DCIT Vs Bay Lines (Mauritius) C/o. Freight Connection India P. Ltd. (ITAT Mumbai)
Bay Lines, a shipping company incorporated in Mauritius, claimed that its freight income from India was exempt under Article 8 of the India–Mauritius DTAA, which provides that shipping income is taxable only in the country of effective management. The AO denied this benefit on the ground that although the company was legally resident in Mauritius, its real control & management (POEM) was exercised from Dubai (UAE) by directors/shareholders based there. Since its POEM was not in Mauritius, Article 8 could not apply. This issue had already been decided against the assessee in earlier years, & therefore the assessee did not press this claim before the Tribunal. Hence, Article 8 benefit was denied.
However, the assessee invoked Article 7 (Business Profits) & argued that in the absence of a Permanent Establishment (PE) in India, its income could not be taxed in India. The AO claimed that the Indian company Freight Connection India Pvt. Ltd. (FCIPL) was a Dependent Agent PE, allegedly concluding contracts & working exclusively for the assessee. The CIT(A), relying on past ITAT orders in the assessee’s own case, held that FCIPL was an independent agent, since it rendered services to multiple principals & only 22% of its receipts were from Bay Lines, with no authority to conclude contracts. The Tribunal noted that 77% of FCIPL’s income came from other clients, proving commercial independence. It also followed the principle that a dependent agent PE exists only when the agent works wholly or almost wholly for the foreign enterprise & habitually concludes contracts—conditions not satisfied here.
