ARC LINE (MAURITIUS), MUMBAI V. DCIT (INTL. TAX) RANGE 1(1)(2), MUMBAI

ITA 2332/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8669 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2014-2015
• Appeal Filed On: 16-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NISHANT SAMAIYA
• Assessee Lawyers: DHARSH KOTHARI MR KUNAL SHAH; ARPIT JAIN ARS
• Keywords: Business income; Double taxation relief; Permanent establishment; Question of law; Wholly owned subsidiary; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2332/MUM/2018 ASSESSMENT YEAR: 2014 - 15 ARC LINE (MAURITIUS) C/O 3C R UNWAL&OMKAR ESQUARE SION C HUNABHATTI, JUNCTION, SION TROMBAY ROAD, SION (E), MUMBAI - 400022. VS. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) - 1(1)(2), MUMBAI. PAN NO. AADCA0878J APPELLANT RESPONDENT ASSESSEE BY : MR. DHARSH KOTHARI, MR. KUNAL SHAH & MR. ARPIT JAIN, ARS REVENUE BY : MR. NISHANTSAMAIYA, DR DATE OF HEARING : 13/06/2019 DATE OF PRONOUNCEMENT : 09/09/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2014 - 15. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX - 55, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 144C(3) OF THE INCOME TAX ACT 1961, (THE ACT). ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 2 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1. ON THE FACT AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS FACTUALLY AND LEGALLY ERRED IN HOLDING THAT THE PLACE OF EFFECTIVE MANAGEMENT OF THE APPELLANT COMPANY IS NEITHER IN MAURITIUS NOR IN INDIA BUT IN A THIRD COUNTRY AND CONSEQUENTLY THE APPELLANT COMPANY IS NOT ENTITLED TO THE BENEFIT OF ARTICLE 8 OF THE DOUBLE TAX AVOIDANCE AGREEMENT ('DTAA') BETWEEN INDIA AND MAURITIUS, 2. WITHOUT PREJUDICE TO GROUND 1, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS FACTUALLY AND LEGALLY ERRED IN HOLDING THAT FREIGHT CONNECTION INDIA PRIVATE LIMITED IS A 'DEPENDENT AGENT OF THE APPELLANT COMPANY, THEREBY CONSTITUTING A PERMANENT ESTABLISHMENT OF THE APPELLANT COMPANY UNDER ARTICLE 5 OF THE DTAA BETWEEN INDIA AND MAURITIUS. 3. WITHOUT PREJUDICE TO GROUND 1, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS FACTUALLY AND LEGALLY ERRED IN HOLDING THAT THE APPELLANT COMPANY MAINTAINS A FIXED PLACE OF BUSINESS IN INDIA, AND HENCE CONSTITUTES A PERMANENT ESTABLISHMENT OF THE APPELLANT COMPANY UNDER ARTICLE 5 OF THE DTAA BETWEEN INDIA AND MAURITIUS. 4. WITHOUT PREJUDICE TO ALL THE AFORESAID GROUNDS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS LEGALLY ERRED IN COMPUTING PROFITS OF THE APPELLANT COMPANY UNDER SECTION 44B OF THE ACT, THEREBY DISREGARDING THE PROFITS ACTUALLY EARNED BY THE APPELLANT COMPAN Y FROM ITS INDIAN OPERATIONS, IGNORING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. SANYASI RAO 219 ITR 330(SC). 