Our Belgian shipping client bills its exporters a single freight covering carriage from an inland container depot to the Indian port and then to the foreign destination. The Assessing Officer has taxed the inland leg separately as business profits. Does the shipping Article cover the inland haulage?
Under the India-Belgium treaty, on these facts, yes. The Mumbai Bench of the Tribunal dismissed the Revenue's appeal, holding that the issue was covered by a coordinate bench decision in the assessee's own case for assessment year 2001-02, reported at 120 ITD 71, which had held that inland transportation coupled with the further shipping of the cargo by the assessee from the Indian port to the foreign country is an "activity directly connected with such transportation" falling within Article 8(2)(b)(ii) of the India-Belgium agreement, and expressed its considered and respectful agreement with that view. Because the treaty allots the income exclusively to the residence State, the Tribunal held the question whether the income was chargeable under the domestic Act at all was wholly academic.
Decided by the ITAT (Income Tax Appellate Tribunal, Mumbai 'J' Bench — D.K. Agarwal, Judicial Member and Pramod Kumar, Accountant Member (order by Pramod Kumar AM)) on 2011-04-08, reported as ITA No. 3073/Mum/10, assessment year 2007-08, pronounced in open court on 8 April 2011; the coordinate bench decision it follows is reported as DDIT v. Safmarine Container Lines NV, 120 ITD 71. It bears on section 44B, section 143(3), section 90, section DTAA art 8 of the Income Tax Act 1961, in Presumptive Taxation & Audit, Assessment & Scrutiny and How Tax Law Is Read matters.
This is the clearest illustration in this area of why a shipping-Article proposition must always be tied to a named treaty. The coordinate bench decision the Tribunal adopted reasoned expressly by contrast: it noted that clause 2 of Article 9 of the India-United Kingdom agreement specifically provides that paragraph 1 of that Article shall not apply to income from journeys between places situated in a Contracting State, and held that in the ABSENCE of any similar clause in the India-Belgium agreement the inland transportation is covered. The same facts under the India-UK treaty would therefore have produced a different answer, and the shipping Article is not even numbered 8 in that treaty. Three further points are worth carrying. First, the composite nature of the transaction did the work: the bill of lading was for combined transport from the inland origin to the foreign destination, the cargo was stuffed and sealed inland, and the Tribunal held it wholly unrealistic to segregate the composite activity — the answer would have been otherwise had the assessee merely carried cargo to the port with no obligation to ship it onward. Second, the Tribunal's own contribution, in its own words, is the order of analysis: where a treaty provides for exclusive residence taxation, source taxation cannot be invoked, and it is not for the Tribunal to question the basis on which taxation rights are given up. Third, the domestic argument the assessee ran alongside — that inland haulage charges are "handling charges or any other amount of similar nature" within the Explanation to s.44B — was not decided, because the Tribunal held the domestic question academic once the treaty answered it. Do not cite this order for that s.44B proposition.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The assessee is a tax resident of Belgium engaged in the business of operation of ships in international traffic. In the course of a scrutiny assessment for assessment year 2007-08 the Assessing Officer noticed that it collected inland haulage charges from its customers for transporting goods from inland container depots, where containers are stuffed, to the port where the goods are loaded on ships for international traffic — so that where an export consignment is picked up at, for example, New Delhi for shipment to Mombasa, the exporter is billed inland haulage from New Delhi to Mumbai and ocean freight from Mumbai to Mombasa. The assessee explained that the freight bill was issued for the entire leg of transportation including inland transportation, that the amount billed as inland haulage covered placement of empty containers, labour for loading, carting and stuffing, forklift and other equipment, movement of loaded containers from the container freight station to the loading port, cargo inspection to surveyors, and transportation of containers from the inland container depot to JNPT; and that in view of the retrospective amendment to s.44B by the Finance Act 1997 with effect from 1 April 1976 extending its scope to demurrage charges, handling charges or any other amount of similar nature, inland haulage charges were freight income covered by s.44B and so not taxable in India under Article 8 of the India-Belgium tax treaty. The Assessing Officer held that inland haulage charges are not of the same nature as handling charges, that only carriage from the port of loading to the port of destination is international transportation, that a dependent-agent permanent establishment existed under Article 5, and that the profits to the extent of the inland haulage charges were taxable under Article 7 on a net basis; he brought to tax Rs. 2,85,62,128 estimated at 7.5 per cent of gross inland haulage charges. He also noted a Tribunal decision in the assessee's favour but reasoned that the coordinate bench's decision was incorrect. The Commissioner (Appeals), by order dated 28 January 2010, followed the coordinate benches and reversed the Assessing Officer. The Revenue appealed.
