The assessee being wholly managed and controlled from UAE, qualified for benefit under India-UAE DTTA – Limitation of benefit provision not applicable as it has been conducting bona fide business since years, long before start of India business

FACTS
The assessee was a tax resident of the UAE. Since 2000, it was engaged in business as a shipping agent and
also providing ship charters, freight forwarding, sea cargo services and so on. From March, 2015 it commenced shipping operations by chartering ships for use in transportation of goods and containers. Relying upon Article 8 of the India-UAE DTAA, the assessee claimed that freight earned by it from India was not taxable in India.

The A.O. denied benefit under the DTAA on the grounds that: (i) the assessee was a partnership in the UAE; (ii) it was controlled and managed by a Greek national (Mr. G) who was being paid 80% of profits; (iii) no evidence was brought on record to show either that there was any other manager or that Mr. G was in the UAE for a period exceeding 183 days and since Mr. G was a Greek national, the business was not managed or controlled wholly from the UAE; (iv) TRC was obtained based on misrepresentation of facts. Hence, invoking Article 29 of the India-UAE DTAA1, the A.O. concluded that the assessee was formed for the main purpose of tax avoidance and denied the DTAA benefit. The DRP upheld the order of the A.O.

Being aggrieved, the assessee appealed before the Tribunal.

HELD

•  From a perusal of the license issued by the Department of Economic Development, the annual accounts, Memorandum of Association and Articles of Association, it was evident that the assessee was a company and not a partnership firm.

•  The following facts showed that the assessee was controlled or managed from the UAE:

* The assessee had 14 expatriate employees who were issued work permits by the UAE Government for working with the assessee.
* Mr. G was in the UAE for 300 days during the relevant previous year. Hence, it was reasonable to assume that he was running the business from the UAE.
* Without prejudice, the presence of the main director will be material only if there is something to show that the business was not carried out from the UAE.
* The assessee was carrying on business since 2000 from its office in the UAE, while operations with Indian customers commenced much thereafter.
* The assessee had provided reasonable evidence to support the view that the business was wholly and mainly controlled from the UAE. The assessee cannot be asked to prove a negative fact, especially when such facts are warranted to be proved by the documents which the assessee is not required to maintain statutorily2.

•  Considering the following reasons, it was not proper to invoke limitation of benefits under Article 29 of the India-UAE DTAA:

* The assessee was in business since 2000.
* While the assessee commenced shipping operations for transportation of goods and containers much later, in 2015, it cannot be said that the ‘main purpose of creation of such an entity was to obtain the benefits’ under the India-UAE DTAA.
* Article 29 cannot be invoked unless the purpose of creating the entity was to avail the India-UAE DTAA benefits.
* Even otherwise, the assessee was carrying on bona fide business activity.

Note: With effect from 1st April, 2020, Article 29 of the India-UAE DTAA is substituted with Paragraph 1 of Article 7 (PPT clause) of multilateral instrument (MLI).

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1    Article 29 provides for ‘Limitation of Benefits’. It reads as follows:
 ‘An entity which is a resident of a Contracting State shall not be entitled to the benefits of this Agreement if the main purpose or one of the main purposes of the creation of such entity was to obtain the benefits of this Agreement that would not be otherwise available. The cases of legal entities not having bona fide business activities shall be covered by this Article’

2    During assessment, the assessee did not provide Board minutes. It was represented that documents are not available and the UAE law does not mandate keeping Board of Directors’ Resolutions