TaxTMI 
TaxTMI 
2017 (12) TMI 520
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....law and on facts considering Residential status of principal while ignored the nationality of directors & share holders company are out of UAE like wise AGM of the company are also hold outside UAE. The Ld.CIT(A) erred in law and on facts of bard Circular No.1/2003 dated 10.02.2003. The Ld CIT(A) erred in law and facts on determining effective control and management of the principal- M/s Martrade Gulf Logistics FZCO -UAE The Ld CIT(A) erred in law and facts on reliance is placed in the case of Mohsinally Alimohammed Rafik v CIT [1995] 79 Taxman 75 (AAR - New Delhi) the strict interpretation of article 4 of DTA only persons who are actually subjected to tax in UAE can be treated as resident of UAE. The Ld CIT(A) erred in law and facts on TRC issued by the Ministry of Finance-UAE with direction to "issued in Dubai without any responsibility whatsoever on the Ministry of Finance". On the facts and in the circumstances of the case the Ld. CIT(A) ought to have upheld the order of the Assessing Officer." 3. The grounds of appeal so taken are primarily arguments in support of Assessing Officer's basic grievance that the assessee company did ....
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...., since the business is carried on from the UAE that aspect of the matter is not relevant and that the provisions of Article 29 did not come into play on the facts of the present case. The Assessing Officer was, however, not impressed by these arguments. The Assessing Officer was of the view that the assesseecompany is not entitled to Indo-UAE Tax Treaty benefits for the reason "that the said company has got just registration for doing their business in UAE and company employees are carrying day-to-day affairs through the directors and shareholders of company are other nationals". The Assessing Officer was also of the view that Article 29 come into play in the present case as the assessee would not have been entitled to the treaty benefits such as Indo-UAE Tax Treaty but for registration of assessee-company in UAE. The Assessing Officer further held that since the Tax Residency Certificate issued by the Ministry of Finance of UAE clearly mentions that "issued in Dubai on Sunday, the 14.12.2008 without any responsibility whatsoever on the Ministry of Finance", he concluded that said company was merely registered in UAE to get double taxation benefit and its place of effective contro....
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....r for determining residential status of the company. The place of holding AGM is governed by law of the country where the company is incorporated. Further shareholders do not have say or direct interference in the management of company therefore in my view the Assessing Officer's stand in this regard is not correct to say that effective control and management is not situated in UAE just because shareholders are not resident of UAE or just because AGM was not held in UAE. Also Assessing officer seems to be wrongly considering nationality of director as factor to decide the residential status of the company. Appellant has been able to prove that MD of the company is residing at UAE and has permanent residential visa of UAE. Further as per DTAA Article 4 residential status of the company is to be determined as: ARTICLE 4 - Resident - 1. For the purposes of this Agreement the term 'resident of a Contracting State' means: (b] in the case of the United Arab Emirates:......... a company which is incorporated in the UAE and which is managed and controlled wholly in UAE. Based on Indian Embassy certified documents submitted such as Incorporati....
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.... other documents to prove that it is resident of Dubai. It has also support of decisions referred in submission. 2.7 Therefore, considering all the facts and circumstances, I hold that the profits arising out of operations of ship in question in international water, by the appellant is not subject to taxation in India due to applicability of Article 8 read with Article 4 of Indo-UAE DTAA." 5. The Assessing Officer is aggrieved and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. We find that, so far as the entitlement to treaty protection by an entity based on UAE is concerned, the issue is settled by a series of orders of this Tribunal starting with ADIT vs. Green Emirate Shipping and Travels, (2006) 100 ITD 203 (Mum), wherein speaking through one of us, i.e. Accountant Member, this very combination of members constituting Mumbai 'C' bench observed as follows:- "4. The impugned order passed by the CIT(A) takes a rather superficial view of the matter and has conveniently ducked the core issue really required to be adjudicat....
