TaxTMI 
TaxTMI 
2019 (11) TMI 1765
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....ces Pvt. Ltd. during the year under consideration has filed provisional return u/s. 172(3) of Income Tax Act for 12 vessels in respect of 16 voyages undertaken during F.Y. 2016-17. The assessing officer has granted no objection certificate for port clearance of the vessels in all the 16 cases. As per proviso of section 172(3), the final return was furnished by the agent in each case, however the combined order was passed in these cases since similar issues were involved in these voyages. On perusal of the return filed for the above mentioned vessels, the assessing officer observed that the Maersk Tankers Singapore Pvt. Ltd. PTE Ltd. Singapore was the beneficiary and the agent has declared freight income totaling US $ 15,51,33,540/-. The assessing officer has noticed that in these voyages remittance of shipping income has been made in the following manner:- Sr. No. Name of vessel Number of voyages Freight/Shipping income (in Rs.) Details of Remittance 1 MT Maersk Producer 2 12,16,08,984 The funds were remitted into the account of the beneficiary i.e. "MAERSK TANKERS SINGAPORE PTE. LTD.", at account maintained with the The Hongkong and Shanghi Banking Co....
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....e the benefit of double nontaxation i.e. cases where the taxpayer neither pay the tax in the source country as it is to be taxable in the residence state and the residence state does not tax it due to some reasons. Singapore follows territorial system of taxation where foreign source income is taxable only if the same is received in Singapore, therefore, if the money is not remitted to Singapore, the same is not taxable and hence it results in double non-taxation which cannot be the objective of any treaty. The assessing officer was of the view that Article 24 of the DTAA has universal application to all the articles of the treaty including article 8 of the DTAA between India and Singapore. The assessing officer has also observed that since income from shipping forms part and parcel of the treaty, the same is also covered as per article 24 of the DTAA and therefore, the income having source in India would be exempt only if it were subject to tax in Singapore. However, as per the provisions of section 13 of the Singapore Income Tax freight receipts are not actually subjected to tax in Singapore and thus the claim of the assessee of exemption from freight receipt is hit by article 24....
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.... this principle has been upheld: (a) G.M. Mittul Stainless Steel Private Limited (130 Taxman 67)(SC) (b) East India Commercial Co. Ltd. vs Collector of Customs, AIR 1962 SC 180.1 (SC) (c) Baradhuiita Misltra vs. Bhimsen Dixit, AIR 1972 SC 2466 (SC) (d) Devi Karunariamman Educational Trust Vs OCIT(233 Taxman 420)(Mad) (e) CIT vs. Thana Electricity Supply Limited (206 ITR 727)(Bom) (iii) As per Article 8 of the DTAA between India and Singapore shipping profits taxable only in the state of tax residency. Thus, it is clear that taxing rights are given exclusively to the state of residence, In the case of Singapore companies like M/s Maersk Tankers Singapore Pte, Ltd, the exclusive rights to tax shipping profits lies with the Singapore Tax Authority. (iv) The conditions mentioned in Article 24 of the DTAA between India and Singapore are not met in the case of the 16 voyages (mentioned at exhibit-A) undertaken by the various vessels, (v) The provisions of Article 24 are not attracted to income governed by Article 8 of the India Singapore DTAA. (vi) Income exempt from tax cannot be interpreted as income taxable only i....
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....ave the same meaning in CIR vs. Kirk [1900] AC 588, In practice, the Inland Revenue Authority Singapore (IRAS) applies the 'operation test' to determine whether the income is derived in Singapore or not. This has been acknowledged by the IRAS in their 'income Tax Guide' to E-Commerce published on 23rd February 2001 as under: "The brood principle of "operation test" is used to determine whether the income is derived in Singapore so as to be liable to tax in Singapore. If the business operations are carried out in Singapore, then income derived from these operations is usually said to be sourced in Singapore and thus liable to tax here. Whether business operations are carried out In Singapore Is largely a question of fact and degree." (ix) The e-Tax guide published by the IRAS on 31st May 2013 detailing the tax exemption for certain foreign sourced income provides guidance on what is foreign-sourced income. As per para 3 of the e-Tax guide, foreign income is income that does not arise from a trade or business carried on in Singapore. (x) The IRAS e-Tax guide for tax exemption for foreign sourced income (second edition) at para 6 provides for....
