Association of Multimodal
Transport Operators of India
(AMTOI)
Income Tax Implications of Cross
Border Transactions by Members of
AMTOI
By Sushil Lakhani
26th March, 2015
Overview
o Snapshot of relevant proposals in Finance Bill,2015
o Taxability of foreign shipping company under the I.T Act
•
•
Section 44B vs. 172
Issues under the Act
o Overview of TDS u/s 195 on payments to non-residents
o Some Specific Issues Under The Act
o Taxability of foreign shipping company under Treaty(DTAA)
26/03/2015
•
Article 8 - Special Provision
•
“International Traffic” – Meaning & Issues
•
“Profits from operations of Ships in International Traffic” –
Scope & Issues
•
“Place of Effective Management” - Issues
•
International Co-operation/Pool Profits
Sushil Lakhani
2
SNAPSHOT OF RELEVANT
PROPOSALS IN FINANCE
BILL,2015
FM says so…
• GST from next year. (Para 96)
• DTC shelved. (Para 129)
• Reduction in rate of Corporate Tax. (Para 97)
• Phasing out of exemptions and incentives. (Para
98)
• Legislations for curbing black money. (Para 102)
• Mandatory quoting of PAN. (Para 105)
• Information of cross border transactions. (Para
105)
• Access to information for CBDT & CBEC. (Para 105)
• To and fro conveyance allowance. (Para 125)
• Rules for foreign dividend (Para 114).
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Sushil Lakhani
4
FM’s Roadmap on Black Money-I
(Para 102 to 104)
• Comprehensive legislation to curb Black Money
•
Concealment of Income & Assets
•
Not eligible for settlement
•
Penalty @ 300% of tax
Prosecution & Rigorous imprisonment upto 10 years
• Non-compoundable offence
• Return of Income with disclosure
•
•
•
Beneficiary of foreign assets to file Return of Income
•
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Non compliance liable to RI for 7 years
Liable to tax or not
Sushil Lakhani
5
Effective Rates
Particulars
A.Y. 2015-16
A.Y. 2016-17
Domestic Company
Income < 1 cr.
Income > 1 cr. < 10 cr.
Income > 10cr.
30.90%
32.45%
33.99%
30.90%
33.06%
34.61%
Foreign Company
Income < 1 cr.
Income > 1 cr. < 10 cr.
Income > 10cr.
41.20%
42.02%
43.26%
41.20%
42.02%
43.26%
Individuals/
HUFs/AOP/BOI
Income < 1 cr.
Income > 1 cr.
30.90%
33.99%
30.90%
34.61%
Firms & LA
Income < 1 cr.
Income > 1 cr.
30.90%
33.99%
30.90%
34.61%
MAT
Income > 1 cr. < 10 cr.
Income > 10cr.
20.01%
20.96%
20.39%
21.34%
AMT rates for noncorporates
Income > 1 cr.
20.96%
21.34%
TDS on royalty & FTS
payment to NR
Income > 1 cr. < 10 cr.
Income > 10cr.
26.27%
27.04%
10.51%
10.82%
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Sushil Lakhani
6
Effective rate of Tax on distribution
Particulars
A.Y. 2015-16
A.Y. 2016-17
DDT u/s. 115-O
19.99%
20.36%
Buyback u/s. 115-QA
22.66%
23.07%
Individual or HUF
28.33%
28.84%
Any other person
33.99%
34.61%
By IDF u/s 115-R
Non- Residents
5.67%
5.77%
By Securitisation Trusts
u/s 115-TA
Individual or HU F
28.33%
28.84%
Any other person
33.99%
34.61%
Tax exempt entities
(Mutual funds)
Nil
Nil
By MFs u/s 115-R
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Recipient
Sushil Lakhani
7
Wealth Tax
s.3, cl. 79, para 113
•
Not leviable w.e.f. A.Y. 2016-17
•
Information about Wealth Tax to be
furnished in ITR
•
Loss compensated by increase of 2% in SC
on Income tax
− Gain of Rs. 9000 crore for loss of Rs. 1008
crore.
• No increase in SC for FC though wealth tax
abolished.
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Sushil Lakhani
8
Residence of a Company
s. 6, cl. 4
•
Substitution of sub-section (3) w.e.f. 1.04.2016
− Concept of Place Of Effective Management
− ‘at any time’ in India for a ‘company’
− In place of ‘Control and Management’ wholly ‘in
India’
− POEM to mean;
•
•
•
•
•
•
•
Place of Key management and commercial decisions
For conduct of business of entity as a whole in substance
Scope for debate on various aspects of POEM
Assistance from DTAA
Exposure for Indian and Foreign MNCs.
Relevance of place over person
Assurance by CBDT
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Sushil Lakhani
9
Domestic Transfer Pricing
s.92BA, cl.24, para 115
• W.e.f. 01.04.2016
• Applicabe in the case where value of
specified domestic transactions exceeded
specified limit
• Limit extended to Rs. 20 crore from Rs. 5
crore
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Sushil Lakhani
10
General Anti-Avoidance Rules
s.95, cl.25, para 109
• W.e.f 01.04.2016
• Date of Implementation of chapter X-A
extended to 01.04.2018
• Investments made up to 31.03.2017 to
remain unaffected
•
