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The Commissioner of Income Tax, Circle II, Madurai Versus M/s. M.R.M. Plantations Pvt. Ltd.

2016 (9) TMI 6 - MADRAS HIGH COURT

Taxation on plantation income from Malaysia - DTAA between India and Malaysia - P.E. in India - Held that:- Tribunal have failed to note that the assessee had deliberately kept away the income from Malaysia. The fact that the plantation is in Malaysia, would be a permanent establishment, in terms of DTAA, through which, business is carried on, by the assessee and therefore, the income from such plantation, would be taxable only in Malaysia and not in India, has been substantiated by the assessee .....

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2006-07 respectively. 2. Facts deduced from the material on record are that the assessee filed its return of income for the assessment year 2005-06 on 29.10.2005 declaring a total income ₹ 9,15,250/-. For the assessment year 2006-07, the assessee filed its return of income 29.10.2005, declaring a total income of ₹ 13,77,120/-. Both the returns were processed under Section 143(1) of the Income-Tax Act. Alleging that the income chargeable to tax has escaped assessment, notices have bee .....

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axation Avoidance Agreement (In short, DTAA ), the term permanent establishment shall be deemed to include Farm or Plantation. 4. Referring to Article V(3)(e) of the existing DTAA between India and Malaysia, the appellant has contended that the plantation income from Malaysia is taxable in India and accordingly, for the assessment year 2005-06, a sum of ₹ 56,60,224/- has been included in the total income of the assessee and for the assessment year 2006-07, a sum of ₹ 55,92,897/- has .....

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als in favour of the assessee. Being aggrieved by the same, the department preferred an appeal before the Income Tax Appellate Tribunal in ITA No.2946 and 2947/Mds/2014. Following the decision in CIT v. P.V.Kulandayan Chettiar reported in 267 ITR 654, the Income Tax Appellate Tribunal, by its order, dated 9.10.2015, dismissed the appeals filed by the revenue. Against which, the instant Tax Case Appeals have been filed, on the following substantial questions of law, (1) Whether on the facts and i .....

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tances of the case and in law, the Income Tax Appellate Tribunal is correct in law in holding that since Article V(2)(g) of the DTAA, the term permanent establishment shall include a farm of plantation and hence income from plantation from Malaysia cannot be subjected to tax in India, when Article V(2)(g) refers to a mine, oil well, quarry or other place of extraction of natural resources? 6. Reiterating the substantial questions of law, Mr.M.Swaminathan, learned Standing Counsel for Income-Tax .....

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, when the company affairs are controlled in India. He placed reliance on Article V(3)(e) of the existing DTAA between India and Malaysia. Heard the learned counsel for the appellant and perused the materials available on record. 7. Before adverting to the merits of the case, let us extract the Articles V and VI of the DTAA between India and Malaysia, Article V Permanent Establishment: 1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of busi .....

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orest produce. 3. The term "permanent establishment" shall not be deemed to include: a. the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise; b. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; c. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another ente .....

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the other Contracting state if; a. it carries on supervisory activities in that other Contracting State for more than six months in connection with a construction, installation or assembly project which is being undertaken in that other Contracting State; b. it carries on a business which consists of providing the services of public entertainers (such as stage, motion picture, radio or television artistes and musicians) or athletes in that other Contracting State unless the enterprise is directl .....

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oned Contracting State, an authority to conclude contracts on behalf of the enterprise unless his activities are limited to the purchase of goods or merchandise for the enterprise; or b. he maintains in the first-mentioned Contracting State a stock of goods or merchandise belonging to the enterprise from which he regularly fills orders on behalf of the enterprise. 3. An enterprise of one of the Contracting States shall not be deemed to have a permanent establishment in the other Contracting Stat .....

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ment or otherwise shall not of itself constitute either company a permanent establishment of the other. ARTICLE VI Income from Immovable Property: 1. Income from immovable property may be taxed in the Contracting State in which such property is situated. 2. The term "immovable property" shall be defined in accordance with the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock .....

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e shall apply to income derived from the direct use, letting, or use in any other form of immovable property. 4. The provisions of paragraph 1 and 3 of this Article shall also apply to the income from immovable property of an enterprise. 8. In Commissioner of Income-Tax v. S.R.M. Firm reported in 1994 (208) ITR 400 (Mad.), this Court held as follows: Sections 22 to 27 of the Income-tax Act, 1961, broadly deals with the taxability in this regard under the Act. But, in view of paragraph 1 of artic .....

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onflicting claims have been made by the parties before us regarding the capital gains which is derived on account of the sale, exchange or transfer of the capital asset itself. Sections 45 to 55A of the Income-tax Act, 1961, deals with this aspect. Normally, the situs of the capital asset alone should provide the safe guide to decide as to which of the contracting States should have the power to tax such income. The ratio underlying paragraph 1 of article VI would also lead only to this inevitab .....

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lude within its scope the transfer, sale or exchange of the property. As held by the apex court in the decision in Sevantilal Maneklal Sheth v. CIT [1968] 68 ITR 503, the profits and gains which arise from the sale of the asset would arise or spring from the asset, although the operation by which the profits or gains is made to arise out of the asset is the operation of the sale and consequently, there is no warrant for the submission that the capital gain is not income arising from the use of t .....

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t in India in regard to carrying on the business of rubber plantations in Malaysia out of which income is derived and that finding of fact has been recorded by all the authorities and affirmed by the High Court. We, therefore, do not propose to reexamine the question whether the finding is correct or not. Proceeding on that basis, we hold that business income out of rubber plantations cannot be taxed in India because of closer economic relations between the assessee and Malaysia in which the pro .....

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-Tax Act and such provisions of DTAA is binding on the department and following the decisions, extracted supra, the Commissioner of Income-Tax (Appeals), by a common order, dated 25.09.2014, allowed the appeals filed by the assessee. 11. Being aggrieved by the common order, dated 25.09.2014, the Commissioner of Income-Tax has filed two appeals, before the Income Tax Appellate Tribunal in I.T.A.No.2946 & 2947/Mds/2014, contending inter alia that the Commissioner (Appeals) ought to have noted .....

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