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TMI Blog2023 (5) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... uant to the directions dated 22-01-2021 of Ld. Dispute Resolution Panel-2, Bangalore (DRP) u/s 143(3) r.w.s 144C(5) of the Act. The draft assessment order was passed by Ld. AO on 30-12-2019 which was subjected to assessee's objection before Ld. DRP. Pursuant to the directions of Ld. DRP, final assessment order was passed on 24-02- 2021 making certain additions in the hands of the assessee. Aggrieved by those additions, the assessee is in further appeal before us with follow grounds of appeal: - 1. The order of the Deputy Commissioner of Income Tax, International Taxation1(1), Chennai ["AO/Assessing Officer"] is contrary to law, facts and circumstances of the case. 2. Reopening of assessment u/s 147 of the Act is invalid 2.1. The AO/DRP erred in reopening the assessment under section 147 of the Act in the absence of essential conditions necessary for reopening the assessment. 2.2. The AO/DRP ought to have appreciated that section 147 of the Act permits reassessment of income, "where AO has reason to believe that any income chargeable to income tax has escaped assessment for any assessment year. 2.3. The AO/DRP ought to have appreciated that "reason to believe constitute a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essel handling charges are in the nature of shipping income and therefore not taxable in India as per Article 8 of the DTAA between India -Singapore. 3.8. Without prejudice to the above, the Assessing Officer ought to have appreciated that the said income has already been taxed in the hands of BTL India in India and as such assessing the income once again in the hands of the Appellant has resulted in double taxation of the same income. 3.9. Without prejudice to all the above grounds, the Assessing Officer erred in taxing the gross income without allowing/considering any expense for earning the aforesaid incomes. 3.10. Without prejudice to the aforesaid ground, the Assessing Officer ought to have taxed the documentation charges and vessel handling charges under section44B of the Act. 4. International shipping income from freight operations amounting to INR 10,89,70,019 assessed to tax in India 4.1. The directions of the Dispute Resolution Panel (DRP) - 2, Bengaluru (DRP')and the consequential final assessment order is erroneous in so far as assessing the international shipping income from freight operations as income taxable in India under section 44B of the Act. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to have appreciated that when the income tax department has consistently accepted that shipping income is taxable only in Singapore as per Article 8 of the India-Singapore DTAA which has been adopted in the shipping industry over the last 20 years, the AO is precluded from adopting a contrary view for this AY especially when there is no change in law or facts. 4.12. The DRP ought to have appreciated that the AO has already issued a DIT relief certificate under section 172 of the Act for the subject AY wherein the Revenue has accepted that relief under Article 8 of the India - Singapore treaty is available to the Appellant and as such the AO is precluded from taking a different position while completing the assessment. 4.13 The AO/DRP erred in incorrectly interpreting the Vienna Convention while considering the applicability of the DTAA between India and Singapore. 4.14. The DRP grossly failed in not considering the binding decision of the Hon'ble jurisdictional Tribunal in Appellant's own case in IT(TP)A.No.11/Chny/2020 vide order dated 06.11.2020. 4.15. The DRP grossly erred in not considering the detailed written submissions and the Tribunal order in Assessee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of taxability of freight income was never part of initial reasons for reopening of assessment. The Ld. AR further submitted that documentation / vessel handing charges never belonged to the assessee and it was independently earned in India by its Indian subsidiary i.e., M/s Bengal Tiger India Private Ltd. (BTIPL). These charges were already offered to tax in India by that entity in its return of income filed for all the years. The same was also confirmed in the sworn statements recorded during survey proceedings. Therefore, there was no escapement of income which would enable Ld. AO to acquire jurisdiction u/s 147 of the Act. In such a case, the reassessment proceedings would be bad in law as per the decisions of Hon'ble Bombay High Court in Techpac Holdings Ltd. vs CIT (67 Taxmann.com 280) as well as the decision of same court in The Swastic Safe Deposit and Investments Ltd. (107 Taxmann.com 421) against which revenue's Special Leave Petition (SLP) was dismissed by Hon'ble Supreme Court which is reported as 118 Taxmann.com 94. 2.2 The Ld. AR further submitted that while recording the reasons for reopening, Ld. AO has relied upon Q. No.19 of the survey proceedings wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency agreement. In the sworn statements also, it has been confirmed that the services were rendered by Indian entity and the assessee had no right to receive such income. Since the income did not belong to the assessee, there is no question of escapement of income in the hands of the assessee. Accordingly, the primary condition to reopen the case fails and the reassessment proceedings are bad in law. Once the sole reason for reopening of assessment is not sustainable, entire assessment would be void-ab-initio as per the decision of Hon'ble Delhi High Court in Ranbaxy Laboratories Ltd. (12 Taxmann.com 74); the decision of Hon'ble Bombay High Court in Jet Airways (I) Ltd. (195 Taxman 117) the decision of Hon'ble Delhi High Court in Blackstone Capital Partners (Singapore) Vi FDI Three Pte. Ltd. (146 Taxmann.com 569).The Ld. AR thus averred that in the absence of any escapement of income, the reopening of assessment is invalid. 