The Revenue's appeal was dismissed. The issue was squarely covered by the coordinate bench decision in the assessee's own case for assessment year 2001-02, reported at 120 ITD 71, with which the Tribunal expressed its considered and respectful agreement, and the Commissioner (Appeals) had merely followed it. The plea that inland haulage charges, not being earned in the course of international traffic of ships, should be taxable in the source country was rejected: tax treaties restrict the source taxation right to the extent exclusive residence taxation is contemplated, and as long as a treaty provides for such exclusive residence taxation the source taxation cannot be invoked, it not being for the Tribunal to question the basis on which taxation rights are given up by the source jurisdiction. Since the income was covered by Article 8 of the India-Belgium tax treaty and so subject to exclusive residence taxation, the question of its taxability under the provisions of the Income-tax Act was wholly academic. The mere fact that the Assessing Officer had challenged the coordinate bench's order before the High Court did not dilute or negate the binding nature of that decision, it not having been reversed.
The Tribunal's own route, at the second paragraph numbered 6, was that it saw no reason to take a different view from the coordinate bench, that it was in considered and respectful agreement with it, and that a treaty which contemplates exclusive residence taxation removes the source taxation right regardless of whether that allocation is justified on first principles. The reasoning it adopted is that of the coordinate bench decision reported at 120 ITD 71, reproduced in this order at its paragraphs 15 and 16. That decision reasoned that Article 8 covers income from "any other activity directly connected with such transportation", an expression not exhaustively defined in the agreement, so that the commentaries had to be consulted; it relied on the OECD Committee on Fiscal Affairs commentary treating pick-up or delivery by inland transportation as directly connected with the operation of ships in international traffic and listing "transportation of goods by truck connecting a depot with a port or airport", and on Klaus Vogel's Double Taxation Conventions to the same effect. On the facts — cargo stuffed and sealed by customs at the inland point, a bill of lading for combined transport from the inland origin to the foreign destination, and the assessee itself trans-shipping the goods — it held it wholly unrealistic to segregate the composite activity into two parts, while recording that the position would have been otherwise had the assessee merely collected cargo and dropped it at the port without any further obligation to ship it. It rejected the Departmental Representative's argument built on the definition of "international traffic" in Article 3(1)(i), observing that Article 8 expressly extends beyond the literal operation of ships to interest on connected funds, sale of tickets on behalf of other enterprises and income from the use, maintenance or rental of containers, so that a narrow reading would render those clauses redundant. Finally, and decisively for how the case should be cited, it contrasted the treaties: clause 2 of Article 9 of the India-United Kingdom agreement specifically provides that paragraph 1 of that Article shall not apply to income from journeys between places situated in a Contracting State, and in the absence of any similar clause in the India-Belgium agreement the inland transportation falls within Article 8(2)(b)(ii).
