TaxTMI 
TaxTMI 
2020 (11) TMI 567
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....ping income from freight operations assessed to tax in India. 2.1 The directions of the Dispute Resolution Panel (DRP) - 2, Bengaluru ('DRP') and the consequential final assessment order is erroneous in so far as assessing the international shipping income from freight operations as income taxable in India under section 44B of the Act. 2.2 The AO / DRP ought to have appreciated that as per the provisions of Article 8 of the India - Singapore DTAA, any shipping income of a non-resident is taxable only in the country of residence, i.e. Singapore and as such cannot be assessed to tax in India. 2.3 The AO / DRP ought to have appreciated that the essential conditions for invoking the provisions of Article 24 of the DTAA is not satisfied and therefore it cannot be invoked. 2.4 The AO / DRP erred in imputing conditions for applicability of a tax treaty which are not present anywhere in the India-Singapore DTAA and therefore the order of the AO read with DRP Directions is ultra vires. 2.5 The AO / DRP ought to have appreciated that merely because international shipping income is exempt in one contracting state (i.e. Singapore), it does n....
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....nd / or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 3. Brief facts of the case are that the assessee M/s. Bengal Tiger Line Pte Limited is a resident of Singapore and involved in the business of operation of ships in International Traffic. The assessee was the freight beneficiary in respect of various vessels which sailed from ports in the Indian sub-continent and South East Asia during the financial year 2014- 15. The assessee has claimed exemption from tax on income received from shipping operations in India in pursuant to the India-Singapore tax treaty on the ground that as per Article 8 of India-Singapore DTAA, tax resident of Singapore involved in the operations of ships in international traffic, is assessable to tax in Singapore on global income received [including income earned in India] from its shipping business. The assessee has filed its return of income for the assessment year 2015-16 on 28.09.2015 declaring exempt income of Rs. 19,48,19,987/-. The case was selected for scrutiny and notice u/s.143(2) and 142(1) of the Act were issued. In response to notice, the authorized representative of the ....
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.... therefore Article 24 of the DTAA would not apply. 5. The Ld.DRP after considering the submissions of the assessee and also by taking note of findings recorded by the AO in draft assessment order came to the conclusion that Article 24 of DTAA between India and Singapore is applicable to the assessee, because shipping income earned from operations in India was specifically exempted from tax u/s.13F of the Singapore Income Tax Act and consequently, the assessee cannot claim the benefit of relief provided under DTAA. The DRP further held that undoubtedly, by virtue of the tax payer being fiscally domiciled in Singapore, income received in India by shipping operations are liable to tax in the place of tax residency, but then as has been held 'liable to tax' is not the same thing as 'subject to tax'. The factum that the income was actually exempt from tax in Singapore is sheet anchor to the decision about applicability of Article 24 of the India Singapore treaty. No doubt under Article 8 of India Singapore DTAA, profit derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic will be taxable only in that state. Since, the assesse....
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....rections issued u/s.144C(5) of the Act, the AO has passed final assessment order u/s.143(3) r.w.s 144C(13) of the Act, on 22.11.2019 and taxed shipping income earned in India u/s.44B of the Act. The AO, has threadbare discussed Article 8 and 24 of India Singapore DTAA, Section 13F of Singapore Income Tax Act and other relevant provisions in light of various averments made by the assessee before arriving at a conclusion that shipping income earned in India does not qualify for tax exemption in India as per the provisions of Article 24 of India Singapore DTAA and therefore, relief claimed by the assessee under DTAA in incorrect. The relevant findings of the AO are as under:- 5. Since the assessee is claiming relief from taxation by virtue of the provisions of the DTAA, it would be prudent to begin our discussion there. Every agreement is entered into because two or multiple parties are desirous of achieving some purpose. The agreement therefore flows from that purpose and provides context to it. Any reading of an agreement without keeping in mind that purpose will be incomplete and flawed. The Vienna Convention en. the Law of Treaties in Article 31 has clearly es....
