ADIT (IT) - 3(1), MUMBAI V. M/s. HOYER ODFJELL BV, MUMBAI

ITA 2727/MUM/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1198 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 15-10-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 03-05-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Opportunity of being heard; Deemed to accrue or arise in india; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, L BENCH, MUMBAI. BEFORE S/SHRI S.V.MEHROTRA, AM & V. DURGA RAO,JM I.T.A NO. 2727/ MUM/2006 ASSESSMENT YEAR: 2002-03 THE ADIT (IT)-3(1), V. HOYER ODFJELL BV, SCINDIA HOUSE, R.NO.136, 1 ST FLOOR, C/O. A.F.FERGUSON & SO., CAS, N.M.ROAD, MUMBAI-38. MAKER TOWERS-E, CUFFE PARAD E, MUMBAI-05. PA NO.AAACH 9241 F C.O.295/M/2006 (ARISING OUT OF ITA NO.2727/M/2006) HOYER ODFJELL BV, V THE ADIT (IT)3(1), MUMBAI. MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AARSI PRASAD CROSS OBJECTOR BY : SHRI P.J.PARIDWALLA O R D E R PER S.V.MEHROTRA, AM THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 14.2.2006 OF LD CIT (A)-XXXIII, MUMBAI FOR THE ASSESSMENT YEAR 2002-03. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE, A NON RESI DENT COMPANY, INCORPORATED IN NETHERLANDS FILED ITS RETURN OF INCOME DECLARING NI L INCOME ON 12.12.2002 CLAIMING THE FREIGHT INCOME OF RS.1,69,08,335/-, AS NOT TAXABLE IN VIEW OF THE DTAA WITH NETHERLANDS. THE AO REQUIRED THE ASSESSEE TO JUSTIFY ITS CLAIM. THE ASSESSEES AGENT, FORBES GOKAK LTD (PATVOLK DIVISION O) VIDE THEIR LETTER DATED 25 .2.2005 POINTED OUT THAT THE PRINCIPAL, ITA NO.2727/M/06 C.O.NO.295/M/06 2 THE ASSESSEE, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE OPERATION OF SHIPS AND IN THEIR COURSE OF BUSINESS, THEY UNDERTOOK TO SHIP CARGO BELONGING TO INDIAN EXPORTER TO THE FOREIGN DESTINATION OF THE EXPORTER . IT WAS FURTHER POINTED OUT THAT THE PRINCIPAL, IN THE COURSE OF OPERATION OF THE SHIPS PROVIDED CONTAINERS TO THE INDIAN EXPORTERS AND THE FREIGHT CHARGED TO THE EXPORTER W AS INCLUSIVE OF THE CONTAINER CHARGES. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THEY HAD BEEN GRANTED 100% DIT RELIEF FOR THE RELEVANT ASSESSMENT YEAR AND IN CASE THE CL AIM WAS REJECTED, THE PROVISIONS OF ARTICLE 7 OF DTAA WOULD BE APPLICABLE TO THE PROFIT S EARNED FROM SHIPPING ACTIVITIES AS PER WHICH PROFITS WILL BE TAXABLE ONLY IF BUSINESS WAS CARRIED ON THROUGH A PERMANENT ESTABLISHMENT (PE) AND IN ABSENCE OF PE, NO INCOME COULD BE ALLOCATED AS BUSINESS INCOME. THE AO VIDE ORDER SHEET NOTING DATED 11.3. 2005 INFORMED THE ASSESSEE THAT THE PROFIT DERIVED FROM THE USE, MAINTENANCE OR REN TAL OF CONTAINERS SHOULD BE INCIDENTAL TO OPERATION OF SHIPS TO QUALIFY FOR EXEMPTION FROM TAXATION, WHEREAS, THE ASSESSEE DID NOT FULFILL THIS CONDITION AND, THEREFORE, NOT ELIG IBLE FOR EXEMPTION. THE AO HAS POINTED OUT THAT IN THE PROCEEDINGS DATED 11.3.2005, THE AS SESSEES REPRESENTATIVE CONFIRMED THAT THE ASSESSEE WAS NOT OWNING SHIPS NOR THEY CHA RTERED THE SHIPS. ON THE OTHER HAND, THEY WERE ENGAGED ONLY IN THE ACTIVITIES