2.5 On merits, Ld. AR submitted that even assuming that document / vessel handling charges would be deemed to be the income of the assessee, the same would not be taxable in India by virtue of Article-8 of India-Singapore Double Taxation Avoidance Agreement (DT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed entity is not taxable in India. The Article-8 of India-Cyprus DTAA and Article-8 of India- Singapore DTAA are stated to be pari-materia the same. 2.7 Lastly, Ld. AR drew our attention to letter issued by Singapore Competent Authority i.e., Inland Revenue Authority of Singapore (IRAS) clarifying that the freight income would be regarded as Singapore sourced income and would be brought to tax on accrual basis and not on remittance basis. Therefore, Article-24 would not apply to shipping income. The Ld. AR submitted that as per Article-8, only contracting state i.e., Singapore has exclusive taxing right on Shipping income. The same is evident from the fact that Ld. AO, after considering the Tax Residency Certificates (TRC) and supporting documents, has issued DIT relief certificates by holding a position that Article-8 of India-Singapore DTAA would apply to the assessee and the income from operation in international traffic will not be taxable in India. This certificate is stated to be issued for multiple assessment years. The CBDT Circular No.30/2016 dated 26-08-2016 clarifies that this certificate is to be issued only after examining the applicability of DTAA to the foreign shi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which is as under: 2) From the above definition, one can infer that even the Indian Income Tax Act recognizes the fact that a person is considered to be 'liable to tax' even if an exemption is granted. In the instant case, the Singapore Income Tax Act provides exemption of shipping income as per section 13F. However, the Appellant continues to be liable to tax in Singapore by virtue of its residential status. The contention of the income tax department that the Appellant is not paying any tax in Singapore by virtue of the exemption granted in section 13F and that they are not 'subjected to tax' (i.e. actually paid taxes in Singapore) is not a relevant criteria to adjudge whether treaty benefit is available or not. 3) Further, Article 8 uses the words "shall be taxable" and not "shall be taxed". The phrase taxed implies that the taxes are actually paid in Singapore i.e. subjected to tax in Singapore, whereas, the actual phrase used is "taxable" which does not imply or mandate actual payment of tax, rather it only confers a taxing right to Singapore. 4) Further, the word "only" clearly asserts that it is the resident state alone that can impose tax (i.e. Singa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves: "It seems clear that a person does not have to be actually paying tax to be "liable to tax" otherwise a person who had deductible losses or allowances, which reduced his tax bill to zero would find himself unable to enjoy the benefits of the convention. It also seems clear that a person who would otherwise be subject to comprehensive taxing but who enjoys a specific exemption from tax is nevertheless liable to tax, if the exemption were repealed, or the person no longer qualified for the exemption, the person would be liable to comprehensive taxation. " 9) Further, Late Prof. Klaus Vogel in the Bulletin for International Taxation (Volume 60, No. 6 - 2006 at pages 218-219) published by the International Bureau of Fiscal Documentation, Amsterdam. Prof. Dr. Klaus Vogel, after referring to the Tribunal decision in the case of Green Emirate Shipping & Travels, had observed as under: "An unusual case decided by the Dutch Gerechtsh of Amsterdam Court of Appeals on 15-2-2006 confirms this decision. The owners of the Dutch company, XBV emigrated from the Netherlands to Greece in 1995 and advised the Dutch tax authorities that they now exercised management and contract from their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax only to a limited extent in cases when the treaty reserves taxation for the other contracting States either entirely or in part. Contracting States are said to 'waive' tax claims or more illustratively to divide 'tax sources', the 'taxable objects', amongst themselves." Double taxation avoidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe this method of classification of items and their assignments to the Contracting States. While the English lawyers called it 'classification and assignment rules', the German jurists called it 'the distributive rule' (Verteilungsnorm). To the extent that an exemption is agreed to, its effect is in principle independent of both whether the other contracting State imposes a tax in the situation to which the exemption applies, and of whether that State actually levies the tax. Commenting particularly on German Double Taxation Convention with the United States, Vogel comments: "Titus, it is said that the treaty prevents not only 'current', but also merely 'potential' double taxation". Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s objection to applicability of India-UAE tax treaty was only on the ground that the provisions of double taxation avoidance agreements do not come into play unless it is established that the assessee is paying tax in both the countries in respect of the same income, in the grounds of appeal before us it is also contended that the assessee-company failed to produce any evidence to the effect that it was 'liable to pay taxes' in UAE. The question then arises whether an existing liability to pay taxes in UAE is a sine qua non to avail the benefit of India-UAE tax treaty in India. On this issue also, we find guidance from the judgment of Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra). Referring to the Klaus Vogel's Commentary on Double Taxation Conventions, Their Lordships, inter alia, observed as follows "In other words, Contracting States mutually bind themselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxation for the other Contracting State either entirely or in part. Contracting States are said to waive 'tax claims' or more illustratively to divide 'tax sources', 'taxable obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 'liable to tax in the Contracting State by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature' which essentially refers to the fiscal domicile of such a person. In other words, if fiscal domicile of a person is in a Contracting State, irrespective of whether or not that person is actually liable to pay tax in that country, he is to be treated as resident of that Contracting State. The expression 'liable to tax' is not to read in isolation but in conjunction with the words immediately following it i.e., 'by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature'. That would mean that merely a person living in a Contracting State should not be sufficient, that person should also have fiscal domicile in that country. These tests of fiscal domicile which are given by way of examples following the expression 'liable to tax by reason of' i.e., domicile, residence, place of management, place of incorporation etc. are no more than examples of locality related attachments that attract residence type taxation. Therefore, as long as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singapore, albeit is liable to be taxed in principle on accrual basis by virtue of the fact that this income under the income tax laws of Singapore is regarded as "accruing in or derived from Singapore". A similar view has been expressed by the Hyderabad Bench of the Tribunal in the case of Far Shipping (Singapore) Pte Ltd vs. ITO, 84 taxmann.com 297. Further, the Mumbai Bench of the Tribunal in the case of DCIT vs. D.B. International (Asia) Ltd, 96 taxmann.com 75 has dealt with the interplay between the Article 13 and 24 and after considering relevant clauses categorically held that income derived by a resident of a Contracting State shall be taxable only in that state in view of the clear and unambiguous terms of DTAA." (Emphasis Supplied) 15) Basis the above discussion, it can be concluded that the 'subject to tax' or 'liable to tax' will not have any bearing on the taxability of shipping income in the present case, as the taxing right vests only with the country of residence, in the present case it is Singapore. 