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TMI Blog2021 (9) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee in India from operation of ships in international traffic has to be taxed as per the provisions of the domestic law. The issue whether assessee has a PE in India so as to tax the business profit in terms of Article 7 is very much alive for adjudication before the Tribunal. No material has been brought to our notice by the revenue to demonstrate that the aforesaid order of the Tribunal while disposing of the miscellaneous application has either been challenged by the revenue in a higher court or has been reversed. In the aforesaid scenario, the order passed in M.A has attained finality. That being the case, revenue s objection to ground 2 raised by the assessee is unsustainable. Agency PE in India - Whether two entities M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd can be considered to be providing exclusive agency services to the assessee or they are of independent status and providing such services in the ordinary course of their business? - HELD THAT:- The very fact that the aforesaid entities are providing services to a number of shipping companies including the assessee demonstrates that they are not exclusively working for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant's income Is chargeable to tax in India. b) On the facts and in the circumstances of the case, the Learned CIT(A) has legally erred in holding that under Article 8 of the Double Taxation Avoidance Agreement between India and Mauritius ('DTAA1), the place of effective management may be a state other than India or Mauritius. c) On the facts and in the circumstances of the case, the Learned CIT(A) has legally erred in holding that the place of effective management of the Appellant is not In Mauritius and consequently denying the benefit of Article 8 of the DTAA. Without prejudice to ground no. 1 above and on the facts and in the circumstances of the case, the Learned CIT(A) has legally erred in holding that the Appellant had a Permanent Establishment ('PE'} in India in the form of Agents and thereby has erred in charging to tax the Business Profits of the Appellant in India under Article 7 of the DTAA b) Without prejudice to ground no. 1 above and on the facts and in the circumstances of the case, the Learned C1T(A) has legally erred in holding that the Agent's do not fall within the category of exclusions as referred to in A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shown gross receipts from freight at USD 90,73,481/-. Whereas, applying the provisions of section 44B the assessee has shown income of USD 6,80,510/- being 7.5% of the total receipts and has also claimed 100% relief under Article 8(1) of India- Mauritius Double Taxation Avoidance Agreement (DTAA). After verifying the return of income and other documents, the assessing officer issued a show cause notice to the assessee to demonstrate that effective management of the company is in Mauritius and if the assessee fails to so demonstrate, the income from operation of ships would be computed as per Article 7 of the DTAA and brought to tax in India. In reply, assessee made its submission justifying its claim of benefit under Article 8(1) of the tax treaty, as according to the assessee, its place of effective management is in Mauritius. The assessing officer, however, did not accept the submissions of the assessee. The assessing officer observed that two of the shareholders of the assessee company are located in UAE and they have issued letters of authority in the name of the assessee. He also observed that board meetings are attended by the shareholders located in UAE. Thus, he ultimatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration in ground 2 is, whether the assessee has a PE in India and if so, whether the shipping income received by the assessee is taxable in India under Article 7 of the tax treaty. The assessing officer, after referring to various clauses of agency agreement between M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd has held that both these entities are exclusively working on behalf of the assessee and are not providing services to the assessee in regular course of their business. The assessing officer referring to Article 5(5) of India-Mauritius tax treaty held that both the aforesaid entities cannot be considered to be agents having independent status and are acting in the ordinary course of their business. Thus, he has held that the exceptions provided under Article 5(5) are not applicable to M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd. Thus, the assessing officer concluded that the assessee has a PE in India. Learned Commissioner (Appeals), as stated earlier, endorsed the aforesaid view of the assessing officer. 8. The learned counsel for the assessee submitted, neither M/s Samsara Shipping Pvt Ltd nor Parekh Marine Agency Pvt Ltd can be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort Co.Ltd (2020) ITA No.3129/Mum/2009 4. ADIT vs Bay Lines (Mauritius) (2018) 91 taxmann.com 110 (Mum- Trib) 9. Per contra, learned departmental representative submitted, once the assessee has given up its claim under Article 8 of the tax treaty, it goes out of the treaty benefits altogether and assessee s income has to be taxed as per the provisions contained under the domestic law, since, the assessee accepts that it does not have effective place management in Mauritius. Without prejudice, he submitted, different clauses of the shipping agency agreement between the assessee and M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd clearly establish that they are exclusively working for the assessee. Drawing our attention to the specific observations of the assessing officer and learned Commissioner (Appeals) he submitted, these two entities are doing the agency work for and on behalf of the assessee in most of the Indian ports. He submitted, the agents are responsible for obtaining all clearances from the government departments; they are looking after all functions such as dividing