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2008 (6) TMI 227 - AT - Income TaxApplicability of s. 44B - income from ship operation - Additional Evidence - charter party agreement - Applicability of Article 8 vis-a-vis Article 24 of DTAA between India and Singapore - Assessee company is incorporated and tax resident of Singapore - AO denied the exemption provided by art. 8 on the ground that the assessee had not furnished any charter party agreements before him - Interest u/s. 234B. Applicability of art. 8 - HELD THAT - The assessee has not carried on the transportation of passenger or goods by itself but simply acted as one of the links between the actual transporter Hero Shipping Co. Ltd. and the owner of cargo (Ruchi Soya Industries). The activity of actual transportation was done by Hero Shipping. The assessee simply earned US 0.18 PMT as difference between the amount settled as payable by it to Hero Shipping Co., i.e., US 17.42 PMT and the amount receivable from Aavanti Shipping Chartering Ltd. at US 17.60 PMT. It is, therefore, vivid that the assessee is only an agent between the owner of ship and the contractor of owner of cargo and hence cannot be characterised as the transporter as it is not satisfying the condition of actual transportation - 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 - As the nature of business carried on by the assessee does not satisfy the conditions laid down in art. 8, we are of the considered opinion that the learned CIT(A) was not justified in entitling the assessee to the benefit flowing therefrom. The impugned order, on this aspect of the matter is therefore, overturned. Applicability of art. 24 vis-a-vis art. 8 - HELD THAT - 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 - the learned CIT(A) has rightly held that the amount of income which is not remitted to or received in Singapore is not entitled to the benefit of art. 8. The additional ground, therefore, raised by the assessee is dismissed. Applicability or otherwise of art. 7 - HELD THAT - The benefit of art. 8 was held to be not available to the assessee in view of art. 24 and the total freight collected amounting to Rs. 19,70 crores was subject to tax under s, 44B of the Act, The AO has not gone into the applicability or otherwise of art. 7. The learned CIT(A) held that art. 8 was applicable to the extent of income remitted or received in Singapore and allowed the relief accordingly. It is austere that if the benefit of art. 8 cannot be provided then the taxability of business profit has to be considered in terms of art. 7. Taxability would be attracted as per art. 7 only if the business is carried out in India through a PE and only that much of the profit 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. Interest under s. 234B - HELD THAT - Once it is held that the income of assessee is subject to TDS, no liability for payment of advance tax can be fastened on the assessee. An identical issue came up before the Mumbai Bench of the Tribunal in Dy. Director of IT vs. R. Liners Ltd. held that interest u/s. 234B cannot be charged under these circumstances. Both of us are party of this order. We, therefore, approve the action of the learned CIT(A) in holding that interest u/s. 234B cannot be charged in the present case. The appeals are partly allowed for statistical purposes.
Issues Involved:
1. Admissibility of Additional Evidence under Rule 46A. 2. Applicability of Article 8 of the DTAA between India and Singapore. 3. Applicability of Article 24 vis-a-vis Article 8 of the DTAA. 4. Applicability of Article 7 of the DTAA. 5. Charging of Interest under Section 234B. Issue-wise Detailed Analysis: 1. Admissibility of Additional Evidence under Rule 46A: The Revenue raised an additional ground arguing that the CIT(A) erred in admitting additional evidence in contravention of Rule 46A without granting a reasonable opportunity to the AO to examine the evidence. The Tribunal noted that the assessee had not produced any charter party agreements before the AO, which were crucial for determining the applicability of Article 8 of the DTAA. The CIT(A) admitted additional evidence in the form of these agreements and FIRCs. Rule 46A stipulates that additional evidence can be admitted by the first appellate authority only if the AO is given a reasonable opportunity to examine the evidence. The Tribunal concluded that the CIT(A) should have allowed the AO to examine the additional evidence and, hence, admitted the additional ground raised by the Revenue. 2. Applicability of Article 8 of the DTAA between India and Singapore: The Tribunal examined whether the assessee was entitled to the benefit of Article 8, which exempts profits derived from the operation of ships in international traffic from Indian tax. The AO denied this benefit, arguing that the assessee was not engaged in the business of ship operation but was merely a commission agent. The CIT(A) partially allowed the benefit for 12 voyages based on additional evidence. The Tribunal analyzed the nature of the assessee's business and concluded that the assessee did not carry on the transportation of goods itself but acted as an intermediary between the actual transporter and the cargo owner. Therefore, the assessee did not satisfy the conditions of Article 8, which requires the assessee to be engaged in the transportation of goods as an owner, lessee, or charterer. Consequently, the Tribunal overturned the CIT(A)'s decision and held that the assessee was not entitled to the benefit of Article 8. 3. Applicability of Article 24 vis-a-vis Article 8 of the DTAA: The assessee argued that the CIT(A) erred in applying the limitation of relief under Article 24 to the benefit of Article 8. Article 24 limits the exemption or reduction of tax to the extent the income is remitted to or received in the other Contracting State. The Tribunal noted that Article 8 exempts profits from shipping operations from Indian tax, implying that such income is exempt in India and taxable only in Singapore. However, if the income is not remitted to Singapore, it would not be taxed there. The Tribunal upheld the CIT(A)'s decision that the limitation of relief under Article 24 applies, restricting the benefit of Article 8 to the extent the income is remitted to or received in Singapore. Since the assessee did not remit the income to Singapore, the benefit of Article 8 could not be extended. 4. Applicability of Article 7 of the DTAA: Article 7 deals with the taxation of business profits attributable to a Permanent Establishment (PE) in the source country. The AO did not consider the applicability of Article 7, as the assessment focused on Articles 8 and 24. The Tribunal noted that if the benefit of Article 8 is not available, the taxability of business profits should be examined under Article 7. The Tribunal remitted the matter to the AO for fresh adjudication to determine whether the assessee had a PE in India and, if so, to tax only the profits attributable to that PE. 5. Charging of Interest under Section 234B: The AO charged interest under Section 234B for non-payment of advance tax. The CIT(A) held that the assessee had a bona fide belief that its income was exempt based on a DIT certificate and, therefore, was not liable for advance tax. The Tribunal agreed with the CIT(A), noting that the assessee had a valid DIT certificate for the relevant year and that any income subject to TDS under Section 195 would reduce the advance tax liability under Section 209(1)(d). The Tribunal upheld the CIT(A)'s decision that interest under Section 234B could not be charged. Conclusion: The Tribunal partially allowed both the Revenue's appeal and the assessee's cross-objection for statistical purposes, remitting the matter to the AO for fresh adjudication on specific issues.
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