ORDER
Pramod Kumar, A.M.
1. The short, neatly identified and interesting issue requiring our adjudication in this appeal is as to what precisely are the connotations of the expression “more than casual” appearing in article 8A(2) of the India Netherlands Double Taxation Avoidance Agreement (‘DTAA’ for short).
2. Before we address ourselves to this core issue, it is necessary to briefly touch upon the relevant DTAA provisions and the material facts in the background of which this controversy is set out. The assessee is a shipping agency, and is before us in its capacity as ‘representative assessee’ of the actual assessee, i.e., a Netherlands based shipping company, namely Serrmoah Shipping BV-a capacity in which it is assessed to tax as well. It is necessary to take note of the fact that article 8A(1) of the Indian Netherlands DTAA [(1989) 177 ITR (St) 22], as a general principle, lays down that “profits from the, operation of ships in international traffic shall be taxed in that other State in which the place of effective management of the enterprise is situated”. But, then, an exception to this general principle is set out in the immediately following sub-clause, i.e., 8A(2) which states that “however, if the operation of ships in international traffic is more than casual, such profits may also be taxed in that other State and according to the laws of that State…” It, thus, follows that as soon as operation of ships in international traffic is treated as “more than casual”, the assessee is saddled with the income-tax liability in the source country of the receipts as well. In this background of the legal provisions, let us take a look at the facts of this case.
3. The assessee filed its return under Section 172(3), along with the manifest, on 27th Nov., 1996. It appears that the assessee’s claim was that in view of the provisions of article 8A of the India-Netherlands DTAA, and in view of the assessee’s contention that its operation of ships in India was no more than casual, its income from such occasional shipping activity is only taxable in the Netherlands and not in India. During the course of the ensuing proceedings, however, the AO noticed that the ships owned and chartered by the assessee have sailed through Indian ports seven times during the relevant previous year. Three ships owned by the assessee, namely m.v. Orient Garland which visited Mumbai port on 12th July, 1995), m.v. Oriental Iris (which visited Murnbai port on 3rd Sept., 1995 and 12th July, 1995 and m.v. Orient Violet (which visited Mumbai port on 7th Nov., 1995, 2nd Feb., 1996 and 12th Feb., 1996), as also JNPT port on 12th Feb., 1996) visited Indian ports. The AO also observed that “in the absence of any definition provided in the treaty for casual and regular ship operations, the assessee is treated as a regular ship operator and tax is to be paid as per sub-Clause 2 to article 8A of DTAA between India and the Netherlands”. The AO, thus rejected the assessee’s contention that its business of operation of ships in India was no more than casual. He held that the profits of the assessee from the operation of ships in India is taxable in India under article 8A(2). Aggrieved by the stand so taken by the AO, the assessee carried the matter in appeal before the CIT(A), but without complete success. The CIT(A) held that to the extent a solitary visit of m.v. Orient Garland is concerned, the same can indeed not be treated as ‘more than casual’, but the operation of the other merchant vessels has to be treated as ‘more than casual’. The assessee is not satisfied and is in further appeal before us.
4. Shri Pardiwalla’s basic contention is that ‘tramp shipping’, that the assessee is involved in, and which implies that the ships of the assessee visit India on unscheduled trips on, “as and when required” basis, cannot be said to be anything more than casual operation of ships in India. Accordingly, as per the learned counsel, the profits from tramp shipping activity, under article 8A of the Treaty, cannot be taxed in India, i.e., the source country. It is submitted that in the normal business of shipping, generally ships have a definite schedule for their route and, in that case, irrespective of whether the ship is full of cargo or otherwise, i.e., having sufficient loading or unloading, the ship has to ply because it is having a pre-determined schedule. Such operation of ships is termed as ‘scheduled shipping’ or ‘liner shipping’ which can surely, not be termed as casual. However, according to the learned counsel, as opposed to this ‘schedule shipping’, the ships owned or chartered by the assessee touch the Indian ports only when they have available cargo to load or unload. This activity of calling on a port only when there is a specific requirement for loading or unloading the cargo, is termed as ‘tramp shipping’ in the shipping industry parlance. Our attention is also invited to the dictionary meaning of the expression ‘casual’ because this expression is not defined in the tax treaty. It is pointed out that the word ‘casual’ implies resulting from or accurring by chance, occurring without regularity, occasional, employed for irregular period. It is submitted that the word ‘casual’ is defined to mean subject to or produced by chance, accidentally, fortuitous, coming at uncertain times not to be calculated on, unsettled. It is, thus, reiterated that ‘tramp shipping’ activity cannot be said to be anything more than casual operation of ships and, accordingly, the same cannot be taxed in the source country, even in terms of article 8A of the Treaty. Reliance is also placed on Dr. Klaus Vogel’s Commentary on Double Taxation Conventions, which is also said to have stated that ‘the tramp shipping may be no more than casual’.