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Assurance by FM
Sushil Lakhani
11
Tax on Royalty and FTS
s. 115A, cl. 27, para 110
• W.e.f. 01.04.2016
• Income of a non-resident or a foreign company
• Royalty or FTS
•
Other than the one referred to in s. 44DA
• Rate of tax reduced from 25% to 10%
•
Other income at the regular rates.
• Was amended by FA, 2013 to increase the rates
• Higher rate where no PAN
• Beneficial rate under DTAA
•
No SC & EC
• Case of excess over ALP and s. 115A
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12
Payments to Non Residents
s. 195, cl. 48
• Substitution of sub-section (6) w.e.f. 01.06.2015
• Furnishing of information of payment to NR or FC
•
In prescribed manner and form
•
•
•
•
Inserted by FA, 2008 for furnishing reports
Rule 37BB, Form 15CA/CB
Report only where tax was deducted
Now payment whether chargeable to tax or not under the
Act
• Assurance by CBDT
• Payments not in nature of income
•
Fees, gifts, expenses and remittances
• Relevance of s.195(7)
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Sushil Lakhani
13
Penalty for violation of s. 195(6)
s.277I, cl. 73
• New provision w.e.f. 01.06.2015
• Information relating to payment
•
the prescribed manner and form
• Failure to furnish information liable to
penalty
•
Rs. 1,00,000
•
Each or all defaults
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Sushil Lakhani
14
TAXABILITY OF NONRESIDENT
SHIPPING/AIRCRAFT
COMPANIES UNDER THE
INCOME TAX ACT,1961
Taxability of non-resident
Shipping/Aircraft Companies
Section
Section 44B
Section 172
Section 44BBA
Section 10(15A)
Coverage
Special provision for computing profits and
gains of shipping business in the case of
non- residents
Occasional Shipping business of nonresidents
Special provision for computing profits and
gains of the business of operation of aircraft
in the case of non-residents
Exemption of tax for Indian company
engaged in business of operation of aircraft
Section 90 – Treaty Override
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16
Sec. 44B Vs. Sec. 172
Section 44B
Section 172
Applicable to non-residents engaged
in regular Shipping operations.
Overrides sections 28 to 43A of the
Act
Normal procedures for assessment
and payment of taxes applicable
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Applicable to ships owned or
chartered by non-residents
engaged in occasional shipping
business
Overrides all other provisions of
the Act
Specific ( adhoc/provisional?)
procedure for levy, assessment and
collection of tax is provided.
Sushil Lakhani
17
Section 44B Vs. Section 172 (Contd.)
Section 44B
Section 172
DPR 7.5%.
DPR 7.5%.
Carriage of passengers,
Carriage of passengers,
livestock, mail or goods
livestock, mail or goods
shipped at a port in India. Also shipped at a port in India.
covers amount received or
receivable in India on account
of carriage of passengers etc.
shipped at a port outside India
Demurrage charges or
handling charges or any other
amount of similar nature will
also be included.
26/03/2015
Demurrage charges or
handling charges or any other
amount of similar nature will
also be included.
18
Sushil Lakhani
Other Relevant Provisions
–
Payment to non-resident shipping company where provisions of Sec. 172
apply – Sec. 194C or Sec. 195 do not apply
–
Provisions of Sec. 194C and Sec. 195 will also not apply if the payment to
be made to an agent of non-resident shipping company where Sec. 172
applies
–
Whether Circular 723 dated 19-9-1995 is applicable only to payments
covered by Sec. 172 or also to payments covered by Sec. 44B?
– Orient Goa Pvt. Ltd (2009-TIOL-HC-MUM-IT)
Sec. 163: freight forwarders can be treated as agent of non-resident
shipping companies (WSA Shipping (143 TTJ 423 & 48 SOT
551))
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Sushil Lakhani
19
OVERVIEW OF TDS ON
PAYMENTS TO NONRESIDENTS
(SECTION 195)
TDS under section 195
Wide Scope of the section
Conditions for application of Section 195
a) “any person” - Includes a person having no taxable
income
b) “a non-resident”
c)
26/03/2015
- Includes NRIs
- does not include R but NOR
“any sum chargeable to tax (other than Salaries)”
Sushil Lakhani
21
TDS under section 195
 Any sum chargeable to tax means
 The moment there is a remittance out of India, it does not trigger Sec
195. The payer is bound to deduct tax only if the sum is chargeable to
tax in India read with sec 4, 5 and 9.
 Obligation to deduct TDS limited to the income portion
(GE India Technology Centre (234 CTR 153) (SC))


