TaxTMI 
TaxTMI 
2022 (12) TMI 112
X X X X Extracts X X X X
X X X X Extracts X X X X
....17-18. As common issues are involved in both the cases, we take ITA No. 17/Rjt/2022 as the lead case and pass this common order. 2. The brief facts of the case is the assessee M/s. Maersk Tanker Pte. Ltd. (hereinafter referred to as 'MTS') is a company incorporated in Singapore and is engaged in the business of ship owning & operating, chartering and related business. During the Financial Year 2016-17 the assessee engaged in the business of operation of ships in international traffic and has earned freight income from such shipping operations with India. The assessee being a Singapore resident entitled to claim beneficial provision of Double Taxation Avoidance Agreement (in short 'DTAA') between India and Singapore with respect to taxability of it shipping income from Indian operations. M/s. Inchcape Shipping Services India Pvt. Ltd. is the Indian agent of the assessee and filed provisional Return under Section 172(3) of the Act, in respect of two voyages undertaken by the assessee's Master Vessels during the F.Y. 2016-17. The Indian agent declared freight income for both the vessels totaling to US $ 5,65,000/-. Accordingly, no objection certificate under Section 172(6) of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income Tax (Appeal)-13, Ahmedabad who dismissed the appeal vide order dated 29.08.2018 on the ground of applicability of Section 44B and 144C of the Act and thereby dismiss the assessee's appeal. 5. Aggrieved against the same the assessee filed further appeal before this Tribunal. Coordinate Bench of this Tribunal in ITA No. 429 & 430/Rjt/2018 vide order dated 21.11.2019 set-aside the matter back to the Assessing Officer after following other decisions of Coordinate Bench of the Tribunal, held that draft assessment order under Section 144C was required to be issued for enabling the Assessing Officer for following the provisions of Section 144C which is applicable in the case of the assessee and directed the Assessing Officer to frame fresh assessment order under Section 172(4) after following the provisions envisaged in Section 144C of the Act. 6. Pursuant to the direction of the Hon'ble ITAT the Assessing Officer granted sufficient opportunity to the assessee. The assessee also filed its reply on various dates. After detailed discussion the Assessing Officer held that the shipping income for voyages performed by the vessels do not qualify for tax exemption in India under th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....717), the tribunal found that the double tax treaty should be interpreted using a purposive rather that a literal approach. The primary purpose of the double tax treaty is to eliminate double tax and prevent the avoidance of tax, the purpose is not therefore to enable the double non taxation of income. The case therefore centered around the meaning of the phrase "subject to tax" and the difference in international tax treaties between this phrase and the phrase "liable to tax". The first tier tribunal decided the case in favour of HM Revenue and Customs such that relief was not available under the UK-Israel tax treaty to exempt the pension from UK tax because the pension was not subjected to tax in Israel. (5) The second term used in condition referred at (v)(b) above is "by reference to the amount remitted/received and not by reference to full amount". On plain reading it is clear that the amount should be subjected to tax by reference to amount remitted/received and not by reference to full amount. First, we take the case where the amount is subject to tax with reference to the full amount. In Singapore shipping income is exempt from tax under the provisions of sections ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this case it is clear that the source of freight Income is India as the activities have been carried out in India. Therefore, the stand taken by the Singapore Tax Authority that the income is to be taxed on accrual basis in Singapore is an anomaly due to the fact that the income is actually deemed to accrue or arise in India as per the Income Tax Act of India. The only redeeming factor is the DTAA between the two countries to avoid double taxation of Income, but not double avoidance as is be made out here. 12.16 In this case it is clear that the shipping business is handled by M/s Maersk Tankers Singapore Pte Ltd.. Singapore, an entity that is tax resident of Singapore. 12.17 The confirmation letter of the IRAS dated 6th August. 