DELTA AIR LINES, INC, MUMBAI v. ASST DIT (IT) 1(2), MUMBAI

ITA 1256/MUM/2014 | 2010-2011
Pronouncement Date: 29-04-2015 | Result: Partly Allowed

Appeal Details

RSA Number 125619914 RSA 2014
Assessee PAN AAACD4092N
Bench Mumbai
Appeal Number ITA 1256/MUM/2014
Duration Of Justice 1 year(s) 2 month(s) 3 day(s)
Appellant DELTA AIR LINES, INC, MUMBAI
Respondent ASST DIT (IT) 1(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-04-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted L
Tribunal Order Date 29-04-2015
Date Of Final Hearing 09-10-2014
Next Hearing Date 09-10-2014
Assessment Year 2010-2011
Appeal Filed On 25-02-2014
Judgment Text
L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH MUMBAI BEFORE SHRI R.C. SHARMA ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA JUDICIAL MEMBER ./ I.T.A. NO.1256 /MUM/2014 ( / ASSESSMENT YEAR : 2010-2011 DELTA AIR LINES INC. C/O BMR AND ASSOCIATES LLP 36-B DR. R.K. SHIRODKAR MARG PAREL (EAST) MUMBAI 400 012. / VS. ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAX) RANGE 1(2) MUMBAI IST FLOOR ROOM NO. 120 SCINDIA HOUSE BALLARD ESTATE N.M. ROAD MUMBAI 400 038. ./ PAN : AAACD 4092 N ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI AJIT KUMAR JAIN R E SPONDENT BY : DR. NARENDER KUMAR AND SHRI AJAY SRIVASTAVA CIT DR / DATE OF HEARING : 16-02-2015 / DATE OF PRONOUNCEMENT : 29-04-2015 [ !' / O R D E R PER R.C. SHARMA A.M . : THIS IS AN APPEAL FILED BY THE ASSESSEE PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT 1961 FOR A.Y. 2010- 11. 2. IN THIS APPEAL THE ASSESSEE IS AGGRIEVED BY THE DENIAL OF BENEFIT OF ARTICLE 8 OF INDIA-USA DOUBLE TAXATION AVOIDANCE AG REEMENT. THE ASSESSEE IS ALSO AGGRIEVED BY THE ENHANCEMENT OF GLOBAL PROFITA BILITY RATE AND CHARGING OF INTEREST U/S 234B OF THE ACT. ITA 1256/M/14 2 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE DELTA AIRLINES INC. A RESID ENT OF USA IS ENGAGED IN THE BUSINESS OF CARRIAGE OF CARGO AND PASSENGERS ON ITS OWN AIRCRAFT AND OR ON THIRD PARTY AIRCRAFTS. THE ASSESSEE HAS OBTAINED AN APPROVAL FROM THE DIRECTOR GENERAL OF CIVIL AVIATION (DGCA) TO UNDERTAKE SCHED ULED AIR SERVICES IN INDIA. THE ASSESEE WAS ALSO GRANTED APPROVAL BY RESERVE BA NK OF INDIA (RBI) TO ESTABLISH BRANCHES IN INDIA FOR UNDERTAKING ACTIVIT IES RELATED TO BOOKING OF AIR PASSENGERS AND AIR FREIGHT. A RETURN OF INCOME WAS FILED ON SEPTEMBER 28 2010 DECLARING NIL INCOME FROM BUSINESS OPERATIONS AND INTEREST OF RS. 1 56 469/- EARNED ON FIXED DEPOSITS WAS OFFERED TO TAX. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO F URNISH DETAILS OF THE REVENUE ATTRIBUTABLE TO THE USAGE OF THIRD PARTY CA RRIERS FOR CARRIAGE OF CARGO AND PASSENGERS AND WAS ASKED TO SHOW CAUSE AS TO WH Y SUCH REVENUE MAY NOT BE TAXED. THE ASSESEE SUBMITTED THE REQUISITE D ETAILS AND ITS ARGUMENTS ALONG WITH THE AGREEMENTS ENTERED WITH SUCH THIRD P ARTY CARRIERS FOR CARRIAGE OF CARGO AND PASSENGERS WHILE CLAIMING THAT SUCH RE VENUES CANNOT BE TAXED IN INDIA DUE TO EXEMPTION UNDER ARTICLE 8 OF THE INDO- US TREATY. THE A.O. HOWEVER HAS NOT AGREED WITH THE CLAIM OF THE ASSESE E. THE AO AS PER THE DRAFT ASSESSMENT ORDER HAS PROPOSED TO ASSESS THE BUSINESS INCOME OF THE ASSESSEE AT RS. 2 15 32 280/- BY APPLYING THE GLOBA L PROFITABILITY RATE OF 2.5% TO THE TOTAL REVENUES OF RS. 85 44 55 568/- EARNED BY THE ASSESSEE IN RESPECT OF THIRD PARTY CARRIERS. 5. WITH REGARD TO DENIAL OF BENEFIT UNDER ARTICLE 8 OF DOUBLE TAXATION AGREEMENT TREATY THE CONTENTION OF THE ASSESSEE BE FORE THE A.O. WAS THAT WHEN THE ASSESSEE IS NOT ABLE TO PROVIDE SEATS TO I TS PASSENGERS OR SPACE FOR ITS CARGO' IN ITS OWN AIRCRAFTS IT UTILISES SERVI CES OF OTHER AIRLINES FOR SUCH TRANSPORT. THIS IS A STANDARD INDUSTRY PRACTICE. TH E AO REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE REVENUE ATTRIBUTABLE TO THE USAGE OF THIRD PARTY CARRIERS FOR CARRIAGE OF CARGO AND PASSENGERS MAY N OT BE TAXED. THE ASSESSEE ITA 1256/M/14 3 CONTENDED THAT THE' INCOME ATTRIBUTABLE TO THE SERV ICES PROVIDED BY THIRD PARTY CARRIERS IS ELIGIBLE FOR EXEMPTION UNDER ARTI CLE 8(2) AND ARTICLE 8(4) OF THE 'INDIA - USA TAX TREATY. THE ASSESSEE SUBMITTED THA T BASED ON ITS ARRANGEMENTS WITH THE THIRD PARTY CARRIERS IT COUL D BE REGARDED AS A CHARTERER AND/ OR ENGAGED IN OTHER ACTIVITY DIRECTLY CONNECTE D WITH SUCH TRANSPORTATION AND THUS THE INCOME DERIVED ON ACCOUNT OF UTILIZIN G THIRD PARTY AIRCRAFTS IS COVERED UNDER ARTICLE 8(2) OF THE INDIA-USA TAX TRE ATY. FURTHER THE ASSESSEE SUBMITTED THAT THE ARRANGEMENTS WITH THE THIRD PART Y CARRIERS AMOUNT TO POOLING AND THUS GET COVERED UNDER ARTICLE 8(4) O F THE INDIA-USA TAX TREATY. THE A.O. HOWEVER HELD THAT THE ARRANGEMENT OF THE A SSESSEE WITH THE THIRD PARTY CARRIERS IS NOT AKIN TO THAT OF POOLING/CHART ERING AS INTENDED TO BE COVERED UNDER ARTICLE 8(2) AND ARTICLE 8(4) OF THE INDIA USA TAX TREATY. THE A.O. ALSO HELD THAT JURISDICTIONAL HC RULING IN THE CASE OF BALAJI SHIPPING UK LIMITED 211 TAXMAN 535 IS NOT APPLICABLE TO THE AS SESSEES CASE SINCE THE ASSESSEE IS CLAIMING RELIEF UNDER INDIA-USA TAX TRE ATY AND AFORESAID JUDGMENT IS PRONOUNCED UNDER DOUBLE TAXATION AVOIDANCE AGREE MENT BETWEEN INDIA AND UNITED KINGDOM (INDIA UK TAX TREATY). THE A. O. HAS ALSO RELIED UPON FOLLOWING DECISIONS:- (I) ADIT V. FEDERAL EXPRESS CORPORATION (125 ITD 1) (MU MBAI (II) UNITED PARCEL SERVICE CO. V DDIT (52 SOT 170) MUMBA I. 6. FURTHER CONTENTION OF THE A.O. WAS THAT PROFITS DERIVED BY AN ENTERPRISE FROM THE OPERATION BY THAT ENTERPRISE OF SHIPS OR A IRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THE STATE OF ITS R ESIDENCE (ARTICLE 8(1). SUCH PROFITS TAXABLE IN THE STATE OF ITS RESIDENCE SHALL BE THE PROFITS DERIVED FROM THE TRANSPORTATION OF PASSENGERS MAIL LIVESTOCK O R GOODS CARRIED ON BY THE OWNERS OR LESSEES OR CHARTERERS OF SHIPS OR AIRCRAF T (ARTICLE 8(2). FURTHER THESE PROVISIONS SHALL ALSO APPLY TO PROFITS FROM P ARTICIPATION IN A POOL A JOINT BUSINESS OR AN INTERNATIONAL OPERATING AGENCY (ART ICLE 8(4). THE REVENUES UNDER QUESTION ARE THE REVENUES GENERATED FROM UTIL IZATION BY THE ASSESSEE OF ITA 1256/M/14 4 SERVICES OF OTHER AIRLINES FOR TRANSPORT OF ITS PAS SENGERS OR CARGO. SINCE THE ASSESSEE ITSELF IS NOT INVOLVED IN OPERATION OF THE SE AIRCRAFTS IN INTERNATIONAL TRAFFIC THE REQUIREMENT OF ARTICLE 8(1) ITSELF IS NOT FULFILLED. THE ASSESSEE HAS INTERLINE CARGO SPECIAL PRORATE AGREEMENTS WITH O THER AIRLINES FOR CARRIAGE OF CARGO AND CODE-SHARING AGREEMENTS WITH OTHER AIRL INES FOR CARRIAGE OF PASSENGERS. THESE AGREEMENTS PROVIDE FOR SPACE SHA RING FOR CARGO AND SEAT SHARING FOR PASSENGERS AT AGREED RATES. THERE IS NO CHARTERING OF AIRCRAFTS. THE AGREEMENTS OF THE ASSESSEE WITH OTHER AIRLINES ARE IN RESPECT OF BOOKING OF SPACE FOR THE ASSESSEES CARGO OR BOOKING OF SEATS FOR ASSESSEES PASSENGERS. 7. THE A.O. ALSO HELD THAT THOUGH THE ASSESSEE HAS IN THE ALTERNATIVE CLAIMED THAT ARRANGEMENTS WITH THE THIRD PARTY CARR IERS TANTAMOUNT TO POOLING IT IS EVIDENT FROM THE ABOVE DESCRIPTION TERMS AND CONDITIONS OF AGREEMENTS WITH OTHER AIRLINES THAT THERE IS IN REA LITY NO POOLING ARRANGEMENT. A POOLING ARRANGEMENT IS AN ARRANGEMENT WHERE TWO O R MORE PARTIES COMBINE TO CARRY OUT AN ACTIVITY AND ALSO AGREE TO POOLING OF FUNDS AND SHARING OF PROFITS. THE AGREEMENTS OF THE ASSESSEE WITH OTHER AIRLINES ARE IN RESPECT OF BOOKING OF SPACE FOR THE ASSESSES CARGO OR BOOKING OF SEATS FOR ASSESSEES PASSENGERS AND THERE IS NEITHER ANY POOLING OF FUND S NOR SHARING OF PROFITS. THE PROFITS ARE EARNED BY OTHER AIRLINES INDEPENDEN TLY FROM THE CHARGES RECOVERED BY THEM FROM THE ASSESSEE FOR TRANSPORTIN G ASSESSEES CARGO/PASSENGERS. 8. IN VIEW OF THE ABOVE DISCUSSION THE A.O. HELD T HAT THE REVENUES GENERATED FROM THE USAGE OF THIRD PARTY CARRIERS FO R CARRIAGE OF ASSESSEE'S CARGO AND: PASSENGERS WOULD NOT FALL EITHER UNDER A RTICLE 8(1) OR ARTICLE 8(2) OR ARTICLE 8(4) OF INDIA US TAX TREATY. HENCE NO BENE FIT CAN BE GIVEN TO THE ASSESSEE IN THIS REGARD. IT IS 'IN VIEW OF THIS FAC T IS THAT THE DECISIONS OF MUMBAI TRIBUNAL IN THE CASES OF FEDERAL EXPRESS COR PORATION (125 ITD 1) AND UNITED PARCEL SERVICE CO . (ITA NOS. 3611 28D8; 28 09 & IMUM/2005 2006 ITA 1256/M/14 5 ORDER DATED 14/03/2012) DIRECTLY APPLY TO THE CASE OF THE ASSESSEE. IN THE CASE OF FEDERAL EXPRESS CORPORATION (SUPRA) HON'BL E MUMBAI TRIBUNAL HAS HELD AS UNDER: HAVING HELD AS ABOVE THE NEXT QUESTION ARISING FO R OUR CONSIDERATION IS AS TO WHAT EXTENT THE BENEFIT OF ART. 8 OF INDO-US TREATY CAN BE ALLOWED TO THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT T HE ENTIRE FREIGHT REVENUE RECEIVED BY THE ASSESSEE SHOULD BE EXEMPTED FROM TA X IN VIEW OF THE DECISION OF THIS BENCH IN THE CASE OF BALAJI SHIPPING (UK) LTD. (SUPRA) WHILE THE CONTENTION OF THE REVENUE IS THAT PROFITS ATTRIBUTABLE TO THE TRA NSPORTATION OF CARGO THROUGH OTHER AIRLINES AS WELL AS INLAND TRANSPORTATION CAN NOT BE EXEMPTED IN VIEW OF THE SPECIFIC DEFINITION OF THE EXPRESSION PROFITS FROM THE OPERATION OF SHIPS OR AIRWAYS IN INTERNATIONAL TRAFFIC HAS BEEN DEFINED IN PARA 2 OF ART. 8 SUCH EXPRESSION SHOULD NOT BE GIVEN EXTENDED MEANING IN THE LIGHT OF VARIOUS COMMENTARIES. THUS THERE IS NO DISPUTE BETWEEN THE PARTIES AS FAR AS THE PROFITS FROM TRANSPORTATION OF CARGO IN THE INTERNA TIONAL TRAFFIC BY THE ASSESSEE THROUGH THE AIRCRAFTS AS AN OWNER/LESSEE/CHARTERER ARE CONCERNED. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF ART. 8 OF INDO- US TREATY. PARA 1 PROVIDES THAT PROFITS FROM THE OPERATION OF SHIPS OR AIRCRAF TS IN THE INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THE STATE OF RESIDENCE. P ARA 2 PROVIDES THAT PROFITS FROM OPERATION OF SHIPS OR AIRCRAFTS IN THE INTERNATIONA L TRAFFIC SHALL MEAN PROFITS DERIVED BY AN ENTERPRISE FROM THE TRANSPORTATION BY SEA OR AIR RESPECTIVELY OF PASSENGERS MAIL LIVESTOCK OR GOODS CARRIED ON BY THE OWNERS/LESSEES/CHARTERERS OF THE SHIPS OR AIRCRAFTS . IN VIEW OF THESE CLEAR PROVISIONS IT IS HELD THAT PROFITS ATTRIBUTABLE TO THE TRANSPORTATION OF CARGO MAIL ETC. BY THE AIRCRAFTS OWNED CHARTERED OR LEASED BY THE ASSESSEE CANNOT BE TAXED IN INDIA. 30. THUS THE DISPUTE BETWEEN THE PARTIES IS THERE FORE RESTRICTED TO THE PROFITS DERIVED BY THE ASSESSEE FROM THE TRANSPORTA TION OF CARGO THROUGH AIRCRAFTS BELONGING TO OTHER ENTERPRISES AS WELL AS PROFITS ATTRIBUTABLE TO THE INLAND TRANSPORTATION. IT IS IN THIS CONTEXT THAT THE DECISIONS OF THIS BENCH ARE TO BE ANALYSED. THEREFORE THE QUESTION ARISES WHETHE R THERE IS ANY CONFLICT BETWEEN THESE TWO DECISIONS. IN THE CASE OF BALAJI SHIPPING (UK) LTD. (SUPRA) THE BENCH WAS REQUIRED TO INTERPRET THE PROVISIONS OF ART. 9 OF INDO-UK TREATY WHILE IN THE CASE OF DELTA AIRLINES INC. (SUPRA) I T WAS REQUIRED TO INTERPRET THE PROVISIONS OF ART. 8 IN INDO-US TREATY. THEREFORE IT WOULD BE APPROPRIATE TO REPRODUCE THE RELEVANT PROVISIONS OF BOTH THE TREAT IES : 31. A COMPARATIVE STUDY OF THE ABOVE PROVISIONS CLE ARLY INDICATES THAT ART. 9 OF INDO-UK TREATY USES THE EXPRESSION PROFITS FROM OPERATION OF SHIPS BUT SUCH EXPRESSION HAS NOT BEEN DEFINED. ON THE OTHER HAND IN THE INDO-US TREATY THE EXPRESSION PROFITS FROM OPERATION OF SHIPS OR AIRC RAFTS IN THE INTERNATIONAL ITA 1256/M/14 6 TRAFFIC HAS BEEN DEFINED IN PARA 2 OF ART. 8. SIN CE THE EXPRESSION PROFITS FROM OPERATION OF SHIPS WAS NOT DEFINED IN INDO-UK TREA TY THIS BENCH IN THE CASE OF BALAJI SHIPPING (UK) LTD. (SUPRA) FOLLOWING THE JU DGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA & ANR. VS. AZAD I BACHAO ANDOLAN & ANR. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) A ND THE DECISION OF THE TRIBUNAL IN THE CASE OF METCHERA CANADA INC. VS. DY . CIT (2006) 99 TT J (FV1UMBAI) 702 : (2006) 100 ITD 251 (MUMBAI) HELD THAT SUCH EXPRESSION. SHOULD BE CONSTRUED IN THE MANNER IN WHICH THE CONT RACTING PARTIES UNDERSTOOD AT THE TIME OF EXECUTION OF THE TREATY I.E. IN THE LIGHT OF THE COMMENTARIES OF INTERNATIONAL LAW AVAILABLE AT THE TIME OF EXECUTIO N OF THE AGREEMENT ON THE' OTHER HAND THE TRIBUNAL WHILE DISPOSING THE APPEAL OF DELTA AIRLINES INC. (SUPRA) FOLLOWING THE DECISION OF THE SUPREME COUR T IN THE CASE OF CIT VS. P. V.V.L. KULANDAGAN CHETTIAR (SUPRA) HELD THAT THE E XPRESSION 'PROFITS FROM OPERATION OF SHIPS OR AIRCRAFTS IN THE INTERNATIONA L TRAFFIC' MUST BE UNDERSTOOD IN THE SENSE IN WHICH IT HAS BEEN DEFINED IN PARA 2 OF ART. 8. THUS IN OUR OPINION THERE IS NO CONFLICT BETWEEN THESE TWO DECISIONS T HEREFORE FOLLOWING THE DECISION OF THE BENCH IN THE CASE OF DELTA AIRLINES INC. (SUPRA) IT IS TO BE HELD THAT BENEFIT OF ART 8 WOULD BE AVAILABLE TO THE ASS ESSEE TO THE EXTENT THE ACTIVITY CARRIED ON BY THE ASSESSEE FALLS WITHIN THE PARAMET ER OF THE DEFINITION GIVEN IN ART. 8(2) OF THE INDO-US TREATY. 9. IT IS EVIDENT FROM THE ABOVE THAT THE TRIBUNAL WHILE DECIDING THE ABOVE ISSUE HAS ALREADY CONSIDERED THE FACTS OF THE CASE OF ITS OWN DECISION IN BALAJI SHIPPING (UK) LTD. (197 TTJ 865) [WHICH HAS BEEN AF FIRMED BY THE BOMBAY HIGH COURT AND RELIED UPON BY THE ASSESSEE] AND HAS ALSO DISTINGUISHED THE FACTS OF BOTH THE CASES. THE TRIBUNAL HAS ALSO DIST INGUISHED THE PROVISIONS OF ARTICLE 8 OF INDO-US AND ARTICLE 9 OF INDO-UK TAX T REATY. EVEN OTHERWISE FROM THE AGREEMENTS OF THE ASSESSEE WITH OTHER AIRLINES IT IS EVIDENT THAT THERE IS NO ARRANGEMENT IN THE NATURE OF SLOT CHARTER BETW EEN THE ASSESSEE AND SUCH OTHER AIRLINES. IT MAY BE NOTED THAT THE DECISION O F MUMBAI TRIBUNAL IN THE CASE OF FEDERAL CORPORATION HAS BEEN ACCEPTED BY TH E SAID ASSESSEE AND ISSUE HAS BEEN SETTLED UNDER MUTUAL AGREEMENT PROCEDURE ( MAP) BETWEEN INDIAN AND US GOVERNMENTS (TO AVOID DOUBLE TAXATION). 10. SINCE THE A.O. HELD THAT THE REVENUES GENERATED FROM THIRD PARTY CARRIERS ARE LIABLE TO BE TAXED IN INDIA IN THE HAN DS OF THE ASSESSEE HE COMPUTED THE PERCENTAGE OF PROFITABILITY OF THE AS SESSEE AT 2.52% [AS AGAINST ITA 1256/M/14 7 THE GROSS GLOBAL PROFITABILITY OF (-) 3.57% DECLARE D BY THE ASSESSEE] BY ADDING BACK THE FOLLOWING ITEMS TO THE ASSESSES PROFIT B EFORE TAX: - OTHER EXPENSES AND - RESTRUCTURING AND MERGER RELATED EXPENSES 11. THE ASSESSEE HAS OBJECTED TO MODIFICATION OF IT S GLOBAL PROFITABILITY PERCENTAGE BY ABOVE EXCLUSION OF OTHER EXPENSES A ND RESTRUCTURING AND MERGER RELATED EXPENSES. THE A.O. ALSO LEVIED INTE REST ON THE ENTIRE INCOME U/S 234B OF THE ACT. 12. BY THE IMPUGNED ORDER THE DRP CONFIRMED THE AC TION OF THE A.O. AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEF ORE US. 13. SHRI AJIT KUMAR JAIN THE LD. A.R. APPEARING ON BEHALF OF THE ASSESSEE CONTENDED THAT THE ASSESSEE IS A US ENTITY ENGAGED IN THE OPERATION OF AIRCRAFTS IN INTERNATIONAL TRAFFIC AND IS ELIGIBLE TO CLAIM BENEFIT OF ARTICLE 8 OF THE INDIA US TAX TREATY. THERE IS NO DOUBT THAT THE ASSESSEE IS FOREIGN AIRLINE COMPANY ENGAGED IN THE TRANSPORTATION OF GOODS / PA SSENGERS. THIS IS ACCEPTED BY THE AO AND THE DRP. THE LIMITED ISSUE U NDER DISPUTE IS WHETHER THE USAGE OF SPACE ON THIRD PARTY AIRCRAFTS IS IN T HE NATURE OF 'CHARTER' AND EXEMPT UNDER ARTICLE 8. THE ASSESSEE BEFORE THE AO AND THE DRP HAD PLACED RELIANCE ON DICTIONARY MEANINGS REGULATION 883 OF THE US REGULATIONS AIR TRANSPORT AGREEMENT BETWEEN INDIA AND US RULINGS I N THE CASE OF BALAJI SHIPPING UK LTD. (2012) 24 TAXMANN.COM 229] AND APL & CO PTE LTD [(2013) 33 TAXMANN.COM 186] TO CONTEND THAT USAGE OF SPACE TANTAMOUNT TO 'CHARTER'. THE LEARNED COUNSEL OF THE ASSESSEE DURING THE HEAR ING ARGUED THAT THE SAME BENCH OF THE IT AT HAD PRONOUNCED A RULING ON FACTS SIMILAR TO THE ASSESSEE IN THE CASE OF MISC BERHAD (ITA NO 6499/MUM/2012) POST THE FINAL ORDER BEING PASSED BY THE AO UNDER SECTION 143(3) RWS 144C(13). IN THE CASE OF MISC BERHAD (SUPRA) WHERE IT WAS HELD THAT SPACE BOOKIN G IS 'CHARTER' UNDER ARTICLE 8 OF INDIA MALAYSIA TAX TREATY. HE STATED THAT PARA GRAPH 1 AND 2 OF ARTICLE 8 OF ITA 1256/M/14 8 THE INDIA USA TAX TREATY (APPLICABLE IN THE CASE OF ASSESSE IN THE PRESENT CASE) AND INDIA MALAYSIA TAX TREATY (APPLICABLE TO MISC B ERHAD) ARE SIMILARLY WORDED (REFERENCE IS DRAWN TO PAGE 102 OF THE PAPER BOOK FILED BY THE ASSESSEE DURING THE COURSE OF THE PROCEEDINGS) AND THE RULING IS BASED ON FACTS SIMILAR TO THAT OF THE ASSESSEE. HE SUBMITTED THAT IN THE CASE OF MISC BERHAD AN OWNER OF SHIPS (SUPRA) THE ASSESSEE HAD BOOKED SOME SPACE ON SHIPS OPERATED BY THIRD PARTY SHIPPING COMPANIES ON AN AS AND WHEN REQUIRED BASIS UNDER A SPACE BOOKING/SLOT CHARTER A RRANGEMENT WHICH IS SIMILAR TO THE PRESENT CASE. THE LEARNED COUNSEL FO R THE ASSESSEE REFERRED TO THE FOLLOWING PARAGRAPHS OF THE JUDGMENT IN THE CAS E OF MISC BERHAD WHERE IT HAS BEEN HELD THAT SPACE BOOKING / SLOT CHARTER IS 'CHARTER': PAGE 23 - 6TH LINE 'THE CONTAINERS TRANSPORTED THROUGH FEEDER VESSELS HAVE BEEN SENT BY WAY OF SLOT CHARTER OR SPACE CHARTER ARRANGEMENT. ' PAGE 24 - FIRST LINE ' ... THE DEPARTMENT HAS HELD THAT THE CHARTERING O F SOME SPACE OR SLOT CHARTER ARRANGEMENT CANNOT BE EQUATED WITH CHARTERING OF A COMPLETE SHIP . . THE ASSESSEE'S CASE ON THE OTHER HAND HAS BEEN THAT THE WORD CHARTERER' ALSO INCLUDES SPACE CHARTERER OR SLOT CHARTERER AND THE SAME CANNOT BE SEGREGATED FROM THE MEANING OF OPERATION OF SHIPS. HEAVY RELIA NCE HAS BEEN PLACED ON THE CONCEPT OF CHARTERER GIVEN BY THE