16) The DR at Para E of his written submission has mentioned that the core issue on 'subjected to tax' was not adjudicated in the spirit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges ought to have been admitted in the hands of principal i.e. appellant whereas the same was admitted wrongly by the agent i.e. Bengal Tiger Line India (P) Ltd (BTL-India) in all the above said A Ys. This led to reopening of assessment. * The return filing history and issue of notice and re assessment is as under; Table-I AY Date of filing of original return Section Any assessments 2012-13 13-08-2014 142(1) No 2013-14 27-05-2014 139(4) No 2014-15 30-09-2014 139(1) No 2016-17* 30-09-2016 139(1) No 2017-18 27-10-2017 139(1) No *2 revised returns filed on 07-10-2016 and 06-09-2017 After survey notices u/s 148 of the IT Act dated 28-03-2019 were issued and served on the assessee. In response to the notice the appellant company filed return on 26-04- 2019. After disposal of objection filed by the appellant vide order dated 08-11-2019, the draft assessment orders were passed on 26-11-2019. This was upheld by DRP. * The income of documentation chares and vessel handling charges admitted by agent BTL India is as under; Table-2 AY Documentation charges (in Rs) Vessel handling charges (in Rs) 2012-13 1,39,69,520 3,25,300 2013-14 1,77,81,606 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal. The other two incomes of documentation charges and vessel handling charges was booked incorrectly by the agent. 3. Note on business activity of the agents: Note on business activity submitted by the agent BTL India Ltd. to the assessing officer during the course of assessment carried out for the AY 2012-13 and 2013-14 is placed in page no. 13 to 21 of the paper book. It is clearly declared that BTL India Ltd provides agency support services to the shipping operation carried on by its group companies and it is remunerated by way of agency commission. They were not entitled to carry out any other activities independently other than the activities as per agreement. 4. Agency agreement: It is placed in paper book at page nos. 26 and 27. In clause 2 under "General duties of agent" it was clearly mentioned as under: - The Agent, through its own organisation and/or through sub-agents, to be approved by the Principal, will carry out such duties customarily expected of Agents, or performed as the result of specific instructions from the Principal. - Such duties will inter-alia include, but not be limited to, the marketing and handling of Principal's services, the efficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that in Kolkata and Cochin port the agent had to take some additional services in the nature of documentation to facilitate efficient dispatch of vessels. 6.3 At point no. 5 of the same reply it was submitted that in Mangalore and Goa port the agent carried out vessel handling charges. 6.4 At point no. 6 of the same reply it was submitted that such documentation and vessel handling charges was mutually agreed between principal and agent and hence it was booked as revenue of agent BTL India Ltd. These incomes cannot be attributed to the appellant BTL Singapore. It is evident from these points that the agent cannot do such activities independently. They have done all the activities on behalf of principal. There was no separate agreement other than the agency agreement to show that the agents were allowed to carry out such activities independently. 7. Evidences from statement of Sri. B. Sridhar; 7.1 Attention is drawn to reply given by Sri. B Sridhar, director of BTL India Ltd. in the statement recorded on 12-03-2019 at question no. 5. It is placed in page no. 38 to 43 of the paper book. It was admitted that BTL India raised those invoices on behalf of principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges is a local revenue. However, this cannot be acceptable. 8.6 Attention is drawn to answer to Q.no.7 given by Sri C. Ravi. He had admitted that "as agent, we ask for pre-funding from the Principal to pay the port cost, terminal cost and any other cost related to the ships along with our agency commission. " * Thus, it is evident from all these documents that BTL India is only an agent entitled for commission income. When the company used the software of the Principal to prepare weekly and fortnightly statements of expenditure and got reimbursed the same from the Principal it cannot be accepted that they have independently carried out the business activities of vessel handling charges and documentation charges. This is what admitted by the appellant to the A.O in way of objection to the reasons recorded for reopening. * Hence, it can be concluded that the agent used to forecast their expenditure and ask for the pre-funding from the Principal to carry out various activities on behalf of Principal. Under these circumstances, it is evident that the other receipts i.e. documentation charges and vessel handling charges were also collected by BTL India (agent) only on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. For this purpose, they have used the software of the Principal company by generating weekly and fortnightly statements. 4. Various other activities incidental to earn commission income on freight viz. documentation and vessel handling were also carried out on behalf of Principal without any written agreement. This fact was admitted by the appellant at various instances discussed above. 5. The reply of the Director that this income was shown in agent's books of account for brief period is not correct. In all the relevant AY it was incorrectly shown in the accounts of the agent as against the accounts of the principal. 6. Hence, the reopening the assessment of principal, i.e. the appellant's case to assess the income escaped as documentation charges and vessel handling charges was in order. It was not a case of change of opinion. 7. These incomes accrued to appellant in India. The AO in the remand report analysed the relevant provisions of IT Act and concluded that it cannot be considered as business income of the appellant as per section 44B of the IT Act as there is no such provision in IT Act or in DT AA. Hence it was rightly assessed as income from other sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vessel handling charges received by it would belong to the principal entity only. Therefore, there was escapement of income in the hands of the assessee parent company. 