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2015 (10) TMI 2374 - AT - Income TaxTaxability of profits from operation of ships in international traffic - benefits of India UAE Double Tax Avoidance Agreement - Held that - Assessing Officer was clearly in error in invoking the provisions of Article 29 on the facts of this case. The conditions precedent for invoking this provision i.e. creation of the assessee entity wholly or mainly to obtain the benefits of the India UAE tax treaty which would not be otherwise available could not have been fulfilled on the facts of this case as the assessee was anyway liable for treaty protection of its India sourced income from operations of ships in international traffic whether the business was carried out from Switzerland or from UAE and irrespective of the fact whether owner of the vessel was in Marshall Islands or anywhere else. The apprehensions raised by the Assessing Officer are devoid of any legally sustainable basis and are not supported by any cogent material. The LOB clause as set out in article 29 of the India UAE treaty as see have seen earlier in this order could not have been invoked on the facts of this case either. In such a situation once there is reasonable evidence to suggest that the affairs of the company are conducted from UAE as is the case before us and there is no material to controvert the same or to establish that the company is controlled or managed from outside UAE learned CIT(A) was indeed quite justified in reversing the action of the Assessing Officer and in granting the benefits of India UAE tax treaty. The profits arising out of operations of ship in question in international water by the appellant is not subject to taxation in India due to applicability of Article 8 read with Article 4 of India-UAE DTAA. - Decided in favour of assessee.
Issues Involved:
1. Applicability of India-UAE Double Tax Avoidance Agreement (DTAA) benefits. 2. Determination of effective control and management of the company. 3. Invocation of Article 29 (Limitation of Benefits) of the India-UAE tax treaty. 4. Validity of the Tax Residency Certificate (TRC) issued by UAE authorities. 5. Taxation of profits from the operation of ships in international traffic. Issue-wise Detailed Analysis: 1. Applicability of India-UAE Double Tax Avoidance Agreement (DTAA) benefits: The appellant Assessing Officer challenged the CIT(A)'s order granting DTAA benefits to the assessee, arguing that the profits from the operation of ships in international traffic should be taxable in India. The CIT(A) reversed the Assessing Officer's decision, stating that the company, Mur Shipping DMC Co Dubai, is eligible for DTAA benefits under the India-UAE Treaty. The CIT(A) emphasized that the company's effective control and management are in the UAE, and the presence of senior employees and organizational structure supports this claim. 2. Determination of effective control and management of the company: The Assessing Officer argued that the company's effective control and management were outside the UAE, citing reasons such as the nationality of directors and the location of annual general meetings (AGMs). The CIT(A) refuted this by stating that the true test for determining the location of control and management lies in where the Board Meetings are held, which in this case, were in the UAE. The CIT(A) cited the Delhi High Court's ruling in Ravi Raj Gupta V. Hans Raj Gupta & Co. Pvt. Ltd., emphasizing that shareholders do not control the company unless they are part of the management. 3. Invocation of Article 29 (Limitation of Benefits) of the India-UAE tax treaty: The Assessing Officer invoked Article 29, arguing that the main purpose of the company's creation was to obtain DTAA benefits. The CIT(A) and the Tribunal found no merit in this invocation. It was noted that the company had bona fide business activities and that the ownership of the vessel by a Marshall Islands entity or the company's shareholders being in Switzerland did not affect the DTAA benefits. The Tribunal highlighted that Article 8 of the treaty covers profits from the operation of ships in international traffic, irrespective of ownership. 4. Validity of the Tax Residency Certificate (TRC) issued by UAE authorities: The Assessing Officer questioned the validity of the TRC, citing a disclaimer on the certificate. The CIT(A) and the Tribunal dismissed this argument, stating that such disclaimers are common and do not affect the eligibility for DTAA benefits. The Tribunal emphasized that the company provided sufficient evidence, such as incorporation certificates and details of board meetings, to prove its residency and management in the UAE. 5. Taxation of profits from the operation of ships in international traffic: The Tribunal confirmed that under Article 8 of the India-UAE DTAA, profits derived from the operation of ships in international traffic are taxable only in the state of residence, which in this case is the UAE. The Tribunal rejected the Assessing Officer's argument that the company's creation was primarily to obtain treaty benefits, stating that the company had legitimate business operations in the UAE. Conclusion: The Tribunal upheld the CIT(A)'s decision, granting DTAA benefits to the assessee and confirming that the profits from the operation of ships in international traffic are not taxable in India. The appeal by the Assessing Officer was dismissed, affirming that the company's effective control and management were in the UAE and that the invocation of Article 29 was unwarranted. The Tribunal emphasized the legitimacy of the TRC and the company's bona fide business activities, ensuring the applicability of the India-UAE DTAA benefits.
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