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....ere such ship is used by the person for the carriage of passengers, mail, livestock or goods outside the limits of the port of Singapore; and iii. the carriage of passengers, mail, livestock or goods by any foreign ship to Singapore solely for the purpose of transhipment; 9. On the reading of the above it is clear that the assessee had claimed exemption of S$ 4,019,449 under Section 13F of SITA for the profits earned by way of International Shipping operations. In this circumstance the assessee was asked to provide the details of freight income received from India which is included in section 13F of the Singapore ITA. The assessee's submission clearly shows that the assessee had received freight income of Rs. 259,75,99,821/- from vessel operation in India and Computed profit of Rs. 19,48,19,987/- under provisions of Section 172 of the Income Tax Act, 1961. 10. The assessee in his submission has stressed on the wording "Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State ". The main thrust of the assessee's argument is that only the country of residence....
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....ant and paves way for the country of source to lay its claim on the taxation of this shipping income and the word "only" is stripped of its meaning. 13. The assessee in his submission stated that the provisions of Article 24 of India Singapore tax treaty cannot be invoked on the facts of the elementary reason that the Indian Shipping Income of the Singaporean assessee is "neither exempt from India nor taxed at reduced rate". The assessee itself accepts that the income received by way of freight of shipping business is exempt from tax in Singapore. Thereby it cannot be said to be have been subjected to tax in Singapore. As per section 1O(1)(a) of Singapore Income Tax Act (SITA), Charge of income tax 10.-(I) Income tax shall, subject to the provisions of this Act, be payable at the rate or rates specified hereinafter for each year of assessment upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of- (a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exerci....
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....n another contracting state. In such a situation, to hold that only income covered by article 20, 21 and 22 can be said to be exempt in the source state because the expression 'exempt from tax' is used therein, is plainly contrary to the context in which expression 'exempt from tax' is used; it is the net effect not the wording which is relevant in the present context. 17. In any case, what is referred to as exemption under article 20, 21 and 22 of India Singapore tax treaty in the source country are conditional exemptions subject to the riders, whereas an income exempt under Article 8 is plain vanilla provision. Whether an income is taxed only in the residence country or whether an income is exempt from tax in the source country, the effect on exemption of income in the source country is the same particularly in the context of the treaty benefit being dependent on the taxation in the residence country is concerned. The wordings may differ but the impact is the same, and that is all the more clear when seen in the context in which the issue arises. Even if the meaning canvassed by the assessee was to be defined in the statute or the treaty itself, in view of the contextual....
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.... its reply on 20.12.20 18 for the above said show cause notice and the relevant submission is reproduced hereunder; ".....The tax treaty clearly specifies that only the residence country have the right of taxation of freight income earned from operation of ships in international traffic. As may be seen from the above provision, Article 8(1) is not an 'exemption 'provision, but an enabling provision which provides an exclusive right of taxation of income to the residence country...." "......The provisions of article 24 of the India - Singapore DTAA would apply only for incomes which are "exempt" from tax as per the tax treaty. As has been clarified above, it may be noted that Article 8 is unambiguously not an exemption provision but only a provision which provides a taxing right to the country of residence. We submit that the international shipping income earned by the assessee is not per se exempt in India whereas it is taxable only in the country of residence i.e Singapore. We therefore submit that the exclusive right of taxation in one contracting state is not the same as a specific exemption being available in the other contracting state. There is a fundamental....
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....Dispute Resolution Panel after hearing the assessee passed order vide F. No. 97/DRP-2tBANG/20 18-19 dated 23/09/2019 (received on 03/10/2019) under section 1 44C(5) of the income tax Act, 1961. The DRP has upheld the order of the Assessing Officer to the extent that the shipping income earned in India does not qualify for tax exemption in India under the provisions of Article 24 of the DTAA between India and Singapore and therefore the relief claimed by the assessee under DTAA between India and Singapore is rejected. Further the DRP noted that the assessee has filed its return of income computing the income as per the provisions of section 44B of the Income tax Act, 1961. As the assessee itself opted for an assessment order under normal provisions under section 44B of the Income Tax Act, the DRP has issued directions to modify and make assessment of the total income as per normal provisions under section 44B by taking the Gross Freight Income attributable to India Operations." 7. The Ld.AR for the assessee submitted that the Ld.DRP / AO erred in not appreciating the provisions of Article 8 of the India Singapore DTAA, which specifically provides that any shipping income of a non....
