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June 2017

Sections 9, 172 of the Act; Article 9 of India-Denmark DTAA – since; director of shipping company was resident of Denmark; had been operating business wholly from Denmark; all important decisions were taken in Denmark; tax residency certificate issued by Denmark authorities showed shipping company as resident of Denmark, place of effective management and control of shipping company was in Denmark and accordingly, profits arising from operations of ships in international traffic were not taxable in India.

By Geeta Jani, Dhishat B Mehta, Chartered Accountants
Reading Time 2 mins

12. [2017] 80 taxmann.com 217 (Rajkot – Trib)

Pearl Logistics & Ex-IM Corporation vs. ITO

A.Ys. 2010-11 TO 2013-14,

Date of Order: 20th March, 2017

Facts

The Taxpayer was an agent of a Denmark based ship broker
(“DenCo”). DenCo was ‘disponent owner’ and another company (“FCo”) was
charterer of ship which carried cement to ports in India. Freight was payable
by FCo to DenCo.

The Taxpayer filed return of income under section 172(8) and
claimed that since DenCo was beneficiary of freight, it was entitled to benefit
of India- Denmark DTAA. Hence, DenCo was not liable to pay tax on fright in
India.

Held

–   According to section 172, income of owner or
charterer which receives freight is chargeable to tax. In this case, freight is
received by DenCo which has also earned the freight. Hence, income of DenCo is
chargeable to tax in India.

–   As per the tax residency certificate issued
by Danish tax authority, DenCo is resident of Denmark. Hence, DenCo can avail
of the benefit of India-Denmark DTAA.

–   As per article 9 of India-Denmark DTAA,
profits derived from operation of ships in international traffic shall be
taxable only in the State where the ‘place of effective management’ of the
enterprise is situated.

–   The Taxpayer has furnished several documents
showing that: the Director of DenCo was resident of Denmark; he was operating
business wholly from Denmark; all the important decisions were taken in the
meeting in Denmark. Therefore, the place of effective management and control of
DenCo was in Denmark.

–     DenCo was resident of Denmark and its ‘POEM’
was in Denmark. Therefore ‘head and brain’ of DenCo was situated in Denmark.
Accordingly, in terms of article 9 of India-Denmark DTAA, the profits derived
from operation of ship were not taxable in India.

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