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TMI Blog2015 (11) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... 579 million in 2012 . This report also states that the assessee incurred an operating loss of USD 253 millions which was stated to be on account of adverse market conditions. When assessee is incurring losses, in respect of its global operations, there cannot be an occasion to pay tax on the income. In these circumstances, if the freight receipts from India are not actually brought to tax in Denmark, it is not because of the profits from these receipts not being taxable in Denmark, it is because there are no profits embedded in these receipts. However, so far as Article 4(1) of Indo Danish tax treaty is concerned, all that is required of a Danish company to be entitled to treaty protection in India, is that its profits, on global basis, should be liable to tax in Denmark- irrespective of whether or not the assessee indeed earns any profits taxable in Denmark or whether or not such profits are actually subjected to tax in Demark. That condition, in our considered view and for the detailed reasons set out above, is clearly satisfied. As for the place of effective management being in Denmark, as required under Article 9(1), we have already taken note of the evidences in support of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much as in terms of the provisions of Section 144C(1), The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee . Yet, no such draft order under section 172(4) was forwarded to the assessee, before the final order under section 172(4) was passed by the Assessing Officer, which is impugned in this appeal, was passed in this case. The case of the assessee is that the impugned order is also an assessment order, and, therefore, the Assessing Officer was required to forward a draft assessment order in this case as well. Aggrieved by the Assessing Officer directly passing the impugned order, the assessee did raise this grievance before the CIT(A) as well but without any success. In his brief order, learned CIT(A) summarily rejected this grievance by observing that, this issue was never raised before the Assessing Officer . The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the taxable income is essentially an assessment order. Whether it is a regular assessment or an adhoc or summary assessment, it is an assessment nevertheless, and, therefore, any order passed under section 172(4) is also an assessment order. Once we hold so, it is not really necessary to adjudicate on learned counsel s argument that since the impugned order is passed qua an agent and qua an assessment year, rather than qua a vessel, it is de facto an assessment order under section 143(3). As we hold the impugned order to be an assessment order, it is also useful to take note of, as was taken by Hon ble Delhi High Court in the case of Emirates Shipping Line FZE (supra), the decision of Hon ble Supreme Court in the case of A S Glittre Vs CIT [(1997) 225 ITR 739 (SC)] wherein the following observations were made by Their Lordships of Hon ble Supreme Court: 6. The scheme of s. 172 of the Act appears to be this : s. 172(1) of the Act gives a right to the ITO to levy and recover tax in the case of any ship belonging to a non-resident, in a summary manner (ad hoc assessment) notwithstanding anything contained in the other provisions of the Act. It is an absolute right confe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,- (a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,- (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (3) The Assessing Officer shall complete the assessment on the basis of the draft order, if- (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section 153B, pass the assessment order under sub-section (3) within one month from the end of the month in which,- (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. (14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee. (15) For the purposes of this section,- (a) Dispute Resolution Panel means a collegium comprising of three 79b[Principal Commissioners or] Commissioners of Income-tax constituted by the Board80 for this purpose; (b) eligible assessee means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any foreign company. 8. If the above provisions of reference to the DRP are to be applied in the context of orders passed under section 172(4), in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese provisions of the statue are given literal interpretation, such a time limit, in the case of DRP reference being actually made by the assessee, is wholly unworkable. To give an example, if a vessel voyage return is received on 30th March of an year, the Assessing Officer will have just one day to furnish the draft assessment order under section 172(4) to the assessee, and not even a day to implement the directions of the DRP as issued under section 144C(8). The reason is this. In respect of voyage vessel returns received in the month of March of an year, under section 172(4A), the Assessing Officer has to necessarily pass the order within December of that year and unless he forwards the draft assessment order to the assessee within March itself, the DRP cannot be under a statutory obligation to issue directions on or before the end of December that year. Similarly, when a VVR is received at the closing of the working hours of the last working day of March of an year, no assessment can at all be done in the case of an eligible assessee. These results are clearly incongruous and patently absurd. 9. That takes us to the question as to what should the judicial authorities like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposed to amend the Income-tax Act so as to create an alternative dispute resolution mechanism within the income-tax department and accordingly, section 144C has been proposed to be inserted so as to provide inter alia the Dispute Resolution Panel as an alternative dispute resolution mechanism. 10. There is thus no meeting ground between implementing the law laid down by Hon be Courts above, which is also in harmony with the intent of the legislature as evident from the above extracts from Notes on Clauses , and the literal interpretation to the provision regarding relaxation to the time limits set out in Sections 153 and 153 B. The choice that we now have is between interpreting the connotations of an assessment order as per the law laid down by Hon ble Courts above, in furthering the scheme of the legislative amendment, in introducing section 144C, and thus reading the references to Section 153 and 153B, as appearing in Section 144C(4) and 144C(15), as illustrative rather than exhaustive, and between interpreting the connotations of an assessment order contrary to the law laid down by Hon ble Courts above, in construing the scheme of Section 144C contrary to the scheme of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Vijay Television Pvt Ltd Vs DRP Ors [(2014) 369 ITR 113 (Mad)] has held that such an order will be null and void . It is also pointed out that a Delhi bench of this Tribunal, in the case of Capsugel Healthcare Limited Vs ACIT and vice versa (unreported judgment dated 30th September 2014 in ITA Nos. 1356 and 1371/Del/2012) also holds so. Learned Departmental Representative, on the other hand, submits that if, in the wisdom of the Tribunal, this matter is to be held to be covered by the scheme of Section 144C, the matter can best be remitted to the file of the Assessing Officer for following that path. 11. We have noted that in all the precedents cited by the learned counsel, the assessment orders in which arm s length price determination under section 92CA(3) was done, were subject matter of dispute. These are the cases in which there was no dispute with regard to the application to Section 144C and the only issue was as to what should be done in the cases in which the scheme of Section 144C, though admittedly applicable to the facts of the case, was not adhered to. The case before us, however, is qualitatively different inasmuch the very application of the schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smuch as the two category of situations, i.e. the situations in which provisions of Section 144C are admittedly applicable but the AO has not forwarded the draft order and the situations in which there is bonafide dispute about applicability of the provisions of Section 144 and, therefore, the AO has not forwarded the draft order, cannot be equated. We may add, at the cost of repetition, that the point of dispute being whether or not the course of action 144C was permissible, a decision in favour of the assessee is to be essentially followed with an opportunity being given to the assessee to be allowed to traverse that path. However, having held so in principle, on the peculiar facts of this case and for the reasons we will now set out, this conclusion is somewhat academic as we see no need to remit the matter back to the Assessing Officer for the reason that the assessee deserves to succeed on merits. 12. Coming to the merits of the case, the relevant material facts are as follows. In this case, Atlantic Shipping Pvt Ltd (ASPL, in short) filed various vessel voyage returns under section 172(3) in respect of the ships managed by LR2 Management K/S, Denmark (LR2, in short) which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llects gross revenue, being hire, freight, demurrage etc due from Torm A/s, as vessel operation and freight beneficiary. All such money collection is received vy LR2 is deposited in a bank account centrally managed by LR2. After meeting the required expenses, the surplus freight is remitted by LR2 to Torm A/s. Even in Indian context, please note that when collection of freight in Indian rupees is done in India, it is generally done in the name of Indian shipping agent, to be credited to bank account in name of the Indian shipping agent. In such cases, the Indian shipping agent is never the freight beneficiary. It is globally accepted policy and understanding that agents maintain accounts and collections on behalf of the principal. 13. None of these submissions, however, impressed the Assessing Officer. He was of the view that there was nothing on the record to show that effective management and control of LR 2 was in Denmark. It was also noted that the freight amounts billed in India were received in LR2 s bank account no. DK2330003100104539 with Danska Bank A/s, Denmark. There was nothing to show that this amount was received by Torm A/s. In any event, there was nothing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h tax resident by the name of Torm A/s but he has carried on this business through a foreign commercial manager by the name of LR2 Management K/S, another Danish tax resident. As a matter of fact, there is a categorical finding by the CIT(A) to the effect that LR2 is not a beneficial owner of the freight remitted from India and it is for this reason LR2 cannot avail the treaty benefits. In the case of Torm A/s, however, the treaty benefit is declined, inter alia, for the reason that there is nothing to show that the freight amounts were received by Torm A/s. There is an inherent contradiction in this approach. Be that as it may, the core issue for deciding as to in whose hands an income is to be taxed depends on who is beneficial owner of that income in the sense who bears entrepreneurial risk in respect of that business activity, and not the conduit through which income passes. The bank statement evidencing receipt of freight from LR2 by the assessee is placed on record. Here is a case in which LR2 is really a conduit in the sense it has a limited risk profile as commercial manager in respect of the ships owned by Torm. The business of operation of ships in international traffic i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this article provides that, profits derived from the operation of ships in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated but then the assessee did have the place of effective management in Denmark. We have also perused the articles of association of the company, as also minutes of the annual general meeting and the minute of the board of directors and the directors report, which show that the company is effectively managed from Denmark. The company is a listed company on the NASDAQ Copenhagen. Out of its seven directors, five directors, including its chairman and including its executive director, are Danish nationals. As regards reliance of the Assessing Officer in the case of SMR Investments Ltd Vs DDIT [(2010) TII 66 ITAT DEL], that was a case in which one Suresh Rajpal, director and 99% shareholder of the Mauritian company, was found to be, on the basis of statements of the persons he was doing business with, doing business on behalf of the company over telephone and this person was resident in India. There was no evidence that this person was in Mauritius on the points of time whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities below on this aspect. 18. We find that the assessee has produced a certificate dated 23rd January 2013 whereby The Danish Business Authority certifies and attests Torm A/s , Tuborg Havnevej 18, DK 2900 Hellerup, under CVR number 22460218 (former registration no. A/S 2206) in the municipality of Gentofte has processed a legal registration as a public company in the records of the Danish Business Authority in accordance with the Danish Companies Act . We also find that the assessee has filed certificates dated 12th June 2014 and 13th June 2014, issued by the Danish Customs Tax Administration certifying that Torm A/S, Tuborg Havnevej 18, DK 2900 Hellerup has submitted tax returns for the above mentioned income years (i.e. 2011 and 2012 covering the period of 1.1.11 to 31.12.11 and 1.1.12 to 31.12.12 respectively) . While the CIT(A) does not dispute the tax residency certificate, he does not grant the treaty benefits on thr ground that no proof has been submitted either by LR2 or Torm A/s that the tax on freight has been paid in Denmark and that during the course of appellate proceedings, no evidences whatsoever have been produced by the appellant to prove that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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