3. BRIEFLY STATED, THE FACTS ARE THAT THE APPELLANT - COMPANY IS A NON - RESIDENT COMPANY INCORPORATED IN MAURITIUS. IT IS ENGAGED IN THE BUSINESS OF SHIPPING. IT DECLARED INCOME FROM SHIPPING ACTIVITIES, BUT CLAIMED IT AS EXEMPT UNDER PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BY TAKING SUPPORT OF ARTICLE - 8 OF DTAA ENTERED ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 3 BETWEEN INDIA AND MAURITIUS. TH E ASSESSING OFFICER (AO), HOWEVER, HELD THAT ARTICLE - 8 OF INDO - MAURITIUS DTAA WILL APPLY ONLY IF PLACE OF EFFECTIVE MANAGEMENT IS SITUATED EITHER IN INDIA OR MAURITIUS. THE AO GAVE A FINDING THAT THE PLACE OF EFFECTIVE MANAGEMENT IS LOCATED IN GULF COUNTRI ES AND HENCE ARTICLE - 8 WILL NOT APPLY. IN THIS REGARD, HE TOOK SUPPORT OF THE VIEW EXPRESSED BY MR. KLAUS VOGEL ON INTERNATIONAL TAXATION. THE AO FURTHER NOTICED THAT THE ASSESSEE HAD APPOINTED AN INDIAN COMPANY NAMED M/S FREIGHT CONNECTION (INDIA) PVT. LTD. AS ITS AGENT. HE TOOK THE ABOVE INDIAN COMPANY AS AGENCY PE OF THE ASSESSEE. THE AO ALSO HELD THAT THE BUSINESS PREMISES OF M/S FREIGHT CONNECTION (INDIA) P. LTD. ALSO CONSTITUTE FIXED PLACE PE OF THE ASSESSEE. ACCORDINGLY, HE HELD THAT THE ASSESSEE I S HAVING PE IN INDIA WITHIN THE MEANING OF ARTICLE - 5 OF DTAA AND THEREFORE, BROUGHT INCOME OF THE ASSESSEE TO TAX UNDER ARTICLE - 7 OF THE INDO - MAURITIUS DTAA UNDER THE HEAD BUSINESS. IN APPEAL, THE LD. CIT(A) CONFIRMED THE SAME AND HENCE THE ASSESSEE HA S FILED THE PRESENT APPEAL. 4. BEFORE US, THE LD. COUNSEL S FOR THE ASSESSEE SUBMIT THAT IDENTICAL ISSUES WERE CONSIDERED BY ITAT L BENCH, MUMBAI IN ASSESSEES OWN CASE IN ITA NO. 5122 /MUM/20 03 FOR AY 1998 - 99 AND OTHER RELATED ITAS FOR AYS 199 9 - 2000 TO 2012 - 13. ACCORDINGLY, IT IS SUBMITTED BY THEM THAT ALL THE ISSUES CITED ABOVE ARE COVERED BY THE ABOVE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE. ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 4 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTS THE ORDER PASSED BY THE LD. CIT( A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE 1 ST 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 MANA GEMENT IS LOCATED IN MAURITIUS AND HENCE AS PER ARTICLE - 8, NO INCOME IS TAXABLE IN INDIA. THE AO GAVE A FINDING THAT THE PLACE OF EFFECTIVE MANAGEMENT IS LOCATED IN GULF COUNTRIES. ACCORDINGLY, HE HELD THAT ARTICLE - 8 WILL NOT APPLY, SINCE THE PLACE OF EFF ECTIVE MANAGEMENT IS NOT LOCATED IN INDIA OR IN MAURITIUS. THE TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 1998 - 99 TO 2012 - 13 (SUPRA) OBSERVED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE CO - ORDINATE BENCH VIDE ORDER DATED 20.02.2018 IN THE C ASE OF M/S BAYLINES (MAURITIUS) IN ITA NO. 1181/MUM/2002 AND OTHERS. THE OPERATIVE PORTION OF THE ABOVE ORDER AS EXTRACTED BY THE TRIBUNAL READS AS UNDER : BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT( A) WHICH IS CONTAINED IN PARA NO. 2 & 3 IN ITS ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) CONTAINED IN PARA NO. 3, 3.1 & 3.2 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 3. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT COUNSEL CAREFUL LY AND THE ORDER OF THE A.0 THE FIRST LIMB OF THE ARGUMENT OF MR.DINESH KANABAR IS ABOUT THE EFFECTIVE MANAGEMENT WHICH IS BASED ON ARTICLE 4 OF THE DTAA. ACCORDING TO ARTICLE 1 THECONVENTION SHALL APPLY TO A PERSON WHO ARE RESIDENT OF ONE OR BOTHOF THE CO NTRACTING STATE . THE ARTICLE 4 DEFINES RESIDENT. THE ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 5 ARTICLE4(3) PROVIDES A FORMULA WHERE THERE