Section 172 Taxability is qua a ship and not qua enterprise owning or using it under a charter agreement

No denial of DTAA benefit to owner of ship just because charterer of ship was liable to tax under business agreement

IN THE ITAT AHMEDABAD BENCH 'A'

H.K. Dave Ltd.

v.

Tax Recovery Officer, Range -1, Bhavnagar*

PRAMOD KUMAR, ACCOUNTANT MEMBER
AND S.S. GODARA, JUDICIAL MEMBER

IT APPEAL NO. 1049 (AHD.) OF 2006
[ASSESSMENT YEAR 2001-02]

MAY  1, 2015 

Section 172 of the Income-tax Act, 1961, read with article 9 of the DTAA between India and U.K. - Non-resident - Shipping business of (Benefit of article 9 of DTAA) - Assessment year 2001-02 - Whether taxability under section 172 is qua a ship and not qua enterprise owning or using it under a charter agreement - Held, yes - Whether if a person assumes liability under section 172(3), it is in respect of income earned by activities of ship - Held, yes - Whether it is fact of taxability under a statute, rather than contractual liability under a business agreement, which determines eligibility for treaty benefits - Held, yes - Assessee-company was rendering services, to foreign vessels under agency of U.K. company, and Charterer of ship was at Bahamas - Assessee requested Tax Recovery Officer for issuance of income-tax clearance certificate in respect of shipment carrying cement in bulk - Tax Recovery Officer had granted a certificate treating income as exempt under DTAA of Government of India with U.K. - However, subsequently Assessing Officer noticed that tax on freight was payable by charterer in Bahamas with which no DTAA was in existence and thus relief under section 90 already granted was withdrawn and tax liability was computed under section 172(4) - Whether since income was earned by UK based company, and, provisions of article 9(1) of Indo-UK DTAA unambiguously provides that 'income of an enterprise of a contracting State from operation of ships in international traffic shall be taxable only in that State's, assessee could not be held liable for tax - Held, yes [Para 9] [In favour of assessee]