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Income Tax Appellate Tribunal, “L”
Before: SHRI B. R. BASKARAN, AM & SHRI SANDEEP GOSAIN, JM
अपीलाथीकीओरसे/ Appellant by : Sh. M. V. Rajguru, DR प्रत्यथीकीओरसे/Respondentby : Sh. S. E. Dastur / Harsh Kothari /Jigar Saiya सुनवाईकीतारीख/ : 21/11/2017 Date of Hearing घोषणाकीतारीख / : 20/02/2018 Date of Pronouncement आदेश / O R D E R Per Bench: The present 15(fifteen) Appeals i.e. 1(one) revenue appeal and 1 (one) Cross Objection as well as 13(thirteen) appeals filed 3 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) by the assessee are against the order of Commissioner of Income Tax (Appeal) – XXXI, Mumbai.
2. Since all the issues involved in these appeals /cross objections are common, therefore, they have been clubbed, heard together and a consolidated order is being passed for the sake of convenience and brevity.
3. First of all we have decided to take up appeals filed by the revenue as well as cross objection filed by assessee for AY 1998- 99 bearing and CO No. 52/2003.
4. At the very outset, the Ld. AR appearing on behalf of the assessee filed an application for raising additional ground of cross objection in CO No. 52/Mum/2003 vide letter dated 14th June 2007 and the same is reproduced below: - “ Without prejudice to Ground no. 1 of cross objection and in the alternative, 4 ITA No. 1181/Mum/2012 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) the Ld. CIT(A) having held the place of effective management to be in Dubai (UAE) and neither in India nor in Mauritius, has erred in law in not carrying his finding to its logical conclusion by applying the Double Taxation Avoidance Agreement (DTAA) between India and UAE and holding the shipping profits to be not taxable in India by virtue of Article 8 of DTAA between India and UAE.
Vide above application, assessee seeks admission of additional ground/cross objection on the basis of reasons mentioned in the application.
On the other hand, the Ld. DR refuted the claim of the assessee and submitted that no such ground was raised by the assessee before Ld. CIT(A).
We have heard the Counsels for both the parties on the application for raising additional grounds /cross objection and 5 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) after perusal of the contents of the application dated 14th June 2017, we find that the ground raised by way of additional cross objection filed by the assessee is purely legal question of law. Apart from above, it is also observed that the facts relevant for arguing the additional ground are already on record and therefore, entertaining this additional ground will not require investigation into any new or fresh facts.
Therefore, while keeping in view the principles laid down by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC), Jute Corporation of India Vs. CIT 187 ITR 688 (SC), Ahemdabad Electrical Vrs. CIT 199 ITR 351, wherein it has been held that legal grounds, which goes to the roots of the case, can be raised and allowed at any time /stage. Therefore, keeping in view the above principles in mind, we allow the assessee to raise the additional cross objection. Hence, application dated 14th June 2017 is allowed and the additional cross objection /ground raised by the assessee is admitted.
6 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues)
Now, we take up (AY 1998- 99) 8. First of all we take up appeal bearing ITA No. 1181/Mum/2002 filed by the revenue as lead case. The grounds of appeal are as under:-
GROUNDS OF APPEAL
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee is not having any PE in India and therefore, it is not taxable as per Article 7 of the DTAA between India and Mauritius.
2. The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO restored.
3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
7 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 9. The brief facts of the case are that the assessee is a shipping company incorporated at Mauritius. The assessee filed its return of income declaring total income of Rs. 56,18,410/- on 28.12.98 and has claimed 100% DIT relief. In order to support its claim, the assessee has placed before the revenue authorities, the copy of tax residency certificate issued by the tax authorities of Mauritius to show that assessee is a resident of Mauritius. Subsequently the case was selected for scrutiny and after serving statutory notices and providing opportunity of hearing, assessment order u/s 143(3) of the I.T. Act was passed by AO thereby holding that the effective management of the assessee is situated at a place which is other than India and Mauritius and thus denied the benefit of Article 8 of the DTAA and further hold that the assessee’s income is chargeable to tax in India.
Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee.
8 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) Now before us, the revenue has preferred the present appeal by raising the above grounds.
