Appeal Details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 2703 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
15-07-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
L
Next Hearing Date
13-04-2016
Assessment Year
2011-2012
Appeal Filed On
12-02-2015
Judgement Text
L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.972 /MUM/2015 ( / ASSESSMENT YEAR : 2011-12) FORBES CONTAINER LINE PTE. LTD., GROUND FLOOR, FORBES BUILDING, CHARANJIT RAI MARG, FORT, MUMBAI 400 001. / V. THE DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) 3(2), SCINDIA HOUSE, BALLARD ESTATE, MUMBAI 400038. ./ PAN : AABCF0967H ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI GIRISH DAVE & MISS KADAMBARI DAVE REVENUE BY : SMT. POOJA SWAROOP,DR / DATE OF HEARING : 21-4-2016 / DATE OF PRONOUNCEMENT : 15-07-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 972/MUM/2015, IS DIRECTED AGAINST THE APPELLATE ORD ER DATED 14-11-2014 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEA LS)- 10, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSME NT YEAR 2011-12, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARI SING FROM THE ASSESSMENT ORDER DATED 22-04-2014 PASSED BY THE LEARNED ASSESS ING OFFICER (HEREINAFTER CALLED THE AO) U/S 144(C) R.W.S. 143(3) OF THE IN COME TAX ACT,1961 (HEREINAFTER CALLED THE ACT). ITA 972/MUM/2015 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- THE APPELLANT OBJECTS TO THE ORDER DATED 14 NOVEMBER 2014 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) - 10, MUMBAI , [CIT(A)] ON THE FOLLOWING AMONG OTHER GROUNDS: CHARGEABILITY OF INCOME UNDER SECTION 44B OF THE ACT 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE DDIT (INT. TAX.) IN HOLDING THAT THE INCOME OF THE APPELLANT FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC OUGHT TO BE TAXED AS PER DOMESTIC TAX LAW UNDER SECTION 44B READ WITH SECTION 5(2) AND SECTIO N 9 OF THE ACT. 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE APPELLANT WAS NOT ENGAGED IN THE OPERATION OF SHIPS DUR ING THE RELEVANT YEAR UNDER REVIEW AND THEREFORE, THE PROVISIONS OF SE CTION 44B ARE NOT APPLICABLE TO THE APPELLANT'S CASE. BUSINESS CONNECTION 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE DDIT (INT. TAX.) IN HOLDING THAT THE APPELLANT HAD BUSINESS CONNECTION IN INDIA UNDER THE PROVISIONS OF SECTION 9(L)(I) OF THE A CT. FIXED PLACE PE 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE DDIT (INT. TAX.) IN HOLDING THAT THE APPELLANT IS ESTABLISHED TO HAVE CARRIED ON PART OF ITS BUSINESS THROUGH A FIXED PLACE OF BUSINES S VIZ. THROUGH FORBES & COMPANY LIMITED AND THIS RESULTED IN CONSTI TUTION OF FIXED PLACE PERMANENT ESTABLISHMENT (PE) UNDER ARTICLE 5 OF THE INDIA- SINGAPORE DTAA. CONTROL AND MANAGEMENT IN SINGAPORE 5. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE DDIT (LNT. TAX.) IN HOLDING THAT THE KEY AND COMMERCIAL DEC ISIONS OF THE APPELLANT WERE TAKEN IN INDIA AND NOT IN SINGAPORE AND THEREFORE THE APPELLANT HAD A PLACE OF MANAGEMENT IN INDIA CONSTITUTI NG A PE UNDER ARTICLE 5(2) OF THE INDIA-SINGAPORE DT AA. 6. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE COMP LETE CONTROL IS SITUATED IN INDIA AS THE APPELLANT IS A 100% SUBSIDI ARY OF FORBES & COMPANY LIMITED, BEING AN INDIAN COMPANY. ITA 972/MUM/2015 3 7. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE F ACT THAT THE CONTROL AND MANAGEMENT OF THE APPELLANT IS IN SINGAPO RE. 8. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE DDIT (INT. TAX.) IN HOLDING THAT ALL THE ACTIVITIES OF THE AP PELLANT ARE CARRIED OUT BY ITS AGENT I.E. FORBES & COMPANY LIMITED AND THE REFORE THE APPELLANT HAD AN AGENCY PE UNDER ARTICLE 5 OF THE IND IA-SINGAPORE DTAA. 9. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE SU BMISSIONS OF THE APPELLANT THAT AS FORBES & COMPANY LIMITED HAD BEE N REMUNERATED ON ARM'S LENGTH BASIS, NO FURTHER INCOME COULD BE TAXABLE IN INDIA. COMPUTATION OF INCOME 10. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTIO N OF THE DDIT (INT. TAX.) FOR INCLUDING SERVICE TAX WHILE COMPUTING INCOME UNDER SECTION 44B OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS A NON- RESIDENT COMPANY INCORPORATED IN SINGAPORE. IT IS ENGAGED IN THE ACTIVITIES OF OPERATING SHIPS IN INTERNATIONAL TRAFFIC ACROSS ASI A AND MIDDLE EAST. THE ASSESSEE COMPANY IS A NON VESSEL OPERATING COMMON C ARRIER (IN SHORT NVOCC). THE ASSESSEE COMPANY STARTED ITS OPERATI ONS IN THE YEAR 2006. THE ASSESSEE COMPANY IS SUBSIDIARY COMPANY OF M/S F ORBES AND COMPANY (IN SHORT F&CL) WHICH IS AN INDIAN COMPANY. THE ASS ESSES ENTERED INTO AN AGENCY AGREEMENT IN INDIA WITH VOLKART FLEMING COMP ANY SHIPPING AND SERVICES LIMITED (IN SHORT VFSSL) WITH EFFECT FRO M 1ST JANUARY, 2007 WHEREBY VFSSL WAS APPOINTED AS ITS AGENT IN INDIA. VFSSL IS AN INDIAN COMPANY AND IS ALSO 100 PERCENT SUBSIDIARY OF F&CL. VFSSL DEMERGED ITS SHIPPING AGENCY DIVISION INTO ITS HOLDING COMPANY F &CL WITH EFFECT FROM 1ST APRIL, 2008. THE ASSESSEE COMPANY SUBMITTED THAT I N TERMS OF THE APPROVED SCHEME DURING THE FINANCIAL YEAR UNDER CONSIDERATIO N VFSSL HAD CARRIED ON BUSINESS ACTIVITIES IN RELATION TO ITS DEMERGED DIV ISION FOR THE ACCOUNT OF RESULTING COMPANY VIZ. F&CL. IN SHORT, THE ASSESSE E COMPANY IS THE PRINCIPAL ITA 972/MUM/2015 4 AS WELL AS SUBSIDIARY COMPANY OF F&CL AND APPOINTED ITS HOLDING/PARENT COMPANY I.E. F&CL AS ITS AGENT IN INDIA. THE ASSES SEE COMPANY IS A NON VESSEL OPERATING COMMON CARRIER INCORPORATED IN SIN GAPORE. THE AO OBSERVED THAT AS PER ARTICLE 8 OF DTAA BETWEEN INDI A AND SINGAPORE, INCOME FROM SHIPPING BUSINESS COULD BE TAXED ONLY IN CONTR ACTING STATES WITH CERTAIN CONDITIONS. THE EXEMPTION BENEFIT ONLY CAN BE CLAI MED BY THE RESIDENT OF THAT CONTRACTING STATE WHO HAD OWNERSHIP OR LESSEE RIGHT OR CHARTER RIGHT OF VESSEL, SHIPS OR AIRCRAFT WAS THE OBSERVATION OF THE AO. T HE AO OBSERVED THAT THE ASSESSEE COMPANY BEING A NVOCC IS NOT ELIGIBLE TO C LAIM EXEMPTION UNDER ARTICLE 8 OF DTAA. THE A.O. OBSERVED THAT THE ASSE SSEE COMPANY HAS NOVCC STATUS WHICH IS INCORPORATED IN SINGAPORE. THE ASS ESSEE COMPANY DOES NOT OWN OR CHARTER OR TAKE ON LEASE ANY VESSEL OR SHIP AND IT ONLY PROVIDES CARRIER ON CONTAINER SERVICES TO ITS CLIENTS. ACCORDING TO THE A.O., THE ASSESSEE COMPANY BEING A NVOCC IS NOT ELIGIBLE TO CLAIM EXEM PTION BENEFIT UNDER ARTICLE 8 OF INDIA SINGAPORE DTAA AND ACCORDINGLY THE CLAIM WAS NOT FOUND TO BE ACCEPTABLE. THE AO OBSERVED THAT THE INCOME OF THE ASSESSEE COMPANY ARISES OUT OF OPERATION OF SHIPS IN INTERNATIONAL T RAFFIC, HENCE, IT COULD NOT BE HELD TO BE COVERED BY ANY OTHER ARTICLE OF DTAA. T HE A.O. OBSERVED THAT THE INCOME WHICH IS RECEIVED, ACCRUE OR ARISES OR DEEME D TO BE RECEIVED, ACCRUE OR ARISE IN INDIA CAN BE TAXED IN INDIA AS PER THE PRO VISIONS OF SECTION 5(2) OF THE ACT AND THERE IS NO PROVISION IN DTAA TO EXEMPT SUC H INCOME AND THE ASSESSMENT HAS TO BE MADE IN NORMAL COURSE IN ACCOR DANCE WITH THE PROVISIONS OF SECTION 44B READ WITH SECTION 5(2) AN D SECTION 9 OF THE ACT. IT IS ALSO OBSERVED THAT ACCORDING TO THE DOMESTIC LAW TH E TAXATION OF BUSINESS PROFITS OF NON-RESIDENT IN INDIA IS KICKED OFF WITH A BUSINESS CONNECTION IN INDIA , AS PER THE PROVISIONS OF SECTION 5(2) READ WITH SECTION 9(1)(I) OF THE ACT AND IT WOULD LEAD TO DEEMING THE INCOME TO ACCRUE O R ARISE FOR FOREIGN ENTERPRISES IN INDIA. THE A.O. RELIED UPON THE SEV ERAL DECISION OF THE COURTS IN HIS ASSESSMENT ORDER. IN THE LIGHT OF THE DECIS IONS CITED BY THE A.O., HE ITA 972/MUM/2015 5 CAME TO THE CONCLUSION THAT THE ASSESSEE COMPANY HA S BUSINESS CONNECTION IN INDIA BASED ON FOLLOWING REASONING :- (I) ASSESSEE COMPANY INCORPORATED IN 2006 AND FROM BEGINNING ASSESSEE HAD ENTERED IN TO THE AGENCY AGR EEMENT WITH ASSOCIATED CONCERN REGARDING BUSINESS FROM INDIA. T ILL DATE THERE IS NO CHANGE OF HEIR RELATION. SO, ELEMENT OF CONTI NUITY IS REMAIN INTACT. II) THEY HAVE REAL AND INTIMATE CONNECTION BECAUSE HERE PRINCIPLE FCLPL IS SUBSIDIARY COMPANY OF AGENT 'HOL DING' COMPANY F&CL. AND HABITUALLY SECURED THE BUSINESS F OR PRINCIPLE. III) HOLDING COMPANY HABITUALLY SECURED THE BUSINES S FROM INDIA FOR PRINCIPLE SUBSIDIARY COMPANY. AND HERE IN COME DIRECTLY ATTRIBUTED. IV) PRINCIPLE AND AGENT HAVE COMMON CONTROL MECHANI SM. PROMOTERS OF F&CL CREATED THE FCLPL AS 100 PERCENT SUBSIDIARY COMPANY IN SINGAPORE. ONE OF DIRECTOR OF THE FCLPL MR. AMIT MITTAL ALSO DIRECTOR IN THE INDIAN PARENT COMPANY F &CL. AND HE PERMANENTLY RESIDE IN INDIA AND LOOKING AFTER THE P OLICY AND OTHER IMPORTANT MATTER FOR THE ASSESSEE COMPANY AS WELL A GENT A PARENT COMPANY. ALTHOUGH, BOTH COMPANY HAS SEPARATE LEGAL ENTITIES IN THE EYES OF LAWS BUT THEIR CONTROL MECHANISM IS COM MON THAT IS IN THE INDIA ONLY. THE A.O. FURTHER HELD THAT VIDE ARTICLE 7 OF THE DT AA BETWEEN INDIA AND SINGAPORE, THE ASSESSEE COMPANY IS ESTABLISHED TO H AVE CARRIED ON PART OF ITS BUSINESS THROUGH A FIXED PLACE OF BUSINESS IN INDIA , THE ASSESSEE COMPANY FALLS WITHIN THE DEFINITION OF PERMANENT ESTABLISHM ENT UNDER PARAGRAPH 1 OF ARTICLE 5 AND IN THIS CASE ASSESSEE COMPANY HAS FIX ED AND PERMANENT PLACE IN INDIA FROM WHERE IT SECURED THE BUSINESS FROM INDIA . IT WAS FURTHER HELD THAT THE EFFECTIVE MANAGEMENT OF THE ASSESSEE COMPANY IS IN INDIA AND NOT IN SINGAPORE. THE ASSESSEE COMPANY IS INCORPORATED IN SINGAPORE AND IS 100% SUBSIDIARY OF INDIAN COMPANY F&CL. THE ASSESSEE CO MPANY HAS ENTERED INTO ITA 972/MUM/2015 6 AN AGENCY AGREEMENT IN INDIA WITH VFSSL W.E.F. 1ST JANUARY, 2007 WHEREBY VFSSL WAS APPOINTED AS ITS AGENT IN INDIA . VFSSL I S ALSO 100% SUBSIDIARY OF FORBES & COMPANY LTD. WHICH IS AN INDIAN COMPANY. VFSSL HAS DEMERGED ITS SHIPPING AGENCY DIVISION INTO ITS HOLDING COMPA NY FORBES & COMPANY WITH EFFECT FROM 1-4-2008. THE ASSESSEE COMPANY SUBMITT ED THAT IN TERMS OF THE APPROVED SCHEME DURING THE FINANCIAL YEAR UNDER CON SIDERATION, VFSSL HAD CARRIED ON BUSINESS ACTIVITIES IN RELATION TO ITS D EMERGED DIVISION FOR THE ACCOUNT OF RESULTING COMPANY IE. FORBES & COMPANY L TD. IN OTHER WORDS, THE ASSESSEE COMPANY IS 100% SUBSIDIARY OF AGENT HOLDIN G COMPANY FORBES & COMPANY LTD. THE FACTS OF THIS CASE WERE SIMILAR TO THE FACTS OF ASSESSMENT YEAR 2009-10 AND THE CASE FOR THE ASSESSMENT YEAR 2 009-10 WAS DEALT IN DETAIL WAS THE OBSERVATION OF THE AO. THE EXTRACT OF THE ASSESSMENT ORDER IS REPRODUCED AS UNDER:- I) IN THE RELEVANT YEAR COMPANY HAS TWO DIRECTORS IN INDIA NAMELY; AMIT MITTAL AND PADAMKUMAR UNNIKRISHAN. AS SESSEE AR WAS ASKED TO FURNISH THE DETAILS OF DIRECTORS RESID ENTIAL STATUS VIDE ORDER SHEET ENTRY DATED 16.12.2011. IN RESPONSE OF ABOVE AR ONLY SUBMITTED THEIR RESIDENCE ADDRESS AND PHOTO COPY ON LY PASSPORT FRONT PAGE OF AMIT MITTAL. DURING THE DISCUSSION A R STATED THAT AMIT MITTAL IS INDIAN RESIDENCE AND FULL TIME LIVE LIVING IN INDIA AND WORKING IN HOLDING COMPANY F&CL AS DIRECTOR FINANCE AND LOOK AFTER THE BUSINESS FOR ASSESSEE COMPANY ( VIDE ORDE R SHEET ENTRY DATED 20.11.2011). II) AS PER AVAILABLE PAPERS ON RECORD, IT IS SEEMS THAT THE ALL THE IMPORTANT DECISION TAKEN IN INDIA NOT IN SINGAPORE. COPY OF AGENCY AGREEMENT EXECUTED IN MUMBAI. LETTER OF AUTHORITY F OR APPEARING BEFORE INCOME TAX AUTHORITY ALSO EXECUTED IN MUMBAI DATED ITA 972/MUM/2015 7 30.05.2010 WITH SIGNATURE OF PADDAMKUMAR UNNIKRISHA NAN ONE OF THE DIRECTOR OF