2021 (9) TMI 1175 - AT - Income Tax

Income chargeable to tax in India - PE In India - shipping income received by the assessee - place of effective management may be a state other than India or Mauritius - Article 8 of the Double Taxation Avoidance Agreement between India and Mauritius ('DTAA) - Whether CIT(A) has legally erred in holding that the Appellant had a Permanent Establishment ('PE' in India in the form of Agents and thereby has erred in charging to tax the Business Profits of the Appellant in India under Article 7 of the ? - HELD THAT - As in the first round of litigation, the Tribunal, while deciding assessee s appeal held that the assessee is not eligible for availing the benefit of Article 8 of the tax treaty. Having held so, the Tribunal did not decide assessee s alternative contention regarding applicability of Articles 5 and 7 of the tax treaty, as according to the Bench, such issue is of academic nature. However, the Tribunal opined that once Article 8 of the tax treaty is held inapplicable to the assessee, the consequence should be that income earned by the assessee in India from operation of ships in international traffic has to be taxed as per the provisions of the domestic law. The issue whether assessee has a PE in India so as to tax the business profit in terms of Article 7 is very much alive for adjudication before the Tribunal. No material has been brought to our notice by the revenue to demonstrate that the aforesaid order of the Tribunal while disposing of the miscellaneous application has either been challenged by the revenue in a higher court or has been reversed. In the aforesaid scenario, the order passed in M.A has attained finality. That being the case, revenue s objection to ground 2 raised by the assessee is unsustainable. Agency PE in India - Whether two entities M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd can be considered to be providing exclusive agency services to the assessee or they are of independent status and providing such services in the ordinary course of their business? - HELD THAT - The very fact that the aforesaid entities are providing services to a number of shipping companies including the assessee demonstrates that they are not exclusively working for the assessee. Not only they are agents of independent status, but the services provided by them to various shipping companies including the assessee are in course of their ordinary business as per Article 5(5) of the Tax treaty. At this stage, we must observe, since the language used in Article 5(5) is simple and unambiguous, there is no necessity of interpreting it with external aid. See DCIT vs Overseas Transport Co Ltd 2020 (10) TMI 503 - ITAT MUMBAI As specific clauses of the agreement referred to by the assessing officer and learned Commissioner (Appeals) for concluding that M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd are agency PE of the assessee were considered by the co-ordinate bench in case of ADIT vs Bay Lines Mauritius 2018 (2) TMI 1524 - ITAT MUMBAI However, even after taking note of such clauses available in the agreement, the co-ordinate bench held that agents in India are of independent status and providing services to the assessee in ordinary course of business. In our considered opinion, the aforesaid decisions of the Tribunal would squarely apply to the facts of assessee s case. Therefore, it has to be held that M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd do not constitute agency PE of assessee in India. Thus, in absence of a PE in India, the business profits of the assessee would not be taxable in view of Article 7 of the tax treaty. Accordingly, we delete the addition. This ground is allowed.

Issues Involved:
1. Taxability of income in India under Article 8 of the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
2. Determination of Permanent Establishment (PE) in India under Article 5 of the DTAA.
3. Computation of profits under Section 44B of the Income-tax Act, 1961.
4. Reopening of assessment under Section 147 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Taxability of Income under Article 8 of the India-Mauritius DTAA:
The assessee, a shipping company incorporated in Mauritius, claimed tax exemption in India under Article 8(1) of the India-Mauritius DTAA, asserting that its place of effective management was in Mauritius. The Assessing Officer (AO) rejected this claim, concluding that the effective management was in UAE, not Mauritius, based on the involvement of shareholders from UAE in board meetings and issuance of authority letters. Consequently, the AO denied the benefit of Article 8(1) and brought the income to tax in India. The Tribunal initially upheld this view but later recalled the order for reconsideration under Article 7 of the DTAA.

2. Determination of Permanent Establishment (PE) in India:
The core issue was whether the assessee had a PE in India through its agents, M/s Samsara Shipping Pvt Ltd and M/s Parekh Marine Agencies Pvt Ltd. The AO and Commissioner of Income Tax (Appeals) [CIT(A)] held that these agents constituted a PE under Article 5(5) of the DTAA, as they were not of independent status and were exclusively working for the assessee. However, the Tribunal, upon reconsideration, noted that these agents provided services to multiple shipping companies and not exclusively to the assessee. It was observed that M/s Samsara Shipping Pvt Ltd earned only 2.2% of its commission income from the assessee, and Parekh Marine Agency Pvt Ltd earned 5.56%, indicating their independent status. Thus, the Tribunal concluded that the agents did not constitute a PE in India under Article 5(5), and consequently, the business profits were not taxable in India under Article 7 of the DTAA.

3. Computation of Profits under Section 44B of the Income-tax Act:
The AO computed the assessee's income under Section 44B, which pertains to the taxation of profits from shipping business on a presumptive basis. The assessee challenged this computation, arguing that the profits should be attributed only to activities performed in Indian territorial waters. However, since the Tribunal held that the assessee did not have a PE in India, this issue became academic and was not adjudicated.

4. Reopening of Assessment under Section 147 of the Income-tax Act:
The assessee challenged the reopening of assessments for the years 1999-2000, 2000-01, and 2001-02 under Section 147. However, the assessee did not press this ground during the hearing, leading to its dismissal.

Conclusion:
The Tribunal allowed the appeals partly, holding that the assessee did not have a PE in India under Article 5(5) of the DTAA, and thus, the business profits were not taxable in India under Article 7. The Tribunal dismissed the grounds related to the reopening of assessment and computation of profits under Section 44B as academic. The appeals were partly allowed, and the additions made by the AO were deleted.

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