DTA Agreement between

India & Hong Kong

Article 8 : Shipping Income
DTA Agreement between India and Hong Kong with
respect to Article 8
1) Profits of an enterprise of a Contracting Party from the operation of ships or aircraft in
international traffic shall be taxable only in that Party.
2) Notwithstanding the provisions of paragraph 1, profits of an enterprise of a Contracting
Party derived in the other Contracting Party from the operation of ships in
international traffic may also be taxed in the other Contracting Party, but the tax
imposed in that other Contracting Party shall be reduced by an amount equal to 50 per
cent thereof.
3) The provisions of paragraphs 1 and 2 shall also apply to profits from the participation in
a pool, a joint business or an international operating agency.
As per Article 8 – Operation of Ships or Aircraft in
International traffic shall include
a) Revenues and gross receipts from the operation of ships or aircraft for the transport of
persons, livestock, goods, mail or merchandise in international traffic, including
income derived from the sale of tickets and the provision of services connected with
such transport whether for the enterprise itself or for any other enterprise, provided
that in the case of provision of services, such provision is incidental to the operation of
ships or aircraft in international traffic;
b) Interest on funds directly connected with the operation of ships or aircraft in
international traffic;
c) Profits from the lease of containers by the enterprise, when such lease is incidental to
the operation of ships or aircraft in international traffic.
Income Tax on the Shipping Business

Section 44B contains presumptive tax provisions for non-residents engaged in

shipping business.
Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case
of an assessee, being a non-resident, engaged in the business of operating of ships, a
sum equal to 7.5% of the aggregate of the –
a) amount paid or payable (whether in or outside India) to the non – resident or to
any other person on his behalf on account of the carriage of passengers, livestock,
mail or goods shipped at any India port and,
b) The amount received or deemed to be received in India on account of the carriage
of passengers, livestock, mail or goods shipped at any port outside India.
Shall be deemed to be the profits and gains of such business chargeable to tax under
the head “Profits and gains of business or profession”.
Example of Income Tax of Shipping Business
Example: A foreign company engaged in shipping business made the following transportations:
 Livestock for Rs. 45 lakh from Chennai port to Singapore.
 Payment of Rs. 1 crore received in India for goods being carried from Malaysia to Singapore.
 Goods worth Rs. 2 crore shipped from Mumbai to Malaysia. Freight charges are to be received
in Malaysia.

Answer: This company’s total taxable income would be

 7.5% of Rs. 45,00,000 = Rs. 3,37,500
 7.5% of Rs. 1 crore = Rs. 7,50,000
 7.5% of Rs. 2 crore = Rs. 15,00,000
 The total taxable income would be Rs. 25,87,500. Now, the applicable corporate tax rate in
India is 40% for a foreign company. So, the tax payable would be Rs. 10,35,000, excluding the
cess and surcharge.