OF H IRING OF CONTAINERS. IN VIEW OF THESE FACTS, THE AO HELD THAT SINCE THE ASSESSEE WAS ONLY ENGAGED IN THE BUSINESS OF HIRING OF CONTAINERS, THE PROFITS DERIVED FROM THE USE, MAINT ENANCE, OR RENTAL OF CONTAINERS IN CONNECTION WITH TRANSPORTATION OF GOODS OR MERCHAND ISE IN INTERNATIONAL TRAFFIC COULD NOT BE SAID TO BE INCIDENTAL TO THE PROFITS DERIVED FRO M OPERATIONS OF SHIPS AND, THEREFORE, NOT ELIGIBLE FOR THE BENEFITS OF THE TREATY UNDER A RTICLE 8A. HE, THEREFORE, COMPUTED THE DEEMED INCOME AT 7.5% OF GROSS RECEIPTS WHICH WORKE D OUT TO RS.12,68,125/- AND DETERMINED THE TAX PAYABLE @ 48% ON THE SAME. 3. BEFORE LD CIT (A), THE ASSESSEE REITERATED ITS S UBMISSIONS REGARDING APPLICABILITY OF ARTICLE 8A AND FURTHER SUBMITTED THAT EVEN OTHER WISE SINCE IT HAD NO PE IN INDIA WITHIN THE MEANING OF ARTICLE 5 OF THE AADT, NO INCOME COU LD BE ALLOCATED UNDER ART.7. THEREFORE, ITS PROFITS COULD NOT BE BROUGHT TO TAX BY VIRTUE OF PROVISIONS OF ARTICLE 7. AS REGARDS ASSESSEES CLAIM OF THERE BEING NO PE IN IN DIA, THE ASSESSEE FURTHER POINTED OUT THAT ITS ACTIVITIES WERE CARRIED OUT THROUGH PATVOL K DIVISION OF FORBES GOKAK LTD (FORBES), WHO WAS ACTING AS AGENT IN INDIA FOR A NU MBER OF PRINCIPALS. IT WAS, THEREFORE, ITA NO.2727/M/06 C.O.NO.295/M/06 3 SUBMITTED THAT FORBES WERE AGENTS OF AN INDEPENDENT STATUS AND WERE ACTING IN THE ORDINARY COURSE OF THEIR SHIPPING AGENCY BUSINESS. THEIR ACTIVITIES COULD NOT BE SAID TO BE WHOLLY DEVOTED FOR THE ASSESSEE AND, THEREFORE, IN VIEW OF ARTICLE 5(6), IT COULD NOT BE SAID THAT THE ASSESSEE HAD PERMANENT ESTABLISHMENT IN INDIA. 4. LD CIT (A) HELD THAT SINCE TREATY EXISTED BETW EEN INDIA AND NETHERLANDS AND THE ASSESSEE BEING THE RESIDENT OF NETHERLANDS WAS ENTITLED TO TREATY BENEFITS UNDER THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION (AADT) B ETWEEN INDIA & NETHERLANDS. HOWEVER, SINCE THE ASSESSEE WAS NEITHER THE OWNER N OR THE LESSEE/CHATTERERS OF THE SHIPS, THEREFORE, THE BENEFIT OF ARTICLE 8A OF AADT COULD NOT BE EXTENDED TO THE ASSESSEE AS THE HIRING OF CONTAINERS COULD NOT BE HELD AS IN CIDENTAL TO THE OPERATION OF SHIPS. HOWEVER, SHE NOTED THAT INDIAN AGENT HAD EARNED APP ROXIMATELY 1% OF THE ENTIRE COMMISSION FROM THE ASSESSEE COMPANY. SHE, THEREFOR E, HELD THAT THE AGENT THROUGH WHICH THE ASSESSEE WAS CARRYING ON ITS BUSINESS WA S AGENT OF INDEPENDENT NATURE AND, THEREFORE, IN VIEW OF ARTICLE 5(6), IT COULD NOT BE HELD THAT THE ASSESSEE HAD PERMANENT ESTABLISHMENT IN INDIA. SHE, ACCORDINGLY, HELD T HAT NO INCOME WAS ATTRIBUTABLE UNDER ARTICLE 7 OF THE INDIAN NETHERLANDS TREATY. BEING AGGRIEVED WITH THE ORDER OF LD CIT (A), THE DEPARTMENT HAS FILED APPEAL AGAINST THE FINDING S OF LD CIT (A) REGARDING NO PE BEING THERE OF ASSESSEE IN INDIA AND ASSESSEE HAS FILED C ROSS OBJECTION AGAINST THE FINDINGS OF LD CIT (A) REGARDING NON-APPLICABILITY OF ARTICLE 8 A. 5. LD D.R. SUBMITTED THAT IN THE PRESENT APPEAL, TH ERE ARE MAINLY TWO ISSUES. FIRSTLY, WHETHER THE ASSESSEE WAS ENTITLED TO THE B ENEFITS UNDER ARTICLE 8A OF THE DTAA BETWEEN INDIA AND NETHERLANDS AND IF NOT SO, WHETHE R THE ASSESSE HAD ANY PE IN INDIA SO AS TO DETERMINE THE ATTRIBUTABLE PROFITS TO THAT PE. HE SUBMITTED THAT AS FAR AS THE ISSUE REGARDING APPLICABILITY OF ARTICLE 8A IS CONC ERNED, SINCE IT IS NOT DISPUTED THAT THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF OPERATI ON OF SHIPS AND WAS ENGAGED ONLY IN THE BUSINESS OF PROVIDING CONTAINERS TO THE EXPO RTERS FROM INDIA AND, THEREFORE, THE BENEFITS OF ARTICLE 8A COULD NOT BE EXTENDED TO THE FREIGHT INCOME DERIVED FROM PROVIDING CONTAINERS. HE SUBMITTED THAT ON THIS ISSUE, BOTH THE AO AND LD CIT (A) HAVE DECIDED THE ISSUE AGAINST THE ASSESSEE AND THE ASSESSEE HAS FILED CROSS OBJECTION ON THIS COUNT. AS REGARDS THE ISSUE REGARDING PE IN INDIA OF THE ASSESSEE, LD D.R. SUBMITTED THAT ITA NO.2727/M/06 C.O.NO.295/M/06 4 THOUGH THE PLEA WAS TAKEN BEFORE THE AO IN THIS REG ARD BUT HE HAD NOT GIVEN ANY FINDING ON THE ISSUE. HE REFERRED TO GROUNDS TAKEN BEFORE US AND POINTED OUT THAT SINCE THE CONTAINERS OF THE ASSESSEE WERE KEPT IN INDIA WITH THE AGENTS, THEREFORE, THE SAME CONSTITUTED PE OF THE ASSESSEE AS THE ASSESSEE WAS MAINTAINING FIXED ASSETS IN INDIA. HE SUBMITTED THAT ARTICLE 5 IS INCLUSIVE DEFINITION OF PE AND, THEREFORE, IF THE ASSESSEE HAD FIXED PLACE OF BUSINESS IN INDIA THAT WOULD COM E UNDER ARTICLE 5(1) OF DTAA AND MERELY BECAUSE THE ASSESSEE WAS CARRYING OUT THE BU SINESS THROUGH AGENT OF INDEPENDENT STATUS WOULD NOT MAKE ANY DIFFERENCE. LD D.R. SUBMITTED THAT FIXED PLACE OF BUSINESS DOES NOT IMPLY ONLY PERMANENT PLACE BUT WILL INCLUDE ALL SUCH ASSETS WHICH THROUGH BUSINESS IS CARRIED ON BY THE ASSESSEE. 6. LD D.R. REFERRED TO THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) V T HORESEN CHARTERING SINGAPORE (PTE) LTD., 118 ITD 410(MUM) AND SUBMITTED THAT SINCE THE AO HAD NOT CONSIDERED THE APPLICABILITY OF ARTICLE 7, THEREFORE, THE MATTER M AY BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER IN VIEW OF THE FOLLOWING OBSERVAT IONS OF THE TRIBUNAL:- IT IS AUSTERE THAT IF THE BENEFIT OF ART.8 CANNOT B E PROVIDED THEN THE TAXABILITY OF BUSINESS PROFIT HAS TO BE CONSIDERED IN TERMS OF AR T 7. TAXABILITY WOULD BE ATTRACTED AS PER ART.7 ONLY IF THE BUSINESS IS CARR IED OUT IN INDIA THROUGH A PE AND ONLY THAT MUCH OF THE PROFIT WHICH IS DIRECTLY OR I NDIRECTLY ATTRIBUTABLE TO THAT PE CAN BE TAXED IN INDIA. THUS, IT IS OF PARAMOUNT IM PORTANCE TO FIRST DETERMINE WHETHER THE ASSESEE HAS A PE IN INDIA OR NOT. IF T HE AO COMES TO THE CONCLUSION THAT THERE IS A PE IN INDIA, THEN ONLY THAT MUCH OF THE PROFIT AS IS ATTRIBUTABLE TO THAT PE CAN BE TAXED IN INDIA. NONE OF THESE QUESTI ONS HAVE BEEN ADDRESSED TO IN THE ASSESSMENT ORDER INASMUCH AS THERE IS NO DIS CUSSION ABOUT THE PE AND THE PROFIT ATTRIBUTABLE TO SUCH PE. THE ASSESSMENT WAS CONCLUDED ONLY BY EXAMINING ARTS.8 AND 24. IN VIEW OF THE AOS FINDING OF NON- APPLICABILITY OF ART.8 THE MANDATE OF ART.7 SHOULD HAVE BEEN EXAMINED FOR THE PURPOSE OF TAXATION. THE