2013 is inconclusive to the extent that the taxability of such income has not been explained in detail with respect to the provisions of Article 24 of the DTAA between India and Singapore. In another case of ST Shipping vide correspondence dated 09/01/2013 the Singapore Tax Authority i.e. IRAS has opined that in view of the facts in that case, Article 24.1 of the DTAA would not be applicable and consequently Article 8 would apply. Hence,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arrived at as under- Total amount of freight earned in Indian rupees for the vessel - as per above Exhibit-A Rs. 3,71,31,000 Taxable income u/s 172(2) of the IT. Act @ 7.5 of freight amount Rs.27,84,825 Tax payable @ 43.26% on taxable income Rs. 12,04,715 To sum-up, based on the direction of the Hon'ble ITAT-Rajkot, vide order No.429 & 430/2018 dated 21.11.2019, the draft assessment order is being passed, following the path envisage in section 144C of the Act. Accordingly, this draft assessment order framed u/s 172(4) rws 254(1) of the act is hereby forwarded to the assessee for file their acceptance or objections within 30 days of the receipts of the same. I am satisfied that by claiming exemption under Article 8 of DTAA between India and Singapore, the assessee has under reported the income within the meaning of section 270A of the Income-tax Act, 1961. I am also satisfied that this is a fit case for initiation of penal proceedings u/s 270A of the Act for under reporting of Income which is in consequence to misreporting of income." 7. Aggrieved against the Draft Assessment Order, the assessee filed its objection before Dispute Resolution Panel (i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is not liable to tax in Singapore in view of exemption claimed u/s 13F of Singapore Income Tax Act or SITA (Refer page 30 of the draft assessment order). However, the situation in the other contracting state, namely, India is different. Here, the income from shipping business is neither exempt from tax nor it is subjected to tax at a reduced rate. Therefore, the A.O has stated that non-taxation of the shipping income in India also, shall result into a situation of double non-taxation and that, it can never be the intention of any DTAA including that of Article 8. According to the A.O, the treaty of DTAA is to save any assessee from double taxation of the same income. Obviously, article 8 also aims on that only. However, the DTAA can and never should lead to a situation where any interpretation of any article therein leads to an occurrence of double non-taxation. 8. Now, here, there are many ponderables. Firstly, if some income is taxable in resident state but is not taxed due to any reason, can it be said that it cannot be taxed in other country also? Secondly, if some income is exempt in a resident state expressely as per law, can it be said that still, the other state do....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bench, Rajkot, in the case of BP Singapore Pte Ltd, Gandhidham vs Income Tax Officer (International Taxation), Gandhidham's order dated 28.11.2017 in which the Hon'ble Tribunal has stated that earlier, the assessee had given an impression that the income was indeed taxed and taxes were paid. Only now, it is learnt that actually, it is not so. No taxes have been paid in Singapore. The Tribunal found that the TRCs etc. and other evidence produced were misleading and aimed at creating wrong impression about Singaporean taxability of income in question. The Tribunal observed that the so-called TRCs give an impression that the freight income received from India has been subjected to tax in Singapore. The Hon'ble Tribunal at para 8 of the order (refer page 35 of draft assessment order) has observed that "clearly, therefore, the relief granted in the judicial precedents in question may have been based on an erroneous impression of the fact regarding actual taxability, in Singapore, of the income embedded in the freight receipts from India, particularly as the income was actually exempt from tax in Singapore as well. As a matter of fact, when the issue regarding non-taxability ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d rate in India, and secondly, such income is subject to tax in Singapore by reference to the amount which is remitted or received in Singapore and not by reference to the full amount. Therefore, the appellant's contention is that that since the freight income earned by the assessee is neither exempt in India nor taxable at a reduced rate in India, so, one of the condition is not fulfilled and therefore, provisions of section 24 cannot be invoked. On the other hand, the A.O says that because of article 24 of DTAA, the exemption or reduction of tax is to be allowed only to so much of income as is actually received in Singapore and further, subjected to tax. So, we find that the interpretation given to Article 24 by the assessee s starkly different from that of AO. According to AO, since the shipping income is taxable in India at full rate but not taxed in Singapore, so, article 24 comes into picture. According to the assessee, since the shipping income is taxable in India at full rate but not taxed in Singapore, so, article 24 does not come into picture. Now, this is very tricky. Both assertions cannot be correct at the same time. However, a common sense approach would tilt in f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... below: 'LIMITATION OF RELIEF Where this Agreement provides (with or without other conditions) thai income from sources in a Contracting State shall be 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.' 16. The purpose of including Article 24, Limitation of Benefit clause, should first be considered to understand the context in right perspective. With the introduction of DTAAs, many corporations started exploiting treaty laws to evade tax liability completely. Therefore, in order to prevent abuse of treaty benefits and treaty shopping, countries revised their tax treaties to include an anti-abuse provision called the limitation of benefit clause, referred to as LOB clause. 17. The Appellant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... result of an incentive provision in Singapore law, not taxable in Singapore. When assessee himself accepts that the income in question was exempt from tax in Singapore, it cannot be said to be have been subjected to tax in Singapore. These evidences, at the minimum, were misleading and aimed at creating a wrong impression about the Singaporean taxability of income in question. He points out that it is for the first time, and as a result of specific questions by the bench, that the fact of this income being exempt from tax in Singapore has come to the light now "9. To us, it appears that the view expressed by the coordinate bench is so much out of context that even the IRAS certificate from the residence country, which has been reproduced in the order itself, does not envisage treaty benefit in a situation in which the shipping profits in India are taxed on remittance basis in Singapore and the remittances to Singapore have not been made, but then, going by the analysis of the coordinate bench, the taxation in Singapore in such a situation is wholly irrelevant That's clearly an incongruity and is going much beyond what is even imagined by Singapore." 20. Furth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2090) which, interalia, states that" "It should be noted that the term subject to tax is different from being 'liable to tax'. 'Liable to tax means that the customer only needs to be within the general scope of tax in the UK........ On the other hand, 'subject to tax' means that the relevant income has to be actually taxable and the customer cannot be exempt from tax on that income." 24. It is noted that the letter of the IRAS dated 8th November, 2017, relied upon by the appellant, is inconclusive to the extent that it does not mention that the shipping income is not subjected to tax in Singapore because of the exemption granted to shipping companies under sections 13A or 13F of the Singapore Income Tax Act. 25. Further, if the shipping income is liable to tax on accrual basis in Singapore, then the same cannot be said to have accrued or arising from the source state, which is India. However, as per Section 9(1 )(i) of the Income Tax Act in India "all income accruing or arising whether directly or indirectly through or from any business connection in India, or through or from any property in India, or through or from any asset....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on), Gandhidham in ITA No.409/Rjt/2016, the Hon'ble ITAT, Rajkot bench, Rajkot has kept the issue actually alive by remitting the matter to the file of CIT(A) for a fresh adjudication. It is to be noted that the Ld. Tribunal has indeed considered the judgment of Hon'ble High Court while setting aside the issue. 29. Taking into account the entire facts and circumstance of the case and prevailing judicial opinion on the issue, it is found that basically, we are reverting back again to the fundamental question in this case as to whether there can be a situation of double non-taxation of income and if there cannot be any double non-taxation of income, whether the provisions of article 24 can be invoked to deny the benefit of article 8 to the appellant. The DRP here is of the considered opinion that the DTAA between two countries is essentially meant to avoid double taxation. Indeed, that is the touchstone. Therefore, it cannot be permitted to interpret any DTAA in such a manner which shall result in double nontaxation of income. Reference is also made to the unflattering observations of the Hon'ble Rajkot Tribunal in the case cited above where they have frowned upo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as valid but only as a draft order, as per the provisions of Section 144C. The Assessing Officer shall give effect to the above directions, as per provisions of section 1440(13) of the Income-tax Act, 1961." 8. Thus, the Hon'ble DRP dismissed almost all the objections raised by the assessee. The Assessing Officer has given effect the directions by passing Final Assessment Order on 02.12.2022 with necessary modification regarding Ground No. 5 and passed the order determining the freight income of Rs. 3,55,18,450/- and taxable income under Section 172(4) at 7.5% of Rs. 26,63,884/- on which determined tax of Rs.11,52,396/-. 9. Aggrieved against the Final Assessment Orders the assessee is in appeal before us raising the following grounds of appeal: "1. On the facts and in the circumstances of the case and in law, the learned ACIT/DRP has erred in holding that the freight income earned from the voyage performed is taxable in India. The order of the learned DCIT is bad in law and merits to be set aside. 