5. The learned counsel further contends that the assessee in this case was assessed to tax under Section 172 of the IT Act, which covers only the “profits of non-residents from occasional shipping business”. Our attention was invited to the fact, on the body of the assessment order itself that the AO has observed that the assessment order is passed under Section 172(4) though r/w Section 143(3) of the Act. It is suggested that the very fact that the assessment was done initially under Section 172 of the Act demonstrates that, even according to the Revenue, the assessee earned profits from occasional shipping business which is distinct from profits of shipping as a regular source of income assessable under Section 44B of the Act, which is titled as ‘Special provision for computing profits and gains of shipping business in the case of non residents’. The learned counsel has also demonstrated that even the scope of charge under Section 172 is materially different from the scope of charge under Section 44B, inasmuch as, whereas under Section 172(4) the tax liability is only “seven and a half per cent of the amount paid or payable on account of carriage of passengers, livestock, mail or goods shipped at a port in India to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India”, the tax liability under Section 44B, in addition to the said seven and a half per cent of freight on goods shipped in India, is also on the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. The burden of taxability under Section 44B is, therefore, much higher. Yet the Revenue has chosen to tax the assessee under Section 172 which demonstrates that, even according to the Revenue, the assessee was only earning profits from occasional shipping business in India, which, for this reason alone, takes the income out of the ambit of taxability in India under article 8A of the Treaty. With a view to highlight the distinction between the scopes of Section 172(2) and Section 44B, the learned counsel for the assessee also referred to, and relied upon the Hon’ble Karnataka High Court’s judgment in the case of V.M. Salgaocar and Bros. Ltd. v. Dy. Controller, RBI and Ors., (1991) 187 ITR 381 (Kar). On the strength of these submissions, the learned counsel contends that the entire income of the assessee’s shipping business in India, which is only in the nature of tramp shipping, is only taxable in the country of domicile, i.e., the Netherlands, and not in the source country, i.e., India. We are urged to hold so, and, to this extent, modify the orders of the authorities below.
6. Shri Vikey, on the other hand, dutifully relied upon the orders of the authorities below, took us through these orders, and contended that, by no stretch of logic, the assessee’s business from operation of ships could be said to be casual. It is contended that whether the operation of ships is on the basis of fixed schedules or is ‘as and when required basis’, these facts would not have any bearing on the determination of the question whether the operation of ships in India is casual or more than casual. According to the learned Departmental Representative, operation of ships in India could be said to be casual only when it is on unplanned, not even unscheduled, visits to India. It is submitted that the GIT(A) has been more than fair in treating a solitary visit by the assessee’s ships to India as ‘casual operations’ and that when a ship calls on Indian ports again and again, whether on scheduled trips or unscheduled trips, its visits to Indian ports cannot be termed as casual operation of ships in India. We are thus urged to uphold the order of the GIT(A) and to decline to interfere in the matter.
7. In response to the bench’s queries, Shri Pardiwalla made some further submissions.
8. First, our attention was invited to various definitions of ‘liner’ and ‘tramp liner’ as follows:
Liner-“A vessel sailing between specified ports on regular basis”
Tramp Liner-“An ocean carrier company operating vessels not on regular runs or schedules. They call at a port where cargo may be available”.
(Source : www.marad.dot.goy/publications/glossary/1.html)
Liner-“A vessel sailing between specified ports on a regular schedule (as opposed to a “tramp steamer” which has no regular schedule).
Tramp Steamer-“A vessel maintaining no regular schedule, calling at any port where it may be able to pick up available cargo. See Liner.”
(Source : Glossary of Marine Insurance and Shipping Terms, Second Edn. (2.1) 2002 published by Association of Marine Underwriters of San Francisco, Inc.)