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....eration of ships in international traffic. The AO ignoring these facts has brought to tax, income of the assessee from shipping operations in India by invoking Article 24 of India Singapore DTAA on wrong interpretation of Section 13F of Singapore Income Tax Act, which provides for exemption from tax towards international shipping income of a shipping enterprises operating foreign ships plying in international waters. But, fact remains is that Section 13F of Singapore Income Tax Act was already in existence since 01.04.1991 and as such the agreement between India and Singapore on 27.05.1994 specifically including Article 8 is very much clear that the competent authorities of both the Contracting States is fully aware of such provision and hence, choose not to alter the taxing right of shipping income which is generally available only to the country of residence. The Ld.AR for the assessee further submitted that the Hon'ble Gujarat High Court has considered an identical issue in the case of M.T. Maersk Mikage v. DIT(IT), 72 taxamann.com 359, where it has explained interplay between Article 8 and 24 of India Singapore DTAA and held that in view of clear provisions contained in Article....
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....om 222 (Andhra Pradesh HC) 16 BP Singapore Pte Ltd vs. ITO (2017) 88 taxmann.com 226 (Rajkot Tribunal) 9. The Ld.DR for the Revenue, on the other hand strongly supporting the order of the Ld.DRP as well as the AO submitted that first of all, the present Bench has no jurisdiction over the case for the reason that the entire batch of appeals involving the final assessment order passed in pursuant of the directions of DRP disposing the objections of the assessee against the draft assessment order are to be adjudicated on the issue of jurisdiction of the Tribunal over such orders by the Special Bench which is yet to be constituted by the Tribunal. This is in consequent to the order of the Hon'ble Jurisdictional High Court in the case of M/s. India Trimmings Pvt. Ltd. vs. DCIT (Tax case No.118 of 2018). Therefore, before going to the merits of the case, the primary issue raised by the Revenue needs to be addressed by the Bench. 10. As regards, merits of the issue involved in present appeal, the DRP as well as the AO has brought out clear facts that the entire income earned by the assessee in India is taxable in India as the said income has been sourced in India and hence ....
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....istinguishable and has no application and more particularly the case laws relied upon by the assessee in the case of Bengal Tiger Line Ltd, Cyprus, the DTAA between Indo-Cyprus has no limitation of benefits clause as was available in India Singapore DTAA. Similarly, the case laws relied upon by the assessee in the case of M.T.Maersk Mikage vs. DCIT, the said decision is based solely on the basis of certificate issued by the Singapore Tax Authorities and for want of any counter filed by the Revenue. However on the issue of subject to tax and double non-taxation, the court has declined to comment as the said issue was raised for the first time before the Hon'ble court. Therefore, the case laws relied upon by the assessee has no benefit to the assessee. The Ld.DR further referring to the arguments advanced by the Ld.AR in the light of DIT Relief Certificate submitted that the same was issued for the purpose of tax deduction at source and it is only that once the certificate is issued, the Revenue cannot hold the deductor to be in default for whatsoever reason, but that does not serve as a bar on the income of the assessee being assessed in its hands. Therefore, we submit that there....
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....tional waters is taxable only in Singapore on accrual basis. Similarly, Article 24 of India Singapore DTAA limits the relief on the basis of income from sources in a Contracting State is exempt from tax or taxed at a reduced rate in that Contracting State and under the laws in force in the other Contracting State, the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under this agreement in the first-mentioned Contracting State shall apply to so much of the income as is remitted to or received in that other Contracting State. From the combined reading of Articles 8 and 24 of India -Singapore DTAA, it is very clear that article 8 provides exclusive right of taxation to country of residence, i.e. Singapore on accrual basis. Similarly, article 24 limits the exemption, in case income is exempt or taxed at reduced rate in source country, i.e. in India and further such income is taxable in country of residence on receipt basis. The AO, referring to Article 24 of the tax treaty, was of the opinion that alth....