2. Without prejudice to the above, the learned ACIT/DRP has erred in denying the benefit of Article 8 of the India-Singapore Double Taxation Avoidance Ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unsel Mr. Porus Kaka appearing for the assessee and his arguments is summarised as follows: Ld. Senior Counsel drawn our attention to relevant provisions used in Article 24 of India- Singapore DTAA submitted that the provisions of Article 24 are not attracted to income which is governed by Article 8 of DTAA. The said provision will only apply to an income which is either "exempt from tax in India" or "taxed at a reduced rate" in India as per the DTAA. Article 8(1) which deals with taxability of shipping profits provides that the profits derived by an enterprise of contracting state (resident state herein namely Singapore) from the operation of ships or aircrafts in international traffic shall be taxable only in that state. This Article gives exclusive right to tax the shipping profits to the country of residence. Here, the assessee being a resident of Singapore, hence, India does not have the right to tax the shipping profits. There is no exemption of income from shipping income as is contemplated under Article 24 DTAA. He drawn our attention to the difference between income being exempt from tax and income taxable only in one state. By way of illustration, he pointed out that Arti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce is placed on the decision of Hon'ble Gujarat High Court in case of Venkatesh Karrier Ltd [2012] 349 ITR 124 (Guj HC), in the context of a shipping company from UAE, held that the agreement between the two contracting jurisdiction has ousted the jurisdiction of the taxing officers in India to tax the profits derived by the enterprise once it is found that the ship belongs to a resident of other contracting state. 15. The main tax legislation in Singapore is Singapore Income Tax Act (SITA). Singapore adopts a semi-territorial tax system. This means, that Singapore-sourced income is taxed on accrual (regardless of receipt in Singapore), but foreign-sourced income is taxed only when received in Singapore, unless exemption applies. Section 10(1) of the SITA is the charging Section, it has two limbs namely [a] Income accruing in or derived from Singapore, and [b] Income received in Singapore from outside Singapore. In practice, the Inland Revenue Authorities of Singapore IRAS applies the 'operations test'. This is also acknowledged by the IRAS in their 'Income Tax Guide to E-Commerce' published on 23 February 2001 (copy enclosed at page nos. 109 to 119 of the factu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sis without any reference to remittance being made in Singapore. Thus neither section 10 nor section 13A & 13F operation depends on whether the income is remitted or not to Singapore. Therefore, as correctly stated by IRAS, Article 24 can have no operation in this regard, in view of the language of the Article 24 "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 thereto. 19. The Coordinate Bench of Hon'ble Tribunal at Chennai in the recent case M/s. Bengal Tiger Line Pte. Ltd. vs. DCIT [IT (TP) A No. 11/CHNY/2020] has upheld non-applicability of Article 24 in case of shipping companies resident in Singapore. The relevant portion of the decision is as follows: "13. As regards the main issue before us, we have considered arguments of counsels for both sides and perused materials on record along with relevant case laws cited before us. There is no dispute to the fact that the assessee is a tax resident of Singapore. Even the factual finding recorded by the Ld.DRP was that the assessee is a tax resident and does not have a PE in India. Undisputedly, the activities c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on but an enabling provision which provides an exclusive right of taxation of income to the residence country. Further, by entering in to treaty with Singapore, India has given up its right to taxshipping income of a non-resident in India. Therefore, any income of a non-resident shipping company which is a tax resident of Singapore is liable to tax only in Singapore but not in India. 14. The provision of Article 24 of India Singapore DTAA is applicable for income which is 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 taxation right to the country of residence. Therefore, the international shipping income earned by the assessee is not exempted in India, whereas it is taxable only in the country of residence i.e., Singapore. From the above, it is very clear that exclusive right of taxation in one Contracting State is not the same as the specific exemption being available in other Contracting State. Further, shipping income dealt with in Article 8 states that profits derived by an enterprise of a Contracting State by operation of ships in inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e second condition that is required to be looked in to before applying Article 24 of DTAA is income of the non-resident should be taxable on "receipt" basis in Singapore. As