It is only elementary that tax treaties do restrict the source taxation right, to the extent exclusive residence taxation is contemplated in respect of income sourced in the other contracting state, and, therefore, as long as treaties provide for such exclusive residence taxation of any income, whether it is justified on the first principles or not, the source taxation cannot be invoked in respect of the same.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppUnder the India-Belgium treaty, on these facts, yes. The Mumbai Bench of the Tribunal dismissed the Revenue's appeal, holding that the issue was covered by a coordinate bench decision in the assessee's own case for assessment year 2001-02, reported at 120 ITD 71, which had held that inland transportation coupled with the further shipping of the cargo by the assessee from the Indian port to the foreign country is an "activity directly connected with such transportation" falling within Article 8(2)(b)(ii) of the India-Belgium agreement, and expressed its considered and respectful agreement with that view. Because the treaty allots the income exclusively to the residence State, the Tribunal held the question whether the income was chargeable under the domestic Act at all was wholly academic. This was decided by the ITAT (Income Tax Appellate Tribunal, Mumbai 'J' Bench — D.K. Agarwal, Judicial Member and Pramod Kumar, Accountant Member (order by Pramod Kumar AM)) and bears on section 44B, section 143(3), section 90, section DTAA art 8 of the Income Tax Act 1961. It is reported as ITA No. 3073/Mum/10, assessment year 2007-08, pronounced in open court on 8 April 2011; the coordinate bench decision it follows is reported as DDIT v. Safmarine Container Lines NV, 120 ITD 71. This is the clearest illustration in this area of why a shipping-Article proposition must always be tied to a named treaty. The coordinate bench decision the Tribunal adopted reasoned expressly by contrast: it noted that clause 2 of Article 9 of the India-United Kingdom agreement specifically provides that paragraph 1 of that Article shall not apply to income from journeys between places situated in a Contracting State, and held that in the ABSENCE of any similar clause in the India-Belgium agreement the inland transportation is covered. The same facts under the India-UK treaty would therefore have produced a different answer, and the shipping Article is not even numbered 8 in that treaty. Three further points are worth carrying. First, the composite nature of the transaction did the work: the bill of lading was for combined transport from the inland origin to the foreign destination, the cargo was stuffed and sealed inland, and the Tribunal held it wholly unrealistic to segregate the composite activity — the answer would have been otherwise had the assessee merely carried cargo to the port with no obligation to ship it onward. Second, the Tribunal's own contribution, in its own words, is the order of analysis: where a treaty provides for exclusive residence taxation, source taxation cannot be invoked, and it is not for the Tribunal to question the basis on which taxation rights are given up. Third, the domestic argument the assessee ran alongside — that inland haulage charges are "handling charges or any other amount of similar nature" within the Explanation to s.44B — was not decided, because the Tribunal held the domestic question academic once the treaty answered it. Do not cite this order for that s.44B proposition. If it applies to you, the first step is this: Name the treaty and read its shipping Article and its definition paragraph before advising. The answer here turned on what the India-Belgium agreement does NOT contain.
The assessee is a tax resident of Belgium engaged in the business of operation of ships in international traffic. In the course of a scrutiny assessment for assessment year 2007-08 the Assessing Officer noticed that it collected inland haulage charges from its customers for transporting goods from inland container depots, where containers are stuffed, to the port where the goods are loaded on ships for international traffic — so that where an export consignment is picked up at, for example, New Delhi for shipment to Mombasa, the exporter is billed inland haulage from New Delhi to Mumbai and ocean freight from Mumbai to Mombasa. The assessee explained that the freight bill was issued for the entire leg of transportation including inland transportation, that the amount billed as inland haulage covered placement of empty containers, labour for loading, carting and stuffing, forklift and other equipment, movement of loaded containers from the container freight station to the loading port, cargo inspection to surveyors, and transportation of containers from the inland container depot to JNPT; and that in view of the retrospective amendment to s.44B by the Finance Act 1997 with effect from 1 April 1976 extending its scope to demurrage charges, handling charges or any other amount of similar nature, inland haulage charges were freight income covered by s.44B and so not taxable in India under Article 8 of the India-Belgium tax treaty. The Assessing Officer held