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.... him, in respect to the applicant and the said transaction.' It is, therefore, obvious that, apart from whatever its persuasive value, it would be of no help to us. Having perused the order of the Advance Ruling Authority, we are not persuaded." (emphasis, italicised in print, supplied by us now). The judgments of Hon'ble Supreme Court are binding on us under Art. 141 of the Constitution of India; the rulings of Authority for Advance Rulings, whatever be their persuasive value, are not. The words of Hon'ble Supreme Court are clear, categorical and unambiguous. Once Hon'ble Supreme Court declines to be persuaded by the ruling given by the Authority for Advance Rulings in Cyril Eugene Pereira's case (supra), it cannot be open to us to follow the said ruling. In the case of Asstt. Collector of Central Excise vs. Dunlop India Ltd. (1985) 154 ITR 172 (SC) at p. 180, Hon'ble Supreme Court has, inter alia, observed as follows : "We desire to add and as was said in the Cassell & Co. Ltd. vs. Broome (1972) AC 1027 (HL), we hope it will never be necessary to say so again that 'in the hierarchical system of Courts' which exists in our country, 'it is necessa....
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....to 'waive' tax claims or more illustratively, to divide 'tax sources', 'taxable objects', amongst themselves'. Double taxation avoidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe this method of classification of items and their assignments to the Contracting States. While the English lawyers called it 'classification and assignment rules', the German jurists called it 'the distributive rules' (Verteilungsnormi). To the extent that an exemption is agreed to, its effect is in principle independent of both whether the other Contracting State imposes a tax in the situation to which the exemption applies, and irrespective of whether the State actually levies the tax. Commenting particularly on the German Double Taxation Convention with the United States, Vogel comments: "Thus, it is said that the treaty prevents not only 'current' but also merely 'potential' double taxation". Further, according to Vogel, "only in exceptional cases, and only when expressly agreed to by the parties, is exemption in one of the Contracting States dependent upon whether the income ....
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....Authority of Advance Rulings, has any precedence value in general. Therefore, learned Departmental Representative's reliance on the ruling given in Abdul Razak A. Meman's case (supra) by itself is not sufficient to decide the matter one way or the other. Learned Departmental Representative's contention is that as non-corporate entities are not taxable entities under the UAE Tax Decree 1969, such non-corporate entities, even though based in UAE, cannot be treated as 'resident' for the purposes of the India-UAE DTAA. Our attention is also invited to the learned AO's observations to the effect that "the provisions of the DTAA do not apply to any case which the same income is not liable to be taxed twice by the existing laws of both the Contracting States" and that "since the assessee has failed to prove that it is paying taxes in UAE, the DIT relief sought by the assessee is rejected"; but it is the very proposition underlying these observations which was rejected by the Hon'ble Supreme Court holding that "it is... not possible for us to accept the contentions so strenuously urged by the respondents that the avoidance of double taxation can arise only when tax is actually paid in ....
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....voidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe this method of classification of items and their assignments to the Contracting States. While the English lawyers called it 'classification and assignment rule', the German jurists called it 'the distributive rule' (Verteilungsnormi). To the extent that an exemption is agreed to, its effect is in principle independent of both whether the Contracting State imposes a tax, in the situation to which the exemption applies, and irrespective of whether the State actually levies the tax. Commenting particularly on the German Double Taxation Convention with the United States, Vogel comments: "Thus, it is said that the treaty prevents not only 'current' but also merely 'potential' double taxation". It is thus clear that a tax treaty not only prevents current' but also potential' double taxation. Therefore, irrespective of whether or not the UAE actually levies taxes on non-corporate entities, once the right to tax UAE residents in specified circumstances vests only with the Government of UAE, that right, whether exerc....
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....s resident and this status of being a 'resident' of the Contracting State is independent of the actual levy of tax on that person. Viewed in this perspective, we are of the considered opinion that being 'liable to tax' in the Contracting State does not Page 11 of 18 necessarily imply that the person should actually be liable to tax in that Contracting State by virtue of an existing legal provision but would also cover the cases where that other Contracting State has the right to tax such persons irrespective of whether or not such a right is exercised by the Contracting State. In our humble understanding, this is the legal position emerging out of Hon'ble Supreme Courts judgment in Azadi Bachao Andolan's case (supra). The plea taken by the Revenue that the assessee was not 'liable to tax', which was anyway not taken by the AO or before the CIT(A), is also not sustainable in law either. 9. For the reasons set out above, and even though we do not approve the reasoning adopted by the CIT(A), we approve the conclusion arrived at by the CIT(A). His having arrived at right conclusion may have been fortuitous but what is material is that he reached the right conclusio....