Impact of Circular 723 dated 19-09-1995
Impact of DTAA & Circular 732 dated 29-12-1995
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22
TDS under section 195

Section 195 (2) – Application by Payer

Section 195 (3) – Application by Payee

Section 195(4) – Validity of certificate issued by AO

Section 195(6) – CA Certificate for Remittances and
providing information
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23
TDS under section 195
 Disallowance u/s. 40(a)(i) or Section 58(1)(a)(ii)
 Interest u/s. 201(1A) (1% p.m. for late deduction, 1.5% p.m.
for late payment)
 Cannot be levied if recipient has paid full tax (296 ITR 226 (SC)
& Finance Bill, 2012)
 Penalties - (Section 221; Section 271C)(Refer Hindustan Coca
Cola (296 ITR 226 (SC)). Finance Bill,2015 proposes penalty
of Rupees one lakh for non-filing of information
 Prosecution - (Section 276 B)
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Sushil Lakhani
24
Some Typical TDS Issues U/S 195 Faced By
AMTOI Members:
• Payments to a marketing agent abroad for
marketing container leasing etc.
• Payments to a foreign company towards
demurrage at port outside India.
• Where Foreign Company does not provide
PAN.
• Where Foreign Company doesnot provide
Tax Residency Certicate.
• Any Other????
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Sushil Lakhani
25
SOME SPECIFIC ISSUES
UNDER THE ACT
Cross Border Transactions –
Some specific Issues Under
The Act
Whether transport, procurement, custom clearance,
sorting, delivery, warehousing and picking up services,
provided by a non-resident outside India in respect of
export consignments from India under ‘Regional
Transportation Services Agreement‘ is “fees for
technical services”?

Such services were not managerial or technical or consultancy services
and do not fall within ambit of section 9(1)(vii)

Income from India by means of operations carried on outside India will
not fall within scope of section 9(1)(i)
(UPS SCS (Asia) Ltd. (18 taxmann.com 302 (Mum))
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27
Cross Border Transactions –
Specific Issues Under the Act
Payment of Demurrage Charges

Demurrage charges shall be considered as part of freight

Gosalia Shipping (P) Ltd. (113 ITR 307) (SC)

Lima Leitao & Co. Ltd. (70 ITR 518)

