Agent not a Permanent Establishment in India, Assessing Officer's additions deleted for multiple years. Revenue's appeal dismissed.

Freight Connection (India) Pvt. ltd. Versus Deputy Commissioner of Income-tax, Circle-2 (1), Mumbai., Deputy Commissioner of Income-tax, Circle-2 (1), Mumbai. Versus Freight Connection (India) Pvt. ltd. And (Vice-Versa)

Freight Connection (India) Pvt. ltd. Versus Deputy Commissioner of Income-tax, Circle-2 (1), Mumbai., Deputy Commissioner of Income-tax, Circle-2 (1), ... Issues Involved:
1. Assessing the principal and the agent simultaneously.
2. Denial of benefit under Article 8 of the Double Taxation Avoidance Agreement (DTAA).
3. Determination of Permanent Establishment (PE) in India.
4. Classification of the agent as a dependent agent under Article 5(5) of the DTAA.
5. Taxation under Section 44B of the Income-tax Act, 1961.
6. Application of Article 7(2) of the DTAA and Circular No. 23.
7. Limitation of tax liability to the assets in possession.

Issue-Wise Detailed Analysis:

1. Assessing the Principal and the Agent Simultaneously:
The assessee contended that the CIT(A) legally erred in assessing both the principal (Arc Line and Bay Line) and the agent (Freight Connection India Pvt. Ltd.) simultaneously. The Tribunal concluded that the assessment of the principal's income in the hands of the agent was not justified, as the agent was an independent entity and did not constitute a Permanent Establishment (PE) of the principal in India.

2. Denial of Benefit under Article 8 of the DTAA:
The CIT(A) denied the benefit under Article 8 of the India-Mauritius tax treaty, asserting that the effective place of management of Arc Line was not in Mauritius but in Dubai. The Tribunal, however, found that the effective management was not relevant as the agent did not constitute a PE in India, thus the income could not be taxed in India.

3. Determination of Permanent Establishment (PE) in India:
The CIT(A) held that Arc Line had a PE in India through the appellant company, thereby taxing the business profits under Article 7 of the DTAA. The Tribunal, referencing a prior decision, concluded that Freight Connection India Pvt. Ltd. was an independent agent and did not constitute a PE of Arc Line in India. Consequently, the business income of Arc Line could not be taxed in India.

4. Classification of the Agent as a Dependent Agent:
The CIT(A) classified the appellant company as a dependent agent under Article 5(5) of the DTAA. The Tribunal disagreed, stating that the activities of the appellant company were not exclusively or almost exclusively for Arc Line, thus it did not constitute a dependent agent.

5. Taxation under Section 44B of the Income-tax Act, 1961:
The CIT(A) applied Section 44B, taxing the entire freight collected on behalf of Arc Line. The Tribunal found this inappropriate, as the income derived from shipping activities by Arc Line, without a PE in India, could not be taxed under Section 44B in the hands of the appellant company.

6. Application of Article 7(2) of the DTAA and Circular No. 23:
The CIT(A) failed to apply Article 7(2) of the DTAA and Circular No. 23 to determine the profits attributable to Indian operations. The Tribunal emphasized that, in the absence of a PE, the income from shipping activities could not be taxed in India, hence the provisions of Article 7(2) and Circular No. 23 were not applicable.

7. Limitation of Tax Liability to the Assets in Possession:
The appellant argued that the tax liability should be limited to the assets of Arc Line in its possession. The Tribunal, agreeing with the appellant, concluded that since the income from shipping activities was not taxable in India, there was no basis for assessing the same in the hands of the appellant.

Judgments Delivered:
1. For A.Y. 1998-99 (ITA No. 7680/Mum/2003): The Tribunal set aside the CIT(A)'s order and deleted the addition of Rs. 29,03,351/- made by the A.O.
2. For A.Y. 2001-02 (ITA No. 2455/Mum/2005): The Tribunal applied the same rationale as for A.Y. 1998-99, deleting the addition of Rs. 47,95,688/-.
3. For A.Y. 2001-02 (ITA No. 2453/Mum/2005): Similarly, the Tribunal deleted the addition of Rs. 1,14,52,300/- made by the A.O.
4. Revenue's Appeal for A.Y. 2001-02 (ITA No. 2280/Mum/2005): The Tribunal dismissed the revenue's appeal as infructuous, given the conclusions reached in the other appeals.

Conclusion:
The Tribunal allowed the appeals filed by the assessee for the respective assessment years, setting aside the CIT(A)'s orders and deleting the additions made by the A.O. The revenue's appeal was dismissed as infructuous.