IS A TIEBREAKER I.E. IF THEPERSON IS RESIDENT IN BOTH THE CONTRACTING STATE HIS STATUS - OF HISRESIDENCE IN A PARTICULAR CONTRACTING STATE IS TO BE DECIDED AS PER ARTICLE 4(3) OF THE DTAA. THE ARTICLE 4(3) DOES NOT DEFINE THEEFFECTIVE MANAGEMENT I.E. NOT VICE VERSA, IN THE PRESENT CASE RELYING ON DIFFERENT DECISIONS, MR. DINESH KANABAR HAD TRIED TOPROVE THAT THE EFFECTIVE MANAGEMENT OF THE APPELLANT IS INMAURITIUS BE CAUSE THE APPELLANT IS A RESIDENT OF MAURITIUS. IN MYOPINION, IT IS NOT A CORRECT DEFINITION NOR PROPER WAY TO COME TO ACONCLUSION OF EFFECTIVE MANAGEMENT OF THE COMPANY. IN THE PRESENTCASE THERE IS NO DISPUTE THAT THE APPELLANT IS A RESIDENT OFMAURITIUS A ND AS PER INDIAN INCOME TAX ACT, NON - RESIDENT IN INDIA.THEREFORE THERE IS NO NECESSITY TO CONSIDER THE DIFFERENT RULING OFTHE ADVANCE AUTHORITY - RULING AS CITED ABOVE, THE ADVANCERULINGS ARE NOT BINDING TO OTHER ASSESSEE EXCEPT THE CASE IN WHICHTHE AAR RULI NG HAVE GIVEN THEIR FINDINGS. THERE IS A SEPARATEARTICLE IN CONVENTION WHICH INDICATES THAT THERE CAN BE EFFECTIVEMANAGEMENT OTHER THAN TWO CONTRACTING STATE. ARTICLE 8(1) AND 8(2)READ AS: '(1) PROFITS FROM THE OPERATION OF SHIPS OR AIRCRAFT ININTERNATIONA L TRAFFIC STALL BE TAXABLE ONLY IN CONTRACTING STATEIN WHICH THE PLACE OF EFFECTIVE MANAGEMENT OF THE ENTERPRISE ISSITUATED. (2) IF THE PLACE OF EFFECTIVE MANAGEMENT OF A SHIPPINGENTERPRISE IS ABOARD A SHIP, THEN IT SHALL BE DEEMED TO BESITUATED IN THE CON TRACTING STATE IN WHICH THE HOME HARBOUR OFTHE SHIP IS S ITUATED OR, IF THERE IS NO S UCH HOME HARBOUR, IN THECONTRACTING STATE OF WHICH THE OPERATOR OF THE SHIP IS ARESIDENT.' 3.1. THUS THERE IS A POSSIBILITY OF EFFECTIVE MANAGEMENT OTHERTHAN THE CONTRACTIN G STATE. IN THE EARLIER PARAGRAPH, MR. DINESHKANABAR HIMSELF HAD ADMITTED THAT THE APPELLANT HAS BEENGRANTED TAX RESIDENCY CERTIFICATE OF MAURITIUS AFTER SATISFYINGCERTAINCONDITIONS AS MENTIONED IN PARA. ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 6 3.2 IT IS ALSO A KNOWN FACT THAT THE SHAREHOLDERS ARE OF UAERESIDENCE I.E. REIS BROTHERS. THE OTHER DIRECTORS ARE ONLY ON THECOMPANY'S BOARD ONLY TO SATISFY THE CONDITIONS OF THE MAURITIUSGOVERNMENT. IN THE BOARD MINUTES WHICH HAVE BEEN PRODUCEDBEFORE ME, IT IS FOUND THAT ALL THE DECISIONS HAVE BEEN LEFT OUT TOTHE UAE AGENT AND ARE OF ROUTINE NATURE. IN FACT FROM THEASSESSMENT ORDER IT IS FOUND THAT THE MAIN AGENT M/S FREIGHTCONNECTION (I) PVT. LTD. IN INDIA WAS APPOINTED AS AN AGENT ON 20 - 6 - 1995 ON A LETTE R HEAD SHOWING ITS ADDRESS AS DUBAI, UAE. ALETTER DATED 12 - 4 - 2000 FROM M/S BAYLINES ADDRESSED TO A.O. ALSOORIGINATED FROM DUBAI. ALL THESE INDICATE THAT THOUGH THE COMPANYWAS REGISTERED IN MAURITIUS BUT THE MAJOR POLICY DECISIONS WERETAKEN AT THE UAE. THUS ., IN MY OPINION, THE PLACE OF EFFECTIVEMANAGEMENT IS THE PLACE WHERE THE KEY AND COMMERCIALDECISIONSTHAT ARE NECESSARY FOR THE BUSINESS OR IN SUBSTANCE THEPLACE OF EFFECTIVE MANAGEMENT WILL ORIGINALLY BE A PLACE WHERE THEMOST SENIOR PERSON OR A GROUP OF P ERSONS MAKE ITS DECISIONS, THEPLACE WHERE THE ACTION TO BE TAKEN IS AN ENTITY AS A WHOLE ORDETERMINED. IN VIEW OF THE ABOVE FACT, I TOO, FEEL THAT THE