we have already noted in earlier para of this order, under Article 8 of India Singapore DTAA, global shipping income of a tax resident of Singapore is only taxable in the country of residence. Once the income is taxable in the country of residence on "accrual" basis, the second condition prescribed under Article 24 of India Singapore DTAA is not satisfied. This fact is further strengthened by the letter of the Inland Revenue Authority Singapore (IRAS) letter 17.09.2018, where it was clarified that the income of a Singaporean company from the operation of ships in international traffic is taxable in Singapore on "accrual" basis. Thus, both the conditions ofArticle 24 is not satisfied in the present case. We, therefore are of the considered view that the AO was erred in invoking Article 24 of India Singapore DTAA to tax the income earned by the assessee from shipping operations in India. 16. The interplay between Article 8 and 24 of India Singapore DTAA has been considered by various Tribunals and Courts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ticle 24 is "under the laws in force in other contracting state" (Singapore). Here, in this case, the income of assessee company from shipping operations is not taxable on remittance basis under the laws of Singapore, albeit is liable to be taxed in principle on accrual basis by virtue of the fact that this income under the income tax laws of Singapore is regarded as "accruing in or derived from Singapore". A similar view has been expressed by the Hyderabad Bench of the Tribunal in the case of Far Shipping (Singapore) Pte Ltd vs. ITO, 84 taxmann.com 297. Further, the Mumbai Bench of the Tribunal in the case of DCIT vs. D.B. International (Asia) Ltd., 96 taxmann.com 75 has dealt with the interplay between the Article 13 and 24 and after considering relevant clauses categorically held that income derived by a resident of a Contracting State shall be taxable only in that state in view of the clear and unambiguous terms of DTAA. Therefore, we are of the considered view that in terms of Article 8 of India Singapore DTAA, global income of a tax resident of Singapore from shipping operations, even though which is earned outside Singapore is taxable only in Singapore on accrual basis and c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of India vs. Azadi BachaoAndolan, 132 Taxman 37 where the Hon'ble Supreme Court in para 79 of the order has states that "merely because exemption has been granted in respect of taxability of a particular source of income, it cannot be postulated that the entity is not 'liable to tax' as contended by the respondents." The ITAT, Mumbai Bench in the case of Bhagwan T. Shivlani vs. ITO, 20taxmann.com 821 has considered an identical issue and by following the decision of Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan supra has held that the expression 'liable to tax' in Contracting State as used in Article 4(1) of Indo-UAE DTAA does not necessarily imply that person should actually be liable to tax in that contracting State. It is enough if other contracting State has right to tax such person, whether or not such a right is exercised. This fact is further strengthened by Article 31(1) of Vienna Convention where it was stated that as per the general rule of interpretation, ordinary meaning is to be given to the terms of the treaty in the context and in the light of its object and purpose. The object and purpose of having Article 8 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting State (source country) can levy tax on such income without understanding the true meaning of Article 8 of India Singapore DTAA. The AO has also ignored the arguments taken by the assessee in the light of DIT relief certificate issued by the Department for the subject assessment year, where the AO after considering the TRC and supporting documents issued DIT Relief Certificate dated 25.06.2014 and 14.08.2014 by holding that Article 8 of India Singapore DTAA is applicable to the assessee and income from operation in international traffic will not be taxable in India. No doubt, the certificate is issued for the purpose of non-deduction of tax at source as argued by the Ld.DR, but fact remains is that unless the AO has bring on record any change in fact or law which was prevalent at the time of issuing DIT Relief Certificate and at the time of framing assessment, no contrary view can be taken in violation of Doctrine of Promissory Estoppel. No doubt, the fundamental principles of res-judicata will not be applicable to income tax proceedings, but the rule of consistency needs to be followed unless there is change in fact or law while taking a different view. This view is supported ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al paperbook and relevant portion is as follows: ".... Freight income derived by the assessee, a Singapore company from Indian operations is to be reckoned as accrued in or derived from business carried on in Singapore and not some kind of foreign income which is to be taxed on remittance basis in terms of Singapore IT Act, and therefore art. 24 of the DTAA