Income Tax Appellate Tribunal - Mumbai
A.P. Moller, Maersk Agency India Pvt. ... vs Dcit, Special Range 31 on 27 January, 2003
Equivalent citations: [2004]89ITD563(MUM), (2004)84TTJ(MUM)677
ORDER
M.K. Chaturvedi, Vice-President
1. This appeal by the assessee is directed against the order of CIT(Appeals) XVII, Bombay, and relates to the assessment year 1990-91.
2. The solitary ground taken in this appeal relates to the sustenance of addition of Rs. 4,43,58,238 towards feeder charges. This is also known as slot fee. One additional ground was raised by the learned counsel in regard to the addition made by the assessing officer connected with the ancillary charges amounting to Rs. 6,60,47,066.
3. Apropos the ancillary charges, assessee did not dispute the addition before the CIT(A). For the first time issue was raised before us. It was stated to be a legal issue. After hearing learned departmental representative, we permit the assessee to raise this issue before the Tribunal.
4. We have heard the rival submissions in the light of material placed before us and precedents relied upon. Shri F.V. Irani, learned counsel for the assessee, appeared before us. Our attention was invited on Article 9 of the Convention Between Republic of India and the Kingdom of Denmark for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and Capital. Article 9 reads as under:
"ARTICLE 9: Shipping - 1. Profits derived from the operation of ships in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
2. Notwithstanding the provisions of paragraph 1, such profits may be taxed in the other Contracting State from which they are derived provided that the tax so charged shall not exceed:
(a) during the first five fiscal years after the entry into force of this Convention, 50 per cent, and
(b) during the subsequent five fiscal years, 25 per cent. Of the tax otherwise imposed by the internal law of that State. Subsequently, only the provisions of paragraph 1 shall be applicable.
3. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency engaged in the operation of ships.
4. For the purposes of this Article :
(a) interest on funds connected with the operation of ships in international traffic shall be regarded as income from the operation of such ships and the provisions of Article 12 shall not apply in relation to such interest; and
(b) profits from the operation of ships includes profits derived from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) in connection with the transport of goods or merchandise in international traffic."
Learned counsel for the assessee contended that the slot fee and ancillary charges cannot be construed to be income derived from the operation of ships. As such, these cannot be taxed under Article 9(2). It was stated that the several heads of income mentioned in the I.T. Act are mutually exclusive. A particular income can come only under one of them. If the income can be brought under one head, it cannot be brought under residuary head if the heads of income are mutually exclusive. The heads of income must be decided on the nature of income by applying the practical common notions and not by reference to the assessee's treatment of income. As such, if the income is not coming within the ambit of Article 9, it cannot be taxed. For this proposition, reliance was placed on the decision rendered in the case of CIT v. T.P. Sidhwa(133 ITR 840) and Nalinikant Ambalal Modi v. CIT (61 ITR 428)(SC).
5. In the case of Nalinikant Ambalal Modi, assessee was Advocate. He ceased to carry his profession when he was elevated to the High Court. He received certain outstanding fees for the professional work done by him when he was Advocate. It was held by the apex court that the receipts were not chargeable to tax. These were clearly the fruits of the assessee's professional activities. They were the profits and gains of his profession and they fell under the fourth head, viz., Profits and Gains of Business, Profession or Vocation. They were not, however, chargeable to tax under that head because under computing section, an income received by an assessee, who kept his accounts on the cash basis, in an accounting year in which the profession had not been carried on at all, was not chargeable to tax. As the heads of income were mutually exclusive and the receipts could be brought under the fourth head only, they could not be brought under the residuary head Income from Other Sources.
6. Alternatively it was argued that if the income is not coming within the scope of Section 9, even under Article 7 of DTAA, it is not exigible to tax as because assessee was not maintaining any permanent home in India.
