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2019 (9) TMI 1407 - AT - Income TaxIncome accrued in India - Permanent establishment of the Appellant Company under Article 5 of the DTAA between India and Mauritius - appellant-company is a non-resident company incorporated in Mauritius engaged in the business of shipping and declared income from shipping activities - assessee claimed that its place of effective management is located in Mauritius and hence as per Article -8, no income is taxable in India - HELD THAT - Effective management can be only in between two contracting state is not correct and as per the facts narrated above, we are of the considered view that the effective management of the assessee is neither in Mauritius nor in India and we are in agreement with the views of Mr. Klaus Vogel, who is an eminent authority of International Taxation, that if the effective management of an enterprise is not in one of the contracting state, but is situated in the third state, the benefit of article-8, cannot be extended. No new facts or contrary judgments have been brought on record before us by the Ld. AR in order to controvert or rebut the findings recorded by the Ld.CIT (A). Moreover, there are no reasons for us to deviate from the findings so recorded by the CIT (A). Therefore, we are of the considered view that the findings recoded by the Ld. CIT (A) are judicious and are well reasoned. Accordingly, we uphold the same. Whether there exists any Agency PE or fixed place PE in India? - HELD THAT - Co-ordinate Bench in the case of Bay Lines (Mauritius) 2018 (2) TMI 1524 - ITAT MUMBAI has held that M/s Freight Connection India Pvt. Ltd. is an agent of independent status and hence it cannot be considered as constituting Agency PE of that assessee. The decision so rendered shall also apply to the instant case and accordingly, we hold that M/s Freight Connection India P. Ltd. shall not constitute Agency PE of the assessee. Assessee does not have PE in India and its income being business income, it cannot be brought to tax in India.
Issues Involved:
1. Applicability of Article 8 of the Double Tax Avoidance Agreement (DTAA) between India and Mauritius. 2. Determination of Freight Connection India Private Limited as a 'Dependent Agent' and the existence of an Agency Permanent Establishment (PE) under Article 5 of the DTAA. 3. Existence of a Fixed Place PE in India under Article 5 of the DTAA. 4. Computation of profits under section 44B of the Income Tax Act, 1961. Detailed Analysis: 1. Applicability of Article 8 of the DTAA: The first issue involves the applicability of Article 8 of the Indo-Mauritius DTAA to the assessee. The assessee claimed that its place of effective management is located in Mauritius, thereby making its income from shipping activities exempt from Indian taxation under Article 8. The Assessing Officer (AO) determined that the place of effective management was in Gulf Countries, not in India or Mauritius, thus Article 8 would not apply. The Tribunal referenced its earlier decision in the case of M/s Baylines (Mauritius), where it was held that the effective management was neither in Mauritius nor India but in a third country. The Tribunal agreed with the AO's view, supported by Klaus Vogel's interpretation, that if the effective management is in a third country, the benefits of Article 8 cannot be extended. Consequently, the first ground of appeal was dismissed. 2. Determination of Freight Connection India Private Limited as a 'Dependent Agent' and the Existence of an Agency PE: The second issue concerns whether Freight Connection India Private Limited constitutes a 'Dependent Agent' of the assessee, thereby creating an Agency PE under Article 5 of the DTAA. The AO considered Freight Connection as an agency PE, but the Tribunal, following its earlier decision in Bay Lines (Mauritius), found that Freight Connection acted as an independent agent. The Tribunal emphasized that an agent is independent if it acts in the ordinary course of its business and its activities are not devoted exclusively or almost exclusively to the foreign enterprise. The Tribunal noted that Freight Connection earned income from multiple principals, not solely from the assessee, and thus did not meet the criteria for a dependent agent. As such, the Tribunal held that Freight Connection did not constitute an Agency PE, and this ground of appeal was allowed. 3. Existence of a Fixed Place PE in India: The third issue is whether the assessee maintains a fixed place of business in India, constituting a Fixed Place PE under Article 5 of the DTAA. The AO held that the business premises of Freight Connection constituted a fixed place PE. However, the Tribunal, referencing its earlier decision and the Supreme Court ruling in ADIT vs. E-Funds IT Solution Inc., concluded that the assessee did not have a fixed place PE in India. The Tribunal reiterated that the provisions of Article 5(1) do not apply when a foreign enterprise carries on business through an independent agent. Consequently, the Tribunal held that the assessee did not have a Fixed Place PE in India, and this ground of appeal was allowed. 4. Computation of Profits under Section 44B: The fourth issue pertains to the computation of profits under section 44B of the Income Tax Act, 1961. The assessee contended that the CIT(A) erred in computing profits under section 44B, disregarding the actual profits earned from Indian operations. However, the Tribunal noted that the assessee did not press this ground during the hearing. Therefore, this ground of appeal was dismissed as not pressed. Conclusion: The Tribunal upheld the AO's determination that the place of effective management was not in India or Mauritius, thus dismissing the first ground of appeal. However, it allowed the second and third grounds, ruling that Freight Connection India Private Limited did not constitute an Agency PE and that the assessee did not have a Fixed Place PE in India. The fourth ground was dismissed as not pressed. Consequently, the appeal was partly allowed.
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