Japan Lines Ltd. (139 Taxman 267 (MAD.)
(TDS not applicable in view of CBDT Circular No. 723 (Hasmukh J. Patel
(Ahmedabad ITAT)
Demurrage for delay at port outside India is not taxable in India
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28
Specific Issues under the Act
Whether Inland Haulage Charges are covered within the
scope of Section 44B ?
- No [Safe marine Container Lines NV [(2009) 121 TTJ
(Mumbai) 50] where it was held that to Classify any item
to fall under the term “any other amount of similar
nature” it should be of the nature of handling charges or
demurrage charges .]
- It was held in the same case that they fall under
Article 8 as being Ancillary to the main operation
4.
Whether Slot Charges are Covered within the Scope of
Section 44B and Section 172 ?
- Yes (It was held in A.P. Moller Maersk Agency India
(P) Limited vs. Deputy Commissioner of Income Tax
that slot are in the nature of
handling charges or
demurrage charges and are covered under above
sections )
3.
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Sushil Lakhani
29
Specific Issues under the Act
5. Whether under section 44B there is no provision to make a
deduction for any outgoings ?
- No. [NEDLLOYD LINES BV vs. DEPUTY COMMISSIONER OF
INCOME TAX ]
- It was held that there is no provision in the Act to make
deduction for outgoings after determining tax payable at the
flat rate . The concept of taxation in this context postulate
payment on gross income . The language of the section is
clear, and unambiguous
6. Whether Special rebate or Deferred Rebate granted can be
allowed as a deduction from aggregate amount of freight
received for purpose of Section 44 B ?
-
NO. [ D.D.G. HENSA VS. COMMISSIONER OF INCOME TAX
(78 TAXMAN 174 ) (CAL) (HC) ]
-
It was held in the above case that it was not a case of the
amounts being diverted before forming part of earnings , but
a case where some amount was given as a discount after
accrual of income.
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30
Specific Issues under the Act
7. Whether “dead freight” could be covered under section 172 ?
-
Held No. [ Commissioner of Income Tax vs. Pestonji Bhicajee [ (107
ITR 837) (HC) (GUJ) ]
-
It was held that “dead Freight’ is payable on account of non carriage of goods and is payable for compensation for the loss of
freight .
-
Therefore such amount is not received for carriage of goods . Thus
not covered under this section
8. Whether towing of a ship by another Ship , can be said to be covered
under section 172 ?
-
Held No [ (2012 ) Commissioner of Income Tax vs. Oceanic
Shipping Service of M.T. Suhail ( 18 taxmann.com 289 ) (Guj) ( HC)
]
- It was held in the above decision that “carrying “ and “tow” have
different meanings . Carrying has to mean carrying by a ship abroad
a ship whereas towing has to mean to pull something hard .
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Sushil Lakhani
31
Issues under the Act
9. Whether the assessment of Income under section
172 (4) can be treated as assessment of total
Income without assessee exercising option u/s
172(7) ?
- Held No [ Commissioner of Income – Tax v Taiyo
Gyogyo kabushiki kaisha [(2000) 111 taxman 343
(Ker)(HC) ]
-
It was held in the above case that the provisions
of Section 172(2) and 172 (4) are not substitute
for assessment on the total income of a non –
resident engaged in the shipping business.
-
It was also held that the collection and recovery
of tax under section 172 are of provisional in
nature , even where section 172 is applied, the
assessing officer is not precluded from resorting
