TMI Blog1990 (11) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... d. According to the agreement, the entire affairs of the assessee-companies were to be man-aged by the said Hellenic Lines Ltd., as their general manager and agents. Since there was an agreement for relief from double taxation between India and Greece, the assessees claimed the benefit thereof. The Income-tax Officer was, however, of the opinion that Messrs. Hellenic Lines Ltd., had only been appointed as general managers and agents of the assessee-companies to control and manage the affairs, operate the vessels, collect the moneys and make disbursements, etc. For that purpose, Messrs. Hellenic Lines Ltd. was to receive only a fixed percentage (I. to 1.25) on the total freights collected. These arrangements did not mean that the de facto control and management of the assessees' business had been actually given to Messrs. Hellenic Lines Ltd. Therefore, the assessees could not be treated as resident in Greece within the meaning of article 11(1)(f) of the Agreement for Avoidance of Double Taxation between India and Greece. On appeal, the Commissioner of Income-tax (Appeals) held that the assessees has no business apart from their shipping business, the preamble and article I of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Messrs 'Hellenic Lines Ltd. wholly. Moreover, there was no allegation or proof that the assessee-companies were subject to Greek taxes except for the small amount of commission earned in Messrs. Hellenic Lines Ltd. Since the assessees were incorporated within the Republic of Panama, they might be liable to taxes imposed by the said Republic but there was nothing to show that they would be liable to Greek taxes on the incomes earned by them in India. Over this matter, the assessees wanted to lead further evidence. But the Tribunal was not inclined to allow them to do so because, apart from this, they could not be said to be residents of Greece within the meaning of the Agreement for Avoidance of Double Taxation between India and Greece and, therefore, there was no point in going through this matter. The short question which calls for determination in this case is whether, having regard to the terms of the agreement dated May 31, 1976, by and between the assessee-companies and Messrs. Hellenic Lines Ltd., it can be said that the business of the assessee is wholly managed and controlled in Greece. If the answer to this question is in the affirmative, then the assessees will be entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side in India, they would naturally have the legal right to control the affairs of the firm which carries on its operations outside India. The presence of this theoretical de jure right to control and manage the affairs of the firm which inevitably vests in all the partners, would not by itself show that the requisite control and management is situated in India. It must be shown by evidence that control and management of the affairs of the firm is exercised, may be to a small extent, in India before it can be held that the control and management is not situated wholly without the taxable territories . . . " In CIT v. Nandlal Gandalal [1960] 40 ITR 1, the Supreme Court held again that the expression "control and management" in section 4A(b) of the Indian Income-tax Act, 1922, means de facto control and management and not merely the right or power to control and manage. In the light of the principles laid down in the aforesaid decisions, it appears to be by now well-settled that the question as to where the control and management lies is to be decided in the light of actual or factual exercise or control inasmuch as the courts consistently took the view that the mere presence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sub-agents ; to negotiate all legal matters ; to act as accountants and to maintain accounts ; to enter into all negotiations and contracts on behalf of the assessee-company, etc. (e) Clause 9 of the agreement further provides that Hellenic, the Greece company shall have power to do all such things on behalf of Universal, the assessee-company, as are not expressly forbidden by the provisions of any relevant statute or by the memorandum or articles of association of Universal." The very preamble of the agreement clearly stipulates that the assessee-company wishes to arrange for the management and control wholly of the entirety of its business by Hellenic Lines Ltd., and, with that end in view, it wishes to appoint Hellenic, the Greek company, as its general manager and agent. The Tribunal clearly held that, for all practical purposes, such management and control was actually transferred to that company "(Hellenic Lines Ltd.). In other words, admittedly, the de facto control and management of the assessee-company was actually vested in Hellenic Lines Ltd., the Greek company, and such control and management over the business of the assessee-company was actually exercised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test to be applied, therefore, is as to whether the business is wholly managed and controlled in Greece. The Tribunal accepts the factual position that for all practical purposes, the management and control of the business was actually transferred to Hellenic Lines Ltd. But, the Tribunal takes the view that company's affairs are controlled and managed at the place where the directors' meetings are held and consequently the company will be resident in the country if the meetings of the directors are held in that country. This view of the Tribunal is patently wrong. According to section 6(3) of the Income-tax Act, 1961, a company is said to be resident in India if, inter alia, during that year, the control and management of its affairs is situated wholly in India. The test, therefore, for determining the residence of company under the Income-tax Act, 1961, is materially different from the test of residence of a company according to article 11(1)(f) of the agreement between India and Greece for the avoidance of double taxation. For the purpose of the agreement, it is not the requirement that the control and management of the affairs of the company must be in Greece. The requirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
