WSA Shipping (Bombay) Private Ltd Vs. ADIT (ITAT Mumbai), Decided on 13.05.2011
A relation between the business of a non-resident and activity carried on in India would result in a ‘business connection’ for the purpose of deemed accrual of income in India as well as for considering the resident as the agent of the non-resident
Facts :-WSA Shipping (Bombay) Private Ltd („assessee‟) is engaged in the business of Cargo Consolidation commonly known in the business as Non Vessel Owners Cargo Carriers. The assessee is registered as a Multi modal Transport Operator (MTO) with the Ministry of Shipping; Directorate General of Shipping, Government of India.The assessee receives cargo from various shippers/consignors at Mumbai port for shipments to various destinations worldwide. Based on the volumes of the cargo and business experience, the assessee obtains a container from agents of shipping lines.In the process of cargo consolidation, as the container obtained from the agents of shipping lines may not be stuffed fully for a particular destination, as per the delivery schedule.
The assessee stuffs the cargo of various destinations on a particular route in one container and loads the container with the shipping line.A business associate of the assessee at an intermediary destination turns around the cargo and routes the same to the final destination. For this service, the assessee pays a fee to the overseas business associate.The assessee was unable to produce the agreement entered into with the overseas business associate before the assessing authority.The tax officer held that the non-resident business associate of the assessee had a business connection in India and considered the assessee as an agent of the non-resident business associate.The tax officer also held that the income of the assessee‟s business associates in Hong Kong (in respect of which the assessee was deemed to be an agent) was taxable in India on account of business connection.
Issues before the Mumbai Tribunal –Whether the assessee could be considered as an agent of the non-resident business associate and whether the said income was taxable in India.
Observations and Ruling of the Tribunal –The cases were related to the period prior to the insertion of definition of „business connection‟ in the Indian domestic tax law. Hence the term was to be interpreted on the basis of various judicial precedents in India.The freight charged by the assessee included the freight from the transshipment port to the final destination and the same was being paid to the non-resident business associate. In absence of agreement between the assessee and overseas business associate, it could not be concluded that the dealings between the assessee and the business associate were on a principal to principal basis.Even though the overseas business associate was not a party to the agreement between the assessee and its customers, the assessee had to constantly co-ordinate with the overseas business associate for the availability of container space, the nature of goods being shipped, etc. Hence, it cannot be said that the overseas business associate does not have any control over the manner in which the assessee accepts the cargo.There was an element of continuity between the business of the non-resident and the activity in India. The assessee could not segregate the business activity of shipment of cargo as one upto the port of transshipment and the other from the port of transshipment to the port of final destination. Both these activities were integrated activities.The non-resident business associate has a „business connection‟ in India and hence the assessee could be considered as an agent of the non-resident business associate. Further, the non-resident business associate was in receipt of income from the assessee, and as such assessee could also be considered as agent of the non-resident on the basis of receipt of income criteria set out under the Indian domestic tax law.
Conclusion-The Tribunal held that a relation between the business of non-resident business associate and activity carried on by the assessee in India would result in a ‘business connection’ for the purpose of deemed accrual of income in India as well as for considering the resident as the agent of the non-resident.
Full Text of the Judgement is as follows:-
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “L”,
BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI B.RAMAKOTAIAH (A.M)
