TaxTMI 
TaxTMI 
2023 (5) TMI 1207
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....-2021 passed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s. 147 r.w.s 144C(13) of the Act pursuant to the directions dated 22-01-2021 of Ld. Dispute Resolution Panel-2, Bangalore (DRP) u/s 143(3) r.w.s 144C(5) of the Act. The draft assessment order was passed by Ld. AO on 30-12-2019 which was subjected to assessee's objection before Ld. DRP. Pursuant to the directions of Ld. DRP, final assessment order was passed on 24-02- 2021 making certain additions in the hands of the assessee. Aggrieved by those additions, the assessee is in further appeal before us with follow grounds of appeal: - 1. The order of the Deputy Commissioner of Income Tax, International Taxation1(1), Chennai ["AO/Assessing Officer"] is contrary to law, facts and circumstances of the case. 2. Reopening of assessment u/s 147 of the Act is invalid 2.1. The AO/DRP erred in reopening the assessment under section 147 of the Act in the absence of essential conditions necessary for reopening the assessment. 2.2. The AO/DRP ought to have appreciated that section 147 of the Act permits reassessment of income, "where AO has reason to believe that any income chargeable to income tax has es....
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....nt (i.e., BTL India), it cannot be automatically concluded that it is an income collected on behalf of the principal. 3.7. Without prejudice to the above and in any event., the documentation charge and vessel handling charges are in the nature of shipping income and therefore not taxable in India as per Article 8 of the DTAA between India -Singapore. 3.8. Without prejudice to the above, the Assessing Officer ought to have appreciated that the said income has already been taxed in the hands of BTL India in India and as such assessing the income once again in the hands of the Appellant has resulted in double taxation of the same income. 3.9. Without prejudice to all the above grounds, the Assessing Officer erred in taxing the gross income without allowing/considering any expense for earning the aforesaid incomes. 3.10. Without prejudice to the aforesaid ground, the Assessing Officer ought to have taxed the documentation charges and vessel handling charges under section44B of the Act. 4. International shipping income from freight operations amounting to INR 10,89,70,019 assessed to tax in India 4.1. The directions of the Dispute Re....
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.... of taxation to the residence country. 4.10. The AO ought not to have taxed the shipping income in India when two sovereign nations have clearly allocated the taxing rights of such income between the countries and as such the impugned order is ultra-vires and without jurisdiction. 4.11. The AO ought to have appreciated that when the income tax department has consistently accepted that shipping income is taxable only in Singapore as per Article 8 of the India-Singapore DTAA which has been adopted in the shipping industry over the last 20 years, the AO is precluded from adopting a contrary view for this AY especially when there is no change in law or facts. 4.12. The DRP ought to have appreciated that the AO has already issued a DIT relief certificate under section 172 of the Act for the subject AY wherein the Revenue has accepted that relief under Article 8 of the India - Singapore treaty is available to the Appellant and as such the AO is precluded from taking a different position while completing the assessment. 4.13 The AO/DRP erred in incorrectly interpreting the Vienna Convention while considering the applicability of the DTAA between India a....
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....The Ld. AR, drawing attention to the reasons recorded for reopening, submitted that the case was reopened on the issue of taxability of documentation / vessel handing charges (DVHC) and the same was not to consider taxability of freight income at all. Even in the sworn statements recorded during survey proceedings, there were no questions in relation to taxability of freight income. The issue of taxability of freight income was never part of initial reasons for reopening of assessment. The Ld. AR further submitted that documentation / vessel handing charges never belonged to the assessee and it was independently earned in India by its Indian subsidiary i.e., M/s Bengal Tiger India Private Ltd. (BTIPL). These charges were already offered to tax in India by that entity in its return of income filed for all the years. The same was also confirmed in the sworn statements recorded during survey proceedings. Therefore, there was no escapement of income which would enable Ld. AO to acquire jurisdiction u/s 147 of the Act. In such a case, the reassessment proceedings would be bad in law as per the decisions of Hon'ble Bombay High Court in Techpac Holdings Ltd. vs CIT (67 Taxmann.com 280) as....
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....e to apply higher tax rates though it is admitted position that the said very income has already been declared, offered and assessed to tax in the hands of the Indian entity. This fact is also very clear from remand report dated 24-12-2020 of Ld. AO wherein it has been admitted that there is no mention of documentation charges undertaken by the Indian entity on behalf of the assessee in the agency agreement. In the sworn statements also, it has been confirmed that the services were rendered by Indian entity and the assessee had no right to receive such income. Since the income did not belong to the assessee, there is no question of escapement of income in the hands of the assessee. Accordingly, the primary condition to reopen the case fails and the reassessment proceedings are bad in law. Once the sole reason for reopening of assessment is not sustainable, entire assessment would be void-ab-initio as per the decision of Hon'ble Delhi High Court in Ranbaxy Laboratories Ltd. (12 Taxmann.com 74); the decision of Hon'ble Bombay High Court in Jet Airways (I) Ltd. (195 Taxman 117) the decision of Hon'ble Delhi High Court in Blackstone Capital Partners (Singapore) Vi FDI Three Pte. Ltd. (....
