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2015 (3) TMI 148 - AT - Income TaxBenefit of Article 22 of Indo-Swiss treaty.- taxability of the profits from the operation of ships in international traffic earned by the assessee in India - Only Article 22 is applicable for shipping business and no income of the assessee is taxable in India under Article 22(2) of the tax Treaty as held by CIT(A) - Held that:- In the present case, such endeavor was made by the competent authorities of Switzerland and India and the doubt arising as to the interpretation of Article 22 was resolved by mutual agreement whereby both the competent authorities agreed that international shipping profits of the assessee company are covered by Article 22. Having perused the relevant clauses of the agreement between assessee company and M/s MSC Agency India Pvt. Ltd. we find ourselves in agreement with the view of the AO and the learned CIT(Appeals) that M/s MSC Agency India Pvt. Ltd. was legally and economically dependent agent of the assessee company and since the assessee company was managing and controlling some of its business operations in India through the said dependant agent, it constituted the permanent establishment of the assessee company in India in terms of the Indo-Swiss treaty. Keeping in view the relevant portion of the OECD commentary on Model Tax Convention on Income and on Capital (condensed version) published in July, 2010 we are of the view that the right or property in respect of which the shipping income is earned by the assessee i.e. ships cannot be said to be effectively connected with the permanent establishment in India. Such income, therefore, will not fall under Article 22(2) but will fall under Article 22(1) and accordingly shall be taxable only in the State of residence of the assessee company i.e. Switzerland and not in India. In that view of the matter, we uphold the impugned order of the learned CIT(Appeals) holding that the international shipping profits of the assessee company are covered by Article 22 of the Indo-Swiss treaty and although the assessee company had a PE in India in the year under consideration, the ships i.e. the property in respect of which shipping income was paid to the assessee company being not effectively connected with that PE, the case of the assessee will be out of paragraph No. 2 of Article 22 and will fall in paragraph I of the said article. Consequently, the same will be taxable in the country of residence of the assessee company i.e. Switzerland and not in India. - Decided in favour of assessee As regards the alternative contention of assessee that no portion of the international shipping profits earned by the assessee in any case can be taxed in India as the commission paid to M/s MSC Agency India Pvt. Ltd. which constituted its PE is admittedly at an arm's length, it is observed that this alternative claim of the assessee has now become academic in view of our decision accepting the main contention of the assessee that the international shipping profits are chargeable to tax only in Switzerland as per Article 22(1) and not in India. - Decided against assessee.
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