COMPANY. III) PERUSAL OF THE MINUTES OF MEETING OF THE COMPA NY BOARD MEETING INDICATES THAT THE DECISIONS ARE PREDOMINAN TLY ROUTINE IN NATURE. EVEN NOT A SINGLE DIRECTOR MEETINGS HELD DU RING THE FINANCIAL YEAR 2008-09 IN SINGAPORE. FOR THAT FINAN CIAL YEAR ONLY ONE MEETING TOOK PLACE ON 06 JULY 2009. ASSESSEE AL SO STATED IN HIS SUBMISSION THAT AS PER LAWS OF PREVALENT IN SI NGAPORE THE COMPANY IS REQUIRED TO HOLD ONLY ONE BOARD MEETING AND IT WAS ACCORDINGLY HELD IN RELATION TO YEAR UNDER CONSIDER ATION AT THE OFFICE OF COMPANY LOCATED IN SINGAPORE.' INSTANT CA SE IT IS OBSERVED THAT NO SIGNIFICANT DECISION REGARDING POLICY IS TA KEN. THIS CLEARLY SHOWS THAT FACED OF BOARD MEETING IN SINGAPORE IS C REATED WITH THE FULL PURPOSE TO FULFILL THE REQUIREMENT OF SINGAPOR E LAW, TO KEEP THE CERTIFICATE OF INCORPORATION ALIVE AND TO AVOID AN IMPRESSION THAT THE REAL CONTROL OF THE COMPANY LIES IN SINGAPORE. IV) THE FACADE OF ONE AND TWO BOARD MEETINGS IN A Y EAR IN SINGAPORE DO NOT SUPPORT THE ASSESSEE'S CASE IN ANY WAY. IN THE CASE OF UNIT CONSTRUCTION COMPANY V BULLOCK [1961] 42 ITR 340 (HL) IA KENYAN SUBSIDIARY WAS HELD TO BE RESIDENT IN ENGLAND BECAUSE, THOUGH ITS BOARD MEETINGS WERE ALWAYS HELD IN KENYA, IT WAS MANAGED, IN BRANCH OF ITS ARTICLES, BUT ITS UK PARENT COMPANY.' V) THE OECD COMMENTARIES CLARIFY THAT PLACE OF MANA GEMENT DOES NOT NECESSARILY MEAN OFFICE AND CAN BE SAID TO BE THE CONTROL AND CO-ORDINATION CENTRE WHERE ALL SIGNIFICANT DECI SION RELATING TO THE MANAGEMENT OF AN ENTERPRISE AS A WHOLE ARE TAKE N. ITA 972/MUM/2015 8 VI) THE MIND AND BRAIN OF THE ORGANIZATION OF THE A SSESSEE COMPANY ARE SITUATED IN INDIA. IT IS A NORMAL BUSIN ESS PRACTICE THAT THE GOVERNING LAW IN ANY AGREEMENT WOULD BE WITH RE LATION TO THE PLACE OF CONTROL AND MANAGEMENT OF THE PRINCIPLE. VII) IN THIS INSTANT CASE, THERE IS NO MATERIAL EVI DENCE FILED BY ASSESSEE WHICH SHOWS THAT KEY AND COMMERCIAL DECISI ON THAT FOR THE BUSINESS WERE TAKEN IN INDIA NOR IN SINGAPORE . THERE IS NO GOOD REASON FOR DEVIATION FROM NORMAL PRACTICE EXCE PT IN A SITUATION WHERE THE CONTROL AND MANAGEMENT IS NOT IN THE COUN TRY OF INCORPORATION. THIS AMPLY PROVES THAT THE CONTROL A ND MANAGEMENT OF ASSESSEE IS IN INDIA NOT IN SINGAPORE AS ASSESSE E CLAIMED. VIII) IN THE CASE OF NAROTAM & PAREIRA LIMITED V. C IT (1953) 23 ITR 454 (BOM), THE HONBLE HIGH COURT, MUMBAI HELD THAT DE FACTO CONTROL AND MANAGEMENT WILL DECIDE RESIDENCY. INSTANT CASE THE ULTIMATE CONTROL AND MANAGEMENT OF COMPANY REST IN INDIA FROM WHERE CASE THE ULTIMATE CONTROL AND MANAGEMENT OF C OMPANY REST IN INDIA FROM WHERE DE FACTO CONTROL OVER THE COMP ANYS AFFAIRS IS EXERCISED. IX) IN VIEW OF THE ABOVE, IT IS ESTABLISHED BEYOND DOUBT THAT THE REAL CONTROL OF THE ASSESSEE COMPANY LIES IN INDIA AS PE R MEANING OF CLAUSE 2(1) OF ARTICLE 5 OF THE DTAA. 9.4 THUS, IT IS WELL ESTABLISHED THAT THE REAL CONT ROL OF THE ASSESSEE COMPANY LIES IN INDIA AS PER MEANING OF CLAUSE 2{1) OF ARTICLE 5 OF DTAA. ITA 972/MUM/2015 9 IT WAS OBSERVED THAT F&CL WAS WORKING AS AGENT(PARE NT/HOLDING COMPANY) FOR THE ASSESSEE COMPANY. THE ASSESSEE COMPANY DOES NO T HAVE ANY OTHER AGENT IN INDIA FOR SECURING ORDER AND BUSINESS . FOR THE ASSESSEE COMPANY, F&CL IS THE EXCLUSIVE AGENT IN INDIA WHO HABITUALLY CONCLUD E CONTRACTS ON BEHALF OF THE ASSESSEE COMPANY IN THE FORM OF ALL THE CLEARAN CES FROM THE GOVERNMENT DEPARTMENT LIKE CUSTOMS DEPARTMENT, RBI, MUMBAI PO RT TRUST ETC. . F&CL IS DOING ALL THE FUNCTIONS ON BEHALF OF THE ASSESSE E COMPANY. THUS AS PER THE AO, THE ASSESSEE COMPANY HAS PERMANENT ESTABLISHMEN T IN INDIA WITHIN THE MEANING OF ARTICLE 5 OF THE DTAA AND HENCE ASSESSEE COMPANYS INCOME IS TAXABLE UNDER ARTICLE 7 OF INDO-SINGAPORE DTAA. TH US IT WAS HELD BY THE AO THAT