ANL SINGAPORE P LTD, MUMBAI V. DDIT (IT) 1(1), MUMBAI

ITA 8847/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3961 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 17-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Double taxation relief; International transaction; Permanent establishment
• Section: 143(3); 234B

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI .. , ! ' , # !, $ BEFORE SHRI R.S.SYAL, AM AND SHRI VIVEK VARMA, JM ITA NO.8847/MUM/2010 : ASST. YEAR 2007-2008 ANL SINGAPORE PTE. LTD. C/O, CMA CGM AGENCIES (INDIA), PVT. LTD, INDIA BULLS FINANCE CENTER,TOWER 3, 8THE FLOOR, SENAPATI BAPAT MARG, ELPHINSTON (W), MUMBAI-400013 PAN-AAFCA6372F % % % % / VS. DY. DIRECTOR OF INCOME-TAX, (IT) CIRCLE-1(1), SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400038 ( '( / // / APPELLANT) ( )*'( / RESPONDENT) '( + ++ + , , , , / ASSESSEE BY : SHRI M.P.LOHIA )*'( + , + , + , + , / REVENUE BY : MS.NEERAJA PRADHAN % + - / / / / DATE OF HEARING : 17.07.2013 ./0 + - / DATE OF PRONOUNCEMENT : 24.07.2013 !1 !1 !1 !1 / / / / O R D E R PER R.S.SYAL ( AM) : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) READ WIT H SECTION 144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED AS `THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS SHIPPING COMPANY INCORPORATED IN AND TAX RESIDEN T OF SINGAPORE. GROSS RECEIPTS OF FREIGHT AMOUNTING TO RS.13.34 ITA NO.8847/MUM/2010. ANL SINGAPORE, PVT. LTD.. 2 CRORE WERE SHOWN AND AFTER APPLICATION OF SECTION 4 4B OF THE ACT, INCOME WAS DECLARED AT THE RATE OF 7.5% AMOUN TING TO RS.1.00 CRORE AND ODD. THE ASSESSEE CLAIMED EXEMPT ION OF THIS INCOME AS PER ARTICLE 8 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND SINGAPORE (HEREINAFTER ALSO CALLED `THE DTAA). A COPY OF TA X RESIDENCY CERTIFICATE WAS FURNISHED TO INDICATE THA T THE ASSESSEE WAS TAX RESIDENT OF SINGAPORE. THE ASSESS ING OFFICER NOTICED THAT THE ASSESSEE EARNED SHIPPING I NCOME FROM POOL ARRANGEMENT WITH NORATIA AND CMA CGM CHINA IN RESPECT OF 37 VOYAGES, WHICH IN HIS OPINION DID NOT QUALIFY FOR RELIEF UNDER ARTICLE 8 OF THE DTAA BECAUSE OF THE A BSENCE OF ANY EVIDENCE OF THE PROOF ABOUT THE ASSESSEE HAVING ANY POOL ARRANGEMENT. SIMILARLY, THE AO NOTICED THAT THE AS SESSEE HAD SHOWN FREIGHT RECEIPTS IN RESPECT OF SLOT HIRING CH ARGES FROM 61 VOYAGES AMOUNTING TO RS.3.65 CRORE. SINCE, THE SLOTS WERE HIRED FROM CMA CGM AS SUB-CHARTERER, WHO HAD AN ARRANGEMENT WITH OTHER SHIPPING COMPANIES, THE ASSE SSING OFFICER HELD THAT THE RELIEF IN RESPECT OF SUCH 61 VOYAGES WAS ALSO NOT AVAILABLE UNDER ARTICLE 8 OF THE DTAA. TO TAL FREIGHT RECEIPTS IN RESPECT OF 98 (37+61) VOYAGES AMOUNTING TO RS.8.62 CRORES WAS DECLARED AS NOT ELIGIBLE FOR REL IEF UNDER ARTICLE 8 OF THE DTAA. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE HAD SHOWN DETENTION CHARGES OF RS . 49.41 ITA NO.8847/MUM/2010. ANL SINGAPORE, PVT. LTD.. 3 LACS IN RESPECT OF TOTAL 178 VOYAGES. PROPORTIONAT E AMOUNT OF DETENTION CHARGES IN RESPECT OF SUCH 98 VOYAGES WAS ALSO HELD TO BE INELIGIBLE FOR RELIEF UNDER ARTICLE 8 OF THE DTAA. TO SUM UP, THE AO REFUSED THE BENEFIT OF ARTICLE 8 IN RESPECT OF 98 VOYAGES, OUT OF TOTAL OF 178 VOYAGES, ON A SUM O F RS.8.09 CRORE (INCLUSIVE OF DETENTION CHARGES). THEREAFTER, HE PROCEEDED TO DETERMINE AS TO WHETHER THE ASSESSEE H AS A PERMANENT ESTABLISHMENT IN INDIA IN THE FORM OF M/S CMA CGM GLOBAL (INDIA) PVT. LTD. (HEREINAFTER ALSO CALL ED `CMA). ON A PERUSAL OF THE AGENCY AGREEMENT WITH CMA, THE ASSESSING OFFICER CAME TO HOLD THAT CMA WAS ASS ESSEES DEPENDENT AGENT AND HENCE IT CONSTITUTED ITS PERMAN ENT ESTABLISHMENT IN INDIA AS PER THE TERMS OF ARTICLE 5 OF THE DTAA. IN THAT VIEW OF THE MATTER, HE COMPUTED INCO ME AT RS.89.01 LACS U/S 44B OF THE ACT BY APPLYING RATE OF 10% IN RESPECT OF THE 98 VOYAGES. AS REGARDS THE REMAININ G 80 VOYAGES, HE COMPUTED INCOME U/S 44B AT THE RATE OF 7.5% AT RS.33.35 LACS AND ALLOWED EXEMPTION UNDER ARTICLE 8 OF THE DTAA. THE DRAFT ASSESSMENT ORDER WAS CHALLENGED BY THE ASSESSEE BEFORE THE DISPUTE RESOLUTION PANEL (HEREI NAFTER ALSO CALLED `THE DRP). VIDE ITS DIRECTION DATED 16.09.2 010, THE DRP DIRECTED THE ASSESSING OFFICER TO EXAMINE FRESH EVIDENCE IN RESPECT OF 98 VOYAGES AND ALLOW SIMILAR BENEFIT IF THE CONDITIONS OF ARTICLE 8 WERE FULFILLED. VIDE T HE FINAL ORDER ITA NO.8847/MUM/2010. ANL SINGAPORE, PVT. LTD.. 4 PASSED BY THE AO U/S 144C(13), THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEE FAILED TO FURNISH ANY DETAILS IN RESPECT OF 21 SHIPMENTS. HE, THEREFORE, GRANTED RELIEF IN RESPECT OF 77 VOYAGES AND PROPORTIONATELY DETERMINED RECEIPTS IN RELATION TO 21 VOYAGES AT RS.26.31 LACS. RATE OF 10% WAS APPLIE D FOR DETERMINING TOTAL INCOME AT RS. 2.63 LACS. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE GOING INTO THE FIRST QUE STION OF THE AVAILABILITY OF THE BENEFIT OF ARTICLE 8 OF THE DTA A IN RESPECT OF SUCH 21 VOYAGES, WE PROCEED TO EXAMINE AS TO WHE THER THE AMOUNT IS CHARGEABLE TO TAX AS PER ARTICLE 7 OF THE DTAA. THE LD. AR WAS FAIR ENOUGH TO ACCEPT THAT CMA MAY B E CONSIDERED AS THE DEPENDENT AGENT OF THE ASSESSEE. THUS, IT SATISFIES THE REQUIREMENT OF ARTICLE 5 OF THE DTAA. WE THEREFORE, HOLD THAT CMA WAS THE AGENT OF THE ASSES SEE AND HENCE CONSTITUTES ITS PERMANENT ESTABLISHMENT IN IN DIA. 4. THE NEXT QUESTION IS DETERMINATION OF THE `BUSIN ESS PROFITS AS PER ARTICLE 7 OF THE DTAA. THE LD. COU NSEL FOR THE ASSESSEE CONTENDED THAT CMA WAS GIVEN COMMISSION, CONTAINER CONTROLLER FEES AND DETENTION COLLECTION FEES IN RESPECT OF TOTAL 178 VOYAGES WHICH INCLUDE 21 VOYAG ES IN RESPECT OF WHICH THE INSTANT ADDITION HAS BEEN MADE . HE TOOK ITA NO.8847/MUM/2010. ANL SINGAPORE, PVT. LTD.. 5 US THROUGH RELEVANT DOCUMENTS OF CMA, COPIES PLACED ON PAGES 77, 84 AND 85 OF THE PAPER BOOK, FOR INDICATI NG THAT THE ASSESSEE MADE A PAYMENT OF SUCH COMMISSION ETC. TO CMA WHICH WAS DECLARED BY THE LATTER IN ITS REPORT IN F ORM NO. 3CEB, BEING INTERNATIONAL TRANSACTIONS, INTER ALIA, WITH THE ASSESSEE. IT WAS SUBMITTED THAT IN THE DRAFT ASSES SMENT ORDER PASSED BY THE RELEVANT AO IN THE CASE OF CMA, A TRA NSFER PRICING ADJUSTMENT OF RS.3.00 CRORE WAS PROPOSED. HOWEVER, THE DRP VIDE ITS DIRECTION DATED 23.09.2011, IN THE CASE OF CMA, HELD THAT THE TRANSFER PRICING ADJUSTMENT WAS NOT WARRANTED. IN THE FINAL ASSESSMENT ORDER PASSED U/ S 144C(13) IN RESPECT OF CMA, THE ASSESSING OFFICER DID NOT MA KE ANY TRANSFER PRICING ADJUSTMENT. IT WAS SUBMITTED THAT SINCE COMMISSION ETC. TO CMA WAS PAID AT ARMS LENGTH PRI CE (ALP), THERE WERE NO QUESTION OF TAXING FURTHER `BU SINESS PROFITS IN THE HANDS OF THE ASSESSEE UNDER ARTICLE 7. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE JUDGME NT OF THE HONBLE JURISDICTIONAL HIGH COURT IN SET SATELLITE( SINGAPORE) PTE LTD. V/S DDIT(IT) (2008) 307 ITR 205 (BOM). SI MILAR VIEW WAS SHOWN TO HAVE BEEN TAKEN BY THE MUMBAI BEN CH OF THE TRIBUNAL IN THE CASE OF DELMAS, FRANCE VS. ADIT (IT) VIDE ITS ORDER DATED 11.01.2012 IN ITA NO.9001/MUM/2010. ITA NO.8847/MUM/2010. ANL SINGAPORE, PVT. LTD.. 6 5. OPPOSING THE CONTENTION ADVANCED ON BEHALF OF THE ASSESSEE, THE LD. DR SUBMITTED THAT COMMISSION PAID TO THE DEPENDENT AGENT AT ARMS LENGTH PRICE CANNOT HAVE T HE EFFECT OF OBLITERATING THE PROFIT EARNED BY THE ASSESSEE F ROM THE SHIPPING INCOME. SHE STATED THAT COMMISSION IS SIMP LY ONE OF THE COSTS INCURRED BY THE ASSESSEE IN EARNING THE O VERALL INCOME. IF ONE EXPENSE HAS BEEN INCURRED AT MARKET PRICE, IT DOES NOT MEAN THAT THERE REMAINS NO PROFIT FROM THE OVERALL BUSINESS ACTIVITY IN THE HANDS OF THE ASSESSEE. WHE N THE ASSESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA AND BUSINESS INCOME IS ATTRIBUTABLE TO SUCH PERMANENT ESTABLISHM ENT, THEN APART FROM THE COMMISSION INCOME EARNED BY SUCH AGE NT IN ITS INDIVIDUAL CAPACITY, THE INCOME FROM CARRYING ON TH E BUSINESS ACTIVITY OF THE ASSESSEE RELATABLE TO THE PE IN IND IA SHOULD ALSO BE TAXED. SHE ARGUED THAT THE SUBJECT MATTER OF TAX ATION IN INDIA UNDER ARTICLE 7 OF THE DTAA IS `BUSINESS PROF ITS EARNED BY THE ENTERPRISE OF THE OTHER STATE THROUGH A PE IN INDIA. AS THE TAXABLE ENTITY QUA SUCH `BUSINESS PROFITS IS NOT THE PE IN ITS INDIVIDUAL CAPACITY BUT THE ENTERPRIS E OF THE OTHER STATE REPRESENTED BY SUCH PE, IT IS THE INCOME EAR NED BY THE ASSESSEE THROUGH ITS PE WHICH IS CHARGEABLE TO TAX, WHICH IN THE PRESENT CONTEXT IS FROM THE SHIPPING ACTIVITY. THE FACT THAT SUCH AGENT, REPRESENTING PE, HAS BEEN TAXED DISTINC TLY IN ITS INDIVIDUAL CAPACITY, INTER ALIA , FROM THE COMMISSION EARNED AT ITA NO.8847/MUM/2010. ANL SINGAPORE, PVT. LTD.. 7 ARMS LENGTH PRICE, DOES NOT MEAN THAT THE BUSINESS PROFITS OF THE ASSESSEE ATTRIBUTABLE TO THE PE STAND AUTOMATI CALLY ERASED. SHE EXPLAINED HER POINT OF VIEW WITH HELP OF AN EXA MPLE, IN WHICH A PRODUCT WITH COST PRICE AT RS.100, FINANCIA L COSTS AT RS.10 AND SELLING EXPENSES AT RS.15 IS EVENTUALLY S OLD FOR RS.150, THEREBY GIVING PROFIT OF RS.25 TO THE SELLE R. SHE ARGUED THAT THE FACT THAT COMMISSION ON SALE HAS BE EN PAID AT A SUM OF RS.8, WHICH FORMS PART OF THE TOTAL SELLING EXPENSES OF RS.15, AS AGAINST THE PREVALENT MARKET RATE OF SUCH COMMISSION AT THE SAME AMOUNT, DOES NOT MEAN THAT THE SELLER EARNED NO PROFIT AS AGAINST THE ACTUAL PROFI T OF RS.25. TAXATION OF SUCH COMMISSION PAID AT THE ARMS LENGT H PRICE IN THE HANDS OF RECIPIENT, SIMPLY MEANS THAT THE COMMI SSION AGENT WAS ADEQUATELY COMPENSATED, WHO HAD TO OFFER SUCH COMMISSION INCOME IN HIS HANDS. SHE EMPHASIZED THAT THE INCOME OF THE SELLER IS THOUGH REALIZED AT THE TIME OF SALE, BUT IS ACTUALLY EARNED AT EVERY STAGE, STARTING FROM MA KING ECONOMICAL PURCHASES WITH INCURRING OF REASONABLE E XPENSES AND THEN MANAGING TO SELL THE GOODS AT ADEQUATE PRI CE. SHE SUBMITTED THAT THE MERE FACT OF PAYING COMMISSION T O THE AGENT AT THE MARKET RATE DOES NOT MEAN THAT NO PROF IT WAS EARNED BY THE SELLER OF GOODS FROM INDIA, WHICH AMO UNT IN THE PRESENT EXAMPLE IS RS.25. SHE, THEREFORE, URGED THA T THE CONTENTION OF THE LD. AR THAT SINCE THE PAYEE OF TH E ITA NO.8847/MUM/2010. ANL SINGAPORE, PVT. LTD.. 8 COMMISSION RECEIVED IT AT ARMS LENGTH PRICE WHICH STOOD TAXED IN ITS HANDS AND HENCE THERE CAN BE NO TAX LI ABILITY IN THE HANDS OF THE ASSESSEE FROM SHIPPING INCOME, SHOULD BE JETTISONED. 