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2018 (2) TMI 1524 - AT - Income TaxIncome accrued in India - shipping profits to be not taxable in India - PE in India - Held that - Freight Connection is an independent agent who acts in its ordinary course of its business and whose activities are not devoted exclusively or almost exclusively on behalf of the assessee. Therefore, it is held that the assessee does not have an Agency PE in India and the CIT(A) was right in so holding for the AY 1998-99 and the successor CIT(A) was wrong in taking a contrary view for the subsequent assessment years. Thus hold that even if the assessee s case is not covered by Article 8, the business profits would not be chargeable to Indian tax as it does not carry on business in India through a permanent establishment (an agency PE) as per articles 7 and 5 of the DTAA. - Decided against revenue Effective management of the respondent is neither in Mauritius nor in India but in a third country - benefit of article-8 - 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. - Decided against assessee.
Issues Involved:
1. Admission of additional ground of cross objection. 2. Existence of Permanent Establishment (PE) in India. 3. Place of Effective Management (POEM). 4. Dependent Agent and computation of profits under Section 44B. 5. Short credit of advance tax. 6. Levy of interest under Sections 234B and 234D. Detailed Analysis: 1. Admission of Additional Ground of Cross Objection: The assessee filed an application to raise an additional ground of cross objection, arguing that the place of effective management was in Dubai and not in India or Mauritius. The Tribunal allowed the additional ground, citing that it was a purely legal question and relevant facts were already on record, referencing principles established by the Supreme Court in cases like National Thermal Power Co. Ltd. v. CIT. 2. Existence of Permanent Establishment (PE) in India: The revenue contended that the assessee had a PE in India through its agent, M/s Freight Connection India Pvt. Ltd. (FCIPL), which habitually concluded contracts and performed other significant activities on behalf of the assessee. The Tribunal evaluated whether FCIPL was a dependent agent under Article 5(5) of the DTAA between India and Mauritius. It concluded that FCIPL was an independent agent, as it also earned substantial income from other principals, thus not exclusively or almost exclusively working for the assessee. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. 3. Place of Effective Management (POEM): The CIT(A) had determined that the POEM of the assessee was neither in Mauritius nor in India but in a third country (UAE). The Tribunal upheld this finding, agreeing with the CIT(A) and referencing Klaus Vogel's commentary that if the POEM is in a third state, the benefit of Article 8 of the DTAA cannot be extended. The Tribunal dismissed the assessee's cross objection challenging this determination. 4. Dependent Agent and Computation of Profits under Section 44B: The assessee argued that even if FCIPL was considered a PE, since it was remunerated at arm's length, no further income should be attributed to the PE. The Tribunal, having already concluded that FCIPL was not a PE, dismissed this ground as it was not applicable. 5. Short Credit of Advance Tax: The assessee claimed a short credit of advance tax for AY 2011-12. The Tribunal directed the AO to verify the advance tax paid by the assessee and grant credit accordingly, allowing this ground. 6. Levy of Interest under Sections 234B and 234D: Since the Tribunal concluded that the assessee did not have a PE in India and thus its business profits were not chargeable to tax in India, the question of levy of interest under Sections 234B and 234D did not arise. This ground was deemed consequential and required no specific adjudication. Conclusion: The Tribunal dismissed the revenue's appeal and the assessee's cross objections for AY 1998-99. For the subsequent assessment years, the Tribunal dismissed the grounds related to POEM and PE, upheld the short credit of advance tax for AY 2011-12, and deemed the levy of interest under Sections 234B and 234D as non-applicable. All appeals filed by the assessee were partly allowed.
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