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Facts
The assessee company, incorporated in Hong Kong, claimed exemption under the India-Israel DTAA. The Assessing Officer denied this, treating the assessee as a tax resident of Hong Kong and adding back the entire income. The CIT(A) allowed the assessee's appeal.
Held
The Tribunal held that the assessee company is a tax resident of Israel and is therefore eligible for the benefits of the India-Israel DTAA. Consequently, the order of the CIT(A) was upheld.
Key Issues
Whether the assessee company is a tax resident of Israel to claim benefits under the India-Israel DTAA, or a tax resident of Hong Kong as determined by the Assessing Officer.
Sections Cited
250, 143(3), 144C(3)
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Before: SMT. BEENA PILLAI & SMT. RENU JAUHRI
आदेश / O R D E R PER RENU JAUHRI [A.M.]:- This appeal is filed by the revenue against the order of the CIT(A) 56, Mumbai [hereinafter referred to as “CIT(A)”] dated 28.03.2025 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2022-23.
2. The revenue has raised the following grounds of appeal:
1. 1. “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs 111,85,26,640/ made in the assessment order dated 27.05.2024for A.Y. 2022-23 wherein the Assessing Officer denied the income of the assessee claimed as exempt in terms of Article 8 of the India Israel DTAA.”
AY 2022-23 Gold Star Lines Ltd. 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A)erred in deleting the addition made by the Assessing Officer ignoring the fact that in the Agreement Concerning the Tax Position for Israeli Таx Purposes of Gold Star Line Ltd dated 30.12.2019 entered into between the Israeli tax authorities and the assessee, the Israeli tax authorities have nowhere concluded that the assessee is being managed from Israel.” 3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer ignoring the fact that the assessee is being managed from Hong Kong with key managerial persons physically present in Hong Kong managing its business affairs and agreements of the Assessee are signed with Hong Kong address."
The Assessee craves leave of the ITAT to add, amend or alter the ground herein, if requires.”
Brief facts of the case are that the assessee company is a non-resident for A.Y. 2022-23 and had filed return declaring total income of Rs. 10,53,680/-. The case was selected for scrutiny and assessment was completed u/s. 143(3) r.w.s 144C(3) of the Act at an income of Rs. 111,95,80,320/-. Aggrieved, the assessee filed an appeal before ld. CIT(A) who allowed the assessee’s appeal vide order dated 28.03.2025. Aggrieved with the order of ld. CIT(A), the revenue has preferred an appeal before the Tribunal. 3.2 Sole substantive issued involved in this appeal relates to the claim of the assessee that it is eligible to get exemption of income in terms of Article 8 of India-Israel DTAA, while the ld. Assessing Officer has treated the assessee as a tax resident of Hong Kong.
4. Before us, ld. DR has filed written submissions in support of his oral arguments, the relevant portion of which is reproduced below: “(a) Appellant claims to be a tax resident of Israel even though it is incorporated in Hong Kong on 24.04.1958 under the laws of England AY 2022-23 Gold Star Lines Ltd. (b) The Appellant is engaged in the business of operation of ships in the international traffic and the income includes all freight charges, detention charges, demurrage charges and terminal handling charges etc. (c) Shares of the Appellant company are jointly held by 2 companies incorporated under the laws of Liberia. (d) In turn, these Liberian companies are wholly owned subsidiaries of Zim Integrated Shipping Services Ltd (Zim Israel), the company incorporated under the laws of Israel The share holding pattern is graphically demonstrated as under: 1.Zim Integrated Shipping Services Ltd. (Zim Isreal) 2.Bulk Transportation Corporation, Liberia 3.Bulk Ocean Transport Inc., Liberia. 4.Gold Star Lines Limited., Hong Kong (GSL] 5.1 Appellant company though incorporated in Hongkong has claimed the treaty benefit of India-Israel DTAA owing to the above relationship. 5.2 After examining all the facts of the case in detail, the AO denied the treaty benefit as envisaged under Article 8 of India-Israel DTAA and charged the entire receipt of 111,85,26,644/- to tax by holding that as the Appellant is resident of Hong Kong, the treaty between of India-Israel is not applicable and its benefit cannot be given. 5.3 On appeal before the 1" Appellate Authority, the Ld. CIT(A) held that the Appellant is entitled for the treaty benefit of the India-Israel not only in the facts of the case but also in light of Mutual Agreement Procedure (MAP) between India Israel for A.Y 1998-99, as all the facts remain unchanged since signing of MAP 6. On perusal of the order of the A.O. the following facts are noted and they are the crux to decide the issue of entitlement of India-Isreal treaty benefit to the Appellant (a) The AO starts his discussion from Para 6 onwards of the assessment order In this part of the assessment order, the AO examines the alleged orders of Israeli Authorities, return of income file by the Appellant in Hongkong, Israeli TRC and MAP order for A.Y 1998-99 The AO states that the alleged orders of Isreali Authorities are nothing but an agreement between the Govt. of Isreal and the appellant company on taxability of latter's income in Isreal by treating the appellant company as shipping arm of Zim Isreal only to include its income as part of Zim Isreal. (Para 6.4.4) (b) From Para 6.5 onwards of the assessment order, the AO brings various evidences on record to show that the Appellant is a resident of Hongkong. The same are enumerated hereunder: (i) The Appellant's agency agreement with M/s Start Shipping Services India Private Limited, signed in 2009 has no mention of 'Israel at all. (ii) The above agreement shows the Appellant's address as that of Hongkong. jurisdiction is England and the place of signing agreement is Mumbai. The AO has placed the snapshot of relevant portion of the agreement at Page No 17 of the assessment order (iii) The Appellant has also entered into agreement with many pooling partners and in those agreements too, there is no mention of Israel at AY 2022-23 Gold Star Lines Ltd. all. The AO has placed the snapshot of such agreements at Page No.
