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2020 (11) TMI 567 - AT - Income TaxIncome accrued in India - Shipping income earned in India - India Singapore DTAA - whether shipping income is exempt u/s 13F of Singapore income tax, the DTAA benefit be denied to the assessee? - assessee is a tax resident of Singapore - HELD THAT - AO referring to Article 24 of the tax treaty, was of the opinion that although global shipping income of a Singapore tax resident is taxable only at resident State, but by virtue of Article 24 exemption would apply only to the extent of the amount repatriated / remitted to Singapore. In our view, the above conclusion of the AO is under the misconception of the provisions of India Singapore tax treaty, because as per Article 8 of India Singapore tax treaty, it was clearly specified that only the resident country has the right of taxation of freight income earned from operation of ships in international traffic. As may be seen from the provisions of Article 8(1), we are of the considered view that it is not an exemption provision but an enabling provision which provides an exclusive right of taxation of income to the residence country. By entering in to treaty with Singapore, India has given up its right to tax shipping income of a non-resident in India. Therefore, any income of a non-resident shipping company which is a tax resident of Singapore is liable to tax only in Singapore but not in India. Exclusive right of taxation in one Contracting State is not the same as the specific exemption being available in other Contracting State. Further, shipping income dealt with in Article 8 states that profits derived by an enterprise of a Contracting State by operation of ships in international traffic shall be taxable only in the State of residence. The word only debars the other Contracting State to tax the shipping income; i.e. India is precluded from taxing the shipping income even if it is sourced from India. When India does not have any taxation right on a shipping income of non-resident entity, exemption or reduced rate of taxation in the source state is of no relevance because once the taxing right has been given off, the other conditions like exemption or reduced rate of tax has no bearing on the taxability of particular income in other Contracting State. As we noted earlier Article 8 of India Singapore DTAA does not provide for exemption or reduced rate of taxation of such income. It is crucial to note that Article 8 of India Singapore DTAA contemplates the taxation rights of a particular income in particular State. As per said article, the country of residence is having exclusive right over taxation of shipping income and that being the case, the assessee being resident of Singapore vest with right to tax such income under the Singapore Income Tax laws. Accordingly, the shipping income earned in India is neither exempt nor taxed at reduced rate as per Article 8 of DTAA which is a condition precedent for applicability of Article 24 As we have already noted in earlier para of this order, under Article 8 of India Singapore DTAA, global shipping income of a tax resident of Singapore is only taxable in the country of residence. Once the income is taxable in the country of residence on accrual basis, the second condition prescribed under Article 24 of India Singapore DTAA is not satisfied. This fact is further strengthened by the letter of the Inland Revenue Authority Singapore (IRAS) letter 17.09.2018, where it was clarified that the income of a Singaporean company from the operation of ships in international traffic is taxable in Singapore on accrual basis. Thus, both the conditions of Article 24 is not satisfied in the present case. We, therefore are of the considered view that the AO was erred in invoking Article 24 of India Singapore DTAA to tax the income earned by the assessee from shipping operations in India. Assessing Officer has attempted to deny the exemption claimed by the assessee under Article 8 by invoking Article 24 of India Singapore tax treaty on a misconception of two clauses of India Singapore DTAA by referring to the provisions of Section 13F of the Singapore Income Tax Act, ignoring the fact that Section 13F of the Singapore Income Tax Act was already in existence since 01.04.1991 and as such the articles provided in India Singapore DTAA which was came in to existence from 27.05.1994 was inserted by the Competent Authorities of both the Contracting States after thoroughly considering the provisions of Section 13F of Singapore Income Tax Act and further choose not to alter the taxation right of shipping income which is generally available to the country of residence. Assessing Officer has denied the benefit only on the simple ground that the income of the assessee received in India is exempt by virtue of separate provisions of Singapore Income Tax Act and on the misconception of law to come to the conclusion that once a country of residence has exempts particular income from tax, the other Contracting State (source country) can levy tax on such income without understanding the true meaning of Article 8 of India Singapore DTAA. - AO has also ignored the arguments taken by the assessee in the light of DIT relief certificate issued by the Department for the subject assessment year, where the AO after considering the TRC and supporting documents issued DIT Relief Certificate dated 25.06.2014 and 14.08.2014 by holding that Article 8 of India Singapore DTAA is applicable to the assessee and income from operation in international traffic will not be taxable in India. AO has made an attempt to deny the benefit of exemption claimed by the assessee by invoking Article 24 of India Singapore DTAA, even though, the conditions stipulated under Article 24 are not satisfied. AO as well as the Ld.DRP were erred in coming to the conclusion that income earned by the assessee from shipping operations in India is taxable in India by virtue of Article 24 of India Singapore DTAA. Hence, we direct the Assessing Officer to delete the additions made towards shipping income of assessee earned in India. - Decided in favour of assessee.