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....prise of Singapore ships. ,,,." "Exemption of International Shipping Profits: 13F -(1) Subject to subsections (I A) mid (2), (here shall he exempt front tax the income of an approved international shipping enterprise derived- fa) on or after V April 1991 from ...... (b) for the year of assessment ZOOS and subsequent years of assessment front....... (c)for tile year of assessment 2003 and subsequent years of assessment from ,.,., (IA) Unless the Minister or such person ns lie may appoint permits in a particular case, subsection (l)(e) does not apply the (2) The exemption for each approved international shipping enterprise- (a) Shall be for such period not exceeding 10 yean front She date of its approval as the Minister of such person as he may appoint may specify, except that the Minister or such person ax lie may appoint may extend the period so specified for such further periods, not exceeding 10 years at a time, as he thinks fit; or (b) If, at the time of its approval, the company does mil, in ilia opinion of the Minister or such person as he may appoint, satisfy such qualifying conditions a....
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.... Weiser v HMRC (TC02178) in United Kingdom, the first tier tribunal considered the interpretation of the double tax treaty between the UK and Israel and in particular the meaning of the phrase "subject to tax", Article XI of the UK-Israel double tax treaty provides that UK sourced pensions will not be subject to UK tax where they are received by a resident of Israel and subject to Israel tax in respect thereof. However, under Israeli tax rules, UK pension income is excluded from tax in Israel during the first 10 years of residence. HM Revenue and Customs therefore argued that because the pension income was exempt from tax In Israel It could not be said to subject to tax. On the other hand, the taxpayer claimed that he Is covered by tax regime in Israel by virtue of his living there even though Israel does not levy tax in UK pension income because of the exemption, (4) Following the decision in Bayflne UK v HMRC (STS 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....
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.... should actually be subjected to tax in Singapore. As per section 9(1)(1) of the Income Tax Act in India " all income accruing or arsing, 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 assets or source of income in India, or through the transfer of capital asset situate in India' shall be deemed to accrue or arise in India, For Income Tax purposes in India, an income which is deemed to accrue or arise in India cannot be deemed to accrue or arise in Singapore, Hence, the claim of the assessee to treat the shipping income as accrued or arisen in Singapore is not acceptable. (ix) In this case if the shipping income is not treated as foreign income then the income accrued in or derived from Singapore operations should be subjected to tax in cases where remittances have not been made directly to Singapore, Further, in 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 th....
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.... MT Maersk 01/12/2016 3 MT Maersk Producer 14/03/2017 11 MT Maersk 30/01/2017 4 MT Maersk Misaki 30/09/2016 12 MT Maersk 22/08/2016 5 MT Maersk Piper 05/12/2016 13 MT Maersk 25/07/2016 6 MT Maersk Teesport 09/09/2016 14 MT Maersk 17/07/2016 7 MT Maersk Princess 28/02/2017 15 MT Maersk 02/09/2016 8 MT Maersk Kiera 06/02/2017 16 MT Maersk 29/06/2016 were not qualified for tax exemption in India under the provisions of DTAA between India and Singapore, therefore relief claimed by the assessee under DTAA between India and Singapore was withdrawn even through the shipping receipts were remitted directly to Singapore. 4. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. The Relevant part of the decision is reproduced as under:- "The purpose of the relevant provision in the tax treaty is indeed one of the relevant considerations in deciding the contextual meaning. The purpose of including Article 24, Limitation of Benefit clause, should first be considered to understand the context in right ....
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....eaning of a term has precedence over the domestic tax law meaning of that term, it is also certainly not anybody's case that domestic law meaning of a term will have precedence over the contextual meaning of that term; the dispute is only with regard to whether an interpretation seeking adoption of contextual meaning, or treaty meaning as learned authors put it, has to onus to demonstrate that such a meaning must be adopted in the present context". The Hon'ble Rajkot Tribunal in the case of BP Singapore vs. ITO (ITA 409/Rjt/2016) has observed: "As a result of these factual aspects coming to light, there are some interesting legal propositions have also come to the centre stage. It is an aspect to be considered whether even if the income is actually exempt from tax in the residence jurisdiction, given the unambiguous thrust of the treaty on income being subjected to tax in one contracting state to be able to claim treaty protection in the other contracting state, and avoidance of double non-taxation is a clear objective of the Indo Singapore tax treaty, such an exempt income will also be liable to get treaty protection in the source state.. even though this....