3.5 The Ld. CIT-DR also drew attention to Article-24 of Indian- Singapore DTAA to submit that there is difference between the phrase 'subject to tax' and 'liable to tax'. The submissions were made that the shipping income of the assessee was exempt and not subject to tax under Singapore Taxation laws and therefore, Article-24 will apply to the case of the assessee. In such a case, the said income would be taxable in the hands of the assessee in India. The Ld. CIT-DR also advanced arguments to submit that documentation and vessel handling charges could not be held to be incidental to the shipping business. 3.6 The written submissions filed by Ld. CIT-DR supporting the case of the revenue, on merits, read as under: - A. Facts from the assessment order; `The AO has assessed the shipping income of the appellant accrued in India by invoking Article-24 of the India-Singapore DTAA. The basic facts from the assessment order is as under; 1. Intention of any treaty: The A.O analysed the purpose of treaty at par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article-24 of DTAA. Because, the shipping income earned in India, not remitted to Singapore became the subject matter of assessment. AO also analysed the exemption provisions of section 13A of SITA and discussed at para-14 that it is not automatic and blanket exemption provided in SITA. The comptroller of SITA can assess the exemption akin to section 10A or 10AA or 80IA or 80IB of Indian Income tax. 4. Subject to tax and Article 24 of DTAA; With this background, the A.O examined Article 24 which deals with limitation of relief. The A.O also analysed the concept of subject to tax at paragraph 9. He has referred UK's HRMC International manual and concluded that subject to tax means, relevant income has to be actually taxable. The A.O also reproduced the findings of AAR in General Electric Pension Trust vs DIT (International Taxation) in 8 ITLR 1053. He has further examined this Article 24 with section 10 of SITA and came to prima facie conclusion that as the shipping in come arising in India is not subjected to tax in Singapore. Hence the AO was of the view that Article 24 can be invoked. 5. Contradictory report noticed on IRAS letter: The appellant company placed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correct position of law, for the elaborate reasons as stated below: The view expressed in the order of the Hon'ble Tribunal referred supra is that, the Article-8 is only an enabling provision for taxation of shipping income. Now to quote the Article-8 as per India Singapore treaty, the same reads as follows: ARTICLE 8 SHIPPING AND AIR TRANSPORT "1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State., From the above it is seen that the enabling word giving exclusive right of taxation to the resident state viz., Singapore. The word "only" is the position which has been strongly emphasised by the Hon'ble ITAT in its order referred supra. 1. Whether the word "only" is mentioned in article-8 alone: A reference to the India Singapore treaty will clearly show that the word "only" has not only been used in Article 8 but also in other articles like Article-7 Business profits, Article-13 Capital Gains, Article-14 Independent Personal Services, Article 15 Dependent Personal Services, Article 19 Non-Government pensions and annuities. These articles are reproduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rider enabling the source state to tax shipping income as provided at Article 24 Limitation of Relief: C. Examination of Article-24 and conditions prescribed: ARTICLE24 LIMITATION OF RELIEF Where this Agreement provides (with or without other conditions) that income from sources in a Contracting State shall be exempt from tax, or taxed at a reduced rate in that Contracting State and under the laws in force in the other Contracting State the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under this Agreement in the first mentioned Contracting State shall apply to so much of the income as is remitted to or received in that other Contracting State. 1. There are 3 main components of this Article, which are listed below: i. An income earned from the source state should be exempt from tax, or taxed at a reduced rate in the source state as per the various provision of the articles of the treaty; ii. That income should be subject to tax in the State of Residence. iii. The said income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Analysis of Shipping Income in other DTAA: Government of India had entered into DT AA with nearly 135 countries. Around 20 of such DTAA are analysed and enclosed as annexure-l. In all the DTAA, Article-8 is on taxation of shipping and air transport income. This is common in many of the agreements where the right of taxation of shipping income has been given to the resident state. It is applicable to India- Singapore DTAA also. Article 24 in many of the agreements discussed about Elimination of Double Taxation, Mutual Agreement Procedure (MAP), Capital, Non-discrimination etc. However, in Singapore Treaty, we could find this Limitation of Relief in Article 24. The spirit of Article-- 24 was that DTAA is meant for avoidance for double taxation but not for Double Non-taxation. Such article could not be found in any other DTAA. This shows significance of Article-24. It is for this reason, the concept of subject to tax was emphasised in all the assessment orders passed This fine aspect of significance of Article 24 and the concept of subject to tax was not rightly appreciated in the earlier decision of Hon'ble ITAT, Chennai in the case of Bengal Tiger Lines in IT(TP)A.No.1 1/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Both parties informed in the open court. [alw IT(TP)A 1-Chny/2020 & IT (TP) A 59/Chny/2019]" The copy of the order sheet is enclosed as annexure-2. It is evident from the order sheet of Hon'ble ITAT that the decision of Bengal Tiger rendered for the A.Y.2015- 16 did not lay down the position of law correctly. Exactly this is what Hon'ble Madras High court observed when it was deciding the case of CIT Vs Hi tech Arai Limited in Tax Case (Appeal) Nos.670 and 671 of 2009. Hon'ble High court observed that tribunal need not follow its own earlier decision if such earlier decision did not reflect the correct position of the law. The relevant para in the Hon'ble HC order is as under; "3. We are not in a position to appreciate either of the contentions of the learned counsel for the petitioner. As far as the first contention is concerned, when the Tribunal by the impugned order has applied Section 32(1)(iia) of