At Page No. 19, the AO has placed a snapshot of vessel shares agreements with Zim Israel and here too, the Appellant's domain country is shown as Hongkong (iv) At Page 20 of the assessment order the AO concludes that Appellant company is being operated and managed from Hongkong and not in Israel. The AO further states that the Appellant moved into a new office in Wan Chai. Hongkong which is of 9,000 sq.ft. This event occurred in the year 2004 (Page No 21 of the assessment order) (v) Thereafter the AO proceeds to examine as to where the CEO of the Appellant company is located and in Page No. 22, 23, 24 of the assessment order the AO gives a categorical finding that the current CEO of Appellant company, Mr Abdallah Metanes is a resident of Hongkong. In Para 6.7 to Para 69 of the assessment order. at Page Nos. 24 & 25, the AO avers that for (AY 2022-23), the then CEO of the Appellant was Mr Dan Hoffman and he too was transferred to Hongkong in the year 2006. (vi) In Para 6. 10, the AO unambiguously establishes that the management of the Appellant company is with Managing Directors and CEO who are located in Hong Kong vii) At page no. 26, the AO has examined the minutes of Board Meeting of GSL held on 25.11.2021, via Video Conference and has given a finding in para 6.9 that the Director and CFO both attended the meeting from Hong Kong (viii) In Para 6.12, the AO analyses the DTAA between India and Hongkong and that between India and Israel and reasonably concludes that as the Appellant company is incorporate in Hongkong, it is a resident of Hongkong in terms of the Article 4(1)(iii) of the DTAA between India and Hongkong”
On the other hand, ld. AR has also made elaborate arguments in support of his claim that the place of management is in Israel and, therefore, the assessee company qualifies as a tax resident of Israel. Synopsis of the arguments of Ld. AR is as under: “1. Gold Star is a non-resident company incorporated under the laws of Hongkong for geopolitical reasons and not for purpose of tax evasion (Paras 3, 6.1 2 of CIT Appeals order). The directors of the respondent are Mr. Eliyahu Zeev Glickman, Mr. Nissim Yochai, Mr Saar Dotan. Mr Destriau Xavier, and Mr. Dan Hoffmann.
The place of management of the Respondent is in Israel and qualifies as a tax resident of Israel, as evidenced from: (i) copies of minutes of board meetings of the respondent attached herewith which show majority of directors (four directors) are attending from Israel and only 1 director is attending from Hongkong (ii) email correspondence which reflects that the affairs of respondent are managed by personnel of ZIM Israel (pages 50 to 54 of the paper book at points 3, 5, 6 and 8 read with pages 64 to 72 of the paper book) (iii) the financial statement of ZIM Israel reflects that the directors of the Respondent company are employees of ZIM Isarel (refer to page 179 of the paper book) 3. The functions such as planning, development and decision of changing shipping lines, chartering, etc. in case of respondent are taken by ZIM Israel (refer to pages 41 and 42 of the paper book) 4. Agreement concerning for tax position for Israeli tax purpose of Gold Star Line limited dated 30 December 2019 (page 55 of the paper book). The Israeli authorities have allowed the respondent to file a consolidated return along with ZIM Israel accepting the contention of the respondent that it serves as an agent of the ZIM Israel and views the respondent as an integral part of ZIM for Israeli tax purposes. The global audited financial statements of ZIM Israel reflect the same at note 5 on page 9 of the paper book 5. TRC issued by Israel tax authorities certifying that it qualifies as tax resident of Israel (page 357, 358 of paper book). TRC specifically states that the income earned by the respondent will be offered to taxation in Israel.
