Case of Authority for Advance Rulings, September 30, 2009 (case Gearbulk AG Vs Director of Income-tax (International Taxtion))
| President | P.V. Reddi, J. (Chairman) and J. Khosla, Member |
| Resolution Date | September 30, 2009 |
Judgment:
P.V. Reddi, J. (Chairman), (New Delhi)
1. The applicant - a non-resident shipping Company incorporated under the laws of Switzerland seeks advance ruling from this Authority on the following questions:
(1) Whether during the previous years relevant to assessment years 2008-09 and 2009-10, the applicant, in the stated facts and circumstances, had a Permanent Establishment in India under Article 5 of India-Switzerland Double Taxation Avoidance Agreement in relation to activity of charter of vessels for transporting cargoes from Indian ports to outside India?
(2) If the answer to the first question is negative, whether income of the applicant from such charter of vessels is not liable to tax in India under the Treaty?
2. The following facts are stated in the application:
2.1. The applicant enters into medium and long term shipping contracts for the transportation of cargo worldwide. In the course of performance of such contracts, the applicant enters into further contracts with port agents, brokers and stevedores. The applicant only undertakes transportation of cargo.
2.2. During the financial years 2007-08 and 2008-09, the applicant entered into a shipping contract with USL, Shipping FZE ("Dubai Charterer) for transportation of cargo from Indian ports to China. The Dubai Charterer is an independent party engaged in the business of transportation/arranging transportation of cargoes. As per the Charter Agreement, the amount of freight for transportation of cargo from the Indian port to a port outside India is invoiced and received by the applicant. The Dubai Charterer receives a percentage of the freight amount as its commission. The applicant procures contracts utilizing brokering services from Gearbulk Shipping brokers/Kriship (UK) Ltd. which in turn hires the services of Globus Ltd., an independent brokering agent based in India. In consideration of its services, the said UK Company receives brokering commission.
2.3. The applicant, during the relevant years appointed JM Baxi & Co. as its port agent in India for handing the cargo. The activities of JM Baxi & Co., an independent shipping and logistics service provider consists of shipping agency services, charter brokering services and clearing and forwarding agent services. J.M. Baxi & Co. is working as port agent in India on behalf of several other shipping companies. JM Baxi & Co. has, on behalf of the applicant, deposited income-tax under S.172 of the IT Act, on 7.5% of the freight charges received by the applicant.
2.4. During the financial years 2007-08 and 2008-09, the applicant filed the returns of income through JM Baxi & Co. under Section 172(3) of the IT Act. The details of income and the taxes paid are shown in the Chart (vide para 7 of application). An assessment order was passed by the Assistant Commissioner of IT, Circle-II, Margao on 23rd July, 2007 [under Section 172(4)] for the assessment year 2008-09.
2.5. The applicant has furnished copies of Charter Party Agreement, sample invoices, debit note raised by JM Baxi & Co., returns of income and assessment order under Section 172(4).
2.6. The applicant avers that it does not have any presence in India, whether in the form of an office or any other place of business and none of the employees of the applicant visited India during the relevant years.
3. The applicant submits that under the provisions of Section 172(7) of the Act, an option is available to a non-resident to claim that an assessment of its total income be made in accordance with the other provisions of the Act. Accordingly, the applicant 'elected' for assessment of its total income in accordance with the other provisions of the Act. In this context, the applicant relies on S.90 (2) of the Act with Article7 and Article22 of the Agreement for avoidance of double taxation between India and Switzerland (hereafter referred to as 'Treaty' or DTAA). As per Section 90(2) of the Act, the income of a non-resident is taxable in India in accordance with the provisions of the Act or the provisions of DTAA, whichever is more beneficial to the non-residents. That is why the applicant seeks to invoke Article7 and 22 which according to the applicant are more beneficial to it. Broadly, it is the contention of the applicant that if those provisions of the Treaty are applied, the applicant's income derived from the shipping of cargo from the Indian ports cannot be subjected to tax at all having regard to the fact that the applicant has no permanent establishment in India.
3.1. Before proceeding further, we may clarify one factual aspect regarding the option under Section 172(7). Though the applicant stated in the application that it elected for assessment under the regular provisions of the Act as per Section 172(7), it is seen from the clarification furnished by the applicant on 22nd September (in reply to our query) that such option was exercised for one year i.e. 2008-09 in the return filed on 30th March, 2009 pursuant to which the assessing authority issued a notice under Section 143(2) of the I.T. Act on 7.8.2009. It needs to be stated here that the application before AAR was filed on 2nd April, 2009 and an order was passed on 17th June, 2009 admitting the application. For the next year i.e., 2009-10, the time for exercising the option is still there and so far, the applicant has not formally made its claim/option under Section 172(7).
4. The relevant provisions of the Income Tax Act, 1961 and the DTAA may now be noticed.
4.1. Section 172 is a special provision in relation to taxation of income derived from the shipment of goods at a port in India in a ship belonging to or chartered by a non-resident. Section 172(1) starts with a non-obstante provision. The tax is levied and collected on a presumptive basis at a fixed rate. The relevant Sub-sections of S.172 are extracted below:
172. Shipping business of non-residents.- (1)The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply for the purpose of the levy and recovery of tax in the...
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