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....lso been placed on the decision of Rajkot Tribunal in Maersk Tankers Singapore Pte. Ltd vs ACIT (145 Taxmann.com 260) which has followed the decision of this Tribunal rendered in assessee's own case for AY 2015-16 IT(TP) No.11/Chny/2020. Similar is stated to be the decision of this Tribunal in Bengal Tiger Line Ltd. vs. DDIT (33 Taxmann.com 307) which has held that the shipping income of Cyprus based entity is not taxable in India. The Article-8 of India-Cyprus DTAA and Article-8 of India- Singapore DTAA are stated to be pari-materia the same. 2.7 Lastly, Ld. AR drew our attention to letter issued by Singapore Competent Authority i.e., Inland Revenue Authority of Singapore (IRAS) clarifying that the freight income would be regarded as Singapore sourced income and would be brought to tax on accrual basis and not on remittance basis. Therefore, Article-24 would not apply to shipping income. The Ld. AR submitted that as per Article-8, only contracting state i.e., Singapore has exclusive taxing right on Shipping income. The same is evident from the fact that Ld. AO, after considering the Tax Residency Certificates (TRC) and supporting documents, has issued DIT relief certificates by....
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....uate whether the treaty benefit is available. Subject to tax would mean actual payment of tax in the respective jurisdiction. Per contra, liable to tax means the respective country has the right to levy the tax, however, it may choose to provide an exemption for any particular income. The term subject to tax is not defined under the Act. However, the term liable to tax is defined under section 2(29A) of the Act which is as under: 2) From the above definition, one can infer that even the Indian Income Tax Act recognizes the fact that a person is considered to be 'liable to tax' even if an exemption is granted. In the instant case, the Singapore Income Tax Act provides exemption of shipping income as per section 13F. However, the Appellant continues to be liable to tax in Singapore by virtue of its residential status. The contention of the income tax department that the Appellant is not paying any tax in Singapore by virtue of the exemption granted in section 13F and that they are not 'subjected to tax' (i.e. actually paid taxes in Singapore) is not a relevant criteria to adjudge whether treaty benefit is available or not. 3) Further, Article 8 uses ....
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....ciding his eligibility for benefit under articles 10, 11 and 13 of DTAA. The Copy of the said ruling is enclosed as Annexure - 6 8) In a Manual on the OECD Model Tax Convention on Income and on Capital, at Para 4B.05, while commenting on Article 4 of the OECD Double Tax Convention, Philip Baker points out that the phrase 'liable to tax' used in the first sentence of Article 4.1 of the Model Convention has raised a number of issues, and observes: "It seems clear that a person does not have to be actually paying tax to be "liable to tax" otherwise a person who had deductible losses or allowances, which reduced his tax bill to zero would find himself unable to enjoy the benefits of the convention. It also seems clear that a person who would otherwise be subject to comprehensive taxing but who enjoys a specific exemption from tax is nevertheless liable to tax, if the exemption were repealed, or the person no longer qualified for the exemption, the person would be liable to comprehensive taxation. " 9) Further, Late Prof. Klaus Vogel in the Bulletin for International Taxation (Volume 60, No. 6 - 2006 at pages 218-219) published by the International Bur....
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....een 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 .... 96. According to Klaus Vogel "Double Taxation Convention establishes an independent mechanism to avoid double taxation through restriction of tax claims in areas where overlapping tax-claims are expected, or at least theoretically possible. In other words, the Contracting States mutually bind themselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxation for the other contracting States either entirely or in part. Contracting States are said to 'waive' tax claims or more illustratively to divide 'tax sources', the 'taxable objects', amongst themselves." Double taxation avoidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe this method of classification of items and their assignments to the Contracting States. While the English lawyers called it 'classification and assignment rules', the German jurists called it 'the distri....
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....to be given in accordance with paragraph (2). In the present case, the income arose in Sri Lanka and it is taxable only in Sri Lanka. The fact that it was not taxed in Sri Lanka would not give rise to taxing the same by the Indian Government especially when the Sri Lankan Government itself declared that the assessee is having a permanent residence in that country" (Emphasis Supplied) 12) The Mumbai Tribunal in the case of ADIT vs Green Emirate Shipping & Travels (100 ITD 203- refer Case Law Compendium Pg Nos. 88 to 93): "8. 4lthough the Assessing Officer's objection to applicability of India-UAE tax treaty was only on the ground that the provisions of double taxation avoidance agreements do not come into play unless it is established that the assessee is paying tax in both the countries in respect of the same income, in the grounds of appeal before us it is also contended that the assessee-company failed to produce any evidence to the effect that it was 'liable to pay taxes' in UAE. The question then arises whether an existing liability to pay taxes in UAE is a sine qua non to avail the benefit of India-UAE tax treaty in India. On this issue a....
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....ed that "the non-resident can benefit from the exemption (under the treaty) regardless of whether or not he is taxable on that capital gain in his own country. If Canada or the US were to abolish the capital gains tax completely, while the other country did not, a resident of the country which has abolished the capital gains would still be exempt from capital gains in that other country". It is thus clear that taxability in one country is not sine qua non for availing relief under the treaty from taxability in the other country. All that is necessary for this purpose is that the person should be 'liable to tax in the Contracting State by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature' which essentially refers to the fiscal domicile of such a person. In other words, if fiscal domicile of a person is in a Contracting State, irrespective of whether or not that person is actually liable to pay tax in that country, he is to be treated as resident of that Contracting State. The expression 'liable to tax' is not to read in isolation but in conjunction with the words immediately following it i.e., 'by ....