the Act, to the facts involved in the case of the asses see and has found that the assessee is entitled for the additional depreciation claimed under the said provision, it cannot be held that simply because a Co-ordinate Bench of the Tribunal had earlier t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in all the DTAA. It talks about taxation of shipping income and air transport income. As per this article, the resident country has exclusive right of taxation (liable to tax). Whatever income arise or accrue in Singapore, then it is liable to be taxed in Singapore and subsequently exempt from taxation as per section 13A or F of SITA. 3. Singapore follows territorial basis of taxation as it is evident from section 10 of SITA. Income accrued outside Singapore is taxable on receipt basis. However, the shipping income even if it is received in Singapore, it is not subject to tax. 4. Article-24, Limitation of Relief, is unique to India- Singapore DTAA where the issue of "subject to tax" came into picture. As the shipping income in this case accrued from India and it is not subject to tax in Singapore and the income was not remitted to Singapore, India has the right to tax the same by virtue of this article. It is to be mentioned here that that Limitation of relief is not found in other DTAA. 5. Since the shipping income of the assessee accrued in India is not subject to tax in Singapore, the AO has rightly taxed said income in India under domestic tax laws by virtue of Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequently, notices u/s. 143(2) and 142(1) were issued calling for requisite details from the assessee. Based on assessee's submissions, the assessment was framed by Ld. AO. 5.3 The survey proceedings revealed that M/s. BTIPL was the agent of the assessee in India. It was collecting documentation and vessel handling charges (DVHC) allegedly on behalf of the assessee. During the course of survey proceedings on BTIPL, sworn statements of its key employees were recorded which include the statement of Shri B. Sridhar, Director and Shri C. Ravi, Finance Manager. It transpired that the assessee was principal company and M/s. BTIPL worked as an agent for the assessee against 2% agency commission from the assessee on the freight income collected from Indian operations. The agent was also separately collecting documentation charges and vessel handling charges (DVHC) from the customers. These charges were recorded in the books of accounts of the agent and offered to tax as such in its return of income. These charges were collected by BTIPL from its customers for issuing no-objection certificates for clearing containers out of Kolkata Docks and late gate-in permission extended to customers a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen in that case the country of residence will have the exclusive right of taxation and the shipping income in the source state would be exempt from taxation. However, in a situation where the country of residence i.e., Singapore itself was not taxing the income then the question of double taxation would not arise in the first place and the other country i.e., source country would get a right of taxation. The intention was never been to allow or enable double non-taxation. 5.7 In the present case, the country of residence i.e., Singapore was not laying any claim of taxation at all on the shipping income of the assessee since the assessee was claiming its entire shipping income as exempt u/s 13A (Income derived from the operation of Singapore Ships) and u/s 13F (Income derived from the operation of foreign ships) under taxation laws of Singapore. In such a case, this Article would become redundant and the source company would acquire right to levy tax on the same. A coherent reading of other Articles of India-Singapore DTAA viz. Article 7 (Business Profits) or Article 14 (Independent Services) while citing "shall be taxable only in that state" also provide for certain exception cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance amount. The amount which is not remitted would not get benefit of Article-8 and accordingly, to be taxed u/s 44B. 5.10 Finally, the income on freight revenue earned by the assessee in India was computed u/s 44B at Rs.1089.70 Lacs and added to its income. The assessee received documentation charges of Rs.139.69 Lacs and vessel handling charges for Rs.3.25 Lacs. As per agreement, the Indian subsidiary was entitled for commission of 2% on freight charges. However, there was no mention of documentation charges undertaken by the Indian entity on behalf of the assessee in the commission agency agreement. The Indian entity has accounted the same in its books of accounts though it was collected in the course of its agency services rendered to the assessee. The charges so collected were incidental to the business carried out by the assessee in India and it could not be treated as separate income generated by the agent on its own. It was nothing but part of business operations being carried out by the assessee in India. The agent undertake this work as incidental to the main shipping business and raises separate bills on the customers and collects the same on behalf of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht income earned in India. The assessee also relied on various judicial pronouncements to support its case. 6.3 However, Ld. DRP maintained that the term 'exempt from tax' was not defined in tax treaty. The purpose of Limitation of Benefit Article-24 was to limit the abuse of treaty benefits. If an income is to be granted an exclusion from taxable income in one of the contracting states then such exclusion must depend on its status of taxability in the other contracting state. The aim was to prevent double non-taxation of any income. This Article make it clear that what has actually not suffered tax in one contracting state then treaty benefit could not be allowed in other contracting state. The Article-24 was an anti-abuse provision to curb abuse of tax treatise in such situation only. The assessee availed exemption u/s 13F of the Singapore Income Tax and to that extent, freight income had not actually been taxed in Singapore even though as per Article-8 of DTAA, shipping income are liable to tax in the state of tax residency. The assessee being fiscally domiciled in Singapore, the same income was liable to be taxed in the state of tax residency. However, the term 'liable to tax' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FIO freight. Further, the assessee was required to place the funds in advance with the agent to meet all expenses relating to the vessels and to carry out their operations and to meet related expenditure. It could thus be seen that the agent act to facilitate shipping operation of the assessee principal in India. For the said purpose, the agent was to