The sole ground raised by the revenue relates to challenging the order of Ld. CIT(A) in holding that assessee is not having any PE in India and therefore it is not taxable as per Article 7 of the DTAA between India and Mauritius.
Ld. DR appearing on behalf of the revenue relied upon the orders passed by AO and submitted that the assessee has an exclusive agent in the form of M/s Freight Connection India Pvt. Ltd. (FCIPL) and the agreement for same was entered into by the assessee on 01.12.1997 and the address of the assessee was shown as P.O. Box No. 7, Dubai, UAE. It was further submitted that the appointment letter issued to the agent FCIPL is on the letter-head of M/s Bay Lines showing address of, Dubai, UAE 9 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) which points out that the FCIPL is the exclusive agent of the assessee. Ld. DR further submitted that the AO has also found that the Agent of the assessee i.e. FCIPL is doing the agency work in all the Indian Ports which is habitually concluding the contracts on behalf of the assessee and performing duties such as clearances from the government departments, deciding the brokers, contacting with the parties, loading of cargo, dealing with labourers for loading, collecting the freight on behalf of the assessee and also maintaining the bank account on behalf of the assessee, etc. Thus on the basis of above fats, material and documents submitted during the course of assessment proceedings, the AO has rightly held that the assessee has Permanent Establishment in India in the form of agent i.e. FCIPL. Ld. DR relied upon the decision of the Hon'ble ITAT, in the case of DHL Operations B.V. Netherlands in ITA No. 7987 to 7988/Bom/92, for supporting the conclusion arrived at by the AO to this effect.
10 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 12. On the contrary Ld. AR appearing on behalf of the assessee relied upon the orders passed by Ld. CIT(A) and argued that FCIPL cannot be treated as dependant agent of the assessee as it is an agent of independent status and acts for the assessee in the ordinary course of its business and its activities are not devoted exclusively or almost exclusively on behalf of the assessee. It was also submitted that FCIPL has earned commission of 57.95% from the assessee during the year as against 42.05% from others which shows that FCIPL is not the exclusive agent of the assessee.
Ld. DR in order to controvert the stand taken by Ld. AR has drawn our attention towards Clause 11 of the agency agreement which states that the agent (i.e. FCIPL) shall not act as an agent or representative for any other company or business entity undertaking or carrying on business in competition with the principal. It was submitted that in view of the above clause, the question of comparing volume of business of the agent with the assessee and others does not arise as the agreement itself 11 ITA No. 1181/Mum/2012 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) stipulates that the agent is an dependent agent of the assessee. Even if, the agent has transacted business with other entities, the assessee was required to terminate the appointment as agent which the assessee has not done. In this respect, Ld. DR also relied upon the decision of the Hon'ble Tribunal in the case of M/s DHL Operations B.V. Netherlands (in ITA No. 7987 and 7988/Bom/92) wherein the concept of Agency PE has been discussed at threadbare.
We have heard counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A) which is contained in para no. 4 & 5 in its order. The operative portion of the order of Ld. CIT(A) contained in para no. 5 of its order and the same is reproduced below:-
12 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) I have considered the submission of the appellant counsel based on the commentaries by different writers and the fact that the agent having income from other four principles indicate that the agent is independent. The AO has only seen the agreement with the appellant and he has not tried to examined whether FCIPL is having income only from the appellant or from any other persons (principals). From the Profit and loss Account and Balance sheet filed before me, it is clear that the agent FCIPL is having commission from 4 different principals. Therefore, it is not an exclusive agent of the appellant and, accordingly, it does not come under the purview of the definition of the dependent agent as defined in Article 5(5) of DTAA between India and Mauritius. Accordingly, appellant is not having any PË in India and therefore, he is not taxable as per Article 7 of the DTAA between India and Mauritius. Accordingly, this ground of appeal is allowed.