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....ope for double non-taxation is a conscious decision of the respective Contracting State, but once such a tax treaty, as may leave scope for double non-taxation, is entered into, judicial forums have to interpret the provisions of tax treaty as they exist. 14) Further the point on liable to tax is also addressed in this Tribunal's ruling in the Appellants' own case for AY 2015-16 in IT(TP)A l l/CHNY/2020, the relevant extract from the decision is reproduced as under: "16.... 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....
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....tation and vessel handling charges were wrongly admitted by Indian agent whereas such income belonged to principal assessee. Therefore, there is no question of change of opinion or collection of fresh material by Ld. AO. The written submissions filed by Ld. CIT-DR supporting the case of the revenue, on the issue of reassessment jurisdiction, read as under: - The appellants in the above cases have challenged the reopening of assessment u/s 147 of the IT Act after survey operation carried out u/s 133A of the IT Act on 07- 03-2019 in the case of Bengal Tiger Line India (P) Ltd. The main issue of revenue in this case is that the documentation charges and vessel handling charges ought to have been admitted in the hands of principal i.e. appellant whereas the same was admitted wrongly by the agent i.e. Bengal Tiger Line India (P) Ltd (BTL-India) in all the above said A Ys. This led to reopening of assessment. • The return filing history and issue of notice and re assessment is as under; Table-I AY Date of filing of original return Section Any assessments 2012-13 13-08-2014 142(1) No 2013-14 27-05-2014 139(4) No 2014-15....
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....t. D. Factual _evidences available on record; 1. Is it a Change of opinion: The return filing history presented in the Table- I above revealed the fact that in none of the assessment years regular assessment u/s 143(3) of the IT Act was carried out. Only during the course of survey, the AO observed that the vessel handling charges and documentation charges wrongly admitted by the Indian agent whereas these two incomes was pertaining to the principal Bengal Tiger Line PTE Ltd, Singapore. Hence question of change of opinion or collection of fresh material or evidences for the purpose of reopening and the related grounds of appeal cannot survive. 2. Analysis of Financials: Financials of the agent BTL India Ltd. for two assessment years i.e. 2012-13 and 2013-14 is placed in paper book from page no. 1 to 12. The agent's main source of income was agency commission earned from the principal. The other two incomes of documentation charges and vessel handling charges was booked incorrectly by the agent. 3. Note on business activity of the agents: Note on business activity submitted by the agent BTL India Ltd. to the assessing officer during the course....
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....ings of the Government viz. Customs Authorities, Income-tax Authorities, Port Authorities etc. in order to obtain necessary clearances, certificates, approvals etc. in relation to arrival and departure of every vessel to and from the port. These activities are carried on by the Company through its offices in Chennai, Kolkata, Tuticorin and Cochin. It is evident that all those activities of the agents were carried out on behalf of the principal. 6. Evidences from the objections for reopening filed by the appellant; 6.1 Attention is drawn to objection to reasons for reopening the assessment filed by the appellant on 27-06-2019 to the AO for the AY 2012-13 placed at page no. 28 to 37. At point no. 3 it was clearly declared that in accordance with agency agreement, BTL India would include handling the principal's service, efficient dispatch of vessels, booking/documentation/accounting of containers on behalf of principal. 6.2 At point no. 4 of the same reply it was submitted that in Kolkata and Cochin port the agent had to take some additional services in the nature of documentation to facilitate efficient dispatch of vessels. 6....
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.... 8.1 In reply to question No.6, he had admitted that Indian Company engaged in the steamer Agency Services on behalf of the Principal, BTL Singapore to handle their ships in Indian Ports. 8.2 From Q.No.7 to 11, he had explained that each customer enter agreement with the Principal and the rate agreed is updated in the Principals software (SINMAX). For this activity, agency commission of 2% was received from the Principal. 8.3 It is also admitted that agent forecast the fund requirement on a weekly basis and subsequently prepares general statement of account on fortnight basis and submit the same to the Principal through SINMAX software. 8.4 It was also replied that on receipt of the payment from the customers, after meeting out the vessel related expenses by BTL India on behalf of Principal company, the balance surplus if any, will be repatriated to the Principal company. After 2017, customers made payment directly to Principal. 8.5 Having answered to these questions, the General Manager however replied to question no.23 that documentation charges and vessel handing charges is a local revenue. However, this cannot be acceptable. 8.6....
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....sed an issue that AO having issued certificate u/s 172 cannot take contrary view. In this connection it is submitted that the issue of documentation charges and vessel handling charges was brought on record only after survey. This certificate u/s 172 is a kind of provisional certificate issued to the assessee for port clearance. On this aspect, the A.O submitted a detailed remand report and it is placed in the paper book. E. Summary and Prayer: 1. It is a clear-cut case that BTL India (P) Limited is only an agent acted on behalf of the principal. The nature of business was explained by the agent at various places of their written submission. They earned commission income from the principal. It was their main source. 2. Agent cannot independently book Documentation charge and vessel handling charges in their hands. There was no such agreement entered between agent and principal that allows agent to act independently. 3. The entire business activity of the agent was explained in the statement by the General Manager-Finance and Administration that the agent used to ask for prefunding from the Principal and spent those amounts towards various expendi....
