2014 (11) TMI 686 - AT - Income Tax

Tribunal directs AO to re-examine transactions, deletes interest levy

Delmas France, C/o. CMA CGM Agencies (India) Pvt. Ltd. Versus The Asstt. Director of Income Tax, (International Taxation)

The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the arm's length nature of transactions between the agent and the ... Existence of a Permanent Establishment – Article 7 of the DTAA with France - Held that:- The assessee is a non resident company - Return of income for the year was filed on 30.10.2001 - The assessee claimed exemption under Article 9 of the Double Taxation Avoidance Agreement with France - The claim of the assessee was examined by the AO vide its order dt. 30.3.2004 - there are no findings by the AO or the Dispute Resolution Panel to the effect that the transactions between the agent and the assessee are not at an arm's length price which is sine qua non in view of the provisions of Article 5(6) of Indo French DTAA - the Tribunal had proceeded on presumption - the Tribunal is also a fact finding authority - the initial onus is upon the Revenue to show that the transactions are not at arm's length price, this aspect has not been looked upon by the Revenue authorities, the matter is remitted back to the AO for examination as to whether the transactions between the agent and the assessee are at arm's length price and decide the issue afresh in the light of the provisions of Article 5(6) of Indo French DTAA – Decided in favour of assessee. Levy of interest under section 234B – Held that:- In DIT Vs NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT] wherein it has been held that when a duty was cast on the payer to deduct the tax at source, on failure of the payer to do so, no interest could be imposed on the assessee - the AO is directed to delete the interest levied u/s. 234B of the Act. Issues Involved:1. Relief under Article 9 of the India-France Double Taxation Avoidance Agreement (DTAA)2. Existence of a Permanent Establishment (PE)3. Taxability of ancillary charges including inland haulage charges (IHC)4. Levy of interest under section 234B5. Rate of tax for non-resident companiesDetailed Analysis:1. Relief under Article 9 of the India-France Double Taxation Avoidance Agreement (DTAA):The appellant claimed relief under Article 9 of the DTAA for freight earnings of Rs. 4,20,47,559. The CIT(A) rejected this claim on the basis that the connectivity between the feeder vessels and the mother vessels was not furnished. The appellant argued that it is unnecessary to establish such connectivity for each voyage and that the claim should be examined with reference to the 'business' of operation of ships. However, this issue was not further pursued as it was deemed not relevant based on the Tribunal's decision in the assessee's own case for A.Y. 2006-07.2. Existence of a Permanent Establishment (PE):The CIT(A) held that the freight earnings are assessable as business profits under Article 7 of the DTAA, asserting the existence of a PE in India. The appellant contended that Barwil Forbes Shipping Services Ltd (BFSSL) acted in the ordinary course of business and provided similar services to other foreign shipping lines, thus not constituting a dependent agent. The Tribunal noted that the issue of PE had been decided in the assessee's favor in A.Y. 2006-07, emphasizing that the transactions between the agent and the enterprise must be at arm's length. Since the Revenue did not demonstrate that the transactions were not at arm's length, the Tribunal restored the issue to the AO to re-examine this aspect.3. Taxability of Ancillary Charges Including Inland Haulage Charges (IHC):The CIT(A) held that ancillary charges, including IHC, are liable to tax in India. This issue was linked to the existence of a PE. The Tribunal's decision on the PE issue also covered this ground, directing the AO to re-evaluate the transactions' arm's length nature.4. Levy of Interest Under Section 234B:The CIT(A) confirmed the levy of interest under section 234B. However, the Tribunal referred to the Bombay High Court's decision in DIT vs. NGC Network Asia LLC, which held that when the duty was on the payer to deduct tax at source, no interest could be imposed on the assessee for the payer's failure. Consequently, the AO was directed to delete the interest levied under section 234B.5. Rate of Tax for Non-Resident Companies:The CIT(A) held that a higher tax rate for non-resident companies does not amount to discrimination, referencing the Explanation to section 90 of the Act, which clarifies that charging a higher rate for foreign companies is not discriminatory. The Tribunal agreed, noting that the Indo-French DTAA does not specify a tax rate, thus no conflict exists between domestic law and the DTAA. The appellant's reliance on the Siemens Aktionesellschaft case was deemed inapplicable as it pertained to the rate of tax, not the imposition of tax itself.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the arm's length nature of transactions between the agent and the assessee and to delete the interest levied under section 234B. The higher tax rate for non-resident companies was upheld as non-discriminatory. The order was pronounced on 19th November 2014.