EFFECTIVEMANAGEMENT OF THE APPELLANT IS NEITHER IN MAURITIUS NOR IN INDIA.MR. KLAUS VOGEL IN HIS BOOK - OF INTERNATIONAL TAXATION, WHO IS ANEMINENT AUTHORITY OF INTERNATIONAL TAXATION HAS STATED THAT IF THEEFFECTIVE MANAGEMENT OF ENTERPRISE IS NOT IN ONE OF THE CONTRACTINGSTATES, BUT IS SITUATED IN THE THIRD STATE, THE BENEFIT OF THE ARTICLE &CANNOT HE EXTENDED . THE SAME IS REPRODUCED AS BELOW: - 'ARTICLE 8 FURTHERMORE APPLIES ONLY WHEN THE ENTERPRISES PLACE OFEFFECTIVE MANAGEMENT IS SITUATED IN A CONTRACTING STATE. WHENEVERIT IS SITUATED IN A THIRD 'STATE: THE RELATIONSHIP BETWEEN THE TWOCONTRACTING STATES IS GOVERNED BY THE PERMANENT ESTABLISHMENTPRINCIPLE LAID DOWN IN ARTICLE 7. IN A CASE IN WHICH THE OTC ARTICLECORRESPONDING TO ARTICLE 8 MC ESTABLISHED THAT AN EXEMPTION OFINCOME WAS DEPENDENT ON THE AIRPLANE BEING REGISTERED IN THEOTHER CONTRACTIN G STATE, BUT WHERE IT WAS REGISTERED IN THE ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 7 USA,THE I.R.S. LIKEWISE APPLIED THE TREATY PROVISION/CORRESPONDING TOARTICLE 7 INSTEAD (LTR 9513008: DTC USA/IRELAND). 3.3 THUS THE ARGUMENT OF MR. DINESH KANABAR THAT THE EFFECTIVEMANAGEMENT CAN BE ONLY IN BETW EEN TWO CONTRACTING STATE IS NOTCORRECT. ACCORDINGLY, I HOLD THAT THE EFFECTIVE MANAGEMENT OF THEAPPELLANT IS NEITHER IN MAURITIUS NOR IN INDIA BUT IN A THIRDCOUNTRY. ACCORDINGLY, THE APPELLANT IS NOT ENTITLED FOR THE BENEFIT OFARTICLE 8 OF THE DTAA. AFTE R HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE,ARGUMENTS ADDRESSED BY BOTH THE PARTIES, JUDGMENT CITED BEFORE US ANDORDERS PASSED BY THE REVENUE AUTHORITIES, WE FIND THAT THE EFFECTIVEMANAGEMENT CAN BE ONLY IN BETWEEN TWO CONTRACTING STATE IS NOT CORR ECTAND AS PER THE FACTS NARRATED ABOVE, WE ARE OF THE CONSIDERED VIEW THATTHE EFFECTIVE MANAGEMENT OF THE ASSESSEE IS NEITHER IN MAURITIUS NOR ININDIA AND WE ARE IN AGREEMENT WITH THE VIEWS OF MR. KLAUS VOGEL, WHOIS AN EMINENT AUTHORITY OF INTERNATIONAL TA XATION, THAT IF THE EFFECTIVEMANAGEMENT OF AN ENTERPRISE IS NOT IN ONE OF THE CONTRACTING STATE, BUT ISSITUATED IN THE THIRD STATE, THE BENEFIT OF ARTICLE - 8, CANNOT BE EXTENDED. NO NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORDBEFORE US BY THE LD. AR IN ORDER TO CONTROVERT OR REBUT THE FINDINGSRECORDED BY THE LD.CIT (A). MOREOVER, THERE ARE NO REASONS FOR US TODEVIATE FROM THE FINDINGS SO RECORDED BY THE LD. CIT (A). THEREFORE, WEARE OF THE CONSIDERED VIEW THAT THE FINDINGS RECODED BY THE LD. C IT (A)ARE JUDICIOUS AND ARE WELL REASONED. ACCORDINGLY, WE UPHOLD THE SAME.RESULTANTLY, THIS GROUND OF CROSS OBJECTION RAISED BY THE ASSESSEESTANDS DISMISSED. 5.1 FACTS BEING IDENTICAL, CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN THE ABOVE CITED CAS E, WE DECIDE THE ABOVE ISSUE AGAINST THE ASSESSEE. THUS THE 1 ST GROUND OF APPEAL IS DISMISSED. ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 8 6. THE NEXT ISSUE IS WHETHER THERE EXISTS ANY AGENCY PE OR FIXED PLACE PE IN INDIA. IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE REFERRED HEREINBEFORE, BY FOLLOWING THE OPERATIVE PORTION OF THE ORDER OF THE CO - ORDINATE BENCH IN BAY LINES (MAURITIUS) (SUPRA) WHICH IS PRODUCED BELOW : 14. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A) WHICH IS CONTAINED IN PARA NO. 4 & 5 IN ITS OR DER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) CONTAINED IN PARA NO. 5 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT COUNSEL BASED ON THE COMMENTARIES BY DIFFERENT WRITERS AND THE FACT THAT THE A GENT 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 (PR INCIPALS). 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 UN DER 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 MA URITIUS. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 9 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 SUBMISS IONS OF THE PARTIES AND AFTER GOING THROUGH THE DTAA EXECUTED BETWEEN INDIA AND MAURITIUS AND AS PER THE TERMS /ARTICLE CONTAINED IN DTAA, WE FIND THE FOLLOWING PROPOSITION: - 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 CON CLUDE 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 ENTERPR ISE 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 DEVOTE D 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 WOU LD 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 O N BEHALF OF THE ASSESSEE IN VIEW OF THE FOLLOWING: ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 10 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 THING); WITHOUT ANY OTHER AS AN ASSOCIATE, PARTNER, SHARER, ETC.; ALONE; OCCAS. WITHOUT AID OR ASSISTANCE' (II) 'APART FROM OR UNACCOMPANIED BY OTHERS; SOLITARILY (III) ONLY, MERELY, EXCLUSIVELY; ALSO (CONTEXTUALLY), ENTIRELY, A LTOGETHER. THE DICTIONARY MEANINGS WERE HANDED OVER SEPARATELY IN THE COURSE OF THE HEARING. C. THE DICTIONARY MEANINGS OF THE TERM 'EXCLUSIVELY' CLEARLY SUGGESTTHAT THE AGENT SHOULD EARN 100% OR SOMETHING NEAR TO 100% FROM THIS PRINCIPAL SO AS TO BE DUBB ED AS A DEPENDANT AGENT WHICH IS NOT THE FACT IN THE PRESENT CASE. D. MUMBAI ITAT IN THE CASE OF SHARDUL 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 ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 11 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 A GENT FOROTHER PRINCIPALS AS WELL. THEREFORE, THE ARGUMENT OF THE LEARNED DR IS WITHOUT ANY BASIS. WE FIND THAT ON A PLAIN READING 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 ASSESSEES 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 CA SE 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 SOL E 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 ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 12 DECISION, MUMBAI ITAT IN B4U ALSO RELIED O N 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 ROYCE SINGAPORE (P) LTD. V. ADIT (347 ITR 192) (PG 12 OF B4U DECISION) WHERE THE HC HELD THAT AN AGENCY PE WOULD NOT EXIST IF THE ASSESSEE PRINCIPAL COULD SHOW THAT IT WAS NOT THE SOLE CLIENT OF THE AGENT AND THAT THE ACTIVITIES OF THE AGENT WERE NOT DEVOTED WHOLLY OR ALMOST WHOLLY O N BEH ALF OF THE ASSES SEE. B) THE HONBLE BOMBAY HC IN DIT(IT) V. B4U INTERNATIONAL HOLDINGS LTD. (374 ITR 453) WHILE DEALING WITH THE REVENUE'S APPEAL FROM THE AFORESAID ORDER OF THE ITAT ON THE ASPECT AS TO WHETHER THE ITAT WAS CORRECT IN HOLDING THAT B4U CANN OT BE TREATED AS A DEPENDANT AGENT OF THE ASSESSEE, IN