Income Tax Appellate Tribunal - Mumbai
Simatech Shipping Forwarding Llc, ... vs Department Of Income Tax on 22 March, 2011
आयकर अपील य अ धकरण "एल" यायपीठ मंुबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "L", MUMBAI
ी आर.एस. याल, लेखा सद य एवं ी ववेक वमा, या यक सद य के सम ।
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
आयकर अपील सं. : 3819/मम
ु /2011
नधारण वष A.Y. 2006-07
ITA No. : 3819/Mum/2011
(Assessment year: 2006-07)
&
आयकर अपील सं. : 3820/ममु /2011
नधारण वष A.Y. 2007-08
ITA No. : 3820/Mum/2011
(Assessment year : 2007-08)
ADIT (IT) 2(1) vs M/s Simatech Shipping
R. No. 120 1st Floor, SCINDIA Forwarding LLC
HOUSE C/o. Sima Marine (I) Pvt.
Ballard Estate, Ltd. Ground Floor, Sai
N.M. Road, Commercial Annexe, BKS
Mumbai -400 038 Devshi Marg, Govandi (E)
Mumbai- 400 088
PAN: AAGCS 8265 E
(Applicant) (Respondent)
Applicant by Ms. Neeraja Pradhan
Respondent by Mr. Pankaj R. Toprani
Date of Hearing 09.07.2013
Date of Pronouncement 17.07.2013
PER VIVEK VARMA, J.M.
The two appeals are filed by the department against the order of CIT(A)-11, Mumbai, dated 22.03.2011.
2. Since there is involvement of the DTAA Treaty with UAE in both cases, we are disposing off the two appeals through this common order for the sake of brevity.
2 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC.
ITA No. 3819: Assessment Year 2006-07
3. The department has raised the following founds of appeal:-
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that the assessee company is eligible for the benefit of DTAA between India and UAE ignoring the fact that during the relevant period under reference, the benefit of DTAA between India and UAE are not available to the assessee as the Notification 282/2007-FTD(F.No. 503/52004-FTD) is effective w.e.f. 03.10.2007.
2. The Appellant prays that the order of the Ld. CIT(A) on the above ground(s) be set aside and that of the Assessing Officer restored.
4. The facts in brief are that the assessee is a resident of UAE, engaged in the business of shipping. In the year under consideration the assessee has shown taxable income of Rs.1,03,43,715/-. In the course of assessment proceedings, the assessee claimed that the income so declared is not taxable in India, as per the Notification no. 282/2007- FTD (F.No. 503/2004-FTD), dated 28.11.2007, which came in force w.e.f. 03.10.2007. Besides the notification, the assessee, before the revenue authorities, also placed reliance on the decision of the coordinate bench in the case of ADIT vs Green Emirate Shipping & Travels, 99 TTJ 988 (Mum), (referred to in the assessment order), wherein it has been held that, "DTAA shall apply even though the assessee has not paid any taxes in the UAE, so long as the person is "liable to tax in the Contracting State". It was further observed in the decision that the person should actually be liable to tax in a country does not necessarily imply that the person should actually be liable to tax in that contracting state by virtue of an existing legal provision but would also cover cases, where the other Contracting State has the right to tax such persons, whether or not such right is exercised".
5. In the year under consideration, the assessee company entered into the joint pool agreements with the other shipping companies whereby the other shipping company and the assessee shipping company shared the space on the vessels owned by others, which came to India. It was pointed out that as per DTAA between India and UAE, Article 8 clause 4 very clearly stated that the provisions of paragraphs 1, 3 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC.
2 and 3 shall apply to profits from the participation in a pool a joint business or an international operating agency. Therefore, under the treaty, Article 8(4) of the India UAE Treaty would be applicable. It was further stated that other the pool partners, who were working along with the appellant company, have availed the benefit of Section 90 of the Income-tax Act from the Department. However, in the assessee's case, the controversy pertained to the word 'slot' where, the coordinate Bench at Mumbai, in the case of Balaji Shipping (UK) Ltd. decided the case in favour of assessee allowing the benefit under treaty by going in to the details of the word 'slot' and the applicability of the article under treaty by allowing the slot business profit under the article and keeping in mind articles of the treaty and definition provided under OECD Model.