THE BUSINESS OF THE ASSESSEE COMPANY IS COVERE D BY THE PROVISIONS OF SECTION 44B OF THE ACT WHICH PROVIDES PRESUMPTIVE T AXATION AND DEEMS 7.5% OF THE GROSS RECEIPTS FROM SHIPPING BUSINESS TO BE INCOME OF THE ASSESSEE COMPANY, VIDE ASSESSMENT ORDER DATED 22-4-2014 PAS SED U/S 144C(3) READ WITH SECTION 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 22-4-201 4 PASSED BY THE AO U/S 144C(3) READ WITH SECTION 143(3) OF THE ACT, THE A SSESSEE COMPANY FILED FIRST APPEAL WITH THE LEARNED CIT(A) WHO UPHELD THE ASSES SMENT ORDER DATED 22-4- 2014 PASSED BY THE A.O. PASSED U/S 144C(3) READ WIT H SECTION 143(3) OF THE ACT BY FOLLOWING THE APPELLATE ORDERS PASSED BY THE LEARNED CIT(A) IN ASSESSEE COMPANYS OWN CASE FOR THE ASSESSMENT YEAR 2009-10 AS THE FACTS IN THE INSTANT ASSESSMENT YEAR 2011-12 WERE FOUND TO BE ID ENTICAL BY THE LEARNED CIT(A) AS WERE PREVAILING IN THE ASSESSMENT YEAR 20 09-10, VIDE APPELLATE ORDERS DATED 14.11.2014. 5.AGGRIEVED BY THE APPELLATE ORDERS DATED 14-11-201 4 PASSED BY THE LD. CIT(A), THE ASSESSEE COMPANY FILED SECOND APPEAL WI TH THE TRIBUNAL. ITA 972/MUM/2015 10 6. THE LD. COUNSEL FOR THE ASSESSEE COMPANY, AT THE OUTSET, SUBMITTED THAT THE INSTANT APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE COMPANY IN ASSESSEE COMPANYS OWN CASE BY THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO. 1607/MUM/2014 VI DE ORDERS DATED 11 TH MARCH, 2016 WHEREBY THE TRIBUNAL HAS ADJUDICATED TH E APPEAL IN FAVOUR OF THE ASSESSEE COMPANY WHEREBY IT WAS HELD THAT THE I NCOME OF THE ASSESSEE COMPANY WAS LIABLE TO BE TAXED AS BUSINESS INCOME A ND IN THE ABSENCE OF PERMANENT ESTABLISHMENT NO INCOME WAS TAXABLE IN IN DIA AND THAT THE PROVISIONS OF SECTION 44B OF THE ACT WERE WRONGLY I NVOKED BY THE A.O. . THE LEARNED COUNSEL STATED BEFORE US THAT FACTS IN THE INSTANT ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS PREVAILING IN ASSESSMENT YEA R 2009-10. THE LD. D.R. HAS ALSO FAIRLY SUBMITTED THAT THE FACTS OF THE CASE IN THE INSTANT ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS IN THE ASSESSMENT YEAR 2 009-10 AND THE CASE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ITA NO 1607/MUM/2014 VIDE ORDERS DATED 11-03-2016 FOR ASSESSMENT YEAR 20 09-10. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALS O PERUSED THE MATERIAL PLACED ON RECORD. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE COMPANY, WE FIND THAT THE MATTER IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE COMPANY BY THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUN AL IN ASSESSEE COMPANYS OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO. 1607/MUM/2014 VIDDE ORDERS DATED 11 TH MARCH, 2016, AS THE FACTS IN THE INSTANT ASSESSMEN T YEAR ARE IDENTICAL TO THE FACTS FOR ASSESSMENT YEAR 2009 -10. THE FINDINGS OF THE TRIBUNAL IN ITA NO 1607/MUM/2014 VIDE ORDERS DATED 11-03-2016 FOR ASSESSMENT YEAR 2009-10 IN FULL ARE REPRODUCED BELO W:- CHALLENGING THE ORDER DATED 31.10.13 OF CIT(A)-10, MUMBAI,THE ASSESSEE HAD FILED THE PRESENT APPEAL. ASSESSEE-COM PANY IS ENGAGED IN BUSINESS OF OPERATING SHIPS IN INTERNATI ONAL TRAFFIC ACROSS ASIA AND MIDDLE EAST.IT IS INCORPORATED IN S INGAPORE.IT IS A ITA 972/MUM/2015 11 WHOLLY OWNED SUBSIDIARY OF FORBES AND CO. LTD.(FCL) AND FCL IS INCORPORATED IN INDIA. IT STARTED ITS OPERATION IN 2006. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 30.9.09, DECL ARING TOTAL INCOME AT RS. NIL.THE ASSESSING OFFICER (AO)COMPLET ED THE ASSESSMENT,U/S.144(3)R.W.S 143(3) OF THE ACT ON 9.2.12,DETERMINING THE INCOME OF THE ASSESSEE AT RS .2.97 CRORES, HOLDING THAT THE BUSINESS OF THE ASSESSEE WAS COVER ED BY THE PROVISIONS OF SECTION 44B OF THE ACT. 2.THE FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT CHA RGEABILITY OF INCOME U/S.44B OF THE ACT AND EXISTENCE OF PERMANEN T ESTABLISHMENT (PE).DURING THE ASSESSMENT PROCEEDING THE AO FOUND THAT FCL HAD ENTERED INTO AN AGENCY AGREEMENT WITH M/S.VOLKART FLEMMING CO. AND SERVICES LTD.