Income Tax Appellate Tribunal - Mumbai
Delmas France, Mumbai vs Assessee on 19 November, 2014
अिधकरण मुंबई Ûयायपीठ 'एल' मुंबई ।
आयकर अपीलीय अिधकरण,
IN THE INCOME TAX APPELLATE TRIBUNAL "L" BENCH, MUMBAI
सव[ौी डȣ. मुमोहन, उपाÚय¢ एवं , नरे Ûि कुमार ǒबãलैáया, लेखा सदःय के सम¢
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.1955/Mum/2011
िनधा[रण वष[ / Assessment Year : 2001-02
(िनधा[
Delmas France, बनाम The Asstt. Director of
बनाम/
C/o CMA CGM Agencies Income Tax,(International
Vs.
(India) Pvt. Ltd., Taxation)-1(2),
Hamilton House, 1 s t Floor, Scindia House,
8,J.N. Heredia Marg, Ballard Estate,
Ballard Estate, Mumbai-400 038
Mumbai-400 038
ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AABCD 6672P
(अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent)
अपीलाथȸ ओर से/ Appellant by: Shri F. Irani
ू×यथȸ कȧ ओर से/Respondent by: Shri Vivek Perampurna
सुनवाई कȧ तारȣख / Date of Hearing :17.11.2014
घोषणा कȧ तारȣख /Date of Pronouncement :19.11.2014
आदे श / O R D E R
PER N.K. BILLAIYA, AM:
This appeal by the assessee is preferred against the order of the Ld. CIT(A)-10, Mumbai dt.31.12.2010 pertaining to A.Y.2001-02.
2. The assessee has raised 5 substantive grounds of appeal which read as under:
2 ITA No. 1955/M/2011"1. Relief under Article 9 of the India - France Double Taxation Avoidance Agreement (DTAA) The learned Commissioner of Income-tax (Appeals)-l0, Mumbai [hereinafter referred to as the CIT(A)] erred in rejecting the appellant's claim for relief under Article 9 of the DTAA in respect of its freight earnings of Rs.4,20,47,559 on the basis that the connectivity between the feeder vessels carrying the cargo from the Indian ports and the mother vessels owned/chartered by the appellant, was not furnished.
The appellant submits that the CIT(A) ought to have appreciated that it may not be necessary to establish the mother vessel - feeder vessel connectivity for each and every voyage as the claim for relief under Article 9 ought to be examined with reference to the 'business' of operation of ships.
The appellant prays that the Assessing Officer (AO) be directed to allow relief under Article 9 of the DTAA in respect of the freight earnings of Rs.4,20,47,559.
2. Existence of a Permanent Establishment (PE) The learned C{T(A) erred in holding that the freight earnings of Rs.4,20,47,559 are assessable as business profits under Article 7 of the DTAA as there exists a PE of the appellant in India.
The appellant submits that the CIT(A) ought to have appreciated that Barwil Forbes Shipping Services Ltd (BFSSL) was acting in the ordinary course of its business and rendered similar services to other foreign shipping lines besides the appellant. BFSSL therefore cannot constitute a dependent agent of the appellant.
The appellant prays that the AO be directed accordingly.
3. Taxability of ancillary charges interalia inland haulage charges (IHC) The learned CIT(A) erred in holding that the ancillary charges interalia IHC are liable to tax in India.3 ITA No. 1955/M/2011
The appellant submits that the CIT(A) ought to have appreciated that the ancillary charges interalia IHC are not liable to tax in India and prays that the AO be directed accordingly.
4. Levy of interest under section 234B The learned CIT(A) erred in confirming the earlier direction that the interest under section 234B be recomputed on giving effect to the decision relating to the other issues in appeal.
The appellant submits that the provisions of section 234B are not applicable in the facts of its case and therefore, the AO be directed to delete the interest levied.
5. Rate of tax The learned CIT(A) erred in holding that a higher rate of tax in the case of a non-resident Company does not amount to discrimination.
The appellant submits that on the facts and in the circumstances of its case, the CIT(A) ought to have held that the tax rate applicable to the appellant would be 35% as is applicable to a domestic company as against the rate of 48% as is applicable to a foreign company.
The appellant prays that the AU be directed accordingly.
3. At the outset, the Ld. Counsel for the assessee stated that issues raised vide ground No. 2 & 3 relates to the existence of a Permanent Establishment which issue has been decided by the Tribunal in assessee's own case in A.Y. 2006-07 vide ITA No. 9001/M/2010. Therefore, issue raised vide ground No. 1 does not arise.
4. The Ld. Departmental Representative fairly conceded to this.
5. The assessee is a non resident company. Return of income for the year was filed on 30.10.2001. The assessee claimed exemption under 4 ITA No. 1955/M/2011 Article 9 of the Double Taxation Avoidance Agreement with France. The claim of the assessee was examined by the AO vide its order dt. 30.3.2004. In so far as the issue relating to the Permanent Establishment in India, the AO following the decision of the Tribunal, Mumbai Bench in the case of ACIT Vs DHL Operations B.V. Netherlands in ITA Nos 7987 & 7988/Bom/92 came to the conclusion that M/s. Barwil Forbes Shipping Services Ltd is the agent PE in India. The Tribunal in ITA No. 9001/M/2010 in A.Y. 2006-06 has considered this issue at para-7 of its order and after considering Article 5(5) and Article 5(6) of the Indo French DTAA at para-9 of its order held as under:
Let us now deal with the scope of dependent agent permanent establishment (DAPE) as set out in Article 5(5) and Article 5(6) of the Indo French DTAA. Article 5(5) provides the situations in which business being carried on through a dependent agent results in creation of PE in the source state. The provisions of Article 5(6) are, however, slightly at variance with standard tax treaty provisions, and need to be analysed in some detail . The significant feature of Article 5(6) of Indo French DTAA, which is somewhat unique in the sense that this provision is in clear deviation from the standard UN and OECD Model conventions, is that even when an agent is wholly or almost wholly dependent on the foreign enterprise, he will still be treated as an independent agent unless additional condition of the transactions being not an arm's length conditions is fulfilled. It is so for the reason that Article 5(6) provides that even when an agent is wholly or almost wholly dependent on the principal, i.e. foreign enterprise, "he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arms length conditions" ( emphasis by underlining supplied by us). In other words, as long as it is not shown that the transactions between the agent and the principal are not made under arm's length conditions, the agent is treated to be an independent agent.
The implication of the agent being treated as an independent agent is that the provisions of dependent agent PE, as set out in Article 5(5), can never come into play in the cases in which the business is carried out by the foreign enterprise through an independent 5 ITA No. 1955/M/2011 agent, because Article 5(5), which overrides the provisions of Article 5(1) and 5(2), specifically provides that "where a person other than an agent of an independent status to whom paragraph 6 applies ( emphasis by underlining supplied by us) is acting in one of the Contracting States on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State"
subject to fulfilment of certain other conditions which are admittedly fulfilled in the present case. Therefore, as long as the agent is of independent status, the provisions of Article 5(5) cannot be invoked. It is also important to bear in mind that since provisions of Article 5(5) override the provisions of Article 5(1) and 5(2), no permanent establishment under article 5(1) and (2) can be said to come into existence, so far agency situations are concerned, until the conditions of Article 5(5) are also satisfied. Learned Departmental Representative fairly does not dispute, and rightly so, that the permanent establishment in the present case will be governed by Article 5(5) read with Article 5(6). Learned Departmental Representative's only objection is that since an important aspect, i.e. aspect relating to the transactions having been done in arm's length conditions, has not been examined by the Assessing Officer, the matter should be restored to the file of the Assessing Officer for specific adjudication on the transactions between principal and agent having been done in arm's length conditions. We are unable to see any merits in this plea. As held by a coordinate bench of this Tribunal, in the case of Airlines Rotables Ltd Vs DDIT8, "It is a settled position of law, as noted by the Special Bench of this Tribunal in the case of Motorola Inc. 9, that the onus is on the Revenue to demonstrate that a PE of the foreign enterprise exists in India". In the present case, i.e. in the case of DAPE in accordance with provisions of Indo French DTAA, the onus is even greater inasmuch the very foundation of DAPE rests on a negative finding with respect to the wholly dependent or almost wholly dependent agent i.e. "if it is shown that the transactions between the agent and the enterprise were not made under at arms length conditions". Unless this negative finding is on record, it cannot be inferred that the agent is not of an independent status. No such finding was given by the Assessing Officer, or even by the Dispute Resolution Panel. Even in the proceedings before us, no material has been brought on record which at least prima facie demonstrates, or even indicates, that the transactions between the principal and agent are not under arm's length conditions. Once this onus is not discharged by the revenue 6 ITA No. 1955/M/2011 authorities at any of these stages, and in accordance with the law laid down by Special Bench decision in the case of Motorola Inc 10, we have to hold that the assessee did not have any PE in India. We are not inclined to grant a fresh inning to the Assessing Officer for making roving and fishing enquiries on the aspect of transactions not having been done in arm's length conditions - particularly as there is nothing on record to even remotely suggest a prima facie case in this regard. A negative finding in this regard is a sine qua non for making out a case for existence of DAPE in the context of Indo French DTAA, and this finding being absent, we have to hold that the stand of the Assessing Officer, with regard to existence of PE, is not sustainable in law. As regards reference to Hon'ble Visakhapatnam Port Trust's case11, the observations made therein do not apply in this context as it was not dealing with Dependent Agency Permanent Establishment (DAPE) which is now the case before us. As we have seen earlier, the provisions of DAPE override the provisions regarding fixed place PE, and, therefore, any observations made in the context of fixed place PE do not apply to the DAPE situations. As regards the reference to the OECD Model Convention commentaries or other standard literature in the context of DAPE, it cannot be of any help in interpretation of DAPE provisions in Indo French DTAA because of a somewhat peculiar provision in Article 5(5) read with Article 5(6), which is not part of OECD or UN Model Convention, and which provides that "However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arm's length conditions.". We have also noted that the DRP has held that there is a PE on the short ground that assessee's claim for applicability of Article 9 presupposes existence of a PE, but it is difficult to comprehend as to how existence of a PE can be inferred merely because the assessee has made a particular claim, which is rejected anyway. The onus of establishing that there is a PE, as we have noted earlier in the discussions, is on the revenue authorities and there is no room for inferences being drawn up in this respect merely because the assessee has made a particular claim. Similarly, reference to agent's authority to conclude contracts, as has been made by the DRP, is not decisive test either because even when agent has the authority to conclude contracts, it is still to be established that the agent is not an independent agent. That exercise is not even conducted in this case. The Assessing Officer's 7 ITA No. 1955/M/2011 reliance on OECD Commentary, therefore, is of no avail either. In view of these discussions, as also bearing in mind entirety of the case, we set aside and vacate the Assessing Officer's findings with regard to existence of assessee's PE in India. We may, at the cost of repetition, clarify that these conclusions are arrived at in the light of the factual position that there are no findings by the Assessing Officer, or the Dispute Resolution Panel, to the effect that the transactions between the agent and the assessee are not at an arm's length price, and that, in view of the provisions of Article 5(6) of Indo French DTAA, such a finding by the revenue is a sine qua non for existence of DAPE. To this extent, our decision is confined to the facts of this case for the particular assessment year before us.
6. We have given a thoughtful consideration to the findings of the Tribunal. The Tribunal has gone with the factual matrix that there are no findings by the AO or the Dispute Resolution Panel to the effect that the transactions between the agent and the assessee are not at an arm's length price which is sine qua non in view of the provisions of Article 5(6) of Indo French DTAA. This means that the Tribunal had proceeded on presumption. In our considered opinion, the Tribunal is also a fact finding authority. No doubt the initial onus is upon the Revenue to show that the transactions are not at arm's length price, this aspect has not been looked upon by the Revenue authorities, we therefore restore this issue to the files of the AO to examine whether the transactions between the agent and the assessee are at arm's length price and decide the issue afresh in the light of the provisions of Article 5(6) of Indo French DTAA. If the AO finds the transactions to be at arm's length price, then the decision of the Tribunal in A.Y. 2006-07 shall prevail in the present year also.
7. The above findings will also cover the issue raised vide ground No. 3 relating to the taxability of ancillary charges inter alia inland haulage charges.8 ITA No. 1955/M/2011
8. Ground No. 4 relates to levy of interest u/s. 234B of the Act.
8.1. This issue has been decided in favour of the assessee by the Hon'ble Jurisdictional High Court of Bombay in the case of DIT Vs NGC Network Asia LLC in 313 ITR 187 wherein the Hon'ble High Court has held that "when a duty was cast on the payer to deduct the tax at source, on failure of the payer to do so, no interest could be imposed on the assessee". Respectfully following the decision of the Hon'ble Jurisdictional High Court, the AO is directed to delete the interest levied u/s. 234B of the Act.
9. Ground No. 5 relates to the rate of tax. The Ld. CIT(A) at para- 6.2. of his order has held as under:
'I have considered the facts and submissions of the appellant. The Finance Act, 2001 inserted an Explanation to section 90 of the Act which was further amended by Finance Act, 2004 providing retrospective amendment with effect from April 1, 1962. This Explanation reads as :"Explanation - For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company, where such foreign company has not made the prescribed arrangement for declaration and payment within India, of the dividends (Including dividends on preference shares) payable out of its Income in India." Thus this Explanation has explicitly laid down and clarified the doubts that after insertion of this Explanation with retrospective effect from 1.4.1962 that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company. It is further seen that after insertion of this explanation, the hon'ble Tribunal Kolkata has ruled in the case of ABN Amro Bank (99 TTJ 1041) [Second ABN Ammo Ruling'].The ruling of the First ABN Amro (ITA 692/CA/2000) cannot be applied after the introduction of the Explanation to section 90 of the Act. Further the jurisdiction hon'ble Tribunal in Chouhang Bank v DDIT (2006) (6 SOT 44) Mum) has elaborately dealt with the issue and has considered that the non discrimination clause in DTAA between India and South Korea. It has also considered the explanation introduced with retrospective effect from 1.4.1962 to section 90. The hon'ble Tribunal has held 9 ITA No. 1955/M/2011 that foreign bank and the Indian banks are not similarly placed.
There is no discrimination in application of different rate to foreign bank compared to a domestic company. It was also held that even a foreign company can be a domestic company, if it satisfies the conditions mentioned (treated as domestic company). Similarly, in case of Shinhan Bank (erstwhile Chouhang Bank) (ITA No. 5793/Mum/2006) (AY-200304) (dtd 25.6.2009) (L-Bench- Mumbai) again held that assessee income was to be taxed at 40% plus surcharge as against the assessee's claim of 35%. In the case of P.16 of 1998, ABC, In re (1999) 151 CTR (AAR) 35: (1999) 236 ITR 103 (AAR) the AAR held that foreign companies being charged a higher rate of tax cannot be held to be covered by the provisions ensuring nondiscrimination under the Indo-French tax treaty. In view of the above facts and following the decision of hon'ble ITAT and considering the explanation to section 90(2), it is held that there is no discrimination in application of higher rate of tax to foreign company. Therefore, this ground of appeal is dismissed."
10. Though the Ld. Counsel stated that once the PE issue is decided in favour of the assessee, this grievance would be only of academic interest. However, to complete the adjudication, we have given a thoughtful consideration to this issue. It is a settled position of law and the judicial Consensus in India has been that section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens, the provisions of such an agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income-tax Act. If it was not the intention of the Legislature to make a departure from the general principle of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making those sections 'subject to the provisions" of the Act. The very object of' grafting the said two sections with the said clause is to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAA which 10 ITA No. 1955/M/2011 would automatically override the provisions of the Income-tax Act in the matter of ascertainment of' chargeability to income tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAA.
11. Section 2(37A)(iii) provides as under:
"Sec. 2(37A) ... "rate or rates in force" or "rates in force", in relation to an assessment year or financial year means -
Sec. 2(37A)(iii)... for the purposes of deduction of tax under section 195, the rate or rates of income tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in [an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government u/s. 90A, whichever is applicable by virtue of the provisions of Section 90, or section 90A, as the case may be]"
12. Let us now see whether any rate of tax is specified in the agreement for Avoidance of Double Taxation with France. Article 2 of Indo French DTAA reads as under:
ARTICLE 2 TAXES COVERED
1. The taxes to which this convention shall apply are:
(a) in India:
(i) the income tax including any surcharge thereon;
(ii) the surtax; and
(iii) the wealth-tax
(hereinafter referred to as 'Indian tax')
(b) in France:
11 ITA No. 1955/M/2011
(i) the income-tax (1 'impot sur le revenu') including any withholding tax, pre-payment (precompte) or advance payment with respect thereto;
(ii) the corporation tax (1 'impot sur les scietes) including any withholding tax, prepayment (precompte) and advance payment with respect thereto ; and
(iii) the wealth-tax (1 'impot le solioarite'sur la fortune).
(hereinafter referred to as "French tax").
2. The Convention shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Convention in addition to. or in place of, the taxes referred to in paragraph 1. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws.
13. Article 3K of Indo French DTAA reads as under:
"In this Convention, unless the context otherwise requires:
(k)- the term "tax" means Indian tax or French tax as the context requires.
2. As regards the application of the Convention by the Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that Contracting State concerning the taxes to which the Convention applies."
14. Since no specific tax rate have been provided in Indo French DTAA, there appears to be no conflict between the domestic law and the DTAA. We, therefore, do not find any error in the findings of the Ld. CIT(A).
12 ITA No. 1955/M/201115. The Ld. Counsel for the assessee had strongly placed reliance on the decision of the Hon'ble Bombay High Court in the case of Siemens Aktionesellschaft 310 ITR 320.
16. We have considered the decision of the Hon'ble Bombay High Court. We find that the said decision is not applicable to the case in hand. In the said decision, the Hon'ble Bombay High Court has held that by a unilateral amendment it is not possible for one nation which is party to an agreement to tax income which otherwise was not subject to tax. Such income would not be subject to tax under the expression "laws in force". The dispute in the case in hand relates to the rate of tax. As mentioned elsewhere, this issue is only for academic interest so far as the facts of the case in hand are concerned.
17. In the result, the appeal filed by the assessee is treated as allowed for statistical purpose.
Order pronounced in the open court on 19th November, 2014 Sd/- Sd/-
(D.MANMOHAN ) (N.K. BILLAIYA) उपाÚय¢/VICE PRESIDENT लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; Ǒदनांक Dated : 19th November, 2014 व.िन.स./ RJ , Sr. PS 13 ITA No. 1955/M/2011 आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. आयकर आयुƠ(अपील) / The CIT(A)-
4. आयकर आयुƠ / CIT
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड[ फाईल / Guard file.
आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai