TMI Blog2021 (10) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... s been dismissed [ 2014 (11) TMI 1173 - BOMBAY HIGH COURT] The facts, being identical, following the decision of the coordinate bench rendered in the case of Bay lines (Mauritius)(supra), we hold that the assessee does not have Fixed place PE in India. Appeal by the revenue stands dismissed. - I.T.A. No. 7347/Mum/2019 - - - Dated:- 6-10-2021 - Shri Shamim Yahya (AM) And Shri Amarjit Singh (JM) For the Assessee : Shri Harsh Kothari For the Department : Shri Vijay Kumar Subramaniyam ORDER PER SHAMIM YAHYA (AM) :- This appeal by the Revenue is directed against the order of learned CIT(A)-55 dated 17.09.2019 and pertains to Assessment Year 2013-14. 2. The grounds of appeal read as under : 1. Whether in the facts and circumstances of the case and in law, Ld CIT(A) erred in holding that Freight Connections India Pvt Ltd (FCIPL) does not constitute a dependent agent PE of the assessee in India? 2. Whether in the facts and circumstances of the case and in law, Ld CIT(A) erred in not taking into account that FCIPL acts exclusively or almost exclusively as an agent on behalf of non-resident principals which are part of the same group of enterprises and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that the assessee is a tax resident of Mauritius in terms of Article 4 of the Double Taxation Avoidance Agreement ('DTAA') entered into between India and Mauritius and hence it would be entitled to the benefit of DTAA, Further, as per Article 8 of the DTAA since the place of effective management of the assessee is situated in Mauritius, the profit from the operation of ship would be liable to tax in Mauritius. In this back ground, the assessee in the return of income filed for Assessment Year 2013-14 has claimed the benefit of DTAA as per Section 90 of the Act and declared Nil income in the return of income filed. 4. Thereafter, AO dealt with them place of effective management of the assessee by referring to Article 8(1) and 8(2) of the DTAA between India and Muritius. He referred to the residents of the Directors of the company, two of them were resident of UAE. The AO also referred to the meetings of the directors etc., and rejected assessee s plea to have been entitled for benefit of the Article 8 of the DTAA by holding as under:- The assessee's contention is not acceptable for the following reasons: i) Factual details as discussed above clearly sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /CSL has not been accepted by the department and it is being contested further. Thus, all these facts indicate that though the company was registered in Mauritius but the major policy decisions were taken in UAE. Thus, the place of effective management is the place where the key and commercial decisions that are necessary for the business are taken. In substance, the place of effective management will originally be a place where the most senior person or a group of persons sit and make its decisions, the place where the action to be taken for the entity as a whole is determined. In view of the above facts, it is held that the effective management of the assessee is neither in Mauritius nor in India. Accordingly, the assessee is not entitled for the benefit of Article 8 of the DTAA. 5. Thereafter, AO dealt with the operations of ships in International Traffic. In this connection, he referred to Article 8(5) of the DTAA between India and Mauritius regarding the term operation of ships or aircrafts . He was of the opinion that benefit of this Article is only available to persons who either own the ships or are operating the ships through lease or charter, in the business of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace through its agent in India, he held that assessee is having a PE in India in the form of its Agent i.e FCIPL. 7. The AO concluded as under:- Computation of Income: The assessee has a PE in India. The assessee is dnied the benefit of Article 8 of the DTAA. Thus, the business income of the PE in India will have to be determined as per the domestic laws of India. The business is covered by the provisions of Sec. 44B of the I.T.Act, 1961, which provides for presumptive taxation and deems 7.5% of the gross receipts from shipping business to be the income of the assessee. It needs to be mentioned here that ITAT, Mumbai Bench T, has dismissed the appeal of an assessee, where the facts of the case bore a striking similarity to the present case in their order dated 26.02.2004, ITA No.5083/M/03, in the case of Integrated Container Feeder Service, for A.Y. 1998-1999. All the grounds as mentioned here. i.e. Effective place of Management Agency PE, Article 8 of the DTAA, applicability of sec.44B, etc., have been addressed therein and have been decided in the favour of the revenue. Even the Id CIT (A) has consistently upheld the earlier orders of the AO passed on the similar l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been left out to the UAE' agent and 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 letter head showing its address as Dubai, UAE.A letter dated 12-4-2000 from M/s. Baylines addressed to A.O. also originated from Dubai. AH these indicate that though the company was registered in Mauritius but the major policy decisions were taken at the UAE. Thus, in my opinion, the place of effective management is the place where the key and commercial decisions that are necessary for the business or in substance the place of effective management will originally be a place where the most senior person or a group of persons make its decisions, the place where the action to be taken is an entity as a whole or determined. In view of the above fact, I too, feel that the effective management of the appellant is neither in Mauritius nor in India. Mr. Klaus Vogel in his book of International Taxation, who is an eminent authority of International taxation has stated that if the effective management of enterprise is not in one of the Contracting States, but is situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant cannot be given the benefit available under Article 8 of the India-Mauritius DTAA. Hence, this ground of appeal is hereby dismissed. Ground No.3(a): Is with regard to Assessing Officer holding that M/s.Freight Connection India Pvt. Ltd. hereinafter referred as FCIPL is a Dependent Agent constituting a PE within the meaning of Article 8 of DTAA. I find that this ground of appeal has been decided against the appellant in earlier assessment year by the CIT(A) and also by me in A.Y.2014-15. However, I find that Hon'ble Mumbai ITAT in appellant's own case have decided the issue in favour of the appellant vide their order dated 07.03.2018. The