(VFSSL) W .E.F. 1.1.2007, THAT IT WAS APPOINTED AS AN AGENT IN INDI A BY FCL. THAT VFSSL WAS 100% SUBSIDIARY OF FCL, THAT VFSSL HAD DE MERGED ITS SHIPPING AGENCY DIVISION INTO FCL W.E.F. 01.04. 200 8.THE AO REFERRED TO THE PROVISIONS OF ARTICLE-8 OF DTAA ENT ERED INTO BETWEEN INDIA AND SINGAPORE AND OBSERVED THAT BEING A NON-V ESSEL OPERATING COMMON CARRIER(NVOCC) IT WAS NOT ELIGIBLE FOR CLAIMING EXEMPTION UNDER ARTICLE 8 OF DTAA.HE FURTHER HELD T HAT INCOME OF THE ASSESSEE WAS ARISING OUT OF OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC,THAT INCOME ARISING /ACCRUING TO IT WAS TAX ABLE IN INDIA AS PER THE PROVISIONS OF SECTION 5(2) OF THE ACT, THAT THE PROVISIONS OF SECTION 44B OF THE ACT WERE APPLICABLE FOR THE INCO ME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION.HE REFERRED TO VARIOUS CASE LAWS AND HELD THAT THE ASSESSEE HAD EN TERED INTO AGENCY AGREEMENT WITH ASSOCIATED CONCERNS REGARDING BUSINESS FROM INDIA, THAT THERE REMAINED AN ELEMENT OF CONTI NUITY,THAT IT HAD REAL AND INTIMATE CONNECTION,THAT THE HOLDING COMPA NY SECURED THE ITA 972/MUM/2015 12 BUSINESS FROM INDIA FOR THE ASSESSEE,THAT THE PRINC IPAL AND AGENT HAD COMMON CONTROL MECHANISM, THAT THE PROMOTERS OF HOLDING COMPANY CREATED THE ASSESSEE AS A 100% SUBSIDIARY I N SINGAPORE,THAT ONE OF THE DIRECTORS OF THE COMPANY WAS ALSO DIRECTOR OF THE INDIA PARENT COMPANY, THAT HE WAS P ERMANENTLY RESIDING IN INDIA AND WAS LOOKING AFTER THE POLICY MATTERS OF THE ASSESSEE,THAT THE CONTROL MECHANISM OF BOTH THE ENT ITIES WAS IN INDIA ,THAT THE ASSESSEE HAD BUSINESS CONNECTION IN INDIA.THE AO REFERRED TO ARTICLES -7 & 5 OF THE DTAA AND HELD TH AT THE ASSESSEE HAD CARRIED ON PART OF BUSINESS TO A FIXED PLACE OF BUSINESS,THAT IT FELL WITHIN DEFINITION OF PE UNDER PARAGRAPH-1 OF A RTICLE-5, THAT THE ASSESSEE HAD FIXED A PERMANENT PLACE IN INDIA FROM WHERE IT USED TO SECURE ITS BUSINESS, THAT THE OFFICE OF THE AGEN T WAS FIXED PLACE FOR TAX TREATY PURPOSES. THE AO DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY I T SHOULD NOT BE HELD THAT IT WAS HAVING PLACE OF EFFECTIVE MANAGEME NT IN INDIA.AFTER CONSIDERING THE SUBMISSION OF THE ASSES SEE,HE HELD THAT THE HOLDING COMPANY WAS WORKING AS AN AGENT FOR THE ASSESSEE, THAT IT DID NOT HAVE ANY OTHER AGENT IN INDIA EXCEP T THE PARENT COMPANY,THAT THE PARENT COMPANY WAS CONCLUDING THE CONTRACTS ON BEHALF OF THE ASSESSEE WITH VARIOUS GOVT. AGENCIES/ RBI, THAT THE PARENT COMPANY WAS CARRYING OUT VARIOUS FUNCTIONS L IKE DECIDING THE BROKERS DEALING WITH THE LABOUR FOR LOADING AND UNLOADING, MAINTAINING AND OPERATING BANK ACCOUNT, THAT THE AS SESSEE HAD PE IN INDIA WITHIN THE MEANING OF ARTICLE-5 OF THE DTA A, THAT THE INCOME OF THE ASSESSEE WAS TAXABLE UNDER ARTICLE-7 OF THE TREATY,THAT INCOME OF THE ASSESSEE WAS ASSESSABLE I N INDIA AS PER THE PROVISIONS OF SECTION 44B R.W.S 5(2) OF THE ACT , THAT THE SECTION 44B DEALT WITH COMPUTING WITH PROFITS AND GAINS OF SHIPPING ITA 972/MUM/2015 13 BUSINESS OF NON RESIDENTS,THAT BUSINESS INCOME OF T HE ASSESSEE ARISING IN INDIA WAS TO BE TAXED @7.5% OF GROSS REC EIPTS FROM SHIPPING BUSINESS. 