Permanent establishment and shipping-business test: section 44B could not tax a container-services non-resident on these facts.

Effective management and a permanent establishment in India were not established on the material recorded, because the assessee was managed from Singapore, with accounts and banking operations there and insufficient proof of Indian control. A director's presence in India, one board meeting, and the location of the holding company in India were found inadequate to prove Indian residence or effective management. The assessee also was not carrying on shipping business, since it did not own, charter, or lease vessels and only provided container services. As section 44B applies to shipping business, it was inapplicable on these facts and no income was taxable in India in the absence of a permanent establishment.

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Issues: Whether the assessee had a permanent establishment or business connection in India, and whether its income was chargeable under section 44B of the Income-tax Act, 1961.

Analysis: The assessee was found to be managed and operated from Singapore, with the material on record showing that books of account were maintained there and banking transactions were carried out through the Singapore account. The asserted Indian control, Indian bank account, and effective management in India were not supported by sufficient evidence. The presence of a director in India, a single board meeting, or the location of the holding company in India was held insufficient by itself to establish Indian residence or effective management in India. The assessee was not engaged in shipping business and did not own, charter, or lease vessels; it provided container services. On that basis, section 44B, which applies to shipping business, was held inapplicable. In the absence of a permanent establishment, no income was taxable in India on the facts found.

Conclusion: The existence of a permanent establishment and Indian business connection was not established, and section 44B was wrongly invoked. The issue was decided in favour of the assessee.

Ratio Decidendi: In the absence of proof of effective management or permanent establishment in India, and where the non-resident is not carrying on shipping business, section 44B cannot be applied to tax its income in India.

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