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....n behalf of the assessee. Therefore, document / vessel handling charges were collected by Indian agent on behalf of the principal assessee only and it could not be its independent source of income. Such income was incidental to the business activity of the assessee and could not be treated as separate income generated by the agent on its own. The agent could not collect these charges independently and there was no such agreement entered between agent and principal that allow the agent to act independently. 3.3 The Ld. CIT-DR also supported the case of the revenue on merits and relied on the decision of Hyderabad Tribunal in PACC Container Line Pvt. Ltd. vs. ITO (ITA Nos.25/Hyd/2018 & ors. dated 27.04.2022).The Ld. CIT-DR submitted that the decision of the Tribunal for AY 2015-16 has not considered the applicability of Article-24 and therefore, this decision could not be relied upon in all these years. The Ld. CIT-DR has filed written submissions along with copies of case laws and financial documents etc. to support the case of the revenue. 3.4 The Ld. CIT-DR drew attention to the financials of the Indian agent and submitted that the agent was acting as an exclusiv....
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....right to tax the shipping income accrued in India. 3. Examination of provisions of Singapore Income Tax Act: At paragraph 7, 14 and 15, the A.O had examined charging section of 10 and exemption section of 13A and section 13F of Singapore Income Tax Act (SITA). At para 20, the charging section of SITA, i.e. section 10 is also analysed. As per the charging section of 10 of SITA, "Income Tax shall, subject to the provisions of this Act, be payable at the rate or rates specified herein after 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....... There are three scenarios of taxation as per section 10 of SITA is: (a) When income accrues in Singapore (b) When income is derived in Singapore (c) When income received in Singapore from outside Singapore In the present case, the issue is not on first two conditions. The third aspect of income accrued in India and not remitted to Singapore as well as not subject to tax in Singapore is the main focus of the assessment. Singapore has territorial basis of taxation where income....
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..... The A.O referred e-Tax Guide and its disclaimer in paragraph 23. It is as under IRAS shall not be responsible or held accountable in any way for any decision made or action taken by you or any third party in reliance upon the Contents in this e-Tax Guide. This information aims to provide a better general understanding of taxpayers' tax obligations and is not intended to comprehensively address all possible tax issues that may arise. While every effort has been made to ensure that this information is consistent with existing law and practice, should there be any changes, IRAS reserve the right to vary its position accordingly." Hence, AO was of the view that the IRAS letter is not in line with the SITA and e-Tax Guide as well as DTAA signed by them. In view of the above the AO proceeded to tax the shipping income accrued in India as per the provisions of the Income Tax Act as well as DTAA. B. Appellant's grounds of appeal before Hon'ble ITAT: The appellants in the above cases have raised multiple grounds of appeal from 4.1 to 4.16 wherein they sought to rest their case on the decision of this honourable tribunal in the case of Ms Ben....
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....other independent activities of a similar character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State: ARTICLE 15 DEPENDENT PERSONAL SER VICES Subject to the provisions of Articles 16, 18, 19,20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment..... ARTICLE 19 NON-GOVERNMENT PENSIONS AND ANNUITIES Any pension, other than a pension referred to in Article 18, or any annuity derived by a resident of a Contracting State from sources within the other Contracting State may be taxed only in the first-mentioned State. While the above provisions enable the resident state to solely tax said incomes, on the contrary at the same time in the source state exempts such incomes from its rightful claim to taxation. Hence the conclusion that Article-8 along with all the above provisions are both enabling provisions (in respect of resident state) as well exemption provisions (in respect of source state) is not correc....
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....of time such trade, business, profession or vocation may have been carried on or exercised; (b) gains or profits from any employment; (c) [Deleted by Act 29 of65} (d) dividends, interest or discounts; (e) any pension, charge or annuity; (I) rents, royalties, premiums and any other profits arising from property; and (g) any gains or profits of an income nature not falling within any of the preceding paragraphs." So as discussed above, there are three scenarios of taxation in Singapore i.e.: i. When income accrues in Singapore ii. When income is derived in Singapore iii. When income received in Singapore from Outside Singapore 4. From the above it is evident that Singapore adopts a territorial basis of taxation. Under section 10(1), income tax is levied only on income "accruing in or derived from Singapore or received in Singapore from outside Singapore". 5.However, since Shipping income was exempted by virtue of Section 13F of Singapore Income Tax Act, the second component "that income should be subject to tax in the state of residence" as mentioned in paragraph-C is ....
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....rd' on 09.02.2022. However, no order was passed. On 05.05.2022, the Bench had posted this case as 'part-heard', as certain material aspects are required clarifications from both the sides. The case was accordingly posted to 24.05.2022. On 24.05.2022, the counsel appeared for the appellant sought for adjournment on the ground that he had to obtain additional documents from the instructing Chartered Accountant. Accordingly, the case was again posted as part-heard on 8.6.2022 at 2.30 p.m. On 8.6.2022, the ITAT with detailed observation released the appeal for fresh hearing. The content in the order sheet is reproduced below; "These appeals were originally heard on 09.02.2022 and when taken up for dictation for clarification, it was posted for part-heard hearing on 24.05.2022. On 24.05.2022, when the appeals were taken up for hearing the ld Counsel for the assessee has sought for adjournment and accordingly adjourned to 08.06.2022 as part- heard. When these appeals were originally heard, it came to our notice that there are two judgements or this issue viz., one form ITAT Ahmedabad and the other is from ITAT Chennai. The ITAT Chennai has taken a view in favour of t....
