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TMI Blog2011 (11) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... rties. ORDER N.V. Vasudevan,- These are five appeals by the assessee against orders of CIT(A) XXXI, Mumbai, all dated 29/06/2009. ITA No.4905/M/2009 to 4907/M/09 ITA No. 4944/M/09 are in relation to A.Y. 2002-03, while ITA 5038/M/09 is for the assessment year 2003-04. 2. First we shall take for consideration ITA No.4907/Mum/09. The ground of appeal raised by the Assessee reads as follows: "On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in confirming that an amount equivalent to 7.5% of the remittances made by the appellant to WSA 1994 Ltd. was assessable as income chargeable to tax in India." 3. The material facts relevant for decision in this appeal are as follows: WSA Shipping (Bombay) Pvt.Ltd. is engaged in the business of Cargo Consolidation commonly known in the business as Non Vessel Owners Cargo Carriers (NVOCC). WSA Shipping (Bombay) Pvt.Ltd. is registered as a Multimodal Transport Operator (MTO) with the Ministry of Shipping; Directorate General of Shipping, Govt. of India. WSA Shipping (Bombay) Pvt.Ltd., receives cargo from various shippers/consignors at Mumbai Port/Container Freight Station M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be treated as an agent of the non-resident, viz., the Assessee, to whom it made payments, u/s. 163 of the Income Tax Act, 1961 (the Act). 5. In response to the same, WSA Shipping (Bombay) Pvt.Ltd. submitted that the non-resident to whom payment was made by it, viz., the Assessee was its business associate but there was no Principal-Agent relationship with them. WSA Shipping (Bombay) Pvt.Ltd., submitted that its business associates viz., the Assessee had rendered services at the respective port in respect of Cargoes which are to be sent to further onward destinations and for which all expenses such as onward freight, freight charges, port charges, detention charges are to be borne by them. The remittances made by WSA Shipping (Bombay) Pvt.Ltd. are in respect of Invoices raised by the business associates for these charges in respect of services rendered outside Indian territorial waters. It was also claimed that WSA Shipping (Bombay) Pvt.Ltd. was not bound to send the Cargo only to the listed business associates and it was free to send the Cargo for onward movement to anyone who offer better quotation for onward movement. WSA Shipping (Bombay) Pvt.Ltd. submitted that the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese facts it cannot be said that there was only a principal to principal relationship as between the appellant and the non-resident. This is because the terms of the agreement between the appellant and the non-resident have not been brought on record. Further we also do not know the shareholding pattern of the appellant. This could be material for ascertaining the control that the non-residents might exercise on the appellant. Though there is no material on record to suggest that the appellants were acting as agents when they dealt with the Indian customer sending cargo, there is equally no material to show that the appellants were dealing with the non-residents only on a principal to principal basis. It cannot be said with certainty that the exporter in India has no knowledge about the transshipment and the appellant utilizing the services of non-resident for onward movement of the cargo to the ultimate destination. In the absence of the terms of the agreement between the appellant and the non-resident it cannot be said that the non-resident had no control over the freight charges collected by the appellants or the terms of contract as between the appellant and the exporter from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be held that there was a business connection. The business of the non-resident was transhipment of cargo and the appellant engaged their services for shipment of cargo from India to a destination which the appellant could not reach without the assistance of the transhipment through the non-resident. The appellant cannot segregate the business activity of shipment of cargo as one upto the port of transhipment and the other from the port of transhipment to the port of final destination. Both these activities are integrated activities. The absence of privity of contract between the customer in India and the non-resident will not be a ground to hold that the non-resident did not have business connection in India. The transaction as between the person in India and the customer in India, would not be complete unless the cargo reaches the final port of destination. All these facts in our opinion are sufficient to justify the conclusion that there was a business connection within the meaning of sec. 163(1)(b) as well as Sec.9(1)(i) of the Act. We uphold the conclusion of the income-tax authorities to this effect. 29. We are also of the view that the parameters laid down in Sec.163(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manent Establishment in India or not has to be examined. But in the present two appeals, such question will not arise because of the absence of treaty between India and Hong Kong. In view of the above, we confirm the orders of the CIT(A) and dismiss both these appeals also. 9. The AO called upon the Assessee to show cause as to why assessment of the receipts from WSA Shipping (Bombay) Pvt.Ltd. by the Assessee in AY 01-02 should not be brought to tax. The stand of the Assessee was that it had no business connection in India and therefore no income can be considered as accrued or arisen to it in India. It was submitted that even assuming that income accrued or arose to the Assessee in India, the same has to be construed as Business Income. Business income that arises in India cannot be brought to tax since as per the DTAA between India and Singapore (the Assessee is a tax resident of Singapore) income from business is chargeable to tax only if the Assessee has a Permanent Establishment (PE) in India. Since the Assessee did not have a PE in India income that accrues or arises to it in India cannot be brought to tax. Alternatively it was submitted that even if it is held that the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, whereby WSA Shipping (Bombay) Pvt. Ltd. was appointed as agent of the assessee taken the view that the assessee has a business connection in India. The relevant discussion in this regard is at para 28 of the order, which reads as under:- "28. We have already seen that the term "business connection" is so broad in