After having gone through the facts of the present case, arguments addressed by the parties, judgment cited before us, material placed on record, orders passed by revenue authorities, written submissions of the parties and after going through the DTAA executed between India and Mauritius and as per the 13 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) terms /Article contained in DTAA, we find the following proposition:- i) Article 5(4) of the DTAA provides that a person of a Contracting 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 14 ITA No. 1181/Mum/2012 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 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 the ordinary course of its business. Its activities are not devoted exclusively or almost exclusively on behalf of the assessee in view of the following: a. Oxford Dictionary defines exclusively to mean 'so as to exclude all except some particular object, subject, etc.; solely.' b. Oxford Dictionary defines solely to mean (i) 'as a single person (or thing); without any other as an associate, partner, sharer, etc.; alone; occas. without aid or assistance'
(ii) 'apart from or unaccompanied by others; solitarily (iii) only, merely, exclusively; also (contextually), entirely, altogether. The dictionary meanings were handed over separately in the course of the hearing. c. The dictionary meanings of the term 'exclusively' clearly suggest that the agent should earn 100% or something near to 100% from this principal so as to be 15 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) dubbed as a dependant agent which is not the fact in the present case. d. Mumbai ITAT in the case of Shardul Securities Ltd. v. JCIT (115 lTD 345) at Pg 15 has extracted the definition of 'exclusively' and has held that the term 'exclusively or almost exclusively' means 100% or something nearer to 100%. e. In the present case, it is clear that the activities of Freight Connection are not devoted exclusively or almost exclusively on behalf of the assessee as it also does work on behalf of other principals and earns a substantial part of its income from them as clearly found by the CIT(A) in his appellate orders as mentioned above. f. During the course of the hearing, the learned DR placed reliance on Clause 11 of the Agency Agreement between the Assessee and Freight Connection (Page 21 of the paperbook for AY 2001-02) and submitted that Freight Connection cannot act as an agent for any other person apart from the assessee, as the same would be in contravention of the Agency Agreement. Towards the same, it is submitted that Clause 11 only restricts Freight Connection from acting as an agent for any other principal carrying on business 'in competition' with that 16 ITA No. 1181/Mum/2012 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) of the assessee. As stated above, it is an admitted fact that Freight Connection has acted as an agent for other principals as well. Therefore, the argument of the learned DR is without any basis.
We find that on a plain reading of Art. 5(5), it is clear that for determining the independence, one should look at the agent and as 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 17 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 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 be no question of creation of an Agency PE. While arriving at its decision, Mumbai ITAT in B4U also relied on the decisions of the AAR in Morgan Stanley & Co. (272 ITR 416) (Pg 10 of 134U decision), Fidelity Advisor Series VIII (271 ITR 1) (Pg 11 of B4U decision). Reliance was also placed on the decision of the Delhi HC in Rolls Royce Singapore (P) Ltd. v. ADIT (347 ITR 192) (Pg 12 of B4U decision) where the HC held that an agency PE would not exist if the assessee principal could show that it was not the sole client of the agent and that the activities of the agent were not devoted wholly or almost wholly on behalf of the asses see. b) The Hon’ble Bombay HC in DIT(IT) v. B4U International Holdings Ltd. (374 ITR 453) while dealing with the Revenue's appeal from the aforesaid order of the ITAT on the aspect as to whether the ITAT 18 ITA No. 1181/Mum/2012 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) was correct in holding that B4U cannot be treated as a dependant agent of the assessee, in view of Art. 5(5) of the India Mauritius Treaty, dismissed the revenue's appeal holding that ITAT's order did not give rise to any substantial question of law. c) The Hon’ble Mumbai ITAT in the case of International Global Networks BV v. ADIT (84 taxmann.com 188) has also held the agent to be an independent agent where it acts in its ordinary course of business and the activities of the agent are not wholly or exclusively devoted to the assessee.
We have also considered the judgments relied by Ld. AR and the same are discussed below:- a. The Hon’ble Supreme Court in the case of ADIT v. E- Funds IT Solution Inc. (Civil Appeal No. 6082 of 2015) observed that the assessee must have a fixed place of business in India which is at its disposal through which it carries on its business. SC held that there was no specific finding in the assessment or the appellate orders that any fixed place of business was put at the disposal of the assessee. SC held that the assessee did not have a Fixed Place PE in India and observed that the lower authorities had adopted an erroneous approach in 19 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) holding that the assessee had a PE in India for the reason that the assessee did business with its 100% subsidiary. b. The Hon’ble Mumbai ITAT in the case of Delmas, France v. ADIT(IT) (49 SOT 719) held that where a foreign enterprise carries on business in a country through an agent, the provisions of Article 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 20 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 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 judgments have been brought on record before us by the Ld. DR in order to controvert or rebut the findings recorded by the Ld.CIT (A). Moreover, there are no reasons for us to deviate from the findings recorded by the Ld. CIT (A). Therefore, we are of the considered view that the findings recoded by the Ld. CIT (A) are judicious and are well reasoned. Accordingly, we uphold the same. Resultantly, this ground raised by the Revenue stands dismissed.