6. IT IS OBSERVED THAT THE INCOME IN RESPECT OF 21 VOYAGES WHICH HAS BEEN CONSIDERED AS CHARGEABLE TO TAX IN I NDIA AS PER ARTICLE 7 OF THE DTAA IS THE AMOUNT ON WHICH THE AS SESSEE PAID COMMISSION ETC. TO CMA, WHICH IS ITS AE AND A LSO A DEPENDENT AGENT. THE RECEIPT IN THE HANDS OF THE CMA HAS BEEN DETERMINED AT ALP UNDER DUE PROCESS OF LAW. THOUGH WE DO NOT FIND THE SUBMISSIONS OF THE LD. DR RECORD ED ABOVE AS ABSOLUTELY DEVOID OF ANY FORCE, BUT THE CASES OF SET SATELLITE (SUPRA) AND DELMAS FRANCE (SUPRA) STAND IN THE WAY. IN THESE DECISIONS, IT HAS BEEN HELD THAT WHERE THE AS SOCIATED ENTERPRISE (THAT ALSO CONSTITUTES A PE) IS REMUNERA TED ON ALP, THEN NOTHING FURTHER WOULD BE LEFT TO ATTRIBUTE TO THE PE. IN THAT VIEW OF THE MATTER AND RESPECTFULLY FOLLOWING THE PRECEDENTS, WE UPHOLD THE CONTENTION OF THE LD. AR. WE, THEREFORE, HOLD THAT INCOME IN RESPECT OF 21 VOYAGE S CANNOT BE INCLUDED IN THE HANDS OF THE ASSESSEE. 7. IN VIEW OF OUR ABOVE DECISION ON THE EXCLU SION OF INCOME IN RESPECT OF 21 VOYAGES, THERE REMAINS NO N EED TO ITA NO.8847/MUM/2010. ANL SINGAPORE, PVT. LTD.. 9 CONSIDER THE TAXABILITY OR OTHERWISE OF THE AMOUNT AS PER ARTICLE 8 OF THE DTAA. THE MAIN ISSUE RAISED THROU GH VARIOUS GROUNDS IS, THEREFORE, DECIDED IN ASSESSEE S FAVOUR. 8. THE ONLY OTHER EFFECTIVE GROUND IS AGAINST THE L EVY OF INTEREST U/S 234B AND 234C OF THE ACT. THESE GROUN DS DO NOT SURVIVE IN THE LIGHT OF JUDGMENT OF THE HONBLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF D.I (INTERNATIONAL TAXATION) VS. NGC NETWORK ASIA LTD. (2009) 222 CTR 86 (BOM). 9. LAST GROUND ABOUT THE INITIATION OF PENALTY PROC EEDINGS U/S 271(1)(C) OF THE ACT, IS PREMATURE. THE SAME IS , THEREFORE, DISMISSED. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN ABOVE TERMS. ORDER PRONOUNCED ON THIS 24 TH DAY OF JULY, 2013. !1 + ./0 2!%3 24 TH JULY 2013 / + 4 SD/- SD/- (VIVEK VARMA) (R.S.SYAL) # ! / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER MUMBAI; 2!% DATED : 24 TH JULY, 2013. SHEKHAR ITA NO.8847/MUM/2010. ANL SINGAPORE, PVT. LTD.. 10 !1 + )#-5' 6 !1 + )#-5' 6 !1 + )#-5' 6 !1 + )#-5' 6'0- '0-'0- '0-/ COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. )*'( / THE RESPONDENT. 3. 7 ( ) / THE CIT- , MUMBAI. 4. 7 / CIT(A)- , MUMBAI 5. ':4 )#-#% , , / DR, ITAT, MUMBAI 6. 4; < / GUARD FILE. !1% !1% !1% !1% / BY ORDER, *'- )#- //TRUE COPY// = == =/ // /> ? > ? > ? > ? ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI