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TMI Blog2015 (10) TMI 2374X X X X Extracts X X X X X X X X Extracts X X X X ..... . During the course of the scrutiny of return filed by the assessee under section 172(3), the Assessing Officer noticed that the assessee has claimed "100% DTAA benefit for the beneficiary of M/s MUR Shipping DMC Co UAE" and that the assessee has submitted "letter of commercial licence and tax residence certificate". The Assessing Officer, however, proceed to reject this claim of treaty protection by observing that "the tax residency certificate was issued by Dubai had clearly mentioned that 'Issued in Dubai, on Thursday the 15/011/2009 without any responsibility whatsoever on Ministry of Finance'" and, therefore, "the matter is crystal clear that your company has registered just to get the benefit of DTA and this company is not paying freight in India or UAE". The Assessing Officer then referred to the provisions of Article 29 of the India UAE tax treaty which states that "an entity, which is a resident of contracting state, shall not be entitled to the benefits of this agreement if the main purpose, or one of the main purposes of the creation of such an entity was to obtain benefits of that benefits of this agreement which would otherwise not be available" and, in this backdrop, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) The owner of the vessel is EMGITI MARITIME LTD of Marshall Islands in which Government of India did not have DTAA agreement. Further, the Government of India has entered DTAA agreement between UAE with certain condition laid down for this benefit. In the definition for resident by the Article-4 & Article-8, likewise DTAA agreement has inserted further clause of ARTICLE-29 LIMITATION OF BENEFIT to determined actual beneficiary of the DTAA agreement. The Article 29 is reproduced hereunder :- "ARTICLE 29 - Limitation of benefits - An entity which is a resident of a Contracting State shall not be entitled to the benefits of this Agreement if the main purpose or one of the main purposes of the creation of such entity was to obtain the benefits of this Agreement that would be otherwise available. The case of legal entities not having bona fide business activities shall be covered by this Article." Over and above, the company's effective control and management is not situated in UAE or in other words the company is not managed and controlled wholly in UAE. The said company is not resident of UAE as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol and management lies is location where the Board Meetings are held. The Learned A.O. should have observed that the management of the company is in the hand of its Board of Directors who are responsible for the operations and growth of the company. The entire decision making though reviewed by the shareholders is done by the Board of Directors in Board Meetings, which are held in UAE. The case of Radha Rani Holdings (P) Ltd. Vs. Asst. DIT (Delhi) (2007) 16 SOT 4955 supports this viewpoint where it was stated: "The board of directors subject to, the overall supervision of shareholders, actually controls and manages the affairs of a company effectively as against the day-today operation of the company, the suits of the board of directors of the company should determine the place of control and management of the company. This does not mean where one or more of the directors normally reside, but where the board actually meets for the purpose of determination of the key issues relating to the company." - The Board meetings and important decision are taken at Dubai, senior staff including Director who is mainly managing the affairs is resident of Dubai and having permanent resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees and organisational chart submitted by the assessee on my directions shows that the operational and effective control and management of the Company is in the UAE. As per explanation under Section 115VC of Income Tax Act, 1961 defining the place of effective management of ship operating Company. Where it is specifically stated that in a case where the board of directors routinely approve the commercial and strategic decision made by the executive directors or officers of the Company, the effective management lies in the place where such executive directors or officers of the company perform their function, since all the board meetings have been regularly conducted in UAE affirms the facts that Control and Management lies in UAE. Evidences produced automatically reject the applicability of Limitation of Benefit clause and I hold that M/s. MUR Shipping DMC CO is a resident under India-UAE tax treaty in terms of Article 4. The Assessing Officer has nothing against applicability of DTAA between India and UAE in the case of the Assessee. The appellant has filed residency certificate, incorporation certificate, Trading License and other documents to prove that it is resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement that would not be otherwise available. The cases of legal entities not having bonafide business activities shall be covered by this article." 8. The above article was introduced in the Indo UAE tax treaty by the virtue of a protocol dated 26th March 2007 [Notification No. 282 of 2007; 213 CTR (Statute) 64]. It may be recalled that under the original treaty provisions, resident of a contracting state was defined as "any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature" and there was considerable controversy on whether, under this provision, the actual taxability of income in the UAE was a condition precedent for availing the treaty benefits in India. This issue was particularly relevant as not all the residents, whether individual or corporate, were necessarily taxable entities under the UAE law. The UAE, as a tax jurisdiction, had right to tax these residents but the rights were not exercised by introducing law to tax them. While dealing with the issue as to whether or not, in such a situation, the UAE tax residents will be eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. This term, however, does not include any person who is liable to tax in India in respect only of income from sources in India; and (b) in the case of the United Arab Emirates: an individual who is present in the UAE for a period or periods totaling 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. 10. The requirement of actual liability to tax for the residents in UAE was thus consciously removed from the definition of 'resident of a contracting state'. As noted by Hon'ble Delhi High Court, in the case of Emirates Shipping Line FZE Vs ADIT [(2012) 349 ITR 493 @519 (Del)], in the context of this amended definition of "resident of a contracting state" so far as a UAE tax resident is concerned, "Under the amended article, the requirement of liability to tax has been done away with". It cannot, therefore, be any longer open to the Assessing Officer to decline the treaty protection to a UAE tax resident , in respect of India sourced income, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership of the vessel is not a sine qua non for availing treaty protection of shipping income. Article 8(1) provides that "profits derived by an enterprise of a Contracting State from the operation by that enterprise of ships in international traffic shall be taxable only in that State" and essentially profits from operation of ships in international traffic will also cover the situations in which the profits are earned from operating the ships irrespective of whether or not such ships are owned by the enterprise claiming the treaty protection. Article 29 can be pressed into service only when main purpose, or one of the main purposes of the creation of an entity was to obtain benefits of that benefits of this agreement which would otherwise not be available but then since nothing really turns on the situs of ownership of the ships so far as treaty benefits, on the facts of this case, are concerned, the fact of the ships being owned by an entity in Marshall Islands is wholly irrelevant for invoking Article 29. 14. Coming to the second ground on which the Assessing Officer had invoked Article 29, it has been stated that the income from operations of ships of the Switzerland based en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iss tax treaty, the assessee entity cannot be said to have been created for the purpose of availing Indo UAE tax treaty benefits. The action of the Assessing Officer in invoking the provisions of Article 29 is vitiated in law on this count as well. 17. In view of the reasons set out above, the Assessing Officer was clearly in error in invoking the provisions of Article 29 on the facts of this case. The conditions precedent for invoking this provision, i.e. creation of the assessee entity wholly or mainly, to obtain the benefits of the India UAE tax treaty which "would not be otherwise available", could not have been fulfilled on the facts of this case as the assessee was anyway liable for treaty protection of its India sourced income from operations of ships in international traffic whether the business was carried out from Switzerland or from UAE and irrespective of the fact whether owner of the vessel was in Marshall Islands or anywhere else. 18. Coming to the question as to whether the assessee qualified to be a resident of UAE under article 4(1), all that is required is that the company is "incorporated in the UAE and which is managed and controlled wholly in UAE". We find th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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