Ground No. 2 & 3 15. These grounds are general in nature and in view of our findings on ground no. 1, these grounds requires no specific adjudication. Hence the same stands dismissed.
21 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues)
In the net result, the appeal filed by the revenue stands dismissed.
Cross Objection No. 52/Mum/2003 (AY 1998-99) 17. Now we take up Cross Objection No. 52/Mum/2003 (AY 1998-99) filed by the assessee on the grounds mentioned herein below:-
1. 1. On the facts and in the circumstances of the case, the learned Commissioner of Income- tax (Appeals) erred in holding that the place of effective management of the respondent is neither in Mauritius nor in India but in a third country. It is prayed that the learned Assessing Officer be directed to hold that the place of effective management of the respondent is in Mauritius.
2. Without prejudice to Ground No.1 ,the learned Commissioner of Income-tax (Appeals) erred in not adjudicating on Ground No.3 22 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) mentioned in the memo of appeal before the Commissioner of Income-tax (Appeals)
(Additional Cross Objection) 3. “ Without prejudice to Ground no. 1 of cross objection and in the alternative, the Ld. CIT(A) having held the place of effective management to be in Dubai (UAE) and neither in India nor in Mauritius, has erred in law in not carrying his finding to its logical conclusion by applying the Double Taxation Avoidance Agreement (DTAA) between India and UAE and holding the shipping profits to be not taxable in India by virtue of Article 8 of DTAA between India and UAE.
Ground No. 1 18. This cross objection raised by the assessee relates to challenging the order of Ld. CIT(A) in holding that the place of effective management of the respondent is neither in Mauritius nor in India but in a third country.
23 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 19. Ld. AR appearing on behalf of the assessee submitted that the propositions in support of the assessee's ground that its case falls within Article 8 of the DTAA is as under:- 1. Article 8 of the India-Mauritius treaty states that "Profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the POEM of the enterprise is situated.
Article 3(1)(c) of the Indo-Mauritius treaty defines the terms 'Contracting State' and 'the other Contracting State' to mean India or Mauritius as the context requires. Thus, the shipping profits earned by the assessee can be taxed only in one of the Contracting States i.e. India or Mauritius. Reliance is placed on the AAR decisions in the case of Advance Ruling No. P-9 of 1995 (220 ITR 377) (Page no. 216 @ Page no. 225 of the paperbook (volume II) submitted vide letter dated July 19, 2017) and DUMB Mauritius Investment Company v. CIT (228 ITR 268) (Page no. 249 @ Page no. 262 of the paperbook (volume II) submitted vide letter dated July 19, 2017) in this behalf.
Admittedly, the assessee has no place of management in India whereas the assessee has a registered office in 24 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) Mauritius, board meetings are held in Mauritius, etc. Therefore, between India and Mauritius, the POEM of the assessee is situated in Mauritius for the purposes of Article 8 and the assessee's shipping profits are taxable only in Mauritius and cannot be taxed in the hands of the assessee in India.
The view expressed by Mr. Klaus Vogel to which the AO refers has not, with respect, considered that as per the DTAA shipping profits, and the assessee undisputedly earns shipping profits, can be taxed in one of the Contracting States only (India or Mauritius) and as between the two such places, it is Mauritius in which the assessee has a place of management. His view is also contrary to the view categorically expressed by an Indian judicial authority viz., the AAR in Ruling No. P-9 of 1995 (220 ITR 377) and DUMB Mauritius Investment Company v. CIT (228 ITR 268). Apart from the AAR's view being the better view, if there is a conflict between the view of a private commentator and a judicial Indian Authority the view of the latter must be preferred particularly where the latter was presided over by a retired Chief Justice of the Supreme Court of India as in the AAR rulings referred to above.
