2024 (6) TMI 873 - AT - Income Tax

Taxability of income in India - Taxability of freight income u/s 44B in view of Treaty/DTAA) between India and Singapore - taxability of shipping income earned by the Appellant foreign companies admittedly incorporated in Singapore - fundamental principles of international taxation - assessee is a foreign company incorporated in Singapore which plies its ships globally including through Indian Ports and earns freight and other charges that arise from this activity - assessee stated that as per Article 8 of Treaty, profits derived by an enterprise of a contracting state from operation of ships in international traffic shall be taxable only in that state i.e. resident state viz. Singapore and therefore, according to assessee, India is precluded from taxing the shipping income, even if it is sourced from India. HELD THAT - Article 8 of India-Singapore Treaty mandates that income of assessee enterprise from shipping business in international traffic shall be taxable only in the State of residence i.e. Singapore. Article 24(1) of the Treaty is not applicable in cases where assessee was able to demonstrate that its income is taxable in Singapore on accrual basis like in this case, assessee has adduced material in the form of Inland Revenue Authority of Singapore clarifiying that its resident s income are taxable on the basis of accrual . And it is noted that on the basis of such a clarification of Singapore Inland Revenue Authority which was not rebutted by the Indian tax Authorities as not genuine, or in the absence of any other material to take a view that global income of Singapore resident is assessable to taxation on remittance basis, we note that the Hon ble Gujarat High Court in similar case of M/s.M.T. Maersk Mikage 2016 (9) TMI 19 - GUJARAT HIGH COURT held that income of Singapore resident was charged to tax on accrual basis (i.e. full amount would be assessable to tax on accrual and not on remittance) We concur with the view of M/s. Bengal Tigers Line Pte 2020 (11) TMI 567 - ITAT CHENNAI and the decision of M.T. Maersk Mikage Mikage (supra) and hold that in terms of Article 8 of India Singapore DTAA, global income of a tax resident of Singapore from shipping operations, even though, which is earned outside Singapore is taxable only in Singapore on accrual basis; and consequently Article 24 of India Singapore DTAA ought not to have been invoked to deny the benefit of DTAA exemption merely for the reason that the said income was not taxed in Singapore by virtue of separate exemptions provided under Singapore Income Tax Act. AO as well as the Ld.DRP 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 AO to delete the additions made towards shipping income of assessee earned in India. Appeals filed by the assesses are allowed.

Issues Involved:
1. Taxability of freight income u/s 44B of the Income Tax Act, 1961.
2. Application of Article 8 and Article 24 of the India-Singapore Double Taxation Avoidance Agreement (DTAA).
3. Whether detention charges should be treated as "Income from Other Sources" or part of freight income.
4. Validity of DIT relief certificate issued u/s 172 of the Act.
5. Application of the doctrine of promissory estoppel and rule of consistency in tax assessments.

Summary:

1. Taxability of Freight Income u/s 44B:
The core issue is whether the freight income of Rs. 64,17,08,105/- earned by the assessee, a Singapore-based company, is taxable in India u/s 44B of the Income Tax Act, 1961. The assessee claimed that according to Article 8 of the India-Singapore DTAA, the income should be taxable only in Singapore. The AO argued that since the income was not taxed in Singapore, it should be taxed in India. The Tribunal held that the global income of a tax resident of Singapore from shipping operations is taxable only in Singapore on an accrual basis, and thus, Article 24 of the DTAA cannot be invoked to deny the benefit of exemption.

2. Application of Article 8 and Article 24 of the DTAA:
The Tribunal noted that Article 8 of the India-Singapore DTAA mandates that income from shipping operations shall be taxable only in the state of residence, i.e., Singapore. The AO's contention that Article 24 applies because the income was not taxed in Singapore was rejected. The Tribunal relied on the Inland Revenue Authority of Singapore's clarification that the income is taxable on an accrual basis in Singapore, thus precluding the application of Article 24.

3. Detention Charges:
The AO initially treated detention charges as "Income from Other Sources" but later, following the DRP's directions, included them as part of freight income. The Tribunal upheld this inclusion, aligning with the DRP's view.

4. Validity of DIT Relief Certificate u/s 172:
The Tribunal observed that the DIT relief certificate issued u/s 172, which stated that Article 8 of the DTAA applies and the income is not taxable in India, should be respected unless there is a change in facts or law. The doctrine of promissory estoppel and the rule of consistency were invoked, emphasizing that the AO should not take a contrary view without substantial reasons.

5. Doctrine of Promissory Estoppel and Rule of Consistency:
The Tribunal emphasized the importance of the rule of consistency in tax assessments, citing the Supreme Court's decision in Radhasoami Satsang v. CIT. The AO's attempt to deny the treaty benefits was seen as a violation of these principles.

Conclusion:
The Tribunal directed the AO to delete the additions made towards the shipping income earned in India, affirming that the income is taxable only in Singapore as per Article 8 of the India-Singapore DTAA. The appeals filed by the assessee were allowed.

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