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Forbes Container Line Pte. Ltd. Versus The Deputy Director of Income Tax (International Taxation)

Taxability of income in India - PE in India - business connection in India - Chargeability of income under section 44B - India-Singapore DTAA - Held that:- As decided in assessee company’s own case for assessment year 2009-10 we hold that income of the assessee company was liable to be taxed as business income and that in absence of Permanent Establishment in India , no income was taxable in India , that the provisions of Section 44B of the Act were wrongly invoked by the A. O. Reversing the ord .....

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arned Commissioner of Income Tax (Appeals)- 10, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2011-12, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 22-04-2014 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 144(C) r. w. s. 143(3) of the Income Tax Act, 1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribun .....

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der section 44B read with section 5(2) and section 9 of the Act. 2. The learned CIT(A) ought to have appreciated the fact that the appellant was not engaged in the operation of ships during the relevant year under review and therefore, the provisions of section 44B are not applicable to the appellant's case. Business Connection 3. The learned CIT(A) erred in confirming the action of the DDIT (Int. tax. ) in holding that the appellant had business connection in India under the provisions of s .....

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DDIT (lnt. tax. ) in holding that the key and commercial decisions of the appellant were taken in India and not in Singapore and therefore the appellant had a place of management in India constituting a PE under Article 5(2) of the India-Singapore DT AA. 6. The learned CIT(A) erred in holding that the complete control is situated in India as the appellant is a 100% subsidiary of Forbes & Company Limited, being an Indian Company. 7. The learned CIT(A) ought to have appreciated the fact that .....

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th basis, no further income could be taxable in India. Computation of income 10. The learned CIT(A) erred in confirming the action of the DDIT (Int. tax. ) for including service tax while computing income under section 44B of the Act. 3. The brief facts of the case are that the assessee company is a nonresident company incorporated in Singapore. It is engaged in the activities of operating ships in international traffic across Asia and Middle East. The assessee company is a Non Vessel Operating .....

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mp;CL. VFSSL demerged its shipping agency division into its holding company F&CL with effect from 1st April, 2008. The assessee company submitted that in terms of the approved scheme during the financial year under consideration VFSSL had carried on business activities in relation to its demerged division for the account of resulting company viz. F&CL. In short, the assessee company is the principal as well as subsidiary company of F&CL and appointed its holding/parent company i. e. .....

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ved that the assessee company being a NVOCC is not eligible to claim exemption under Article 8 of DTAA. The A. O. observed that the assessee company has NOVCC status which is incorporated in Singapore. The assessee company does not own or charter or take on lease any vessel or ship and it only provides carrier on container services to its clients. According to the A. O. , the assessee company being a NVOCC is not eligible to claim exemption benefit under Article 8 of India -Singapore DTAA and ac .....

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ssment has to be made in normal course in accordance with the provisions of section 44B read with section 5(2) and Section 9 of the Act. It is also observed that according to the domestic law the taxation of business profits of non-resident in India is kicked off with a business connection in India , as per the provisions of Section 5(2) read with Section 9(1)(i) of the Act and it would lead to deeming the income to accrue or arise for foreign enterprises in India. The A. O. relied upon the seve .....

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imate connection because here principle FCLPL is subsidiary company of agent 'holding' company F&CL. And habitually secured the business for principle. iii) Holding company habitually secured the business from India for principle subsidiary company. And here Income directly attributed. iv) Principle and agent have Common control mechanism. Promoters of F&CL created the FCLPL as 100 percent subsidiary company in Singapore. One of Director of the FCLPL Mr. Amit Mittal also Director .....

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place of business in India, the assessee company falls within the definition of Permanent Establishment under paragraph 1 of Article 5 and in this case assessee company has fixed and permanent place in India from where it secured the business from India. It was further held that the effective management of the assessee company is in India and not in Singapore. The assessee company is incorporated in Singapore and is 100% subsidiary of Indian company F&CL. The assessee company has entered int .....

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its demerged division for the account of resulting company ie. Forbes & Company Ltd. In other words, the assessee company is 100% subsidiary of agent holding company Forbes & Company Ltd. The facts of this case were similar to the facts of assessment year 2009-10 and the case for the assessment year 2009-10 was dealt in detail was the observation of the AO. The extract of the assessment order is reproduced as under:- i) In the relevant year company has two directors in India namely; Amit .....

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sheet entry dated 20. 11. 2011). ii) As per available papers on record, it is seems that the all the important decision taken in India not in Singapore. Copy of agency agreement executed in Mumbai. Letter of authority for appearing before Income tax authority also executed in Mumbai dated 30. 05. 2010 with signature of Paddamkumar Unnikrishanan one of the director of company. iii) Perusal of the minutes of meeting of the Company Board meeting indicates that the decisions are predominantly routi .....

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licy is taken. This clearly shows that faced of board meeting in Singapore is created with the full purpose to fulfill the requirement of Singapore law, to keep the certificate of incorporation alive and to avoid an impression that the real control of the company lies in Singapore. iv) The facade of one and two board meetings in a year in Singapore do not support the assessee's case in any way. In the case of Unit Construction company V Bullock [1961] 42 ITR 340 (HL) IA Kenyan subsidiary was .....

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India. It is a normal business practice that the Governing law in any agreement would be with relation to the place of control and management of the principle. vii) In this instant case, there is no material evidence filed by assessee which shows that key and commercial decision that for the business were taken in India nor in Singapore . There is no good reason for deviation from normal practice except in a situation where the control and management is not in the country of incorporation. This .....