that inland haulage charges are not of the same nature as handling charges, that only carriage from the port of loading to the port of destination is international transportation, that a dependent-agent permanent establishment existed under Article 5, and that the profits to the extent of the inland haulage charges were taxable under Article 7 on a net basis; he brought to tax Rs. 2,85,62,128 estimated at 7.5 per cent of gross inland haulage charges. He also noted a Tribunal decision in the assessee's favour but reasoned that the coordinate bench's decision was incorrect. The Commissioner (Appeals), by order dated 28 January 2010, followed the coordinate benches and reversed the Assessing Officer. The Revenue appealed. The matter was decided on 2011-04-08 by the ITAT (Income Tax Appellate Tribunal, Mumbai 'J' Bench — D.K. Agarwal, Judicial Member and Pramod Kumar, Accountant Member (order by Pramod Kumar AM)). On those facts the ITAT held as follows. The Revenue's appeal was dismissed. The issue was squarely covered by the coordinate bench decision in the assessee's own case for assessment year 2001-02, reported at 120 ITD 71, with which the Tribunal expressed its considered and respectful agreement, and the Commissioner (Appeals) had merely followed it. The plea that inland haulage charges, not being earned in the course of international traffic of ships, should be taxable in the source country was rejected: tax treaties restrict the source taxation right to the extent exclusive residence taxation is contemplated, and as long as a treaty provides for such exclusive residence taxation the source taxation cannot be invoked, it not being for the Tribunal to question the basis on which taxation rights are given up by the source jurisdiction. Since the income was covered by Article 8 of the India-Belgium tax treaty and so subject to exclusive residence taxation, the question of its taxability under the provisions of the Income-tax Act was wholly academic. The mere fact that the Assessing Officer had challenged the coordinate bench's order before the High Court did not dilute or negate the binding nature of that decision, it not having been reversed.
The Tribunal's own route, at the second paragraph numbered 6, was that it saw no reason to take a different view from the coordinate bench, that it was in considered and respectful agreement with it, and that a treaty which contemplates exclusive residence taxation removes the source taxation right regardless of whether that allocation is justified on first principles. The reasoning it adopted is that of the coordinate bench decision reported at 120 ITD 71, reproduced in this order at its paragraphs 15 and 16. That decision reasoned that Article 8 covers income from "any other activity directly connected with such transportation", an expression not exhaustively defined in the agreement, so that the commentaries had to be consulted; it relied on the OECD Committee on Fiscal Affairs commentary treating pick-up or delivery by inland transportation as directly connected with the operation of ships in international traffic and listing "transportation of goods by truck connecting a depot with a port or airport", and on Klaus Vogel's Double Taxation Conventions to the same effect. On the facts — cargo stuffed and sealed by customs at the inland point, a bill of lading for combined transport from the inland origin to the foreign destination, and the assessee itself trans-shipping the goods — it held it wholly unrealistic to segregate the composite activity into two parts, while recording that the position would have been otherwise had the assessee merely collected cargo and dropped it at the port without any further obligation to ship it. It rejected the Departmental Representative's argument built on the definition of "international traffic" in Article 3(1)(i), observing that Article 8 expressly extends beyond the literal operation of ships to interest on connected funds, sale of tickets on behalf of other enterprises and income from the use, maintenance or rental of containers, so that a narrow reading would render those clauses redundant. Finally, and decisively for how the case should be cited, it contrasted the treaties: clause 2 of Article 9 of the India-United Kingdom agreement specifically provides that paragraph 1 of that Article shall not apply to income from journeys between places situated in a Contracting State, and in the absence of any similar clause in the India-Belgium agreement the inland transportation falls within Article 8(2)(b)(ii). In the words reproduced by the source cited on this page: "It is only elementary that tax treaties do restrict the source taxation right, to the extent exclusive residence taxation is contemplated in respect of income sourced in the other contracting state, and, therefore, as long as treaties provide for such exclusive residence taxation of any income, whether it is justified on the first principles or not, the source taxation cannot be invoked in respect of the same." The decision followed or applied DDIT v. Safmarine Container Lines NV, 120 ITD 71 (Mumbai Tribunal, assessment year 2001-02) — followed, and agreed with.