9. Secondly, as regards the Bench’s query that, since the UN Model Convention Commentary states that the phrase ‘more than casual’ means a scheduled or planned visit of a ship to a particular country to pick up freight or passengers, and since the connotations of the expression ‘planned’ could include ‘planned’, whether scheduled or not, even unscheduled but planned visits of tramp liners seem to be covered by the expression ‘more than casual’, learned counsel’s line of arguments was that in case a visit is unscheduled, it cannot be treated as planned either. Our attention was drawn to the dictionary meaning of the expression ‘planned’ which is explained as ‘designed, projected, arranged, etc., (as) in accordance with the plan’ and of ‘plan’ which is explained as ‘a design according to which things are, or intended to be, arranged’ and as ‘an organised and specially detailed method according to which something is to be done, a scheme of action, a design, an intention, a proposed proceeding’. In effect, it was pleaded that only scheduled visits of a vessel can be termed as ‘planned’ visits.
10. Thirdly, the learned counsel addressed our query that when a vessel comes, although without a specific schedule, all the way to an Indian port to pick up cargo or to unload cargo at an Indian port, it cannot but be planned on account of commercial expediencies, and, therefore, cannot be said to be casual. The Bench’s proposition was that operation of a ship in the other State can be said to be casual only when the visit of such ship to the other State is merely fortuitous in the sense that the visits to the ports of call in the other Contracting state is neither planned nor scheduled and in effect, such a visit has to be dictated by non-commercial expediencies. The learned counsel’s submissions on this issue were on the following lines:
As the very quantum of freight earned by the assessee would indicate, the vessel did not come specially to the Indian ports in the sense that such a small amount of freight earning would justify or warrant a planned visit to an Indian port, but the visit was entirely fortuitous in the sense that the vessel was passing by and these small shipments were available. The learned counsel invited our attention to the figures of freight earnings on each of these trips which are-my Oriental Iris Rs. 25,60,091 and Rs. 82,24,515, and my Oriental Violet Rs. 60,81,579, Rs. 48,52,764, Rs. 30,55,645 and Rs. 24,69,240. It was submitted that, looking at the costs of operations involved, it makes no sense for a vessel to come to an Indian port just to pick up this cargo.
It was clarified, in response to the Bench’s query, that the vessel did not visit Indian port to pick up cargo on a full load basis and, therefore, there was no question of the ship ‘coming all the way to Indian port’. The learned counsel, however, hastened to submit that, at this stage, it is not the issue as to whether a vessel visiting Indian port to pick up or unload the cargo on a full load basis could be termed as ‘more than casual’, and, therefore, a decision on that issue, without hearing the affected parties, would not be fair. It was submitted that the visit to Indian ports was not planned, in the sense it made no commercial sense to come to an Indian port only because of that available cargo, but it did make commercial sense because the vessel in question was sailing nearby in connection with other transportation of cargo. It was pointed out that on account of such other transportation, the Indian port fitted into the scheme of things. On this basis, the visit was stated to be fortuitous.
11. The learned counsel then explained the manner in which tramp shipping operations are carried out. It was submitted that the agent who has cargo for transportation first puts in his requisition, with details of the nature of the cargo and load, as also the destination details, etc., to the ‘tramp shipping broker house in London in order to find out whether any tramp vessels are available nearby for picking up this cargo. The broker house then finds out the tramp vessels nearby, and then contacts the masters of those vessels to ascertain whether they would be interested in picking up the cargo in question. In case, any of such vessels is inclined to pick up the cargo, the freight, etc., is negotiated. That is how, according to the learned counsel, tramp shipping business is carried out. The learned counsel further clarified that this tramp shipping business is not for the spare capacity on scheduled liners, but only for tramp vessels which happen to have the spare capacity. It was then submitted that the very activity of tramp shipping is such that there cannot be any scheduled, and for that purpose, even planned, visits to a port.
12. Finally, on our observations about the apparent anomaly in Section 44BB vis-avis Section 172, so far as the scope of taxability is concerned, the learned counsel suggested that there is no anomaly for the reason that while Section 172 undoubtedly excludes the payments for inward freight, that inward freight, at the time of payment, has to be the subject-matter of tax deduction under Section 195.