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.... Assessing Officer in denying the treaty protection. The matter, however, does not end there. Even if the issue before us is not covered by the judgment of Hon'ble jurisdictional High Court, the matter is to be adjudicated on merits anyway. On merits, learned Departmental Representative's thrust of arguments is one two issues- first, that there is no evidence to suggest that the assessee actually paid any taxes in UAE; and -second, that it was a fit case to invoke Article 29 of the Indo UAE tax treaty as the assessee could not rebut the facts brought on record by the Assessing Officer. 7. It is in this backdrop that we need to take a look at article 29 of India UAE tax treaty which has been invoked by the Assessing Officer to decline treaty benefits to the assessee. This article provides as follows: "An entity which is a resident of a Contracting State shall not be entitled to the benefits of this Agreement if the main purpose or one of the main purposes of the creation of such entity was to obtain the benefits of this Agreement that would not be otherwise available. The cases of legal entities not having bonafide business activities shall be covered by this artic....
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....matters, as is the dispute before us, to be subjected to confusing signals resulting in uncertainty and prolonged litigation, it is certainly more desirable for the Government to take a clear-cut stand on the issue or let the matter be resolved at the level of Governments of the Contracting States. That perhaps is a better solution for quickly resolving disputes on such a fundamental aspect of a tax treaty as to who will be eligible for the benefits of that tax treaty. We hope that the Government will resolve this matter once for all and would not allow this uncertainty to last for long. We leave it at that. 9. It is heartening to note that within less than one and a half year from the above observations having been made by the Tribunal, the tax administration did indeed resolve the issue. Vide protocol dated 26th March 2007 (supra), the definition of expression 'resident' was revised as follows: 1. For the purposes of this Agreement the term "resident of a Contracting State" means: (a) in the case of India: any person who, under the laws of India, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of....
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....ssed into service at all by a tax jurisdiction. However, for the reasons we will set out in a short while, it is not really necessary to go into that aspect of the matter at all. We have noted that the Assessing Officer has given two reasons for invoking Article 29- first, that the vessel is owned by an entity based in Marshall Islands which has no tax treaty with India; and - second, that the assessee company is owned by shareholders in Switzerland, and since the income from operations of ships of the Switzerland based entities in international traffic is not covered by Article 8 of India Switzerland DTAA, if both the Swiss shareholders, which wholly own capital of the assessee company, were to carry on business directly, the treaty protection would not have been available 12. None of these reasons, in our considered view, are sustainable in law. 13. We find that though the merchant vessel in question is indeed owned by a Marshall Islands based entity, it is an undisputed position that the vessel is given to the assessee under a long term time charter arrangement, and that, under article 8, ownership of the vessel is not a sine qua non for availing treaty protect....
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....fically dealt with in the Indo Swiss DTAA. While on this aspect of the matter, a useful reference may also be made to the decision of this Tribunal in the case of ADIT Vs Mediterranean Shipping Co SA [(2013) 56 SOT 278 (Mum)]. In effect, therefore, whether a Swiss tax resident earns India sourced income from operations of ships in international traffic in India or whether a UAE tax resident earns Indian sourced income from operations of ships in international traffic, the income is not taxable in India- in the former case because of the provisions of Article 22(1) of Indo Swiss tax treaty, and in the later case of because of the provisions of Section 8 of India UAE tax treaty. 16. As a corollary to this legal position, the condition precedent for invoking Article 29 of Indo UAE tax treaty, i.e. main purpose, or one of the main purposes of the creation of the assessee entity being to obtain benefit or benefits of Indo UAE tax treaty which would otherwise not be available, is not fulfilled. When treaty protection in respect of income of such a nature was anyway available, though under a different kind of provision of the Indo Swiss tax treaty, the assessee entity cannot be s....
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....edging in the official certifications by the statutory authorities is too common a situation, and a part of the standard operating practices, to be reason enough to draw an adverse inference. In any case, nothing turns on this certificate per se and in a situation like the one that we are seized of, i.e. when all the corroborative facts, in support of the certification, are on record, there is no reason to reject the treaty entitlements on the basis of, what the Assessing Officer perceives as, shortcomings in the tax residency certificate. An issue is then raised by the Assessing Officer about the limited three year period of commercial licence issued by the Government of UAE but it is difficult to even understand, much less approve, this objection. Whether the assessee is given a perpetual licence to carry on business in the UAE or whether the licence is renewed every year, does not, in our considered view, affect the fact that the assessee was carrying on business in the relevant previous year. The approach of the Assessing Officer is too pedantic and is anyway swayed by the considerations which are not really relevant in the present context. 19. Given these facts, in ou....