It was decided by the ITAT on 2011-04-08 and is reported as ITA No. 3073/Mum/10, assessment year 2007-08, pronounced in open court on 8 April 2011; the coordinate bench decision it follows is reported as DDIT v. Safmarine Container Lines NV, 120 ITD 71. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 44B, section 143(3), section 90, section DTAA art 8, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed. The issue was squarely covered by the coordinate bench decision in the assessee's own case for assessment year 2001-02, reported at 120 ITD 71, with which the Tribunal expressed its considered and respectful agreement, and the Commissioner (Appeals) had merely followed it. The plea that inland haulage charges, not being earned in the course of international traffic of ships, should be taxable in the source country was rejected: tax treaties restrict the source taxation right to the extent exclusive residence taxation is contemplated, and as long as a treaty provides for such exclusive residence taxation the source taxation cannot be invoked, it not being for the Tribunal to question the basis on which taxation rights are given up by the source jurisdiction. Since the income was covered by Article 8 of the India-Belgium tax treaty and so subject to exclusive residence taxation, the question of its taxability under the provisions of the Income-tax Act was wholly academic. The mere fact that the Assessing Officer had challenged the coordinate bench's order before the High Court did not dilute or negate the binding nature of that decision, it not having been reversed. It arises in Presumptive Taxation & Audit, Assessment & Scrutiny and How Tax Law Is Read matters, on section 44B, section 143(3), section 90, section DTAA art 8 of the Income Tax Act 1961, and was decided by Income Tax Appellate Tribunal, Mumbai 'J' Bench — D.K. Agarwal, Judicial Member and Pramod Kumar, Accountant Member (order by Pramod Kumar AM). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check specifically whether the treaty excludes journeys between places situated within one Contracting State. The India-UK agreement does, in clause 2 of its Article 9; the India-Belgium agreement, on the Tribunal's reading, does not. Build the composite-transport file: a single bill of lading for combined transport from origin to final destination, stuffing and customs sealing at the inland point, and a single freight invoice. The Tribunal treated all three as showing one composite activity. Be ready for the converse case. Where the carrier only brings cargo to the port with no obligation to ship it onward, the coordinate bench said the inland charges would obviously fall outside the Article. Take the treaty point first and let the domestic charge go. Once the treaty allots the income exclusively to the residence State, whether s.44B or Article 7 would otherwise catch it does not need to be argued. Cite the paragraph you mean. The reasoning on Article 8(2)(b)(ii) and the India-UK contrast is in paragraphs 15 and 16 of the coordinate bench decision reported at 120 ITD 71, reproduced inside this order; it is not this order's own paragraph numbering.
Still good law. The Bombay High Court has affirmed the Tribunal on exactly this point in this assessee's own case. In CIT (International Taxation)-1 v M/s Safmarine Container Lines NV (Income Tax Appeal No. 410 of 2012, Bombay High Court, 17 July 2014) the Revenue's questions were whether inland transport income falls under Articles 8(2)(b)(ii) and 8(2)(c) of the India-Belgium DTAA; the Court held the point covered by its earlier judgment in Balaji Shipping UK Ltd (6 August 2012), that inland haulage charges form 'part of the income derived from the operation of ships', and concluded: 'We find no infirmity in the order passed by the ITAT and impugned in this appeal. The appeal is therefore dismissed.' The order actually under appeal there was the Tribunal's order of 5 August 2011 for AY 2006-07, not the 8 April 2011 order indexed here, so the affirmance is of the identical ruling in the same assessee's case for an adjacent year rather than of this order itself. A citedby: search on this order returns nothing (indiankanoon has not linked it). No decision the other way was found. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
