|Rajendra Nayak||Aastha Jain|
The tribunal observed that if income of the firm is fully taxed in the source country (India) and also in the hands of partners in the resident country (Denmark), then it would result in double taxation which cannot be the mandate of the DTAA. It was held that the taxpayer is eligible for the benefits of the DTAA as long as its income is fully taxed in Denmark irrespective of the fact that it is being taxed from the partners. The mode of taxability, whether in the hands of partnership or partners, cannot be given importance when the basic purpose of taxability of entire income in country of residence is met. Reliance was placed on the tribunal's ruling of Linklaters (132 TTJ 20) in this regard. Hence, under the DTAA, management fees paid by non-resident shipping companies would not be taxable in India as it is not borne by any permanent establishment in India of the payer. Further, shipping income belongs to the shipping companies only and not to the taxpayer which acts merely as a representative and carries out obligations on behalf of the shipping companies. Such income would be taxable in Denmark under Article 9 of the DTAA in the hands of the shipping companies.
The issue whether a fiscally transparent foreign partnership can be regarded as a resident of the country where the partnership is organised often arises in cross-border partnership taxation. Typically an entity would be regarded as a separate entity under a particular country's domestic law, yet viewed as fiscally transparent in another country. While most of India's tax treaties do not contain specific provisions to deal with such situations, this ruling upholds entitlement to treaty benefits in such a case of conflict in qualification.
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