to section 44B and making the assessment
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32
Issues under the Act
10. Whether assessee can claim adjustment of brought forward
business loss against profits and gains computed under
section 172 /Section 44B ?
-
-
NO Under Section 172 & Yes Under section 44B …..
The non obstante clause in section 172 overrides all other
provisions of the Act . Therefore, whether the provisions
relating to setoff and carry forward losses and unabsorbed
depreciation do not apply in case of an assessee taxable under
section 172? (Delhi High court in the case of Emirates Shipping
Line, FZE vs. ADIT (2012) ( writ petition No . 9780 of 2009)
held that section 172 is a special and specific provision but it
does not postulate or mandate that section 147/148 or other
provisions like section 154, 263 etc, would not be applicable)
As regards Section 44 B , provision relating to set off and carry
forward
and set off losses apply . However, Set –off of
unabsorbed Depreciation cannot be claimed
Universal Cargo vs CIT (165 ITR 209) (Cal)
Anchor Line Limited (32 ITD 403) (Mum)
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Sushil Lakhani
33
Issues under the Act
11. Whether Circular 723 dated 19-9-1995 is applicable only to
payments covered
by Sec. 172 or also to payments covered by
Sec. 44B?
Not applicable to payments covered by section 44B
[Orient Goa Pvt. Ltd (2010 ) (185 Taxman 131)
Section 172 and Section 44B operate in different areas
(CBDT Vs.Chowgule 192 ITR
ITR 955)
40 ; CIT Vs. Hongkong Oceans 238
In following held without discussing 44B that circular applied
– [DCIT vs. Hasmukh J Patel (2012) (49 SOT 147 )(Ahd.) ]
– [Smt. Sudha Devi Saraf (2013)(33 Taxman 500 )(KOL.)
12. Whether interest u/s 234B, 234C leviable to and 244A receivable
from foreign shipping companies ?
– Yes as per Dept.--Circular 730 dated 14-12-1995 reversed by
Circular 9/2001 dated 09-07-2001
– No as per ITAT-- Norasia Lines (Malta) Ltd. (109 TTJ 152)
(Cochin) (SB)
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34
Issues under the Act
13.Whether the Section 172 is and
exhaustive Section for
Computing total Income of non- resident involved in occasional
shipping business ?
- Held no [ Czechoslovak Co. vs ITO 81 ITR 162 ] . It was held that
section 172 is not exhaustive of the liability of the owner of the
ship. He may be taxable under section 5 in respect of profits
arising from the use of the ship otherwise than from the carrying
of passengers or cargo from Indian ports.
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35
ISSUES CONNECTED WITH
TAXABILITY UNDER TAX TREATIES
Article 8 – A snapshot
Sub – Articles
Coverage
Article 8(1)
Taxability of profits from operation of ships
or aircrafts in international traffic
Article 8(2)
Taxability of profits from operation of boats
engaged in inland waterways transport
Article 8(3)
Where place of effective management of
enterprise is aboard a ship or boat
Article 8(4)
Joint business / Pooling Arrangement extension of scope of Article 8(1)
Article 8B (2) – UN Model
Right to tax profits to the Source Country if
activities more than casual in nature.
Article 8 specific provision for shipping profits –
Article 7 does not apply
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37
Article 8(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 [Netherlands,
Mauritius, Germany , Cyprus ]
o
o
Variations
 Art. 8(1) is Residence based [eg. USA, UK, Singapore, Japan etc.]
 Art. 8(1) provides for both (Residence + POEM) ( eg.Cyprus)