Copy of 100% DIT relief certificate (page 344 onwards of the paper book) 7. Mutual Agreement Procedure Order (page 187 of the paper book) is based on similar facts and objections of AO and it was held that the respondent is a resident of Israel The AO disregarded the same on the ground that shareholding of ZIM Israel has undergone a change since MAP order However, the AO has not pointed out how change in shareholding impacts the management of respondent company through ZIM Israel 8. In past assessment years the tax residency of the respondent in Israel was accepted (refer to pages 36 to 40 of the paper book) 9. The Hongkong authorities are taxing only income of the respondent in Hongkong and the worldwide income is taxed in Israel. (refer to pages 123 to 178 of the paper book) 10. The emphasis of the assessing officer that the CEO of the respondent Mr. Abdallah Metanes resided in Hongkong is misplaced because he joined the respondent in September 2023 i.e. after the year under consideration. Further, the AO has emphasised that Mr. Dan Hoffiman managing director of the respondent is residing in Hongkong without appreciating that the respondent is managed by independent board of directors, Mr. Hoffiman is an employee of ZIM Israel and reports to the CEO of ZIM Israel and takes instruction from ZIM Israel (refer to page 61 of the paper book). 11 The AO has stated that there is no mention that respondent is resident of Israel in agreements entered with its agent in India and with its pooling partners. However, AO has failed to consider that disclosing an Israeli place of management in such AY 2022-23 Gold Star Lines Ltd. agreements would have contradicted the fundamental reasoning of setting up the respondent in Hongkong i.e geopolitical reasons between Israel and Arab nations. (Para 6.1.4 of CIT Appeals order) 12. The AO further states that the respondent did not qualify as a resident of Israel, since the Israeli tax authority in the agreement dated 30 December, 2019 have declined to entertain earlier losses of the respondent. The respondent has obtained a note from KPMG which explains that the Israel law which allows tax consolidation has a limitation on utilization of losses. This however, does not affect the tax residency status of parties who are Israeli tax resident (refer to page 439-440 of the paper book) 13. TRC is sufficient evidence for tax residency and benefits under the applicable tax treaty, absent any fraud or illegality or tax evasion: Circular no. 789 dated 13 April, 2000 issued by CBDT Blackstone Capital partners (Singapore) Vi FDI Three Pte Ltd., vs. ACIT (International Taxation) 452 ITR 111 (Delhi) (Para 76, 82 and 91) Tiger Global III Holdings vs AAR 165 Taxmann.com 850 (Delhi) (Para 208) Indostar Capital vs. ACIT 105 Taxmann.com 96 (Bom) (Para 21 and 23) 14. The place of management has been explained in the following decisions: eBay Internation AG vs. Asst. DIT (2012) 25 taxmann.com 500 (Mum) (para 36) DDIT v Daimler Chrysler AG 2010-T11-99-ITAT-MUM-INTL (para 16) Nimbus Sport International Pte Ltd v. DDIT (2012) 18 taxmann.com 105 (Delhi) (para 22, 82)
Commentary of Klaus Vogel in his book on Double Taxation Conventions quoted in para 2(g)(v) of the MAP order (refer to page 190 of the paper book) 15. Though res judicata does not apply to subsequent assessment proceedings, however, where the fundamental aspect permeating through the different assessment years has been found as a fact one way or the other, it would not be appropriate to allow the positions to be changed in the subsequent year (refer to summary of case laws on pages 481 to 484 of the paper book)” 5.2 In response to the query of the Bench regarding details of board meetings of the assessee company during the relevant year, following chart has been submitted by Ld. AR alongwith minutes of the meetings: “Details of Minutes of board meetings of Gold Start Line Ltd.” Date of meeting Attendance from Israel Attendance from Hong Kong AY 2022-23 Gold Star Lines Ltd. 22nd June 2021 Mr. Eliyahu Zeev Glickman Mr. Dan Hoffmann (Director) (Director) Mr. Nissim Yochai (Director) Mr. Yanir Landenberg Mr. Saar Dotan (Director) (CFO) Mr. Destriau Xavier Mr. Das Sankhoj (Director) (Commercial director) Mr. Nativ Noam (General Counsel & Company Secretary) 9th September 2021 Mr. Eliyahu Zeev Glickman Mr. Dan Hoffmann (Director) (Director) Mr. Nissim Yochai (Director) Mr. Yanir Landenberg Mr. Saar Dotan (Director) (CFO) Mr. Destriau Xavier Mr. Das Sankhoj (Director) (Commercial director) Mr. Nativ Noam (General Counsel & Company Secretary) 25th November 2021 Mr. Eliyahu Zeev Glickman Mr. Dan Hoffmann (Director) (Director) Mr. Nissim Yochai (Director) Mr. Yanir Landenberg Mr. Saar Dotan (Director) (CFO) Mr. Destriau Xavier Mr. Das Sankhoj (Director) (Commercial director) Mr. Nativ Noam (General Counsel & Company Secretary) 17th March 2022 Mr. Eliyahu Zeev Glickman Mr. Dan Hoffmann (Director) (Director) Mr. Nissim Yochai (Director) Mr. Yanir Landenberg Mr. Saar Dotan (Director) (CFO) Mr. Destriau Xavier Mr. Das Sankhoj (Director) (Commercial director) Mr. Nativ Noam (General Counsel & Company Secretary)
6. After careful consideration of the rival submissions and the material placed before us, we are of the considered view, that the assessee company is a tax resident of Israel and accordingly deserves to get the benefit of India-Israel DTAA. We therefore hold that the Ld. CIT(A) has rightly allowed the assessee’s appeal on this issue and we find no reason to differ with the order of ld. CIT(A).