2010 (7) TMI 793 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Article 8A of the DTAA between India and Netherlands.
2. Existence of a Permanent Establishment (PE) in India for the assessee.

Summary:

Issue 1: Applicability of Article 8A of the DTAA between India and Netherlands

The assessee, a non-resident company incorporated in the Netherlands, claimed its freight income as non-taxable under the DTAA with the Netherlands. The Assessing Officer (AO) rejected this claim, noting that the assessee was engaged only in the hiring of containers and not in the operation of ships. Therefore, the profits derived from the use, maintenance, or rental of containers were not incidental to the operation of ships, making the assessee ineligible for exemption under Article 8A. The CIT(A) upheld this view, stating that the hiring of containers could not be considered incidental to the operation of ships. The Tribunal agreed, stating, "the benefit of Article 8A could not be extended to income derived from freight through providing containers."

Issue 2: Existence of a Permanent Establishment (PE) in India

The CIT(A) held that the assessee did not have a PE in India as it operated through an agent of independent status, Forbes Gokak Ltd., and thus, no income could be allocated under Article 7 of the DTAA. The department contended that the containers maintained in India constituted a fixed place of business, thus creating a PE. The Tribunal noted that the AO had not given a finding on the PE issue and that the CIT(A) had only considered Article 5(6). The Tribunal decided to restore the matter to the AO for a fresh examination, stating, "it is necessary that all the relevant Articles dealing with this issue are considered by the lower authorities before arriving at any conclusion."

Conclusion:

The appeal filed by the revenue is allowed for statistical purposes, and the cross objection filed by the assessee is dismissed. The matter is remanded to the AO for a de novo adjudication on the existence of a PE in India and the applicability of Article 7 of the DTAA.