2024 (3) TMI 1120 - AT - Income Tax

Entitlement to benefits of treaty exemption - India-Singapore DTAA - Taxation of shipping companies - funds which have been received in Singapore or not? - assessee's first condition for Article 24 of India-Singapore Treaty to be applicable is that income from sources in a Contracting State shall be exempt from tax or taxed at a reduced rate in that Contracting State - HELD THAT - Notably, even OECD commentary speaks of exemption from source taxation especially when discussing about permanent establishment being exempted from tax in the source country . Therefore, on a harmonious interpretation, Article 24 of the DTAA speaks of those incomes, which are exempted from source taxation , as well. This is for the reason that profits derived from operation of ships in international traffic, should be normally subject to tax in the country of residence under Article 8. However, this is subject to the limitation in Article 24 that such profits are remitted to Singapore, which follows a territorial system of taxation wherein offshore income is taxed in Singapore on part that only which has been received or remitted in Singapore. Accordingly, in our considered view Article 8 of India- Singapore Tax Treaty exempts income earned by an enterprise from operation of ships in international traffic from source taxation , subject to such profits being remitted / or received in Singapore which alone are taxable in Singapore. Therefore, in our considered view, looking into the instant facts, the argument of assessee that condition one has not been satisfied in the instant facts cannot be accepted, for this would lead to Article 24 of the India-Singapore DTAA as being redundant / otiose and the non-resident taxpayer getting benefit of double non-taxation of India sourced income, which is clearly not intended under the India-Singapore Tax Treaty. Accordingly, this argument of assessee is hereby rejected for the aforesaid reasons cited above. Article 24 is not applicable to the instant facts because under the laws in force in Singapore, the said income is subject to tax on accrual basis and not by reference to the amount which is remitted to or received in Singapore - As the letter issued by IRAS does not refer to any statutory provisions under the Singapore Tax Laws and is more in the form of a unilateral opinion / declaration that since the income has been earned by the assessee on accrual basis , Article 24 of the DTAA (Limitation of Relief Clause) will have no applicability to the assessee s set of facts. Since the entire case of the assessee for various assessment years under consideration hinges on the statement issued by the Singapore Tax Authority and as noted by the Gujarat High Court, the certificate is merely in the form of an opinion, in our considered view, it is a fit case where the basis of issuance of this certificate needs to be looked into in more detail, especially in the absence of any statutory provisions being cited in the aforesaid certificate of as to how the assessee is taxable in Singapore on accrual basis (especially when Singapore follows a territorial tax system where offshore income is taxable on receipts / deemed remittance basis) and on what basis the Singapore Tax Authority has come to the unequivocal conclusion that income has been derived from business carried on in Singapore by the assessee. In the result, the matter is restored to the file of AO to verify the contents of the aforesaid certificate and in case, the Department is unable to obtain any specific material to rebut the contents of the certificate issued by Singapore Tax Authorities, then respectfully following the decision of Gujarat High Court in the assessee s own case 2016 (9) TMI 19 - GUJARAT HIGH COURT relief may be granted to the assessee, in accordance with law. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:

1. Non-adjudication of Ground No. 1 by CIT(A).
2. Non-admission of additional evidence by CIT(A).
3. Denial of benefits under Article 8 of the India-Singapore DTAA.
4. Compliance with Article 24 of the India-Singapore DTAA.
5. Taxability of ST Shipping's income in India.
6. Applicability of Section 172 to regular shipping business.
7. Interpretation of Singapore Income Tax Act and DTAA provisions.

Summary:

Issue 1: Non-adjudication of Ground No. 1 by CIT(A):
The assessee contended that the CIT(A) erred in not adjudicating Ground No. 1, which challenged the ITO's assessment of the income of ST Shipping without issuing a draft order as required u/s 144C of the IT Act.

Issue 2: Non-admission of Additional Evidence by CIT(A):
The CIT(A) refused to admit a letter dated 9 January 2013 from the Inland Revenue Authority of Singapore (IRAS), which was filed during appellate proceedings. The CIT(A) observed that the assessee had sufficient opportunity to submit this evidence during the assessment and failed to justify why it was not presented earlier.

Issue 3: Denial of Benefits under Article 8 of the India-Singapore DTAA:
The CIT(A) upheld the ITO's decision to deny the benefit of Article 8 of the DTAA, as the freight income was remitted to a bank in London, UK, not Singapore. Article 24 of the DTAA requires remittance to Singapore to claim the benefit of Article 8.

Issue 4: Compliance with Article 24 of the India-Singapore DTAA:
The CIT(A) held that ST Shipping failed to comply with Article 24's remittance condition. The letter from IRAS did not confirm that the income was received in Singapore, only that it was taxable on an accrual basis. The CIT(A) concluded that receipt of funds in Singapore is a sine qua non for relief under Article 8.

Issue 5: Taxability of ST Shipping's Income in India:
The CIT(A) rejected the argument that no income of ST Shipping could be taxed in India due to the arm's length commission paid to independent shipping agents in India. The CIT(A) maintained that the income was taxable in India as the remittance condition was not met.

Issue 6: Applicability of Section 172 to Regular Shipping Business:
The CIT(A) did not accept the contention that Section 172 applies only to occasional shipping business, not to regular shipping companies like ST Shipping.

Issue 7: Interpretation of Singapore Income Tax Act and DTAA Provisions:
The CIT(A) upheld the ITO's interpretation that the freight income could not be regarded as Singapore-sourced under the Singapore Income Tax Act. The CIT(A) also noted that the IRAS letter was an opinion, not a binding interpretation, and did not specify the statutory provisions under Singapore law.

Conclusion:
The Tribunal restored the matter to the Assessing Officer to verify the contents of the IRAS certificate. If the Department cannot rebut the certificate, relief should be granted to the assessee following the Gujarat High Court's decision in the assessee's own case. The appeals for A.Ys. 2012-13 and 2015-16 were allowed for statistical purposes.