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....of particular income in other Contracting State. From the reading of Article 8, which clearly envisages derivable or jurisdictional rights for taxing the income and as per which India has no jurisdiction for taxing any income which are covered by Article 8. Therefore, we are of the considered view that international shipping income of a non-resident of a Contracting State is taxable only in that state and in this case, the assessee being tax resident of Singapore, shipping income earned from India on international waters is taxable only at Singapore on accrual basis. 15. Having said so, let us examine the applicability of Article 24 of India Singapore DTAA. Article 24 of India Singapore DTAA contemplates twin conditions for its applicability. The first condition is that income sourced in a Contracting State and such income should be exempt or taxed at a reduced rate by virtue of any article under the India Singapore DTAA. As we noted earlier Article 8 of India Singapore DTAA does not provide for exemption or reduced rate of taxation of such income. It is crucial to note that Article 8 of India Singapore DTAA contemplates the taxation rights of a particular income in particular S....
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....is of accrual, clause (1) of Article 24 of Indo-Singapore DTAA would not apply to deny benefit of Article 8 of Indo- Singapore DTAA to said company. The Hon'ble High Court while considering the issue has analyzed the provisions of Article 8 vis-a-vis Article 24 of DTAA and after considering relevant facts, the court held that in case certain income is taxed by a Contracting State not on the basis of accrual but on the basis of remittance, applicability of Article 8 would be ousted to the extent such income is not remitted. The court further held that this clause does not provide that in every case of non-remittance of income to the Contracting State, Article 8 would not apply irrespective of tax treatment such income is given. The Hon'ble court while arriving at the above conclusion has taken support from the letter issued by Singapore Revenue Authority clarifying the taxation position of global shipping income of tax resident of Singapore and held that when shipping income of a tax resident of Singapore was taxable at Singapore on the basis of accrual, the very basis of applying Article 24 would not survive. This issue was further considered by the Mumbai Bench of ITAT in the case....
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.... Section 13F of the Singapore Income Tax Act was already in existence since 01.04.1991 and as such the articles provided in India Singapore DTAA which was came in to existence from 27.05.1994 was inserted by the Competent Authorities of both the Contracting States after thoroughly considering the provisions of Section 13F of Singapore Income Tax Act and further choose not to alter the taxation right of shipping income which is generally available to the country of residence. We further noted that two sovereign nations have entered into a bilateral agreement and specifically agreed on the taxing rights of particular streams of income, the provisions of such agreement should be merely given effect to and as such the action of the AO to claim taxing right over the said income which is not provided in the treaty is ultravires the power of the AO and will amount to dishonoring the bilateral agreement between two sovereign nations. We further noted that the AO has taken support from 10(1) of Singapore Income Tax Act to argue that any income of a Singaporean resident that is accrued or received in Singapore is chargeable to tax in Singapore at the specified income tax rates. But, fact rem....
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....d that the preamble should be read to understand the object and purpose. However it may be noted that Article 31(2) of Vienna Convention does not cover object and purpose. Therefore, we are of the considered view that AO has misunderstood the general rules of interpretation in the Vienna Convention. Even assuming without conceding that the preamble should be referred to understand the object and purpose, the stated objective of the treaty is "avoidance of double taxation". This object can be achieved in two ways, which one way by credit mechanism when both the countries tax the same income and the second way is providing 'exclusive right of taxation' to one country and thereby double taxation can be avoided. In the present case, Article 8 provides exclusive right of taxation of shipping income to Singapore in order to avoid double taxation method where India has given up its right of taxation of international shipping income of a Singaporean resident and as such Singapore has reserved its exclusive right to tax the same. Once the country of resident is having exclusive rights to tax a particular income by way of separate Article, then limiting or denying such benefit by interpretin....
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....clusion has taken support from the decision of Hon'ble Gujarat High Court in the case of Arabian Express Line Ltd of United Kingdom and also considered Circular No.333 issued by CBDT and held that in the DTAA between India and Cyprus and India and U.K the provisions relating to taxation of shipping business are pari materia. Therefore, the income earned by the assessee from shipping operations in India is taxable only at Contracting State (country of residence). The relevant findings of the Tribunal are as under:- "7. We have heard the submissions made by both the parties. We have perused the order of the Assessing Officer and the directions of the DRP and also the judgements relied on by the AR. In the present case it is not in dispute that the assessee/appellant is a foreign company and has its effective management in Cyprus. The AR has placed on record a copy of DTAA between India and Cyprus. A perusal of Article 7 of the DTAA shows that Article 7 relates to business profits of an enterprise having permanent establishment in India. Article 7 specifically states that such profits shall be taxable only in that State unless the enterprise carries on business in other contr....