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2020 (4) TMI 452 - AT - Income TaxIncome accrued in India - PE in India - India-Mauritius DTAA - income from shipping activities under Sec. 44B - Assessment of assessee is an agent of M/s Arc Line, Mauritius, a company which was incorporated in Mauritius and was engaged in the activity of shipping in international traffic - A.O applying the provisions of Sec. 44B assessed the income of M/s Arc Line, Mauritius from its collections from shipping activities @ 7.5% - HELD THAT - Tribunal while disposing off the quantum appeal of M/s Arc Line, Mauritius for the year under consideration i.e A.Y. 1998-99 2018 (2) TMI 1524 - ITAT MUMBAI had concluded viz. (i) that, the assessee i.e M/s Freight Connection India Pvt. ltd. being an agent of an independent status could not be considered as constituting an agency PE of the assessee; (ii) that, M/s Arc Line, Mauritius did not have any PE in India; and (iii) that, the income derived by M/s Arc Line, Mauritius from its shipping activities in the absence of any PE in India could not be brought to tax in India. On the basis of the aforesaid facts, we find ourselves to be in agreement with the claim of the ld. A.R that now when the assessee has been held as an agent of independent status, and the income of M/s Arc Line, Mauritius in the absence of any PE in India had been held as not taxable in India, therefore, there remains no basis for taxing the income of M/s Arc Line, Mauritius from its shipping activities under Sec. 44B of the Act in the hands of the assessee by treating it as a representative assessee of the aforesaid company. We thus set aside the order of the CIT(A) and delete the addition made by the A.O in the hands of the assessee, vide his order passed under Sec. 143(3)/147 r.w.s 161 163 of the Act, dated 30.03.2001.
Issues Involved:
1. Assessing the principal and the agent simultaneously. 2. Denial of benefit under Article 8 of the Double Taxation Avoidance Agreement (DTAA). 3. Determination of Permanent Establishment (PE) in India. 4. Classification of the agent as a dependent agent under Article 5(5) of the DTAA. 5. Taxation under Section 44B of the Income-tax Act, 1961. 6. Application of Article 7(2) of the DTAA and Circular No. 23. 7. Limitation of tax liability to the assets in possession. Issue-Wise Detailed Analysis: 1. Assessing the Principal and the Agent Simultaneously: The assessee contended that the CIT(A) legally erred in assessing both the principal (Arc Line and Bay Line) and the agent (Freight Connection India Pvt. Ltd.) simultaneously. The Tribunal concluded that the assessment of the principal's income in the hands of the agent was not justified, as the agent was an independent entity and did not constitute a Permanent Establishment (PE) of the principal in India. 2. Denial of Benefit under Article 8 of the DTAA: The CIT(A) denied the benefit under Article 8 of the India-Mauritius tax treaty, asserting that the effective place of management of Arc Line was not in Mauritius but in Dubai. The Tribunal, however, found that the effective management was not relevant as the agent did not constitute a PE in India, thus the income could not be taxed in India. 3. Determination of Permanent Establishment (PE) in India: The CIT(A) held that Arc Line had a PE in India through the appellant company, thereby taxing the business profits under Article 7 of the DTAA. The Tribunal, referencing a prior decision, concluded that Freight Connection India Pvt. Ltd. was an independent agent and did not constitute a PE of Arc Line in India. Consequently, the business income of Arc Line could not be taxed in India. 4. Classification of the Agent as a Dependent Agent: The CIT(A) classified the appellant company as a dependent agent under Article 5(5) of the DTAA. The Tribunal disagreed, stating that the activities of the appellant company were not exclusively or almost exclusively for Arc Line, thus it did not constitute a dependent agent. 5. Taxation under Section 44B of the Income-tax Act, 1961: The CIT(A) applied Section 44B, taxing the entire freight collected on behalf of Arc Line. The Tribunal found this inappropriate, as the income derived from shipping activities by Arc Line, without a PE in India, could not be taxed under Section 44B in the hands of the appellant company. 6. Application of Article 7(2) of the DTAA and Circular No. 23: The CIT(A) failed to apply Article 7(2) of the DTAA and Circular No. 23 to determine the profits attributable to Indian operations. The Tribunal emphasized that, in the absence of a PE, the income from shipping activities could not be taxed in India, hence the provisions of Article 7(2) and Circular No. 23 were not applicable. 7. Limitation of Tax Liability to the Assets in Possession: The appellant argued that the tax liability should be limited to the assets of Arc Line in its possession. The Tribunal, agreeing with the appellant, concluded that since the income from shipping activities was not taxable in India, there was no basis for assessing the same in the hands of the appellant. Judgments Delivered: 1. For A.Y. 1998-99 (ITA No. 7680/Mum/2003): The Tribunal set aside the CIT(A)'s order and deleted the addition of ?29,03,351/- made by the A.O. 2. For A.Y. 2001-02 (ITA No. 2455/Mum/2005): The Tribunal applied the same rationale as for A.Y. 1998-99, deleting the addition of ?47,95,688/-. 3. For A.Y. 2001-02 (ITA No. 2453/Mum/2005): Similarly, the Tribunal deleted the addition of ?1,14,52,300/- made by the A.O. 4. Revenue's Appeal for A.Y. 2001-02 (ITA No. 2280/Mum/2005): The Tribunal dismissed the revenue's appeal as infructuous, given the conclusions reached in the other appeals. Conclusion: The Tribunal allowed the appeals filed by the assessee for the respective assessment years, setting aside the CIT(A)'s orders and deleting the additions made by the A.O. The revenue's appeal was dismissed as infructuous.
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