between India and Singapore is not applicable; further, assessee being a tax resident Singapore liable for taxation on its shipping income only in Singapore and not in India in view of art. 8 of the DTAA, it cannot be reckoned that the said shipping income is exempt from tax or liable to tax at reduce rate in the source State i.e., India, and, therefore, benefit of art. 8 could not be denied to the assessee by invoking the limitation clause of art. 24." * Far Shipping (Singapore) Pte. Ltd. v. ITO [2017] 84 taxmann.com 297 (HydTrib) - Copy enclosed at page nos. 209 to 216 of the legal paper book and relevant portion as follows: "5.2. The aforesaid judgment of the Gujarat High Court clearly clinches the issue in favour of assessee, as the Hon'ble High Court has categorically held that the shipping co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation 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 which as pointed out by ld. Senior Counsel has been specifically provided in some of the Articles like Article 20, 21 & 22. Hence, it cannot be reckoned that shipping income earned from India is to be treated as exempt from tax or taxed at reduced rate, which is a condition precedent for applicability of Article 24, albeit India at the threshold does not have the jurisdiction to tax the shipping income of the non-resident entity. Thus, the condition of Article 24 is not satisfied in the present case from this angle also. In conclusion, we hold that the 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 as per our discussion above and most important, now this iss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hipping companies are taxable in Singapore on accrual basis. Accordingly, provisions of Article 8(1) should apply without any limitation. Reliance in this regard is placed on the decision of Hon'ble Gujarat High Court in the case of Maersk Mikage (supra) wherein the Hon'ble High Court has observed and relied on the IRAS certificate to extent of factual confirmation provided by IRAS on the taxability of shipping income earned by ST Shipping as income accruing in or derived from business carried in Singapore and hence, the said income would be assessable in Singapore on accrual basis. The relevant portion of the judgment reads as under: "17. It is, in this context, that the certificate dated 09.01.2013 issued by the Inland Revenue Authority of Singapore assumes significance. In the said certificate, as noted, it was certified that the income in question derived by ST Shipping would be considered as income accruing in or derived from the business carried on in Singapore and such income therefore, would be assessable in Singapore on accrual basis. It was elaborated that the full amount of income would be assessable to tax in Singapore not by reference to the amount remitted to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd that the same are opposed to the statutory provision." 22. In view of the above factual and legal position, Ld Senior Counsel submitted that once the IRAS has confirmed the taxability of the global shipping income of MTS in Singapore on an accrual basis, the same cannot be questioned by the Ld. AO unless there is any contrary evidence to support that the freight income is taxable in Singapore on remittance basis. Accordingly, the second condition of Article 24 which refers to the income (foreign sourced income) that is subject to tax on remittance basis is not satisfied. 23. It is further submitted that the assessee's income from shipping business is governed by the provisions of section 172(4) of the IT Act. As per the provisions of section 90(2) of the IT Act, where the Central Government has entered into an agreement (Tax Treaty) with the Government of any country outside India or specified territory outside India, then in relation to the assessee to whom such agreement applies, the provisions of the IT Act shall apply to the extent they are more beneficial to the assessee. In this regard, reliance is placed on the decision of the Hon'ble Gujarat High Court in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are not liable to tax in India. Similarly, Singapore has provided an exemption to an approved international shipping enterprise in Singapore under section 13F of the SITA subject to the terms and conditions prescribed under sections 13A to 13F. The overall objective is to develop Singapore into a vibrant International Maritime Centre. 26. The Ld. Senior Counsel reiterated that it is the sovereign decision of the Government of Singapore to exempt such income. Hence, such policy decision of Singapore to not tax the shipping income of the Singaporean residents does not shift the right to India to tax such income. Accordingly, Assessee's freight income is liable to tax/assessed in Singapore on accrual basis and hence, as per Article 8(1), income from operation of ships is taxable in country of residence i.e. only in Singapore. Therefore, the orders passed by the Ld DRP and the Final assessment orders passed by the Assessing Officers are liable to deleted and the appeals are allowed in favour of the assessee. 