o
Instead of “profits from” , the words “profits derived from “ eg.
Denmark and most other Treaties (AP Moller, Maersk Agency (89
ITD 563) (Mum---narrow meaning- , incorrect view ?? )
Following factors not Relevant:
– where the PE is situated.
– where the enterprise is Registered.
– where the enterprise is Resident.
– Ownership of Ship is not important for shipping Operation.
o
Computation of income – left to Domestic Law
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38
“International Traffic” – Meaning
o
International traffic – Article 3(1)(e)
– the term "international traffic" means any transport
by a ship or aircraft operated by an enterprise that
has its place of effective management in a
Contracting State, except when the ship or aircraft is
operated solely between places in the other
Contracting State
o
Only Coastal Traffic across countries is covered in
Article 8(1)
o
If travel exclusively between two or more points within
the other contracting state
– Not ‘International Traffic’ - PE principle to apply –
taxability under Article7….
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Sushil Lakhani
39
…“International Traffic” – Meaning
o
However, if travel between two points in the other
contracting state forming part of longer voyage involving
place of departure or arrival outside the other
contracting state is included in “International Traffic”
(Refer Essar Oil Ltd. (5 SOT 669) (Mum))
o
Analysis
– The number of ports or airports during a voyage or
flight immaterial
– Not necessary to cross a border after every sailing or
take off.
If there is no POEM in any of the contracting states then
Article 8 will not apply.
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40
Profits from operation of ship
– Scope & Issues
OECD Commentary
o
Profits directly obtained by the enterprise from
transportation of passengers or cargo by ships or
aircrafts (whether owned, leased or otherwise at
the disposal of the enterprise) that it operates in
international traffic
o
The
“Profits “ 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 aircraft in international traffic as long as they
are ancillary to such operation.
Profits “derived from” in India-Denmark Treaty held
(incorrectly??) to be narrower in scope (AP Moller, Maersk
Agency (89 ITD 563) (Mum) –
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41
Profits from operation of ship…
o Ancillary activities - Meaning
– Activities not required to be
carried for operation of ships
but
– Make
minor
contribution
relative to operation of ships
and are so closely connected
that
– Cannot
be
regarded
as
separate business or source of
income
(Refer
British
Airways (80 ITD 90) (Del))
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42
o Examples of activities directly connected with or
ancillary to the operation of ships or aircrafts:
–
–
–
–
–
Sale of passenger tickets on behalf of other
operators
transportation of goods by truck – hauling, fishing
or dredging activities (lease of fishing trawler)
Use, maintenance or rental of containers (also
includes container detention charges)
Advertising
Profits derived from Provision of goods and Services
by engineers, ground and equipment –maintenance
staff, cargo handlers ,catering staff and customer
services personnel where the enterprise provides
such goods to ,or performs services for, other
enterprises and such activities are directly
connected or ancillary to the enterprise’s operation
of ships or aircraft in international traffic
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43
Cross Border Transactions –
Specific Issues
Payments to non-resident NVOCC:
Transportation through ships owned/leased/chartered
enterprises :
by other