ENDS OF JUSTICE WOULD MEET SUFFICIENTLY IF THE IMPU GNED ORDER IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO FOR DE NOV O ADJUDICATION OF THE MATTER IN TERMS OF DECISION RENDERED IN EARLIER PARAS AFTER A LLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE AS SESSEE IS AT LIBERTY TO TAKE ANY PLEA WITH THE AO AS TO THE MANNER OF COMPUTATIO N OF INCOME, WHICH THE AO WILL DECIDE AS PER LAW. NEEDLESS TO SAY, THE ASSES SEE WOULD EXTEND FULL CO- OPERATION TO THE AO IN THE FRAMING OF SUCH FRESH AS SESSMENT. 7. LD SR. COUNSEL MR P.J.PARIDIWALA REFERRED TO THE ASSESSMENT ORDER PARA 3 PAGE 2 AND POINTED OUT THAT THE ASSESSEE HAD SPECIFICALLY, INTER ALIA, PLEADED BEFORE THE AO THAT ITA NO.2727/M/06 C.O.NO.295/M/06 5 IF THE ASSESSEE WAS DENIED DIT RELIEF GRANTED TO IT EARLIER, THEN THE PROVISIONS OF ARTICLE 7 OF DTAA WOULD APPLY TO THE PROFITS EARNED FROM SH IPPING ACTIVITIES AND SINCE THE ASSESSEE HAD NO PE IN INDIA, THEREFORE, NO INCOME C OULD BE ALLOCATED AS BUSINESS INCOME. LD SR COUNSEL SUBMITTED THAT THE ASSESSEE HAD NO FIXED PLACE OF BUSINESS IN INDIA. HE REFERRED TO GROUNDS OF APPEAL RAISED BEF ORE US AND POINTED OUT THAT THIS GROUND DOES NOT ARISE OUT OF THE ORDER OF THE LOWER AUTHORITIES. FOR THIS PROPOSITION, HE REFERRED TO THE DECISION MUMBAI TRIBUNAL (SPECIAL B ENCH) IN THE CASE OF ACIT V. PRAKASH L. SHAH, 115 ITR 167 (MUM)(SB) (PARA 12), WHEREIN, IT WAS, INTER ALIA, OBSERVED AS UNDER:- ..THE SCOPE OF THE ARGUMENTS OF LD D.R. IS RESTRI CTED TO SUPPORT THE VIEW TAKEN BY THE AO FROM ANY ANGLE, HE LIKES, BUT CANNOT BRIN G OUT AN ALTOGETHER DIFFERENT CASE DE HORS THE VIEW OF THE AO. HIS AREA OF ARGUMENTS IS UNLI MITED BUT WITHIN THE BOUNDARY LIMIT MARKED BY THE AO. HE, THEREFORE, SUBMITTED THAT SINCE IT WAS NEVER TH E CASE OF THE DEPARTMENT THAT CONTAINERS KEPT IN INDIA WITH THE AGENT CONSTITUTE A FIXED PLACE OF BUSINESS IN INDIA, THEREFORE, THIS GROUND IS NOT PERMISSIBLE. 8. ON MERITS, LD SR. COUNSEL REFERRED TO THE DECISI ON OF ITAT DELHI IN THE CASE OF WESTERN UNION FINANCIAL SERVICES INC V. ACIT, 104 I TD 34 (DEL) AND POINTED OUT THAT IN THAT CASE, THE TRIBUNAL CONSIDERED THE ISSUE OF MO NEY TRANSFER SERVICE CARRIED ON BY THE NON-RESIDENTIAL COMPANY THROUGH AN ORGANIZATION UND ER WHICH ANY RESIDENT OF ITS COUNTRY DESIRES OF TRANSFERRING MONEY TO HIS RELATI VE IN INDIA WOULD DO SAME THROUGH THE AGENT OF THE SAID NON-RESIDENT COMPANY IN INDIA. T HE TRIBUNAL WHILE CONSIDERING THE ISSUE WHETHER THE PLACES FROM WHERE THE AGENTS CARR IED ON THEIR ACTIVITIES COULD BE TERMED AS FIXED PLACE OF BUSINESS CONSTITUTING PE, OBSERVED AS UNDER: IT IS NOW WELL-SETTLED THAT MERELY BECAUSE THE AGE NTS ARE NOT INDEPENDENT AGENTS, IT DOES NOT AUTOMATICALLY FOLLOW THAT THEY ARE DEPENDENT AGENT UNDER THE DTAA AND THAT THE QUESTION HAS TO BE FURTHER EX AMINED UNDER ARTICLE 5.4 OF THE DTAA. IN OTHER WORDS, EVEN IF THE AGENT IS SHO WN TO BE NOT AN INDEPENDENT AGENT, IT HAS TO BE FURTHER SHOWN THAT HE IS A DEPE NDENT AGENT WITHIN ARTICLE 5.4 AND THAT IT MUST BE