[2015] 62 taxmann.com 319 (Rajkot – Trib.) ITO vs. MUR Shipping DMC Co., UAE A.Y.: 2009-10, Date of Order: 23-10-2015

Facts
The taxpayer was a company incorporated in, and tax resident of, UAE. It was engaged in operation of ships in international traffic. Its entire share capital was held by two companies incorporated in Switzerland. The taxpayer had obtained a ship under a long-term time charter arrangement from a company incorporated in Marshall Islands. While the manager director of the taxpayer was residing in UAE, its two other directors also had permanent residential visa of UAE. The Board meetings and important decision were being taken at Dubai. The taxpayer had obtained tax residency certificate from UAE tax authority. The taxpayer claimed that having regard to the provisions of Article 8 of India-UAE DTAA, its profit from shipping activity was not taxable in India.

The AO concluded that the effective control and management of the taxpayer was not situated in UAE. Hence, it was not resident in UAE. Therefore, he invoked LOB provision in Article 29 on the ground that: (i) the ship was owned by an entity from a country with which India did not have DTAA ; and (ii) the taxpayer was owned by Swiss shareholders who would not have been entitled to DTAA benefit if they had directly carried on business. The AO held that the agent/freight beneficiary was not entitled to claim benefit under DTAA.

In appeal, the CIT held that the taxpayer was entitled to India-UAE DTAA benefit.

Held
In ADIT vs. Mediterranean Shipping Co. SA [(2013) 56 SOT 278 (Mum.)], it is held that effectively, the income from operations of ships in international traffic is not taxable in India, irrespective of whether it is earned by a Swiss tax resident or a UAE tax resident because Article 22(1) of India-Switzerland DTAA , and Article 8 of India- UAE DTAA respectively exempt the income from taxation in India.

As regards residential status under article 4(1), what is required is that it should be a “company which is incorporated in the UAE and which is managed and controlled wholly in UAE”. This was not disputed. The directors were resident in UAE. It is irrelevant that they were not UAE nationals.

The AO was not justified in invoking LOB clause in Article 29 and denying benefits under India-UAE DTAA because there was reasonable evidence to suggest that the affairs of the company were conducted from UAE, and further no material was brought on the record to establish that the company was not wholly controlled and managed in UAE.