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2017 (1) TMI 981 - AT - Income TaxTaxability in India - whether slot hire charges received by the assessee was covered by Article 8 of the Indo UAE DTAA? - Permanent Establishment (PE) in India - Held that - Reading of order of AAR 1997 (10) TMI 393 - ADVANCE RULING AUTHORITY in its entirety makes it clear that AAR had decided in clear words that the impugned income i.e. income from slot hire charges shall be part of income from shipping operations and would be eligible for the benefit of Article 8 of DTAA between India and UAE and thus not liable for tax in India. The DRP has grossly erred in not reading the order of AAR properly which has caused undue hardship of the assessee. The order of the AAR had attained finality. Thus, this issue was no more open to be decided in any other manner by the AO or DRP. Under these circumstances, we decide this issue in favour of the assessee.
Issues Involved:
1. Taxability of "slot hire charges" under Article 8 of the Double Taxation Avoidance Agreement (DTAA) between India and UAE. 2. Applicability of the Authority of Advance Ruling (AAR) decision to the "slot hire charges." 3. Determination of Permanent Establishment (PE) status of the assessee's agent in India. 4. Correctness of the Dispute Resolution Panel (DRP) and Assessing Officer's (AO) interpretation and application of the AAR ruling. Detailed Analysis: 1. Taxability of "Slot Hire Charges" under Article 8 of DTAA: The primary issue was whether the "slot hire charges" earned by the assessee were covered under Article 8 of the DTAA between India and UAE, which would exempt such income from tax in India. The assessee argued that these charges were part of the income from the operation of ships in international traffic and thus covered by Article 8. The DRP and AO, however, held that the "slot hire charges" were not covered under Article 8 and taxed the income at 7.5%, treating it as business income. 2. Applicability of the AAR Decision: The assessee relied on an earlier AAR decision in its own case (AAR No. 356 of 1997), which stated that the income from shipping operations, including "slot hire charges," was covered under Article 8 of the DTAA. The DRP and AO, however, did not consider this ruling applicable to the current income, arguing that the AAR had not specifically addressed "slot hire charges." The Tribunal found that the AAR ruling did encompass "slot hire charges" as part of the shipping operations, thus making the income non-taxable in India under Article 8 of the DTAA. 3. Determination of PE Status: The assessee contended that even if the "slot hire charges" were not covered under Article 8, they could not be taxed under Article 7 of the DTAA as the assessee did not have a PE in India. The AO had treated the assessee’s agent, M/s. Samsara Shipping Private Limited, as a PE. The Tribunal found that M/s. Samsara Shipping was an independent agent and did not constitute a PE under the DTAA, thus supporting the assessee's argument. 4. Correctness of DRP and AO's Interpretation: The Tribunal criticized the DRP for not properly considering the AAR ruling and for summarily rejecting the assessee's objections without detailed reasoning. The Tribunal noted that the DRP had failed to provide a speaking order, which was required given the binding nature of the AAR ruling. The Tribunal emphasized that the DRP's casual approach led to unnecessary litigation and hardship for the assessee. The Tribunal directed that the DRP should have adhered to the AAR ruling, which had attained finality and clearly covered the "slot hire charges" under Article 8 of the DTAA. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the "slot hire charges" were covered under Article 8 of the DTAA and thus not liable for tax in India. The Tribunal found that the DRP and AO had erred in their interpretation and application of the AAR ruling. Consequently, the Tribunal did not find it necessary to adjudicate other issues, as the primary issue was decided in favor of the assessee. The appeal was allowed for statistical purposes.
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