Shipping profits of a Cyprus enterprise remained treaty-protected, defeating Indian taxation in the hands of the agent.

Shipping profits of a Cyprus enterprise were treated as taxable only in Cyprus under Article 8 of the India-Cyprus DTAA, because the enterprise was registered in Cyprus, held a tax residency certificate, and the transaction documents supported its role as ship charterer. The treaty text was applied as the governing rule, and treaty relief was not denied by importing OECD commentary on effective management. On that basis, the income could not be assessed in India in the hands of the Indian agent under section 172(4), and the treaty benefit was allowed.

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Issues: Whether the income from shipping operations of the Cyprus company was taxable in India in the hands of the Indian agent under section 172(4) of the Income-tax Act, 1961, or was exempt from Indian taxation under Article 8 of the India-Cyprus DTAA on the basis that the enterprise was registered and had its headquarters in Cyprus.

Analysis: The enterprise was registered in Cyprus, held a tax residency certificate, and the contractual documents, bill of lading, and annual accounts showed that it acted as ship charterer in the transaction. The treaty text in Article 8 itself treated an enterprise registered and having its headquarters in a contracting state as taxable only in that state. In that setting, there was no warrant to deny treaty relief by importing OECD commentary on effective management when the treaty provision itself governed the case. The finding that the company was a mere paper entity was not accepted, and the income could not be brought to tax in India in the hands of the agent under section 172(4).

Conclusion: The issue was decided in favour of the assessee. The income was held not taxable in India under section 172(4), and treaty benefits under Article 8 were allowed.

Final Conclusion: The appeal succeeded and the addition made in the hands of the assessee as agent was deleted.

Ratio Decidendi: Where a shipping enterprise is registered and has its headquarters in Cyprus, Article 8 of the India-Cyprus DTAA governs the taxability of its shipping profits and the income cannot be denied treaty protection merely by resorting to general commentary on effective management.

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