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Section 44B of the Act and Article 8 of India-Singapore DTAA –Taxpayer providing container services cannot not be treated as engaged in shipping business. Article 8 of the DTAA and section 44B of the Act not applicable Income was liable to be taxed as business income. In absence of PE, such income is not taxable in India
Facts
The Taxpayer was a company incorporated in Singapore and engaged in the business of operating ships in international traffic across Asia and Middle East. The Taxpayer is a wholly owned subsidiary of an Indian Parent Co (ICo).
The Taxpayer filed a return of income claiming that the total income was NIL. However, AO contended that the Taxpayer had a real and intimate business connection in India for reasons that the ICo secured the business for Taxpayer in India and one of the directors of the Taxpayer was also a director in ICo, and such director looked after policy matters of the Taxpayer in India. Further, AO held that taxpayer had a fixed place of business in India. Further as ICO concluded various contracts on behalf of the Taxpayer with various Government agencies for carrying out various functions, ICo created an Agency PE for the taxpayer in India.
AO also contended that Taxpayer being a Non-vessel operating common carrier was not eligible to claim benefits under Article 8 of the DTAA, dealing with shipping income and the income of the Taxpayer would fall within the ambit of Article 7. The computation of such income would be governed by section 44B of the Act. However, the Taxpayer contended that it did not have a fixed place of business in India. Further, it was contended that as an independent entity all its decisions were taken in Singapore and ICo had no role in deciding taxpayer’s policies.
The Taxpayer appealed before First Appellate Authority (‘FAA ’). However, FAA upheld the order of AO.
Aggrieved by the order of FAA , the Taxpayer preferred an appeal before the Tribunal.
Held
On facts and records, it was clear that taxpayer was maintaining books of accounts as well as bank account in Singapore and all banking transactions were made from that account only. Nothing was brought on record to show that the effective control and management of taxpayer was in India.
Factors like staying of one of the directors in India or holding one meeting during the year under consideration or location of parent company would not decide the residential status of the Taxpayer.
The Taxpayer did not own or charter or took on lease any vessel or ship but was merely providing container services to its clients. Thus, the Taxpayer is not engaged in shipping business. This was also accepted by the AO. Therefore the provisions of section 44B dealing with income from shipping business would not be applicable in the present case.
The income of the Taxpayer had to be assessed as per Article 7 which deals with business income. In the absence of PE, such income is not taxable in India.