HON'BLE BOMBAY HI GH COURT IN BALAJI SHIPPING U.K LTD. (SUPRA) .... ' PAGE 25 - PARA 20 '20. FOR THE SHIPPING INCOME THE PARA-2 CATEGORICA LLY ENVISAGES THAT FOR THE PURPOSE OF ARTICLE-8 PROFITS FROM THE OPERATION OF SHIPS IN THE INTERNATIONAL TRAFFIC MEANS PROFIT DERIVED BY AN ENTERPRISE FROM THE TRA NSPORTATION BY SEA OF GOODS CARRIED ON BY THE 'OWNER' OR 'LESSEE' OR 'CHARTERER ' OF SHIPS. THUS THE PROFITS FROM THE 'OPERATION OF SHIPS' HAVE BEEN QUALIFIED B Y THE WORDS CARRIED ON BY THE 'OWNER' OR 'LESSEES' OR 'CHARTERER '. PAGE 29 - LAST 7 LINES OF PARA 22 AND PARA 23 'THUS THE WHOLE OF THE RATIO LAID DOWN IN BALAJI S HIPPING U.K LTD. (SUPRA) CANNOT BE APPLIED IN THE PRESENT CASE AS THE PHRAS ES USED IN ARTICLE-8 IN INDO- MALAYSIA TREATY IS INDEED DIFFERENTLY WORDED. HOWEV ER CERTAIN RELEVANT OBSERVATIONS AND INTERPRETATION WORD 'CHARTERER'/ ' CHARTER' BY THE HON'BLE HIGH ITA 1256/M/14 9 COURT CAN BE TAKEN AS GUIDANCE FOR UNDERSTANDING TH ESE TERMS WHICH SHALL BE DISCUSSED IN THE LATER PART OF THE ORDER. ' 23. WE WILL NOW INDEPENDENTLY EXAMINE ARTICLE-8(L) AND ARTICLE-8(2) OF INDO- MALAYSIA DTAA. THE CRUCIAL PHRASE OR WORDS WHICH NE ED TO BE ANALYSED HERE ARE 'OPERATION OF SHIPS ' TRANSPORTATION BY THE 'O WNER' OR 'LESSEES' OR 'CHARTERERS' OF SHIPS. FIRST OF ALL THE WORD 'OPER ATION' IS DIFFERENT FROM THE WORD 'OPERATE' OR 'OPERATOR '. THE WORD 'OPERATE' MEANS TO CONTROL THE FUNCTIONING OF MACHINE PROCESS OR SYSTEM .... ..... THE OPERATION OF SHIPS CANNOT BE UNDERSTOOD M ERELY AS AN OPERATOR OF SHIPS OR A PERSON WHO OPERATES THE SHIPS. THE WORD 'OPERA TION OF SHIPS' HAS TO BE UNDERSTOOD IN A BROADER SENSE OF CARRYING OUT SHIPP ING ACTIVITY. THE CARRYING OF SHIPPING ACTIVITY COULD BE AS AN OWNER OF A SHIP OR AS A LESSEE OF A SHIP OR AS A CHARTERER OF A SHIP. HERE THE WORD 'OWNER' HAS TO BE INFERRED AS A PERSON WHO OWNS A SHIP AND THE WORD 'LESSEE' AS A PERSON WHO O WNS THE SHIP FOR A GIVEN LEASE PERIOD. THE WORD 'CHARTERER' HAS TO BE UNDERS TOOD AS A PERSON WHO CHARTERS OR HIRES A SHIP FOR A VOYAGE. ' PAGE 33 - PARA 24 AND PARA 25 '24. FROM THE ABOVE DEFINITIONS OF THE TERM 'CHARTE R' OR 'CHARTERER' ONE THING IS AMPLY CLEAR THAT IT MEANS HIRING OF VESSELS OR A SH IP OR A PART OF ITS SPACE UNDER AN AGREEMENT FOR A VOYAGE. THUS EVEN A PART OF A S PACE IN THE VESSELS FOR A PARTICULAR JOURNEY IS ALSO CONSIDERED AS 'CHARTER O F SHIP' OR 'CHARTERER '. IN THE DECISION OF BALAJI SHIPPING U.K LTD. (SUPRA) WHILE REFERRING TO THE JUDGMENT OF TYCHY (SUPRA) THE HIGH COURT HAVE NOTED THAT A 'SL OT CHARTER' AND A 'VOYAGE CHARTER' OF A PART OF A SHIP ARE IN A SENSE CHARTER ERS OF A SPACE IN A SHIP. 25. FROM THE ABOVE DISCUSSION THE FOLLOWING INFERE NCES CAN BE DEDUCED:- I) FIRSTLY THE OPERATION OF A SHIP CAN BE DONE AS CHARTERER WHICH DOES NOT MEAN TO OWN OR CONTROL THE SHIP EITHER AS AN OWNER OR AS A LESSEE; II) SECONDLY CHARTERER IS A HIRER OF A SHIP UNDER AN AGREEMENT OR ARRANGEMENT TO ACQUIRE THE RIGHT TO USE A VESSEL OR A SHIP FOR THE TRANSPORTATION OF A GOOD ON A DETERMINED VOYAGE EITHER THE WHOLE OF THE SHIP OR PART OF THE SHIP OR SOME SPACE OF THE SHIP IN A CHARTER PARTY AGREEMENT; AND III) THIRDLY THE WORD 'CHARTERER' INCLUDES A VOYAG E CHARTER OF A PART OF A SHIP OR A SLOT AS IT IS ALSO ARRANGEMENT OR AGREEMENT TO H IRE A SPACE IN A SHIP OWNED AND LEASED BY OTHER PERSONS. THUS IN OUR OPINION THE WORD 'CHARTERER' SHOULD N OT BE CONFUSED FROM THE WORD 'OWNER' OR 'LESSEE' OR HAVING CONTROL OF THE SHIP O R AS AN OPERATOR OF THE SHIP. THE OPERATION OF SHIP CAN BE DONE AS A CHARTERER W HICH INCLUDES PART OF A SHIP OR PARTICULAR SPACE IN A SHIP. ' ITA 1256/M/14 10 PAGE 37 - 6TH LINE ' ... THUS THE VIEW TAKEN BY THE ASSESSING OFFICER FOR DENYING THE BENEFIT UNDER THE PRESENT ARTICLE-8 IS NOT TENABLE AS PER OUR DIS CUSSION IN THE FORGOING PARAGRAPHS THAT CHARTERING OF SOME SPACE OR SLOT C HARTERER IN A SHIP IS ACTUALLY A PART AND PARCEL OF CHARTER OF A SHIP ... ' PAGE 39 - PARA 31 '31. THUS IN OUR CONCLUSION WE HOLD THAT TRANSPOR TATION OF CARGO IN THE CONTAINER BELONGING TO THE ASSESSEE FROM INDIAN POR T I.E. PORT OF BOOKING TO THE HUB PORT THROUGH FEEDER VESSEL BY WAY OF SPACE CHAR TER / SLOT CHARTER ARRANGEMENT FALLS WITHIN THE AMBIT OF THE WORD 'CH ARTERER' AND THEREFORE IT CANNOT BE SEGREGATED FORM THE SCOPE OF 'OPERATION O F SHIPS' AS DEFINED IN ARTICLE- 8(2) OF THE INDO-MALAYSIAN TREATY .. ' 14. BASED ON ABOVE IT WAS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT FULL EXEMPTION SHOULD BE GRANTED TO T HE ASSESSE UNDER ARTICLE 8 AS SPACE BOOKING HAS BEEN HELD TO BE 'CHARTERING' A S CONTEMPLATED UNDER ARTICLE 8(2) OF THE INDIA US TAX TREATY. 15. WITHOUT PREJUDICE TO THE ARGUMENTS THAT BOOKING OF SPACE ON THIRD PARTY AIRCRAFTS IS 'CHARTER' AND THEREFORE INCOME O F THE ASSESSE IS EXEMPT UNDER ARTICLE 8(2) THE COUNSEL FOR THE ASSESSEE SU BMITTED THAT INCOME FROM USAGE OF THIRD PARTY AIRCRAFTS AMOUNTS TO INCOME EA RNED BY PARTICIPATING IN A 'POOL/JOINT BUSINESS' AND THUS IS COVERED UNDER ART ICLE 8(4) OF THE INDIA US TAX TREATY. DICTIONARY MEANINGS OF THE TERM 'POOL' IT SUBMITTED THE FOLLOWING DEFINITIONS TO UNDERSTAND THE MEANING OF THE TERM P OOL: (I) BLACK'S LAW DICTIONARY: 'POOL' HAS BEEN DEFINED AS 'AN ASSOCIATION OF ENTIT IES WHO SHARE THEIR RESOURCES AND FUNDS TO PROMOTE THEIR JOINT UNDERTAKING. ' (II) CONCISE LAW DICTIONARY: COMBINING OF SEVERAL PERSONS OF THEIR SEPARATE RESO URCES IN ONE LARGE OPERATION OR TO PROMOTE THEIR JOINT BUSINESS OR UNDERTAKING. ITA 1256/M/14 11 16. HE FURTHER REFERRED TO THE MEANING OF THE TERM 'POOL' DISCUSSED BY MR KLAUS VOGEL IN HIS COMMENTARY ON ARTICLE 8(4) OF TH E OECD MODEL CONVENTION WHICH IS IN PARI-MATERIA WITH ARTICLE 8(4) OF THE I NDIA US TAX TREATY: 'THE TERMS 'POOL ' 'JOINT BUSINESS' AND 'INTERNATI ONAL OPERATING AGENCY' ARE NOT DEFINED IN THE CONVENTION. THE TERMS ARE TAKEN FROM THE INTERNATIONAL AIR SERVICE TRANSIT AGREEMENT OF 7 DECEMBER 1944 (U.NT.S. VOL. 84 389). IN THAT AGREEMENT THEY TYPIFY THE VARIOUS FORMS OF INTERNA TIONAL CO-OPERATION BY AIR TRANSPORT ENTERPRISES CO-OPERATION WHICH MAY TAKE PLACE IN THE TECHNOLOGICAL AS WELL AS IN THE COMMERCIAL FIELDS ... THE TERMS COVE R ALL FORMS OF CO-OPERATION AND THEIR ENUMERATION IS CONSEQUENTLY NO MORE THAN EXEM PLARY AND IS NOT EXHAUSTIVE. ' 17. BASED ON THE ABOVE THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE TERM 'POOL' INCLUDES ANY 'COMMERCIAL ARRAN GEMENT' AND COVERS ALL FORMS OF CO-OPERATIONS THAT WOULD INCLUDE COMMERCIA L CO-OPERATION AND SHOULD NOT BE GIVEN A NARROW INTERPRETATION AS GIVE N BY THE AO AND THE DRP IN ITS ORDER BY ONLY REFERRING TO POOLING OF FUNDS AND SHARING OF PROFITS. THE ASSESSEE SHARES A RECIPROCATORY ARRANGEMENT WITH TH E THIRD PARTY CARRIERS AND THEREFORE SUCH AN ARRANGEMENT WOULD AMOUNT TO P OOL UNDER ARTICLE 8(4) OF THE INDIA US TAX TREATY. ON PERUSAL OF THE AGREE MENTS ENTERED WITH THIRD PARTY CARRIERS IT CAN BE OBSERVED THAT THE ELEMENT OF RECIPROCITY IS EMBEDDED IN THESE ARRANGEMENTS. FURTHER THE OBSERVATION OF THE AO AND DRP IS ON THE PREMISE THAT THE ARRANGEMENT IS NOT IN THE NATURE O F 'POOLING' WHEREAS THE WORD USED IN THE TREATY IS 'POOL' AND NOT 'POOLING' . THE WORD 'POOLING' HAS A DIFFERENT CONNOTATION AS COMPARED TO THE WORD 'POOL '. 18. ON THE OTHER HAND THE DR. NARENDER KUMAR THE LD. CIT-DR APPEARING ON BEHALF OF THE REVENUE CONTENDED THAT THE PROFITS DERIVED FROM ACTIVITY OF OPERATIONS OF SHIP/AIRCRAFT IN INTERNATIONAL TRA FFIC UNDER ARTICLE 8 WILL NOT COVER THE RECEIPTS UNDER CODE SHARING AGREEMENT. AS PER THE LD. D.R. ARTICLE 8(1) IS THE SUBSTANTIVE PROVISIONS GRANTING THE EXE MPTION. WHAT IS EXEMPT UNDER ARTICLE 8(1) IS THE PROFIT DERIVED FROM OPER ATION OF SHIP OR AIRCRAFT IN INTERNATIONAL TRAFFIC. THE TWIN CONDITION OF OPERA TION OF AIRCRAFT AND IN ITA 1256/M/14 12 INTERNATIONAL TRAFFIC SHOULD BE SIMULTANEOUSLY FULF ILLED TO CLAIM THE EXEMPTION UNDER ARTICLE 8(1). THE USE OF EXPRESSION PROFITS DERIVED CONNOTES THAT THE PROFIT SHOULD HAVE A DIRECT AND FIRST LEVEL NEXUS T O THE OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC. THUS ONLY THAT PART OF PROFI T WOULD QUALIFY FOR EXEMPTION UNDER ARTICLE 8(1) WHICH IS DERIVED FROM OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC AND NOT ANY OTHER PROFIT WHICH HAS ONLY A R EMOTE CONNECTION TO THE ACTIVITY OF OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC. THE LD. D.R. FURTHER CONTENDED THAT THE MEANING OF PROFITS DERIVED FROM OPERATION OF SHIPS/AIRCRAFT IS RESTRICTIVE WHICH IS ALSO EVIDEN T FROM THE FACT THAT ARTICLE 8(2) SEEKS TO FURTHER EXPAND THE MEANING OF PROFI TS DERIVED FROM OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC AS OWNER/LESSOR/ CHARTERER. CLAUSE (A) (B) (C) OF ARTICLE 8(2) SEEK TO FURTHER EXPAND THE RESTRICTIVE MEANING SO AS TO ALLOW EXEMPTION TO OTHER ANCILLARY ACTIVITIES ALSO BUT FO R SUCH CLARIFICATION THEY WOULD HAVE NOT BEEN PART OF SUCH PROFITS UNDER 8(1) . HENCE THE FIRST AND CRUCIAL TEST FOR ELIGIBILITY UNDER ARTICLE 8(1) HAS TO BE WHETHER THE IMPUGNED PROFIT IS THE PROFIT DERIVED FROM OPERATION OF AIRC RAFT IN INTERNATIONAL TRAFFIC? THERE IS NO DISPUTE IN RESPECT OF PROFIT DERIVED BY ASSESSEE BY TRANSPORTATION BY ITS OWN/LEASED/CHARTERED AIRCRAFTS TO FINAL DEST INATIONS. IT IS ONLY THE RECEIPTS UNDER THE CODE SHARING AGREEMENTS WITH THE THIRD PARTIES WHERE THE ASSESSEE HAS ONLY BOOKED THE TICKETS AND THE ACTUAL TRANSPORTATION HAS BEEN DONE BY THIRD PARTIES THAT SUCH RECEIPTS CANNOT BE SAID TO BE THE PROFITS DERIVED FROM INTERNATIONAL VOYAGE CARRIED BY ASSESSEE IN CASE OF THIRD PARTY AGREEMENTS. HENCE TO THE EXTENT OF SUCH RECEIPTS T HE BASIC CONDITION OF 8(1) ARE NOT SATISFIED BECAUSE THERE IS NO OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC BY ASSESSEE RELEVANT TO SUCH RECEIPT WHICH HAS RESULTED IN PROFITS AND HENCE SUCH PROFITS CANNOT BE SAID TO BE DERIVED F ROM OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC AND THEREFORE THE ASSESSEE FA ILS TO SATISFY THE CRUCIAL TEST FOR BEING ELIGIBLE UNDER ARTICLE 8(1) R/W 8(2) IN R ESPECT OF THE VOYAGES WHICH HAVE NOT BEEN OPERATED BY ASSESSEE EITHER BY OWNED/ LEASED/CHARTERED AIRCRAFTS. ITA 1256/M/14 13 20. IT WAS FURTHER CONTENDED BY THE LD. D.R. THAT T HOUGH THE PROFIT FROM SALE OF TICKETS IS DEEMED TO BE INCLUDED U/S 8(2)(A) AS PROFITS DERIVED FROM OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC BUT THAT WILL COME INTO PLAY ONLY WHEN THE ASSESSEE FIRST SATISFIES THE SUBSTANTIVE A RTICLE 8(1) R/W 8(2) ALSO IN RESPECT OF THE VERY SAME VOYAGE FOR WHICH IT HAS EA RNED PROFIT ON SALE OF TICKET FOR AN INTERNATIONAL VOYAGE. AS ALREADY DEMONSTRATE D EARLIER THE RECEIPTS FOR ACTIVITIES UNDER ARTICLE 8(2)(A)/(B)/(C) ARE ONLY F OR ENLARGING THE SCOPE OF PROFITS BUT THE QUALIFYING CONDITIONS HAVE TO BE STILL INDE PENDENTLY FULFILLED UNDER ARTICLE 8(1)& 8(2) TO CLAIM THE BENEFIT OF RECEIPTS FALLING IN ARTICLE 8. THE LD. D.R. FURTHER CONTENDED THAT THE LD. AR WHILE ARGUIN G THAT THE ITAT DECISION IN EARLIER YEARS IN ASSESSEES OWN CASE WAS NOT APP LICABLE HIMSELF ADMITTED THAT THE IMPUGNED RECEIPTS IN THIS YEAR WERE NOT IN THE NATURE OF ANCILLARY RECEIPTS. RATHER IT WAS HIS ARGUMENT THAT SUCH RECE IPT WOULD FALL INTO THE MAIN ACTIVITY OF TRANSPORTATION IN INTERNATIONAL TR AFFIC AS A CHARTERER. THIS MEANS THAT THE ASSESSEE HAS TO SATISFY THE TWIN CON DITION OF (I) OPERATION IN INTERNATIONAL TRAFFIC AND (II) AS A OWNER/LESSEE/CH ARTERER. 21. IN EARLIER YEAR THE RECEIPTS FROM OTHER ACTIVIT IES CONNECTED TO SUCH TRANSPORT FALLING IN 8(2)(B) WITHOUT HAVING ANY REC EIPTS WHICH QUALIFY UNDER ARTICLE 8(1) & 8(2) HAVE BEEN HELD BY ITAT MUMBAI I N ASSESSEES OWN CASE TO BE NOT ELIGIBLE FOR BENEFIT OF ARTICLE 8. THIS VIEW OF THE ITAT THEREFORE SUPPORTS THE ARGUMENTS MADE IN EARLIER PARA ABOVE. 22. AS PER THE LD. D.R. THE ISSUE IS COVERED BY TH E DECISION OF THE ITAT IN ASSESEES OWN CASE REPORTED AT 124 ITD 114 (MUMBAI) . FOLLOWING ARE THE OBSERVATIONS OF THE TRIBUNAL AT PARA 13 OF ITS ORDE R:- THE NEXT ISSUE FOR OUR CONSIDERATION IS WHETHER THE ACTIVITIES OF SCREENING OF LUGGAGE BELONGING TO PASSENGERS OF OTHER AIRLINES A ND THIRD PARTY CHARTER HANDLING AND MAINTENANCE SERVICES WOULD FALL WITHIN THE AMBIT OF THE WORDS ANY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRA NSPORTATION USED IN PARA 2(B) OF ART. 8 SINCE ENTIRE CLAIM OF ASSESSEE IS SOLELY BASED ON SUCH PROVISIONS. A ITA 1256/M/14 14 PERUSAL OF ART.8(2) (B) MAKES IT CLEAR THAT THE ACT IVITY CARRIED ON BY THE ASSESSEE MUST BE DIRECTLY CONNECTED WITH SUCH TRANSPORTATION . THE WORDS SUCH TRANSPORTATION REFERS TO THE TRANSPORTATION PRESCR IBED IN THE MAIN BODY OF PARA 2 I.E. TRANSPORTATION BY SEA OR AIR OF PASSENGERS MAIL LIVESTOCK OR GOODS CARRIED BY THE OWNER OR LESSEE OR THE CHARTER OF TH E SHIPS. IN OUR OPINION THE COMBINED READING OF PARAS 1 AND 2(B) REVEALS THAT O NLY THAT ACTIVITY WHICH IS DIRECTLY RELATED TO THE TRANSPORTATION OF PASSENGER S BY THE ASSESSEE AS OWNER/LESSEE/ CHARTERER OF THE AIRCRAFT WOULD FALL WITHIN THE AMBIT OF PAR A 2(B) OF ART. 8 AND CONSEQUENTLY THE ACTIVITY RELATABLE TO THE TRANSPORTATION OF PASSENGERS BY OTHER AIRLINES WOULD BE OUTSIDE THE S COPE OF SUCH PROVISIONS. FOR THE SIMILAR REASON THE ACTIVITY OF THIRD PARTY CHA RTER HANDLING AND MAINTENANCE WOULD ALSO BE OUTSIDE THE AMBIT OF PARA 2(B) OF ART 8. THE VIEW TAKEN BY US IS ALSO FORTIFIED BY THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF BRITISH AIRWAYS PLC. (SUPRA) WHEREIN EXPRESSION UNDER ARTICLE 8 OF INDO-UK TREATY (WHICH IS SIMILARLY WORDED) WAS DENIED IN RESPECT OF THE VARI OUS SERVICES PROVIDED TO OTHER AIRLINES. FOR THE REASONS GIVEN ABOVE WE AR E UNABLE TO UPHOLD THE FINDING OF THE CIT(A) THAT THE SUBSIDIARY ACTIVITIES CARRIE D ON BY THE ASSESSEE FALL WITHIN THE SCOPE OF ART. 8(2)(B) OF INDO-US TREATY. THE O RDERS OF THE CIT(A) ARE THEREFORE REVERSED ON THIS ISSUE AND CONSEQUENTLY DENIAL OF EXEMPTION BY THE AO IS UPHELD . FROM PERUSAL OF THIS PARA IT IS EVIDENT THAT IT IS MANDATORY FOR AN ASSESSEE TO CARRY THE MAIN ACTIVITY OF TRANSPORTATION IN INTERN ATIONAL TRAFFIC ITSELF AS REQUIRED UNDER ARTICLE 8(1) AND 8(2) AS OWNER/LESSE E/CHARTERER AND ONCE IT IS SATISFIED THEN ONLY ANY ANCILLARY ACTIVITY AS DESCR IBED IN PARA 2(B) OF ARTICLE 8 CAN BE ALSO BROUGHT INTO THE AMBIT OF PROFITS FROM SUCH TRANSPORTATION. THUS NEXUS QUA EACH VOYAGE IN INTERNATIONAL TRAFFIC IS A MUST TO THE TRANSPORTATION BY ASSESSEE AS OWNER/LESSEE/CHARTERER. IF THE ASSES SEE DOES NOT CARRY TRANSPORTATION ITSELF QUA ANY PARTICULAR VOYAGE AS OWNER/LESSEE/CHARTERER THEN QUA SUCH VOYAGE IT WOULD FALL OUT OF MAIN ARTI CLES 8(1)( AND 8(2) EVEN THOUGH IT MAY QUALIFY UNDER ARTICLE 8 FOR OTHER VOY AGES WHEREIN IT HAS TRANSPORTED AS OWNER/LESSEE/CHARTERER. THE RECEIPTS IN QUESTION ARE IN RESPECT OF CODE SHARING VOYAGES WHERE THE ASSESSEE HAS NOT AT ALL CARRIED OPERATION IN INTERNATIONAL TRAFFIC EVEN PARTLY. THEREFORE THIS D ECISION SHALL ALSO APPLY TO FACTS OF PRESENT ASSESSEE WHERE NO TRANSPORTATION IS CARRIED OUT BY ASSESSEE AS CHARTERER ALSO. 23. FURTHER RELIANCE WAS PLACED BY THE LD. D.R. ON THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF MARUBENI CORPORATION 4 4 TAXMANN.COM 22(MUMBAI) WHEREIN IT IS HELD THAT IF THERE ARE CON TRADICTORY DECISION THAN THE JUDGMENT IN ASSESSEES OWN CASE WILL BE PREFERRED. 24. RELIANCE WAS ALSO PLACED BY THE LD. D.R. ON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF ADIT VS. FEDERAL EXPRES S CORPORATION 125 ITD ITA 1256/M/14 15 1(MUM). IT IS ALSO IN RESPECT OF AIR TRANSPORT UNDE R INDO-USA TREATY AS THE CASE OF PRESENT ASSESSEE. PARA 29 31 AND 40 WERE R ELIED FOR READY REFERENCE RELEVANT PART OF PARA 40 IS REPRODUCED AS UNDER: - AS PER PARA 1 OF THE ARTICLE 8 THE PROFITS FROM TH E OPERATION OF AIRCRAFTS IN THE INTERNATIONAL TRAFFIC DERIVED BY THE ASSESSEE CANNO T BE TAXED IN INDIA. HOWEVER THE EXPRESSION PROFITS FROM THE OPERATION OF SHIPS OR AIRCRAFT IN THE INTERNATIONAL TRAFFIC HAS BEEN DEFINED IN PARA 2. ACCORDING TO THIS PARA THE SAID EXPRESSION HAS BEEN DEFINED IN TWO PARTS. THE FIRST PART DEFI NES THE SCOPE OF THE MAIN OR DIRECT ACTIVITY OF TRANSPORTATION IN THE INTERNATIO NAL TRAFFIC WHILE THE SECOND PART INCLUDES CERTAIN ACTIVITIES OTHER THAN THE MAIN ACT IVITY OF TRANSPORTATION IN INTERNATIONAL TRAFFIC. THE PERUSAL OF THE FIRST PA RT REVEALS THAT MAIN OR DIRECT ACTIVITY IS RESTRICTED TO THE TRANSPORTATION OF PAS SENGER / CARGO / MAIL ETC IN THE INTERNATIONAL TRAFFIC BY THE OWNERS CHARTERERS OR LESSEES OF SHIPS OR AIRCRAFTS. THEREFORE SUCH TRANSPORTATION THROUGH AIRCRAFTS BY THE ASSESSEE NEITHER AS OWNER NOR AS CHARTERER OR LESSEE WOULD BE OUTSIDE T HE SCOPE OF SUCH EXPRESSION. THE ALTERNATE CONTENTION OF THE ASSESSEE THAT SUCH TRANSPORTATION WOULD FALL WITHIN PARA 2(B) IN OUR OPINION IS ALSO WITHOUT F ORCE SINCE PARA 2(B) INCLUDES OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPO RTATION. THE WORDS SUCH TRANSPORTATION IN OUR OPINION WOULD ONLY MEAN TH E TRANSPORTATION REFERRED TO IN FIRST PART OF THE DEFINITION. THEREFORE TRANSP ORTATION IN THE INTERNATIONAL TRAFFIC THROUGH OTHER AIRLINES WOULD BE OUTSIDE THE SCOPE O F ARTICLE 8(2). WE HOLD ACCORDINGLY . 25. THE LD. D.R. ALSO INVITED OUR ATTENTION TO PARA 15 OF THE ITAT MUMBAI BENCH ORDER IN THE CASE OF DDIT VS. CIE DE NAVEGACA O NORSUL 121 ITD 113 (MUM) WHEREIN FOLLOWING WAS THE OBSERVATION OF THE BENCH:- IN THE PRESENT CASE ADMITTEDLY THE ASSESSEE IS NE ITHER THE OWNER NOR LESSEE NOR THE CHARTERER OF THE FEEDER VESSEL CARRYING THE CARGO FROM MUMBAI PORT TO DESTINATION IN SOUTH AFRICA I.E. DURBAN. THEREFOR E PROFITS ATTRIBUTABLE TO SUCH VOYAGE WOULD BE OUTSIDE THE SCOPE OF ARTICLE 8 OF I NDO-BRAZIL TREATY EVEN THOUGH THE ASSESSEE MAY BE ENGAGED IN THE BUSINESS OF TRAN SPORTATION OF GOODS IN THE INTERNATIONAL TRAFFIC. THE CASE OF DDIT VS. CIE DE NAVEGACAO (SUPRA) WAS ALSO CONSIDERED BY HONBLE BENCH IN CASE OF MISC BERHARD . AT PARA 30 PAGE 37 HONBLE BENCH IN MISC BERHARD OBSERVED THAT THE ASSESSEE HAS FAILED TO LINK AND E STABLISH THE VOYAGE WISE TRANSPORTATION WHETHER THE FEEDER VESS ELS WERE ACTUALLY LOADING THE GOODS INTO THE MOTHER VESSELS WHICH THE ASSESS EE HAD CLAIMED. THUS BY IMPLICATION THE HONBLE ITAT IN CASE OF MISC BERHARD OPINED THAT IT IS ONLY BECAUSE OF PRESENCE OF A UNDISPUTED IN EXTRICATE AN D DIRECT LINK QUA EACH VOYAGE BETWEEN FEEDER VESSELS AND MOTHER VESSELS TH AT THE ASSESSEE(MISC BERHARD) WAS HELD AS A CHARTERER BUT FOR WHICH THE DECISION IN CASE OF DDIT VS. CIE DE NAVEGACAO WOULD HAVE HELD THE GROUND. IN THE INSTANT CASE ALSO ITA 1256/M/14 16 NOT ONLY THERE IS NO EVIDENCE WHICH HAS BEEN PLACED ON RECORD OR CLAIMED FOR ANY LINKAGE BETWEEN FEEDER VOYAGE FROM INDIA TO HUB PORT AND THERE FROM TO FINAL DESTINATION EVEN THE ENTIRE VOYAGE FROM INDI A TO FINAL DESTINATION UNDER CODE SHARING ARRANGEMENT IS PERFORMED THROUGH THIRD PARTIES ONLY AND NO PART OF SUCH VOYAGE WAS PERFORMED BY ASSESSEE. HENCE THE QUESTION OF LINKAGE WOULD NOT ARISE AT ALL. HENCE BY IMPLICATION EVEN A S PER THE RATIO OF MISC BERHARD(SUPRA) THE DECISION IN CASE OF DDIT VS. CI E DE NAVEGACAO WOULD BE APPLICABLE IN CASE OF FACTS OF THE PRESENT ASSES SEE AND THAT THE DECISION OF MISC BERHARD WOULD NOT BE APPLICABLE. VII . KIND ATTENTION OF HONBLE BENCH IS INVITED TO PARA 21 AND 22 AT PAGE 27 AND 28 ORDER IN CASE OF MISC BERHARD WHERE THE HON BLE BENCH HAS RELIED UPON DECISION IN BALAJI SHIPPING U.K. WHICH WAS ALS O A CASE OF SHIPPING COMPANY HAVING SAME MODUS OPERANDI OF BUSINESS. AT PARA 26 HONBLE BENCH IN CASE OF MISC BERHARD HAS REFERRED SECTION 115 VB FOR FINDING DEFINITION OF OPERATION OF SHIP. IN THIS REGARD ARGUMENT OF REV ENUE IS THAT ONCE ASSESSEE IS OPTING FOR INDO US TREATY FOR TAXATION THEN DEFIN ITION GIVEN IS ARTICLE 8 (2) OF TREATY MUST BE CONSIDERED NOT AS MENTIONED IN IT AC T 1961 FOR SOME OTHER PURPOSE I.E. FOR CHAPTER XII. 26. THE LD. CIT- DR ALSO ARGUED THAT THE ARRANGEMEN T UNDER CODE SHARING IS NOT IN NATURE OF A SLOT/SPACE CHARTER TO QUALIFY UNDER 8(2) FOR FOLLOWING REASONS:- I. THERE IS NO SUCH WRITTEN AGREEMENT FOR SPACE OR SLOT CHARTER BETWEEN ASSESSEE AND OTHER AIRLINES. THE CODE SHARING AGREE MENT IS NOT A CHARTER AGREEMENT. II . THE RIGHT OF ASSESSEE TO BOOK FLIGHTS UNDER CODE S HARING AGREEMENTS WITH OTHER THIRD PARTIES IS NOT EXCLUSIVE UNLIKE TH E CHARTER AGREEMENT. UNDER THE CODE SHARING AGREEMENT THE OTHER PARTIES ARE ALSO ENTITLED TO BOOK THE FLIGHTS AND THE ASSESSEE HAS NO FIXED SPAC E/SLOT FOR WHICH THE BOOKING RIGHTS ARE EXCLUSIVELY WITH ASSESSEE ONLY. THE NUMBER OF SEATS/SPACE WHICH CAN BE BOOKED BY ASSESSEE IS ALSO NOT FIXED UNDER THE CODE SHARING AGREEMENT. IT VARIES FROM TIME TO TIME AND FROM PARTY TO PARTY. IN SUBSTANCE THE ARRANGEMENT OF ASSESSEE WIT H THIRD PARTY IS SUCH THAT IT ONLY ALLOWS THE ASSESSEE (WITHOUT EXCLUSION OF OTHERS) ALSO TO BOOK THE TICKETS FOR ITS CUSTOMERS ON THE FLIGHTS OPERAT ED BY OTHER THIRD PARTIES. THE ROLE OF THE ASSESSEE TO THE EXTENT OF BOOKINGS MADE UNDER CODE SHARING AGENT IS THEREFORE MORE LIKE A BOOKING AGENT AND NO T AS A CHARTERER. III . THOUGH IT IS THE CONTENTION OF LD AR THAT THE CARG O/PASSENGERS CARRIED UNDER CODE SHARING ARRANGEMENT FROM INDIA TO INTERM EDIARY DESTINATIONS HAVE BEEN TRANSPORTED FURTHER BY ASSESSEE AIRLINES FROM SUCH INTERMEDIARY DESTINATIONS TO FINAL DESTINATIONS. HOWEVER FROM TH E FACTS MENTIONED IN ITA 1256/M/14 17 A.OS ORDER DRP DIRECTIONS AND ARGUMENTS TAKEN BY LEARNED A.R. IT APPEARS THAT COMPLETE TRANSPORTATION UNDER CODE SHA RING ARRANGEMENT TOOK PLACE FROM ORIGIN TO FINAL DESTINATION IN SING LE STRETCH AND NOTHING IS PLACED ON RECORD TO SHOW THAT SUCH DESTINATIONS WER E ONLY INTERIM DESTINATIONS. IV. EVEN IF THERE IS BREAK OF VOYAGES AT INTERMEDIA RY DESTINATION BUT NOTHING HAS BEEN PRODUCED BEFORE THE AO/CIT(A)/ITAT TO SHOW THAT DESTINATIONS TO WHICH ALL PASSENGERS/CARGO WERE CAR RIED FROM INDIA UNDER CODE SHARING WERE FURTHER TRANSPORTED TO FINAL DEST INATION BY ASSESSEES AIRLINES. V . MERE FACT THAT THE ASSESSEE WAS OPERATING ITS AIRLI NE ALSO FROM SUCH INTERMEDIARY DESTINATIONS TO FINAL DESTINATIONS WIL L NOT AUTOMATICALLY PROVE THAT THAT THE ALL SUCH PASSENGERS/CARGO WHICH WERE CARRIED FROM INDIA UNDER CODE SHARING TO INTERMEDIARY DESTINATIONS WER E TRANSPORTED TO FINAL DESTINATIONS BY ASSESSEES AIRLINE ONLY. VI . TO CALL A PARTICULAR VOYAGE AS AN OPERATION IN INTE RNATIONAL TRAFFIC AT LEAST ONE PART OF THE OPERATION (MAIN PART AND NOT THE INCIDENTAL PART) MUST BE CARRIED BY ASSESSEE IN THE INTERNATIONAL TRAFFIC AS A CHARTERER IF NOT AS AN OWNER/LESSEE TO TAKE THE BENEFIT OF ARTICLE 8. N OTHING HAS BEEN PLACED TO SHOW THAT IN EVERY VOYAGE THE DESTINATION UNDER COD E SHARING WAS NOT THE FINAL DESTINATION AND THAT THERE WAS AN IN EXTRICAT E LINK BETWEEN VOYAGE FROM INDIA TO INTERIM DESTINATION BY THIRD PARTIES UNDER CODE SHARING ARRANGEMENT AND FROM INTERIM DESTINATION TO FINAL D ESTINATION BY ASSESSEE AS A CHARTERER. VII. THE EXISTENCE OF AN IN EXTRICATE LINK OF ONE L EG TO FINAL LEG IS NECESSARY TO FULFILL THE CONDITION OF SPACE/CHARTER ARRANGEME NT. THIS VIEW IS SUPPORTED BY OBSERVATION OF ITAT IN CASE OF MISC BE RHARD (SUPRA) ALSO WHICH HAS BEEN RELIED BY LD AR IN PARA 29 PAGE 36 REPRODUCED FOR READY REFERENCE:- FROM THE ABOVE OBSERVATIONS IT CAN BE UNDERSTOOD T HAT THE FACILITY OF SLOT HIRE AGREEMENT WITH THE FEEDER VESSELS TO COMPLETE THE V OYAGE IS NOT MERELY AN AUXILIARY OR INCIDENTAL ACTIVITY TO THE OPERATION O F SHIPS BUT INEXTRICABLY LINKED. IF THE TRANSPORTATION OF CARGO BY FEEDER VESSELS BE LONGING TO OTHER ENTERPRISE IS ONLY A PART OF MAIN VOYAGE BY THE MOTHER SHIP I.E. OWNED OR LEASED BY THE ASSESSEE ENTERPRISE THEN IT HAS TO BE TAKEN AS A P ART AND PARCEL OF THE OPERATION WHICH IS INEXTRICABLY LINKED WITH THE CO MPLETION OF THE ENTIRE VOYAGE. THE LINKAGE BETWEEN THE TRANSPORTATION BY FEEDER VE SSELS MOTHER VESSELS OF THE SHIP OWNED BY THE ASSESSEE HAS TO BE ESTABLISHED. HENCE IN ABSENCE OF ANY LINK QUA EACH VOYAGE FROM INDIA TO INTERIM DESTINAT ION UNDER CODE SHARING AND INTERIM DESTINATION TO FINAL DESTINATION BY ASSESSE E AND ALSO IN ABSENCE OF ANY EVIDENCE THAT EVEN THE SECOND LEG OF SAME VOYAGE WH ICH STARTED FROM INDIA WAS ITA 1256/M/14 18 CARRIED BY ASSESSEE THE CODE SHARING ARRANGEMENT C ANNOT BE SAID TO BE IN NATURE OF SPACE/SLOT CHARTER. 27. IN PARA 14 PAGE 17 THE ITAT HAS OBSERVED THE CRUCIA L FACTS TO ARRIVE AT CONCLUSION THAT THE SHIPPING ACTIVITY OF ASSESSEE F ROM INDIAN PORT TO HUB PORT WAS IN NATURE OF CHARTER ARRANGEMENT AND COVERED IN ARTICLE 8: ..FOR THE PURPOSE OF ITS TRANSPORTATION OF CARGO THE ASSESSEE USED THE SERVICES OF FEEDER VESSELS OPERATED BY THIRD PA RTIES BY USING SPACE CHARTER/SLOT CHARTER FROM INDIAN PORT TO HUB PORT. AT THE HUB PORT THE CONTAINERS WHICH WERE OWNED BY THE ASSESSEE WERE TR ANSFERRED TO MOTHER VESSELS I.E. THE SHIPS OWNED BY THE ASSESSE E AND FROM THEREON THE CARGOS / CONTAINERS WERE TRANSPORTED BY ITS OWN SHIPS TO THE FINAL DESTINATION PORT. THE ENTIRE VOYAGE FROM INDIA POR T TO HUB PORT AND FROM THERE TO FINAL DESTINATION PORT IS INEXTRICABLY LI NKED AND CANNOT BE SEGREGATED AS HELD BY THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). HE FURTHER SUBMITTED THAT T HE ASSESSING OFFICER HAS IN FACT ADMITTED THAT THE ASSESSEE HAS FURNIS HED PROOF TO SUBSTANTIATE THE LINKAGE OF THE VOYAGE PERFORMED ON FEEDER VESSELS AND MOTHER VESSELS (I.E. SHIPS OWNED BY THE ASSESSEE). THE REVENUES CASE IS THAT SINCE THE FEEDER VESSEL IS NOT OWNED / LEAS ED BY THE ASSESSEE THEREFORE THE BENEFIT OF ARTICLE 8 CANNOT BE GI VEN ON THE GOODS CARRIED THROUGH THE FEEDER VESSEL IS NOT A CORRECT INTERPRE TATION OF ARTICLE 8(2). THE CARRIAGE OF GOODS FROM THE FEEDER VESSEL IS NOT HING BUT A CHARTER ONLY IN A SENSE THAT THE ASSESSEE HAS BOOKED SPACE CHART ER / SLOT CHARTER FOR ITS CONTAINERS WHICH ARE OWNED BY IT... 28. THE LD. CIT DR FURTHER SUBMITTED THAT IN CASE OF PRESENT ASSESSEE IT HAS NOT BEEN SHOWN THAT ONE LEG OF THE VOYAGE IS CARRIED BY THIRD PARTIES AS A FEEDER CHANNEL AND THE REMAINING LEG TO FINAL DESTINATION IS CARRIED BY ASSESSEE UNLIKE THE CASE OF MISC BERH ARD(SUPRA). FURTHER NOTHING HAS BEEN SHOWN BY ASSESSEE TO PROVE THAT FL IGHT DESTINATIONS BOOKED UNDER CODE SHARING WERE ONLY THE INTERIM DES TINATIONS AND NOT THE FINAL DESTINATIONS AND EVEN IF THEY WERE INTERIM DE STINATIONS THE PASSENGERS TRANSPORTED FROM INDIA TO INTERIM DESTIN ATIONS BY THIRD PARTY AIRLINES WERE ULTIMATELY TRANSPORTED BY ASSESSEES AIRLINE TO COMPLETE THEIR VOYAGE THERE FROM TO THE FINAL DESTINATION. WHEREAS IN CASE OF MISC BERHARD(SUPRA) THE AO AND CIT(A) GAVE A UNDISPUTED FINDING THAT THE ENTIRE VOYAGE FROM INDIA PORT TO HUB PORT AND FROM THERE TO FINAL ITA 1256/M/14 19 DESTINATION PORT WAS INEXTRICABLY LINKED AND COULD NOT BE SEGREGATED AND THAT THE ASSESSING OFFICER HAS IN FACT ADMITTED T HAT THE ASSESSEE HAS FURNISHED PROOF TO SUBSTANTIATE THE LINKAGE OF THE VOYAGE PERFORMED ON FEEDER VESSELS AND MOTHER VESSELS (I.E. SHIPS OWNE D BY THE ASSESSEE. IT WAS ON THESE FACTS IT WAS HELD BY ITAT IN MISC BERHARD THAT ASSESSEE WAS OPERATING SHIPS IN INTERNATIONAL TRAFFIC AND THAT T HE CARRIAGE OF GOODS IN THE FIRST LEG OF VOYAGE FROM INDIA TO HUB PORT BY FEEDE R VESSELS WAS LIKE A CHARTER. HENCE IN PRESENT CASE THE ARRANGEMENT OF ASSESSEE W ITH THIRD PARTIES ON PECULIAR FACTS CANNOT BE SAID TO BE IN N ATURE OF A CHARTER ARRANGEMENT. 29 . IT WAS THE CONTENTION OF THE LD. D.R. THAT ON ONE H AND THE LD AR RELIES ON THE DECISION IN CASE OF MISC BERHARD TO SUPPORT ITS CASE FOR ELIGIBILITY OF ARTICLE 8 BUT ON OTHER HAND WHEN IT COMES TO REQUIREMENT OF ESTABLISHING THE ONE TO ONE LINKAGE OF VOYAGES FROM INDIA TO INTERIM DESTINATIONS TO THE VOYAGES FROM INTERIM DESTINATIO NS TO FINAL DESTINATIONS HE CONTENDS THAT THIS PRINCIPLE CANNOT BE APPLIED T O AIRLINE BUSINESS UNLIKE THE CASE OF MISC BERHARD WHICH WAS FOR A SHIPPING B USINESS. THE LD AR HAS FAILED TO APPRECIATE THAT THE VERY BASIS FOR HO LDING THE ARRANGEMENT OF TRANSPORTATION FROM INDIA TO INTERIM DESTINATION BY THIRD PARTIES AND FROM THERE TO FINAL DESTINATION BY ASSESSEE BY ITAT IN MISC BERHARD WAS THE UNDISPUTED PRESENCE OF ONE TO ONE LINKAGE FOR BOTH THE LEGS OF JOURNEYS I.E. FROM INDIA TO INTERIM DESTINATION AND THERE FROM TO FINAL DESTINATION. THE CONDITION OF ESTABLISHING THE LINKAGE THEREFORE CAN NOT BE DISPENSED WITH IF ONE HAS TO CALL THE ARRANGEMENT AS SPACE/SLOT CHART ER FOLLOWING THE RATIO OF DECISION OF MISC BERHARD (SUPRA). FURTHER JUST BEC AUSE THE SHIPPING AND AIRLINE BUSINESS ARE LITTLE DIFFERENT IN SO FAR AS MODE OF TRANSPORT THE CONDITION OF ESTABLISHING THE LINKAGE CANNOT BE DIS PENSED WITH WHEN THE ARTICLE 8 UNDER WHICH THE RELIEF IS BEING CLAIMED D OES NOT MAKE ANY SUCH DISTINCTION BETWEEN THE SHIPPING AND AIRLINE BUSINE SS. IF THE CONTENTION OF ITA 1256/M/14 20 LD AR IS ACCEPTED THEN HOW CAN HE RELY ON THE CASE OF MISC BERHARD TO SUPPORT HIS CLAIM OF BENEFIT UNDER ARTICLE 8. 30. THE ALTERNATE CONTENTION OF LD AR THAT THE PROF ITS ARE ELIGIBLE FOR EXEMPTION UNDER ARTICLE 8(4) AS THE PROFITS DERIVED FROM POOL ARRANGEMENT IS ALSO NOT TENABLE FOR FOLLOWING REAS ONS;- AS PER THE DICTIONARY MEANING OF POOL AS ILLUSTR ATED BY LD AR DURING HEARING IT WOULD CLEARLY SUGGEST THAT A POO L MEANS COMBINING OF SEVERAL PERSONS OF THEIR SEPARATE RESO URCES IN ONE LARGE OPERATION (CONCISE LAW DICTIONARY). THUS A P OOL REQUIRES SEVERAL PERSONS COMING TOGETHER TO CONTRIBUTE AND C OMBINE THEIR RESOURCES FOR A LARGE BUSINESS AND THEN SHARE THE R ESOURCES AMONGST THEM. IN THE PRESENT CASE THE ARRANGEMENT A RE ONLY BILATERAL ARRANGEMENTS AND NOT SEVERAL PERSONS HAVE COME TOGETHER. FURTHER IT IS ALSO NOT THE CASE THAT THE ASSESSEE AND THIRD PARTY BOTH ARE CONTRIBUTING THEIR AIRCRAFTS I N A POOL WHICH ARE SHARED BY BOTH. ONLY THE THIRD PARTY IS CONTRIB UTING ITS AIRCRAFT AND THE ASSESSEE IS ONLY USING THE RESOURC ES OF THE THIRD PARTY AS PER THE TERMS OF AGREEMENT. THUS THE ARRAN GEMENT DOES NOT AT ALL MEETS PRINCIPLES OF POOL ARRANGEMENT; RA THER ASSESSEE IS CONDUCTING ITSELF AS A SIMPLE HIRER OF THE RESOURCE S FOR ITS OWN ACTIVITIES. B. FURTHER EVEN TO QUALIFY FOR EXEMPTION FOR PROFIT S UNDER A POOL ARRANGEMENT ONE HAS TO STILL SATISFY THE COND ITION OF ARTICLE 8(1) AS APPLICABILITY OF ARTICLE 8(4) IS FLOWING FR OM SUBSTANTIVE ARTICLE 8(1). SINCE THERE IS NO MENTION OF ARTICLE 8(2) AT ALL UNDER ARTICLE 8(4) A CONJOINT READING OF ARTICLE 8(1) AN D 8(4) THEREFORE WOULD MAKE IT VERY CLEAR THAT BENEFIT OF ART 8(4) C AN BE CLAIMED ONLY IF THE ASSESSEE IS ELIGIBLE UNDER 8(1) BY DERI VING PROFITS FROM OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC UNDE R A POOL ARRANGEMENT. AS ALREADY EXPLAINED IN EARLIER PARA THAT WHEN THE ASSESSEE HAS NOT SHOWN TO HAVE CARRIED EVEN A PART OF THE VOYAGE IN INTERNATIONAL TRAFFIC QUA VOYAGES UNDER CODE SHA RING ARRANGEMENT THE CONDITIONS OF ARTICLE 8(1) IS NOT FULFILLED AND HENCE THE BENEFIT OF ARTICLE 8(4) CANNOT BE CLAIMED EVEN IF THERE WERE ANY POOL ARRANGEMENT (WITHOUT ADMITTING THE EX ISTENCE OF POOL ARRANGEMENT IN THIS CASE). ITA 1256/M/14 21 C. SINCE ARTICLE 8(2) IS NOT AT ALL REFERRED UNDER ARTICLE 8(4) THE QUESTION OF GOING INTO EXPANDED DEFINITION OF INTER NATIONAL TRAFFIC AS CHARTERER/LESSEE WOULD NOT COME INTO PLAY WITHOU T PREJUDICE TO THE FACT THAT IN PRESENT CASE EVEN THERE IS NO CHAR TER ARRANGEMENT. 31. WE HAVE CONSIDERED THE RIVAL CONTENTIONS GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND ALSO DELIBERATED UPON THE JUD ICIAL PRONOUNCEMENTS CITED AT BAR BY THE LD. A.R. AND LD. D.R. IN THE CO NTEXT OF THE FACTUAL MATRIX OF THE CASE. FROM THE RECORD WE FOUND THAT THE ASSESSE E IS A COMPANY INCORPORATED UNDER THE LAWS OF THE UNITED STATES OF AMERICA AND TAX RESIDENT OF USA. IT IS ENGAGED IN CARRIAGE OF CARGO AND PASS ENGERS THROUGH AIR IN INTERNATIONAL TRAFFIC. THESE SERVICES WERE PERFORME D BY EMPLOYING DELTAS AIRLINES OWN AIRCRAFTS WHOSE INCOME HAS BEEN CLAIME D EXEMPT UNDER ARTICLE 8 AND ALLOWED BY AO ALSO. HOWEVER THE ASSESSEE HAS ALSO ENTERED INTO CODE SHARING AGREEMENT WITH OTHER THIRD PARTY AIRLINES F OR CARRIAGE OF CARGO AND PASSENGERS FROM INDIA. FOR SUCH CODE SHARING VOYAG ES THE AIRCRAFTS USED BY THIRD PARTY CARRIERS ARE NEITHER OWNED NOR LEASED O R CHARTERED BY THE ASSESSEE I.E. DELTA AIR LINES INC BUT UNDER THE CODE SHARING AGREEMENT THE ASSESSEE WAS BOOKING ITS CUSTOMERS FOR INTERNATIONAL TRAFFIC ON THE FLIGHTS OPERATED BY SUCH THIRD PARTIES FROM INDIA. THE RECEIPTS IN RESPECT O F SUCH BOOKINGS MADE BY ASSESSEE UNDER THE CODE SHARING AGREEMENT HAVE ALSO BEEN CLAIMED AS EXEMPT FORM TAXATION IN INDIA UNDER ARTICLE 8 OF DTAA BETW EEN INDIA AND USA ON GROUNDS THAT CARGO/PASSENGERS BOOKED UNDER CODE SHA RING ARRANGEMENT FROM INDIA WILL ALSO BE COVERED BY INTERNATIONAL TRAFFIC . THE AO AND THE DRP HAS HELD SUCH RECEIPTS ARE NOT COVERED UNDER ARTICLE 8 AS THE CODE SHARING AGREEMENT COULD NOT BE SAID TO BE IN THE NATURE OF A CHARTER ARRANGEMENT AS ENVISAGED UNDER THE DTAA. THE BASIC QUESTION TO BE DECIDED IS WHETHER THE CODE SHARING ARRANGEMENT WITH THIRD PARTY IN WHICH ASSESSEE WAS BOOKING TICKETS FOR ITS CUSTOMERS CAN BE SAID TO BE SLOT/SP ACE CHARTER ARRANGEMENT ON SPECIFIC FACTS OF THE INSTANT CASE SO AS TO MAKE IT ELIGIBLE FOR BENEFIT UNDER ARTICLE 8 OF DTAA. ITA 1256/M/14 22 32. FOR BETTER UNDERSTANDING OF EXEMPTION PROVIDED UNDER ARTICLE 8 OF DTAA BETWEEN INDIA AND US WE REPRODUCE HEREUNDER T HE RELEVANT PROVISIONS CONTAINING UNDER ARTICLE 8:- ARTICLE 8 SHIPPING AND AIR TRANSPORT 1. PROFITS DERIVED BY AN ENTERPRISE OF A CONTRACTIN G STATE FROM THE OPERATION BY THAT ENTERPRISE OF SHIPS OR AIRCRAFT IN INTERNATIONAL TR AFFIC SHALL BE TAXABLE ONLY IN THAT STATE. 2. FOR THE PURPOSES OF THIS ARTICLE PROFITS FROM T HE 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 R ESPECTIVELY OF PASSENGERS MAIL LIVESTOCK OR GOODS CARRIED ON BY THE OWNERS OR LESS EES OR CHARTERERS OF SHIPS OR AIRCRAFT INCLUDING A) THE SALE OF TICKETS FOR SUCH TRANSPORTATION ON B EHALF OF OTHER ENTERPRISES; (B) OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRA NSPORTATION; AND (C) THE RENTAL OF SHIPS OR AIRCRAFT INCIDENTAL TO A NY ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION. 3. PROFITS OF AN ENTERPRISE OF A CONTRACTING STATE DESCRIBED IN PARAGRAPH 1 THE USE MAINTENANCE OR RENTAL OF CONTAINERS (INCLUDING TRA ILERS BARGES AND RELATED EQUIPMENT FOR THE TRANSPORT OF CONTAINERS) USED IN CONNECTION WITH THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THAT STATE. 4. THE PROVISIONS OF PARAGRAPHS 1 AND 3 SHALL ALSO APPLY TO PROFITS FROM PARTICIPATION IN A POOL A JOINT BUSINESS OR AN IN TERNATIONAL OPERATING AGENCY. 33. IT IS CLEAR FROM THE PROVISIONS OF ARTICLE 8 (1 ) THAT IT IS THE SUBSTANTIVE PROVISIONS GRANTING THE EXEMPTION TO AN ENTERPRISE OF A CONTRACTING STATE FROM THE OPERATION BY THAT ENTERPRISE OF SHIPS OR AIRCRA FT IN INTERNATIONAL TRAFFIC. ARTICLE 8(2) CLARIFIES THAT THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL MEAN PROFITS DERIVED BY AN ENTERPRISE FROM THE TRANSPORTATION BY SEA OR AIR RESPECTIVELY OF PASSENGERS MAIL LIVEST OCK OR GOODS CARRIED ON BY THE OWNERS OR LESSEES OR CHARTERERS OF SHIPS OR AIRCRAF T. THUS THE MEANING OF PROFIT DERIVED FROM OPERATION OF SHIP OR AIRCRAFT IN INTERNATIONAL TRAFFIC AS ITA 1256/M/14 23 OWNER/LESSOR/CHARTERER IS A CONDITION PRECEDENT FOR CLAIM OF EXEMPTION UNDER ARTICLE 8. HENCE THE FIRST AND CRUCIAL TEST FOR ELI GIBILITY UNDER ARTICLE 8(1) IS THAT SUCH PROFIT SHOULD BE DERIVED FROM OPERATION O F AIRCRAFT IN INTERNATIONAL TRAFFIC BY THE SHIP OR AIRCRAFT OWNED/LEASED/CHARTE RED BY THE ASSESSEE. THERE IS NO DISPUTE IN RESPECT OF PROFIT DERIVED BY ASSES SEE BY TRANSPORTATION BY ITS OWNED/LEASED/CHARTERED AIRCRAFTS. IT IS ONLY THE RE CEIPTS UNDER CODE SHARING AGREEMENTS WITH THE THIRD PARTIES WHERE THE ASSESSE E HAS ONLY BOOKED THE TICKETS AND THE ACTUAL TRANSPORTATION IS DONE BY TH IRD PARTIES SHIP OR AIRCRAFT THAT SUCH RECEIPTS CANNOT BE SAID TO BE THE PROFITS DERIVED FROM INTERNATIONAL VOYAGE CARRIED BY THE ASSESSEE BY ENTERING INTO COD E SHARING AGREEMENTS. THE RECEIPTS FOR ACTIVITIES UNDER ARTICLE 8(2)(A)(B)(C) ARE ONLY FOR ENLARGING THE SCOPE OF PROFITS FROM OTHER RELATED ACTIVITIES BUT THE QU ALIFYING CONDITION OF SUCH TRANSPORTATION THROUGH SHIP OR AIRCRAFT OWNED/LEASE D OR CHARTERED BY ASSESSEE HAVE TO BE STILL INDEPENDENTLY FULFILLED UNDER ARTICLE 8(1) & (2) TO CLAIM THE BENEFIT OF RECEIPTS FALLING UNDER ARTICLE 8. IN ASSESSEES OWN CASE THE TRIBUNAL HELD THAT THE RECEIPTS FROM OTHER ACTI VITIES CONNECTED TO SUCH TRANSPORT FALLING UNDER ARTICLE 8(2)(B) WITHOUT HAV ING ANY RECEIPTS WHICH QUALIFY UNDER ARTICLE 8(1) & 8(2) ARE NOT ELIGIBLE FOR BENEFIT OF ARTICLE 8. THE TRIBUNAL IN ASSESSEES OWN CASE REPORTED AT 124 ITD 114 (MUMBAI) OBSERVED AT PARA 13 THAT ARTICLE 8(2)(B) MAKES IT CLEAR THAT THE ACTIVITY CARRIED ON BY THE ASSESSEE MUST BE DIRECTLY CONNECTED WITH SUCH TRANS PORTATION. THE WORDS SUCH TRANSPORTATION REFERS TO THE TRANSPORTATION PRESCRIBED IN THE MAIN BODY OF PARA 2 I.E. TRANSPORTATION BY SEA OR AIR OF PASS ENGERS MAIL LIVESTOCK OR GOODS CARRIED BY THE OWNER OR LESSEE OR THE CHARTER OF THE AIRCRAFT. IT WAS ALSO OBSERVED THAT ONLY THAT ACTIVITY WHICH IS DIRECTLY RELATED TO THE TRANSPORTATION OF PASSENGERS BY THE ASSESSEE AS OWNER/LESSEE/CHART ERER OF THE AIRCRAFT WOULD FALL WITHIN THE AMBIT OF PARA 2(B) OF ARTICLE 8 AND CONSEQUENTLY THE ACTIVITY RELATABLE TO THE TRANSPORTATION OF PASSENGERS BY OT HER AIRLINES WOULD BE OUTSIDE THE SCOPE OF SUCH PROVISIONS. IT WAS FURTHE R HELD THAT THE ACTIVITY OF THIRD PARTY CHARTER HANDLING AND MAINTENANCE WOULD ALSO BE OUTSIDE THE ITA 1256/M/14 24 AMBIT OF PARA 2(B) OF ARTICLE 8. SIMILAR VIEW HAS BEEN TAKEN BY THE CO-ORDINATE BENCH IN THE CASE OF BRITISH AIRWAYS PLC. WHEREIN E XPRESSION UNDER ARTICLE 8 OF INDO-UK TREATY (WHICH IS SIMILARLY WORDED) WAS D ENIED IN RESPECT OF THE VARIOUS SERVICES PROVIDED THROUGH OTHER AIRLINES. T HE CONTENTION OF THE LD. AR WAS THAT SINCE THE ASSESSEE IS AN AIRLINE ADMITTED LY OPERATING IN INTERNATIONAL TRAFFIC THEREFORE INCOME FROM CARGO/PASSENGERS THR OUGH THIRD AIRLINES IS ALSO COVERED UNDER ARTICLE 8 OF DTAA. HEAVY RELIANCE WA S PLACED BY THE LD. AR ON THE DECISION OF TRIBUNAL IN THE CASE OF MISC BERHAR D VS. ADIT (ITA NO. 6499/MUM/2012) WHEREIN THE ASSESSEE USED THE SERVIC ES OF FEEDER VESSELS OPERATED BY THIRD PARTIES BY USING SPACE CHARTER/SL OT CHARTER FROM INDIAN PORT TO HUB PORT ONLY AND FROM WHERE THE CARGO WERE TRAN SFERRED TO THE MOTHER VESSELS I.E. THE SHIPS OWNED BY THE ASSESSEE FOR BE ING TRANSPORTED TO FINAL DESTINATION PORT. THE REVENUES CASE WAS THAT SINC E THE FEEDER VESSEL IS NOT OWNED/LEASED/CHARTERED BY THE ASSESSEE THEREFORE THE BENEFIT OF ARTICLE 8 CANNOT BE GIVEN. AFTER CONSIDERING THE ENTIRE FACTS THE TRIBUNAL HAD RECORDED ITS FINDING TO THE EFFECT THAT SINCE THE ENTIRE VOY AGE FROM INDIAN PORT TO HUB PORT AND FROM THERE TO FINAL DESTINATION PORT WAS I NEXTRICABLY LINKED AND COULD NOT BE SEGREGATED AND HENCE THE CARRIAGE OF GOODS F ROM THE FEEDER VESSEL WAS NOTHING BUT A CHARTER ONLY AND THEREFORE THE RECEIP TS IN RESPECT OF VOYAGE FROM INDIAN PORT TO HUB PORT WERE ALSO HELD TO BE EXEMPT UNDER ARTICLE 8. HOWEVER IN THE INSTANT CASE THERE IS NO SITUATION LIKE TRAN SPORTATION TO HUB PORT AND FROM THERE TO FINAL DESTINATION PORT NOR THERE IS A NY INEXTRICABLE LINK BETWEEN SUCH TRANSPORTATION THEREFORE THE PRINCIPLE LAID DOWN IN THE CASE OF MISC BERHAD (SUPRA) CANNOT BE APPLIED TO THE FACTS OF TH E INSTANT CASE. 34. THERE IS NOTHING ON RECORD TO SUGGEST THAT ASSE SSEE HAD ENTERED INTO AGREEMENT WITH THE THIRD PARTY IN THE NATURE OF SLO T CHARTER/SPACE CHARTER SO AS TO QUALIFY UNDER ARTICLE 8(2). THE RIGHT OF THE ASSESSE TO BOOK FLIGHTS UNDER CODE SHARING AGREEMENTS WITH OTHER THIRD PARTIES IS NOT EXCLUSIVE UNLIKE THE CHARTER AGREEMENT. THE ASSESSEE HAS NO FIXED SPACE/ SLOT FOR WHICH THE ITA 1256/M/14 25 BOOKING RIGHTS ARE EXCLUSIVELY WITH ASSESSEE ONLY. THE NUMBER OF SEATS/SPACE WHICH CAN BE BOOKED BY ASSESSEE IS ALSO NOT FIXED U NDER THE CODE SHARING AGREEMENT. THE ROLE OF THE ASSESSEE IN RESPECT OF B OOKINGS SO MADE UNDER CODE SHARING AGREEMENT IS ESSENTIALLY IN THE NATURE OF BOOKING AGENT AND NOT AS A CHARTERER. NOTHING WAS PLACED ON RECORD IN SUP PORT OF LD. ARS CONTENTION THAT THE CARGO/PASSENGERS CARRIED UNDER CODE SHARIN G ARRANGEMENT WAS UPTO INTERMEDIARY DESTINATIONS ONLY AND THEREAFTER ASSES SEE HAD TRANSPORTED FURTHER BY ITS OWNED AIRLINES FROM SUCH INTERMEDIA RY DESTINATIONS TO FINAL DESTINATIONS. IN TERMS OF THE FACTS RECORDED BY A.O ./DRP WE FOUND THAT COMPLETE TRANSPORTATION UNDER CODE SHARING ARRANGEM ENT TOOK PLACE FROM ORIGIN TO FINAL DESTINATION IN SINGLE STRETCH AND N OTHING IS PLACED ON RECORD TO SHOW THAT SUCH DESTINATIONS WERE ONLY INTERIM DESTI NATIONS. THUS THE PROPOSITION LAID DOWN IN THE CASE OF MISC BERHARD ( SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HOWEVER NOTHING HA S BEEN PRODUCED BEFORE THE A.O./DRP/ITAT TO SHOW THAT DESTINATIONS TO WHICH AL L PASSENGERS/CARGO WERE CARRIED FROM INDIA UNDER CODE SHARING WERE FURTHER TRANSPORTED TO FINAL DESTINATION BY ASSESSEES AIRLINES. MERELY THE FACT THAT ASSESSEE IN SOME INSTANCES OPERATING ITS AIRLINE FROM SUCH INTERMEDI ARY DESTINATIONS WILL NOT AUTOMATICALLY PROVE THAT PASSENGERS/CARGO WHICH WER E CARRIED FROM INDIA UNDER CODE SHARING TO INTERMEDIARY DESTINATIONS WER E TRANSPORTED TO FINAL DESTINATIONS BY ASSESSEES AIRLINE ONLY. NOTHING W AS BROUGHT ON RECORD TO SUPPORT THE CONTENTION THAT THERE WAS INEXTRICABLE LINK BETWEEN VOYAGE FROM INDIA TO INTERIM DESTINATION BY THIRD PARTIES UNDER CODE SHARING AGREEMENT AND FROM INTERIM DESTINATION TO FINAL DESTINATION B Y ASSESSEES OWNED/CHARTERED/LEASED AIRCRAFT. IN THIS REGARD IT IS IMPORTANT TO BRING ON RECORD THE RELEVANT OBSERVATION BY THE ITAT IN THE CASE OF MISC BERHARD (SUPRA) VIDE PARA NO. 29 PAGE 36 OF ITS ORDER:- FROM THE ABOVE OBSERVATIONS IT CAN BE UNDERSTOOD THAT THE FACILITY OF SLOT HIRE AGREEMENT WITH THE FEEDER VESSELS TO COMP LETE THE VOYAGE IS NOT MERELY AN AUXILIARY OR INCIDENTAL ACTIVITY TO THE O PERATION OF SHIPS BUT INEXTRICABLY LINKED. IF THE TRANSPORTATION OF CARGO BY FEEDER VESSELS ITA 1256/M/14 26 BELONGING TO OTHER ENTERPRISE IS ONLY A PART OF MAI N VOYAGE BY THE MOTHER SHIP I.E. OWNED OR LEASED BY THE ASSESSEE ENTERPRI SE THEN IT HAS TO BE TAKEN AS A PART AND PARCEL OF THE OPERATION WHICH IS INEXTRICABLY LINKED WITH THE COMPLETION OF THE ENTIRE VOYAGE. THE LINKA GE BETWEEN THE TRANSPORTATION BY FEEDER VESSELS MOTHER VESSELS OF THE SHIP OWNED BY THE ASSESSEE HAS TO BE ESTABLISHED. HENCE IN ABSENC E OF ANY LINK QUA EACH VOYAGE FROM INDIA TO INTERIM DESTINATION UNDER CODE SHARING AND INTERIM DESTINATION TO FINAL DESTINATION BY ASSESSE E AND ALSO IN ABSENCE OF ANY EVIDENCE THAT EVEN THE SECOND LEG OF SAME VO YAGE WHICH STARTED FROM INDIA WAS CARRIED BY ASSESSEE THE CODE SHARIN G ARRANGEMENT CANNOT BE SAID TO BE IN NATURE OF SPACE/SLOT CHARTE R. 35. TO ARRIVE AT CONCLUSION THAT THE SHIPPING ACTIV ITY OF ASSESSEE FROM INDIAN PORT TO HUB PORT WAS IN THE NATURE OF CHARTE R ARRANGEMENT AND COVERED UNDER ARTICLE 8 PRECISE OBSERVATION AT PARA 14 IN PAGE NO. 17 OF THE TRIBUNAL ORDER READS AS UNDER:- FOR THE PURPOSE OF ITS TRANSPORTATION OF CARGO TH E ASSESSEE USED THE SERVICES OF FEEDER VESSELS OPERATED BY THIRD PARTIE S BY USING SPACE CHARTER/ SLOT CHARTER FROM INDIAN PORT TO HUB PORT. AT THE HUB PORT THE CONTAINERS WHICH WERE OWNED BY THE ASSESSEE WERE TR ANSFERRED TO MOTHER VESSELS I.E. THE SHIPS OWNED BY THE ASSESSE E AND FROM THEREON THE CARGOS / CONTAINERS WERE TRANSPORTED BY ITS OWN SHIPS TO THE FINAL DESTINATION. PORT. THE ENTIRE VOYAGE FROM INDIA POR T TO HUB PORT AND FROM THERE TO FINAL DESTINATION PORT IS INEXTRICABLY LI NKED AND CANNOT BE SEGREGATED AS HELD BY THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). HE FURTHER SUBMITTED THAT T HE ASSESSING OFFICER HAS IN FACT ADMITTED THAT THE ASSESSEE HAS FURNIS HED PROOF TO SUBSTANTIATE THE LINKAGE OF THE VOYAGE PERFORMED ON FEEDER VESSELS AND MOTHER VESSELS [I.E. SHIPS OWNED BY THE ASSESSEE). THE REVENUE'S CASE IS THAT SINCE THE FEEDER VESSEL IS NOT OWNED / LEASED BY THE ASSESSEE THEREFORE THE BENEFIT OF ARTICLE - 8 CANNOT BE GI VEN ON THE GOODS CARRIED THROUGH THE FEEDER VESSEL IS NOT A CORRECT INTERPRE TATION OF ARTICLE - 8(2). THE CARRIAGE OF GOODS FROM THE FEEDER VESSEL IS NOT HING BUT A CHARTER ONLY IN A SENSE THAT THE ASSESSEE HAS BOOKED SPACE CHART ER/SLOT CHARTER FOR ITS CONTAINERS WHICH ARE OWNED BY IT. 36. HOWEVER IN THE PRESENT CASE OF THE ASSESSEE IT HAS NOT BEEN FOUND THAT ANY PASSENGER OR CARGO WAS TAKEN TO THE HUB PORT BY FEEDER VESSEL OWNED BY THIRD PARTY AND THERE FROM TO FINAL DESTINATION BY ASSESSEES OWNED/LEASED/CHARTERED AIRCRAFTS/SHIP. NOTHING HAS BEEN SHOWN TO PROVE THAT FLIGHT DESTINATIONS BOOKED UNDER CODE SHARING WERE ONLY UPTO INTERIM DESTINATIONS AND NOT TO THE FINAL DESTINATIONS AND EVEN IF THEY WERE INTERIM ITA 1256/M/14 27 DESTINATIONS THE PASSENGERS TRANSPORTED FROM INDIA TO INTERIM DESTINATIONS BY THIRD PARTY AIRLINES WERE ULTIMATELY TRANSPORTED B Y ASSESSEES AIRLINE TO COMPLETE THEIR VOYAGE THERE FROM TO THE FINAL DESTI NATION. HOWEVER IN THE CASE OF MISC BERHARD (SUPRA) THE TRIBUNAL HAS GIVEN A C LEAR FINDING THAT THE ENTIRE VOYAGE FROM INDIA PORT TO HUB PORT AND FROM THERE T O FINAL DESTINATION PORT WAS INEXTRICABLY LINKED AND COULD NOT BE SEGREGATED . ON THESE FACTS IT WAS HELD BY THE TRIBUNAL THAT THE ASSESSEE WAS OPERATIN G SHIPS IN INTERNATIONAL TRAFFIC AND THAT THE CARRIAGE OF GOODS IN THE FIRST LEG OF VOYAGE FROM INDIA TO HUB PORT BY FEEDER VESSELS WAS LIKE A CHARTER. THE ABSENCE OF LINKAGE OF CARRYING PASSENGERS FROM INDIA TO INTERIM DESTINATI ON UNDER CODE SHARING AND FROM INTERIM DESTINATION TO FINAL DESTINATION IS PO INTED OUT ONLY TO DISTINGUISH THE FACTS OF THE ASSESSEES CASE FROM THAT OF MISC BERHARD (SUPRA) WHICH HAS BEEN HEAVILY RELIED UPON BY THE LD. A.R. WE FOUND T HAT ON THE ONE HAND THE LD. A.R. RELIED ON THE DECISION IN THE CASE OF MISC BER HARD (SUPRA) TO SUPPORT ASSESSEES ELIGIBILITY UNDER ARTICLE 8 BUT ON THE O THER HAND WHEN IT COMES TO REQUIREMENT OF ESTABLISHING ONE TO ONE LINKAGE OF V OYAGES FROM INDIA TO INTERIM DESTINATIONS AND FROM INTERIM DESTINATIONS TO FINAL DESTINATIONS HE CONTENDS THAT THIS PRINCIPLE CANNOT BE APPLIED TO A IRLINE BUSINESS UNLIKE THE CASE OF MISC BERHARD WHICH WAS FOR A SHIPPING BUSIN ESS. THE CONDITION OF ESTABLISHING THE LINKAGE THEREFORE CANNOT BE DISPEN SED WITH IF ONE HAS TO CALL THE ARRANGEMENT AS SPACE/SLOT CHARTER FOLLOWING THE RATIO OF DECISION OF MISC BERHARD (SUPRA). 37. NOW COMING TO THE ALTERNATIVE CONTENTION OF THE LD. A.R. THAT THE PROFITS ARE ELIGIBLE FOR EXEMPTION UNDER ARTICLE 8(4) INSOF AR AS PROFITS WERE DERIVED FROM POOL ARRANGEMENT. 38. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. ARRA NGEMENT OF POOL REQUIRES SEVERAL PERSONS COMING TOGETHER TO CONTRIB UTE AND COMBINE THEIR RESOURCES FOR A LARGE BUSINESS AND THEN SHARE THE R ESOURCES AMONGST THEM. ITA 1256/M/14 28 HOWEVER IN THE PRESENT CASE THE ARRANGEMENT WAS ONL Y BILATERAL ARRANGEMENTS AND NOT SEVERAL PERSONS HAVE COME TOGETHER. NOTHIN G WAS BROUGHT ON RECORD TO INDICATE THAT THE COMMON FUNDS AND RESOURCES WER E BROUGHT TOGETHER IN A POOL WHICH IS SHARED BY MEMBERS OF THE POOL. HOWEV ER THE ASSESSEE HAS ONLY ENTERED INTO CODE SHARING ARRANGEMENT IT IS ALSO N OT A CASE THAT ASSESSEE AND THIRD PARTY BOTH ARE CONTRIBUTING THE AIR CRAFT IN A POOL WHICH ARE SHARED BY BOTH. HOWEVER IN THE INSTANT CASE THIRD PARTY IS C ONTRIBUTING ITS AIRCRAFT AND THE ASSESSEE IS ONLY USING THE RESOURCES OF THIRD P ARTY BY BOOKING SEATS IN THE AIRCRAFT. THUS THE ARRANGEMENT DOES NOT MEET PRINC IPLE OF POOL ARRANGEMENT. 39. IN VIEW OF THE ABOVE WE CAN CONCLUDE THAT INCO ME DERIVED BY THE ASSESSEE BY BOOKING OF SEAT/SPACE UNDER CODE SHARIN G AGREEMENT CANNOT BE SAID TO BE INCOME DERIVED FROM OPERATION OF AIRCRAF T/SHIP IN INTERNATIONAL TRAFFIC THROUGH OWNED/LEASED/CHARTERED AIRCRAFT/SHI P. FURTHERMORE THE CODE SHARING AGREEMENT CANNOT BE HELD AS SPACE/SLOT CHAR TER IN ABSENCE OF INEXTRICATE LINKAGE OF BOTH LEGS OF JOURNEYS. IN TH E RESULT THE RECEIPTS TO THE EXTENT OF CODE SHARING ARRANGEMENT CANNOT BE SAID T O BE PROFITS DERIVED FROM OPERATION IN INTERNATIONAL TRAFFIC UNDER ARTICLE 8- (1) READ WITH ARTICLE 8-(2). THE DECISION IN THE CASE OF MISC BERHARD (SUPRA) IS DISTINGUISHABLE ON FACTS THEREFORE CANNOT BE APPLIED TO THE PRESENT CASE. 40. IN THE RESULT THE ACTION OF THE A.O. FOR DENIA L OF BENEFIT UNDER ARTICLE 8 OF DTAA IS CONFIRMED. 41. THE NEXT GRIEVANCE OF THE ASSESSEE IS AGAINST E NHANCING THE GLOBAL PROFITABILITY RATE FOR DETERMINING PROFITS FROM OPE RATIONS CARRIED FROM INDIA. 42. FROM THE RECORD WE FIND THAT THE ASSESSEE HAS S HOWN PROFITABILITY RATE AT LOSS OF 3.57%. HOWEVER WHILE APPLYING RULE 10 THE A.O. ENHANCED THE GLOBAL PROFITABILITY RATE BY DISALLOWING THE OTHER EXPENDITURE CLAIMED BY THE ASSESSEE IN ITS GLOBAL ACCOUNTS WHICH DID NOT HAVE ANY IMPLICATION ON THE ITA 1256/M/14 29 PROFITABILITY FROM INDIAN OPERATIONS. THUS THE A.O . ESTIMATED THE PROFIT ON PRO RATA BASIS @ 2.52% AFTER EXCLUDING THE EXPENDITURE NOT RELATED TO INDIAN OPERATION. ARTICLE 7(2) OF DTAA PROVIDES THAT SUCH PROFITS SHOULD BE COMPUTED WHICH THE PE MIGHT BE EXPECTED TO MAKE IF IT WERE A DISTINCT AND SEPARATE ENTERPRISE THEN ANY EXPENDITURE WHICH IS REQUIRED FOR THE AES GLOBAL BUSINESS POINT OF VIEW AS A WHOLE CANNOT BE ALLOWED AS DEDUCTION UNLESS ITS UTILITY IS PROVED TO BE RELEVANT TO PES ACTIVITY I N INDIA BY ASSUMING THE PE WERE A DISTINCT AND SEPARATE ENTITY. THUS WHILE CO MPUTING THE PROFITS ATTRIBUTABLE TO INDIA ONLY SUCH EXPENSES WHICH ARE SPECIFIC TO INDIA CAN BE CONSIDERED. 43. WE FIND THAT THE ASSESSEE HAS NOT GIVEN ANY DET AILS OF SUCH EXPENDITURE BEFORE THE A.O. OR DRP TO PROVE ANY PART OF SUCH EX PENDITURE WAS ATTRIBUTABLE TO PE IN INDIA. THE ASSESSEE IS DIRECT ED TO FURNISH SUCH DETAILS OF EXPENDITURE. IN THE INTEREST OF JUSTICE WE RESTORE THIS GROUND BACK TO THE FILE OF A.O. FOR DETERMINING THE PROFIT ATTRIBUTABLE TO PE. WE DIRECT ACCORDINGLY. 44. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO C HARGING OF INTEREST U/S 234B OF THE ACT. 45. THE CONTENTION OF THE LD. A.R. WAS THAT ONCE TH E INCOME WAS SUBJECT TO TDS NO INTEREST U/S 234B OF THE ACT SHOULD BE CHAR GED IN VIEW OF THE DECISION IN THE CASE OF NGC NETWORK ASIA LLC 313 I TR 187 (BOM). 46. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THER E IS NO DISPUTE TO THE PROPOSITION THAT ONCE THE INCOME IS SUBJECT TO TDS IT WAS RESPONSIBILITY OF THE DEDUCTOR THERE IS NO LIABILITY OF INTEREST U/S 234 B OF THE ACT FOR FAILURE TO PAY ADVANCE TAX. IN THE INSTANT CASE WE FOUND THAT TH E ASSESSEE WAS COLLECTING MONEY FROM ITS CUSTOMERS ON BOOKING OF TICKETS UNDE R CODE SHARING ARRANGEMENT. NOTHING WAS BROUGHT ON RECORD BY THE ASSESSEE TO SUBSTANTIATE ITS CLAIM THAT SUCH RECEIPTS WERE SUBJECT TO TDS. IN THE INTEREST OF JUSTICE ITA 1256/M/14 30 THIS GROUND IS ALSO RESTORED BACK TO THE FILE OF A. O. WITH A DIRECTION NOT TO CHARGE INTEREST U/S 234B OF THE ACT IF HE FOUND THA T THE INCOME OF THE ASSESSEE WAS SUBJECT TO TDS. WE DIRECT ACCORDINGLY . 46. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D IN PART IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL 2015. !' # $% &! ' 29-04-2015 ( ) SD/- SD/- (AMIT SHUKLA) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER $ 5 MUMBAI ; &! DATED 29-04-2015 [ .6../ RK RKRK RK SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 7 () / THE DRP MUMBAI 4. 7 / CIT MUMBAI 5. :;( 66<= <= $ 5 / DR ITAT MUMBAI L BENCH 6. (?@ A / GUARD FILE. ' / BY ORDER : 6 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) $ 5 / ITAT MUMBAI