2023 (9) TMI 221 - HC - Income Tax

Income accrued in India - income in respect of ships - freight earnings collected from India - Assessee produced ship registration certificates of only 128 ships and not for the remaining 8 ships - denial of Benefit of Article 8 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore - Whether, ITAT has erred in not restricting the benefit of Article 8 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore to the assessee, in accordance with the limitation imposed by Article 24 of the said DTAA? HELD THAT - As relying on M.T. MAERSK MIKAGE 2016 (9) TMI 19 - GUJARAT HIGH COURT and M/S. CITICORP INVESTMENT BANK (SINGAPORE) LTD.) C/O. CITIBANK NA SECURITIES AND FUND SERVICES, 2023 (6) TMI 1222 - BOMBAY HIGH COURT Courts while analysing Article 24 held that under 'Article 24 where the income from sources in India shall be exempted from tax or taxed at a reduced rate in India and under the laws in force in Singapore, the said income is subject to tax by reference to the amount thereof which is remitted to or received in Singapore and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under the DTAA in India shall apply to so much of the income as is remitted to or received in Singapore. Therefore, the exemption or reduction of tax to be allowed under the DTAA in India shall only apply to so much of the income as is remitted to or received in Singapore where the laws in force in Singapore provides that the said income is subject to tax by reference to the amount which is remitted or received in Singapore. When under the laws in force in Singapore, the income is subject to tax by reference to the full amount thereof, whether or not remitted to or received in Singapore, then in that case Article 24(1) would not apply. In both the cases, i.e., Citicorp Investment Bank (Singapore) (Supra) and M.T. Maersk Mikage (Supra), the Courts relied on letters/confirmation issued by the IRAS which confirmed the taxability of income in Singapore on accrual basis. In those two cases also Assessee had submitted certificate issued by the IRAS. Even in the case at hand, Assessee has submitted certificate from the IRAS but the CIT (A) chose to disregard that certificate on the basis that it has been issued by an officer of the IRAS and it is a non binding opinion without any statutory authority. This Court in Citicorp Investment Bank (Singapore) (Supra) has held that such certificate issued by Singapore Tax Authorities will constitute sufficient evidence for accepting the legal position. This Court while coming to such a conclusion, also relied upon in the judgment of the Hon'ble Madras High Court in the case of Commissioner of Income Tax v. Lakshmi Textile Exporters Ltd. 1997 (7) TMI 20 - MADRAS HIGH COURT Therefore, in our view, no substantial questions of law arise as regards the first 4 questions proposed. Benefit in respect of freight receipts from 97 ships u/s 8 of the India - Singapore DTAA even though Article 8 (4) of the said DTAA requires the assessee to be the owner, lessee or a charterer of the ships - HELD THAT - As in view of the judgment of this Court in the case of Balaji Shipping UK Ltd. 2012 (8) TMI 681 - BOMBAY HIGH COURT in our view, no question would arise. In another matter of Assessee which came up before this Court in APL Co. Pte. Ltd. 2016 (1) TMI 1169 - BOMBAY HIGH COURT the Court relying upon Balaji Shipping UK Ltd. (Supra), held that no substantial question of law would arise. As submitted that an SLP has been admitted against the judgment of this Court in Balaji Shipping Uk Ltd. (Supra) and, therefore, the Hon ble Apex Court has doubted the correctness of judgment and this Court therefore, cannot rely upon Balaji Shipping UK Ltd. (Supra). We are unable to accept such submission of Mr. Chhotaray. Appeal dismissed.

Summary

Issues Involved:
The judgment concerns the interpretation of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore, specifically focusing on the taxability of income from shipping business activities. The main issues revolve around the application of Article 8 and Article 24 of the DTAA, the reliance on certificates issued by the Inland Revenue Authority of Singapore (IRAS), and the determination of whether income accrued in India is exempt from tax.

Assessment Year 2008-09:
The Assessee, a tax resident of Singapore engaged in the operation of ships, filed a return of income declaring total income as Nil for the Assessment Year 2008-09. The Assessee sought the benefit of Article 8 of the DTAA for its gross freight earnings collected from India, claiming that the income was not taxable in India under the provisions of the DTAA.

Assessing Officer's Observation:
The Assessing Officer noted discrepancies in the documentation provided by the Assessee regarding the ships involved in the business operation. Consequently, the Assessing Officer taxed the receipt from 8 ships at a rate of 7.5% under Section 44B of the Income-tax Act, 1961, assessing the total income at Rs. 22.98 Lakhs.

Appeal and Tribunal Decision:
The Assessee appealed before the Commissioner of Income-tax (Appeals) [CIT(A)], who enhanced the income by denying benefits to additional ships beyond the 8 initially disputed by the Assessing Officer. The Income Tax Appellate Tribunal (ITAT) later allowed the appeal, ruling that the limitation imposed by Article 24 of the DTAA would not apply in this case, based on a certificate from the IRAS.

Questions of Law Proposed:
The appeal raised five substantial questions of law, primarily focusing on the interpretation of Article 24 of the DTAA, the reliance on the IRAS certificate, and the taxability of income arising from the operation of ships under Article 8 of the DTAA.

Interpretation of Article 24:
Various judgments, including those by the Tribunal and High Courts, have analyzed Article 24 of the DTAA. The courts emphasized that the exemption or reduction of tax under the DTAA in India applies to income remitted to or received in Singapore, based on the laws in force in both countries. The courts also considered the relevance of certificates issued by tax authorities in determining the taxability of income.

Judicial Precedents:
Previous cases, such as Citicorp Investment Bank (Singapore) and M.T. Maersk Mikaje, highlighted the importance of certificates issued by tax authorities in confirming the taxability of income in Singapore. The courts relied on such certificates as sufficient evidence to support the legal position regarding the tax treatment of income under the DTAA.

Court's Conclusion:
The High Court dismissed the appeal, stating that no substantial questions of law arose regarding the interpretation of Article 24 and the reliance on the IRAS certificate. The Court also referred to previous judgments, such as Balaji Shipping UK Ltd., to support its decision. The Court emphasized the significance of certificates issued by tax authorities in determining the tax treatment of income under the DTAA.

Assessment Year 2012-13:
A separate appeal for the Assessment Year 2012-13 raised similar questions of law, with the main issue being the timing of the certificate issued by Singapore Authorities, which was received after the assessment order. The Court decided that in light of the conclusions reached in the previous appeal, the second appeal did not stand, and it was dismissed accordingly.