brokers, contracting with parties for loading cargo, dealing with labours for lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld inapplicable to the assessee, the consequence should be that income earned by the assessee in India from operation of ships in international traffic has to be taxed as per the provisions of the domestic law. 12. While deciding the miscellaneous application filed by the assessee challenging some of the observations of the Tribunal in the appellate order, in M.A. 184/Mum/2004 dated 17-06-2006, the bench has held as under:- 5. The case of the assessee before the Tribunal was two fold- first that the income of the assessee company is not taxable in India by the virtue of Article 8 of the India Mauritius DTAA, and second that, in case his case fails on the touchstone of Article 8 and accordingly provisions of Article 7 are to be applied, the income is to be taxed on net basis and only in case the assessee can be said to have a permanent establishment (PE) in India. It was also the assessee's contention that the assessee did not have any PE in India in terms of the definition of that expression under the India Mauritius DTAA. When the Tribunal came to the conclusion that Article 8 is not applicable, corollary to this conclusion was that taxability under Article 7 was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M.A. 184/Mum/2004 dated 17-06-2006 has attained finality. That being the case, revenue s objection to ground 2 raised by the assessee is unsustainable. 14. Having held so, now the issue arising for consideration is, whether the assessee has agency PE in India in terms of Articles 5(4) and 5(5) of the tax treaty. While the assessee has submitted that both M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd are agents of independent status rendering services to the assessee in the ordinary course of their business, it is the revenue s case that both these entities are exclusively working for the assessee; hence, do not have independent status of an agent. As could be seen from record, during the year under consideration, M/s Samsara Shipping Pvt Ltd has rendered services to various shipping companies and earned commission income as under:- Name of the Principals Amount in Rs. Mediterranean Shipping Co. 30,008,193 Seven Seas Container Line Ltd 2,36,638 Overseas Transport Company Limited 4,653,998 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the other contracting State. Article-5(2) illustrates the facilities which can be considered as PE, such as/ place of management, a branch, an office, a factory, a workshop, a warehouse in relation to a person providing storage facilities for others and so on and so forth as provide^ in items (a) to (j) of the Article-5(2) of the Tax Treaty. Thus, first and foremost it is necessary to understand the meaning of the term fixed place of business as used in Article-5(l). The tests required to satisfy the existence of a PE under Article-5(l) are- there must be a business of the enterprise of one contracting State in the other contracting State, there must be place of business in the other contracting State, the place of business must be at the disposal of the enterprise, the place of business must be fixed and through this fixed place of business the enterprise either wholly or partly carries on its business. Facts on record clearly indicate that the assessee does not possess a fixed place of business to either wholly or partly carry out its business. There is no permanent infrastructure, office, supervisory staff, tangible and intangible assets in India to constitute a fixed place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned of ₹ 3,83,20,806, it received an amount of? 46,53,998, from the assessee which constitutes a meagre 12.14% of the total income earned by Samsara Shipping Pvt. Ltd. from various principals. The same is the case with Parekh Marine Agency Pvt. Ltd. As observed by learned Commissioner (Appeals), during the year this entity has received income of ₹ 629.74 lakh from various principals, out of which, an amount of ₹ 17.62 lakh was earned from the assessee which constitutes merely 2.79% of the total income earned by the said party. Thus, the aforesaid facts clearly established that both Parekh Marine Agency Pvt. Ltd. and Samsara Shipping Pvt. Ltd., were not exclusively working for the assessee and are having their independent status. Further, the services provided to the assessee by them are in the ordinary course of their business. That being the case, the exceptions provided under Article-5(5) of the Tax Treaty would be clearly appliable. Hence, neither Parekh Marine Agency Pvt. Ltd. nor Samsara Shipping Pvt. Ltd. can be considered as dependent agents so as to constitute PE in India, The Co-ordinate Bench in Bay Lines Mauritius (supra) while deciding identical issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd do not constitute agency PE of assessee in India. Thus, in absence of a PE in India, the business profits of the assessee would not be taxable in view of Article 7 of the tax treaty. Accordingly, we delete the addition. This ground is allowed. 17. In view of our decision in ground 2, ground 3 has become academic and need not be adjudicated upon. 18. In the result, appeal is partly allowed. ITAs 7720/Mum/2010 (A.Y. 1999-2000); ITA 7722/Mum/2010(A.Y. 2000-01); and ITA 7721/Mum/2010 (A.Y. 2001-02 19. Ground 1 challenges the reopening of assessment u/s 147 of the Act. On instructions, learned counsel for the assessee did not press this ground. Accordingly, ground 1 in all these appeals is dismissed, as not pressed. 20. Ground 2 of these appeals are identical to ground 1 of I.T.A No.5083/Mum/2003 decided by us in the earlier part of the order. On instructions, learned counsel did not press this ground. Hence, ground 2 in all these appeals is dismissed as not pressed. 21. Ground 3 in all these appeals are identical to ground 2 of ITA No.5083/Mum/2003. Following our decision therein, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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