1.   DIT (International Taxation) Vs. Commonwealth Development, ITA No. 1058 of 2011, Date: 09/07/2012, High court of Bombay

Income on account of upfront appraisal fees is business income not FTS

The appellants were unable to indicate anything that during the appraisal or by the appraisal report, the respondent made available to the applicants or the borrowers, any technical knowledge, experience, skill, know-how or processes or that the same consisted of development and transfer of any technical plan or technical design. In fact, it was quite the contrary. The process involved the respondent appraising itself of various aspects of the applicant for the credit facilities which would obviously involve an appraisal of the applicants existing assets, tangible as well as intangible, including its technical knowledge, experience, skill, know-how and the quality of its processes and technical abilities. By no stretch of imagination can it be said that the respondent imparted to the applicants or the borrowers, any technical services, much less technical services of the nature referred to Article 13(4)(c) of the DTAA.

The Tribunal thus rightly upheld the findings of the CIT (Appeals) that the income on account of the upfront appraisal fees was business income and as the respondents did not have a permanent establishment in India, the same could not be charged to tax in India under Article 7 of the DTAA.

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2.    DIT (International Taxation) Vs.  Balaji Shipping UK Ltd. ITA No. 3024/3215 of 2009, Date: 06/08/2012, High Court of Bombay

Article 9: Income from “slot charter” is exempt as income from “operation of ships”

There is no distinction in principle between a slot charter and a voyage charter of a part of a ship. They are both in a sense charterers of a space in a ship. The phrase “operation of ships” in Article 9 must be understood in the context of the phrase “the business of operation of ships” in section 44B. As income from slot hire agreements falls within section 44B it must be held to be within the ambit of Article 9(1). Article 9 does not require the ship to be owned by an the assessee. It merely requires the income to be “from the operation of ships in international traffic”. A charter is certainly contemplated by Article 9 and an enterprise that controls the management/operation of the ship would be included in Article 9 even if it does not own the ship (KLM Royal Dutch Airlines 178 Taxman 291 (Del) followed).

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