Mumbai Tribunal rules on eligibility of a Danish fiscally transparent entity for tax treaty benefits

 

This Tax Alert summarizes a recent ruling of the Mumbai Income Tax Appellate Tribunal (Tribunal) in the case of M/s A.P. Moller (Taxpayer), a fiscally transparent partnership established under Danish law. One of the issues before the Tribunal was the eligibility of the fiscally transparent entity for benefits of the India-Denmark Double Taxation Avoidance Agreement (Danish DTAA).

According to the Tribunal, once the income of a partnership is taxed in Denmark, irrespective of the fact that the same is taxed in the hands of the partners, the entity should be treated as a resident of Denmark and is, thereby, entitled to benefits of the Danish DTAA. The Tribunal, thereafter, held that the shipping income arising from the activity of “managing owner” performed by the Taxpayer should be taxed in the hands of the shipping companies and not the Taxpayer. The shipping companies, being Danish tax residents, were not taxable in India under the Danish DTAA on income earned from international shipping operations. The management fees earned by the Taxpayer as a managing owner of the businesses of the shipping companies were also not taxable in India in the absence of a permanent establishment (PE) of the Taxpayer in India.