2023 (3) TMI 363 - AT - Income Tax

Applicability of provision u/s 172 for shipping business of non-resident - benefit as per DTAA between India UAE category of shipping business of non- resident - Applicability of Section 144C of the Act as related to overriding effect to any other Act/provisions related to Income Tax Act - HELD THAT - Section 144C of the Act is related to reference to Dispute Resolution Panel and for this particular case there was no reference to Dispute Resolution Panel. When there is specific Statute/Section given under any Act for a particular classified category then that Section will be applicable to that particular category only. AR never contended that the assessee does not fall in that category of shipping business of non- resident. Thus, the additional ground taken by the assessee is dismissed. Benefit as per DTAA between India UAE as claimed by the appellant in return of income filed u/s.172(3) - It is undisputed fact that the assessee is a limited liability company which is non-resident. As relates to commercial licence of the company, the same is issued by Dubai Maritime City which is UAE country. Besides this, the assessee has also submitted the Bank details of Standard Chartered Bank related to outward payment customer advise that of UAE only. Though the partners/Directors are Yemenis national except one of the partner, the address of that partner/director of the resident is Dubai, United Arab Emirates (UAE) only. The UAE court (Ministry of Finance) has issued Tax Residency Certificate to the assessee company on 19.06.2008 which set out that licence No.234584 has been given to the assessee company which is domiciled in UAE. From the perusal of the additional evidence, the assessee company has given business licence details once again which clearly set out that the assessee company is a resident of UAE. Assessing Officer as well as the CIT(A) has totally ignored these facts. Merely Partner s/Director s nationality will not suffice the company s residency when the company is registered and operational in a particular country in the present case is in UAE Dubai and has obtained the business licence from the said resident company is the resident of UAE. Whether the exemption claimed by the assessee is applicable to assessee company or not? - It is the question for which Article 4(1) defines the residents and it clearly set out that the individual who is present in the UAE for period or periods totalling in the aggregate at least 183 days in the calendar year concerned, and a company which is incorporated in the UAE and which is managed and controlled wholly in UAE. In the present case, the company is incorporated in UAE and is managed and controlled only in UAE. In fact, the company and its business is operational from UAE only. Thus, it is a tax resident of UAE and, therefore, treaty between India and UAE (DTAA) is applicable in the present case. Thus, Article 8 where Shipping Business and its profit has been determined in respect of taxability the same is applicable in the present case and thus the assessee is entitled for the treaty benefit. The Assessing Officer was not right in denying the exemption and hence the addition does not sustain. Therefore appeal allowed.

Summary

Issues:
- Denial of benefit under DTAA between India & UAE
- Residency status of companies managed from UAE
- Applicability of Section 172(4) of the Income Tax Act

Analysis:
1. Denial of DTAA Benefit: The appeals were filed against orders passed by the CIT(A) for the Assessment Years 2009-10. The assessees claimed benefits under the Double Tax Avoidance Agreement (DTAA) between India and UAE. The CIT(A) confirmed the decision of the Assessing Officer (AO) to deny the benefits under DTAA, citing that the companies were not considered residents of UAE as per Article 4 of the DTAA. This denial led to demands of Rs. 8,39,267/- and Rs. 4,88,471/- in the two separate cases.

2. Residency Status: The Assessing Officer observed that the companies, Qawareb Ship Management LLC and SABA Shipping International LLC, were not wholly managed and controlled from UAE, thus questioning their residency status as per the DTAA. The AO made additions to the income and passed assessment orders under Section 172(4) of the Income Tax Act, denying the exemption claimed by the assessees based on the DTAA between India and UAE.

3. Applicability of Section 172(4): The assessees argued that as non-resident foreign companies in the shipping business, Section 172(4) of the Act should not be applicable to them. They contended that the final assessment order under Section 143(3) should not have been passed without completing the procedural mandate under Section 144C, which deals with foreign companies. However, the Tribunal held that Section 172(4) and Section 172(7) for summary assessment were applicable in the assessees' cases, dismissing the additional ground raised by the assessees.

4. Merits of the Case: The assessees provided additional evidence during the appeal, including business licenses, tax residency certificates, and other relevant documents to establish their residency in UAE. The Tribunal found that the companies were incorporated in UAE, managed and controlled from UAE, and operational only in UAE, making them tax residents of UAE as per the DTAA. The Tribunal concluded that the exemption claimed by the assessees was applicable, and the denial by the AO was incorrect, leading to the allowance of both appeals.

5. Final Decision: The Tribunal allowed both appeals, emphasizing the residency status of the companies managed from UAE and their entitlement to benefits under the DTAA between India and UAE. The orders passed by the CIT(A) denying the benefits were overturned, highlighting the importance of proper documentation and evidence to establish residency status and claim treaty benefits under international agreements.

This detailed analysis showcases the key legal aspects and arguments considered in the judgment, addressing the issues raised by the assessees and the authorities involved in the case.