ITAT Confirms DTAA Exemption under Article 8, Holding Shipping Income Not Taxable in India

The Revenue had filed an appeal against the order of the CIT(A) passed under Section 250 of the Income Tax Act, 1961, for the Assessment Year 2022-23. The Assessing Officer had completed the assessment under Section 143(3) read with Section 144C(3), determining the total income at Rs. 111,95,80,320, as against the returned income of Rs. 10,53,680. The AO denied the claim for exemption under Article 8 of the India-Israel DTAA on the ground that the assessee was incorporated and managed from Hong Kong. Relying on office records, management addresses, and executive presence in Hong Kong, the AO taxed the entire shipping income in India.

CIT (A) Held: Before the CIT(A), the assessee furnished records such as the 30 December 2019 agreement with Israeli tax authorities, board meeting minutes reflecting majority presence from Israel, a valid Tax Residency Certificate issued by Israel, and the Mutual Agreement Procedure (MAP) order for a previous year in which the same facts had been accepted. Based on these findings, the CIT(A) ruled that the company was actually controlled from Israel and granted an exemption under Article 8.

Issue Raised: Whether a company incorporated in Hong Kong but effectively managed from Israel is entitled to claim exemption on shipping income under Article 8 of the India–Israel DTAA.

ITAT Held: The Tribunal examined the entire record and rival contentions in detail. It found that the assessee was part of a larger shipping group based in Israel and that its directors and key decision-makers regularly conducted board meetings from Israel. The minutes of the meeting depicted usual director attendance from within Israel, and the 30 December 2019 agreement that was signed with tax authorities in Israel, restating the aggregation of the entity with its parent group for tax purposes. The Tribunal also looked at the Tax Residency Certificate drawn from Israel and the previous MAP order, both established that the assessee’s income was assessable in Israel. These instances of evidence together showed that management and control were exercised from Israel more than from Hong Kong.

The Tribunal also noted that the Assessing Officer had merely relied on incorporation and operational presence in Hong Kong without dislodging the CIT(A)’s factual findings supported by contemporary records and treaty certificates.  As the MAP proceedings and Israeli residency were accepted by both the jurisdictions, the Tribunal held that the assessee was eligible for benefits under Article 8 of the India–Israel DTAA on shipping income derived from international operation. Thus, the CIT(A) order was confirmed, and the appeal of the Revenue was dismissed.

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