6. Before the AO, in the assessment proceedings, the controversy pertained to whether time charter and hiring of slots fell within the Article 8 of the Treaty or not. It was argued that, under the DTAA Treaty, time charter definitely fell under Article 8 of the Treaty, but whether, the sale of slots in the joint pool agreements with other shipping companies fell under Article 8(4) of the DTAA between India and UAE, was a subject matter of litigation for a long time. It was pointed out to the revenue authorities, that, coordinate Bench of the ITAT in the case of Balaji Shipping UK Ltd.(supra), has decided this issue in the favour of the appellant company that leasing out of slot is also covered under the Treaty. Accordingly, it was submitted that, the appellant company was eligible, to be assessed under the treaty provisions, between India and UAE.
7. These arguments did not find favour with the A.O., who rejected the contention of the assessee for the application of DTAA and held that the assessee was not eligible for Treaty benefit. He, therefore invoked the 4 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC.
provisions of section 44B of the Income Tax Act, 1961, and computed the presumptive profit on total receipt of Rs. 32,32,60,607/- at Rs. 2,57,44,546/- applying the given rate of 7.5% and computed the tax payable at Rs.1,07,66,368/-, instead of Rs.1,03,43,715/-.
8. Aggrieved, the assessee approached the CIT(A), before whom, the assessee reiterated its arguments made before the AO and prayed that, the AO may be directed to allow the relief as claimed by the appellant company u/s 90(1)(a)(ii) of the Income-tax Act for the vessels operated by third parties, though not owned or chartered by the appellant company, also in view of the fact, that other pool partners, had received the benefit u/s 90.
9. The CIT(A), considering the detailed arguments of the assessee, held, "I have carefully gone through the order of the Assessing Officer and also the submission as made by the Authorized Representative of the appellant company. I find that the Assessing Officer had committed a mistake by not allowing the benefit of DTAA between India and UAE to the appellant company in the assessment Year 2006-07. Whereas, on the similar facts, he has allowed the benefit of DTAA between India and UAE to the appellant company in the Assessment Year 2007-08 with the following reasoning :
"After considering the Tax Residency Certificate filed by the assessee, submissions made regarding applicability of India UAE DTAA, submissions regarding effective place of management o the concern and specific provisions related to Article 8 of India UAE DTAA, I am of the opinion that the assessee is eligible for benefit under India UAE Double Taxation Avoidance Agreement, Article 8 of he agreement states:-
'Profits derived by an enterprise of a Contracting State from the operation by that enterprise of ships in international traffic shall be taxable only in that state."
However, there was a controversy whether time charter and hiring of slots falls within the Article 8 of the treaty or not. Under the DTAA, time charter definitely falls under Article 8 of the Treaty. Whereas, the sale of slots in the joint pool agreements with other shipping companies falls under Article 8(4) of the DTAA between India and UAE, was a subject matter of litigation for a long time. The Hon'ble ITAT in the case of Balaji Shipping UK Ltd. has decided this issue in the favour of the appellant company that leasing out of slot is also covered under the Treaty. Therefore, the appellant company is legally eligible on the facts of the case to be assessed under the provisions of the treaty between India and UAE. Consequently, the Assessing Officer is directed to allow DIT 5 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC.
Relief u/s 90(1)(a)(ii) of the Income-tax Act as claimed by the appellant company in accordance with the law.
The CIT(A), thus, allowed the contentions raised by the assessee.
10. Aggrieved, the department is in appeal before the ITAT.
11. Before us, the DR pointed out that CIT(A) had primarily relied on the decision of DDIT vs Balaji Shipping UK Ltd. reported in 117 TTJ 865 (Mum), which is primarily on slot hire and not on ship charter and based on India UK Treaty. The DR also pointed out that India UAE Treaty is similar to India USA Treaty, whereas, the UK Treaty is differently worded. She, therefore, submitted that reliance on Balaji Shipping by the CIT(A) was infirm, as the expression "that enterprise", does not figure in the UK Treaty. She submitted a chart, which gives a telescopic view, as follows:
USA UK UAE SINGAPORE ARTICLE 8 - Shipping ARTICLE 8 - Air ARTICLE 8- SHIPPING ARTICLE 8 : SHIPPING and air transport - 1. Transport-1 Profits 1. Profits derived by AND AIR TRANSPORT
Profits derived by an derived from the an enterprise of a - 1. Profits derived by enterprise of a operation of aircraft in Contracting State an enterprise of a Contracting State international traffic by from the operation by Contracting State from the operation an enterprise of one of that enterprise of from the operation of by that enterprise of the Contracting States ships in international ships or aircraft in ships or aircraft in shall not be taxed in the traffic shall be taxable international traffic international traffic other Contracting State. only in that State. shall be taxable only in shall be taxable only 2. The provisions of 2. For the purposes of that State. in that State. paragraph 1 of this this Article, profits 2. The provisions of
2. For the purposes of Article shall likewise from the operation of paragraph I shall also this Article, profits apply in respect of ships in international apply to profits from from the operation participation in pools traffic shall mean the participation in a of ships or aircraft of any kind by profits derived by an pool, a joint business in international enterprises engaged in enterprise described or an international traffic shall mean air transport. in paragraph (I) from operating agency profits derived by an 3. For the purposes of the transportation by engaged in the enterprise described this Article the term sea of passengers, operation of ships or in paragraph I from "operation of aircraft" mail, livestock or aircraft. the transportation shall Include goods and shall 3. Interest on funds by sea or air transportation by air include: connected with the respectively of of persons livestock, (a) the charter or operation of ships or passengers, mail, goods or mail, carried rental of ships aircraft in international livestock or goods on by the owners or incidental to such traffic shall be regarded carried on by the lessees or charterers transportation; as profits derived from owners or lessees or of aircraft, including (b) the rental of the operation of such charterers of ships the sale of tickets for containers and ships or aircraft, and or aircraft such transportation on related equipments the provisions of Article including-- behalf of other used in connection 11 shall not apply in
(a) the sale of tickets enterprises, the with the operation of relation to such interest. for such incidental lease of ships in international 4. For the purposes of 6 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC.
transportation on aircraft on a charter traffic this Article, profits behalf of other basis and any other (c) the gains derived from the operation of enterprises; activity directly from the alienation of ships or aircraft in
(b) other activity connected with such ships, containers and international traffic directly connected transportation. related equipments shall mean profits with such 4. Gains derived by an owned and operated by derived from the transportation ; and enterprise of a the transportation by sea
(c) The rental of Contracting State from Enterprise in or air of passengers, ships or aircraft the alienation of aircraft international traffic. mail, livestock or incidental to any owned and operated by 3. For the purposes of goods carried on by activity directly the enterprise, the this Article, interest on the owners or lessees connected with such income from which is funds connected with or charterers of the transportation. taxable only in that the operation of ships ships or aircraft,
3. Profits of an State, shall be taxed in international traffic including profits from enterprise of a only in that State. shall be regarded as (a) the sale of tickets Contracting State ARTICLE 9 - Shipping - profits derived from the for such transportation described in I. Income of an operation of such ships on behalf of other paragraph I from the enterprise of a and the provisions of enterprises; maintenance, or rental Contracting State Article II shall not (b)the incidental lease of containers from the operation of apply in relation to of ships or aircraft (including trailers, Ships in international such interest. used in such barges, and related traffic shall be taxable 4. The provisions of transportation; equipment for the only in that State. paragraphs (1),(2) and (c)the use, transport of 2. The provisions of (3) shall apply to profits maintenance or rental containers) used in paragraph I of this from the participation or containers connection with the Article shall not apply to in pool, a joint (including trailers and operation of ships or income from joumeys business or an related equipment for aircraft in between places which international operating the transport of international traffic are situated in a agency. containers) connection shall he taxable only Contracting State. with such in that State. 3. For the purposes of transportations and
4. The provisions of this Article, income (d) any other activity paragraphs I and 3 from the operation of directly connected with shall also apply to ships includes income such transportation.
profits from derived from the participation in a rental on a bareboat pool, a joint basis of ships if such business, or an rental income is International incidental to the operating agency. income described in 5. For the purposes of paragraph I of this this Article, interest Article. on finds connected 4.Notwithstanding the with the operation of provisions of Article 7 ships or aircraft in (business profits) of this international traffic Convention, the shall be regarded as provisions of profits derived from paragraphs I and 2 of the operation of such this Article shall ships or aircraft, and likewise apply to the provisions of income of an Article II (Interest) enterprise of a shall not apply in Contracting State relation to such from the use, interest maintenance or rental 6. Gains derived by of containers an enterprise of a (including trailers and Contracting State related equipment for described in the transport of paragraph I from the containers) used for alienation of ships, the transport of goods 7 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC. aircraft or containers or merchandise. owned and operated 5. The provisions of this by the enterprise, the Article shall apply also income from which is to income derived taxable only in that from participation in a State, shall be taxed pool, a joint business only in that State. or an international operating agency. 6. Gains derived by an enterprise of a contracting State from the alienation of ships or containers oed and operated by the enterprise shall be taxed only in that State if either the income from the operation of the alienated ships or containers was taxed only in that State, or the ships or containers are situated outside the other Contracting State at the time of the alienation.
12. The DR, further strengthen her case, placed reliance on the decision of ACIT(IT) vs Federal Express Corporation, USA, ITA Nos. 4452, 4453 & 9482/Mum/2004 and pointed out that since this case closest to the ease of the assessee, as it pertained to India US Treaty, the views expressed herein should be followed and accordingly, the case of the AO should be sustained.
13. The AR, submitted that the CIT(A) had taken into consideration the views expressed in the decision, which directly covers India UAE Treaty, i.e. the case of Green Emirate Shipping & Travels (supra), wherein the coordinate Bench held:-
"8. Although the AO's objection to applicability of India-UAE tax treaty was only on the ground that the provisions of DTAAs do not come into play unless it is established that the assessee is paying tax in both the countries in respect of the same income, in the grounds of appeal before us it is also contended that the assessee-company failed to produce any evidence to the effect that it was 'liable to pay taxes' in UAE. The question then arises whether an existing liability to pay taxes in UAE is a sine qua non to avail the benefit of India-UAE tax treaty in India. On this issue also, we find guidance from the judgment of Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra).
8 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC.
Referring to the Klaus Vogel's Commentary on Double Taxation Conventions. Their Lordships, inter alia, observed as follows "In other words, Contracting States mutually bind themselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxation for the other Contracting State either entirely or in part. Contracting States are said to waive 'tax claims' or more illustratively to divide 'tax sources', 'taxable objects', amongst themselves". Double taxation avoidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe this method of classification of items and their assignments to the Contracting States. While the English lawyers called it 'classification and assignment rule', the German jurists called it 'the distributive rule' (Verteilungsnormi). To the extent that an exemption is agreed to, its effect is in principle independent of both whether the Contracting State imposes a tax, in the situation to which the exemption applies, and irrespective of whether the State actually levies the tax. Commenting particularly on the German Double Taxation Convention with the United States, Vogel comments: "Thus, it is said that the treaty prevents not only 'current' but also merely 'potential' double taxation".
It is thus clear that a tax treaty not only prevents current' but also potential' double taxation. Therefore, irrespective of whether or not the UAE actually levies taxes on non-corporate entities, once the right to tax UAE residents in specified circumstances vests only with the Government of UAE, that right, whether exercised or not, continues to remain exclusive right of the Government of UAE. As noted above, the exemption agreed to under the 'assignment' or 'distributive' rule, is independent of 'whether the Contracting State imposes a tax in the situation to which exemption implies'. In the case of John N. Gladden vs. Her Majesty the Queen 85 Tax Cases 5188, which was quoted with approval by the Hon'ble Supreme Court in Azadi Bachao Andolan's case,. (supra), Federal Court of Canada has observed that the non- resident can benefit from the exemption (under the treaty) regardless of whether or not he is taxable on that capital gain in his own country. If Canada or the US were to abolish the capital gains tax completely, while the other country did not, a resident of the country which has abolished the capital gains would still be exempt from capital gains in that other country". It is thus clear that taxability in one country is not sine qua non for availing relief under the treaty from taxability in the other country. All that is necessary for this purpose is that the person should be 'liable to tax in the Contracting State by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature' which essentially refers to the fiscal domicile of such a person. In other words, if fiscal domicile of a person is in a Contracting State, irrespective of whether or not that perso1 is actually liable to pay tax in that country, he is to be treated as resident of that Contracting State. The expression 'liable to tax' is not to read in isolation but in conjunction with the words immediately following it, i.e., 'by reason of domicile, residence, place of management, place of incorporation or any other criterion, of similar nature'. That would mean that merely a person living in a Contracting State should not be sufficient, that person should also have fiscal domicile in that country. These tests of fiscal domicile which are given by way of examples 9 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC.
following the expression 'liable to tax by reason of, i.e., domicile, residence, place of management, place of incorporation, etc., are no more than examples of locality-related attachments that attract residence type taxation. Therefore, as long as a person has such locality-related attachments which attract residence type taxation, that 'person' is to be treated as resident and this status of being a 'resident' of the Contracting State is independent of the actual levy of tax on that person. Viewed in this perspective, we are of the considered opinion that being 'liable to tax' in the Contracting State does not necessarily imply that the person should actually be liable to tax in that Contracting State by virtue of an existing legal provision but would also cover the cases where that other Contracting State has the right to tax such persons irrespective of whether or not such a right is exercised by the Contracting State. In our humble understanding, this is the legal position emerging out of Hon'ble Supreme Courts judgment in Azadi Bachao Andolan's case. (supra). The plea taken by the Revenue that the assessee was not 'liable to tax', which was anyway not taken by the AO or before the CIT(A), is also not sustainable in law either".
14. The AR, therefore, submitted that since the issue has been decided by the coordinate Bench in the case of Green Emirate case, wherein even the Hon'ble Bombay High Court, refused to interfere with and the rejected the appeal of the department u/s 260A, the CIT(A)'s findings should be sustained.
15. We have heard the contentions raised by either parties and have perused the language used in the Treaties, referred to before us, Taking up the issue of availability of DTAA between India and UAE, on the assessee, who is tax resident of that country, but has not paid taxes there, the revenue is interpreting that since the assessee has not paid taxes in UAE, there can be no curtailment of tax liability as per the Act, by pressing the DTAA. The reason, being that DTAA applies on juridical double taxation, i.e. if income is not taxed in one state, then it should be taxed in full in the other, if it is otherwise taxable, without grating any benefit of the Treaty. This argument, in our opinion cannot be sustained, because, the assessee is 'otherwise liable to tax' in UAE. Simply because there is no tax incidence in UAE, does not mean that the assessee ceases to be 'otherwise liable to tax', as per Article 4. Once the assessee, gets within the expression 'otherwise liable to tax' in UAE Treaty, DTAA becomes operative. This, exactly is the ratio laid down by the coordinate Bench of the ITAT at Kolkata in Green Emirates (supra).
10 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC.
16. In the above circumstances, that the assessee shall get the Treaty benefit, we would now embark on the argument of the AR that the ratio laid down by Balaji Shipping (supra) should be applied and on the other hand, DR's argument that the ratio laid down in Federal Express Corporation, reported in 125 ITD 1 (Mum) should be applied, as the language used for Article 8 in UAE Treaty is similar to US Treaty.
17. We are of the opinion that the case of Balaji Shipping (supra) cannot be relied upon, simply because Article 8 is differently worded. We are, therefore, convinced with the arguments of the DR that the wordings used in Article 8 in UAE Treaty is pari materia to the language used in US Treaty. This fact, is accepted by the AR. In these circumstances, when we find that there is no detailed reasoning in the orders of the revenue authorities, giving the nature of the receipts from shipping business, we, in the interest of justice, consider that the issue be restored to the file of the AO, to reconsider the exact nature of income.
18. We, therefore, set aside the order of the CIT(A) and direct the AO to consider the nature of income in issue and consequently, the availability of Article 8 of the India UAE Treaty, which shall be in accordance with the ration laid down in the case of Federal Express (supra), needless to say, that the AO shall allow reasonable and adequate opportunity to the assessee to present its case.
19. Ground no. 1, therefore, treated as allowed for statistical purposes. Grounds no. 2 and 3 are general.
20. In the result, appeal filed by the department is allowed for statistical purposes.
11 ITA 3819/Mum/11 Simatech Shipping Forwarding LLC.
ITA No. 3820/Mum/2011: Asst. year 2007-08The department has taken the following grounds :
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing to allow Double Taxation Relief u/s. 90(1)(a)(ii) of the IT Act, on chartering of slots of other vessels not owned by the assessee company ignoring the fact that the Double Taxation Relief is admissible only in respect of operation of its own ships in the International traffic.
2. The Appellant prays that the order of the Ld. CIT(A) on the above ground(s) be set aside and that of the Assessing Officer restored".
1. In ITA No. 3819/Mum/2011, pertaining to assessment year 2006-07, we have restored the issue, to the file of the AO, for adjudication afresh, taking into consideration the ratio laid down in the case of ACIT vs Federal Express Corporation.
2. Similarly, we, restore the impugned issue, in the instant appeal to the file of the AO for fresh adjudication in the light of the decision of Federal Express (supra).
3. The appeal, as filed by the department, is treated as allowed for statistical purposes.
4. In the result both the appeals filed by the department are allowed for statistical purposes.
Order pronounced in the open court on 17th .July, 2013.
Sd/- Sd/-
(आर.एस. याल /R.S. SYAL) ( ववेक वमा /VIVEK VARMA)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
मंब
ु ई/Mumbai,
दनांक/Date: 17thJuly, 2013
Copy to:
1. Applicant
12 ITA 3819/Mum/11
Simatech Shipping Forwarding LLC.
2. Respondent
3. The CIT (A)-30, Mumbai
4. The CIT -XIX, Mumbai
5. DR "B" Bench, ITAT, Mumbai
6. Guard File
E पत //True Copy//
आदे शानसार
ु / BY ORDER,
उप/सहायक पंजीकार Dy./Asst. Registrar
आयकर अपील य अ धकरण, मंुबई /