incur expenses relating to agency function and it was entitled for fixed rate of commission. From the perusal of agreement, it could be seen that the commission is based on quantum of FIO freight and there is no bar on the agent to collect documentation / vessel handling charges separately. In fact, all the expenses relating to agency function are to be borne by the agent only and the same are not reimbursable by the principal. It could also be seen that there is no clause to reimburse these charges to the agent by the principal. There is nothing in the agreement to show that such charges were being collected by the agent on behalf of the principal assessee. The same is also evident from the fact that these charges are not part of the freight invoices raised by the agent on behalf of the principal but the same are collected by the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was similarly confirmed that stevedore was appointed by the agent for handling of vessels which was charged and offered to tax by the agent. The service was stated to be local value added service being provided to stevedore and the income thus arising from such activity was said to be belonging to agent only and not an activity connected to principal assessee. In reply to question no.17, it was confirmed that documentation and vessel handling charges were purely an activity warranted by local trade / shipping company. The principal assessee was not connected to this activity and the same was offered to tax by the agent in its books of account. Another statement was recorded from Shri C. Ravi, General Manager (Finance & Admin). In reply to question no.18, it was similarly been confirmed by him that the documentation charges were collected as trade practices. In reply to question no.19, it was confirmed that the agent was remunerated commission as per the agency agreement. The agent was authorized to issue no objection and gate in permission at Kolkata and Cochin. In reply to question no.22, it was confirmed that the agent was authorized to appoint stevedors for loading and discharg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds, it is believed that the income earned out of documentation charge of Rs.1,39,69,520/- which was chargeable to tax has escaped the assessment for the relevant AY 2012-13. ........ ........ B. Vessel handling Charges: From the above invoices and sworn statements recorded from relevant personnel regarding the documentation charges, it is found that the above said charges was collected by M/s. Bengal Tiger Line India Private Limited for appointing of Stevedore in places like Mangalore and Goa for handling of vessels. Since, the said vessel handling charges was collected by M/s. Bengal Tiger Line India Private Limited on behalf of Bengal Tiger Line Pte Singapore, the income collected out of vessel handling charges should be taxed in the hands of M/s. Bengal Tiger Line Pte Ltd at the rate of 40 percent as income accrued/arised in India, though the income earned from the documentation charges is declared in the financials of M/s. Bengal tiger India Private Limited. From the available records, it is believed that the income earned out of vessel handling charges of Rs.3,25,300/- which was chargeable to tax has escaped the assessment for the relevant AY 2012-13. 4. Based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has already been offered to tax by the agent. Merely because tax rate was higher for principal, the same could not lead to a conclusion that there was escapement of income unless it was conclusively shown that the income of the principal was erroneously offered to tax by the agent. We find that there is no such material before Ld. AO to reach such a conclusion. The Explanation-2 to Section 147 provide for cases wherein it is deemed that income chargeable to tax has escaped assessment. The clause (c) of this explanation, inter-alia, provides that where an assessment has been made, but - (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low a rate then it shall be deemed case of escapement of income. However, none of the cases apply to the facts of the present case since the income has already been offered to tax in the hands of the agent at applicable rate of tax. Secondly, there is no material to reach a conclusion that the aforesaid income belonged to the assessee. This being the case, reassessment jurisdiction, as acquired by Ld. AO, could not be said to be valid in the eyes of law and the same is, therefore, liable to be termed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction u/s 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with reasons to believe, on the basis of which he assumed jurisdiction. Therefore, for every new issue coming before Assessing Officer during course of proceedings of assessment or reassessment of escaped income and which he intends to take into account, he would be required to issue a fresh notice under section 148. If no disallowance was made for items which led to formation of belief of escapement of income then the reasons for initiation of reassessment proceedings would cease to survive and therefore, there was no justification to make addition on other account. This decision follows the ratio of decision of Hon'ble Bombay High Court in Jet Airways (I) Ltd. (195 Taxman 117). These case laws are binding on us. Therefore, in the absence of any contrary decision shown to us, it was to be held that since the reassessment fails on recorded reasons, the assessment of shipping freight income would be out of reassessment jurisdiction of Ld. AO and therefore, liable to be deleted. We order so. 14. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certificate. 16. Finally, in the backdrop of our aforesaid findings and conclusions, it was to be held that the reassessment proceedings as well as consequential assessment framed therein are unsustainable in law and accordingly, liable to be quashed. We order so. The corresponding legal grounds raised by the assessee stand allowed. Adjudication on Merits 17. Though we have quashed the assessment order, delving into the merits of the case has been rendered infructuous. However, since the issue on merits has been dealt with in an elaborate manner in the impugned orders and lengthy arguments have also been made before us by way of oral submissions as well as written submissions, we deal with the issue on merits also. 18. We find that India has entered into Double Taxation Avoidance Agreement (DTAA) with Singapore which is effective from 27.05.1994 for avoidance of double taxation and for prevention of fiscal evasion with respect to taxes on income. As per Article 7, business profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Singapore Entity operating the shipping activities would be taxable only in Singapore to the exclusion of India. Conversely, profit of Indian entity operating the stated activities in international traffic would be taxable in India only. Thus, the taxation rights of these activities vest with the contracting state to the exclusion of the other. The said Article, in our considered opinion, does not grant any exemption of income and the same is not in the nature of exemption provision. The same merely allocates the taxation rights of shipping income. We are unable to interpret the stated article in any other manner as urged by Ld. CIT-DR. Therefore, corresponding pleas of revenue, in this regard, stand rejected. 