Treaty residence for shipping business turns on effective management and control in Greece, enabling tax relief under the agreement.

Under the India-Greece tax treaty, the relevant test is whether the shipping business is wholly managed and controlled in Greece. The management agreement placed shipping operations, staff control, vessel operation, collection and disbursement of funds, appointment of agents and negotiation of contracts with the Greek manager, and voyage accounting and commission arrangements did not negate that transfer of effective control. The treaty test was distinct from section 6(3) of the Income-tax Act, which the Tribunal had applied by focusing on directors' meetings and accounting obligations. On this analysis, the business was treated as resident in Greece and entitled to the treaty reduction of Indian tax.

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Issues: Whether, on the terms of the management agreement, the assessee's shipping business was wholly managed and controlled in Greece so as to qualify as a resident of Greece under article 11(1)(f) of the Agreement for Avoidance of Double Taxation between India and Greece and thereby obtain the 50% tax deduction under article VI.

Analysis: The governing test under the treaty was whether the business was wholly managed and controlled in Greece. The agreement placed the entire shipping operations, staff control, vessel operation, collection and disbursement of monies, appointment of agents and sub-agents, and negotiation of contracts in the hands of the Greek manager. The retention of voyage accounting and commission arrangements did not detract from the transfer of effective control. The test under section 6(3) of the Income-tax Act, 1961, concerning control and management of affairs, was different from the treaty test, and the Tribunal had applied the wrong standard by focusing on directors' meetings and by treating the accounting obligations as negating the transfer of control.

Conclusion: The assessee's business was wholly managed and controlled in Greece, the assessee was entitled to be treated as resident in Greece under article 11(1)(f), and the assessee was entitled to the benefit of article VI, namely reduction of 50% of the tax charged in India.

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