Inland Haulage Charges Treated as Shipping Profits under India–China DTAA: ITAT Mumbai Ruling Explained
Background of the Dispute
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) in DCIT Vs COSCO Container Lines examined whether Inland Haulage Charges (IHC) earned by a Chinese shipping enterprise qualify as exempt shipping income under Article 8 of the India–China DTAA for Assessment Year 2020-21. The appeal filed by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Mumbai, dated 28.10.2025.
The assessee, a non-resident company and tax resident of China, was engaged in the business of operating ships in international traffic. It carried on its activities in India through Cosco Shipping Agencies (India) Pvt. Ltd. During the relevant year, it filed its return of income on 09-01-2021, declaring total income of Rs. 46,20,25,910/-.
The key controversy arose in respect of IHC receipts and whether such income is:
- Part of “profits from operation of ships in international traffic” taxable only in the State of residence under Article 8(1) of the India–China DTAA; or
- Business profits taxable in India under Articles 5 and 7, on the basis that the activity is an inland, independent business carried on through an alleged dependent agency permanent establishment (DAPE).
Facts and Figures Relevant to IHC
During assessment proceedings, the Assessing Officer (AO) observed the following with respect to Inland Haulage Charges:
- IHC receipts: Rs. 52,68,17,043/-
- IHC expenses: Rs. 41,81,46,477/-
- Net IHC amount claimed as exempt under Article 8(1): Rs. 10,86,70,566/-
The assessee contended that:
- IHC represents charges to move cargo from the customer’s premises to the port (and vice versa) as part of a single, door-to-door shipment arrangement.
- The bill of lading covers transportation from the point of origin to the ultimate destination as one integrated, composite shipping service.
- Therefore, IHC is not an independent inland business, but an element of the overall international shipping operation covered by Article 8(1) of the India–China DTAA.
In support, the assessee relied on several judicial precedents concerning similar treaty language under other DTAAs (e.g., India–France, India–Denmark, India–Belgium), and on the OECD Commentary to Article 8.
Revenue’s Position Before the AO
The AO rejected the assessee’s claim for treaty exemption on IHC, mainly on the following grounds:
Literal reading of Article 8 – India–China DTAA
The AO emphasised that Article 8(1) of the India–China DTAA grants exemption only to:“profits derived by an enterprise which is a resident of a Contracting State from the operation by that enterprise of ships or aircraft in international traffic…”
According to the AO, this wording restricts the benefit to income directly from international sea transport and does not automatically cover inland movement within India.
Absence of specific ancillary activity clause
By comparing Article 8 of the India–China DTAA with Article 8 of the India–Belgium DTAA, the AO highlighted that the Belgium treaty includes the phrase:“any other activity directly connected with such transportation”
This expression is absent in the India–China DTAA. Therefore, the AO argued that the intention in the India–China convention was to exclude ancillary inland services such as IHC from Article 8.
Treatment as business profits via PE
- The AO treated Cosco Shipping Agencies (India) Pvt. Ltd. as a dependent agency PE of the assessee in India under Article 5 of the India–China DTAA.
- On that basis, the AO classified IHC income as business profits attributable to the PE and brought the sum of Rs. 10,86,70,566/- to tax in India under Article 7.
Order of the Commissioner (Appeals)
The assessee challenged the assessment before the CIT(A). After considering the submissions and relevant case law, the CIT(A) ruled in favour of the assessee on the main issue.
CIT(A)’s Key Findings
IHC as part of composite international shipping activity
The CIT(A) accepted that the assessee’s IHC activity was not a separate line of business, but rather an integral component of door-to-door international carriage. IHC was found to be part of the same transaction for which the bill of lading is issued – i.e., transportation from origin to final destination.