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TMI Blog2014 (5) TMI 1112X X X X Extracts X X X X X X X X Extracts X X X X ..... oach of authorities below is not justified. The other reasoning given by authorities below is that the effective management of Glendive cannot be in Cyprus because it has no staff, big office establishment in Cyprus and it is a one person company. He has relied on the OECD commentary which explains the words 'Effective Management'. The Indo Cyprus Treaty defines the words 'Effective Management' in Article 8 itself. While other treaties like the one's with Mauritius, Poland, Netherlands do not define the words 'Effective Management' in the Article 8 thereof. Thus, for interpreting, these treaties, reliance may be placed on the OECD Commentary but so far as the Cyprus Treaty is concerned, there is no reason to rely upon to OECD Commentary because Article 8 itself has defines the term. Hence, in our case, when Article 8 of Cyprus Treaty explains clearly the word 'Effective Management', there is no need to refer to OECD Commentary or other sources for the meaning of these words. In view of the above, the CIT(A) erred in holding that the income of Glendive was taxable u/s 172(4) in the hands of Shaan Marine as an agent and the treaty benefits were not available to Glendive. - Decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erprises Ltd. (hereinafter referred to as Glendive) for the carriage of goods from Sakhari Port, India. During the year, Glendive has earned freight of USD 11,00,000 which works out to @ ₹ 49.25 to 1 USD, equivalent to ₹ 5,41,75,000/-. The assessee in its return of income has stated that according to provisions of Indian Double Taxation Avoidance Agreement (DTAA), tax is not payable by Glendive in India as its income is not taxable in India. The Assessing Officer did not accept the claim of assessee. He stated that the benefit of DTAA cannot be given to Glendive as it has failed to prove with the documentary evidence that Glendive has its place of effective management in Cyprus. With the result, the Assessing Officer calculated total freight received by Glendive of ₹ 5,68,26,000/- (USD 1100000 ₹ 51.66). On this amount, income @ 7.5% was determined at ₹ 42,61,950/- on which tax payable was computed @ 40% and with surcharge and education cess was determined at 17,99,210/-. Aggrieved by the order of the Assessing Officer, the assessee has filed an appeal before CIT(A), who has confirmed the order of Assessing Officer. 2.1 Before us, the stand of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cyprus as placed on page 9 of Paper Book filed by the assessee. The said certificate has been issued by concerned authorities on the basis of statement made by the company registered in Cyprus. The lower authorities observed that in view of the provisions of domestic law, Tax Residency Certificate alone would not be sufficient to conclude that Glendive's place of effective management is in Cyprus. 2.5 It was stated that Glendive has only one shareholder holding 1000 shares viz. Mr. Lorreta Loannou. According to the Cyprus law, a company having single shareholder can be formed. The assessee has furnished Minutes of Meeting held at company's registered office on 04.07.2012. The Minutes are signed by the Chairman and Secretary of the company. The lower authorities observed that only one person has signed for both; for Secretary and Chairman i.e. Lorretta Loannou. During the said meeting, the only business transacted was of the granting approval of Financial Statements and the Directors Report. The approval of the Financial Statements is one of the key business events of the company. According to lower authorities, considering the business Model of Glendive in which the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising to Glendive was not taxable as per Article 8 DTAA between India and Cyprus. The CIT(A) has erred in holding that the effective management of Glendive was not in Cyprus without any basis or any evidence. His view is contrary to the facts of the case and accordingly, the income assessed in the hands of the assessee as an agent was not justified. The learned Authorized Representative has relied on various case laws to support his stand which would be dealt by us while concluding the issue at hand. On the other hand, the learned Departmental Representative has supported the order of authorities below and submitted that the CIT(A) was justified in holding that Glendive is not having its effective management in Cyprus. It is a one person company. It does not have any office, wherein some staff is working according to him. As per OECD Commentary, effective management is to be determined on the basis of case and for this purpose, it has to be seen as to where the control / management / staff / office, etc. of a company are located. The place from which the actual service is rendered by the company is to be seen. While, in this case, Glendive has no big office establishment, staff, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Rs. NIL in India as it is taxable only in Cyprus. On this reasoning, Shaan filed the return of Glendive as its agent u/s 172 declaring the income of Rs. NIL. 4.1 The Assessing Officer assessed Shaan u/s 172 on the income of ₹ 40,63,125/- which was calculated at 7.5% of the receipts of Glendive in India from the shipping business. He held that Glendive is one person company having no staff, no office, etc. and it is being interposed in between as a charterer to take advantage of Cyprus treaty. Accordingly, the effective management of Glendive is not in Cyprus. Thus, the benefit under Article 8 of treaty could not be given to Glendive. The Assessing Officer held that Glendive is taxable u/s 172(4) on its income and he taxed Shaan as an agent of Glendive. As stated above, in appeal, the CIT(A) confirmed the order of the Assessing Officer by observing that Glendive is not having its effective management in Cyprus. It is a one person company. It does not have any office wherein some staff is working. According to him, as per the OECD Commentary, the effective management is to be determined on the facts of the case and for this purpose, it is to be seen as to where the control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow have taxed income in the hands of Shaan as an agent of Glendive. If in their opinion Glendive may be bogus entity interposed in between to take advantage of Cyprus treaty, then it is not the income of Glendive but that of Aquavita. On one side, they are taxing the income in the hands of Glendive and on the other hand, they hold that Glendive is only a paper company. If in their opinion it is the income of Glendive, in that event, it is to be noted that Glendive does not have any establishment outside Cyprus. Accordingly, the income arises to it in Cyprus only. It is not the case of the authorities below that Glendive has any establishment outside Cyprus. According to authorities below, Glendive is just a paper company and has been interposed in the transaction as a charterer. In that event, the income would accrue to Aquavita and not Glendive. This approach of authorities below is not justified. The other reasoning given by authorities below is that the effective management of Glendive cannot be in Cyprus because it has no staff, big office establishment in Cyprus and it is a one person company. He has relied on the OECD commentary which explains the words 'Effective Manag ..... 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