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2016 (7) TMI 744 - AT - Income TaxTaxability of income in India - PE in India - business connection in India - Chargeability of income under section 44B - India-Singapore DTAA - Held that - As decided in assessee company s own case for assessment year 2009-10 we hold that income of the assessee company was liable to be taxed as business income and that in absence of Permanent Establishment in India , no income was taxable in India , that the provisions of Section 44B of the Act were wrongly invoked by the A. O. Reversing the orders of learned CIT(A), we decide effective grounds of appeal in favour of the assessee
Issues Involved:
1. Chargeability of income under section 44B of the Income Tax Act, 1961. 2. Business Connection under section 9(1)(i) of the Act. 3. Fixed Place Permanent Establishment (PE) under Article 5 of the India-Singapore DTAA. 4. Control and management in Singapore versus India. 5. Agency PE under Article 5 of the India-Singapore DTAA. 6. Computation of income including service tax under section 44B of the Act. Detailed Analysis: Chargeability of Income under Section 44B of the Act: The assessee company, incorporated in Singapore, is a Non-Vessel Operating Common Carrier (NVOCC) and a subsidiary of an Indian company, Forbes & Company Limited (F&CL). The AO held that the income from the operation of ships in international traffic should be taxed under section 44B, read with sections 5(2) and 9 of the Act, as the assessee does not own or charter any vessel. The Tribunal, however, found that the assessee was not engaged in the operation of ships but only provided container services, and thus section 44B was wrongly invoked. The income should be taxed as business income, and in the absence of a Permanent Establishment (PE) in India, no income was taxable in India. Business Connection under Section 9(1)(i) of the Act: The AO concluded that the assessee had a business connection in India based on its agency agreement with its parent company, F&CL, which habitually secured business for the assessee. The Tribunal, however, found that the business activities were carried out from Singapore and the income received was predominantly from operations outside India. Thus, the business connection in India did not lead to taxable income under section 9(1)(i). Fixed Place Permanent Establishment (PE) under Article 5 of the India-Singapore DTAA: The AO determined that the assessee had a Fixed Place PE in India through its agent, F&CL, which carried out business activities on behalf of the assessee. The Tribunal found that the assessee maintained its business operations and decision-making in Singapore, and the mere presence of an agent in India did not constitute a Fixed Place PE. Hence, no income was taxable under Article 5 of the DTAA. Control and Management in Singapore versus India: The AO argued that the control and management of the assessee were effectively in India, citing the involvement of directors residing in India and the execution of important documents in India. The Tribunal, however, noted that the significant business decisions were made in Singapore, and the operational control was exercised from there. Therefore, the control and management were not in India, and the assessee did not have a PE in India. Agency PE under Article 5 of the India-Singapore DTAA: The AO held that F&CL acted as an agent PE for the assessee, concluding contracts and performing functions on its behalf. The Tribunal found that F&CL was remunerated on an arm's length basis, and the activities did not create an Agency PE under Article 5 of the DTAA. Consequently, no further income was taxable in India. Computation of Income Including Service Tax under Section 44B of the Act: The AO included service tax while computing income under section 44B. Since the Tribunal concluded that section 44B was not applicable to the assessee, the inclusion of service tax in the computation was also incorrect. Conclusion: The Tribunal allowed the appeal, holding that the income of the assessee was liable to be taxed as business income and, in the absence of a Permanent Establishment in India, no income was taxable in India. The provisions of Section 44B of the Act were wrongly invoked by the AO. The Tribunal's decision was based on the precedent set in the assessee's own case for the assessment year 2009-10. The appeal was thus decided in favor of the assessee.
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