TaxTMI 
TaxTMI 
2008 (6) TMI 227
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....sessee had shown Rs. 19,70,85,237 as freight collected on account of various vessels claimed to be operated/chartered by TCSPL, which came to India. Income under s. 44B on the above referred amount was worked out at Rs. 1.47 crores and odd and tax payable at the rate of 48 per cent was shown at Rs. 70,95,069. The assessee claimed that income from "ship operation" was not taxable in India, in view of art 8 of DTAA between India and Singapore. A copy of Annual Port Clearance Certificate dt. 24th Aug., 2000 was also furnished. During the course of assessment proceedings, the AO noted from the financial statements of the assessee that note No. 3 showed that its "revenues" were by way of "commission income" only. Note No. 12 also showed that this "commission income" was from related corporations. It was still further noted that the assessee company did not have any employee on its payroll. It was, therefore, opined that the assessee was merely an agent in this line of business. He called upon the assessee to furnish copies of ship registration certificates and charter party agreements. Except for two ship registration certificates for Hermion and Hallord vessels, nothing was produced be....
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....rther noted that in some cases, the assessee had received actual freight less than freight receivable, and therefore, the benefit of art. 8 could not be extended to that part of the freight also. Action of the AO for the applicability of s. 44B, in respect of that part of the freight income was upheld. Both the sides have come up in appeal before us to the extent the impugned order is prejudicial to them. 4. Before us, the learned Departmental Representative has raised an additional ground vide letter of ADI dt. 10th June, 2008, which reads as under: "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in admitting additional evidence in contravention of r. 46A without granting reasonable opportunity to AO to examine the evidence." 5. The learned counsel for the assessee opposed to the admission of the additional ground by contending that the appreciation of the fresh material placed before the learned CIT(A), for the first time, was a factual matter and no question of law could be said to be arising therefrom which could be the subject-matter of an additional ground. He relied on the order passed by the Mumbai Bench of the Tribunal....
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....e learned CIT(A). It is naturally so for the reason that the task of framing assessment has been assigned to the AO, who has to pass the order after satisfying himself as to the correctness of the particulars of income furnished before him. It is not open to the assessee to avoid the assessment proceedings by not furnishing the documents/evidence called for by the AO at the assessment stage and then come up in appeal with the evidence which should have been filed before the AO. Keeping this proposition in mind, r. 46A has been enshrined in the IT Rules, 1962. Here it is important to discuss sub-rule (4) to r. 46A, which provides that nothing contained in this rule shall affect the power of the first appellate authority to direct the production of any document etc. for enabling him to dispose of the appeal. Thus, it is clear that the additional evidence filed before the first appellate authority can be categorized into two parts. The first category consists of the assessee voluntarily filing the additional evidence before the learned CIT(A). In such a situation, the mandate of sub-r. (3) applies and the CIT(A) is obliged to allow the AO a reasonable opportunity before admitting the ....
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....round, it was contended on behalf of the assessee that it was purely a legal ground and no further appreciation of any fresh material is required for its adjudication. He relied on certain judicial pronouncements in support of the admission of additional ground. The learned Departmental Representative did not seriously oppose the admission of additional ground and in our considered opinion, rightly so for the obvious reasons, that it is a legal ground emanating from the orders of the authorities below. We, therefore, admit this additional ground also for adjudication in subsequent paras. 9. The Department is aggrieved against the direction of the CIT(A) for allowing the benefit of art. 8 to the assessee ignoring the fact that the annual income shown in the P&L a/c was by way of commission and not freight and secondly the assessee was not engaged in the business of ship operation. The learned Departmental Representative argued that the financial statements filed by the assessee showed that it had earned only the commission income and did not have any employee on its payroll. It was further argued that the assessee was only recipient of commission and was not engaged in the operat....
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.... deals with double taxation relief, sec. 90(1) provides that the Central Government may enter into agreement with any country outside India for granting relief in respect of income on which tax has been paid in both the countries or for the avoidance of double taxation of income etc. sec. 90(2) mandates that where the Central Government has entered into agreement with, any country outside India under sub-s. (1) for granting relief of tax or avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. In other words, if an assessee covered under the DTAA is entitled to any relief undu it, the relevant clause of DTAA shall apply in supersession to the provisions of the Act. Admittedly, the assessee is covered within art. 4 of the DTAA as it is a tax resident of Singapore. The return was filed by the assessee claiming benefit of the provisions of art. 8. The AO did not accept the applicability of art. 8 on the assessee on the ground that it was not engaged in the business of operation of ship in the international traffic. He, therefore, assessed the income....
