2016 (9) TMI 19 - HC - Income Tax

Applicability of Article 8 visavis Article 24 of DTAA - income assessable to tax at Singapore on the basis of accrual or remittance - Held that - The certificate dated 09.01.2013 issued by the Inland Revenue Authority of Singapore assumes significance. In the said certificate, as noted, it was certified that the income in question derived by ST Shipping would be considered as income accruing in or derived from the business carried on in Singapore and such income therefore, would be assessable in Singapore on accrual basis. It was elaborated that the full amount of income would be assessable to tax in Singapore not by reference to the amount remitted to or received in Singapore. In fact, the certifying authority went on to opine that in view of such facts, Article 24.1 of the DTAA would not be applicable and consequently, Article 8 would apply. As in absence of any rebuttal material produced by the Revenue, we would certainly be guided by the factual declaration made by the said authority in the said certificate and this declaration is that the income would be charged at Singapore considering it as an income accruing or derived from business carried on in Singapore. In other words, the full income would be assessable to tax on the basis of accrual and not on the basis of remittance. This certificate was before the Commissioner while he passed the impugned order. The contents of this certificate were not doubted. If that be so, what emerges from the record is that the income in question would be assessable to tax at Singapore on the basis of accrual and not remittance. This would knock out the very basis of the Assessing Officer and Commissioner for invoking clause1 of Article 24 of DTAA. Both the authorities considered the question of remittance of income as the sole requirement for invoking Article 24.1 of DTAA an interpretation which according to us does not flow from the language used. As noted the essence of Article 24.1 is that in case certain 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 nonremittance 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 clause1 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.

Summary

Issues Involved:
1. Maintainability of the revision petition under section 264 of the Income Tax Act.
2. Applicability of Article 8 and Article 24 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
3. Interpretation of the certificate issued by the Inland Revenue Authority of Singapore.
4. Actual taxation of the income in Singapore and its impact on the applicability of DTAA.

Issue-Wise Detailed Analysis:

1. Maintainability of the Revision Petition under Section 264 of the Income Tax Act:
The petitioner initially filed an appeal against the assessment order but withdrew it due to concerns about its maintainability under sections 246 and 246A of the Act. The Revenue argued that the revision petition was not maintainable as the petitioner had first filed an appeal. However, the court clarified that the Commissioner is precluded from exercising revisional powers only in situations listed under subsection (4) of section 264, which did not apply in this case. Therefore, the revision petition was maintainable.

2. Applicability of Article 8 and Article 24 of the DTAA:
ST Shipping, a Singapore-based company, claimed exemption from Indian tax under Article 8 of the DTAA, which states that profits from the operation of ships in international traffic are taxable only in the resident state (Singapore). The Revenue contended that Article 24 of the DTAA, which limits relief if income is not remitted to the resident state, applied because the income was remitted to London, not Singapore. The court examined the certificate from the Inland Revenue Authority of Singapore, which stated that the income was taxable in Singapore on an accrual basis, not on remittance. Hence, Article 24 did not apply, and the exemption under Article 8 was valid.

3. Interpretation of the Certificate Issued by the Inland Revenue Authority of Singapore:
The certificate dated 09.01.2013 from the Inland Revenue Authority of Singapore clarified that the income derived by ST Shipping was considered as accruing in or derived from a business carried on in Singapore and was taxable on an accrual basis. This contradicted the Revenue's interpretation that the income needed to be remitted to Singapore for the DTAA benefits to apply. The court accepted the factual declaration in the certificate, emphasizing that the income was taxable in Singapore on an accrual basis, thus invalidating the application of Article 24.

4. Actual Taxation of the Income in Singapore and Its Impact on the Applicability of DTAA:
The Revenue argued that if the income was exempt from tax in Singapore, it should be taxable in India. The petitioner cited the Delhi High Court's decision in Emirates Shipping Line, FZE v. Assistant Director of Income-tax, which held that actual tax payment in the resident country is not necessary to claim DTAA benefits. The court noted that this issue was not a ground for the original assessment or the Commissioner's order and left it open for future determination.

Conclusion:
The court allowed the petition, setting aside the Commissioner's order dated 25.03.2014 and quashing the assessment order dated 26.12.2011. The decision emphasized that the income in question was taxable in Singapore on an accrual basis, rendering Article 24 of the DTAA inapplicable and upholding the exemption under Article 8. The court also clarified that the revision petition under section 264 was maintainable despite the initial appeal.