ARC LINE,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAX CIRCLE 1(1)(2), MUMBAI

ITITA 965/MUM/2026Status: DisposedITAT Mumbai30 June 2026AY 2022-2328 pages
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What were the facts?

The appeals before the Income Tax Appellate Tribunal (ITAT) involved two assessees, Bay Lines and Arc Lines, and multiple assessment years ranging from 2015-16 to 2023-24. The appeals arose from orders of the Commissioner of Income Tax (Appeals) and were consolidated due to identical issues. The primary dispute concerned the applicability of Article 8 of the India-Mauritius Double Taxation Avoidance Agreement (DTAA) and the existence of a Permanent Establishment (PE) in India. The Departmental Authorities had denied the benefit of Article 8, asserting the Place of Effective Management (POEM) was in Dubai, not Mauritius or India. The Assessing Officer also contended that M/s Freight Connection India Pvt. Ltd. (FCIPL) constituted a Dependent Agent Permanent Establishment (DAPE) in India. The assessees challenged these findings, arguing for the applicability of the DTAA and the absence of a PE. An additional issue for Bay Lines concerned the tax rate on interest earned on income tax refunds.

What did the Tribunal hold?

The Tribunal held that the assessee is not entitled to the benefit under Article 8 of the India-Mauritius DTAA, as the Place of Effective Management (POEM) was neither in Mauritius nor in India, consistently following previous ITAT decisions. Regarding the existence of a fixed place PE, the Tribunal found no such PE in India in terms of Article 5(1) of the India-Mauritius DTAA, based on judicial precedents. Consequently, no part of the business receipts could be taxed in India on this ground. The Tribunal also held that FCIPL did not constitute a Dependent Agent Permanent Establishment (DAPE) in India under Article 5(4). This was because FCIPL acted as an agent for various entities and not exclusively for the assessee, and its commission income from the assessee varied significantly, indicating its independent status. The Tribunal further held that Bay Lines and Arc Lines are independent entities and their income cannot be aggregated for PE profit attribution. The issue of aggregation became moot as no PE was found. For the issue of interest on income tax refund, the Tribunal held that it should be taxed at the rate specified under Article 11(2) of the India-Mauritius DTAA, following decisions of coordinate benches and the Bombay High Court. Appeals by the assessees were partly allowed, and appeals by the Department were dismissed.

What were the issues?

1. Whether the assessee is entitled to the benefit under Article 8 of the India-Mauritius DTAA, considering the Place of Effective Management (POEM) is neither in Mauritius nor in India, as per Section 90 of the Income Tax Act, 1961. 2. Whether the assessee has a fixed place Permanent Establishment (PE) in India in terms of Article 5(1) of the India-Mauritius DTAA. 3. Whether M/s Freight Connection India Pvt. Ltd. (FCIPL) constitutes a Dependent Agent Permanent Establishment (DAPE) of the assessee in India as per Article 5(4) of the India-Mauritius DTAA. 4. Whether the income of Bay Lines and Arc Lines should be aggregated for the purpose of attribution of profit to the alleged PE in India. 5. Whether the interest earned on income tax refund should be taxed at the rate specified under Article 11(2) of the India-Mauritius DTAA, as per Section 90 of the Income Tax Act, 1961. Assessee's Contentions: - Assessee conceded that the issue regarding Article 8 benefit was covered against them based on previous ITAT decisions where POEM was found to be outside India and Mauritius. - Assessee argued that they did not have a fixed place PE in India. - Assessee contended that FCIPL was an independent agent and not a DAPE, as it acted for multiple entities and its commission income from the assessee varied. - Assessee argued that Bay Lines and Arc Lines are independent entities and their income should not be aggregated. - Assessee claimed that interest on income tax refund should be taxed as per Article 11(2) of the India-Mauritius DTAA. Revenue's Contentions: - Revenue agreed that the issue regarding Article 8 benefit was covered against the assessee. - Revenue argued that FCIPL acted as an agent concluding contracts and performing various functions on behalf of the assessee, thus constituting a DAPE. - Revenue contended for the aggregation of income of Bay Lines and Arc Lines for profit attribution.

Which sections of the Income-tax Act were involved?

Section 90,Section 44B,Section 234C

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Heard together (2 matters)

ITA Nos. 520/Mum/2026
ITA Nos. 583/Mum/20

Read from the judgment's own cause title. This page is filed under one of them.

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER

IT(IT)A Nos. Assessment Year 520/Mum/2026 2015-16 521/Mum/2026 2016-17 522/Mum/2026 2017-18 523/Mum/2026 2018-19 524/Mum/2026 2023-24

Bay Lines Deputy Commissioner of Income C/o. Freight Connection India Private Kautilya Bhavan, C-41 to C-42, Sion (East), Mumbai-400 022 G Block, Bandra Kurla Complex, Bandra (E), Mumbai-400 005 PAN/GIR No. AABCB 5853 G (Assessee) : (Revenue) and ITA Nos. Assessment Year 593/Mum/2026 2015-16 525/Mum/2026 2016-17 594/Mum/2026 2017-18 595/Mum/2026 2018-19 596/Mum/2026 2023-24

Deputy Commissioner of Income Tax Bay Lines International Tax, Circle 1(2)(1) C/o. Freight Connection India 6TH Floor, Kautilya Bhavan, G Block, Private Limited Bandra Kurla Complex, Bandra (E), Vs. 3C Runwal and Omkar Esquare, Mumbai-400 005 Sion Chunnabatti Junction, Sion (East), Mumbai-400 022 PAN/GIR No. AABCB 5853 G (Revenue) : (Assessee)

2 ITA Nos. 520/Mum/2026 & others - Bay Lines ITA Nos. 583/Mum/20

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