2013 (11) TMI 163 - AT - Income Tax

Indo 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 Following decision of DIT (International Taxation) v. NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT - A.O. is directed to grant necessary relief. - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Existence of Permanent Establishment (PE) in India.
2. Taxability of business profits under the India-France DTAA.
3. Applicability of Section 44B of the Income Tax Act.
4. Levy of interest under Sections 234B and 234C of the Income Tax Act.

Detailed Analysis:

1. Existence of Permanent Establishment (PE) in India:
The primary issue was whether the assessee, a foreign company incorporated in France, had a Permanent Establishment (PE) in India. The Assessing Officer (A.O.) contended that the assessee had a PE in India through its agents, Barwil and CMA CGM, and thus its business profits were taxable in India. The Tribunal, however, referred to its earlier decision in the assessee's own case for A.Y. 2006-07, where it was held that the assessee did not have a PE in India. The Tribunal noted that the business was carried out through an agent and the foreign enterprise did not have the right to use the agent's premises as a matter of right. Consequently, the subjective criterion for a fixed place PE was not satisfied. The Tribunal concluded that the assessee did not have a PE in India under Article 5(1) and 5(2) of the Indo-French DTAA.

2. Taxability of Business Profits under the India-France DTAA:
The assessee claimed that its income from shipping operations was taxable in France under Article 9 of the India-France DTAA, and not in India. The A.O. disagreed, stating that the income was not from shipping operations but from business income, and since the assessee had a PE in India, it was taxable in India. The Tribunal, however, held that since the assessee did not have a PE in India, its business profits could not be taxed in India under the DTAA.

3. Applicability of Section 44B of the Income Tax Act:
The A.O. held that the assessee's case was not covered under Section 44B of the Income Tax Act, which deals with the taxation of shipping business, as the assessee was not in the business of operating ships. The Tribunal did not specifically address this issue in detail, as it concluded that the assessee did not have a PE in India and thus was not liable to tax in India.

4. Levy of Interest under Sections 234B and 234C of the Income Tax Act:
The assessee argued that being a non-resident, it was not liable to pay advance tax, and thus interest under Sections 234B and 234C should not be levied. The Tribunal referred to the decision of the Hon'ble Bombay High Court in DIT (International Taxation) v. NGC Network Asia LLC, which held that when the payer is responsible for deducting tax at source, the non-resident assessee cannot be charged interest for the payer's failure. Consequently, the Tribunal deleted the interest charged under Sections 234B and 234C.

Conclusion:
The Tribunal concluded that the assessee did not have a PE in India and thus its business profits were not taxable in India under the India-France DTAA. Consequently, the interest levied under Sections 234B and 234C was also deleted. The appeal was decided in favor of the assessee, and the Revenue's appeal was dismissed.