2017 (12) TMI 520 - AT - Income Tax

Entitlement to treaty protection by an entity based on UAE - whether assessee covered by definition of resident of Contracting State under Article 4(1) of the Indo-UAE Tax Treaty - Held that - In order to invoke Article 29, what is to be established is that if the assessee company was not to be formed in the UAE, the assessee would not have been entitled for such benefits. We have noted that the entire share capital of the assessee company is held by German entities by the name of Martrade Shipping Transport GMBH and C.R. Consulting & Holding GMBH, but then, in the Indo-German DTAA also similar treaty protection with regard to taxability of shipping profits only in the state of residents are available. Therefore, whether the company was to be formed in UAE or in Germany, it would not have any material difference so far as non-taxability of said income in India is concerned. As corollary to this legal position, merely because the company is set up in UAE and not in the country to which the capital belongs, the assessee does not get any benefits of the Indo-UAE agreement which would have been otherwise available. The requirement necessary for invoking Article 29 is thus not fulfilled in the present case. Following the co-ordinate bench decision in the case of MUR Shipping DMC Co. (2015 (10) TMI 2374 - ITAT RAJKOT ), we reject the grievances of the Assessing Officer on this count also. As regards the wordings of the Tax Residency Certificate, based on which the Assessing Officer has concluded that the company was formed only for the purpose of availing Indo-UAE tax treaty benefits, we may mention that neither the inference of the Assessing Officer is based on any legally sustainable material or even common sense, nor this Tax Residency Certificate is relevant in any way. There is no dispute that the assessee was liable to tax in UAE by the virtue of incorporation in UAE and therefore, the assessee was covered by definition of resident of Contracting State under Article 4(1) of the Indo-UAE Tax Treaty.

Issues Involved
1. Entitlement to DTAA benefits under Indo-UAE Double Taxation Avoidance Agreement.
2. Effective control and management of the assessee company.
3. Applicability of Article 29 (Limitation of Benefits) of the Indo-UAE Tax Treaty.
4. Validity of Tax Residency Certificate issued by the Ministry of Finance, UAE.

Analysis of the Judgment

1. Entitlement to DTAA Benefits
The primary issue was whether the assessee company was entitled to the benefits under the Indo-UAE Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO) argued that the company did not deserve the treaty protection as the effective control and management was outside UAE, and the company was not subjected to tax in UAE. The CIT(A) reversed this decision, stating that the company was managed and controlled wholly from UAE and thus eligible for DTAA benefits. The Tribunal upheld the CIT(A)'s decision, referencing the case of ADIT vs. Green Emirate Shipping and Travels, which clarified that actual payment of tax in UAE was not necessary for treaty benefits.

2. Effective Control and Management
The AO contended that the effective control and management of the company were outside UAE, citing the nationality of the directors and the location of the Annual General Meeting (AGM) as evidence. The CIT(A) disagreed, noting that the board meetings and important decisions were taken in Dubai, and the Managing Director (MD) was a resident of Dubai. The Tribunal supported the CIT(A)'s findings, emphasizing that the place of holding the AGM and the nationality of the directors were irrelevant factors.

3. Applicability of Article 29 (Limitation of Benefits)
The AO invoked Article 29 of the Indo-UAE Tax Treaty, which denies treaty benefits if the main purpose of creating an entity was to obtain such benefits. The CIT(A) found no evidence to support this claim, and the Tribunal agreed, stating that the company had bona fide business activities in UAE. The Tribunal referenced the case of ITO vs. MUR Shipping DMC Co., highlighting that the mere fact of incorporation in UAE did not imply an intention to abuse the treaty benefits.

4. Validity of Tax Residency Certificate
The AO questioned the validity of the Tax Residency Certificate issued by the Ministry of Finance, UAE, due to a disclaimer clause. The CIT(A) dismissed this concern, noting that such disclaimers were standard and did not affect the certificate's validity. The Tribunal concurred, stating that the certificate, along with other documents, sufficiently proved the company's residency in UAE.

Conclusion
The Tribunal upheld the CIT(A)'s decision, affirming that the assessee company was entitled to the benefits under the Indo-UAE DTAA. The Tribunal found that the company was managed and controlled from UAE, had bona fide business activities, and the Tax Residency Certificate was valid. The appeals were dismissed.

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