3.AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).B EFORE HIM, IT MADE ELABORATE SUBMISSIONS WITH REGARD TO CHARGE - ABILITY OF INCOME U/S.44B OF THE ACT,BUSINESS CONNECTIONS,PE A ND CONTROL AND, MANAGEMENT AS WELL AS AGENCY-PE.AFTER CONSIDER ING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER ,THE FAA HELD THAT THE ASSESSEE-COMPANY WAS CONTROLLED BY TH E HOLDING COMPANY,THAT THE AO HAD RIGHTLY HELD THAT ASSESSEE HAD BUSINESS CONNECTION IN INDIA, THAT MANAGEMENT AND CONTROL OF THE COMPANY WAS HANDLED BY THE PARENT COMPANY, THAT THE PARENT COMPANY WAS INDULGING IN ALL KIND OF ACTIVITIES IN INDIA ON BEHALF OF THE ASSESSEE,THAT IT WAS COLLECTING FREIGHT ON BEHALF O F THE APPELLANT AND WAS MAINTAINING BANK ACCOUNT, THAT THE ASSESSEE HAD A BUSINESS CONNECTION IN INDIA AND IT IS ALSO AN AGEN CY-PE AS WELL AS FIXED PLACE OF PE IN INDIA,THAT THE MANAGEMENT WAS WITH PARENT COMPANY LOCATED IN INDIA. HE FURTHER HELD THAT AO H AD CORRECTLY APPLIED THE PROVISIONS OF SECTION 44B OF THE ACT, T HAT IT DID NOT QUALIFY FOR THE EXEMPTION OF ARTICLE 8 OF THE DTAA. FINALLY, HE UPHELD THE ORDER OF THE AO. 4.BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)ARGUED THAT THE ASSESSEE WAS NOT HOLDING ANY BANK ACCOUNT IN INDIA, THAT IT HAD NO FIXED PLACE OF BUSINESS IN INDIA,THAT THE ASSESSEE WAS A SUBSIDIARY OF THE INDIAN COMPANY,THAT AS PER THE PROVISIONS OF DTAA THERE WAS NO PE IN INDIA.HE REFERRED TO PARAGRAPH 10 OF T HE ARTICLE 5 OF THE DTAA.WITH REGARD TO AGENCY-PE, HE REFERRED TO P AGE NO.63 AND ITA 972/MUM/2015 14 65 OF THE PB AND STATED THAT ONLY 2.29 % OF THE REV ENUE WAS RECEIVED FROM INDIAN COMPANY,THAT THE SUBSTANTIAL P ORTION OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS NOT FRO M PARENT COMPANY.HE FURTHER CONTENDED THAT THE ASSESSEE WAS AN INDEPENDENT ENTITY,THAT IT WOULD TAKE ITS OWN DECIS ION AT SINGAPORE THAT HO HAD NO ROLE IN DECIDING THE POLICIES OF THE ASSESSEE,.HE REFERRED TO CASE OF RADHA RANI INVESTMENT (16SOT 49 5).WITH REGARD TO CHARGEABILITY OF INCOME,HE STATED THAT HE HAD NOT CLAIMED EXEMPTION UNDER ARTICLE 8, THAT AO HIMSELF HAD HELD THAT ASSESSEE WAS IN THE BUSINESS OF NON VESSEL OPERATING ACTIVIT IES,THAT ASSESSEE WAS NOT IN OPERATION OF SHIPS, THAT AO HAD WRONGLY APPLIED SECTION 44B.HE ALSO PLACED RELIANCE ON PAGE NO.96-126 OF THE PB AND REFERRED TO THE CASE OF OCEANEERING INTE RNATIONAL GMBH(ITA 1023/MUM/2014-AY10-11-DT.6.11.2015) AND MI TCHELL DRILLING INTERNATIONAL(P)LTD.(62TAXMANN.COM24).THE DEPARTMENTAL REPRESENTATIVE (DR) ARGUED THAT PLACE OF MANAGEMENT OF THE COMPANY WAS IN INDIA,THAT THE EFFECTIVE MANAGEMENT WAS CONTROLLED BY THE PARENT COMPANY, THAT ONE OF THE D IRECTORS WAS DIRECTOR IN THE PARENT COMPANY ALSO, THAT ONLY ONE BOARD MEETING TOOK PLACE IN SINGAPORE, THAT THE ASSESSEE WAS HAVI NG PE IN INDIA, PROVISIONS OF SECTION 44B WOULD BE APPLICABLE. 5.WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED T HE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE COMPANY IS A RE SIDENT OF SINGAPORE,THAT THE HOLDING COMPANY IS LOCATED IN IN DIA, THAT IT HAD ENTERED INTO AN AGENCY AGREEMENT WITH VFSSL W.E.F. 1.1.2007, THAT THE AO AND THE FAA HAD HELD THAT THE ASSESSEE WAS H AVING BUSINESS CONNECTION IN INDIA AND THAT THE PARENT CO MPANY WAS TAKING DECISION ON BEHALF OF THE ASSESSEE,THAT THEY HAVE FURTHER ITA 972/MUM/2015 15 HELD THAT THE ASSESSEE HAD SERVICE PE/AGENCY-PE IN INDIA AND THAT THE INCOME OF ASSESSEE WAS TAXABLE IN INDIA U/S.44B OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS RELEVANT DETAILS ABOUT THE DIRECTOR HANDLING THE BUSINESS AT SINGAPORE WERE SU BMITTED BEFORE THE AO. IT HAD ALSO FILED DETAILS OF REMUNERATION P AID TO PADMAKUMAR UNNIKRISHNAN (PG-56 OF THE PB).THE ASSES SEE HAD,VIDE ITS LETTER DT.20.12.2011 (PG-53 OF THE PB) ,SUBMITTED A COPY OF MINUTES OF MEETING HELD IN RELATION TO THE YEAR UNDER APPEAL AND HAD INFORMED THE AO THAT AS PER THE LAWS PREVALENT IN SINGAPORE,THE ASSESSEE WAS REQUIRED TO HOLD ONLY ON E BOARD MEETING.THOUGH THE AO AND THE FAA HAD MENTIONED THA T THE ASSESSEE WAS MAINTAINING BANK ACCOUNT IN INDIA.HOWE VER, THEY COULD NOT BRING ON RECORD ANY EVIDENCE TO SUPPORT T HEIR CLAIM.ON THE OTHER HAND THE ASSESSEE HAD PROVED THAT ITS BOO KS OF ACCOUNTS