Shipping
company in UAE could not be said to have been created for the purpose of
availing India-UAE tax treaty benefits on the ground that such company was owned
by shareholders in Switzerland when treaty protection in respect of income of
such a nature was anyway available under India-Swiss tax treaty
Facts
a) The
Assessing officer denied benefit of India-UAE DTAA to shipping company by
invoking Limitation of Benefit ('LOB') clause of DTAA.
b) The
AO had given two reasons for invoking LOB clause – First, that vessel is owned
by an entity based in Marshall Island which has no tax treaty with India; and –
Second, that the assessee company is owned by shareholders in Switzerland and
if the assessee company were to carry on business directly, the treaty
protection would not have been available.
Held
A. On
first ground
1)
Though the merchant vessel was owned by a
Marshall Island based entity and it was given to the assessee under long-term
time charter arrangement but ownership of vessel is not a sine qua non for
availing treaty protection of shipping income under Article 8.
2)
Article 29 of DTAA can be pressed into the
service only when main purpose, or one of the main purposes of the creation of
an entity was to obtain benefits of DTAA which would otherwise not be available
but then since nothing really turns on the situs of ownership of the ships so
far as treaty benefits, are concerned, the fact of the ships being owned by an entity
in Marshall Island is wholly irrelevant for invoking Article 29.
B. On
second ground
1)
Coming to the second ground on which the AO
had invoked Article 29, it has been stated that the income from operations of
ships of the Switzerland based entities in international traffic is not covered
by Article 8 of India-Swiss DTAA and therefore, if the shareholders, which
wholly own capital of the assessee-company, were to carry on business directly,
the treaty protection would not have been available.
2)
Whether a Swiss tax resident earns Indian
sourced income from operations of ships in international traffic or whether a
UAE tax resident earns Indian sourced income from operations of ships in
international traffic, the income is not taxable in India – in the former case
because of provisions of Article 22(1) of India-Swiss tax treaty, and in the
later case of because of provisions of Article 8 of India-UAE tax treaty.
3)
When treaty protection in respect of income
of such a nature was anyway available, though under a different kind of
provision of the India-Swiss tax treaty, the assessee entity could not be said
to have been created for the purpose of availing India-UAE tax treaty benefits.
The action of the AO in invoking the provisions of Article 29 was vitiated in
law on this count- ITO v. MUR Shipping
DMC Co., UAE [2015] 62 taxmann.com 319 (Rajkot - Trib.)
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