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....dvance containers Pte Ltd for fresh hearing as the law laid down in Bengal Tiger Lines in IT(TP) A.No.11/Chny/2020 did not reach its finality. E-1: Decision of Hyderabad ITAT on this subject: In the case of M/s PACC Container Limited rep. by J.M. Baxi and Co, Muthukur, Nellore Vs ITO (International taxation) in ITA No.25,26,27/14yd/2018 and in ITA No.550/551/2021 analysed this issue and held that if the shipping income is accrued in India and not remitted to Singapore, it is taxable by virtue of article-24 of India- Singapore DTAA. The operative part of this decision starts from para-15 and the scope of taxation of this income by virtue of article-24 was explained in detail by Hon'ble ITAT, Hyderabad. E-2: Decision of Maersk tankers Singapore Pte limited: Hon'ble Rajkot bench's decision has been relied upon by the appellant's counsel. It is humbly submitted that Hon'ble ITAT has rested its finding on the basis of Bengal Tiger Lines in IT(TP)A.No.11/Chny/2020 of Chennai ITAT. As Chennai ITAT itself later accepted that the liable to tax and subject to tax was not examined in the earlier decision and released the appeal of other cases namely Pacif....
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....sidence. It is prayed that the assessment orders passed in the above said cases may be upheld as the facts and correct position of law has been elaborately discussed by the AO and that was upheld by DRP. 4. We have carefully heard the rival submissions and gone through the written submissions filed before us. We have also considered the case laws cited before us. Having considered the same and upon perusal of case records, our adjudication would be as under. The assessee being non-resident corporate assessee is stated to be engaged in shipping business. The assessee is engaged in providing feeder ship services to various main line operators operating across group. The assessee group has been carrying on the shipping business in international waters connecting the transshipment ports of Singapore and Colombo with Indian hub ports over the last 30 years. The assessee is Singapore based entity and subject to taxation under Singapore Taxation laws which is an undisputed position. Assessment Proceedings 5.1 The facts on record would reveal that the assessee-company is engaged in shipping business. The assessee is incorporated in Singapore and filed its return of income....
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.... Therefore, to pay lesser taxes, the income accruing to the assessee was accounted for in the books of the agent which was not acceptable. Accordingly, Ld. AO held an opinion that the aforesaid income would be chargeable to tax in the hands of the assessee and there was an escapement of income. 5.5 Proceeding further, Ld. AO noted that the assessee was claiming shipping income to be exempt. However, this claim was not accepted by the department in assessment order for AY 2015-16 wherein it was held that the shipping income was taxable in India both as per the provisions of Income Tax Act as well as per India-Singapore DTAA. The Ld. DRP confirmed the draft assessment order. Since the same facts continued for this year also, same view was to be taken in this year. 5.6 The Ld. AO, rejecting assessee's submissions, proceeded to take the same view in this year. The Ld. AO held that the Article-8 of DTAA provide that the profits derived by an enterprise of a contracting state from the operations of ships or aircrafts in international traffic shall be taxable only in that state. Since the assessee was resident of Singapore, it took a view that the entire income from its shipping bus....
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....e first mentioned contracting state shall apply to so much of the income as is remitted to or received in that other contracting state. The benefit under Article-8 was tied up to the income actually being subject to tax i.e., actually taxed in Singapore. The term 'subject to tax' would be different from 'liable to tax'. A person not paying tax due to an allowance or relief is different from a person not paying tax due to an exemption. The person would not be regarded as 'subject to tax' if the income is exempt. 5.8 Proceeding further, Ld. AO noted that Sec.13A of Singapore Act does give the assessee an option of subjecting its shipping income to tax in Singapore. However, this option was not exercised by the assessee resulting in its shipping income not being subject to tax in Singapore and therefore, Article-24 would apply. Accordingly, entire income earned by the assessee would be liable to tax in India and the same would be taxable in terms of Sec.44B except document / vessel handling charges since these charges are not covered under Explanation to Sec.44B and would be chargeable to tax separately. These charges were for payment of custom clearances and declaring the vessels ....
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....The assessee assailed the validity of reassessment proceedings, inter-alia, on the ground that the subject income had already suffered tax in India and as such, reopening could not be done for an income which is already taxed. However, Ld. DRP dismissed the same on the ground that Ld. AO had reasonable belief of escapement of income and sufficiency of the reasons was not to be gone into at the stage of reopening the assessment. 6.2 On merits, the assessee reiterated that only the country of residence would have right to tax the income earned by the assessee and invocation of Article-24 was erroneous. The provisions of Article-24 would apply only for income which are exempt from tax under the India- Singapore DTAA and would not cover shipping income as specified in Article-8. When the treaty contains specific provisions dealing with a taxability of a particular income, AO is precluded from imputing any other conditions which are not contemplated explicitly in DTAA. The assessee also relied on letter dated 17-09-2018 issued by The Singapore Tax Authority i.e., Inland Revenue Authority of Singapore (IRAS) clarifying that the shipping income for a Singaporean company is taxable in S....
