAA) on freight income earned by assessee from shipping business. The Revenue Authority consistently denying such benefit to the assessee even in past assessment years. However, on appeal before Tribunal, the assessee succeeded. The assessing officer while passing the assessment order, despite recording the fact that this issue is covered in favour of the assessee, not allowed benefit of ITA No. 6644/Mum/2016 CO No. 64/MUM/2018 M/s. MISC Berhard 4 Article 8 of DTAA between India and Malaysia. Such facts are recorded in para 10.2 of assessment order and held that he is taking such view as against the order of Tribunal in earlier year, the department has filed appeal before jurisdictional High Court and he wanted to keep the issue alive. The ld. AR of the assessee submits that for A.Y. 2004-05 to 2007-08 and 2009-10, similar relief was allowed in favour of the assessee, which was followed A.Y. 2008-09 in ITA No. 574/Mum/2015 and again in AY 2011-12 in ITA No. 1389/Mum/2016 dated 04.04.2018. The ld. AR of the assessee submits that copy of such decisions is already placed on record. The ld AR of the assessee submits that there is no difference on facts except variation of figure of receipt of freight income. The ld. AR of the assessee submits that once the appeal filed by revenue is dismissed by following the decision of earlier years, the grounds raised in his cross-objections will become infructuous. 4. On the other hand, ld. Sr. DR for the Revenue after going through the order of assessing officer and the order of Tribunal in earlier years supported the order of ld CIT(A)/ assessing officer. 5. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that there is no much dispute on fact as has been explained by ld. AR of the assessee. We find that during assessment, the assessing officer noted that assessee has shown receipt of Rs. 52.27 Crore form freight from Voyage and claimed to have earned form shipping business and claimed benefit of Article 8 of DTAA between India and Malaysia. The assessing office disallowed relief on the basis earlier years stand taken by his predecessor. We find that on similar set ITA No. 6644/Mum/2016 CO No. 64/MUM/2018 M/s. MISC Berhard 5 of fact in assessee own case in A.Y. 2004-05 to 2007-08 and 2009-10 similar benefit of Article 8 of Indo Malaysian DTAA was not allowed to assessee, however, on appeal before Tribunal the assessee was allowed relief in order dated 16.07.2014 in ITA No. 6431/Mum/2012 (2005-06), 6501/Mum/2012 (2006-07), 6502/Mum/2012 (2007-08) and 6503/Mum/2012 (2009-10) dated 16.07.2014. Order dated 16.07.2014 was followed in appeal for A.Y. 2008-09 in ITA No. 574/Mum/2015 in order dated 22.11.2017. We further find that order dated 22.11.2017 in A.Y. 2008-09 was followed in A.Y. 2011-12 in ITA No. 1389/Mum/2016. We again find that while allowing relief to the assessee, the Co-ordinate Bench of this Tribunal followed the decision of jurisdictional High Court DIT (International Taxation) vs Balaji Shipping UK Ltd. (2012) 24 taxmann.com 229 (Bombay) wherein it was held that while considering Article 8 of DTAA between India and UK which deals with the similar voyage undertaken from India held that income attributable to a voyage undertaken from India by availing slot hire facilities is not liable to be taxed in India. We also perused the provisions of Article 8 of Indo Malaysian DTAA, which read as under: “ARTICLE 8 SHIPPING AND AIR TRANSPORT 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State 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 transportation by sea or air respectively of passengers, mail, livestock or goods carried on by the owners of lessees or charterers of ships or aircraft including: (a) the sale of tickets for such transportation on behalf of other enterprises, and (b) the rental of ships or aircraft incidental to any activity directly connected with such transportation. ITA No. 6644/Mum/2016 CO No. 64/MUM/2018 M/s. MISC Berhard 6 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 which is supplementary or incidental to its international operation of ships or aircrafts shall be taxable only in that Contracting State unless the containers are used solely within the other Contracting State. 4. For the purposes of this Article, interest on investments directly connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft if they are integral to the carrying on of such business, and the provisions of Article 11 shall not apply in relation to such interest. 5. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.” 6. We find that provisions of Article ’8’ India-Malaysia DTAA is similar to Article 8 of DTAA between India and UK. Considering the fact that in earlier years in order dated 16.07.2014 for AY ITA No. 6431/Mum/2012 (2005-06), 6501/Mum/2012 (2006-07), 6502/Mum/2012 (2007-08) and 6503/Mum/2012 (2009-10) dated 16.07.2014, which was followed in appeal for A.Y. 2008-09 in ITA No. 574/Mum/2015 in order dated 22.11.2017. We further find that order dated 22.11.2017 in A.Y. 2008-09, we do not find any merit in the grounds of the appeal of Revenue, and therefore, the grounds of appeal raised by the revenue are dismissed. No contrary facts or law is brought to our notice to take other view. 7. In the result, the appeal filed by the revenue is dismissed. 8. Further, considering the facts that we have dismissed the appeal of revenue therefore, accepting the submissions of ld AR of the assessee that once, the appeal of the revenue is dismissed specific adjudication on various grounds raised in cross-objections by assessee will become academic. ITA No. 6644/Mum/2016 CO No. 64/MUM/2018 M/s. MISC Berhard 7 9. In the result, the appeal of Revenue is dismissed. Cross-objection raised by assessee are also dismissed as infructuous. Order pronounced in the open Court on 09/04/2025. /- Sd/- PADMAVATHY S ACCOUNTANT MEMBER - Sd/- PAWAN SINGH JUDICIAL MEMBER DATED: 09/04/2025 MUMBAI, Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "