2021 (5) TMI 151 - AT - Income Tax

Benefits of India UAE Double Taxation Avoidance Agreement - assessee had taken vessels on the time charter, for transportation of good by ship in the international traffic, as also the assessee s filing of the commercial licence issued by the Department of Economic Development, Government of Dubai, and tax residency certificate - HELD THAT - On the facts of the present case, the inferences drawn by the authorities below are unsustainable in law, as there is reasonable material on record to substantiate the stand of the assessee that the assessee company was incorporated in UAE, and was managed and controlled wholly in the UAE. In the present case, there is nothing to even suggest that the business activities of the assessee company were not bonafide. There is reasonable evidence before us, and was all along available before the authorities below, that the assessee was having bonafide business in the UAE, and, as such, the lack of bonafides could not be inferred. Once assessee submits reasonable evidence, including the evidence in support of the existence of an office, and dedicated employees, in UAE and the business being carried on from there- as also the financial statements showing the business being carried on from the UAE on a regular and commercial basis, unless the revenue authorities bring on record some material to dispute this position, one cannot proceed to conclude, as the Assessing Officer did, that the business activities of the assessee lacked bonafides. The authorities below were thus clearly in error in holding that the LOB clause was applicable on the facts of this case. We are of the considered opinion that the assessee company is a resident of the UAE, in terms of requirements of article 4(1)(b) of the Indo-UAE tax treaty, that the limitation of benefits provisions of article 29 of the Indo-UAE tax treaty cannot be pressed into service in this case, and that the assessee is eligible for treaty protection, in respect of its income earned in India, under the Indo UAE tax treaty. It is not even in dispute, and rightly so, that under the provisions of article 8(1) of the Indo UAE tax treaty, which provides that profits derived by an enterprise of a Contracting State from the operation by that enterprise of ships in international traffic shall be taxable only in that State , the assessee company is protected from taxation of the income in question in India. AO will give relief accordingly.

Issues Involved:
1. Whether the authorities were justified in denying the benefits of the India-UAE Double Taxation Avoidance Agreement (DTAA) to the assessee.
2. Whether the assessee qualifies as a "resident" of the UAE under Article 4(1) of the Indo-UAE tax treaty.
3. Applicability of the "Limitation of Benefits" (LOB) clause under Article 29 of the Indo-UAE tax treaty.

Detailed Analysis:

1. Denial of DTAA Benefits:
The primary issue in this appeal is whether the authorities were justified in declining the benefits of the India-UAE DTAA to the assessee. The assessee, a UAE-incorporated company engaged in shipping services, claimed that its income from international shipping operations should be taxable only in the UAE under the Indo-UAE tax treaty. The Assessing Officer (AO) rejected this claim, arguing that the company's profits were majorly controlled by a Greek national, and thus, the business was not managed or controlled wholly from the UAE. The AO also questioned the validity of the tax residency certificate (TRC) and other documents provided by the assessee, suggesting that they were obtained through misrepresentation of facts.

2. Qualification as a "Resident" of the UAE:
The tribunal examined whether the assessee qualifies as a "resident" of the UAE under Article 4(1) of the Indo-UAE tax treaty, which requires that a company be incorporated in the UAE and managed and controlled wholly in the UAE. The tribunal noted that the assessee had provided substantial evidence, including its incorporation details, licenses, annual accounts, and work permits for expatriate employees, demonstrating that the company was indeed managed and controlled from the UAE. The tribunal also highlighted that the main director, a Greek national, was present in the UAE for 300 days during the relevant year, and his nationality did not negate the company's UAE residency status.

3. Applicability of the LOB Clause:
The tribunal addressed the applicability of the "Limitation of Benefits" (LOB) clause under Article 29 of the Indo-UAE tax treaty, which denies treaty benefits if the main purpose of creating the entity was to obtain such benefits. The tribunal found that the assessee had been in business since 2000, and its operations in India began only in 2015, thus negating the possibility that the company was formed to exploit the treaty benefits. The tribunal also observed that the assessee had provided reasonable evidence of bona fide business activities in the UAE, including the existence of an office, dedicated employees, and regular commercial operations.

Conclusion:
The tribunal concluded that the assessee qualifies as a resident of the UAE under Article 4(1)(b) of the Indo-UAE tax treaty and that the LOB clause does not apply in this case. Consequently, the assessee is entitled to treaty protection, and its income from international shipping operations is taxable only in the UAE under Article 8(1) of the treaty. The tribunal allowed the appeal and directed the AO to provide the necessary relief.

Final Judgment:
The appeal is allowed, and the assessee is granted the benefits of the Indo-UAE tax treaty. The judgment was pronounced on April 30, 2021.

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