Hon'ble ITAT in para 10 of its order stated the following; The facts in the present case are identical in nature and further the very same agent M/s.Freight Connection India Pvt. ltd. as acted as the agent of the assessee herein also. The co-ordinate bench in the case of Bay lines ('Mauritius)(supra) has held that M/s. Freight Connection India P. Ltd. is an agent of independent status and hence it cannot be considered as constituting Agency PE of that assessee. The decision so rendered shall also apply to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Delmas France has been dismissed by Hon'ble Bombay High Court in its decision reported in 232 Taxman 40). The facts, being identical, following the decision of the co-ordinate bench rendered in the case of Bay lines (Mauritius)(supra), we hold that the assessee does not have Fixed place PE in India. Since we have held that the assessee does not have PE in India and its income being business income, ft cannot be brought to tax in India. Accordingly, we set aside the orders passed by id. CIT(A) on this issue in all the years under consideration. As facts of the case are similar this year also, respectfully following the Hon'ble ITAT's decision, this ground of appeal is hereby allowed. Ground No.5 : is with regard to determination of profit u/s.44B of the Act. f find that this issue relates to applicability of section 44B of the Act. While the appellant contends that the decision of Hon'ble Supreme Court in Union of India v. Sanyasi Rao (219 ITR 330) has been disregarded by the AO, my predecessor-CIT(A) has held (at para no.4.2 on page nos. 4 5 of his order for A.Y.2008-09) that the income of the PE has to be adopted in accordance with the taxati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced below:- I have considered the submission of the appellant counsel based on the commentaries by different writers and the fact that the agent having income from other four principals indicate that the agent is independent. The AO has only seen the agreement with the appellant and he has not tried to examine whether FCIPL is having income only from the appellant or from any other persons (principals). From the Profit and loss Account and Balance sheet filed before me, it is clear that the agent FCIPL is having commission from 4 different principals. Therefore, it is not an exclusive agent of the appellant and, accordingly, it does not come under the purview of the definition of the dependent agent as defined in Article 5(5) of DTAA between India and Mauritius. Accordingly, appellant is not having any P in India and therefore, he is not taxable as per Article 7 of the DTAA between India and Mauritius. Accordingly, this ground of appeal is allowed. After having gone through the facts of the present case, arguments addressed by the parties, judgment cited before us, material placed on record, orders passed by revenue authorities, written submissions of the parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Securities Ltd. v. JCIT (115 lTD 345) at Pg 15 has extracted the definition of 'exclusively' and has held that the term 'exclusively or almost exclusively' means 100% or something nearer to 100%. e. In the present case, it is clear that the activities of Freight Connection are not devoted exclusively or almost exclusively onbehalf of the assessee as it also does work on behalf of other principals and earns a substantial part of its income from them as clearly found by the CIT(A) in his appellate orders as mentioned above. f. During the course of the hearing, the learned DR placed reliance on Clause 11 of the Agency Agreement between the Assessee and Freight Connection (Page 21 of the paperbook for AY 2001-02) and submitted that Freight Connection cannot act as an agent for any other person apart from the assessee, as the same would be in contravention of the Agency Agreement. Towards the same, it is submitted that Clause 11 only restricts Freight Connection from acting as an agent for any other principal carrying on business 'in competition' with that of the assessee. As stated above, it is an admitted fact that Freight Connection has acted as an age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mauritius Treaty, dismissed the revenue's appeal holding that ITAT's order did not give rise to any substantial question of law. c) The Hon ble Mumbai ITAT in the case of International Global Networks BV v. ADIT (84 taxmann.com 188) has also held the agent to be an independent agent where it acts in its ordinary course of business and the activities of the agent are not wholly or exclusively devoted to the assessee. We have also considered the judgments relied by Ld. AR and the same are discussed below:- a. The Hon ble Supreme Court in the case of ADIT v. E-Funds IT Solution Inc. (Civil Appeal No. 6082 of 2015) observed that the assessee must have a fixed place of business in India which is at its disposal through which it carries on its business. SC held that there was no specific finding in the assessment or the appellate orders that ARC Line (Mauritius) ITA No. 2332/Mum/2018 13 any fixed place of business was put at the disposal of theassessee. SC held that the assessee did not have a Fixed Place PE in India and observed that the lower authorities had adopted an erroneous approach in holding that the assessee had a PE in India for the reason that the assessee di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent status and hence it cannot be considered as constituting Agency PE of that assessee. The decision so rendered shall also apply to the instant case and accordingly, we hold that M/s Freight Connection India P. Ltd. shall not constitute Agency PE of the assessee. The Tribunal in assessee s own case for AYs 1998-99 to 2012-13 (supra) further held : 11. The co-ordinate bench has placed reliance on the decision rendered by Hon ble Supreme Court in the case of ADIT Vs. E-Funds IT Solution Inc. (Civil Appeal No.6082 of 2015) and also the decision rendered by Mumbai bench of Tribunal in the case of Delmas France Vs. ADIT (49 SOT 719) to hold that where a foreign enterprise carries on business in a country through an agent, the provisions of Article 5(1) relating to Fixed place PE does not come into play. The co-ordinate bench has also noted that the appeal filed by challenging the decision so rendered by the Tribunal in the case of Delmas France has been dismissed by Hon ble Bombay High Court in its decision reported in 232 Taxman 40). The facts, being identical, following the decision of the coordinate bench rendered in the case of Bay lines (Mauritius)(supra), we hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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