2023 (10) TMI 17 - AT - Income Tax

Income accrued in India - receipts from international traffic pertaining to voyage chartered as Royalty - treaty benefits under DTAA - HELD THAT - As the assessee is entitled to treaty benefit after examination of the tax returns of the assessee filed before the tax authority of Singapore and also held that the assessee is to be considered as the tax resident of Singapore. The Tribunal has also held that the assessee has not entered into any back- to-back arrangement. The Tribunal has also held that the receipts cannot be treated as royalty. Hence, in the absence of any change in the business pattern or the judicial proposition, we hold that the revenue erred in treating the receipts from international traffic pertaining to voyage chartered as Royalty . Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of the order passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. Limitation and legality of the order.
3. Taxability of income as royalty.
4. Application of section 44B of the Act.
5. Levy of interest u/s 234B.

Summary:

1. Validity of the Order:
The assessee challenged the order passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, arguing that it was contrary to the provisions of law and erroneous on the facts of the case.

2. Limitation and Legality:
The assessee contended that the order was barred by limitation and thus void-ab-initio.

3. Taxability of Income as Royalty:
The revenue taxed INR 926,69,08,621 as income from royalty, alleging that there was no commercial rationale for the incorporation of the appellant company in Singapore, it was used as a conduit to avail treaty benefits under DTAA, and the income from shipping activity was exempt from tax in Singapore, thus disqualifying it from being regarded as a tax resident of Singapore entitled to DTAA benefits. The Tribunal found that similar allegations were made in previous proceedings u/s 263, where it was adjudicated that the assessee was entitled to treaty benefits and was a tax resident of Singapore. The Tribunal also held that the receipts from shipping business could not be treated as royalty income.

4. Application of Section 44B:
The assessee argued that the receipts should be taxed under section 44B of the Act rather than as royalty income. The Tribunal upheld that the receipts from international traffic pertaining to voyage chartered should not be treated as royalty.

5. Levy of Interest u/s 234B:
The assessee contested the levy of interest u/s 234B of the Act, which was implicitly resolved in favor of the assessee as the primary appeal was allowed.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the revenue erred in treating the receipts from international traffic as royalty. Consequently, the Stay Application of the assessee was dismissed as infructuous.

Order Pronounced:
The judgment was pronounced in the Open Court on 07/06/2023.