9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (5) TMI 1112 - AT - Income TaxIncome assessed u/s. 172(4) in the hands of the assessee as an agent - income accrued in India - DTAA of India Cyprus - interpretation of Effective Management - Held that - The authorities below have taxed income in the hands of Shaan as an agent of Glendive. If in their opinion Glendive may be bogus entity interposed in between to take advantage of Cyprus treaty, then it is not the income of Glendive but that of Aquavita. On one side, they are taxing the income in the hands of Glendive and on the other hand, they hold that Glendive is only a paper company. If in their opinion it is the income of Glendive, in that event, it is to be noted that Glendive does not have any establishment outside Cyprus. Accordingly, the income arises to it in Cyprus only. It is not the case of the authorities below that Glendive has any establishment outside Cyprus. According to authorities below, Glendive is just a paper company and has been interposed in the transaction as a charterer. In that event, the income would accrue to Aquavita and not Glendive. This approach of authorities below is not justified. The other reasoning given by authorities below is that the effective management of Glendive cannot be in Cyprus because it has no staff, big office establishment in Cyprus and it is a one person company. He has relied on the OECD commentary which explains the words Effective Management . The Indo Cyprus Treaty defines the words Effective Management in Article 8 itself. While other treaties like the one s with Mauritius, Poland, Netherlands do not define the words Effective Management in the Article 8 thereof. Thus, for interpreting, these treaties, reliance may be placed on the OECD Commentary but so far as the Cyprus Treaty is concerned, there is no reason to rely upon to OECD Commentary because Article 8 itself has defines the term. Hence, in our case, when Article 8 of Cyprus Treaty explains clearly the word Effective Management , there is no need to refer to OECD Commentary or other sources for the meaning of these words. In view of the above, the CIT(A) erred in holding that the income of Glendive was taxable u/s 172(4) in the hands of Shaan Marine as an agent and the treaty benefits were not available to Glendive. - Decided in favour of assessee
Issues Involved:
1. Confirmation of income assessed under Section 172(4) of the Income Tax Act. 2. Accrual of income in India. 3. Assessability of income in the hands of the agent. 4. Application of the India-Cyprus tax treaty. 5. Effective management of Glendive Enterprises. 6. Justification of income assessed in the hands of the agent. 7. Levy of interest under Sections 234A, 234B, and 234C of the Act. Issue-wise Detailed Analysis: 1. Confirmation of Income Assessed under Section 172(4) of the Income Tax Act: The assessee, Shaan Marine Services Pvt. Ltd., contested the confirmation of income of Rs. 42,61,950/- assessed by the Assessing Officer (AO) under Section 172(4) of the Income Tax Act. The AO did not accept the assessee's claim that tax is not payable by Glendive Enterprises Ltd. in India as its income is not taxable in India under the Double Taxation Avoidance Agreement (DTAA) between India and Cyprus. The AO calculated the total freight received by Glendive and determined the income at 7.5% of the receipts, which was confirmed by the Commissioner of Income Tax (Appeal) [CIT(A)]. 2. Accrual of Income in India: The CIT(A) confirmed the AO's contention that the income accrued in India in the hands of the appellant as an agent, despite the appellant's argument that the income does not accrue or arise in India based on applicable law and facts. The AO and CIT(A) held that Glendive did not have its place of effective management in Cyprus and thus, the income was taxable in India. 3. Assessability of Income in the Hands of the Agent: The assessee argued that it was assessable only as an agent of Glendive and not of any other party, and therefore, the income of Rs. 42,61,950/- should not be assessable in its hands. The AO and CIT(A) disagreed, stating that Glendive's effective management was not in Cyprus, making the income taxable in India and assessable in the hands of the agent. 4. Application of the India-Cyprus Tax Treaty: The assessee claimed that the CIT(A) erred in not following the terms of the tax treaty between India and Cyprus. Article 8 of the DTAA states that profits derived by an enterprise registered and having headquarters in a contracting state from the operation of ships or aircraft in international traffic shall be taxable only in that state. The lower authorities examined whether Glendive had its headquarters or place of effective management in Cyprus and concluded that it did not. 5. Effective Management of Glendive Enterprises: The lower authorities observed that Glendive did not have any substantial presence in Cyprus, such as employees, office premises, or office equipment. They concluded that the effective management of Glendive was not in Cyprus and that it was a company without substance, thereby denying the benefit of the DTAA. The assessee provided a Tax Residency Certificate and other documents, but the authorities deemed these insufficient to establish effective management in Cyprus. 6. Justification of Income Assessed in the Hands of the Agent: The CIT(A) held that the effective management of Glendive could not be in Cyprus due to the lack of staff and office establishment, thereby justifying the assessment of income in the hands of the agent under Section 172(4). The assessee argued that the authorities below were not justified in holding that Glendive was a paper company and that the income should be assessed in the hands of Aquavita if Glendive was deemed a bogus entity. 7. Levy of Interest under Sections 234A, 234B, and 234C of the Act: The appellant contested the consequential levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act, which was a result of the income assessed by the AO and confirmed by the CIT(A). Conclusion: The tribunal found that Glendive was a one-person company registered in Cyprus with no substantial office establishment outside Cyprus. The authorities below were not justified in holding that Glendive was merely a paper company and in denying the benefits of the DTAA. The tribunal emphasized that the effective management as defined in Article 8 of the India-Cyprus DTAA should be considered, and there was no need to refer to the OECD Commentary. The tribunal concluded that the income of Glendive was not taxable in India under Section 172(4) and directed the AO accordingly, allowing the appeal filed by the assessee.
|
