IN THE ITAT COCHIN BENCH
Assistant Commissioner of Income-tax, Circle-1(2), Ernakulam
I.A.L. Shipping Agencies (Kochi) Ltd.
IT Appeal No. 79 (Coch.) of 2011
[Assessment year 2002-03]
JULY 20, 2012
B.R. Baskaran, Accountant Member
The appeal of the Revenue is directed against the order dated 13-10-2010 passed by the Ld. CIT(A)-II, Kochi and it relates to the assessment year 2002-03.
2. The Revenue is assailing the decision of the Ld. CIT(A) in deleting all the additions made by the Assessing Officer by holding that the assessee is the agent of another company named M/s IAL Container Line (UK) Limited.
3. The facts relating to the case are stated in brief. The assessee-company is an Indian Company registered under the Companies Act, 1956. It is engaged in the business of shipping and global freight forwarding. It filed its return of income for the year under consideration on 09-10-2002 declaring a loss of Rs. 3,31,829/-. The said return was processed u/s. 143(1) of the Act by accepting the loss declared by the assessee. The Department carried out survey operations at the premises of I.A.L. Container Line India Limited Group on 24-08-2007. The assessee appears to be one of the companies belonging to that group. From the appraisal report of the survey operations, it was noticed that the assessee-company has entered into an agreement on 1-4-2001 with another company named I.A.L. Container Line UK Ltd, (hereinafter referred to as “UK Company”) which was also operating in the same line of business as that of the assessee. It was also noticed that the assessee-company was found to be collecting freight and terminal handling charges but it did not include any income from such business activity in its return of income. Hence the Assessing Officer re-opened the assessment of the assessment year 2002-03 by issuing notice u/s. 148 of the Act. He also issued notices calling for various details. It is stated in the assessment order that Shri T.A. Venkitachalam, FCA, the Authorised Representative submitted the details called for. However, the AO did not prefer to discuss about the nature of details called for by him and the information/replies given by the assessee. The Assessing Officer completed the assessment to the best of his judgment u/s. 144 of the Act, without giving the reasons for the same.
4. The AO noticed that the assessee-company as well as the UK Company are owned and controlled by members of the same family. The key person in both the companies was Shri T.V. Narayan Kutty and he was controlling the affairs of both the companies from Dubai. It appears that the group has promoted a company named “M/s IAL Container Line India Limited”. It has also promoted many other companies in each area of operation in India like the assessee herein, IAL (Mumbai) P Ltd., IAL (Calcutta) P Ltd, IAL (Delhi) P Ltd etc. (For the sake of convenience, we may refer them as “Decentralised companies”). It appears that these decentralised companies, which were registered and assessed in Mumbai, claimed that the income from shipping business is exempt as per the “DTAA” entered between India and U.K. It appears that the respective assessing officers have denied DTAA benefit to them. It is stated in the instant assessment order that the decisions of the respective AOs to deny DTAA benefit to these decentralised companies were reversed by Ld CIT(A) and after the receipt of the order of Ld CIT(A), the registered offices of these decentralised companies were shifted all over India. Since the Assessing officers denied DTAA benefit to these decentralised companies in the subsequent years also, it is stated that all these decentralised companies were merged with a new entity named “IAL Container Line India Ltd”, whose registered officer is located in Kochi. We may caution here that the details discussed above are not clearly emanating from record and we have made only an attempt to understand the back ground of the operations from the observations of the AO. Hence, we may mention that these details require authentication from the tax authorities. The purpose of making these discussions and the purpose of qualifying the observations are that the facts surrounding the various issues under consideration have not been clearly brought out either by the assessing officer or by the assessee. Be that as it may, we shall now proceed to discuss the facts of the instant case as understood by us.
5. The assessee appears to have claimed that it is acting only as an agent of UK Company and hence the shipping income generated by it in India belongs to the UK Company referred supra. Accordingly, it did not declare the said income in its Profit and loss account. It was also noticed that, in the assessment of another company of the Group named I.A.L. Shipping Agencies (Mumbai) Ltd., the Department had concluded that there is no Agent-Principal relationship between I.A.L. Shipping Agencies (Mumbai) Ltd. and I.A.L Container Line (UK) Ltd. (It is not clear whether the IAL (Mumbai) P Ltd, referred earlier and the IAL Shipping Agencies (Mumbai) Ltd are one and same company or different companies). It appears that the company named IAL Shipping Agencies (Mumbai) Ltd claimed that it was acting as an agent of the “UK Company” and further it was claimed that the income of the UK Company is exempt under the DTAA entered between Central Government and Government of U.K. Since the claim of agent-principal relationship was denied, the department assessed the entire income derived from shipping business in the hands of I.A.L. Shipping Agencies (Mumbai) Ltd. By following the said assessment order, the Assessing Officer, in the instant case also, held that the assessee here in is also acting independently and not as an agent of the UK Company. Accordingly he completed the assessment in the instant case by assessing the entire receipts from shipping activities amounting to Rs. 1,86,20,408/- in the hands of the assessee on protective basis. The AO also made various other additions and determined a total income of Rs. 18,61,14,180/-. It is pertinent to note that the Assessing Officer did not make any reference to any of the letters, details or particulars, if any, filed by the assessee in the assessment order.
6. The assessee challenged the assessment order in appeal filed before the ld. CIT(A). The assessee, it appears, has filed submissions before Ld CIT(A) relating to various additions made by the AO. The Ld CIT(A), based on the said submissions and further by placing reliance on the decision of Mumbai Bench of the ITAT in the case of IAL Shipping Agencies (Mumbai) Ltd. [I.T. Appeal No. 3910/Mum./2005 dated 28-08-2008] held that the assessee is only acting as the agent of the UK Company. He also deleted various additions made by the Assessing Officer. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us.
7. We have heard the rival contentions and carefully perused the record. During the course of hearing, the Ld. Counsel for the assessee placed strong reliance on the decision of the Mumbai Bench, referred supra. When a specific question was posed to the counsel as to Whether there existed parity of the facts between the assessee-Company and M/s. IAL Shipping Agencies (Mumbai) Ltd, the Ld. Counsel for the assessee could not immediately furnish the relevant details, but submitted that there existed parity of facts. We also notice that the Ld. CIT(A) has placed reliance on the various explanations and information furnished by the assessee during the course of appellate hearing without confronting the same with the Assessing Officer. Further, the Ld CIT(A) did not discuss anything about the details of evidences that were placed before him. Though, it is mentioned that the income collected on behalf of the assessee-Company is exempt as per DTAA agreement, yet the Ld. CIT(A) did not discuss about the relevant Articles under DTAA and how those articles are applicable to the facts prevailing in the instant case.
8. It cannot be disputed that the income in the hands of an assessee is charged as per the provisions of sec. 5 of the Income Tax Act. For the sake of convenience, we extract below the relevant provisions which are applicable to both “resident assessees” and “non-resident assessees”.
“Subject to the provisions of this Act, the total income of any previous year of a person (who is a resident/ who is a non-resident) includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.”
It can be seen that the income earned through Indian shipping operations is taxable in India, both in the hands of the resident assessees as well as non-resident assessees. However, under Chapter IX of the Act, Double Taxation Relief is granted when an income is subjected to tax both under the Indian Income tax and the income tax Act of any other country. Hence, an assessee can claim relief under Chapter IX of the Act, if he is able to show that he is eligible for the same.
9. In the instant case, the assessee herein is a resident assessee. It is not borne out of record as to whether the “UK Company” is a resident assessee or non-resident assessee. Though the assessee herein claims that it is acting only as an agent of the “UK Company”, yet the said claim has not been verified and accepted by the AO. Even, if the assessee is considered as an agent of the UK Company, in view of sec. 5 of the Act discussed supra, the said UK Company is also liable to pay tax on its Indian income. If it claims that it is not liable to pay to pay tax as per the DTAA entered by the Central Government with the Government of UK, then it is the responsibility of the assessee- Company or the UK Company to demonstrate that the impugned income is covered by the articles prescribed under the DTAA and hence its income is not taxable under the Indian Income Tax Act.
10. The foregoing discussions show that the relationship between the assessee- Company and the UK Company needs to be examined at the end of the AO in order to find out whether the assessee-Company is really acting as the agent of the UK Company. Further the applicability of DTAA to the instant transactions also needs to be examined. Both the assessee as well as the ld CIT(A) have placed heavy reliance on the decision of Mumbai bench referred supra. However, it has to be examined whether the decision rendered in that case applies to the facts surrounding the instant case. We have already noticed that the assessee has not substantiated various claims made by it before the Assessing Officer. Hence, we are of the view that all the issues require re-examination at the end of the Assessing Officer.
11. Before us as well as before the Ld CIT(A), the assessee placed reliance on the “Annual No objection Certificate” dated 16-04-2001 issued by the Deputy Commissioner of Income tax, Circle-1, Mattancherry. In our view, the said certificate will not curtail the power of assessing officer to make independent examination of all the issues discussed above. We also direct the AO to examine all the issues without being influenced by the “Annual no objection certificate” referred supra. We also notice that the Deputy Commissioner of Income tax, Circle -1, Mattancherry also did not refer to the particular articles in the DTAA under which the impugned income is exempt.
12. In view of the foregoing, we set aside the order of the Ld. CIT(A) and restore all the issues to the file of the Assessing Officer with a direction to frame the assessment de nova in accordance with law. We also direct the assessee to co-operate with the Assessing Officer by filing all the details that may be called for by him.
13. In the result, the appeal file by the Revenue is treated as allowed for statistical purposes.