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....(4) of art. 8 defines such profits to mean 'the' profits derived from the transportation by sea or air of passengers, mail, livestock or goods carried on by the owners or lessees or charters of the ships or aircrafts' including the profits from four sub-clauses. Thus, if an assessee is deriving profits from the operation of ships in the international traffic either as owner or lessee or charterer, it shall be entitled to the benefit provided by this article. Not only the owners, but the other two categories being the lessees or charterers of the ships are also brought within the sweep of this article. The AO denied the exemption provided by art. 8 on the ground that the assessee had not furnished any charter party agreements before him. B4. It was contended on behalf of the Revenue that the disclosure of commission by the assessee in its accounts was good evidence for negativing the benefit of art. 8. The learned Departmental Representative has contended that since the assessee has accounted for only the difference in commission received and paid in its books of account, the same should be considered as sufficient evidence for labelling the assessee as a commis....
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....s agreement is also of the same date, i.e., 1st Aug., 2000. He submitted that since the assessee acquired the voyage from M/s Hero Shipping Co. Ltd. and chartered it out to M/s Aavanti Shipping & Chartering Ltd., therefore, it was eligible to the benefit provided by art. 8. The learned Departmental Representative drew our attention towards the fact that it was not a case where the assessee acquired the vessel from M/s Hero Shipping Co. Ltd. and actually operated it in the international traffic. It was submitted that there were parties involved in each transaction and the assessee was merely one of the links between the owner of the cargo and the owner of ship. The learned Authorised Representative was directed to give a note in writing on the nature of business activity carried out by the assessee. The said note has been submitted, the relevant paras of which are as under: "A. Parties involved in the transaction: 1. Head owners of the vessel M.V. Hero - Hero Shipping Co. Ltd. 2. Charters of the vessel of shipment of soyabean meal from West Coast India-Kandla to Vietnam-Thoresen. 3. Cargo collectors/consolidators who arranges for the cargo to be s....
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....ill of lading is issued by the shipping line for having accepted cargo for transportation by sea. In the present case, as we have noted above that the cargo belonged to Ruchi Soya Industries, who entered into contract with Aavanti Shipping and Chartering Ltd. for the transportation of their goods, who in turn contracted with the assessee and the assessee in turn contracted with Hero Shipping Co. Ltd. Thus, the chain starting from the cargo of Ruchi Soya Industries is eventually terminating at Hero Shipping Co. Ltd., who are the head owners of the vessel M.V. Hero. The assessee is simply one of the links in chain and is not actually transporting the cargo of the customers. Under these circumstances, the question, which arises for our consideration is as to whether the assessee can be said to be the person eligible under art. 8. Clause (1) of art. 8 stipulates that "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". In our case, since the assessee is tax resident of Singapore. It can avail the benefit of art. 8 if the conditions required under this article are satisfied. The ca....
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....of cl. (4) of art. 8. which refers to profits from "any other activity directly connected with such transportation". We are at loss to appreciate this contention of the learned Authorised Representative for the simple reason that it refers to the activities which are directly connected with transportation of passenger, mail, livestock or goods, etc. carried on by the owner or lessee or charter. It may encompass the activities which have direct relation with the transportation. In order to be covered within this sub-clause, it is imperative that the main, transportation activity should be done by the assessee to be eligible for the benefit under art. 8. Unless the main activity of transportation is carried on by the assessee, the question of other directly connected activity with transportation cannot arise. Under these circumstances. we are convinced that the learned CIT(A) erred in coming to the conclusion that the assessee is entitled to the benefit of art. 8 of the DTAA. B10. Before parting with this issue, we would like to mention that both the sides have tried to take assistance from the commentary on art. 8 by OECD model convention In our considered opinion. no usefu....
