2025 (4) TMI 149 - AT - Income Tax

Dependent agent PE of assessee in India - AO preceded that assessee has a PE in India in the form of FCIPL who is an dependent agent for assessee - CIT(A) held that place of effective management of assessee company is neither in Mauritius nor in India but in the third Country and therefore assessee is not entitled to benefit of Article 8 of India-Mauritius DTAA - HELD THAT - From the agreement and also from the submissions made before the authorities below it is seen that; firstly FCIPL is only an agent for booking cargo for the assessee as per the Tariff fixed by it and it has no capacity to conclude contracts of any nature. Further the booking of freight as an agent does not imply that FCIPL is empowered to conclude any contracts; secondly the assessee is not liable for any expenses obligations or liabilities of expenses or otherwise of FCIPL; thirdly in its normal course of conduct of business FCIPL does not act as a representative of the assessee but only as an agent for booking cargo just as it does for other shipping lines for which also it is an Agent; fourthly the risks associated with their respective business are mutually exclusive. The assessee has limited access to books and records related only to the agency business of FCIPL; and lastly the instructions are limited to booking of freight and the assessee has no say in the management of FCIPL. FCIPL is functionally independent of the Assessee. Thus simply booking of freight as an agent does not imply that FCIPL is empowered to conclude any contracts nor assessee was liable for any instances obligations or liabilities of expenses of FCIPL. It does not act as a representative of the assessee but only an agent for booking cargo and the risk associated was also that of an agent. FCIPL was doing business for other enterprises also and in as much as more than 77.60 % of the Revenue or the income was from other independent parties at only 22.32% Revenue was derived from assessee. In this regard we have already incorporated the table which encapsulates various operating income derived by FCIPL. Thus FCIPL was an independent agent and not carrying out any work wholly and almost wholly for the assessee company. Accordingly the order of the ld. CIT (A) is confirmed and the grounds raised by the Revenue are dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment were:

1. Whether Freight Connection India P. Ltd. (FCIPL) constitutes a dependent agent permanent establishment (PE) of the assessee in India under Article 5 of the India-Mauritius Double Taxation Avoidance Agreement (DTAA).

2. Whether the place of effective management of the assessee company is in Mauritius, thereby entitling the assessee to the benefits of Article 8 of the India-Mauritius DTAA.

ISSUE-WISE DETAILED ANALYSIS

1. FCIPL as a Dependent Agent PE

Relevant legal framework and precedents: The determination of whether FCIPL is a dependent agent PE is governed by Article 5(4) of the India-Mauritius DTAA. The Tribunal referred to past decisions, including the Bombay High Court decision in the case of B4U International Holdings Ltd., which clarified the criteria for establishing an agency PE.

Court's interpretation and reasoning: The Tribunal examined the agency agreement and the nature of activities performed by FCIPL. It concluded that FCIPL was not a dependent agent PE because it was not exclusively or almost exclusively working for the assessee. The Tribunal noted that FCIPL derived only 22.32% of its income from the assessee, with the majority of its income coming from other principals and third-party customers.

Key evidence and findings: The Tribunal considered the agency agreement and the financial details of FCIPL, which showed that FCIPL acted as an independent agent for various entities, not just the assessee.

Application of law to facts: Based on the evidence, the Tribunal found that FCIPL was an independent agent as per Article 5(5) of the DTAA, and not a dependent agent PE under Article 5(4).

Treatment of competing arguments: The Tribunal rejected the Revenue's argument that FCIPL was habitually concluding contracts on behalf of the assessee, noting the lack of evidence to support this claim.

Conclusions: The Tribunal upheld the CIT(A)'s finding that FCIPL was not a dependent agent PE of the assessee in India.

2. Place of Effective Management

Relevant legal framework and precedents: Article 8 of the India-Mauritius DTAA provides that profits from the operation of ships are taxable only in the state where the place of effective management is situated. The Tribunal referred to previous assessments and the commentary on tax treaties by Klaus Vogel.

Court's interpretation and reasoning: The Tribunal agreed with the Assessing Officer (AO) that the place of effective management was not in Mauritius. It noted that key management decisions were made in Dubai, and the directors who held significant shares were based in the UAE.

Key evidence and findings: The Tribunal considered the directors' location, the agency agreement, and other documents indicating management activities in Dubai.

Application of law to facts: The Tribunal found that the effective management was not in Mauritius, thus denying the assessee the benefit of Article 8 of the DTAA.

Treatment of competing arguments: The Tribunal dismissed the assessee's argument that the tax resident certificate from Mauritius was sufficient to establish the place of effective management, noting the lack of substantive evidence of management activities in Mauritius.

Conclusions: The Tribunal concluded that the place of effective management was in Dubai, not Mauritius, and thus the assessee was not entitled to the benefits of Article 8.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Tribunal stated, "Considering the above legal proposition and as well as facts of the present case we find that the Hon'ble Bombay High Court has affirmed the Tribunal's decision in B4U International Holdings which had held that the conclusion in DHL operations was erroneous. Therefore, we hold that the Freight Connection is an independent agent who acts in its ordinary course of its business and whose activities are not devoted exclusively or almost exclusively on behalf of the assessee."

Core principles established: The Tribunal reinforced the principle that an agent must be exclusively or almost exclusively working for the principal to be considered a dependent agent PE. It also clarified that the place of effective management is determined by where key management decisions are made, not merely by the location of directors or tax residency certificates.

Final determinations on each issue: The Tribunal dismissed the Revenue's appeals, confirming that FCIPL was not a dependent agent PE and that the place of effective management was not in Mauritius, thus denying the benefit of Article 8.

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