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....ess and interest u/s 234B. Similar view was taken in all the other years. Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 7. From the facts, it emerges that the assessee is a Singapore based shipping entity and is governed by India-Singapore DTAA. The assessee claim that shipping income thus earned by the assessee is covered by Article-8 of DTAA which provide that only the resident country would have taxation right to tax the same. Accordingly, the assessee has availed the benefit of Article-8 and filed its return of income by taking benefit of DTAA on freight income. 8. To carry out its shipping operations, the assessee has appointed M/s BTIPL as its agent in India who collects freight income on behalf of the assessee. For the same, the assessee has entered into an agency agreement with BTIPL. The copy of the same is placed on Page No.113 of the paper-book. As per the terms of the agreement, the agent would work on behalf of the principal assessee to carry out shipping activities against specified percentage of commission on all inbound and outbound FIO freight. The agent was to carry out such duties customarily expected ....
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....the agency agreement has been accepted by Ld. AO in the remand report also. Thus, all these facts would lead to inevitable conclusion that these charges were being collected by the agent in independent capacity to facilitate shipping operation and the same were not part of the contractual terms between the principal and the agent. The plea raised by the revenue that these charges would belong to the assessee principal could not be accepted in the light of documentary evidences on record. 9. We find that the whole dispute stem from the fact that the agent was subjected to survey action u/s 133(2A) wherein statement of key persons was recorded. The main issue emerged out of document / vessel handling charges stated to the received by the agent independently. The copies of statement taken during survey proceedings are on record and we have perused the same. The same has also been extracted in the reasons recorded by Ld. AO to reopen the case of the assessee. A statement was taken from Shri B.Sridhar, director of BTIPL. In reply to question no.5, it was submitted that the agent perform vessel handling facilitates port clearance and assists in local marketing activities, raises in....
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....impugned charges were levied for the local work undertaken by BTIPL for shipping lines. These functions were performed completely by the agent independently and not performed on behalf of the principal. The same was stated to be performed as per local trade requirements. Another undisputed fact was that the impugned charges were offered to tax by the agent as an independent entity in its books of accounts and treating the same as the income of the principal would amount to double taxation. The impugned services being offered by the agent was local value-added services warranted by local trade / shipping company requirements. The principal assessee was not connected to this activity and the same were not covered under the contractual terms also. 10. A copy of the reason recorded by Ld. AO to reopen the case of the assessee has been placed before us. Upon perusal of the same, we find that the above two statements forms the very basis of reopening the case of the assessee. The Ld. AO has referred to the above statements and formed the reasons of escapement of income as under: - From the above invoices and sworn statements recorded from relevant personnel regarding the docu....
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.... hands of the principal assessee and the same led to reopening the assessment of the assessee. However, as already noted by us, in both the statements, it has been confirmed that the documentation and vessel handling charges were collected as per local trade practices and these charges did not belong to the principal assessee. The same was accounted for in the books of accounts and offered to tax as such by the agent. Taxing the same in the hands of the assessee would amount to double taxation. The collection of impugned charges was not part of contractual terms. However, Ld. AO held an opinion that these charges would be taxable in the hands of the principal assessee which is subjected to higher tax rate of 40% as against agent who is chargeable at lower tax rate of 30% though Ld. AO has admitted the fact that these charges have already been offered to tax by the agent. Upon perusal of the two statements, we conclude that there was no material before Ld. AO to reach a conclusion that the said income belonged to the assessee and the same was taxable in the hands of the assessee. In fact, there is no tangible material before Ld. AO to reach such a conclusion and the conclusion is me....
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....trated that the said income was collected by the agent on behalf of the principal and this income belonged to principal only. We find that there is no material before Ld. AO to reach the said conclusion. Therefore, the assessment framed by Ld. AO is liable to be quashed on this score only. We order so. 12. Our view is duly supported by the cited decision of Hon'ble Bombay High Court in Techpac Holdings Ltd. vs CIT (67 Taxmann.com 280) wherein it was, inter-alia, held that unless certain income escaped assessment in the hands of the assessee, reassessment proceedings were unsustainable. Similar is the ratio of decision of same court in The Swastic Safe Deposit and Investments Ltd. (107 Taxmann.com 421) wherein it was held that it was incumbent for Ld. AO to prima-facie show that income had escaped assessment. The Assessing Officer's attempt of further verification would amount to rowing inquiry. The Hon'ble Gujarat High Court in the case of Vinayak Builders (27 Taxmann.com 116) held that there should be independent application of mind by Ld. AO to reach a conclusion of escapement of income. All these case laws support the case of the assessee. Considering the same, we would h....
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....Ld. CIT-DR has also referred to agency agreement, the financials of the agent, note on business activity and submissions made by the agent before Ld. AO to support the argument that the agent was to perform the functions as per the terms and agreement as agent only and therefore, any revenue earned would necessarily belong to principal only. The Ld. CIT-DR has also referred to the submissions made by agent to Ld. AO on 11.01.2016 during the course of regular assessment proceedings which would support the fact that all the activities including impugned activities were carried out by the agent on behalf of the principal only. The agent could not do any such activities independently but the same were on behalf of the principal. However, we have already negated this conclusion since there is nothing to support that argument in the recorded statement. The same is not backed by the terms of the agency agreement. 15. The Ld. CIT-DR has also averred that the certificate issued u/s 172 was kind of provisional certificate issued to the assessee for port clearance. However, this argument run contrary to CBDT Circular No.30/2016 dated 26-08-2016 which clarifies that this certificate is to b....