TWO STRUCTURAL WARNINGS AND ONE INDEXING ERROR. First, the paragraph numbering of this order is irregular: it runs 1, 2, 3, 4, then a paragraph numbered 6 beginning "Having heard the learned Departmental Representative", then a long reproduction of the coordinate bench's decision carrying ITS OWN paragraph numbers 15 and 16, then a SECOND paragraph numbered 6 beginning "We see no reasons to take any other view of the matter", then the disposal at paragraph 7. There is no paragraph 5 and there are two paragraphs numbered 6. A citation to "paragraph 15" or "paragraph 16" of this order would be a fabricated locator: those are the paragraphs of DDIT v. Safmarine Container Lines NV, 120 ITD 71, for assessment year 2001-02. I have attributed the Article 8(2)(b)(ii) reasoning and the India-UK contrast to that decision, as reproduced here, and have quoted only from the second paragraph 6, which is the deciding bench speaking. Second, only one appearance is recorded on the face of the order — "Summet Kumar, for the appellant" — and the Tribunal's own words are that it heard "the learned Departmental Representative"; no appearance is recorded for the respondent assessee. Third, the indiankanoon listing dates this document 28 January 2010 and titles it "M/S Safmarine Container Lines Nv vs Department Of Income Tax". Both are wrong on the face of the document: 28 January 2010 is the date of the Commissioner (Appeals) order under appeal, the order itself is pronounced 8 April 2011, and the appellant is the Deputy Director of Income Tax (International Taxation) 2(1), Mumbai. I have taken the date and parties from the document. FINALLY, ON THE DOMESTIC LIMB: the assessee argued below that inland haulage charges are within s.44B by virtue of the Explanation inserted by the Finance Act 1997 with retrospective effect from 1 April 1976, and the Assessing Officer held they are not of the same nature as handling charges. The Tribunal did NOT decide that question, holding it wholly academic, and this entry does not state a s.44B holding. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed. The issue was squarely covered by the coordinate bench decision in the assessee's own case for assessment year 2001-02, reported at 120 ITD 71, with which the Tribunal expressed its considered and respectful agreement, and the Commissioner (Appeals) had merely followed it. The plea that inland haulage charges, not being earned in the course of international traffic of ships, should be taxable in the source country was rejected: tax treaties restrict the source taxation right to the extent exclusive residence taxation is contemplated, and as long as a treaty provides for such exclusive residence taxation the source taxation cannot be invoked, it not being for the Tribunal to question the basis on which taxation rights are given up by the source jurisdiction. Since the income was covered by Article 8 of the India-Belgium tax treaty and so subject to exclusive residence taxation, the question of its taxability under the provisions of the Income-tax Act was wholly academic. The mere fact that the Assessing Officer had challenged the coordinate bench's order before the High Court did not dilute or negate the binding nature of that decision, it not having been reversed.
TaxSphere, “DDIT (International Taxation) v Safmarine Container Lines NV — inland haulage charges fall within Article 8 of the India-Belgium treaty, and the domestic charge then becomes academic”, https://taxnotice.vittsphere.com/caselaw/case/ddit-v-safmarine-container-lines-inland-haulage-charges-article-8-india-belgium-treaty/ (validity last checked 2026-09-09)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
We are the Indian agent of a ship owned by a UAE company. We filed the section 172(3) return claiming nothing was payable because of the treaty, and the Assessing Officer taxed 7.5 per cent of the freight without explaining why. Does the treaty defeat the section 172 levy, and what does the Board say?
Our principal's freight was exempt under Article 8, but the officer says Article 24 applies because the freight went to a London account. Who wins?
My client is the Indian agent of a foreign cruise ship that sails round trips out of Mumbai. The Assessing Officer says a cruise is entertainment and hospitality, not carriage of passengers, so s.44B does not apply and he wants the s.195 withholding worked out on 25% of the fare instead of 7.5%. Can he do that?
We are an Indian exporter. We paid demurrage to a foreign shipping company without deducting tax and the Assessing Officer has disallowed the whole payment under section 40(a)(i), saying section 172 is for non-residents and we are a resident. Does the payer have to be a non-resident before section 172 can be invoked?