SHOWN THAT HE HAS AND HABITUALL Y EXERCISES AND AUTHORITY IN INDIA TO CONCLUDE CONTRACTS IN THE NAME OF THE FORE IGN ENTERPRISE. WITH REFERENCE TO THIS, LD COUNSEL SUBMITTED THAT P LACE OF AGENT CAN NEVER BE THE ASSESSEES PLACE. LD COUNSEL FURTHER FILED BEFORE US PASSAGES FROM COMMENTARY OF PE ITA NO.2727/M/06 C.O.NO.295/M/06 6 BY ARVID A SKAAR SERIES ON INTERNATIONAL TAXATION , WHICH IS REPRODUCED HEREUNDER:- 9.5. MACHINERY OR EQUIPMENT AS PLACE OF BUSINESS? BOTH THE FREQUENTLY USED GERMAN TERMS EINRICHTUNG A ND ANLAGE (ESTABLISHMENT) AND THE ENGLISH TERM PLACE OF BUSINESS SEEM TO IN DICATE THAT MORE THAN A SPOT WHERE THE ENTERPRISE PERFORMS BUSINESS ACTIVITIES I S NECESSARY. GERMAN JUDICIAL PRACTICE SUGGESTS, HOWEVER, THAT THE GERMAN TERMS S HOULD HAVE A BROADER INTERPRETATION. AS EARLY AS 1907, THE PRUSSIAN SUP REME COURTS DECISION IN CHIMNEY SWEEP REQUIRED VERY LITTLE OF A CHIMNEY SWE EPS PLACE OF BUSINESS, ALTHOUGH A PE WAS DENIED ON OTHER GROUNDS. HIS POR TABLE EQUIPMENT WAS VERY SIMPLE AND DID NOT AMOUNT TO A PLACE WHERE THE ACTI VITY WAS PERFORMED. MOREOVER, IN MARKET VENDOR, THE COURT HELD THAT THE DIFFERENT STANDS WITHIN A MARKETPLACE WHERE A MARKET VENDOR SOLD HIS GOODS WE RE WITHIN THE SCOPE OF THESE TERMS, EVEN WHEN NO BUILDINGS WERE USED. SMA LL REQUIREMENTS IN THIS RESPECT ARE CONSISTENT WITH RECENT JUDICIAL PRACTIC E CONCERNING GERMAN DOMESTIC LAWS. THE COMMENTARIES CONFIRM THAT PLACE OF BUSINESS C AN BE IMMOVABLE OBJECTS LIKE REAL ESTATE AND PROPERTY OF ALL KINDS, BUT ALS O MOVABLE OBJECTS SUCH AS MACHINERY AND EQUIPMENT-THE TERM PLACE OF BUSINESS COMPRISES IN CERTAIN INSTANCES (ALSO) MACHINERY OR EQUIPMENT. MOREOVER, PRACTICE MAKES IT CLEAR THAT DRILLING RIGS, SHIPS, TRUCKS AND AIRCRAFT ARE PLAC ES OF BUSINESS WITH RESPECT TO THE DEFINITION OF PE. THE RESERVATION IN THE COMMENTARIES FOR CERTAIN IN STANCES SHOULD MOST PROBABLY BE UNDERSTOOD AS MEANING THAT ONLY MACHINE RY AND EQUIPMENT OF A CERTAIN SIGNIFICANCE CAN BE CONSIDERED A PLACE OF BUSINESS. DANISH ADMINISTRATIVE PRACTICE, WIRELINE SERVICES, HAS HEL D THAT EQUIPMENT USED FOR COLLECTING DATA FROM BORES ON DRILLING PLATFORMS (A BOX FILED TO THE DRILLING RIG CONTAINING A MOBILE LABORATORY) AMOUNTED TO A PLACE OF BUSINESS. HOWEVER, NO PE WAS FOUND BECAUSE THE EQUIPMENT WAS MOVED FROM P LACE TO PLACE. THE SAME CONCLUSION WAS REACHED IN ANOTHER DANISH RULING, DA NISH DIVING, WHERE THE ADMINISTRATIVE TRIBUNAL HELD THAT EQUIPMENT USED FO R DIVING IN THE NORTH SEA SUFFICED AS A PLACE OF BUSINESS. HERE TOO, THE EQU IPMENT WAS MOVED FROM INSTALLATION TO INSTALLATION, HENCE A PE WAS DENIED . A DIFFERENT CONCLUSION WAS REACHED IN A THIRD DANISH CASE CONCERNING A UK COMP ANY WHICH RENDERED CONSULTANCY SERVICES PERTAINING TO DEVIATION DRILLI NG. THE EQUIPMENT USED BY THE CONSULTANTS WAS CONSIDERED TOO SIMPLE TO AMOUNT TO A PLACE OF BUSINESS IN TERMS OF THE PE CLAUSE. IN A NORWEGIAN JUDICIAL DE CISION, CREOLE, IT WAS HELD THAT MINOR PORTABLE EQUIPMENT FOR OBTAINING DATA WAS SUF FICIENT IN PRINCIPLE