20. The whole case of the revenue draws strength from the argument that exception to Article 8 has been provided in Article 24 which read as under: - ARTICLE 24 LIMITATION OF RELIEF Where this Agreement provides (with or without other conditions) that income from sources in a Contracting State shall be exempt from tax, or taxed at a reduced rate in that Contracting State and under the laws in force in the other Contracting State the said income is subject to tax by re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be brought to tax on accrual basis (i.e., not remittance basis) The same has further been clarified in letter dated 17.09.2018 as under: 5. We regard shipping enterprises operating in Singapore as carrying on business operations substantively in Singapore, managing its fleet of vessels to provide international transport services to its customers around the world. While their vessels may be plying in international water or other coastal waters, the shipping income earned by these shipping enterprises from providing the international transport services is taxable in Singapore in full regardless of whether the income is received in or remitted to Singapore. Hence, we hold the position that Article 24(1) does not apply to the shipping income received by a Singapore shipping enterprise from Indian customers as the shipping income is taxable in Singapore on an arising basis when the income is earned by the shipping enterprise regardless of whether the shipping income is received in or remitted to Singapore 6. Since Article 24(1) is not applicable, the provisions of Article 8(1) would apply without any limitation. Article 8 of the DTA states that profits derived by an enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re based entity by the name ST Shipping and Transport Private Limited undertook voyages from various Indian ports and earned income which was claimed exempt in terms of Article 8 of Double Taxation Avoidance Agreement ('DTAA' for short) between India and Singapore. According to ST Shipping, such income was taxable only in Singapore and therefore, exempt from tax regime under the Indian Income Tax Act. However, Ld. AO denied the same by virtue of the provisions contained in Article 24 therein. He noted that the fright receipts were remitted to London and not to Singapore. In his opinion, as per Article 24 of DTAA, the funds had to be remitted where the residents of the country is claiming benefit of the agreement, which conditions in the present case was not satisfied. Resultantly, the income was computed at 7.5% of freight income. The assessee filed a petition u/s 264 and produced letter dated 09.01.2013 issued by Inland Revenue Authority of Singapore wherein it was stated that the income in question derived by the ST Shipping would be considered to be income accruing in or derived from a business carried on in Singapore and the income would therefore be assessable to tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revision petition. II. The Department's interpretation of Clause-24 of the DTAA is correct. In the present case, admittedly, the income had not been remitted to Singapore. By virtue of Clause (1) of Article 24 therefore, Article 8 of DTAA became inapplicable. III. He contended that the certificate dated 09.01.2013 issued by inland Revenue authority of Singapore is contrary to section 10 of the Singapore Income Tax Act, which would make it clear that unless income of any person accrues in or is derived from Singapore, the same would be taxed only on the basis of actual receipt. IV. Even otherwise, there is no evidence to show that the assessee had offered such income to tax in Singapore and that the assessee was actually taxed on such income. If for any reason, the income was exempt from payment of tax, Indian Revenue authorities would be entitled to charge the tax on such income. 13. Having thus heard learned counsel for the parties and having perused documents on record, we may first dispose of the Revenue's objection to the maintainability of the revision petition. ....... ....... 15. This brings us to the core issue strenuously debated by both sides viz. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of such facts, Article 24(1) of the DTAA would not be applicable and consequently, Article 8 would apply. 18. To this later opinion of the Revenue authority of Singapore, we may not be fully guided since it falls within the realm of interpretation of the relevant clauses of DTAA. However, in absence of any rebuttal material produced by the Revenue, we would certainly be guided by the factual declaration made by the said authority in the said certificate and this declaration is that the income would be charged at Singapore considering it as an income accruing or derived from business carried on in Singapore. In other words, the full income would be assessable to tax on the basis of accrual and not on the basis of remittance. This certificate was before the Commissioner while he passed the impugned order. The contents of this certificate were not doubted. If that be so, what emerges from the record is that the income in question would be assessable to tax at Singapore on the basis of accrual and not remittance. This would knock out the very basis of the Assessing Officer and Commissioner for invoking clause (1) of Article 24 of DTAA. Both the authorities considered the question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction is restricted to the income repatriated to such tax jurisdiction, as in the case of Singapore, the treaty protection must remain confined to the amount which is actually subjected to tax. Any other approach could result in a situation in which an income, which is not subject matter of taxation in the residence jurisdiction, will anyway be available for treaty protection in the source country. It is in this background that the scope of LOB provision in Article 24 needs to be appreciated." 