Treaty protection for shipping income prevents Indian taxation where Article 8 gives exclusive taxing rights to Singapore.

Singapore-resident shipping income from international traffic fell within Article 8 of the India-Singapore DTAA, which allocates exclusive taxing rights to the State of residence, so India could not tax the same income under section 44B. Article 24 was treated as a limitation-of-relief provision, applicable only where the source State gives exemption or a reduced rate and the residence State taxes on a remittance basis; because Singapore taxed the income on an accrual basis, that article did not apply. The Tribunal therefore deleted the Indian addition and accepted treaty relief in favour of the assessee.

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Issues: Whether the shipping income derived by a Singapore tax resident from international shipping operations was taxable in India under section 44B of the Income-tax Act, 1961, or was taxable only in Singapore under Article 8 of the India-Singapore DTAA, and whether Article 24 could be invoked to restrict treaty relief.

Analysis: The assessee was a tax resident of Singapore and its shipping income from international traffic fell within Article 8, which allocates taxing rights exclusively to the State of residence. Article 24 was held to be a limitation-of-relief provision applicable only where income is exempt or taxed at a reduced rate in the source State and is taxed in the residence State on a remittance basis. On the facts, Singapore taxed the income on accrual basis, and the certificate from the Singapore tax authority supported that position. Following the coordinate bench and other judicial precedents, the Tribunal held that Article 8 is not an exemption clause but an exclusive taxing-right provision, and therefore Article 24 could not be used to bring the income to tax in India. The challenge to taxability under section 44B therefore failed on merits.

Conclusion: The shipping income was held not taxable in India and was taxable only in Singapore under Article 8 of the India-Singapore DTAA; the addition under section 44B was deleted, in favour of the assessee.

Ratio Decidendi: Where a treaty assigns exclusive taxing rights over international shipping profits to the State of residence and the residence State taxes such income on accrual basis, Article 24 limitation-of-relief cannot be invoked to tax the same income in the source State.

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