25 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 20. On the contrary Ld. DR appearing on behalf of the revenue relied upon the orders passed by Ld. CIT(A) and submitted that the AO on the basis of the documents submitted by the assessee concluded that the effective management of the assessee is neither in Mauritius nor in India but the same is in UAE which are discussed in the assessment order elaborately. Ld. DR further submitted that the issue of effective management has very well dealt with by the AO as well as the Id. CIT(A) and it has been established beyond doubt that the same is UAE. On going through the copy of the minutes of the meeting of the Board of Directors, it is noted by the revenue authorities that the meeting was held on 6.9.2000 and 27.10.2000 at 5, Duke of Edingburg Avenue, Port Louis, Republic of Mauritius. Only two directors of Mauritius were present for the meeting in person and two other directors of UAE viz. Mr. Salim Rais and Saadi Rais attended these meeting by phone. It was further submitted that the business transacted during the same was Appointment of 26 ITA No. 1181/Mum/2012 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) Auditors. However, the address of the Auditor, Mr. K.E.F.T. Chung Chun Lam is shown as same as that of the assessee. Ld. DR further submitted that in the second meeting of Directors, the business transacted was with regard to approval of accounts. It is highly surprising that how the annual accounts of the company can be approved on telephone because the two UAE directors (who are 100% shareholders) have attended this meeting on telephone. Further, it is noted that the minutes of the meeting mentions that "there being no further business to transact, the present minutes were drawn, read and approved forthwith". It was thus submitted that it is proved that the Directors of Mauritius are on the Company's Board only to satisfy the conditions of the Mauritius Government. Ld. DR submitted that the question therefore arises as to whether these two meeting of the Board of Directors can be considered to hold that the effective management is Mauritius. The answer should be in negative.
27 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) Ld. DR further submitted that while deciding the appeal of the assessee, the Ld. CIT(A) has relied on the view of Prof. Klaus Vogel who has stated that if the effective management of an enterprise is not in one of the Contracting States but is situated in third state, then the benefit of Article 8 cannot be extended. It was submitted that Prof Klaus Vogel is an eminent authority on international taxation laws and his views are considered by all the international taxation authorities and even the Hon'ble Supreme Court while deciding the issue of permanent establishment in the case of Formula One World Championship Ltd Vs CIT(IT)-3, Delhi [2017] 80 taxmann.com 347 (SC) has made reference to the commentary of Klaus Vogel (para-32). Thus, the Hon'ble Supreme Court has settled the issue of fixed place of business with regard to PE in favour of Revenue.
28 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 21. We have heard counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A) which is contained in para no. 2 & 3 in its order. The operative portion of the order of Ld. CIT(A) contained in para no. 3, 3.1 & 3.2 of its order and the same is reproduced below:-
3. I have considered the submission of the appellant counsel carefully and the order of the A.0 The first limb of the argument of Mr. Dinesh Kanabar is about the effective management which is based on Article 4 of the DTAA. According to Article 1 the convention shall apply to a person who are resident of one or both of the contracting state The Article 4 defines resident. The Article 4(3) provides a formula where there is a tiebreaker i.c. if the person is resident in both the contracting state his status-of his residence in a particular contracting state is to be decided as per article 4(3) of the DTAA. The article 4(3) does not define the effective management i.e. not vice versa, in the present case relying' on different decisions, Mr.Dinesh Kanabar had tried to prove that the effective management of the appellant is in Mauritius because the appellant is a resident of Maurtius. In my opinion, it is 29 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) not a correct definition nor proper way to come to a conclusion of effective management of the company. In the present case there is no dispute that the appellant is a resident of Mauritius and as per Indian Income tax Act, non-resident in India. Therefore there is no necessity to consider the different ruling of the Advance Authority- Ruling as cited above, The Advance Rulings are not binding to other assessee except the case in which the Acveszc6 Ruling have given their findings. There is a separate article in convention which indicates that there can be effective management other than two contracting state. Article 8(1) and 8(2) read as: "(1) Profits from the operation of ships or aircraft in international traffic stall be taxable only in Contracting State in which the place of effective Management of the enterprise is situated.
(2) If the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship is situated or, if there is no Such home harbour, in the Contracting State of which the operator of the ship is a-resident."