VIEW OF ART. 5(5) OF THE INDIA MAURITIUS TREATY, DISMISSED THE REVENUE'S APPEAL HOLDING THAT ITAT'S ORDER DID NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. C) THE HONBLE MUMBAI ITAT IN THE CASE O F 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 H AVE ALSO CONSIDERED THE JUDGMENTS RELIED BY LD. AR AND THE SAME ARE DISCUSSED BELOW: - A. THE HONBLE 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 BUSINES S 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 ASS ESSEE 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 DID BUSINESS WITH ITS 100% SUBSIDIARY. B. THE HONBLE MU MBAI ITAT IN THE CASE OF DELMAS, FRANCE V. ADIT(IT) (49 SOT 719) HELD THAT WHERE A FOREIGN 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 F RANCE (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 HONBLE BOMBAY HIGH COURT HAS AFFIRMED THE TRIBUNAL'S DECISION IN B4U INT ERNATIONAL 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 SU BSEQUENT 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 ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 14 THAT THE FINDINGS RECODED BY THE LD. CIT (A) AREJUDICIOUS AND ARE WELL REASONED. ACCORDINGLY, WE UPHOLD THE SAME.RESULTANTLY, THIS GROUND RAISED BY THE REVENUE STANDS DISMISSED. 6.1 IN PARAGRAPH 34 OF THE ORDER, THE CO - ORDINATE BENCH HAS HELD THAT THE ASSESSEE IS NOT HAVING FIXED PLACE PE ALSO AND IN THIS REGARD, THE BENCH HAS REFERRED TO THE DISCUSSIONS EXTRACTED ABOVE. 6.2 THE FACTS IN THE PRESENT CASE ARE IDENTICAL IN NATURE AND FURTHER THE VERY SAME AGENT M/ S FREIGHT CONNECTION INDIA PVT. LTD. HAS 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 PVT. 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 INSTANT CASE AND ACCORDINGLY, WE HOLD THAT M/S FREIGHT CONNECTION INDIA P. LTD. SHALL NOT CONSTITUTE AGENCY PE OF THE ASSESSEE. 7. THE TRIBUNAL IN ASSESSEES 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 HONBLE SUPREME COURT IN THE CASE OF ADIT VS. E - FUNDS IT SOLUTION INC. (CIVIL APPEAL NO.6082 O F 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 FIXE D 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 HONBLE BOMBAY HIGH COURT IN ITS DECISION ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 15 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 ASSESSEE DOES NOT HAVE FIXED PLACE PE IN INDIA. 12. SINCE WE HAVE HELD THAT THE ASSESSEE DOES NOT HAVE PE IN INDIA AND ITS INCOME BEING 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. 13. THE NEXT COMMON ISSUE RELATES TO COMPUTATION OF PROFIT AS PER PROVISIONS OF SECTION 44B OF THE ACT. THE ASSESSEE DID NOT PRESS THIS GROUND IN ALL THE YEARS AND ACCORDINGLY THE GROUNDS RELATING TO THIS ISSUE IS DISMISSED AS NOT PRESSED IN ALL THE YEARS. 8. FACTS BEING IDENTICAL, WE FOLLOW THE ORDER OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE FOR AYS 1998 - 99 TO 2012 - 13 AND ALLOW THE 2 ND AND 3 RD GROUNDS OF APPEAL. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/09/2019. SD/ - SD/ - (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 09/09/2019 RAHUL SHARMA, SR. P.S. ARC LINE (MAURITIUS) ITA NO. 2332/MUM/2018 16 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI