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2017 (10) TMI 105 - AT - Income TaxIncome accrued in India - income assessable to tax at Singapore on the basis of accrual or remittance - AO brought to tax part of the receipt on the ground that the assessee has not furnished the proof of its remittance to the assessee in Singapore - India-Singapore DTAA - Held that - It has never been the case of the AO or the CIT (A) that the assessee has not filed the evidence of offering the income to tax in Singapore. In fact, the AO has considered the fact that the offshore income of a Singapore entity is not taxable in Singapore unless and until it is remitted or received in Singapore by virtue of Article 24(1) of India-Singapore DTAA. Thus, the consequence of receipt in Singapore is that it is taxable in Singapore and that is the reason why the AO has accepted part of the remittance in respect of which the proof has been furnished during the assessment proceedings as exempt from tax in India. Since the assessee has filed proof of remittance of a part of balance of the freight charges, we are of the opinion that the assessee is entitled to exemption in respect of only the freight charges remitted to Singapore. In respect of USD in respect of which, there is no proof of remittance, it has to be brought to tax in India. We find that similar issue had arisen before the Hon ble Gujarat High Court in the case of M.T. Maersk Mikage & 4 Petitioners vs. DIT (International Taxation) (2016 (9) TMI 19 - GUJARAT HIGH COURT). The AO is therefore, directed to tax only such part of the freight charges which have not been remitted to the assessee in Singapore. Assessee s appeal is partly allowed.
Issues Involved:
1. Tax exemption under the Double Taxation Avoidance Agreement (DTAA) between India and Singapore. 2. Remittance of freight charges to Singapore and its impact on tax liability. 3. Admission and consideration of additional evidence by the CIT (A). 4. Applicability of Article 8 vis-a-vis Article 24 of the DTAA. Issue-Wise Detailed Analysis: 1. Tax Exemption under the DTAA between India and Singapore: The core issue revolves around the tax exemption claimed by the assessee under the DTAA between India and Singapore. The assessee, a non-resident company, claimed that the freight earned is exempt from tax in India based on the DTAA. The local agent provided a Tax Residency Certificate (TRC) to support this claim. However, the Assessing Officer (AO) observed that the DTAA has a "limitation of relief" clause under Article 24, which stipulates that the exemption is only applicable to the income remitted to the recipient in Singapore. Consequently, the AO brought to tax the portion of the freight charges that were not remitted to Singapore. 2. Remittance of Freight Charges to Singapore and Its Impact on Tax Liability: The AO noted that out of the total freight of USD 7,43,925, only USD 3,66,175 was remitted to the freight beneficiary's bank account in Singapore. The AO taxed the remaining USD 3,77,750 in India due to the lack of evidence of its remittance to Singapore. During the appellate proceedings, the assessee provided additional evidence of remittance totaling USD 7,05,421. The AO, in the remand report, accepted this remittance as qualifying for relief under Article 24 read with Article 8 of the DTAA. The Tribunal concluded that the assessee is entitled to exemption only for the freight charges remitted to Singapore and upheld the taxation of the remaining amount in India. 3. Admission and Consideration of Additional Evidence by the CIT (A): The assessee submitted additional evidence of remittance during the appeal before the CIT (A). However, the CIT (A) did not admit this additional evidence and confirmed the assessment order. The Tribunal noted that the AO, in the remand report, accepted the remittance of USD 7,05,421 as qualifying for relief. The Tribunal found that the CIT (A) erred in not admitting the additional evidence and directed that the freight charges remitted to Singapore should be exempt from tax in India. 4. Applicability of Article 8 vis-a-vis Article 24 of the DTAA: The Tribunal referred to the judgment of the Hon'ble Gujarat High Court in the case of M.T. Maersk Mikage, which dealt with the applicability of Article 8 and Article 24 of the DTAA. The High Court held that Article 24 applies only when income is taxed on a remittance basis in the other contracting state (Singapore). The Inland Revenue Authority of Singapore certified that the income in question would be taxed on an accrual basis in Singapore, not on a remittance basis. Therefore, the High Court concluded that Article 24 did not apply, and the income should be exempt under Article 8. The Tribunal applied this reasoning and directed the AO to tax only the portion of the freight charges not remitted to Singapore. Conclusion: The Tribunal partly allowed the assessee's appeal, directing that only the freight charges not remitted to Singapore be taxed in India. The decision emphasizes the importance of remittance evidence and the correct interpretation of the DTAA provisions, particularly Articles 8 and 24. The Tribunal's order aligns with the principles laid down by the Hon'ble Gujarat High Court regarding the DTAA's application.
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