FOR A PLACE OF BUSINESS. HOWEVER, THE COURT DID NOT FI ND THIS PLACE OF BUSINESS FIXED. SIMILARLY, THE NORWEGIAN SUPREME COURT IN ALASKA, HELD THAT FISHING EQUIPMENT COULD BE A PLACE OF BUSINESS BUT A PE WAS DENIED BECAUSE THE PLACE OF BUSINESS WAS NOT FIXED. SOME TAX TREATIES IN PARTICULAR OLDER US TREATIES A ND TREATIES BETWEEN DEVELOPED AND DEVELOPING COUNTRIES, CONTAIN A PROVISION WHICH PROVIDES FOR A PE IF AN ITA NO.2727/M/06 C.O.NO.295/M/06 7 ENTERPRISES SUBSTANTIAL MACHINERY OR EQUIPMENT IN A NOTHER COUNTRY. THIS TEST APPLIES TO CONSTRUCTION WORK AS WELL AS MANUFACTURI NG OF GOODS. IN A CASE FROM 1957, THE AUSTRALIAN TAX BOARD FOUND MANUFACTURING EQUIPMENT BASED IN TWO ROOMS EACH OF 30X20 FEET VALUED AT 4,860 TO BE S UBSTANTIAL EQUIPMENT OR MACHINERY. HE, THEREFORE, SUBMITTED THAT SINCE THE CONTAINERS MOVES FROM ONE PLACE TO ANOTHER PLACE, THEREFORE, IN VIEW OF VARIOUS JUDICIAL PRONO UNCEMENTS MENTIONED IN THE COMMENTARY, IT CANNOT BE SAID THAT THERE WAS FIXED PLACE OF BUSINESS. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD OF THE CASE. THERE IS NO DISPUTE REGARDING APPLICABILITY OF DTAA BECAUSE THE ASSESSEES MANAGEMENT AND CONTROL WAS IN NETHERLANDS. FIRST OF ALL, WE H AVE TO CONSIDER WHETHER ARTICLE 8A IS APPLICABLE TO THE FACTS OF THE CASE OR NOT. THIS A RTICLE READS AS UNDER:- 1. PROFITS FROM THE OPERATION OF SHIPS IN INTERNAT IONAL TRAFFIC SHALL BE TAXABLE ONLY IN THE STATE IN WHICH THE PLACE OF EFFECTIVE MANAGE MENT OF THE ENTERPRISE IS SITUATED. 2. 3. 4. FOR THE PURPOSES OF THIS ARTICLE: A) B) PROFITS FROM THE OPERATION OF SHIPS INCLUDE: I) PROFITS DERIVED FROM THE USE, MAINTENANCE OR REN TAL OF CONTAINERS(INCLUDING TRAILERS AND RELATED EQUIPMENT FOR THE TRANSPORT OF CONTAINERS) IN CONNECTION WITH THE TRANSPORT OF GOODS OR MERCHANDISE IN INTERNATIO NAL TRAFFIC. II) PROFITS FROM THE RENTAL ON A FULL OR BAREBOAT B ASIS OF SHIPS IF OPERATED IN INTERNATIONAL TRAFFIC. PROVIDED THAT SUCH PROFITS ARE INCIDENTAL TO THE PR OFITS DESCRIBED IN PARAGRAPH 1. 5. BEFORE THE ASSESSING OFFICER, THE ASSESSEES REPRES ENTATIVE HAD CLEARLY ADMITTED THAT THE ASSESSEE WAS NOT OWNING ANY SHIPS AND HAD NOT ACQUI RED SHIPS ON LEASE BASIS, ETC. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS IN OPERATION OF SHIP BUSINESS AND, ITA NO.2727/M/06 C.O.NO.295/M/06 8 THEREFORE, INCOME EARNED THROUGH FREIGHT BY PROVIDI NG CONTAINERS TO INDIAN EXPORTER COULD NOT BE SAID TO BE INCIDENTAL TO OPERATION OF SHIP BUSINESS AND, HENCE, THE BENEFIT OF ARTICLE 8A COULD NOT BE EXTENDED TO INCOME DERIV ED FROM FREIGHT THROUGH PROVIDING CONTAINERS. WE, THEREFORE, UPHOLD THE FINDINGS OF L OWER AUTHORITIES ON THIS COUNT. THEREFORE, HOW, IT IS TO BE EXAMINED AS TO WHETHER ANY PROFITS COULD BE ALLOCATED FOR OPERATIONS OF HIRING OF CONTAINERS IN INDIA IN VIEW OF ARTICLE 7. 