Agency permanent establishment and treaty shipping relief turn on exclusive agency and place of effective management outside the contracting states.

For treaty purposes, an agency permanent establishment is not created merely because a non-resident uses one Indian agent; the decisive test is whether the agent acts exclusively or almost exclusively for the foreign enterprise. On the facts, the agent earned commission from multiple principals and was treated as an independent agent, so no agency PE arose in India. The shipping profits article was also denied because the assessee's place of effective management was found to be in a third country, outside the contracting states. The advance-tax credit issue required factual verification by the Assessing Officer, who was directed to grant the correct credit.

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Issues: (i) whether the Indian agent constituted a dependent agent and therefore an agency permanent establishment of the non-resident assessee in India, making its business profits taxable under the India-Mauritius tax treaty; (ii) whether the assessee's place of effective management was situated in a third country so as to deny treaty relief under the shipping profits article; (iii) whether the short credit of advance tax required verification and consequential relief.

Issue (i): whether the Indian agent constituted a dependent agent and therefore an agency permanent establishment of the non-resident assessee in India, making its business profits taxable under the India-Mauritius tax treaty.

Analysis: The treaty provisions governing permanent establishment drew a distinction between a dependent agent and an agent of independent status. The decisive test was whether the agent's activities were devoted exclusively or almost exclusively to the foreign enterprise. On the facts found, the agent earned commission from multiple principals and was not shown to work solely or almost solely for the assessee. The principal's use of one Indian agent was not, by itself, sufficient to establish a dependent agency permanent establishment. The finding was supported by the treaty text and the factual conclusion that the agent acted in the ordinary course of business for more than one principal.

Conclusion: The agent was an independent agent and no agency permanent establishment existed in India; the Revenue's challenge failed.

Issue (ii): whether the assessee's place of effective management was situated in a third country so as to deny treaty relief under the shipping profits article.

Analysis: The shipping profits article operated only where the place of effective management was in one of the contracting states. The assessee's own materials and the board-level conduct indicated that the effective management was not in Mauritius or India but elsewhere. The treaty did not require the place of effective management to be confined only to the two contracting states. In that situation, the benefit of the shipping profits article could not be extended, and the taxability of business profits had to be tested under the permanent establishment provisions instead.

Conclusion: The place of effective management was held to be in a third country and treaty relief under the shipping profits article was denied.

Issue (iii): whether the short credit of advance tax required verification and consequential relief.

Analysis: The record showed a difference between the advance tax paid and the credit granted. The matter required factual verification by the Assessing Officer so that the correct credit could be given.

Conclusion: The Assessing Officer was directed to verify the advance tax payment and grant the corresponding credit.

Final Conclusion: The Revenue's appeal and the assessee's cross objection for the relevant year were dismissed, while the assessee obtained limited relief in one appeal on advance-tax credit and succeeded on the permanent-establishment issue in the later appeals, resulting in partial relief overall.

Ratio Decidendi: For treaty purposes, an agency permanent establishment is not established unless the agent's activities are exclusively or almost exclusively devoted to the foreign enterprise, and a shipping profits exemption limited to the state of effective management does not apply where that management is found to be in a third country.

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