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.... of the contextual requirements, such aninterpretation of the term 'exempt from tax needs to be discarded in the present context. Exemption under article 20, 21 and 22 of Indo Singapore tax treaty in the source state, are conditional exemptions subject to the riders. In the present context, the operating result of Article 8 is that an income is liable to tax in the resident state but is exempt from tax in the residence state and therefore provisions of Article 24, 'Limitation of Relief Clause, is invoked and the income is subject to tax in the source state. The AR has further, relied upon Section 10(l)(a) of the Singapore Income Tax Act (SITA) which provides that tax shall be payable upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of gains or profits from any trade, business, profession or vocation, The AR has made a failed attempt to distinguish income 'accrued or derived' from the term 'received. The AR has very conveniently ignored the fact that the term used in the treaty is 'received or remitted and the term 'remitted' finds no mention in Si....
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....eaning of that term. x The appellant has relied upon several judicial precedents. However, it has been established that the relief granted in the judicial precedents were based on an erroneous impression of the fact regarding actual taxability, in Singapore, of the freight income from voyages performed in 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 of this income in Singapore was raised before Hon'ble jurisdictional High Court in the case of MT Mersek Mikage, the Hon'ble Court specifically left this issue open to be decided in an appropriate case. All along, shipping companies gave an impression that the freight income received from voyages performed in India has been subjected to tax in Singapore. In the instant case also, the AR has contended that the appellant is subject to tax on income on accrual basis. But the factual position is that the appellant has availed exemption under section 13F of the Singapore's Income Tax Act, and, to that extent, the freight income from voyages performed in India is riot actually subjected to tax in Singapor....
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....g, Singapore 2 MT Maersk Tangier 1 1,24,05,600 3 MT Maersk Misakl 1 3,35,27,716 4 MT Maersk Piper 1 4,68,78,299 5 MT Maersk Teespor 1 1,21,68,000 6 MT Maersk Princess 3 26,96,32,792 7 MT Maersk Kiera 1 4,03,04,065 8 MT Maersk Progress 1 19,15.34,687 9 MTMaersk Kata/in 1 4,03,64,849 10 MT Maersk Pearl 1 11,11,17,500 11 MT Maersk Messina 1 50,60,747 12 MT Maersk Pelican 1 12,81,37,500 Total 106,37,0738 The benefit of DTAA between India and Singapore is governed by mainly Article 8 & 24, with Article 24 being the limitation of relief clause. In the above 16 voyages, the remittance has not been subjected to tax in Singapore and therefore Article 24 of the DTAA comes directly into play, Article 24 of the DTAA agreement between India and Singapore is reproduced below: LIMITATION OF RELIEF 1. Where this Agreement provides (with or without other conditions) that income from sources in a Contracting State shall be exempt from tax, or taxed at a reduced rate in that Contracting State and und....
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....see 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 Thus, it is noted that in the instant case, letters from IRAS give an impression that the freight income received from voyages performed in India has been subjected to tax in Singapore, but the factual position is that appellant has availed exemption under section 13F of the Singapore's Income Tax Act, and, to that extent, the freight income has not actually been taxed in Singapore, even though as per Article 8 of the DTAA between India and Singapore shipping profits are liable to tax in the state of tax residency. Undoubtedly, by the virtue of the appellant being fiscally domiciled in Singapore, the said income was 'liable to tax.' in the state of tax residency but then 'liable to tax&....
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....re required to be construed in harmony with each other and in harmony with domestic laws of both contracting States. A different interpretation could lead to an incongruous result. The undefined term in a tax treaty is to be given a general meaning. When a treaty did not define a term contained therein, and when the context of the treaty so required, it could be given a meaning different from* the domestic law meaning of that term. There could not be any residual presumption in favour of a domestic law while ascertaining the meaning of an undefined termin treaty. When connotations of a treaty term were to be adopted as per the domestic law of a contracting state, it could not be done as a thoughtless and mechanical process. While applying Art. 3(2) of the treaty for ascertaining the meaning of an undefined term, one had to ask whether context suggested a different interpretation. The above interpretation by the appellant is against the provisions of Article 24 of the treaty, which was brought in to prevent abuse of treaty benefits. It is the duty of the person to provide with full and fair disclosure of all the material facts and the Appellant cannot leav....
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.... 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," The freight income earned in the 16 voyages with the vessel MT Maersk Tianjin was not subjected to tax in Singapore. Hence, it is clear that Article 24 of the DTAA between India and Singapore is applicable, in this case. The AO has held as under: "Applicability of the two conditions prescribed in Article 24 of the DTAA between India, and Singapore in respect of two voyages undertaken by the vessel MT Maersk Tianjin are met under the following terms: (a) The first condition, is that, if the agreement provides that freight income from sources in a Contracting State (India) shall be exempt from tax or taxed at reduced rate in the Contracting state (India) then 'limitation of relief clause is applicable. In this case income tax is exempted in India as per the provisions of Article 8 of the DTAA with Singapore. Hence, first condition is applicable in this case. (b) (1) The second condition is that if under the laws in, force in the other Contracting state(Singapore) the....