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....s or other independent activities of a similar character shall be taxable only in that State except in certain circumstances as enumerated wherein such income may also be taxed in the other Contracting State. In terms of Article 15, subject to the provisions of Articles 16, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State except in certain situations. Similarly, in terms of Article 19, any pension, other than a pension referred to in Article 18 or any annuity derived by a resident of a Contracting State from sources within the other Contracting State may be taxed only in the first-mentioned State. Thus, different expression has been used in these articles. Some of the articles provide that certain income would be taxable only in certain jurisdiction (subject to certain exceptions) whereas some of the articles provide that the said income may be taxable in any of the state. The different Articles provide different taxation rights of different sources of income as agreed upon by both the countries. However, it is nowhere a condition that such income should nec....
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....The primary condition for application of this Article is that where this agreement i.e., DTAA provides that the income from sources in a contracting state shall be exempt from tax or taxed at 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. The first condition, therefore, is that the income should be sourced in India. The second condition is that the income should be exempt or taxed at a reduced rate by virtue of any article under the India-Singapore DTAA and lastly, the income should be taxed on receipt basis in Singapore. If all the conditions are cumulatively satisfied, only then this Article could be invoked against the assessee. As already noted, Article 8 vests taxation right of shipping income to the Singapore Authority and the same do....
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.... 8(1) of the DTA does not confer India the right to tax such profits. Though the revenue has disputed this position and submitted that this certificate could not be relied upon and the same run contrary to statutory provisions of Singapore Income Tax Act. This position could be accepted only if the any evidence controverting the same was brought on record by revenue to support the same. We do not find any such evidence on record. Therefore, in the absence of any such evidences controverting the certificates issued by IRAS, this plea could not be accepted. 22. In the light of the above stated facts, we would hold that Article 24 would have no application in the case of the present assessee but Article 8 would apply and the assessee would be eligible to claim the benefit of the same since it is more beneficial vis-à-vis statutory provisions of Income Tax Act, 1961. The conditions of Article 24, in our considered opinion, have not been fulfilled in the present case and therefore, the invocation of the same against the assessee could not be held to be justified. 23. Another line of agreement was that DTAA do not provide for double non-taxation of the income. However, we....
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....ring rival arguments and after considering various judicial pronouncements, quashed the assessment order as under: - 11. In the background of such facts and the DTAA, learned counsel Shri Bandish Soparkar for the petitioner raised following contentions:- I. The ST Shipping is a company liable to be taxed in Singapore according to the local laws. The income earned by the company in its shipping operations in India would also be accordingly taxed. In terms of Article 8 of the DTAA therefore, the same could not be taxed in India. II. The interpretation adopted by the Revenue authorities to Article 24 of DTAA is wholly erroneous. Clause (1) of Article 24 would apply only in a case where such income is to be taxed in Singapore only on remittance basis, a condition not fulfilled in the present case. In this context, counsel placed heavy reliance on the certificate dated 09.01.2013 issued by the Inland Revenue Authority of Singapore. Counsel submitted that with respect to other assessments, the assessee had first filed appeal before the Commissioner and after rejection of such appeal carried the matter before the Tribunal. The Tribunal allowed the appeal on the ....
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....ich, it claims immunity from Indian income tax. The Revenue contends that the remittance of such accrued income not having taken place at Singapore, Article 24 will apply and consequently Article 8 providing for avoidance of table taxation would not apply. 16. The fact, that the income in question which arises out of shipping operations by virtue of Clause (1) of Article 8 of the DTAA would be taxable only in Singapore, is not in serious dispute. The moot question therefore is whether operation of Article 8 is ousted by virtue of Clause (1) of Article 24. As noted, Article (24) of DTAA pertains to limitation of relief. Under clause (1) thereof where the agreement provides that the income from sources in contracting states (in the present case, India) shall be exempt from tax or tax at a reduced rate and under the laws in force in other contracting states (i.e. Singapore), such income is subject to tax by reference to the amount thereof which is remitted or received in that State and not by reference to the full amount thereof then the exemption or reduction of tax under the agreement would be limited to so much of the income as is remitted to or received in that contractin....
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....ertain 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. 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. When in the present case, we hold that the income in question was not taxable at Singapore on the basis of remittance but on the basis of accrual, the very basis for applying clause (1) of Article 24 would not survive. The contention of Shri Mehta for revenue that the certificate of the Singapore revenue authorities is opposed to provisions of section 10 of the Singapore Income Tax Act also cannot be accepted. The Revenue does not question genuineness of the certificate. It cannot dispute the contention on the ground that the same are opposed to the statutory provision. 19. By way of a reference, we may notice that the Tribunal also in case of this very assessee in case of Alabra Shipping Pte Ltd. v. ITO, International Taxation [2015] 62 taxmann.com 185 (Rjk. - Trib.) has taken a somewhat similar view by ob....
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....to benefit of DTAA. 21. We may notice that a somewhat similar issue came up before this Court in case of DIT (International Taxation) v. Venkatesh Karrier Ltd. [2012] 349 ITR 124/206 Taxman 488/19 taxmann.com 291 (Guj.) , in which the Court observed as under:- "10. After taking into consideration the above circulars issued by the Board and also the provisions contained in Article 8 of the DTAA, we find that both the Tribunal below and the CIT (Appeals) rightly held that in such a situation, the owner of the ship being admittedly a resident of UAE, there was no scope of taxing the income of the ship in any of the ports in India. The agreement between the two countries 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 the other contracting country and such position has also been clarified by the Circulars issued by the Board as indicated above." 22. In the present case, however, we are not inclined to conclude this issue since this was not even a ground on which either the Assessing Officer or the Commissioner has refused to grant the benefit to th....
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.... same. 26. We find that Ld. AO, taking similar view as taken in AY 2015-16, brought to tax the impugned income in the hands of the assessee. We find that the assessee's appeal for AY 2015-16 has already been adjudicated by Tribunal in assessee's favor in IT (TP) No.11/Chny/2020 order dated 06-11-2020 as under: - 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 carried out by the assessee in India are covered under Article 8 of India- Singapore DTAA. As per Article 8 of India-Singapore DTAA, the 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. Therefore, by virtue of Article 8 of India-Singapore DTAA, the international shipping income of a resident of a Contracting State is taxable only in that State i.e., the ....
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....or 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 international traffic shall be taxable only in the State of residence. The word 'only' debars the other Contracting State to tax the shipping income; i.e. India is precluded from taxing the shipping income even if it is sourced from India. When India does not have any taxation right on a shipping income of non-resident entity, exemption or reduced rate of taxation in the source state is of no relevance because once the taxing right has been given off, the oth....
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....ribed 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 17-9-2018, 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 of Article 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 Articles 8 and 24 of India-Singapore DTAA has been considered by various Tribunals and Courts. As per the settled position of law, the Article 24 Limitation of Benefit is not applicable once shipping income of a nonresident is taxable on "accrual" basis in the country of residence. This principle is well settled by the decision of the Hon'ble Gujarat High Court in the case of M.T. Maersk Mikage (supra), where the Hon'ble court clearly held that where income earned by Singapore based shipping company through shipping business carried out at Indian....
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....e Ltd. (supra). Further, the Mumbai Bench of the Tribunal in the case of D.B. International (Asia) Ltd. (supra) has dealt with the interplay between the Articles 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 consequently Article 24 of India-Singapore DTAA cannot be invoked to deny the benefit of exemption merely for the simple reason that the said income was not taxed in Singapore by virtue of separate exemptions provided under Singapore Income Tax Act. Rs. 17. In this case, the Assessing Officer has attempted to deny the exemption claimed by the assessee under Article 8 by invoking Article 24 of India-Singapore tax treaty on a misconception of two clauses of India-Singapore DTAA by referring to the provisions of Section 13F of the Singapore Income Tax Act, ignor....
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....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 in the India-Singapore DTAA is to clearly allocate the taxing rights of international shipping income to the residence country i.e., Singapore in the present assessee case. Therefore, as per sub-clause (2) of Article 31 of the Vienna Convention, the 'context' for the purpose of interpretation of a treaty would primarily include the text, preamble and annexure to the treaty. Therefore, in order to give the ordinary meanings to the terms in their 'context' the whole treaty should be read as it is without giving any meaning which is not the purpose intended by the Articles. In this case, the AO....
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....r 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 by the decision of the Hon'ble Supreme Court in the case of Radha soami Satsang (supra). 19. We further noted that this issue is considered by the Tribunal in the assessee own group company case in Bengal Tiger Line Ltd. (supra), where the Tribunal has considered the India-Cyprus DTAA and has clearly held that where assessee, a non-resident company registered in Cyprus, was in shipping business and it had effective management of enterprise in Cyprus, income earned by assessee from shipping business was not taxable in India. The Tribunal while arriving at above conclusion has taken support from t....
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....n the case of Venkatesh Karrier Ltd. (supra) has reiterated the same view and held that the agreement between two countries has ousted the jurisdiction of the taxing officer in India to tax the profits derived by the enterprise once it is found that the ship belongs to a resident of the other contracting country and such position has also been clarified by the circulars issued by the Board. The Hon'ble Gujarat High Court referred to Circular Nos.333 dated 2-2-1982 and 732 dated 20th December, 1995. Circular No. 333 states that the provisions made in DTAA would prevail over the general provisions of the Act and Circular No. 732 clarifies that if ships are owned by an enterprise belonging to a country with which India has entered into an agreement of avoidance of double taxation and the agreement provides for taxation of shipping profits only in the country of which the enterprise is a resident, no tax is payable by such ships at the Indian ports. 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 is not taxable in India. Rather the Assessing Officer had no jur....
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....pore but not in India. The provision of Article-24 would apply to income which is exempt from tax as per the tax treaty which is not the case since the international shipping income earned by the assessee is not exempted in India. Therefore, the 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 as dealt by Article-8 states that profits derived by an enterprise of a contracting state by operation of ships in international traffic shall be taxable only in the State of residence. The word 'only' debars the other contracting state to tax the shipping income so earned by the assessee even if it is sourced from India. When India does not have any taxation right on a shipping income of non-resident entity, exemption or reduced rate of taxation in the source state is of no relevance because once the taxing right has been given-off, the other conditions like exemption or reduced rate of tax has no bearing on the taxability of particular income in other contracting state. Therefore, the assessee being tax resident of Singapore, shipping income so earned from India on inte....