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‘Shipping profits of Swiss companies not taxable in India’

Provisions exempting shipping profits from tax liability in India would apply under the India -Switzerland Double Taxation Avoidance Agreement.

, ET Bureau|
Last Updated: Nov 14, 2012, 05.00 AM IST
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Article 7 of the India-Swiss DTAA excluded shipping profits taxation in India.
Article 7 of the India-Swiss DTAA excluded shipping profits taxation in India.
MUMBAI: Profits made from shipping by Switzerland-based companies are not liable to be taxed in India as they are exempt under the provisions of the India -Switzerland Double Taxation Avoidance Agreement, according to a November 6 order of the ITAT, Mumbai.

The treaty provisions exempting shipping profits from liability to be taxed in India would apply even in cases where the shipping company has a permanent establishment (PE) in India, the ITAT observed. The ITAT gave this observation in a dispute over whether profit earned in India by Mediterranean Shipping Co, a Switzerland-based company, was liable to be taxed in India or Switzerland.

The company argued that Article 7 of the India-Swiss DTAA excluded shipping profits taxation in India. Further, Article 22 of the DTAA provided that any other income, not specifically dealt with, would be taxable only in Switzerland and not in India. The company claimed, on the strength of Article 22 of DTAA, that shipping profits were liable to be taxed only in Switzerland and not in India.

The Income-Tax Department thought otherwise and held that since Article 7 of DTAA has been already applied to exempt shipping profits from liability to be taxed in India, Article 22, which exempts other forms of income, cannot be applied. The Income-tax department claimed that the Swiss company has an agent in India, which can be considered as a permanent establishment (PE) of the Swiss company and hence can be brought under the tax net.

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