27. Per contra the Ld CIT DR Mr. Shramdeep Sinha appearing for the Revenue strongly supported the orders of the Lower Authorities and submitted that the assessee claimed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....herefore, this decision of the Hon'ble High Court may not be relied upon. 31. Thus the provisions of Article 24 actually override the provisions of Article 8 and it limits the relief in case of double non taxation of any income. Article 24 postulates two conditions - firstly, there should be actual remittance of the impugned amount and secondly this amount should be subjected to taxation in Singapore. Whereas in the case under consideration neither the income has been remitted to Singapore nor it is subject to tax in Singapore. 32. The Ld CIT DR further submitted that the purpose of including Article 24 [Limitation of Benefit] should first be considered to understand the context in right perspective. With the introduction of DTAAs, many corporations started exploiting treaty laws to evade tax liability completely. Therefore, in order to prevent abuse of treaty benefits and treaty shopping, countries revised their tax treaties to include an anti-abuse provision called the "limitation of benefit" clause. By ignoring this Article by placing reliance on a letter of IRAS would defeat the very purpose of Article 24 and would be case of double non-taxation. So, both the Governme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpression of the fact regarding actual taxability, in Singapore, of the income embedded in the freight receipts from India, particularly as the income was actually exempt from tax in Singapore as well. 36. Reliance is also placed on the elaborate directions given by the DRP in their orders and as reproduced by the Assessing Officer in his order. DRP has given detailed directions after considering the factual position, judicial precedents and the provisions of the Act as well as DTAA. 37. To sum-up, it is an admitted fact that, no tax has been paid by the assessee in Singapore (i.e. its Resident state) on the freight income earned in India from the voyages performed in India (i.e. the Source state) and now attempt is being made to justify non-payment of tax in India by invoking provisions of article 8 of DTAA. It is for this very situation that provisions in the form of "Limitation of Benefit" has been brought in Tax Treaty, to curb abuse of tax treaty provisions, as treaties are made to avoid double taxation of an income, as well as to prevent double non-taxation of income. In view of the above, the appeals of the assessee may be rejected and the order-of the Revenue may kind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed business, and receives charter income from employment of its vessels, b. During the financial years ended 31 December 2016 and 31 December 2017, the Company derived/will derive shipping income (i.e. charter income) from third parties from export voyages from Indian ports, c. The Company will report the charter income in its Singapore tax return for Years of Assessment 2017 and 2018. 3. You wish to seek our clarification to the effect that Article 24(1) of the India-Singapore Avoidance of Double Taxation Agreement ("DTA") is not applicable to the charter income derived from these export voyages from Indian ports. 4. The charter income derived by the Company from export voyages from Indian ports is income accruing in or derived from a business carried on in Singapore. The charter income is therefore shipping income sourced in Singapore and assessable to tax in Singapore on an accrual basis and not on a remittance basis for Year of Assessment 2016 and 2017. The physical flow of funds is therefore not relevant. As such, Article 24(1) of the Singapore-India Avoidance of Double Taxation Agreement ("DTA"), which seeks to limit the relief under the DT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stomers and the shipping income is taxable in Singapore, on an arising basis when the income is earned by the shipping enterprise regardless of whether the shipping income is received in or remitted to Singapore. Since Article 24(1) is not applicable, the provisions of Article 8(1) should apply without any limitation. As such the shipping profits derived by a Singapore resident shipping enterprise from the operation of ships in international traffic shall be taxable only in Singapore in accordance with Article 8(1) and the same does not confer the Indian Authorities to the right to tax such profits. 41. We find this view has been followed by the Chennai Benches of the Tribunal in M/s. Bengal Tiger Line Pte. Ltd. vs. DCIT [IT (TP) A No. 11/CHNY/2020] extracted in Paragraph No. 21 above. Coordinate Bench of this Tribunal in the case of Alabra Shipping Pte Ltd [2015] 62 taxamnn.com 185 at Para No. 22, Mumbai Tribunal in the case of APL Co. Pte Ltd [2017] 78 taxmann.com 240 (Mum Trib) and Hyderabad Tribunal in the case of Far Shipping (Singapore) Pte. Ltd. v. ITO [2017] 84 taxmann.com 297, Mumbai Tribunal in the case of Citicorp Investment Bank (Singapore) Ltd v. DCIT(IT) [2017] 81 ....