TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 614
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.... and circumstances of the case and in law, Ld CIT(A) erred in interpreting paragraph 5 of Article 5 of the India-Mauritius DTAA sans its context of paragraph 7 of Article 5 of UN Model Convention of 1980 and the Commentary thereof from which it derives its origins? 4. Whether in the facts and circumstances of the case and in law, Ld CIT(A) erred in not taking into account that the second sentence of paragraph 5 of Article 5 of India- Mauritius DTAA is part materia to the second sentence of paragraph 7 of Article 5 of UN MC 1980 and is not found in OECD MC 1977 and thus embodies the meaning expressed in the Commentary thereof, which provides that when an agent acts exclusively or almost exclusively on behalf of non-resident principals which are part of the same group of enterprises it does not constitute an agent of independent status? 5. Whether in the facts and circumstances of the case and in law, Ld CIT(A) erred in not considering that the second proviso to Explanation 2 to section 9(l)(i) of the IT Act, 1961 while providing that an agent working mainly or wholly on behalf of non-residents under common control is not an agent of independent status represents a clarification ....
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....en them were not physically present for the Directors Meetings and participated in the meeting by Telephone as stated by the assessee's representative, iii) Mr. Klaus Vogel in his book of International taxation, who is an eminent authority of International taxation, has stated that if the effective management of an enterprise is not in one of the Contracting States but is situated in a third state, the benefit of the article 8 cannot be extended. The same is reproduced as below: 'Article 8 furthermore applies only when the enterprisers place of effective management is situated in a contracting State. Whenever it is situated in a third State, the relationship between the two contracting States is governed by the permanent establishment principle laid down in Article 7. In a case in which the DTC article corresponding to Article 8 MC established that an exemption of income was dependent on the airplane being registered in the other contracting State, but where it was registered In the USA, the I.R.S. likewise applied the treaty provision corresponding to Article 7 instead (LTR 9513008: DTC USA/Ireland).' Accordingly, it is held that the effective management of the a....
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....een used by the assessee in international transport are neither owned by the assesses, nor are they chartered or leased by the assessee. That the assessee is having a Connecting Carrier Agreement with M/s. X-Press Container Line (UK) Ltd., by virtue of which the assessee is having only slot arrangements on the ships as plied by X-Press Container Line (UK) Ltd. He referred that Klaus Vogel in his commentary on Double Taxation Convention. 3rd edition has stated as follows on this issue. " Leasing a ship or aircraft on charter, fully equipped, manned and supplied, is also considered a form of operating ships or aircraft. On the other hand, leasing a ship on a bareboat charter basis is not considered such a form of operation." Further, he has stated that "For a chartering enterprise, income from the operation of a chartered ship or aircraft will in all events come under Article 8, because it is immaterial whether or not the enterprise owns the vessel or aircraft or whether it has obtained the use of it on a lease or charter basis." Thus, what is material is the fact that the assessee should be operating the ship itself, to claim benefit under Article 8 of the DTAA. In the present c....
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....1,37,78,582/- (the gross receipts) amounting to Rs. 2,35,33,407/- is being held as the income of the assessee, for A.Y. 2013-14 u/s 44B of the I.T. Act, 1961." 8. Against the above order, assessee appealed before the Ld.CIT(A). 9. The Ld.CIT(A) found that all the issues were covered by the ITAT in assessee's own case for earlier years. The order of the Ld.CIT(A) in this case may be gainfully referred as under:- " Ground No. l : Is with regard to place of effective management of the Appellant Company and the Appellant Company not being entitled to the benefit of Article 8 of the India Mauritius DTAA. The facts if the case are the Assessing Officer has contended that the Place of Effective Management [POEM) of the appellant company is neither in India nor in Mauritius but in Dubai and hence denied the relief under Article 8 of India Mauritius DTAA. I have gone through the Assessing Officer's order and also appellant's submissions. I find that this is a recurring issue and the same was decided by me in A.Y.2014-15 in the appellant company's case whereby following the CIT(A)'s order for the earlier year, I had taken a view that appellant's place of Effective Man....
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.... is situated in a contracting State. Whenever it is situated in a third 'State: the relationship between the two contracting States is governed by the permanent establishment principle laid down in Article 7. In a case in which the OTC article corresponding to Article 8 MC established that an exemption of income was dependent on the airplane being registered in the other contracting State, but where it was registered in the USA, the I.R.S, likewise applied the treaty provision/Corresponding to Article 7 instead (LTR 9513008: DTC USA/Ireland)." Hence, following my earlier order and also respectfully following Mumbai ITAT's decision, this ground of appeal is hereby dismissed. Ground No.2: Is with regard to disallowance of claim of benefit under Articles of the India-Mauritius Double Taxation Avoidance Agreement (DTAA). The appellant has submitted that the Assessing Officer has failed to appreciate the fact that the appellant company earns income from 'Operation of ships' and hence is entitled to benefit of Article 8 of the India-Mauritius DTAA. I find that the issue involved in this ground of appeal has been dealt by my predecessor in the earlier orders of CIT(A) ....