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....plicability of article 24 of the India Singapore tax treaty to the shipping companies of Singapore. The ld. counsel has also referred article 10 at page 19 of volume 1 of DTAA between India and Singapore pertaining to charging of income tax on accrual basis. The ld. counsel has also referred page no. 81 of volume 1 of paper book pertaining to section 13A of Singapore Income Tax Act which provide exemption of shipping profit. The ld. counsel has also referred the decision of Hon'ble Gujarat High Court in the case of MT Maersk Milkage Vs. Income Tax (International Taxation) dated 24th August, 2016 placed at page no. 113 of the Volume 1 of the paper book. The ld. counsel has also referred page no. 163 and 164 of the paper book volume 1 pertaining to the decision of ITAT Mumbai Bench 'L' in the case of Citicrop Investment Bank (Singapore) Ltd. vs. Dy. CIT (International Taxation) dated 24th March, 2017 wherein it is held that income earned by assessee, a Singapore based company on sale of debt instrument was not taxable in India as per Article 13(4) of India Singapore DTAA. The ld. counsel has also referred decision of ITAT vide ITA No. 992/Mum/2015 in the case of Dy. CIT Vs. D.B. Inte....
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....er SMC Bench of Hyderabad ITAT dated 16th June, 2017 and other judgments relied upon by the ld. counsel were pertaining to capital gain tax and not applicable to the fact of the case of the assessee. The ld. departmental representative has also referred page no. 48 to 76 of ld. CIT(A)'s order and contended that the ld. CIT(A) has rightly held that provision of article 24 override the provisions of article 8 of the DTAA between India and Singapore as they limit the relief in cases of double non-taxation of such income. 6. We have heard both the sides and perused the material on record. Maersk Tankers Singapore PTE Ltd. is a company incorporated in Singapore engaged in the business of ship owning and borrowing, charting and related business. It is a tax resident of Singapore and eligible to claim benefit under the double taxation avoidance agreement between India and Singapore for vessels for which the assessee company has appointed Inchcape Shipping Services Pvt. Ltd. in India to render, port agent services required at ports in India such as filing of vessels voyage return, obtaining no objection certificate etc. for the said vessels. Accordingly, it has submitted application for....
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....ction 144C of the Act. Regarding contention of the assessee that order u/s. 172(4) of the income tax act 1961 is bad in law without first issuing draft of the assessment order as is required u/s. 144C of the act, we observed that the Co-ordinate Bench on identical issue on identical facts in the case of assessee itself LRS Management K/S (As foreign commercial manager/agent of principal freight beneficiary Maersk Tankers Singapore Pvt. Ltd. (MTSPL) Shipping Pvt. Ltd. vs. ITO (International Taxation) Rajkot Bench vide ITA Nos. 756/Rjt/2014, 276/Rjt/2015 and 91/Rjt/2016 dated 9-08-2018 after following the decision in the case of LR2 Management K/S vs. Income Tax Officer (2015) 63 taxmann 42 of Rajkot Tribunal held that draft order u/s. 144C was required to be issued and for enabling the assessing officer for following the path envisaged in section 144C the matter was remitted back to the file of assessing officer. The relevant part of the decision is reproduced as under:- "2. Learned representatives fairly accept that this issue is covered in favour of the assessee, in the case of LR2 Management K/S Vs. Income Tax Officer [(2015) 63 taxmann.com 42 (Rajkot Trib.)], wherein we....
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....oc or summary assessment, it is an assessment nevertheless, and, therefore, any order passed under section 172(4) is also an assessment order. Once we hold so, it is not really necessary to adjudicate on learned counsel's argument that since the impugned order is passed qua an agent and qua an assessment year, rather than qua a vessel, it is de facto an assessment order under section 143(3). As we hold the impugned order to be an assessment order, it is also useful to take note of, as was taken by Hon'ble Delhi High Court in the case of Emirates Shipping Line FZE (supra), the decision of Hon'ble Supreme Court in the case of AS Glittre v. CIT [1997] 225 ITR 739/91 Taxman 286 wherein the following observations were made by Their Lordships of Hon'ble Supreme Court: "6. The scheme of s. 172 of the Act appears to be this : s. 172(1) of the Act gives a right to the ITO to levy and recover tax in the case of any ship belonging to a non-resident, in a summary manner (ad hoc assessment) notwithstanding anything contained in the other provisions of the Act. It is an absolute right conferred on the assessing authority. The assessee has no right to object to the same. ....
