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TMI Blog2013 (11) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... n enterprise engaged in shipping activity and since the assessee is in the business of shipping, it is entitled to the benefit of Article-9 and accordingly its income from shipping operation is taxable in France and cannot be taxed in the source country i.e. India. It was further contended that since the assessee does not have Permanent Establishment (PE) in India, its business profit cannot be taxed in India at all. However, the A.O. did not accept the assessee's claim. The A.O. while observing that all the work of the assessee in India is carried out by its Agents namely Barwil and CMA CGM applied the ratio of the decision of the Tribunal in Asstt. CIT v. DHL Operations B.V. B.V. Netherlands (ITA No.7987 and 7988/Bom/92 and held that there exists a PE of Delmas in India. He further observed that since the income shown by the assessee was not from the operations of the ships but the business income and since the assessee has a PE in India, the assessee's case is not covered by section 44B of the Act as it is not in the business of operation of ships. He further observed that the assessee has shown gross receipts of Rs. 16,15,77,754/- under the head freight earning and Rs. 95,36,29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Being aggrieved, the assessee is in appeal before us. 4. At the time of hearing the ld. Counsel for the assessee submits that he does not want to press ground No. 1, 2, 3 & 12 being pre-matured, which was not objected to by the ld. D.R. 5. That being so and in the absence of any supporting material placed on record by the ld. Counsel for the assessee, the above grounds taken by the assessee are, therefore, rejected being not pressed. 6. At the time of hearing the ld. Counsel for the assessee further submits that grounds No. 6,7,8 & 9 are alternative grounds of main grounds No. 4 & 5 which are as under:- "4. erred in holding that the Appellant has a fixed place Permanent Establishment (PE) in India in terms of India-France DTAA i.e. the business of the Appellant in India is carried out through a fixed place through its agent in India, without appreciating the facts and circumstances of the case. 5. erred in holding that the agent of the Appellant in India is dependent on the Appellant and, such dependent agent constitutes a PE of the Appellant in India, without appreciating the facts and circumstances of the case". 7. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, nothing turns on existence of PE because, even if there is a PE, no further profits can be attributed to the DAPE. While learned representatives did not dispute this legal position, both the parties objected to the matter being decided on this short ground. While learned counsel for the assessee was of the view that since Hon'ble Supreme Court is right now hearing revenue's appeal against the said jurisdictional High Court decision, and assessee's interest can be +-adversely affected in the eventuality of the said judgment being reversed, learned Departmental Representative was of the view that since Circular No. 235, which was foundation of Set Satellite judgment (supra) by Hon'ble Supreme Court, now stands withdrawn, the said judgment ceases to hold good in law. She also submitted that if DAPE profit neutrality theory is to -be accepted as such, the very existence of DAPE is meaningless. We were -thus urged to adjudicate the matter on merits in entirety, and not to simply go by DAPE profit neutrality theory. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has no such authority, but habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise. 6. An enterprise of one of the Contracting States shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other Contracting 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 on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arm's length conditions. (7 ..........not relevant for our purposes) 8. A plain reading of the above provisions indicates that the provisions of Article 5(5) read with article 5(6), which deal with the agency situations, are concerned, these provisions specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out from the premises owned by the agent, it is not even revenue's case that the foreign enterprise has, its disposal and as a matter of right, agent's premises for carrying out business of the foreign enterprise. A Special Bench of this Tribunal in the case of Motorola Inc. 7 upheld this school of thought, and has, inter alia, observed as follows: "........... The OECD Commentary on Double Taxation Conventions refers to a fixed place as a link between the place of business and a specific geographical point. It has to have certain degree of permanence. It is emphasized that to constitute a 'fixed place of business', the foreign enterprise must have at its disposal certain premises or part thereof. Philip Baker, in his commentary on Double Taxation Conventions (Third Edition), states that the fixed place is very much that of a physical location, i.e., one must be able to pinpoint to a physical location at the disposal of the enterprise through which the business is carried on. On the other hand, possession of a mailing address in a State without an office, telephone listing or bank account-has been held not to constitute a PE. Further, the fixed place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State" subject to fulfilment of certain other conditions which are admittedly fulfilled in the present case. Therefore, as long as the agent is of independent status, the provisions of Article 5(5) cannot be invoked. It is also important to bear in mind that since provisions of Article 5(5) override the provisions of Article 5(1) and 5(2), no permanent establishment under article 5(1) and (2) can be said to come into existence, so far agency situations are concerned, until the conditions of Article 5(5) are also satisfied. Learned Departmental Representative fairly does not dispute, and rightly so, that the permanent establishment in the present case will be governed by Article 5(5) read with Article 5(6). Learned Departmental Representative's only objection is that since an important aspect, i.e. aspect relating to the transactions having been done in arm's length conditions, has not been examined by the Assessing Officer, the matter should be restored to the file of the Assessing Officer for specific adjudication on the transactions between principal and agent having been done in ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any observations made in the context of fixed place PE donot apply to the DAPE situations. As regards the reference to the OECD Model Convention commentaries or other standard literature in the context of DAPE, it cannot be of any help in interpretation of DAPE provisions in Indo French DTAA because of a somewhat peculiar provision in Article 5(5) read with Article 5(6), which is not part of OECD or UN Model Convention, and which provides that "However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arm's length conditions.". We have also noted that the DRP has held that there is a PE on the short ground that assessee's claim for applicability of Article 9 presupposes existence of a PE, but it is difficult to comprehend as to how existence of a PE can be inferred merely because the assessee has made a particular claim, which is rejected anyway. The onus of establishing that there is a PE, as we have noted earlier in the discussions, is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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