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of <h1>ITAT rules FCIPL not a PE under India-Mauritius DTAA</h1> <h3>DCIT, IT-1 (1) (2), Mumbai Versus Arc Line C/o. Freight Connection India Pvt. Ltd., Mumbai</h3> The ITAT upheld the CIT(A)'s decision, ruling that Freight Connections India Pvt Ltd (FCIPL) did not constitute a dependent agent PE or a Fixed place PE ... Income accrued in India - permanent Establishment in India - Whether Freight Connections India Pvt Ltd (FCIPL) does not constitute a dependent agent PE of the assessee in India? - India-Mauritius DTAA - HELD THAT:- The Co-ordinate Bench in the case of Bay Lines (Mauritius) [2018 (2) TMI 1524 - ITAT MUMBAI] has held that M/s Freight Connection India Pvt. Ltd. is an agent of independent status and hence it cannot be considered as constituting Agency PE of that assessee. The decision so rendered shall also apply to the instant case and accordingly, we hold that M/s Freight Connection India P. Ltd. shall not constitute Agency PE of the assessee. The Tribunal in assessee’s own case for AYs 1998-99 to 2012-13 held where a foreign enterprise carries on business in a country through an agent, the provisions of Article 5(1) relating to Fixed place PE does not come into play. The co-ordinate bench has also noted that the appeal filed by challenging the decision so rendered by the Tribunal in the case of Delmas France [2012 (1) TMI 9 - ITAT MUMBAI] has been dismissed [2014 (11) TMI 1173 - BOMBAY HIGH COURT] The facts, being identical, following the decision of the coordinate bench rendered in the case of Bay lines (Mauritius)(supra), we hold that the assessee does not have Fixed place PE in India. Appeal by the revenue stands dismissed. Issues Involved:1. Determination of whether Freight Connections India Pvt Ltd (FCIPL) constitutes a dependent agent PE of the assessee in India.2. Interpretation of paragraph 5 of Article 5 of the India-Mauritius DTAA in the context of paragraph 7 of Article 5 of the UN Model Convention of 1980.3. Consideration of the second proviso to Explanation 2 to section 9(1)(i) of the IT Act, 1961.4. Determination of whether FCIPL constitutes a Fixed place PE of the assessee in India.5. Application of Section 44B of the IT Act, 1961 for computing the income of the PE in India.Issue-wise Detailed Analysis:1. Dependent Agent PE:The primary issue was whether FCIPL constitutes a dependent agent Permanent Establishment (PE) of the assessee in India. The AO held that FCIPL acted as a dependent agent since it performed activities that were an extension of the assessee’s business in India. However, the CIT(A) and the ITAT found that FCIPL derived only 7.28% of its revenue from the assessee, indicating that it was not exclusively or almost exclusively devoted to the assessee. The ITAT relied on its previous decisions and the definition of an independent agent under Article 5(5) of the India-Mauritius DTAA, concluding that FCIPL does not constitute a dependent agent PE.2. Interpretation of DTAA Provisions:The AO argued that the CIT(A) erred in interpreting paragraph 5 of Article 5 of the India-Mauritius DTAA without considering the context provided by paragraph 7 of Article 5 of the UN Model Convention of 1980. The CIT(A) and the ITAT, however, followed the interpretation that an agent should be considered independent if it does not act exclusively or almost exclusively for the non-resident principal. The ITAT upheld this interpretation, noting that FCIPL acted for multiple principals and thus did not meet the criteria for a dependent agent.3. Consideration of IT Act Provisions:The AO contended that the second proviso to Explanation 2 to section 9(1)(i) of the IT Act, 1961, clarifies that an agent working mainly or wholly on behalf of non-residents under common control is not an independent agent. The CIT(A) and the ITAT, however, found that the activities of FCIPL were not exclusively devoted to the assessee, thereby not constituting a dependent agent under the DTAA provisions.4. Fixed Place PE:The AO held that the assessee had a Fixed place PE in India through its agent, FCIPL. The CIT(A) and the ITAT disagreed, noting that the assessee did not have any premises in India at its disposal, nor did it have control over FCIPL’s premises. The ITAT cited the Supreme Court’s decision in ADIT vs. E-Funds IT Solution Inc. and other relevant cases, concluding that the presence of an agent alone does not constitute a Fixed place PE if the agent operates independently.5. Application of Section 44B:The AO applied Section 44B of the IT Act, 1961, to compute the income of the PE in India, deeming 7.5% of the gross receipts from shipping business as the income of the assessee. The CIT(A) and the ITAT found that since the assessee did not have a PE in India, its business income could not be taxed in India. The ITAT upheld the CIT(A)’s decision, rendering the application of Section 44B moot.Conclusion:The ITAT upheld the CIT(A)’s order, concluding that FCIPL does not constitute a dependent agent PE or a Fixed place PE of the assessee in India. Consequently, the assessee’s business income could not be taxed in India under the provisions of the India-Mauritius DTAA. The appeal by the revenue was dismissed.
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