TaxTMI 
TaxTMI 
TaxTMI 
2008 (6) TMI 227
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....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 before the AO. He observed that art. 8(4) of In....
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....d 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 in the case of ITO vs. Industrial Roadways (2007) 112 TTJ....
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.... 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 additional evidence. The second category deals with such evi....
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....round 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 operation of ships. Since the benefit under art. 8 was available only to the assessee ....
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....ter 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 under the deeming provisions of s. 44B of the Act. B2. At this juncture, it would be ap....
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....he 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 commission agent and not engaged in the business of shipping. B5. We are not convinced with the view canvassed by the learned Departmental Representative for the simple reason t....
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....ipping & 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 shipped on the vessel Aavanti Shipping & Chartering Ltd. (Avanti). 4. Owner of shipper of the cargo who supplies the cargo to Avanti Shipping for shipping the same on board M.V. Hero-Ruchi Soya Industries Ltd. 5....
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....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 case of the learned Authorised Representative is that this case falls under the main cl. (4) of art. 8. This clause defines the meaning of "profits from the operation of ships in international traffic" as "profits derived from the transportation by sea or a....
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....h 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 useful purpose would be served in going by the commentary given on a model convention when the language of the specific DTAA is clear and does not admit of any ambiguity or doubt. The Hon'ble Supreme Court in CIT vs. P.V.A.L. Kulandagan Chettiar (Deed) Through LRs. (2004) 189 CTR (SC) 193 : (2004)....
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....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 tax and second, where it is taxed at a reduced rate. He submitted that art. 8 did not fall in any of these groups of articles as it uses the words "shall be taxable only in that State". In his opinion, art. 8, being a third category, was not covered within art. 24. It was, therefore, contended that if the assessee is e....
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.... 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 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 th....
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....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 of CIT vs. Lakshmi Textile Exports Ltd. (2000) 245 ITR 521 (Mad) in support of his contention for the approval of double non-taxation. Let us examine the facts of this case. The Sri Lankan Government accepted that the assessee had a PF in Sri Lanka and the entire income accruing from the textile mills in Sri Lanka arose only in Sri Lanka and could be taxed therein. It was furth....
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....he 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 case) would allow the exemption only to the extent to which the income has been received in other Contracting State (Singapore). If the amount of income is not remitted to the country of residence, then the country of source shall be entitled to charge tax on that part of the income as per its own provisions. C10. In such circumstances, we are of the considered opinion that the learn....
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....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 order is set aside and the matter is restored to the file of the AO for de novo adjudication of the matter in terms of our decision rendered in earlier paras after allowing a reasonable opportunity of being heard to the assessee. It would be relevant to mention that an objection has been raised on behalf of the assessee as to the computation of income by the AO under s. 44B by contending that the regular provisions ....