2015 (10) TMI 1268 - AT - Income Tax

Assessment under section 172(4) - vessel MT Alabra - whether in view of the limitation of benefits provisions set out in the Indo Singapore treaty, the assessee can indeed be declined the benefits of India Singapore tax treaty? - Held that - There is no dispute that the business is being carried on by the assessee in Singapore and that the assessee is tax resident of Singapore. By letter dated 31st December 2013 (Reference no. 200716495G), Inland Revenue Authority of Singapore has confirmed that, in the case of Albara Shipping Pte Ltd, freight income has been regarded as Singapore sourced income and brought to tax on an accrual basis (and not remittance basis) in the year of assessment . The assessee has also filed a confirmation dated 4th December 2013 from its public accountant that the freight of US 6,71,366 earned on MT Albara s sailing from Sikka port has been included in the global income offered to tax by the company in Singapore. On these facts, in our considered view, the provisions of Article 24 cannot be put into service as this provision can only be triggered when twin conditions of treaty protection, by low or no taxability, in the source jurisdiction and taxability on receipt basis, in the residence jurisdiction, are fulfilled. The only reason for declining Indo Singapore tax treaty benefits was the application of Article 24 and that there is no other dispute on the claim of treaty protection of shipping income under article 8(1) which provides 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 this view of the matter, entire freight income of the assessee, which is only from operation of ships in international traffic, is taxable only in Singapore. The Assessing Officer was thus in error in bringing the same to tax in India. We uphold the plea of the assessee and direct the Assessing Officer not to tax income of the assessee, from operation of ships in international traffic, in India. The assessee gets the relief accordingly. - Decided in favour of assessee.

Summary

Issues:
Challenge to correctness of the order dated 21st March 2014 passed by CIT(A) in the matter of assessment under section 172(4) of the Income Tax Act, 1961 regarding vessel MT Alabra in the assessment year 2012-13.

Analysis:
The appellant, GAC Shipping India Pvt Ltd, filed a return concerning vessel MT Alabra, owned by Alabra Shipping Pte Ltd of Singapore (ASPL-S), claiming benefits under the India Singapore Double Taxation Avoidance Agreement. The Assessing Officer noted that funds were remitted to a bank in the UK, not Singapore, leading to the denial of treaty benefits under Article 24. The CIT(A) upheld this decision citing a Tribunal case and lack of evidence of remittance to Singapore.

The Tribunal analyzed the applicability of Article 24 of the tax treaty, which limits benefits based on income remitted to or received in the other contracting state. The Tribunal emphasized that treaty protection is restricted to income taxed in the source country, especially when the source country taxes income on an accrual basis. The Tribunal found evidence that the income was taxed in Singapore on an accrual basis, not just on receipt, thus rejecting the application of Article 24 and upholding the assessee's claim for treaty benefits.

The decision highlighted the importance of demonstrating taxability in the source jurisdiction on a limited receipt basis to trigger the limitations on benefits provision. Since the income was taxed in Singapore on an accrual basis, not just on remittance, the onus on the assessee to prove remittance to Singapore did not apply. The Tribunal concluded that the entire freight income, derived from operating ships in international traffic, should be taxable only in Singapore, not in India, overturning the Assessing Officer's decision.

In conclusion, the Tribunal allowed the appeal, directing the Assessing Officer not to tax the income from operating ships in international traffic in India, granting relief to the assessee based on the provisions of the tax treaty and the taxability of income in Singapore.

This detailed analysis of the judgment showcases the interpretation and application of relevant tax treaty provisions, emphasizing the importance of taxability in the source jurisdiction and the limitations on benefits clause under Article 24.