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....PL has derived merely 7.28 of its total revenue from operations from the Appellant Company, whereas 92,72% of its total revenue from operations is derived from principals other than the Appellant Company and services independently provided to the customers. Hence, respectfully following the Hon'ble ITAT's order as well as facts of this year, this ground of appeal is hereby allowed. Ground No,3(b): As Ground No.3(a) has been decided in appellant's favour, this ground becomes infructuous and is hereby dismissed. Ground No.4 ; is with regard to the Assessing Officer holding that the company carries on business in India through a fixed place through its agent in India. T:«u Assessing Officer has considered that FCIPL as PE of the appellant company under Artidi: 5(1) of the India-Mauritius DTAA, However, the appellant has argued that FCIPL only represents the appellant company in India as an agent and its acts are related to that of an agent. Moreover, it was submitted that the appellant company does not hold any premise-;; in India, does not have any right over the premises of FCIPL i.e. agent in India and does not have the said premises of FCIPL i.e. Agent at i....
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....er manner. Thus, following the rule of consistency, and after following the orders of my predecessor CIT(A) as detailed in para 5 of the order, it is held that the AO has correctly applied the provisions of section 444B. Accordingly, the appellant's this ground of appeal is also dismissed. I find that this ground has not been pressed by the appellant in the earlier years before the Hon'ble ITAT, Mumbai. Hence, the ITAT has dismissed this ground. However once the Hon'ble ITAT has held that the assessee does not have PE in India and its income being business income it cannot be brought to tax in India respectfully following Hon'ble ITAT decision this ground become academic in nature and hence being infructuous and is dismissed." 10. Against the order above, revenue is in appeal before us. 11. We have heard both the parties and perused the records. Ld. Counsel of the assessee submitted that the issues raised in appeal is squarely covered in assessee favour by the decision of ITAT in assessee's own case as under:- i) Mumbai ITAT decision in ITA No.5122/Mum/2003 (AY 1998-99) consolidated order up to AY 2012-13 ii) Mumbai ITAT decision in ITA NO. 2332/Mum/2018 (AY 2....
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.... State acting for or on behalf of an enterprise of the other Contracting State (other than an agent of an independent status) shall be deemed to be a PE if the conditions laid down therein are satisfied viz. the agent (i) has and habitually exercises an authority to conclude contracts in the name of the enterprise or (ii) habitually maintains a stock of goods or merchandise belonging to the enterprise from which he regularly fulfils orders on behalf of the enterprise. ii) Article 5(5) of the treaty states that an enterprise shall not be deemed to have a PE merely because it carries on business in the other State through an agent of an independent status acting in the ordinary course of its business. Art. 5(5) further states that when the activities of the agent are devoted exclusively or almost exclusively on behalf of the foreign enterprise, the agent will not be considered to be an agent of an independent status. Thus, one has to see whether "Freight Connection" can be regarded as an agent of an independent status. If so it would not constitute the assessee's permanent establishment. iii) Freight Connection is an agent of independent status and acts for the assessee in th....
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....s to whether the agent has only one principal for whom the agent works exclusively. The fact that the principal has only one agent in India who undertakes all the activities for the principal is not relevant. In this respect, we draw strength from the decision of the Mumbai ITAT in ACIT v. DHL Operations BV Netherlands (supra)which was relied upon by Ld. CIT(A) in AY 2001 - 02 in assessee's own case for departing from the decision of Ld. CIT(A) in AY 1998 - 99 is no longer good law in view of the following:- a) Mumbai ITAT in the case of DDIT(IT) v. B4U International Holdings Ltd. (137 lTD 346) while departing from the ratio laid down in DHL Operations held that one has to look at the activities of the agent and its "devotion" to the non-resident principal and not the other way round i.e. the perspective should be from the angle of the agent and not that of the non-resident principal. Therefore, if an agent exclusively works for one principal he may be said to be dependant agent resulting in Agency PE but where the principal has a sole agent who also undertakes work and undertakes such work extensively for other principals the agent cannot be said to be "dependant" and there can ....
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....5(1) - Fixed Place PE do not come into play. Bombay HC in DIT(IT) v. Delmas France (232 Taxman 401) dismissed the revenue's appeal against the order of the ITAT. Considering the above legal proposition and as well as facts of the present case we find that the Hon'ble Bombay High Court has affirmed the Tribunal's decision in B4U International Holdings which had held that the conclusion in DHL Operations was erroneous. Therefore, we hold that the Freight Connection is an independent agent who acts in its ordinary course of its business and whose activities are not devoted exclusively or almost exclusively on behalf of the assessee. Therefore, it is held that the assessee does not have an Agency PE in India and the CIT(A) was right in so holding for the AY 1998 - 99 and the successor CIT(A) was wrong in taking a contrary view for the subsequent assessment years. Accordingly, we further hold that even if the assessee's case is not covered by Article 8, the business profits would not be chargeable to Indian tax as it does not carry on business in India through a permanent establishment (an agency PE) as per articles 7 and 5 of the DTAA. No other facts or contrary judgmen....