scope. Explanation 2 inserted below sec. 9(1) by the Finance Act, 2003 with effect from 1-4-2004 expands the scope of the expression. Though the Explanation does not apply to the year under consideration, even applying the tests laid down in decided cases, the issue has to be resolved against the assessee. There was an element of continuity between the business of the non-resident and the activity in the taxable territory. A mere relation between the business of the nonresident and the activity in India which facilitates or assists the carrying on of the business of the non-resident would result in a business connection. We are of the view that applying these tests to the present case, it must be held that there was a business connection. The business of the non-resident was transhipment of cargo and the appellant engaged their services for shipment of cargo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities are limited to the purchase of goods or merchandise for the enterprise; or (b) he habitually maintains in the first mentioned Contracting State a stock of goods or merchandise from which he regularly delivers goods or merchandise for or on behalf of the enterprise; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise. (9) An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly for the enterprise or for the enterprise and other enterprises controlling and controlled by or subject to same common control, as that enterprise, he will not be considered to be an agent of an independent status within the meaning of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r definition to Multimodal Transport Operator given in the said Act, the assessee should act only as principal and not as an agent of consigner or consignee or the carriers participating in the Multimodal Transportation. It was submitted that the assessee was not economically dependent on WSA Shipping (Bombay) Pvt. Ltd. In this regard the ld. Counsel for the assessee relied on the decision of the Hon'ble ITAT Delhi Bench in the case of Western Union Financial Services Inc. v. Asstt. DIT [2007] 104 ITD 34, wherein the Hon'ble Delhi Bench in the context of independent agency observed as follows: "34. The learned CIT(DR) has drawn our attention to paragraphs 36 to 38.8 of the revised commentary on the OECD model and has relied on the same in support of his argument that the agents in the present case are not independent agents within the meaning of article 5.5 of the DTAA. The commentary discusses what in general are the tests to be applied to ascertain whether the agent is an independent agent or not. The extent of legal dependence or control, the undertaking of risks, the fact whether the agent is subject to the control of the principal for the manner in which the work is to be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee pointed out that WSA Shipping (Bombay) Pvt. Ltd. acted on behalf of many non-residents in the shipping business in the ordinary course of its business and was not dependent on the assessee alone and in such circumstances it cannot be said that there was any dependence. 16. The ld. D.R. on the other hand strongly placed reliance on the observation of the Tribunal in the appeal whereby WSA Shipping (Bombay) Pvt. Ltd. was treated as an agent of the assessee. The relevant observation are as under:- "21. We have already seen the manner in which the appellant carries on its business. The same has been explained in para-4 of this order. The CIT(A) has given a finding that the appellant charges its customers freight payable inclusive of the freight from the port of transshipment to the ultimate destination and this is done with the tacit understanding with the non-resident who does transshipment outside India. According to the CIT(A), the affairs of the appellant and the non-resident appear to be in a way that the tariff charged by the nonresident business associate for transshipment does not include the tariff from the Indian Port to the transshipment port. It has been the stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in our view the finding of the CIT(A) in this regard cannot be said to be baseless. It cannot also be said that the non-resident has no control over the manner in which the appellant accepts the cargo and that the non-resident only undertakes the cargo from the place of transshipment till the port of destination and charges fee for doing so. It is also a fact that the appellant has been dealing with the non-resident over a period of time and it was not a case of single, isolated or sporadic transactions. In the background of the above facts, let us examine the question as to whether the appellant had any business connection with the non-resident." 17. The ld. D.R placed strong reliance on the fact that the assessee did not file the agreement with WSA Shipping (Bombay) Pvt. Ltd. 18. The ld. Counsel for the assessee in his rejoinder submitted that the assessee had categorically taken a stand before the revenue authorities in the present assessment proceedings that there was no written agreement between the assessee and WSA Shipping (Bombay) Pvt. Ltd. In this regard our attention was drawn to the submission made before the CIT(A), wherein specific stand was taken by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee u/s.163 of the Act. In the present assessment proceedings, the assessee had categorically denied any written agreement with WSA Shipping (Bombay) Pvt. Ltd. The conditions of transshipment which has been referred to in the order of the ITAT in the appeal relating to proceedings under section 163 of the Act are general conditions which would be relevant only in the context of existence of the business connection of the assessee in India. For the purpose of ascertaining whether there is a PE of the assessee in India within the meaning of Article 5(8) and 5(9) of the DTAA those observations would not be sufficient. In fact this aspect has been made clear in para 33 of the order of the Tribunal and we have already made reference to those observations in paragraph 8 of his order. WSA Shipping (Bombay) Pvt. Ltd. was acting on behalf of several non-residents and, therefore, Article 5(9) also is not attracted keeping in mind the decision of the Hon'ble Delhi ITAT in the case of Western Union Financial Services Inc. (supra). We are thus of the view that on the evidence available on record it cannot be said that the assessee had PE in India and, therefore, income which accrues or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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