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ercised. ix) In view of the above, it is established beyond doubt that the real control of the assessee company lies in India as per meaning of clause 2(1) of Article 5 of the DTAA. 9. 4 Thus, it is well established that the real control of the assessee company lies in India as per meaning of clause 2{1) of Article 5 of DTAA. It was observed that F&CL was working as agent(parent/holding company) for the assessee company. The assessee company does not have any other agent in India for securin .....

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income is taxable under Article 7 of Indo-Singapore DTAA. Thus it was held by the AO that the business of the assessee company is covered by the provisions of section 44B of the Act which provides presumptive taxation and deems 7. 5% of the gross receipts from shipping business to be income of the assessee company, vide assessment order dated 22-4-2014 passed u/s 144C(3) read with section 143(3) of the Act. 4. Aggrieved by the assessment order dated 22-4-2014 passed by the AO u/s 144C(3) read wi .....

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appellate orders dated 14. 11. 2014. 5. Aggrieved by the appellate orders dated 14-11-2014 passed by the ld. CIT(A), the assessee company filed second appeal with the Tribunal. 6. The ld. Counsel for the assessee company, at the outset, submitted that the instant appeal is squarely covered in favour of the assessee company in assessee company s own case by the decision of the Tribunal for the assessment year 2009-10 in ITA No. 1607/Mum/2014 vide orders dated 11th March, 2016 whereby the Tribuna .....

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submitted that the facts of the case in the instant assessment year are identical to the facts in the assessment year 2009-10 and the case is squarely covered by the decision of the Tribunal in ITA no 1607/Mum/2014 vide orders dated 11-03-2016 for assessment year 2009-10. 7. We have considered the rival contentions and also perused the material placed on record. As submitted by the ld. Counsel for the assessee company, we find that the matter is squarely covered in favour of the assessee compan .....

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filed the present appeal. Assessee-company is engaged in business of operating ships in international traffic across Asia and Middle East. It is incorporated in Singapore. It is a wholly owned subsidiary of Forbes and Co. Ltd. (FCL)and FCL is incorporated in India. It started its operation in 2006. The assessee company filed its return of income on 30. 9. 09, declaring total income at Rs. Nil. The Assessing Officer (AO)completed the assessment, u/s. 144(3)r. w. s 143(3) of the Act on 9. 2. 12, d .....

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agent in India by FCL. That VFSSL was 100% subsidiary of FCL, that VFSSL had demerged its shipping agency division into FCL w. e. f. 01. 04. 2008. The AO referred to the provisions of Article-8 of DTAA entered into between India and Singapore and observed that being a Non-Vessel Operating Common Carrier(NVOCC) it was not eligible for claiming exemption under Article 8 of DTAA. He further held that income of the assessee was arising out of operation of ships in International traffic, that income .....

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ed the business from India for the assessee, that the principal and agent had common control mechanism, that the promoters of holding company created the assessee as a 100% subsidiary in Singapore, that one of the directors of the company was also director of the India parent company, that he was permanently residing in India and was looking after the policy matters of the assessee, that the control mechanism of both the entities was in India , that the assessee had business connection in India. .....

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n India. After considering the submission of the assessee, he held that the holding company was working as an agent for the assessee, that it did not have any other agent in India except the parent company, that the parent company was concluding the contracts on behalf of the assessee with various govt. agencies/RBI, that the parent company was carrying out various functions like deciding the brokers dealing with the labour for loading and unloading, maintaining and operating bank account, that .....

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y the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him, it made elaborate submissions with regard to charge - ability of income u/s. 44B of the Act, business connections, PE and control and, management as well as Agency-PE. After considering the submission of the assessee and the assessment order, the FAA held that the assessee-company was controlled by the holding company, that the AO had rightly held that assessee had business connection .....

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applied the provisions of section 44B of the Act, that it did not qualify for the exemption of Article 8 of the DTAA. Finally, he upheld the order of the AO. 4. Before us, the Authorised Representative(AR)argued that the assessee was not holding any bank account in India, that it had no fixed place of business in India, that the assessee was a subsidiary of the Indian company, that as per the provisions of DTAA there was no PE in India. He referred to paragraph 10 of the Article 5 of the DTAA. W .....

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chargeability of income, he stated that he had not claimed exemption under Article 8, that AO himself had held that assessee was in the business of non vessel operating activities, that assessee was not in operation of ships, that AO had wrongly applied section 44B. He also placed reliance on page No. 96-126 of the PB and referred to the case of Oceaneering International GmbH(ITA 1023/Mum/2014-AY10-11-dt. 6. 11. 2015) and Mitchell Drilling International(P)Ltd. (62Taxmann. com24). The Departmenta .....

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the holding company is located in India, that it had entered into an agency agreement with VFSSL w. e. f. 1. 1. 2007, that the AO and the FAA had held that the assessee was having business connection in India and that the parent company was taking decision on behalf of the assessee, that they have further held that the assessee had service PE/Agency-PE in India and that the income of assessee was taxable in India u/s. 44B of the Act. During the assessment proceedings relevant details about the .....

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ee was maintaining bank account in India. However, they could not bring on record any evidence to support their claim. On the other hand the assessee had proved that its books of accounts were maintained in Singaprore. Not only this, it was proved that it was maintaining a bank account in Singapore and all banking transactions were made from that account only. In our opinion, both the authorities were not able to establish that effective management and control of affairs of the company was in In .....

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m the operation carried out in Middle East and other countries. It was handling its business from Singapore. We have gone through pg-65 of the paper book which gives details of income of parent company. A perusal of the said page makes it clear that the claim, made by the assessee about earning substantial income from the entities other than the holding company, was factually correct. We find that assessee had not claimed exemption of Article 8 of the DTAA as it was not in the shipping business. .....

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