3.1. Thus there is a possibility of effective management other-than -the contracting state. In the earlier paragraph, Mr.Dinesh Kanabar himself had admitted that the appellant has been granted Tax Residency Certificate of Mauritius after satisfying- certain conditions as mentioned in para.
3.2 It is also a known fact that the shareholders are of UAE residence i.e Reis Brothers. The other directors 30 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) are only on the Company's board only to satisfy the conditions of the Mauritius Government. In the board minutes which have been produced before me, it is Found that all the decisions have been left out to the UAE agent arid -are of routine nature. In fact from the assessment order it is found that the main agent M/s Freight Connection (I) Pvt. Ltd. in India was appointed as an agent on 20-6-1995 on a letter head showing its address as Dubai, UAE. A letter dated 12-4-2000 from M/s Bay lines addressed to A.O. also originated from Dubai All these indicate that though the company was registered in Mauritius but the major policy decisions were taken at the UAE. Thus., in my opinion, the place of effective management is the place where the key and commercial- decisions that are necessary for the business or in substance the place of effective management will originally be a place where the most senior person or a group of persons make its decisions, the place where the action to be taken is an entity as a whole or determined.. In view of the above fact, I. too, feel that the effective management of the appellant is neither in Mauritius nor in India. 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 enterprise is not in one of the Contracting States, but is situated in the third state, the benefit of the article & cannot he extended. The same is reproduced as below: "Article 8 furthermore applies only when the enterprises place of effective management is situated in a contracting State. Whenever it is situated in a third 'State: the relationship between the two contracting 31 ITA No. 1181/Mum/2012 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 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).
3.3 Thus the argument of Mr. Dinesh Kanabar that the effective management can be only in between two contracting state is not correct. Accordingly, I hold that the effective management of the appellant is neither in Mauritius nor in India but in a third country. Accordingly, the appellant is not entitled for the benefit of Article 8 of the DTAA.
After having gone through the facts of the present case, arguments addressed by both the parties, judgment cited before us and orders passed by the revenue authorities, we find that the effective management can be only in between two contracting state is not correct and as per the facts narrated above, we are of the considered view that the effective management of the assessee is neither in Mauritius nor in India and we are in agreement with the views of Mr. Klaus Vogel, who is an eminent 32 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) authority of International Taxation, that if the effective management of an enterprise is not in one of the contracting state, but is situated in the third state, the benefit of article-8, cannot be extended. No new facts or contrary judgments have been brought on record before us by the Ld. AR in order to controvert or rebut the findings recorded by the Ld.CIT (A). Moreover, there are no reasons for us to deviate from the findings so recorded by the Ld. CIT (A). Therefore, we are of the considered view that the findings recoded by the Ld. CIT (A) are judicious and are well reasoned. Accordingly, we uphold the same. Resultantly, this ground of cross objection raised by the assessee stands dismissed.
Ground No. 2 . 22. This ground has not been pressed during the course of arguments, hence the same stands dismissed.
33 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) Ground No. 3 (Additional Ground) 23. In view of our decision in ground no. 1, this ground stands dismissed. 24. In the result, the cross objections filed by the assessee stands dismissed.
In the net result, the appeal filed by the revenue as well as Cross Objections filed by the assessee for AY 1998-99 stands dismissed.
Now we take up the following appeals filed by the assessee:- आयकरअपीलसं./ (AY 1999-00) आयकरअपीलसं./ I.T.A. No. 5513/Mum/2006 (AY 2000-01) आयकरअपीलसं./ I.T.A. No. 2454/Mum/2005 (AY 2001-02) आयकरअपीलसं./ I.T.A. No. 5514/Mum/2006 (AY 2002-03) आयकरअपीलसं./ I.T.A. No. 5515/Mum/2006 (AY 2003-04) आयकरअपीलसं./ I.T.A. No. 834/Mum/2010 (AY 2004-05) आयकरअपीलसं./ I.T.A. No. 835/Mum/2010 (AY 2005-06) आयकरअपीलसं./ I.T.A. No. 8857/Mum/2010 (AY 2007-08) आयकरअपीलसं./ I.T.A. No. 385/Mum/2012 (AY 2008-09) आयकरअपीलसं./ I.T.A. No. 2340/Mum/2012 (AY 2009-10) आयकरअपीलसं./ I.T.A. No. 6703/Mum/2014 (AY 2010-11) आयकरअपीलसं./ I.T.A. No. 6704/Mum/2014 (AY 2011-12) आयकरअपीलसं./ (AY 2012-13)
34 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 26. In all the above appeals, assessee filed an application for admitting additional ground of appeal
27. We have gone through the contents of the application and after hearing the counsels of both the parties and while keeping the principles laid down by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC), Jute Corporation of India Vs. CIT 187 ITR 688 (SC), Ahemdabad Electrical Vrs. CIT 199 ITR 351, we allow the application for admitting the additional ground in all the appeals.
