TMI Blog2018 (2) TMI 1524X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. - Decided against assessee. - Cross Objection No. 32/Mum/2010, I.T.A. No. 5512/Mum/2006, I.T.A. No. 5513/Mum/2006, I.T.A. No. 2454/Mum/2005, I.T.A. No. 5514/Mum/2006, I.T.A. No. 5515/Mum/2006, I.T.A. No. 834/Mum/2010 - - - Dated:- 20-2-2018 - SHRI B. R. BASKARAN, AM AND SHRI SANDEEP GOSAIN, JM I.T.A. No. 835/Mum/2010, I.T.A. No. 8857/Mum/2010, I.T.A. No. 385/Mum/2012, I.T.A. No. 2340/Mum/2012, I.T.A. No. 6703/Mum/2014, I.T.A. No. 6704/Mum/2014 And I.T.A. No. 6716/Mum/2016 For The Appellant : Sh. M. V. Rajguru, DR For The Respondent : Sh. S. E. Dastur / Harsh Kothari /Jigar Saiya ORDER 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 by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Now, we take up ITA No. 1181/Mum/2002 (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. 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 ₹ 56,18,410/- on 28.12.98 and has claimed 100% DIT relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. 13. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion:- 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 independent status. If so it would not constitute the assessee' s permanent establishment. iii) Freight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring 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. 2. 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. 3. Admittedly, the assessee has no place of management in India whereas the assessee has a registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 are only on the Company's board only to satisfy the conditions of the Mauritius Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. 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. 31. Since we have already decided this ground in appeal filed by the revenue in ITA No. 1181/Mum/2002, 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. 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 Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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