2017 (8) TMI 406 - AT - Income Tax

Article 8 governs shipping income; resident state can tax on accrual basis, Article 24 cannot deny treaty benefit.

ITAT held for the assessee that shipping income falls exclusively under Article 8 of the India-Singapore DTAA and is taxable by the resident state on an ... Applicability of Article 8 vis-a-vis Article 24 of DTAA - DTAA between India and Singapore - shipping income - returns of the voyages u/s. 172(3) - denial of the benefit on the ground that assessee has not substantiated the remittance of money to Singapore in all the voyages Held that:- As in M.T. Maersk Mikage & Ors. Vs. DIT [2016 (9) TMI 19 - GUJARAT HIGH COURT ]clinches the issue in favour of assessee, as the Hon'ble High Court has categorically held that the shipping company is not taxable in Singapore on the basis of remittance, but on accrual basis and therefore, para-1 of Article 24 would not be applicable Whether the provisions of Article 24 will apply when the shipping income is taxed in the other contracting state exclusively by Article 8. - This issue is analysed and considered by the Co-ordinate Bench in the case of APL Co. Pte Ltd., Vs. ADIT(IT)-1(1) [2017 (2) TMI 849 - ITAT MUMBAI], wherein it was held that, Whence India does not have any taxation right on a shipping income of non- resident entity, which is exclusive domain of the resident state, there is no question of any kind of exemption or reduced rate of taxation in the source state. It only envisages territorial and jurisdictional rights for taxing the income and India has no jurisdiction for any taxing right which are governed by Article 8. There is no stipulation about exemption under Article 8 of the shipping income AO/ Ld.CIT(A) was not justified in denying the benefit of Article 8 by invoking the limitation clause of Article 24 of India – Singapore DTAA. The exercise undertaken by the AO and CIT(A) in correlating the remittances and denying the certificate issued by the Government authority of Singapore is not proper and can further hold that they have no jurisdiction to enquire into those matters, once Article 8 is invoked. The shipping income is to be exclusively taxed by the other contracting state once the residence of the ship is established. Since there is no dispute with reference to residence of the ship being that of Singapore, the jurisdiction to tax the remittances specified therein under Article 8 lies exclusively with Singapore. In view of that, the orders of the AO and CIT(A) are set aside and they are directed to allow the benefit of Article 8 to all the voyages involved in all these appeals. - Decided in favor of assessee. Issues Involved:1. Applicability of Article 24(1) of the India-Singapore Double Taxation Avoidance Agreement (DTAA).2. Validity of the Inland Revenue Authority of Singapore's certificate.3. Jurisdictional authority to tax the shipping income.4. Nexus between remittance of freight collected in India and its final remittance to Singapore.Detailed Analysis:1. Applicability of Article 24(1) of the India-Singapore DTAA:The core issue is whether Article 24(1) of the DTAA, which limits benefits based on remittance, applies when Article 8 of the DTAA provides for exclusive taxation rights to the contracting state of residence (Singapore in this case). The Tribunal referred to the Gujarat High Court's decision in M.T. Maersk Mikage & Ors. Vs. DIT(IT), which clarified that Article 24(1) does not oust the provisions of Article 8 if the income is taxed on an accrual basis in Singapore. The High Court emphasized that the income in question should be taxed in Singapore on an accrual basis, not on remittance, thereby negating the application of Article 24(1).2. Validity of the Inland Revenue Authority of Singapore's Certificate:The Assessee provided a certificate from the Inland Revenue Authority of Singapore, which confirmed that the income derived from the shipping operations is taxed on an accrual basis in Singapore. The Tribunal upheld the validity of this certificate, citing the Gujarat High Court's reliance on similar certificates in previous cases. It was noted that the certificate's factual declarations were not rebutted by the Revenue, thus confirming the taxability of the income in Singapore on an accrual basis, which invalidates the application of Article 24(1).3. Jurisdictional Authority to Tax the Shipping Income:The Tribunal reiterated that under Article 8 of the DTAA, the shipping income is exclusively taxable in the state of residence, i.e., Singapore. This position was further supported by the Rajkot Bench of the Tribunal in Alabra Shipping Pte Ltd. and the Mumbai Bench in APL Co. Pte Ltd. Vs. ADIT(IT)-1(1). The Tribunal concluded that India has no jurisdiction to tax the shipping income as it falls under the exclusive domain of Singapore, thereby disallowing the AO and CIT(A) from denying the benefit of Article 8.4. Nexus Between Remittance of Freight Collected in India and Its Final Remittance to Singapore:The Tribunal found that the exercise undertaken by the AO and CIT(A) to correlate the remittances and deny the certificate issued by the Singapore authority was improper. It was held that once Article 8 is invoked, the jurisdiction to tax the shipping income lies exclusively with Singapore, and the Indian authorities have no right to question the remittance details.Conclusion:The Tribunal allowed the appeals, setting aside the orders of the AO and CIT(A). It directed that the benefit of Article 8 of the India-Singapore DTAA should be granted to all the voyages involved, reaffirming that the shipping income is to be taxed exclusively by Singapore. The Tribunal emphasized that the Inland Revenue Authority of Singapore's certificate should be accepted, and the Indian authorities have no jurisdiction to deny the benefit based on remittance details. The judgment was pronounced in the open court on 16th June 2017.