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2012 (1) TMI 9 - AT - Income TaxIndo French DTAA - foreign company's business of operations of ships in international traffic carried out through agents's fixed place in India question of existence of a Permanent Establishment Dependent Agent Permanent Establishment(DAPE) or independent agent - Article 5, 7 9 of Indo French DTAA - determination of profits attributable to PE Relief under article 9 levy of interest u/s 234B - Held that - Permanent establishment in the present case will be governed by Article 5(5) read with Article 5(6) of Indo French DTAA. Since there are no findings by the A.O., or the DRP, to the effect that the transactions between the agent and the assessee are not at an arm's length price, the agent is treated to be an independent agent in view of the provisions of Article 5(6). Such a finding by the revenue is a sine qua non for existence of DAPE. Thus, it is held that the assessee did not have any PE in India. Having held that the PE did not exist on the facts of this case, it is not really necessary to deal with profit attribution in the case of PEs. With respect to relief under Article 9 in respect of freight earnings it is held that the issue is covered against the assessee by a coordinate bench's decision in assessee's own case for the assessment year 2001-02 therefore, the assessee may take up the issue before Hon'ble Courts. Levy of interest under section 234 B A.O. is directed to grant necessary relief. - Decided partly in favor of assessee.
Issues Involved:
1. Existence of a Permanent Establishment (PE) in India. 2. Computation of income attributable to the PE. 3. Reopening of assessment. 4. Relief under Article 9 of the Indo-French DTAA. 5. Levy of interest under section 234B. Detailed Analysis: 1. Existence of a Permanent Establishment (PE) in India: The core issue was whether the assessee, a foreign company based in France, had a PE in India. The Assessing Officer (AO) argued that the business was conducted through an agent in India, who maintained an office for the principal, thus constituting a PE under Article 5(1) and 5(5) of the Indo-French DTAA. The AO cited the case of CIT v. Vishakhapatnam Port Trust and the OECD Model Convention Commentary to support this view. The Dispute Resolution Panel (DRP) upheld the AO's decision, stating that the agent had the authority to conclude contracts on behalf of the assessee. However, the Tribunal found that the agent was paid an arm's length remuneration, making the existence of a PE tax-neutral as per the jurisdictional High Court's judgment in Set Satellite (Singapore) Pte Ltd v. Dy. DIT. The Tribunal noted that the AO did not provide any findings that the transactions between the agent and the assessee were not at arm's length, a necessary condition under Article 5(6) of the DTAA. Therefore, the Tribunal concluded that the assessee did not have a PE in India. 2. Computation of Income Attributable to the PE: Given the Tribunal's finding that the assessee did not have a PE in India, the issue of computing income attributable to the PE became moot. The Tribunal did not need to address the fine points regarding profit attribution in the case of Dependent Agent Permanent Establishments (DAPE). 3. Reopening of Assessment: The assessee initially contested the reopening of the assessment but did not press this ground during the hearing. Consequently, the Tribunal dismissed this ground as not pressed. 4. Relief under Article 9 of the Indo-French DTAA: The assessee argued that its income should be exempt under Article 9 of the DTAA, which pertains to the operation of ships in international traffic. The AO rejected this claim, stating that the assessee failed to provide sufficient documentary evidence to link the feeder vessels with the mother vessels. The Tribunal noted that this issue was already decided against the assessee in a previous case (DDIT v. Delmas, France 27 SOT 441) and upheld the AO's decision. However, the Tribunal allowed the assessee to keep the issue alive for higher judicial forums. 5. Levy of Interest under Section 234B: The assessee contested the levy of interest under section 234B. Both parties agreed that the issue was covered by the jurisdictional High Court's judgment in DIT v. NGC Network Asia LLC, which favored the assessee. The Tribunal directed the AO to grant the necessary relief. Conclusion: The Tribunal concluded that the assessee did not have a PE in India and, therefore, no income could be attributed to a PE. The reopening of the assessment was dismissed as not pressed. The claim for relief under Article 9 of the DTAA was rejected, but the assessee was allowed to keep the issue alive for higher courts. The levy of interest under section 234B was set aside, following the jurisdictional High Court's judgment. The appeal was partly allowed in these terms.
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