Such transportation would be outside scope of Article 8(2) of India-USA
Treaty. Thus, not exempt under Article 8. Income will be treated as
business profits and would be taxable under Article 7 (Federal Express
Corporation (130 TTJ 526) (Mum))

Assessee did not actually transport the cargo, though it entered into
Charter Party agreement with its client, but acted as agent and earned
commission income. Thus, no exemption under Article 8 of IndiaSingapore Treaty (Thoresen Chartering Singapore (24 SOT 433)
(Mum) & J.M Baxi & Co. (42 SOT 333)(Mum))
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44
Cross Border Transactions –
Specific Issues
Payments to non-resident shipping company for the
transportation through feeder vessel of other operator

Delmas France (121 TTJ 501) (Mum)
Shipping company need to establish link between transportation by feeder
vessel and mother vessel operated by it.

Cie De Navegasao Norsul (124 TTJ 124) (Mum)
If link not established then only profits attributable to voyage from midstation to final destination by mother vessel operated by shipping
company, would be covered by Article 8.
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45
Profits from Ancillary Activities…
- Code-sharing or slot-chartering arrangement
• In the case of Balaji Shipping (UK) Ltd. (25 SOT 325) (Mum), it was
held by the court, that such agreement have a close nexus to the main
business of the enterprise of the operation of ships. They are ancillary
to and complement the operation of ships by the enterprise .
• However in the same case it was held that 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 was not the circumstances of
the present case
The High court in the case of Hapag Lloyd AG Vs Add. Director of Income Tax (31 taxmann.com 64) has
remanded the matter back to the Tribunal for fresh consideration in the light of descion in the matter of
Balaji Shipping UK Ltd. (Supra) .All contention before the Tribunal are left open
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46
…Profits from operation of ship…
Types of Charters Payments
o
Bareboat Charter (Dry Lease)
– Hiring of a ship/aircraft for a stipulated period
o
o
–
Possession and control (including the right to appoint the master and crew ) of ship
given to the charterer
–
Purchase of ship or aircraft on installment i.e. Finance Lease (Bareboat Charter-cumdemise – BBCD)
–
As per OECD Commentary Para 5 Article 7 and not Article 8 applies to profits from
leasing a ship or aircraft on a bare boat charter basis except when it is an ancillary
activity of an enterprise engaged in the international operation of ships or aircrafts
Time Charter (Wet Lease)
–
Fully equipped ship/aircraft along with crew is provided - Agreement for a definite
period
–
As per OECD Commentary Para 5 ,Profit derived by leasing a ship or aircraft on charter
fully equipped ,crewed and supplied must be treated like the profits from the carriage
of passengers or cargo.
Voyage Charter (Wet Lease)
–
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Fully equipped ship along with crew is provided - Agreement for a particular voyage
Sushil Lakhani
47
…Profits from operation of ship…
Taxability of Charter payments held “royalty”
Whether Dry Lease/BBC/BBCD covered under Article 7 or Article 12?
Poompuhar Shipping Corporation Ltd [38 Taxmann 150 Madras (2013)]
Equipment’ includes ship and Charter fees ( Bare Boat --as also Time
Charter !!!!) thereof is ‘Royalty’
o
-
o
Royalty to include use or right to use ship being an equipment (Refer West
Asia Maritime Ltd. (111 ITD 155) (Mum))
o
CBDT letter dated July 29, 2003 to Ministry of Shipping clarifies:
–
Ships are industrial equipments.
–
26/03/2015
Payments for bareboat charter in the nature of royalty.
o
India reservations to OECD updates of 2010– India reserves its right to tax
profits from leasing ships or aircrafts on a bare charter basis as Royalty
o
(As per OECD BBC covered by Article 7; Bareboat Charter could be covered
by Article 8 if ancillary to main activity)
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48
…Profits from operation of ship
Taxability of Charter payments

Whether Wet Lease/Time-Voyage Charter not covered by Article 8?
o
OECD Commentary & Klaus Vogel on Double Taxation Conventions
o
‘Time Charter’ payment not for ‘carriage’ of goods
o
–
UOI v. Gosalia Shipping (113 ITR 307) (SC)
–
ONGC v. IAC (29 ITD 422) (Del)
–
Contrary view in Indian National Ship Owners Association (Bombay HC W.P. No. 400 of 2007 – BCAJ August 2007)
–
SC in Gosalia Shipping (113 ITR 307) held that time charter is not covered
by Sec. 172/Sec. 44B. However, under treaties, as per OECD Commentary,
charters fully equipped, crewed and supplied are covered under Article 8.
Poompuhar Shipping Corporation Ltd. (108 TTJ 970) (Mum)
–
o
Caribjet Inc (4 SOT 18) (Mum)
–
26/03/2015
Considered Time Charter as BBC
Held no fundamental distinction between dry leasing and wet leasing
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49
Article 8 (4)
o
o
26/03/2015
Article 8 (4) – Article 8 (1) also applicable to profits
from participation in following:
–
a pool,
–
joint business or
–
an international operating agency.
Analysis
–
Terms pool, a joint business or an international
operating agency not been defined in the convention.
–
Cover forms of cooperation like sharing of infrastructure,
manpower, maintenance facilities etc.
(varying
interpretations – refer next slide)
–
Such profits taxed in
participating enterprise
–
Activity of NVOCC distinct from ‘pool’ or ‘joint business’
–
Operations of boats for inland waterways transportations
– not covered
the
Sushil Lakhani
state
POEM
of
each
50
Issues – Article 8(4)
o
Lufthansa German Airlines (83 TTJ 113) (Del)
– Profits earned by extending technical facilities to
IATP member airlines not taxable in India as same
in the nature of profits from participation in a pool
–
–
26/03/2015
Participation in Pool requires:

Reciprocity in the sense of rendering services as well as
availing of IATP recognized services/facilities

Use of standard agreement forms and levy of charges
as per the IATP manual

Non-existence of commercial/business
providing services to other airlines
activities
in
Distinguished British Airways ( 73 TTJ 519) (Del)
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51
Thank you
Sushil Lakhani
Lakhani & Associates,
Chartered Accountants
4th Floor, Bharat House,
104, Mumbai Samachar Marg,
Fort, Mumbai-400023
Tel: + 91-22-40693939
(M) : 9821111852
E-mail : sushil@sushillakhani.com