TS-73-ITAT-2018(Mum)
ADIT (IT) vs. Baylines (Mauritius)
I.T.A. No. 1181/Mum/2002
A.Ys: 1998-99 to 2012-13,
Date of Order: 20th February, 2018
Facts
Taxpayer, a company incorporated in Mauritius carried on the shipping
business in India. Taxpayer held a TRC indicating that it was a resident of
Mauritius for the relevant financial year. Taxpayer had an agent in India (ICo)
who concluded the contracts on behalf of the Taxpayer in India.
Taxpayer filed its return of income in India and claimed that the income
from shipping business was exempt from tax by relying on Article 8 of the India
Mauritius DTAA dealing with taxation of shipping income.
Article 8 of the India-Mauritius DTAA provides that income from shipping
business is taxable in the contracting State in which the POEM of the Taxpayer
is located. AO noted that the place of effective management (POEM) of the
Taxpayer was situated in UAE, a third country. Consequently AO held that
Article 8 of the DTAA was not applicable to the Taxpayer. Further AO held that
ICo created a dependent agent PE (DAPE) for the Taxpayer in India and
accordingly taxed the income from shipping business as per Article 7 of the
DTAA.
Aggrieved by the order of AO, Taxpayer appealed before CIT(A).
CIT(A) upheld AO’s contention that Article 8 of the DTAA was not
applicable to the Taxpayer. CIT(A) however, held that ICo did not create a DAPE
of the Taxpayer in India. Accordingly, in the absence of PE, shipping income
was held to be exempt from tax in India under the DTAA.
Aggrieved, both the Taxpayer and AO appealed before the Tribunal.
Held 1
– On
the basis of following observations, it was held that merely holding of two board
meetings in Mauritius is not sufficient to support that the POEM was in
Mauritius.
– Only two Mauritian directors
attended the first board meeting in person, while the remaining two UAE
directors of the Taxpayer attended these meeting via phone. The only business
transacted in that meeting was the appointment of the auditors.
– The business transacted in the
second board meeting was with regard to approval of accounts. It is surprising
how the annual accounts a company could be approved on telephone. This
indicates that the directors of Mauritius were on the Company’s Board only to
satisfy the conditions of the regulatory requirements of Mauritius Government.
– The
fact that ICo was appointed as an agent on a letter head showing its UAE
address and a letter addressed by Taxpayer to AO also originated from UAE
indicated that the major policy decisions were taken in UAE.
– In
case where the POEM is not in one of the contracting States, Article 8 becomes
inapplicable. Reliance in this regard was placed on the commentary by Professor
Klaus Vogel
– Thus
whether or not shipping income is taxable in India will have to be evaluated
basis Article 7 of the DTAA.
Held 2
– For
the following reasons it was held that ICo qualified as an agent of independent
status and hence did not create a DAPE for the Taxpayer in India:
• ICo carried on the activities
of the Taxpayer in the ordinary course of its business.
• Article 5(5) of DTAA between
India and Mauritius requires that when the activities of the agent are devoted
exclusively or almost exclusively on behalf of the foreign enterprise, the
agent will not be considered to be an agent of an independent status.
• The dictionary meanings of the
term ‘exclusively’ clearly suggests that the agent should earn 100% or something
near to 100% from the principal to qualify as its dependant agent. Reliance in
this regard was also placed on the decision of Mumbai ITAT in case of Shardul
Securities Ltd. vs. JCIT (115 lTD 345).
• In the facts of the case, ICo
worked on behalf of other principals as well, apart from the Taxpayer and
earned a substantial part of its income from them. Thus ICo’s activities were
not devoted exclusively or almost exclusively on behalf of the Taxpayer.
• Reliance was placed on the
decision of Mumbai ITAT in the case of DDIT(IT) vs. B4U International
Holdings Ltd. (137 lTD 346) which was upheld by Mumbai High Court in
support of the proposition that for the determination of independence for the
purpose of DAPE, one should look at the activities of the agent and whether or
not the agent works exclusively for one principal.
– The
fact that the principal has only one agent in India who undertakes all the
activities for the principal is not relevant in determination of independence
or otherwise of the agent.
– Thus,
in absence of a PE in India, the income from shipping business is not taxable
in India.