WERE MAINTAINED IN SINGAPRORE.NOT ONLY THIS,IT WAS PROVED THAT IT WAS MAINTAINING A BANK ACCOUNT IN SINGAPORE AND ALL BANKING TRANSACTIONS WERE MADE FROM THAT ACCOUNT ONLY.IN OU R OPINION,BOTH THE AUTHORITIES WERE NOT ABLE TO ESTABLISH THAT EFF ECTIVE MANAGEMENT AND CONTROL OF AFFAIRS OF THE COMPANY WA S IN INDIA.WE HAVE GONE THROUGH THE E-MAILS PLACED BY THE ASSESSE E AT PG NO.96 TO 127 OF THE PAPER BOOK WHICH CLEARLY PROVE THAT B USINESS ACTIVITIES WERE CARRIED OUT BY THE SINGAPORE OFFICE .IN OUR OPINION,FACTORS LIKE STAYING OF ONE OF THE DIRECTOR S IN INDIA OR HOLDING OF ONLY ONE MEETING DURING THE YEAR UNDER C ONSIDERATION OR THE LOCATION OF PARENT COMPANY IN INDIA IN THEMSELV ES WOULD NOT DECIDE THE RESIDENTIAL STATUS OF THE ASSESSEE.THE A SSESSEE HAD RECEIVED SUBSTANTIAL PORTION OF ITS INCOME FROM THE OPERATION CARRIED OUT IN MIDDLE EAST AND OTHER COUNTRIES.IT WAS HANDL ING ITS BUSINESS FROM SINGAPORE. WE HAVE GONE THROUGH PG-65 OF THE P APER BOOK ITA 972/MUM/2015 16 WHICH GIVES DETAILS OF INCOME OF PARENT COMPANY.A P ERUSAL OF THE SAID PAGE MAKES IT CLEAR THAT THE CLAIM,MADE BY THE ASSESSEE ABOUT EARNING SUBSTANTIAL INCOME FROM THE ENTITIES OTHER THAN THE HOLDING COMPANY, WAS FACTUALLY CORRECT. WE FIND THAT ASSESSEE HAD NOT CLAIMED EXEMPTION OF ARTICLE 8 OF THE DTAA AS IT WAS NOT IN THE SHIPPING BUSINESS. THERE FORE, THE INCOME OF THE ASSESSEE HAD TO ASSESSED AS PER THE P ROVISIONS OF TAX TREATY WHICH DEALS WITH BUSINESS INCOME. HERE,W E WOULD LIKE TO MENTION THAT FAA WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE AO HOLDING THAT PROVISIONS OF SEC.44B OF THE ACT WO ULD BE APPLICABLE WITH REGARD TO THE DISPUTED AMOUNT.SECTI ON 44 B DEALS WITH THE SHIPPING BUSINESS AND THE AO HAD HIMSELF A DMITTED THAT THE ASSESSEE WAS NOT IN SHIPPING BUSINESS.THE ASSES SEE DID NOT OWN OR CHARTER OR TOOK ON LEASE ANY VESSEL OR SHIP FOR THE YEAR UNDER CONSIDERATION, IT WAS ONLY PROVIDING CONTAINE R SERVICES TO ITS VARIOUS CLIENTS. THEREFORE, WE HAVE NO HESITATION T O HOLD THAT PROVISIONS OF SECTION 44B WERE NOT APPLICABLE TO TH E FACTS OF THE CASE UNDER CONSIDERATION. CONSIDERING THE ABOVE DIS CUSSION, WE HOLD THAT THE INCOME OF THE ASSESSEE WAS TO LIABLE TO BE TAXED AS BUSINESS INCOME AND THAT IN ABSENCE OF PE NO INCOME WAS TAXABLE IN INDIA, THAT THE PROVISIONS OF SECTION 44B WERE W RONGLY INVOKED BY THE AO. REVERSING THE ORDER OF THE FAA, WE DECID E EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 6.THE SECOND EFFECTIVE GROUND OF APPEAL, DEALING WI TH LEVY OF INTEREST U/S.234 OF THE ACT, IS CONSEQUENTIAL IN NA TURE. HENCE,IT IS NOT BEING ADJUDICATED. AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS. ITA 972/MUM/2015 17 RESPECTFULLY FOLLOWING THE AFORE-STATED DECISION O F THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE COMPANYS OWN CASE FOR AS SESSMENT YEAR 2009-10 IN ITA NO. 1607/MUM/2014 VIDE ORDERS DATED 11-03-2016, WE HOLD THAT INCOME OF THE ASSESSEE COMPANY WAS LIABLE TO BE TAXED AS B USINESS INCOME AND THAT IN ABSENCE OF PERMANENT ESTABLISHMENT IN INDIA , NO INCOME WAS TAXABLE IN INDIA , THAT THE PROVISIONS OF SECTION 44B OF THE A CT WERE WRONGLY INVOKED BY THE A.O. REVERSING THE ORDERS OF LEARNED CIT(A), W E DECIDE EFFECTIVE GROUNDS OF APPEAL IN FAVOUR OF THE ASSESSEE COMPANY BY RESPECT FULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE COMPANYS OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 1607/MUM/2014 VIDE ORDERS DATED 11-03-2016 . WE ORDER ACCORDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IN ITA N0. 972/MUM/2015 FOR THE ASSESSMENT YEAR 2011-12 IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY , 2016. # $% &' 15-07-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 15-07-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS
