2014 (1) TMI 1274 - AT - Income Tax

Chargeability to tax - Whether the amount is chargeable to tax as per Article 7 of the DTAA Held that - The AR was fair enough to accept that CMA may be considered as the dependent agent of the assessee - Thus, it satisfies the requirement of Article 5 of the DTAA - CMA was the agent of the assessee and hence constitutes its permanent establishment in India. Determination of Business profits as per Article 7 of the DTAA Income computed u/s 44B of the act Exemption granted under Article 8 of the DTAA - Held that - The income in respect of 21 voyages which has been considered as chargeable to tax in India as per Article 7 of the DTAA is the amount on which the assessee paid commission etc. to CMA, which is its AE and also a dependent agent - The receipt in the hands of the CMA has been determined at ALP under due process of law The decision in Delmas, France vs. ADIT(IT) 2012 (1) TMI 9 - ITAT MUMBAI followed where the associated enterprise (that also constitutes a PE) is remunerated on ALP, then nothing further would be left to attribute to the PE thus, the income in respect of 21 voyages cannot be included in the hands of the assessee - Decided partly in favour of Assessee.

Issues:
1. Availability of benefit under Article 8 of the Double Taxation Avoidance Agreement (DTAA) in relation to shipping income.
2. Determination of business profits as per Article 7 of the DTAA.
3. Taxability of income in respect of 21 voyages.
4. Levy of interest under sections 234B and 234C of the Income-tax Act.
5. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Issue 1: Availability of benefit under Article 8 of the DTAA:
The case involved an appeal by the assessee against the Assessing Officer's order regarding the eligibility of relief under Article 8 of the DTAA for certain voyages. The Assessing Officer disallowed relief for 98 out of 178 voyages due to lack of evidence of pool arrangements and other factors. The Dispute Resolution Panel directed fresh examination, and the final order granted relief for 77 voyages, proportionately determining receipts for the remaining 21 voyages.

Issue 2: Determination of business profits under Article 7 of the DTAA:
The discussion revolved around whether commission paid to a dependent agent at arm's length price affects the profit earned by the assessee from shipping income. The assessee argued that since the commission was paid at ALP, no further taxation on business profits should occur. The Revenue contended that commission payment does not erase the business profits attributable to the permanent establishment in India. Precedents were cited, and ultimately, the Tribunal upheld the assessee's contention based on existing judgments.

Issue 3: Taxability of income in respect of 21 voyages:
The Tribunal concluded that the income from 21 voyages, which was considered chargeable to tax in India under Article 7 of the DTAA, should not be included in the assessee's hands. This decision was based on the fact that the associated enterprise (AE) was remunerated at arm's length price, aligning with previous judgments.

Issue 4: Levy of interest under sections 234B and 234C:
The Tribunal dismissed the grounds against the levy of interest under sections 234B and 234C, citing a judgment of the jurisdictional High Court which rendered those grounds ineffective.

Issue 5: Initiation of penalty proceedings under section 271(1)(c):
The Tribunal deemed the initiation of penalty proceedings premature and dismissed the ground related to penalty under section 271(1)(c) of the Act.

In conclusion, the appeal was partly allowed concerning the availability of benefits under the DTAA and other issues, as detailed in the judgment pronounced on July 24, 2013, by the Appellate Tribunal ITAT Mumbai.

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