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2009 (9) TMI 36 - AAR - Income TaxCharter of Vessels Permanent Establishment - The applicant during the relevant years appointed JM Baxi & Co. as its port agent in India for handing the cargo. The activities of JM Baxi & Co. an independent shipping and logistics service provider consists of shipping agency services charter brokering services and clearing and forwarding agent services. J.M.Baxi & Co. is working as port agent in India on behalf of several other shipping companies. JM Baxi & Co. has on behalf of the applicant deposited income-tax under S.172 of the IT Act on 7.5% of the freight charges received by the applicant. Held that The shipping profit is not taxable in India There is Permanent Establishment in India - freight income received by the applicant on account of carrying the cargo from the Indian ports to the foreign ports by deploying chartered vessels is liable to be taxed in India
Issues Involved:
1. Permanent Establishment (PE) in India under Article 5 of the India-Switzerland Double Taxation Avoidance Agreement (DTAA). 2. Tax liability of income from chartering vessels under the DTAA. Issue-wise Detailed Analysis: 1. Permanent Establishment (PE) in India: The applicant, a non-resident shipping company incorporated in Switzerland, sought a ruling on whether it had a PE in India under Article 5 of the India-Switzerland DTAA for the assessment years 2008-09 and 2009-10. The applicant argued that it did not have any presence in India, such as an office or employees, and its activities were limited to entering into contracts with independent port agents, brokers, and stevedores. The ruling observed that the applicant's operations in India were conducted through independent agents like JM Baxi & Co., which provided shipping agency services, charter brokering, and clearing and forwarding services. These agents were independent entities working on behalf of multiple shipping companies. The Authority concluded that the applicant did not have a PE in India based on the facts presented. 2. Tax Liability of Income from Chartering Vessels: The applicant contended that if it did not have a PE in India, its income from chartering vessels for transporting cargo from Indian ports to outside India should not be liable to tax in India under the DTAA. The applicant invoked Articles 7 and 22 of the DTAA, arguing that the income derived from shipping cargo from Indian ports should not be taxed in India as it did not have a PE. The ruling analyzed the relevant provisions of the Income Tax Act, 1961, and the DTAA. Section 172 of the IT Act deals with the taxation of income derived from the shipment of goods at Indian ports by non-resident entities. The DTAA's Article 7 excludes profits from the operation of ships in international traffic from the general provision on business profits, while Article 22, a residuary article, was introduced in 2001 to cover other income not dealt with in the preceding articles. The Authority upheld the Revenue's contention that the profits from international shipping operations are not covered by the DTAA and should be taxed under the domestic law, i.e., Section 172 of the IT Act. The ruling emphasized that the exclusion of shipping profits from Article 7 indicated a conscious decision by the treaty signatories to leave such income to be taxed under domestic law. The Authority reasoned that the specific exclusion in Article 7 and the absence of explicit language in Article 22 to include shipping profits suggested that the treaty did not intend to cover such income. The Authority concluded that the freight income received by the applicant from transporting cargo from Indian ports to foreign ports using chartered vessels is liable to be taxed in India under the IT Act and is not covered by the DTAA. Conclusion: 1. The applicant does not have a PE in India under Article 5 of the DTAA. 2. The income from chartering vessels for transporting cargo from Indian ports to outside India is liable to be taxed in India under the provisions of the Income Tax Act, 1961, and is not covered by the DTAA between India and Switzerland. The ruling was pronounced on 30th September 2009, allowing the applicant to retract its option for assessment under Section 172(7) of the IT Act for the year 2008-09.
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