13. We were, thus, once again urged to vacate the orders of the authorities below and hold that the freight earned by the assessee, which is in the nature of freight earned in the course of tramp shipping, is not exigible to tax in India.
14. We consider it useful to first reproduce the extracts from the relevant provision in the India Netherlands DTAA (hereinafter referred to as ‘the Treaty’) which is as under :
“Article 8A : Shipping
1. Profit from the operation of ships in the international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated.
2. However, if the operation of a ship in the other State is more than casual, such profits may also be taxed in that other State and according to the laws of that state, but only so much of them as is derived from the other State and provided that the profits are in respect of any one or more of the first ten fiscal years for which the convention has effect.
(emphasis, italicized in print, supplied by us)
It is in this context that we have to interpret the scope of the expression ‘more than casual’.
15. It will also be useful to briefly touch upon the principles governing interpretation of treaties. Are these principles any different from the principles of interpretation of statutes, and, if so, to what extent and in what manner?
16. Double Taxation Avoidance Agreements are international agreements entered into between States. The conclusion and interpretation of such conventions is governed by public international law, and particularly, by the Vienna Convention on the Law of Treaties of 23rd May, 1969. The rules of interpretation contained in the Vienna Convention, being customary international law, also apply to the interpretation of tax treaties. This view also finds mention in the Tribunal’s order in the case of Modern Threads India Ltd. v. Dy. CIT, (1999) 69 ITD 115 (Jp)(TM). Article 31(1) of the Vienna Convention states that “A treaty shall be interpreted in good faith in accordance with the ordinary meaning given to the terms of the treaty in then-context and in the light of its object and purpose.”
17. Elaborating upon the principles governing interpretation of tax treaties, Lord Denning, in Bulmer Ltd. v. S.A. Bollinger, (1972) 2 All ER 1226, said ;
“…… The treaty ….. is quite unlike any of the enactments we have been accustomed……. It lays down general principles. It expresses aims and purposes…. what are English Courts to do when they are faced with a problem of interpretation? They must follow the European pattern. No longer must they examine the words in meticulous detail. No longer must they argue about the precise grammatical sense. They must look to the purpose or intent…….”
18. Echoing these views and justifying his departure from the plain meaning of the words used in the treaty, Goulding J, in IRC v. Exxon Corporation (192) STC 356 at p. 359, observed :
“In coming to the conclusion, I bear in mind that the words of the convention are not those of a regular Parliamentary draughtsman but a text agreed on by negotiations between the two contracting Governments. Although I am thus constrained to do violence to the language of the convention, I see no reason to inflict a deeper wound than necessary. In other words, I prefer to depart from the plain meaning of language only in the second sentence of Article XV and I accept the consequence (strange though it is) that similar words mean different things in the two sentences.”
19. In a later judgment, Harman J in Union Texas Petroleum Corporation v. Critchley (1988) STC 69, affirmed the above observations of Goulding J and added:
“I consider that I should bear in mind that this double tax agreement is an agreement. It is not a taxing statute, although it is an agreement about how taxes should be imposed. On that basis, in my judgment, this agreement should be construed as ut res magis valeat quam pereat, as should all agreements. The fact that the parties are ‘high contracting parties’, to use an old description, does not change the way in which the Courts should also approach the construction of any agreement”
20. We are in considered agreement with this school of thought which lays down the proposition that, strictly speaking the principles of literal interpretation do not apply to the interpretation of tax treaties. To find the meaning of words employed in the tax treaties, we have to primarily look at the ordinary meanings given to those words in that context and in the light of its objects and purpose. Literal meanings of these terms are not really conclusive factors in the context of interpretating a tax treaty which ought to be, as per public international law on interpretation of treaties enshrined in arts. 31 to 33 of the Vienna Convention, interpretated in good faith. It is, therefore, desirable that in order to arrive at the true scope of the expression ‘more than casual’ appearing in article 8A of the India-Netherlands DTAA, we have to examine the meaning assigned to this expression in international tax language which in turn depends on the contemporaneous exposition that this expression has received at the multilateral forums such as the OEGD and the UN. We also have to examine the manner in which this article 8A can be interpreted ut res magis valeat quam pereat, i.e., to make it workable rather than redundant.
20A. The provisions of article 8A of the Treaty are on the lines of article 8B (Alternative B) of the UN Model Convention. The UN Commentary on this model explains the scope of expression ‘no more than casual’ as follows :
“The group observed that countries wishing to adopt the approach embodied in the aforementioned alternative proposal might note that the taxation of shipping profits in the country in which those profits originated (source country) was based on an operative rule for the shipping business and was not qualified by the provisions of arts. 5 and 7 relating to business profits governed by the permanent establishment rule. Such taxation thus covered both regular and frequent shipping visits and irregular or isolated visits, provided the latter were planned and not merely fortuitous. The phrase ‘more than casual’ meant a scheduled or planned visit of a ship to a particular country to pick up freight or, passengers……”
(emphasis, italicized in print, supplied by us)
21. As the above commentary unambiguously indicates, the expression “more than casual”, as used in the UN Model Convention, means scheduled or planned visits to a particular country and it includes ‘regular and frequent’ shipping visits, as also ‘irregular and isolated visits’, as long as the same are planned and not merely fortuitous, or, say, something happening completed by chance. Therefore, merely because a ship visits Indian ports at irregular intervals or only as and when required, it cannot be said that such operation of ships in India is no more than casual. As we have noted earlier, article 8A of the India-Netherlands DTAA is on the lines of article 8B (Alternative B) of the UN Model Convention, and, therefore, the meaning given to the expression ‘more than casual’ by the UN Commentary on this model convention has to be treated as in the nature of ‘contemporanea expositio’. As to what is the persuasive value of this commentary, we can do no better than to quote from Tribunal’s order in the case of Graphite India Ltd. v. Dy. CIT (2003) 78 TTJ (Cal) 418 : (2003) 86 ITD 384 (Cal), relevant portion at p. 396, which was authored by one of us (the AM) :
“The aforesaid interpretation is clearly in harmony with the OECD and UN Model Conventions’ official commentaries, as elaborated in paras 9 and 10 above. As the provisions of article 15 of Indo-US DTAA, and corresponding provisions in these model conventions, are identical in material respects, i.e., are in pari mateha, the UN and OECD Model Conventions, and Commentaries thereon, have key role in determining connotations of the expressions employed in art, 15. Hon’ble Andhra Pradesh High Court has, in the case of CIT v. Visakhapatnam Port Trust (1983) 144 ITR 146 (AP), referred to OECD Commentaries on the technical expressions and the clauses in the model conventions, and referred to, with approval, Lord Radcliffe’s observations in Ostime (Inspector of Taxes) v. Australian Mutual Provident Society (1960) 39 ITD 210 (HL), which have described the language employed in these documents as the “international tax language”. In view of the observations of Hon’ble Andhra Pradesh High Court, in Visakhapatnam Port Trust’s case (supra), these model conventions and commentaries thereon constitute international tax language and the meanings assigned by such literature to various technical terms should be given due weightage. In our considered view, the views expressed by these bodies, which have made immense contribution towards development of standardisation of tax treaties between various countries, constitute ‘contemporanea expositio’ inasmuch as the meanings indicated by various expressions din tax treaties can be inferred as the meanings normally understood in, to use the words employed by Lord Radcliffe, ‘international tax language’ developed by bodies like OECD and UN.”
We are, thus, inclined to follow the UN Commentary on the Model Convention which, as we have discussed above, supports the proposition that operation of a ship in the other State can be said to be casual only when the visit of such ship to the other State is merely fortuitous in the sense that the port of call in the other Contracting State is neither planned nor scheduled. In effect, such a visit has to be dictated by non-commercial expediencies. That admittedly is not the case here. The very fact that the assessee accepts that the ships have called Indian ports on ‘as-and-when-required basis’ implies that it is on account of commercial expediencies that the ships have operated in India. To that extent, visits of ships are, in our humble understanding, not merely fortuitous.
22. The learned CIT(A), in his impugned order, as also the learned counsel in his arguments, have relied upon Dr. Vogel’s treatise on the double taxation avoidance agreements. We may, therefore, as well deal with Dr. Vogel’s observations in this context. In this oft referred book ‘Klaus Vogel on Double Taxation Conventions’ (Third Edn.), Dr. Klaus Vogel has, at p. 490, elaborated upon this clause as follows:
“Under Article 8(2) UN MC, alternative B, the State of the place of effective management has the exclusive taxation on profits from the operation of ships unless the shipping activities in the other contracting state are no more than casual. If such shipping activities are more than casual, the latter State also has the right to tax. Shipping activities are deemed to be more than casual if the ship visits the other Contracting State according to a fixed schedule or even if only on a planned irregular visit to pick up for unship cargo in the other Contracting State. This means that virtually all contractual or cargo shipping would be deemed to be more than casual and, therefore, subject to tax in the other Contracting State. Even an isolated call at a port may be sufficient for it to be so. At most, tramp shipping may be no more than ‘casual’ in the other State, but only if the ship’s call there is an isolated one.”