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...., which is Singapore in the present case. The learned Authorised Representative invited our attention towards the phraseology used in art. 24, vis-a-vis, arts. 21, 22 and arts. 7, 14 and 15 to contend that the limitation clause was applicable only when the income from source in a Contracting State was exempt from tax or taxed at reduced rate in that Contracting State. He contended that art. 21 specifically states that the income of teachers and researchers "shall be exempt from tax in that other State" subject to the fulfilment of other conditions. He further referred to the language used in art. 22 for laying stress on the words "exempt from tax in the other Contracting State" to put forth that these articles deal with the cases where the income is exempt from tax in the other State. He then invited our attention towards the language employed in arts. 10, 11 and 12, etc., for making submission that dividends, interest, royalty and fees for technical services, etc., were liable to be taxed at a reduced rate. Referring to the provisions of art. 24, he submitted that the limitation contained therein was applicable only in two situations, viz., first, where the income is exempt from t....
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....the country where the assessee is tax resident. As the assessee in the present circumstances is tax resident of Singapore, the profits derived from shipping and air transport in the international traffic are taxable only in Singapore and are exempt from taxation in India. The words "taxable only in that State" presuppose exemption of that income in the other State. When we say that income from shipping and air transportation is taxable only in Singapore, it automatically means that the same is exempt in India and vice versa. C6. It is noticed that the authorities below have held that art. 24 applies to income referred to in art. 8 and if such income is not remitted to or received in Singapore, then it would suffer taxation in India. In order to examine and evaluate the controversy before us, it will be in order to consider the language of art. 24, which is as under: "Art. 24. 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 the Contracting State and under the laws in force in the other Contracting State the said i....
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....relief from double taxation and not allowing the income from going tax-free in both the countries. We have noted above that the tax residents of Singapore are subject to tax on the offshore income only to the extent it is received in that country. Thus, if the income is earned outside Singapore and is not remitted to Singapore, it would not be subjected to tax there. The idea behind art. 24 is that if a resident of Singapore has earned an income in India and under any of the articles of the treaty, India does not have the right to tax that income and such income is not remitted to Singapore, then that should be taxed in India. C8. The Hon'ble Supreme Court in the case of Azadi Bachao Andolan & Anr. has held the DTAA between India and Mauritius is not ultra vires of the powers of the Central Government on account of its susceptibility to "treaty shopping on behalf of the residents of third country". It further held that it is not possible to accept the contention that the avoidance of double taxation be considered only when tax is actually paid in one of the Contracting States. The assessee has also relied on the judgment of the Hon'ble Madras High Court in the case....
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....lid. On the other hand, we are dealing with a situation in which the benefit is not available as per the terms of DTAA and there is no question of planning the tax affairs in a legal manner for reducing the incidence of tax. The situation would have been otherwise if the income had been subject to absolute taxation in one State only coupled with the absence of art. 24 limiting the relief to the extent such income is remitted in Singapore. In that case, the contention of the learned Authorised Representative for non-double taxation would have been valid. C9. Here, it would be relevant to consider the impact of art. 24 being "limitation of relief". This article stipulates that where income from sources in Contracting State is exempt from tax or tax at a reduced rate and is taxable in the other Contracting State, the exemption or reduction of tax shall be restricted to the extent the income is remitted to or received in the other Contracting State. In other words, if the income is not taxable in the country of source, but is taxable in the country of residence by virtue of any provision in DTAA, as the art. 8 in the present case, then the source country (India in the present ....
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....arned CIT(A) held that art. 8 was applicable to the extent of income remitted or received in Singapore and allowed the relief accordingly. It is austere that if the benefit of art. 8 cannot be provided then the taxability of business profit has to be considered in terms of art. 7. Taxability would be attracted as per art. 7 only if the business is carried out in India through a PE and only that much of the profit which is directly or indirectly attributable to that PE can be taxed in India. Thus, it is of paramount importance to first determine whether the assessee has a PE in India or not. If the AO comes to the conclusion that there is a PE in India, then only that much of the profit as is attributable to that PE can be taxed in India. None of these questions have been addressed to in the assessment order inasmuch as there is no discussion about the PE and the profit attributable to such PE. The assessment was concluded only by examining arts. 8 and 24. In view of the AO's finding of non-applicability of art. 8, the mandate of art. 7 should have been examined for the purpose of taxation. In our considered opinion, the ends of justice would meet sufficiently if the impugned or....