2017 (3) TMI 1376 - AT - Income Tax

Income accrued and arise u/s.5(2) read with section 9(1)(i) - actual freight beneficiary of the vessel - DTAA - Held that - Appellant has proved the place of effective control and management of the appellant by furnishing several documents including declaration by director of company that it is completely 100% owned by Mr. Jens Faber Anderson, Copy of Passport of Director to prove that the nationality of director and company has been operating from Denmark. It can be concluded that the Director Mr. Jens Faber Anderson resides in Denmark is resident of Denmark and have been operating business wholly from Denmark, all the important decisions are taken from Denmark in the form of meeting and therefore, the place of effective management and control is Denmark only. The principal company is also engaged in international traffic and residence is Denmark. Therefore, on the basis of Article 9 of the DTAA between India and Denmark, the income on account of operation of ship in International Traffic shall be taxable in the state in which the place of effective management is situated i.e. in this case Denmark. Therefore, in view of the above discussion and considering Article-9 of the Treaty between India and Denmark and also the decision taken by the Department in earlier cases of the assessee, we hold that the ships operated in International Traffic and therefore, the income from ship shall not be taxed in India as per Article 9 of the Treaty. Therefore, on account of foregoing observation, appeal of the assessee/appellant is allowed.

Summary

Issues Involved:
1. Assessment of income under Section 172(4) of the Income Tax Act.
2. Denial of benefit under the India-Denmark Double Taxation Avoidance Agreement (DTAA).
3. Determination of the actual beneficiary of freight receipts.
4. Nature of payment received (freight for carrying goods vs. hiring payment for charter).
5. Tax residency and place of effective management (POEM) of M/s. Faber Shipbroker APS, Denmark.
6. Verification of documents and evidence submitted by the assessee.

Detailed Analysis:

1. Assessment of Income under Section 172(4):
The Assessing Officer (AO) assessed the income of the appellant at ?4,14,274/- under Section 172(4) of the Income Tax Act, denying the benefit of the India-Denmark DTAA. The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this assessment, stating that the income was taxable in India.

2. Denial of Benefit under the India-Denmark DTAA:
The AO and CIT(A) denied the benefit of the India-Denmark DTAA, arguing that the appellant did not provide sufficient evidence to prove the tax residency and other relevant details for M/s. Faber Shipbroker APS, Denmark. The appellant contended that the freight beneficiary was M/s. Faber Shipbroker APS, Denmark, and the income should be taxed in Denmark as per Article 9 of the DTAA.

3. Determination of the Actual Beneficiary of Freight Receipts:
The AO claimed that M/s. CTI Group Inc., Jordan, chartered the ship and earned the freight, thus making it the actual beneficiary. However, the appellant argued that M/s. Faber Shipbroker APS, Denmark, was the disponent owner and actual beneficiary of the freight receipts. The tribunal found that the freight was payable by CTI Group Inc., Jordan, to Faber Shipbrokers, Denmark, as per the charter party agreement.

4. Nature of Payment Received:
The AO and CIT(A) classified the payment received by Faber Shipbroker APS as hiring payment for charter rather than freight for carrying goods. The appellant contested this classification, maintaining that the payment was indeed freight for carrying goods.

5. Tax Residency and Place of Effective Management (POEM):
The tribunal examined various documents, including the tax residency certificate, incorporation certificate, and passport of the owner, to determine the POEM of M/s. Faber Shipbroker APS, Denmark. The tribunal concluded that the POEM was in Denmark, and as per Article 9 of the DTAA, the income from shipping operations should be taxed in Denmark.

6. Verification of Documents and Evidence Submitted:
The AO issued a notice under Section 172(4) calling for various documents to verify the DTAA claim. The appellant submitted several documents, including the amended Article of Association, incorporation certificate, tax residency certificate, and charter party agreement. The tribunal found that these documents sufficiently proved the tax residency and POEM of M/s. Faber Shipbroker APS, Denmark.

Conclusion:
The tribunal allowed the appeals filed by the assessee, concluding that the income from the shipping operations should be taxed in Denmark as per the India-Denmark DTAA. The tribunal dismissed the appeals filed by the Department, upholding the benefit of the DTAA to the assessee.

Result:
- Appeals filed by the assessee (ITA No. 313/Rjt/2013, ITA No. 658, 659, 660 & 661/Rjt/2012) were allowed.
- Appeals filed by the Department (ITA No. 517/Rjt/2013 & 499/Rjt/2014) were dismissed.