(emphasis, italicized in print, supplied by us)
23. The view so expressed by Dr. Vogel also supports the UN Model’s Commentary in the sense that even tramp shipping can be treated as ‘casual’ only when the ships call in the other Contracting State only when such call is an isolated one. Dr. Vogel’s observation that the ship visits the other Contracting State according to a fixed schedule or even if only on a planned irregular visit to pick up or unship cargo in the other Contracting State, is quite in harmony with the UN Model Commentary observation which effectively states the same thing by observing that the phrase ‘more than casual’ meant a scheduled or planned visit of a ship to a particular country to pick up freight or passengers”. Therefore, whether the ship’s visit is scheduled or not, this fact, per se, does not make a difference to the determination of question as to whether the operation of the ship in that other Contracting State can be termed as casual. The learned counsel’s contention thus fails on this count. As for the learned counsel’s reliance on Dr. Vogels’s observation that tramp shipping can be treated as casual, it is nobody’s case that even this observation is an unqualified observation which holds good in all circumstances. On the contrary, Dr. Vogel himself has qualified this statement by saying that ‘at the most’ tramp shipping can be termed as no more than casual, amongst other situations, when the ship’s call is an isolated one. The CIT(A) has excluded such isolated calls from the operation of ships in respect of which profits are held to be taxable in India. While we find ourselves in concurrence with Dr. Vogel’s observations, we find that the assessee does not get any further assistance from the same.
24. We are also not persuaded by the learned counsel’s submissions that the expression ‘planned’ has the same connotations as ‘scheduled’, and that these expressions can be used interchangeably in the present context. There can be no doubt that there are some similarities between these two expressions but the very fact that the UN Model Convention Commentary has used the expression ‘scheduled or planned’ would indicate that, in this particular context, these expressions have different, whether or not entirely mutually exclusive, connotations. This fact is more clear from a harmonious reading of the entire relevant observations which have been reproduced earlier in the order. Just because two terms have some similarities, it does not follow that their scope and connotations are the same. It does not appeal to us that what is not scheduled cannot be planned either.
25. It is not in dispute that tramp shipping, by its very nature, an organised business activity and it is one of the basic features of this line of business that the vessels do not follow a fixed schedule. The operations of tramp vessels in the international traffic cannot, therefore, be said to be, by any logic, ‘casual’ or ‘fortuitous’. These vessels call on the ports as a part of their normal business activity-whether persuaded by schedule or by the availability of cargo. In any event, to the extent, these visits are isolated visits, say once in a year, the CIT(A) has already treated the same as ‘casual’ and the Revenue is not in appeal on that issue. These are only recurring visits to Indian ports which have been treated as ‘more than casual’. Even a plain commonsense view supports that interpretation. This view is also supported by UN Model Convention Commentary and Dr. Vogel’s Commentary on Double Taxation Conventions, which states, that “At the most, tramp shipping may be no more than ‘casual’ in the other State, but only if the ship’s call, there is an isolated one.” Even otherwise, it appears that tramp shipping profits, per se, being treated as exigible to tax only in the country of domicile, is unworkable because in that case, even if a tramp liner visits ports in another country throughout the year, though without fixed schedule, the profits from such operations cannot be treated in the source country at all, something which is clearly contrary to the undisputed thrust of the provisions of the DTAA, and which will, therefore, lead to unintended results of the provisions of the DTAA.
26. As regards the learned counsel’s reference to the freight figures, in our considered view, the quantum of freight certainly cannot help us to decide whether operation of a vessel is casual or more than casual. As we have mentioned earlier in this order, what is material is whether the operations in the other Contracting State is casual or not, and that aspect is to be determined bearing in mind, in our humble understanding, whether the operation in the other Contracting State was ‘planned’ or was entirely ‘fortuitous’, on the frequency of trips to that other Contracting State, and on whether the operations in the other Contracting State was on account of business exigencies or non-business exigencies. The case before us fails on these tests. We are, therefore, of the considered view that even tramp shipping operations are required to be treated as ‘more than casual’ for the purposes of India Netherlands DTAA, unless such operations involve only isolated operations of vessels in the other Contracting State.
27. We now take up the learned counsel’s contention that since the assessee was subjected to tax under Section 172 of the Act, even the Revenue’s stand is that profits of the assessee constitute “profits of non residents from occasional shipping business” and, for this reason also, the assessee’s income from operation of ships in India cannot be treated as anything more than casual. This argument, however, proceeds on the fallacy that the expression “occasional” is interchangeable with the expression “casual” in the context of article 8A but, then, as we understand and as we have expressed the view earlier in this order, the expression ‘casual’ in the context of article 8A is more akin to ‘fortuitous’ than ‘occasional’. That is what we believe to be the contextual meaning and the contemporaneous exposition of that term. The very foundation of the learned counsel’s argument, therefore, does not appeal to us.
28. Be that as it may, we also find that there is an anomaly in the terms of Section 172 and Section 44B, inasmuch as tax liability under Section 172, which essentially is in the nature of ad hoc liability in special cases, is lesser in scope vis-a-vis the assessee’s tax liability under Section 44B of the Act. Yet, even after the assessee is levied tax under Section 172, he has an option for assessment on the basis of, inter alia, Section 44B. Of what purpose is the option of taxability under Section 44B when the tax liability so calculated has to be more than the tax liability computed under Section 172 of the Act?
29. Under Section 172(2) of the Act, 7.5 per cent of freight earned on shipments from India by a non-resident shipping company is treated as its income and tax is levied thereon. However, the scope of taxability under Section 44B is clearly more, since it does not only cover 7.5 per cent of freight earned on shipments from India by a non-resident shipping company but, in addition, it also covers 7.5 per cent of other freight received or deemed to be received in India. The taxability under Section 44B, therefore, cannot be less than the taxability under Section 172(4) of the Act. Under Section 172(6), a port clearance is not to be granted to the ship until and unless the Collector of Customs, or other officer duly authorised to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof. It is thus more of a recovery mechanism for the taxes payable by the shipper or the charterer. The anomaly, therefore, is that the ad hoc liability computed under Section 172(4) is less than the actual liability under Section 44B of the Act. Under Section 172(7), nevertheless, it is also open to the non-resident to claim that its income be assessed to tax as per the standard provisions of the Act. In other words, if the alternative under Section 172(7) is preferred, the taxes paid thereunder can only be lower than the assessee’s liability on assessment under the normal provisions of the Act. As regards the learned counsel’s submission that in that case, tax will be deductible from inward freight under Section 195 of the Act, there is a possible view that once the assessment is done under Section 172 of the Act, and Section 172 of the Act does not envisage taxability of inward freight, it cannot be open to the Revenue to tax the same. In V.M. Salgaocar’s case (supra), Hon’ble Kamataka High Court has already held that in case Section 172 is to be followed, only the procedure as contemplated under Sections 172(3) and 172(7) should be followed and no other. However, it is not for us to go further into this apparent anomaly, nor is it necessary to do so for our present purposes. The learned counsel’s reliance of V.M. Salgaocar’s case (supra) is also of no avail because while we agree that in case Section 172 is to be followed, only the procedure as contemplated under Sections 172(3) and 172(7) should be followed and no other, we also find that the non-resident owner or charterer of the ship has an option under Section 172 itself, to be assessed under the normal provisions of the Act and it is in exercise of this option, as evident from p. 3 of the statement of facts before the CIT(A), that the assessee has preferred that option. Anyway, that does not make any difference to the situation before us, because whether the assessee is treated as in ‘occasional shipping business’, as is referred to in Section 172 or not, this aspect, in our understanding, is not relevant in determining whether or not the operation of ships is ‘casual’ or ‘more than casual’. The plea raised by the assessee does not meet our approval for this reason also.
30. For the detailed reasons set out above, we see no reason to interfere in the matter. Accordingly, we approve the conclusions arrived at by the CIT(A) and decline to differ therewith.
31. In the result, the appeal is dismissed.