2017 (2) TMI 849 - AT - Income Tax

Benefit of Article 8 denied - Limitation clause as appearing in Article 24 of India-Singapore DTAA applicability - Eligibility of Article 8 in respect of income earned from shipping operations by the assessee from India - Held that - There is no stipulation about exemption under Article 8 of the shipping income which as pointed out by ld. Senior Counsel has been specifically provided in some of the Articles like Article 20, 21 & 22. Hence, it cannot be reckoned that shipping income earned from India is to be treated as exempt from tax or taxed at reduced rate, which is a condition precedent for applicability of Article 24, albeit India at the threshold does not have the jurisdiction to tax the shipping income of the non-resident entity. Thus, the condition of Article 24 is not satisfied in the present case from this angle also. In conclusion, we hold that the ld. CIT (A) was not justified in denying the benefit of Article 8 by invoking the limitation clause of Article 24 of India- Singapore DTAA as per our discussion above The definition of operation of ships also alludes to the concept of charterer of ships, which even includes part of ship in an arrangement such as slot charter, space charter or joint charter. The slot charter and space charter of a ship cannot be segregated or read in isolation from the meaning of charterer as appearing in para 4 of Article 8. There is no stipulation under Article 8 that wherever passengers or cargos etc. are transported under charter arrangement with third party which includes slot or space charter, then, one leg of journey should be on vessel owned or leased by the shipping or Aircraft Company. As mentioned above, the word Charterer will include third party/joint service arrangement of slot or space in a ship and hence the transportation under such arrangement will be reckoned as profit from operation of ships. Thus, we agree with the contentions of the ld. Senior Counsel that even if the entire leg of journey is undertaken by a shipping company through and through charter arrangement or joint service arrangement, the benefit of Article 8 cannot be denied, because it will still fall within the ambit and scope of operation of ships under Article 8 (even under India- Singapore DTAA). So far as the issue of establishing linkage between transportation by feeder vessel and mother vessel of the ship owned or leased by the assessee, once it is held that chartering includes slot charter, space charter and it falls within the ambit of operation of ships , then the benefit of Article 8 cannot be denied simple on the ground that the transportation has been done either partly or fully through slot charter arrangement or joint charter arrangement, etc. Thus, in view of our discussion above, we hold that so far as denial of benefit of Article 8 in respect of 97 ships for sums aggregating to ₹ 97,29,89,746/- is not justified and we direct the Assessing Officer to give the benefit of Article 8 in respect of 97 ships, which has been denied by the CIT(A). So far as the freight receipt in respect of 4 ships is concerned, it is an admitted fact that no evidence whatsoever or documents could be furnished by the assessee either before the Assessing Officer or the CIT(A) or even before us and, therefore, we hold that to the extent of freight receipt the benefit of Article 8 will not be available to the assessee and same is directed to be taxed in India under the relevant statutory provisions. Thus, the issue relating to benefit of Article 8 is decided partly in favour of the assessee. The issue relating to Permanent Establishment (PE) and attribution of income to PE has become purely academic and, therefore, no separate adjudication is required. Once we have held that assessee is entitled for benefit of Article 8, then attribution of income in India through agency PE will not arise. Allowability of interest u/s 234B - Held that - It is admitted by both the parties that the issue is covered in favour of the assessee by the decision of the Jurisdictional High Court in the case of NGC Network Asia LLC (2009 (1) TMI 174 - BOMBAY HIGH COURT ).

Issues Involved:
1. Denial of benefit under Article 8 of the India-Singapore Double Taxation Avoidance Agreement (DTAA) for freight collected.
2. Invocation of Article 24 (limitation of relief) of the DTAA.
3. Compliance with the remittance condition under Article 24.
4. Determination of APL India Pvt. Ltd. as an agency permanent establishment (PE) under Article 5(8) of the DTAA.
5. Tax liability extinguishment due to arm's length commission paid to APL India.
6. Specific denial of Article 8 benefits for certain freight amounts.
7. Classification of freight income under Article 8(4)(c) of the DTAA.
8. Applicability of Article 24 to freight income and interpretation of Singapore tax laws.
9. Enhancement of assessment by CIT(A) under section 251 of the Income-tax Act, 1961.
10. Liability for interest under section 234B of the Income-tax Act.

Detailed Analysis:

1. Denial of Benefit under Article 8 of the DTAA:
The CIT(A) denied the benefit of Article 8 for freight of ?98.67 crores, reasoning that there was no linkage between the feeder vessel and mother vessel for transportation of cargo, and the vessels were operated by third parties under Charter Party agreements. The Tribunal, however, held that slot charter arrangements fall within the scope of "operation of ships" under Article 8, referencing the decision in MISC Berhad vs. ADIT and the Hon'ble Bombay High Court in Balaji Shipping UK Ltd.

2. Invocation of Article 24 (Limitation of Relief):
The CIT(A) invoked Article 24, denying the entire freight benefit of ?1106.89 crores, arguing that the freight income was not remitted to Singapore. The Tribunal overturned this, relying on the Gujarat High Court's decision in M.T. Maersk Mikage vs. DIT, which clarified that shipping income is taxable in Singapore on an accrual basis, not remittance basis, thus Article 24 does not apply.

3. Compliance with Remittance Condition under Article 24:
The CIT(A) found no direct link between freight collected in India and amounts remitted to Singapore. The Tribunal disagreed, emphasizing that the freight income is taxed on an accrual basis in Singapore, as confirmed by the Inland Revenue Authority of Singapore (IRAS), thus satisfying the condition of Article 24.

4. Determination of APL India Pvt. Ltd. as an Agency Permanent Establishment (PE):
The CIT(A) and AO determined APL India Pvt. Ltd. as a dependent agent PE under Article 5(8) of the DTAA. The Tribunal, however, did not address this issue directly, as it became academic following the decision on Article 8.

5. Tax Liability Extinguishment Due to Arm's Length Commission:
The CIT(A) did not consider the arm's length commission paid to APL India as fully extinguishing the appellant's tax liability in India. The Tribunal did not address this issue separately due to the decision on Article 8.

6. Specific Denial of Article 8 Benefits for Certain Freight Amounts:
The CIT(A) denied Article 8 benefits for freight of ?63.93 crores, ?33.37 crores, and ?1.37 crores, citing lack of documentation and linkage. The Tribunal directed the AO to grant Article 8 benefits for 97 ships, noting that slot charter arrangements qualify under "operation of ships."

7. Classification of Freight Income under Article 8(4)(c):
The CIT(A) did not treat ?98.67 crores from containers as income from the use/maintenance/rental of containers under Article 8(4)(c). The Tribunal's decision on Article 8 implicitly covered this issue, granting the benefit.

8. Applicability of Article 24 to Freight Income:
The CIT(A) interpreted Singapore tax laws to argue that freight income is not Singapore-sourced unless remitted. The Tribunal, referencing IRAS confirmation and the Gujarat High Court's decision, held that the income is taxable on an accrual basis, negating Article 24's applicability.

9. Enhancement of Assessment by CIT(A):
The CIT(A) enhanced the assessment, which the Tribunal did not specifically address, as the primary issues were resolved in favor of the appellant.

10. Liability for Interest under Section 234B:
The Tribunal, referencing the Jurisdictional High Court's decision in NGC Network Asia LLC, held that the appellant is not liable for interest under section 234B, as the freight income was tax-deductible at source.

Conclusion:
The Tribunal partly allowed the appeal, granting the benefit of Article 8 for the majority of the freight income and negating the applicability of Article 24 based on the accrual basis of taxation in Singapore. The issues regarding PE and interest under section 234B were rendered academic or resolved in favor of the appellant.

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