Issues Involved:
1. Taxability of international shipping income from freight operations in India. 2. Applicability of Article 8 and Article 24 of the India-Singapore DTAA. 3. Interpretation of the provisions of the India-Singapore DTAA in light of the Vienna Convention. 4. Validity of the Dispute Resolution Panel's (DRP) directions and the Assessing Officer's (AO) final assessment order. 5. Jurisdiction of the Tribunal to adjudicate the appeal. Issue-wise Detailed Analysis: 1. Taxability of International Shipping Income from Freight Operations in India: The core issue is whether the international shipping income earned by the assessee, a Singapore resident, from freight operations in India is taxable in India. The assessee claimed that such income is exempt under Article 8 of the India-Singapore DTAA, which provides that shipping income of a non-resident is taxable only in the country of residence (Singapore). The AO and DRP contended that since the income is exempt in Singapore under Section 13F of the Singapore Income Tax Act, it should be taxed in India under Article 24 of the DTAA. 2. Applicability of Article 8 and Article 24 of the India-Singapore DTAA: Article 8 of the DTAA states that profits from the operation of ships in international traffic are taxable only in the country of residence. The AO and DRP argued that Article 24, which limits benefits if the income is exempt or taxed at a reduced rate in the source country, applies here because the income is exempt in Singapore. However, the Tribunal found that Article 8 is an enabling provision granting exclusive taxation rights to the residence country, and not an exemption provision. Therefore, Article 24 does not apply as the income is not exempt under the DTAA but is taxable in Singapore on an accrual basis. 3. Interpretation of the Provisions of the India-Singapore DTAA in Light of the Vienna Convention: The Tribunal referred to the Vienna Convention on the Law of Treaties, emphasizing that treaties should be interpreted in good faith according to the ordinary meaning of their terms in context and in light of their object and purpose. The Tribunal concluded that the object of the DTAA is to avoid double taxation, not to facilitate double non-taxation. The Tribunal held that the AO's interpretation was flawed, as it did not consider the context and purpose of Article 8, which provides exclusive taxation rights to the residence country. 4. Validity of the DRP's Directions and the AO's Final Assessment Order: The Tribunal found that the DRP and AO erred in their interpretation of the DTAA provisions. The DRP's reliance on Article 24 was misplaced as the conditions for its applicability were not satisfied. The Tribunal noted that Article 8 grants exclusive taxation rights to Singapore, and the AO's attempt to tax the income in India was contrary to the DTAA's provisions. The Tribunal also criticized the AO for ignoring the DIT relief certificate issued to the assessee, which confirmed the applicability of Article 8. 5. Jurisdiction of the Tribunal to Adjudicate the Appeal: The Tribunal dismissed the Revenue's argument challenging its jurisdiction. The Tribunal stated that the Revenue did not file a separate appeal or cross-objection on this issue, and therefore, the Tribunal would not entertain the jurisdictional challenge. The Tribunal confirmed its authority to adjudicate the appeal based on the grounds raised by the assessee. Conclusion: The Tribunal concluded that the international shipping income earned by the assessee from operations in India is taxable only in Singapore under Article 8 of the India-Singapore DTAA. The AO and DRP's reliance on Article 24 was incorrect as the conditions for its applicability were not met. The Tribunal directed the AO to delete the additions made towards the shipping income earned by the assessee in India. The appeal was allowed in favor of the assessee.
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