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....ny variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,- (a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,- (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (3) The Assessing Officer shall complete the assessment on the basis of the draft order, if- (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section 153B, pass the assessment order under sub-section (3) within one month from the end of the month in which,- (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is received under subsection (2), i....
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.... (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. (14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee. (15) For the purposes of this section,- (a) "Dispute Resolution Panel" means a collegium comprising of three [Principal Commissioners or] Commissioners of Income-tax constituted by the Board for this purpose; (b) "eligible assessee" means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any foreign company.' 8. If the above provisions of reference to the DRP are to be applied ....
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....ection 172(3), is received by the Assessing Officer. When all these provisions of the statute are given literal interpretation, such a time limit, in the case of DRP reference being actually made by the assessee, is wholly unworkable. To give an example, if a vessel voyage return is received on 30th March of an year, the Assessing Officer will have just one day to furnish the draft assessment order under section 172(4) to the assessee, and not even a day to implement the directions of the DRP as issued under section 144C(8). The reason is this. In respect of voyage vessel returns received in the month of March of an year, under section 172(4A), the Assessing Officer has to necessarily pass the order within December of that year and unless he forwards the draft assessment order to the assessee within March itself, the DRP cannot be under a statutory obligation to issue directions on or before the end of December that year. Similarly, when a VVR is received at the closing of the working hours of the last working day of March of an year, no assessment can at all be done in the case of an eligible assessee. These results are clearly incongruous and patently absurd. 9. That tak....
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.... very long time with the existing appellate structure. With a view to provide speedy disposal, it is proposed to amend the Income-tax Act so as to create an alternative dispute resolution mechanism within the income-tax department and accordingly, section 144C has been proposed to be inserted so as to provide inter alia the Dispute Resolution Panel as an alternative dispute resolution mechanism. 10. There is thus no meeting ground between implementing the law laid down by Hon'be Courts above, which is also in harmony with the intent of the legislature as evident from the above extracts from 'Notes on Clauses', and the literal interpretation to the provision regarding relaxation to the time limits set out in Sections 153 and 153B. The choice that we now have is between interpreting the connotations of an assessment order as per the law laid down by Hon'ble Courts above, in furthering the scheme of the legislative amendment, in introducing section 144C, and thus reading the references to Section 153 and 153B, as appearing in Section 144C(4) and 144C(15), as illustrative rather than exhaustive, and between interpreting the connotations of an assessment order c....
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....e AP High Court's judgment in the case of Zurai Cement Ltd. v. ACIT (unreported judgment dated 21st February 2013 in WP No. 5557 of 2012) and in the case of Vijay Television (P.) Ltd. v. DRP [2014] 369 ITR 113/225 Taxman 35/46 taxmann.com 100 (Mad.) has held that such an order will be "null and void". It is also pointed out that a Delhi bench of this Tribunal, in the case of Capsugel Healthcare Ltd. v. Asstt.CIT [2014] 50 taxmann.com 324/152 ITD 142 (DelhiTrib.) and vice versa also holds so. Learned Departmental Representative, on the other hand, submits that if, in the wisdom of the Tribunal, this matter is to be held to be covered by the scheme of Section 144C, the matter can best be remitted to the file of the Assessing Officer for following that path. 11. We have noted that in all the precedents cited by the learned counsel, the assessment orders in which arm's length price determination under section 92CA(3) was done, were subject matter of dispute. These are the cases in which there was no dispute with regard to the application to Section 144C and the only issue was as to what should be done in the cases in which the scheme of Section 144C, though admittedly ....
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....er, in our limited but sincere understanding, the variations in material facts is on such fundamental aspects that a different approach was warranted on these facts inasmuch as the two category of situations, i.e. the situations in which provisions of Section 144C are admittedly applicable but the AO has not forwarded the draft order and the situations in which there is bona fide dispute about applicability of the provisions of Section 144 and, therefore, the AO has not forwarded the draft order, cannot be equated. We may add, at the cost of repetition, that the point of dispute being whether or not the course of action 144C was permissible, a decision in favour of the assessee is to be essentially followed with an opportunity being given to the assessee to be allowed to traverse that path." 3. Learned senior counsel for the assessee has, however, argued at length on merits of these cases as separate grounds of appeal on merits are also raised and submitted that the matter be decided on merits. Learned counsel for the assessee has raised certain fundamental legal and factual issues, particularly with respect to double non taxation and the scheme of the India Singapore DTAA....