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2004 (2) TMI 278 - AT - Income TaxTaxability of Income chargeable - Non-resident - Double Taxation Avoidance Agreement between India and Mauritius ('DTAA') - Existence of a Permanent Establishment ('PE') in India in the form of Agents - Computation of profits u/s 44B - Circular of CBDT - Quantum of income assessable - HELD THAT - On persual on the record, we find no merits in the claim of assessee that such Certificate should be treated as sufficient evidence for accepting the factum of place of effective management. We also find no force in the contention of Learned AR of the assessee that Place of Effective Management to be determined vis-a-vis Contracting State, for which reliance has been placed on the decision of AAR in Advance Ruling No. P.9 of 1995 case. The relevant observations in the said authority are regarding a situation as envisaged in Article 4 of DTAC where a concerned party is resident in both the Contracting States. Here in the present case A is resident of Mauritius only. Thus, we are of the opinion that once Article 8 is held inapplicable on the facts of the present case, the consequence will be that income of the assessee earned in India from operation of Ships in international traffic has to be taxed as per provisions of Indian Income-tax Act. As already pointed out that the income of the assessee is taxable as per Indian Income-tax Act, as per section 44B read with section 5(2) of the Act. Therefore, there is no question of quantification of the assessable income as per the other provisions of DTAC. Thus, we find no merit in the claim of the assessee that if Article 8 is held inapplicable, then the income of the assessee should be computed in accordance with various other Articles of the DTAC. The income of assessee in the present case is income arising out of operation of ships in international traffic, therefore, it cannot be held to be covered by any other article of DTAC. It also does not mean that the income which is received, accrues or arises or deemed to be received, to accrue or arise in India as per provisions of section 5(2) of Income-tax Act, 1961 cannot at all be taxed in India. DTAC does not debar such taxability at all as there is no provision in DTAC to exempt such income. In that case the only consequence will be that assessment has to be made in normal course in accordance with the provisions of section 44B read with section 5(2) of the Income-tax Act, 1961. Thus, articles 4, 5, 7 of DTAC have no application and relevance under the facts of the present case. The discussion of these articles is academic and does not affect the assessability of such income as per normal provisions of Income-tax Act, 1961. The income of assessee is assessable under Income-tax Act, 1961. The provision of section 44B being special provision will have precedence over general provisions and income as envisaged in section 44B has to be computed according to section 44B itself. It is not disputed that any part of gross receipt of the assessee shown in the return of income filed in India does not comprise of the amounts mentioned in section 44B(2) of the Act. In this view of the situation the deemed profits and gains of the assessee in respect of gross receipts shown by the assessee cannot be less than 7.5 per cent thereof. Thus we hold that there being no doubt with regard to gross quantum of receipts as prescribed u/s 44B(2), the deemed profits and gains of assessee have rightly been computed by Assessing Officer u/s 44B of the Act. In the result, the appeal filed by the assessee is dismissed.
Issues Involved:
1. Taxability of income in India under Article 8 of the DTAA between India and Mauritius. 2. Existence of a Permanent Establishment (PE) in India under Article 5 of the DTAA. 3. Computation of profits u/s 44B of the Income-tax Act, 1961. Summary: Issue 1: Taxability of Income in India under Article 8 of the DTAA The assessee, a non-resident company incorporated in Mauritius, claimed exemption from tax in India based on Article 8 of the DTAA, which states that profits from the operation of ships in international traffic shall be taxable only in the Contracting State where the 'Effective Management' of the enterprise is situated. The Assessing Officer (AO) and CIT(A) concluded that the effective management of the assessee was not in Mauritius but in Dubai, based on evidence from shipping agents and the nature of board meetings. Consequently, the benefit of Article 8 was denied, and the income was taxed in India. Issue 2: Existence of a Permanent Establishment (PE) in India The AO held that the assessee had a PE in India through its agents, as per Article 5 of the DTAA. The agents were not considered independent since their activities were not exclusively or almost exclusively for the assessee. The CIT(A) upheld this view, stating that the business was carried out through a fixed place in India, constituting a PE under Article 5(1) of the DTAA. Issue 3: Computation of Profits u/s 44B of the Income-tax Act, 1961 The AO computed the income of the assessee u/s 44B, which provides a special provision for computing profits and gains of shipping business in the case of non-residents. The CIT(A) upheld this computation, rejecting the assessee's argument that profits should be taxed based on activities performed in Indian territorial waters and not under section 44B. The Tribunal agreed with the AO and CIT(A) that the income should be computed as per section 44B, given the non obstante clause with respect to sections 28 to 43A of the Act. Conclusion: The Tribunal dismissed the appeal, concluding that the assessee's claim for exemption under Article 8 of the DTAA was not acceptable, the assessee had a PE in India, and the income was correctly computed u/s 44B of the Income-tax Act, 1961.
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