TMI Blog2018 (4) TMI 1421X X X X Extracts X X X X X X X X Extracts X X X X ..... g business income, it cannot be brought to tax in India. Accordingly we set aside the orders passed by Ld CIT(A) on this issue in all the years under consideration. Penalty levied u/s 271(1)(c) - CIT(A) deleted the penalty holding that the issue relating to taxability of income is debatable in nature. Since we have held that the assessee is not liable for taxation in India for its business profits, the penalty orders passed by the AO in all the five years would not survive. Accordingly, we quash the impugned penalty orders passed by the tax authorities in all the five years. - I.T.A. No. 1096/Mum/2010, I.T.A. No. 5492/Mum/2014, I.T.A. No. 5493/Mum/2014, I.T.A. No. 5494/Mum/2014,I.T.A. No. 5495/Mum/2014, I.T.A. No. 5122/Mum/2003, I.T.A. No. 5516/Mum/2006, I.T.A. No. 5517/Mum/2006 And I.T.A. No. 2456/Mum/2005 - - - Dated:- 7-3-2018 - Shri B.R. Baskaran (AM) And Shri Pawan Singh (JM) I.T.A. No. 3770/Mum/2006, I.T.A. No. 1507/Mum/2008, I.T.A. No. 4414/Mum/2009, I.T.A. No. 81/Mum/2010, I.T.A. No. 82/Mum/2010, I.T.A. No. 3793/Mum/2010, I.T.A. No. 384/Mum/2012, I.T.A. No. 6236/Mum/2014, I.T.A. No. 6237/Mum/2014, I.T.A. No. 6238/Mum/2014 And I.T.A. No. 5115/Mum/2016 For The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reight Connection (India) Pvt. Ltd. would constitute agency PE of the assessee. (c) Whether place of business of Freight Connection (India) Pvt. Ltd. constitute fixed place PE in the hands of the assessee. (d) Whether the Assessing Officer was justified in computing income of the assessee u/s. 44B of the Act. 5. At the time of hearing, learned AR submitted that identical issues were considered in another case named M/s. Bay Lines (Mauritius) by the coordinate bench in ITA No.1181/Mum/2002 and others and the Tribunal, vide its order dated 20-02-2018, has decided all the above said issues. Accordingly he submitted that the all the issues cited above are covered by the order passed in the case of M/s Bay Lines (Mauritius) (supra). The Learned DR also agreed with the submission so made by the Ld A.R. 6. We heard the parties and perused the record. 7. The first common issue relates to applicability of Article-8 of Indo- Mauritius DTAA to the assessee. As observed earlier, the assessee claimed that its place of effective management is located in Mauritius and hence as per Article 8, no income is taxable in India. However, the AO gave a finding that the Place of effective m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aresident. 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 satisfyingcertain 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 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 lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 stands dismissed. 8. The facts being identical in the instant case also, consistent with the view taken by the Tribunal in the above cited case, we decide this issue against the assessee. 9. The Next common issue is whether there exists any Agency PE or Fixed place PE in India. Identical issues were considered in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has raised a ground relating to chargeability of interest u/s. 234B of the Act. Since, in the earlier paragraphs we have held that business income of the assessee is not liable to tax in India, the question of charging interest u/s. 234B does not arise and in any case it is consequential in nature. 15. The assessee has also raised ground relating to chargeability of interest u/s. 234A of the Act in AY 1999-2000 (ITA No.5516/M/2006) and in AY 2000- 01 (ITA No.5517/M/06). Charging of interest u/s. 234A is consequential in nature and hence these grounds do not require any adjudication. 16. The assessee has also raised ground No. 5 in ITA No. 4414/Mum/2009 for A.Y. 2004-05 relating to action of the Assessing Officer in denying benefit of Article-8 to the assessee by holding that it is not engaged in the business of operation of ship. The assessee did not press this ground and hence this ground is dismissed as not pressed. 17. In all the appeals, the assessee has also raised grounds relating to attribution of profit. It was contended that no profit is required to be attributed if agent is remunerated at arm s length. This is an alternative ground raised by the assessee. S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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