28. The main ground in all the appeals raised by the assessee relates to challenging the order of Ld. CIT(A) in holding that the place of effective management of the assessee is neither in Mauritius nor in India but in a third country and consequently the assessee is not entitled to the benefit of Article-8 of the Double Tax Avoidance Agreement between India and Mauritius (DTAA).
35 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 29. Since we have already decided this ground in CO No. 52/Mum/2003 filed by the assessee, therefore our findings contained in the said CO are applicable in the present ground raised by the assessee. Therefore, in view of our findings in the lead case, this ground raised by the assessee in all the appeals stands dismissed.
The other ground in all the appeals raised by the assessee relates to challenging the order of Ld. CIT(A) in holding that assessee maintains a fixed place of business in India, covered under Artilce-5(1) of the DTAA and therefore is liable to be taxed under Article 7 of the DTAA.
Since we have already decided this ground in appeal filed by the revenue in therefore in view of the reasoning contained in our findings in the lead case, this ground raised by the assessee in all the appeals stands allowed.
36 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 32. The other grounds raised by the assessee in all the appeals relates to challenging the order of Ld. CIT(A) in holding that freight Connection (I) Pvt. Ltd. is a ‘dependent agent’ of the assessee in India and computing profits as per section 44B.
33. Since the assessee has not pressed these grounds, therefore these grounds needs no specific adjudication.
34. The additional ground raised
by the assessee in all the appeals is without prejudice to the other ground and to the effect even if it is established that Freight Connection India Pvt. Ltd. is a permanent establishment of the appellant company in India, since FCIPL is remunerated at Arm’s length, no further income can be attributed to such PE of the Appellant Company in India. Since we have already decided this ground by holding that FCIPL is not PE of the assessee in appeal filed by revenue bearing for AY 1998-99,
37. ITA No. 1181/Mum/2012 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) therefore in view of our findings in assessee’s own case are applicable for these appeals, hence in view of our findings as mentioned above, we dismiss the additional ground raised by the assessee in all the appeals.
Apart from other grounds, assessee has also raised a ground with regard to short credit of Advance Tax in for AY 2011-12. As per the facts of the present case, assessee has paid an advance tax of Rs. 1,63,95,875 whereas the AO granted a credit of only Rs. 1,62,26,630 resulting in a short credit to the extent of Rs. 69,245/-. After having considered the same, we direct the AO to verify the advance tax paid by the assessee and credit be granted accordingly. Therefore this ground raised
by the assessee in AY 2011-12 stands allowed.
35. Another grounds raised by the assessee relates to levy of interest u/s 234B and 234D.
38 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues) 36. Since we have already decided that the income chargeable by the assessee is not liable to tax by holding that FCIPL is an independent agent and thus assessee does not have any PE in India. Accordingly, the business profits of the assessee would not be chargeable in Indian Tax as it does not carry on business in India through a permanent establishment as per Article 7 and 5 of the DTAA. Hence, the question of levy of interest does not arise and this ground being consequential in nature, therefore needs no specific adjudication.
In the net result, all the appeals filed by the assessee are partly allowed. Order pronounced in the open court on 20th Feb 2018. (B. R. Baskaran) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 20.02.2018 Sr.PS. Dhananjay 39 & CO No. 32/Mum/2010 I.T.A. No. 5512, 5513, 5514 & 5515/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 834, 835 & 8857/Mum/2010, I.T.A. No. 385 & 2340/Mum/2012 I.T.A. No. 6703 & 6704/Mum/2014 and ITA 6716/Mum/2016 Bay Lines (Mauritiues)