10. ARTICLE 7(1) READS AS UNDER:- THE PROFITS OF AN ENTERPRISE OF ONE OF THE STATES SHALL BE TAXABLE ONLY IN THAT STATE UNLESS THE ENTERPRISE CARRIES ON BUSINESS IN THE OTHER STATE THROUGH A PERMANENT ESTABLISHMENT SITUATE THEREIN. IF THE EN TERPRISE CARRIES ON BUSINESS AS AFORESAID, THE PROFITS OF THE ENTERPRISE MAY BE TAX ED IN THE OTHER STATE BUT ONLY SO MUCH OF THEM AS IS ATTRIBUTABLE TO THAT PERMANEN T ESTABLISHMENT. THERE CANNOT BE ANY DISPUTE THAT THE ASSESSEE HAS B USINESS CONNECTION IN INDIA BUT WHETHER THERE WAS PE IN INDIA OR NOT IS TO BE FOUND OUT IN ORDER TO DECIDE THE APPLICABILITY OF ARTICLE 7 OF DTAA. LD CIT (A) HAS HELD THAT SINCE THE ASSESSEE WAS OPERATING THROUGH AGENT OF INDEPENDENT STATUS, THER EFORE, IN VIEW OF ARTICLE 5(6), IT CAN NOT BE SAID THAT THE ASSESSEE WAS HAVING PE IN INDI A. HOWEVER, THE DEPARTMENTS CONTENTION IS THAT THE ASSESSEE WAS MAINTAINING THE CONTAINERS IN INDIA FOR BEING PROVIDED TO THE CUSTOMERS, AND, THEREFORE, THE ASS ESSEE HAD FIXED PLACE OF BUSINESS IN INDIA AND HENCE, THE PROFITS ATTRIBUTABLE TO PE WER E REQUIRED TO BE TAXED IN INDIA. 11. LD SR. COUNSEL OBJECTS TO THIS GROUND FOR THE R EASON THAT THIS WAS NOT CONSIDERED BY THE LOWER AUTHORITIES AND, THEREFORE, HE SUBMITT ED THAT THIS AMOUNTS TO ENLARGEMENT OF ISSUE WHICH IS NOT PERMISSIBLE IN VIEW OF THE DE CISION OF THE ITAT (SB) IN THE CASE OF PRAKASH L. SHAH (SUPRA). WE FIND IT DIFFICULT TO A CCEPT THIS PLEA OF LD SR. COUNSEL BECAUSE ADMITTEDLY THE ISSUE REGARDING PE WAS RAISED BEFORE THE AO BUT HE DID NOT GIVE ANY FINDING ON THE SAME BECAUSE IN HIS OPINION, THE PRO FITS WERE TAXABLE IN ACCORDANCE WITH SECTION 9(1) OF THE I.T.ACT. HOWEVER, LD CIT (A) H AS GIVEN A FINDING IN RESPECT OF PE AND FOR A PARTICULAR REASON I.E. APPLICABILITY OF ARTIC LE 5(6) AND HAS HELD THAT THERE WAS NO PE IN INDIA OF THE ASSESSEE. THEREFORE, IN ANY CASE, THE ISSUE REGARDING PE ARISES OUT OF THE ORDER OF LD CIT (A) AND IF THE DEPARTMENT WANTS TO SUPPORT ITS ARGUMENTS WITH REFERENCE TO DIFFERENT REASONING THEN IT CANNOT BE SAID THAT THIS AMOUNTS TO ENLARGEMENT OF DISPUTE ITA NO.2727/M/06 C.O.NO.295/M/06 9 BY THE DEPARTMENT. THE DEPARTMENT IS CORRECT AT THI S STAGE TO SUPPORT ITS CONTENTION ON THE BASIS OF DIFFERENT REASONING. 12. LD D.R. REFERRED TO THE DECISION OF ITAT IN THE CASE OF DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) V THORESEN CHARTERING SINGAPORE (PTE) LTD.,(SUPRA) TO SUBMIT THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE AO. WE FIND THAT THE AO HAS NOT AT ALL CONSIDERED THE ISSUE REGARDING PE AND LD CIT (A) HAS CONSIDERED THE ISSUE WITH REFERENCE TO ARTICLE 5(6). TECHNICALLY, LD CI T (A) HAS DECIDED THE ISSUE RELATING TO PE, AND, THEREFORE, SAME CAN BE CONSIDERED WITH REF ERENCE TO THE GROUND TAKEN BY THE DEPARTMENT. HOWEVER, IN ORDER TO HAVE A COMPLETE H OLISTIC VIEW, IT IS NECESSARY THAT ALL THE RELEVANT ARTICLES DEALING WITH THIS ISSUE ARE CONSIDERED BY THE LOWER AUTHORITIES BEFORE ARRIVING AT ANY CONCLUSION. WE, THEREFORE, FOLLOWING THE REASONING GIVEN IN THE CASE OF DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONA L TAXATION) V THORESEN CHARTERING SINGAPORE (PTE) LTD.,(SUPRA), RESTORE THE MATTER TO THE FILE OF THE AO TO DECIDE THE MATTER AFRESH AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 13. AS REGARDS THE CROSS OBJECTION FILED BY THE ASS ESSEE, SINCE WE HAVE HELD THAT ARTICLE 8(A) IS NOT APPLICABLE, THEREFORE, THE CROS S OBJECTION STANDS DISMISSED. 