2017 (5) TMI 114 - AT - Income Tax

Gross freight earnings including detention collection - profits derived from the operation of ships international traffic - taxability as per Article 8 of the Agreement for Avoidance of Double Taxation between India and Singapore - Held that - After careful consideration we find that prima facie the facts of the present case appear to be same as that assessment of year 2008-09 dealt with as above. However we note that in its direction the DRP has noted that assessee has sought to file addition evidences in the DRP and declined to admit the addition evidences on the ground that assessee had not been able to state as to why the addition evidence was not filed before the assessing officer. In this regard Ld. Counsel submitted that the addition evidence, that the DRP mentioning is a letter /confirmation/certificate from the IRAS (Inland Revenue Authority of Singapore) which clarified the assessee position for the impugned assessment year in the same manner as mentioned in the tribunal s orders above. Ld. Counsel submitted that this certificate/confirmation from IRAS could be obtained from the concerned authority only after the date of the assessing officer orders. However, a similar earlier letter was dully shown to the assessing officer, however the A.O. did not dwell upon on this aspect. Hence Ld. Counsel submitted that there was reasonable cause for not submitting the additional evidence before the A.O. Upon careful consideration we find that this limb of adjudication by the tribunal was not at all before the authorities below. However it is clear that argument to that effect were duly made as it is evident from the submissions of the assessee. However, we note that the aforesaid confirmation/certificate from IRAS is a very crucial document and similar document was heavily relied upon by the tribunal in aforesaid orders. 15. We also agree that there was reasonable cause for the same not being submitted before the A.O., as it was obtained after the date of AO s orders. Hence in our consider opinion interest of justice will be served if the aforesaid additional evidence is admitted and matter is remitted to the file of the A.O to consider the issue afresh in the light of the aforesaid document and the tribunal s order as mentioned above.

Issues Involved:
1. Denial of benefit under Article 8 of the India-Singapore Double Taxation Avoidance Agreement (DTAA) due to Article 24.
2. Non-acceptance of a letter from the Inland Revenue Authority of Singapore (IRAS) and other financial documents.
3. Non-appreciation of remittance of freight collections to Singapore.
4. Determination of Permanent Establishment (PE) in India under Article 5 of the DTAA.
5. Tax liability extinguishment due to arm's length commission paid to the agent.
6. Levy of interest under section 234B of the Income Tax Act.

Detailed Analysis:

Ground No. 1 and 2: Denial of Benefit under Article 8 of DTAA
The assessee, a Pvt. Ltd. Company and tax resident of Singapore, engaged in international shipping operations, claimed that its freight earnings were not taxable in India under Article 8 of the India-Singapore DTAA. The Assessing Officer (AO) invoked Article 24 (Limitation of Relief) of the DTAA, arguing that the freight income was taxable in India as the assessee failed to comply with Article 24's provisions. The AO noted that the assessee did not provide sufficient evidence to prove that the freight income remitted from India was received in Singapore. The Dispute Resolution Panel (DRP) upheld the AO's decision, referencing a similar case from AY 2008-09 where the CIT (A) had denied the exemption under Article 8 due to non-fulfillment of Article 24 requirements. The Tribunal, however, found that the freight income was taxable in Singapore on an accrual basis, not on a remittance basis, as confirmed by a certificate from IRAS. Thus, Article 24 did not apply, and the benefit of Article 8 should be allowed.

Ground No. 3: Non-Appreciation of Remittance to Singapore
The assessee argued that the remittance condition under Article 24 was satisfied as the freight collections were ultimately remitted to its bank account in Singapore. The DRP rejected this argument, stating that no documentary evidence was provided to prove the remittance to Singapore. The Tribunal noted that the additional evidence (IRAS certificate) was crucial and should be considered. The matter was remitted to the AO for fresh consideration in light of the new evidence and the Tribunal's previous order.

Ground No. 4 and 5: Determination of Permanent Establishment (PE) in India
The DRP and AO held that the assessee had a fixed place PE in India and that APL India Pvt. Ltd. was an agency PE under Article 5 of the DTAA. The assessee contended that the arm's length commission paid to APL India extinguished its tax liability in India. The Tribunal did not adjudicate this issue, considering it redundant if the benefit under Article 8 was allowed.

Ground No. 6: Levy of Interest under Section 234B
The assessee argued that it was not liable to pay advance tax, as the freight income was tax deductible at source, and a Double Income Tax Relief Certificate was issued by the Tax Department. The Tribunal found this issue in favor of the assessee, referencing its earlier decision and a Bombay High Court ruling.

Conclusion:
The Tribunal remitted the matter to the AO for fresh consideration of the additional evidence (IRAS certificate) regarding the applicability of Article 24. It held that the freight income should be considered taxable in Singapore on an accrual basis, allowing the benefit under Article 8 of the DTAA. The issues related to PE and tax liability extinguishment were deemed redundant, and the levy of interest under Section 234B was decided in favor of the assessee.

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