7. Before deciding the issue, it is necessary to note that what is slot fee. The Random House Dictionary defines the word 'SLOT' as a narrow, elongated groove, specially a narrow opening for receiving or admitting something. In shipping business, this term is used to denote the payment for carrying cargo to an intermediate port, wherefrom cargo is transshipped to the final destination. Say for example - from Madras cargo is to be carried to London. Ship to London is available for Colombo. X shipping company undertakes the contract to carry the cargo from Madras to London. A ship of X company is at Colombo. From Madras to Colombo cargo is carried by Y company. Y company is paid by X company. This is "slot fee"
8. Details of ancillary charges as given by the assessee are reproduced here as under:
Detention charges 2,94,14,737 Destuffing charges 2,43,62,859 L.C.L. charges 60,19,749 ICD collection charges 62,49,721
9. Learned departmental representative vehemently opposed the contention of the assessee. It was submitted that slot fee and ancillary charges are exigible to tax Under Section 44B of the I.T. Act, 1961. This section reads as under:
"44B. (1) Notwithstanding anything to the contrary contained in Sections 20 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in Sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head 'Profits and gains of business or profession'.
(2) The amounts referred to in Sub-section (1) shall be the following, namely:-
(i) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India; and
(ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers livestock, mail or goods shipped at any port outside India.
Explanation.- For the purposes of this sub-section, the amount referred to in Clause (i) or Clause (ii) shall include the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature."
10. Section 90, Sub-section(2) of the Act reads as under:
"(2) Where the Central Government has entered into an agreement with the Government of any country outside India under Sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee."
11. The prescription of Section 90(2) can be invoked only if DTAA applies to the income in dispute. Article 9 says about profit derived from the operation of ships. Learned counsel for the assessee admitted that slot charges and ancillary charges are not corning within the ambit of the income from operation of ships. We find that the term 'derived' is used in Article 9. The dictionaries state that the word 'derived' is usually followed by the word 'from', and it means: get or trace from a source; arise from, originate in, so the origin or formation of. As a matter of plain English, when it is said that one word is derived from another, often in another language, what is meant is that the source of that word is another word, often in another language. As an illustration, the word 'democracy' is derived from the Greek word 'demos', the people, and most dictionaries will so state. That is the ordinary meaning of the words "derived from" and there is no reason to depart from that ordinary meaning here. As such, slot charges and ancillary charges cannot be construed to be income derived from the operation of ships. Article 9 is the only Article in the DTAA dealing with the shipping business. It restricted the applicability of Article only to that income which is derived from the operation of ship. The other incomes of shipping companies are not coming within the ambit of Article 9. Article 7 cannot be applied in the facts of the present case as it is not connected with the shipping business, for which a separate Article is there. Even income derived from operation of ships is to be charged to tax in India in accordance with the provision of Article 9(2) of the DTAA. To construe the meaning of the words "such profits" as used in Article 9(2), learned counsel argued that such profits means profits from operation of ships. Slot charges and ancillary charges are not the profits from the operation of ships. As such, these cannot be taxed under Article 9(2). In the same breath, he says that as there is no provision in the DTAA for taxing such profits, therefore, no tax should be charged on such profits. For that, he relied on T.P. Sidhwa's case and Nalinimkant Modi's case. These decisions are not pertinent to the issue. If a special provision is made on a certain matter, the matter is excluded from the general provision. This idea is inculcated in the dictum: GENERALIBUS SPECIALLA DEROGANT (special things derogate from general things). When DTAA deals with shipping business under Article 9, no other Article can be invoked in the context of shipping business. It is therefore clear that DTAA is silent over taxing the profits of shipping company derived otherwise than from the operation of ships. In such eventuality, the profits can be taxed in India as per the provisions of the Income-tax Act, 1961.
12. Section 44B of the Act provides that in the case of non-resident shipping enterprise, the profits and gains of shipping business is to be taken at an amount equal to 7.5% of the amount paid or payable to the taxpayer or to any other person on his behalf, on account of carriage of passengers, livestock, mail or goods shipped at any Indian port, as also of any amount received or deemed to be received, in India on account of the carriage of passengers, etc. shipped at any port outside India. It is pertinent to note that Explanation has been inserted with retrospective effect from 1st April, 1976 after Section 44B(2) by the Finance Act, 1997. After such insertion, demurrage charges or handling charges or any other amount of similar nature are to be taxed in the same way as freight taxable under Clause (i) or (ii) of Section 44B(2). Slot charges and ancillary charges are of similar nature. By applying the dictum of EJUSDEM GENERIS, it can be said that slot charges and ancillary charges are coming within the ken of the Explanation. As such, these are taxable Under Section 44B of the Act. We find no infirmity in the impugned order on this count. Accordingly, we uphold the same.
13. In the result, appeal of the assessee stands dismissed.