14. IN THE RESULT, APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THAT OF CROSS OBJECTION FILED BY THE ASSESSEE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON 2 ND JULY, 2010 SD/- (V.DURGA RAO) (JUDICIAL MEMBER) SD/- (S.V. MEHROTRA) (ACCOUNTANT MEMBER) MUMBAI, DATED 2 ND JULY, 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-XXXIII, MU MBAI 4. DIT(IT), MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH L, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.2727/M/06 C.O.NO.295/M/06 10 DATE INITIALS 1. DRAFT DICTATED ON 28.6.2010 PS 2. DRAFT PLACED BEFORE AUTHOR 1.7.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER CONSIDER IT APPROPRIATE TO RESTORE THE MATTERIN OUR OPINION, THIS DECISION DOES NOT HELP THE DEPARTMENT. THE ISSUE REGARDING PE HAS BEEN D ECIDED BY THE LD CIT (A) AND THE ORDER OF THE AO STANDS MERGED WITH THE ORDER OF LD CIT(A). IN VIEW OF ABOVE DISCUSSION, WE PROCEED TO DECIDE THE ISSUE ON MERITS AS PER GRO UNDS FILED BY THE DEPARTMENT. ITA NO.2727/M/06 C.O.NO.295/M/06 11 13. LD COUNSEL FOR THE ASSESSEE HAS RELIED ON THE D ECISION IN THE CASE OF WESTERN UNION FINANCIAL SERVICES INC V. ACIT (SUPRA), WHICH DECISION, IN OUR OPINION, IS CLEARLY DISTINGUISHABLE ON FACTS BECAUSE THE TRANSACTION WH ICH COMMENCED IN FOREIGN COUNTRY COULD CULMINATE IN INDIA ONLY THROUGH AGENTS OF ASS ESSEEWHO WERE PRIMARILY ONE CORNER OF THE SAME STRING. THERE WAS CONTINUITY IN THE TRA NSACTION AND, THEREFORE, BECAUSE OF THE VERY NATURE OF THE TRANSACTION, THE SAME CANNOT BE EQUATED WITH THE PRESENT FACTS. THEREFORE, THIS DECISION IS OF LITTLE ASSISTANCE TO THE ASSESSEE. LD SR COUNSEL FOR THE ASSESSEE REFERRED TO THE COMMENTARY, IN WHICH, IT H AS BEEN CLEARLY MENTIONED THAT PLACE OF BUSINESS CAN BE NOT ONLY IMMOVABLE OBJECTS LIKE REAL ESTATE AND PROPERTY OF ALL KINDS, BUT ALSO MOVABLE OBJECTS SUCH AS MACHINERY A ND EQUIPMENT. THEREFORE, THE CONTAINERS USED BY THE ASSESSEE DO AMOUNT TO PLACE OF BUSINESS BECAUSE WITHOUT KEEPING THE SAME IN INDIA, THE ASSESSEE COULD NOT C ARRY ON ITS BUSINESS BUT SINCE THEY HAD TO BE MOVED FROM ONE PLACE TO ANOTHER PLACE ON ACCOUNT OF THE VERY NATURE OF EXIGENCIES OF BUSINESS, THEREFORE, THERE COULD NOT BE ANY FIXED PLACE OF BUSINESS OF THE ASSESSEE AND HENCE, IT WILL NOT COME WITHIN ARTICLE 5(A) OF DTAA. THE FINDINGS OF LD CIT (A) IS THAT THE ASSESSEE WAS CARRYING ON THE BUSINE SS THROUGH AN AGENT OF INDEPENDENT STATUS HAD NOT BEEN CONTROVERTED BY THE DEPARTMENT AND IT IS NOT DISPUTED THAT THE FREIGHT EARNING WAS ONLY 1.14% OF ITS ENTIRE COMMIS SION AS WAS CONFIRMED BY THE AGENT VIDE HIS LETTER DATED 25.2.2005. THEREFORE, ARTICL E 5(6) IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE. WE, ACCORDINGLY, UPHOLD THE FINDINGS OF LD CIT (A). ITA NO.2727/M/06 C.O.NO.295/M/06 12