Place of Effective Management determines treaty shipping exemption, and failure of that test triggers section 44B taxation.

Article 8 of the India-Mauritius DTAA was analysed by reference to the place of effective management, meaning the location where the company's day-to-day affairs were actually controlled. On the facts, shipping agents received instructions from Dubai and dealt with the owners there, while Mauritius board meetings were only formal; the treaty exemption was therefore denied because effective management was not in Mauritius. Once Article 8 did not apply, the shipping receipts were brought to tax in India under section 44B, a special non obstante provision for non-resident shipping business that applies the prescribed deemed-profit computation rather than actual accounts.

---

---

Issues: (i) Whether the assessee was entitled to exemption under Article 8 of the India-Mauritius DTAA on the footing that its place of effective management was in Mauritius; (ii) Whether the assessee's shipping income was taxable in India under section 44B of the Income-tax Act, 1961.

Issue (i): Whether the assessee was entitled to exemption under Article 8 of the India-Mauritius DTAA on the footing that its place of effective management was in Mauritius.

Analysis: The decisive criterion under Article 8 was the place of effective management, understood as the place from where the company's day-to-day affairs were factually and effectively controlled. The record showed that the shipping agents corresponded with Dubai, received operating instructions from Dubai, and dealt with the assessee's owners in Dubai, while the Mauritius board meetings were held only to satisfy local corporate formalities. The Tribunal held that the evidence did not support a finding that the effective management was in Mauritius. The Mauritius residency certificate and the CBDT circular relied upon by the assessee did not determine the Article 8 issue, because residence was not the governing test for shipping income under that article.

Conclusion: The assessee was not entitled to Article 8 exemption, and this issue was decided against the assessee.

Issue (ii): Whether the assessee's shipping income was taxable in India under section 44B of the Income-tax Act, 1961.

Analysis: Once Article 8 was held inapplicable, the shipping receipts became liable to be assessed under the domestic charging and computation provisions. Section 44B, being a special provision with a non obstante clause for non-residents engaged in the business of operation of ships, governed the computation of profits at the prescribed deemed percentage of gross receipts. The Tribunal rejected the plea for computation on the basis of actual accounts and also found no reason to disturb the assessment on any alternative treaty basis.

Conclusion: The assessee's shipping income was taxable in India under section 44B, and this issue was decided against the assessee.

Final Conclusion: The Tribunal upheld the assessment and refused treaty-based exclusion, holding that the assessee's place of effective management was not in Mauritius and that its shipping receipts were assessable in India under the special domestic provision for non-resident shipping business.

Ratio Decidendi: For shipping income under the India-Mauritius DTAA, Article 8 applies only where the enterprise's place of effective management is factually situated in Mauritius, and where that test fails, the income is assessable in India under section 44B of the Income-tax Act, 1961.

---