20. Under the circumstances, in our opinion, Assessing Officer and the Commissioner committed serious error in passing the impugned orders. Before closing, we may briefly touch on one more aspect sought to be raised by the Revenue viz. of the actual tax being paid by the assessee on such income at Singapore. On the ground that such income is exempt from payment of tax, the Revenue desired to impose tax in India. In this context, the petitioner has relied on the decision of Delhi High Court in case of Emirates Shipping Line, FZE (supra), in which it was held that the assessee, a UAE based shipping company, whose income from such business was exempt from tax in such country, would still n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument that the certificate was opposed to the provisions of Section 10 of the Singapore Income Tax Act was not accepted by Hon'ble Court. The Hon'ble Court also referred to the decision of Hon'ble Delhi High Court in Emirates Shipping Line, FZE wherein it was held that the assessee, a UAE based shipping company, whose income from such business was exempt from tax in such country, would still not be liable to pay tax in India by virtue of Article 8 of the DTAA between the said two countries. It was held that a person does not have to actually pay taxes in other country to be entitled to benefit of DTAA. The Hon'ble Court also noted the decision in DIT (International Taxation) v. Venkatesh Karrier Ltd. [2012] 349 ITR 124 wherein it was held that the owner of the ship being admittedly a resident of UAE, there was no scope of taxing the income of the ship in any of the ports in India. The agreement between the two countries has ousted the jurisdiction of the taxing officers in India to tax the profits derived by the enterprise once it is found that the ship belongs to a resident of the other contracting country and such position has also been clarified by the Circulars issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome is exempt or taxed at reduced rate in source country, i.e. in India and further such income is taxable in country of residence on receipt basis. The AO, referring to Article 24 of the tax treaty, was of the opinion that although global shipping income of a Singapore tax resident is taxable only at resident State, but by virtue of Article 24 exemption would apply only to the extent of the amount repatriated/remitted to Singapore. In our view, the above conclusion of the AO is under the misconception of the provisions of India-Singapore tax treaty, because as per Article 8 of India-Singapore tax treaty, it was clearly specified that only the resident country has the right of taxation of freight income earned from operation of ships in international traffic. As may be seen from the provisions of Article 8(1), we are of the considered view that it is not an exemption provision but an enabling provision which provides an exclusive right of taxation of income to the residence country. Further, by entering into treaty with Singapore, India has given up its right to tax shipping income of a non-resident in India. Therefore, any income of a nonresident shipping company which is a tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India-Singapore DTAA does not provide for exemption or reduced rate of taxation of such income. It is crucial to note that Article 8 of India-Singapore DTAA contemplates the taxation rights of a particular income in particular State. As per said article, the country of residence is having exclusive right over taxation of shipping income and that being the case, the assessee being resident of Singapore vest with right to tax such income under the Singapore Income Tax laws. Accordingly, the shipping income earned in India is neither exempt nor taxed at reduced rate as per Article 8 of DTAA which is a condition precedent for applicability of Article 24. This fact has been clarified by the IRAS vide its letter dated 17-9-2018, where it was specifically stated that provisions of Article 24 of India-Singapore DTAA would not be applicable to the shipping income. The second condition that is required to be looked into before applying Article 24 of DTAA is income of the non-resident should be taxable on "receipt" basis in Singapore. As we have already noted in earlier para of this order, under Article 8 of India-Singapore DTAA, global shipping income of a tax resident of Singapore is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a tax resident of Singapore was taxable at Singapore on the basis of accrual, the very basis of applying Article 24 would not survive. This issue was further considered by the Mumbai Bench of ITAT in the case of APL Co. Pte Ltd. (supra), where it was held that in order to invoke provisions of Article 24, two conditions need to be fulfilled. Firstly, income earned from source State (India) is exempt from tax or is taxed at a reduced rate in source State (India) as per DTAA; and secondly as per the laws in force of resident state (Singapore), such income is subject to tax by reference to amount thereof which is remitted to or received in resident State and not by reference to full amount thereof. The Tribunal further noted that the key phrases which need to be borne in mind while understanding Article 24 is "under the laws in force in other contracting state" (Singapore). Here, in this case, the income of assessee company from shipping operations is not taxable on remittance basis under the laws of Singapore, albeit is liable to be taxed in principle on accrual basis by virtue of the fact that this income under the income tax laws of Singapore is regarded as "accruing in or derive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a Singaporean resident that is accrued or received in Singapore is chargeable to tax in Singapore at the specified income tax rates. But, fact remains is that although profits derived by an international shipping enterprise is exempted from taxation as per Section 13F of Singapore Income Tax Act, but such income is always liable to tax in Singapore. The exemption provided u/s.13F of the Singapore Income Tax Act is only on a case to case basis for a limited period of time and it is subject to certain conditions. Therefore, we are of the considered view that the liability to taxation is not dependent on whether taxes are actually paid in the said jurisdiction. This fact is strengthened by the decision of the Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra) where the Hon'ble Supreme Court in para 79 of the order has states that "merely because exemption has been granted in respect of taxability of a particular source of income, it cannot be postulated that the entity is not 'liable to tax' as contended by the respondents." The ITAT, Mumbai Bench in the case of Bhagwan T. Shivlani (supra) has considered an identical issue and by following the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untry of resident is having exclusive rights to tax a particular income by way of separate Article, then limiting or denying such benefit by interpreting the other Articles which are provided for limiting the benefit in case such income is exempt or taxed at reduced rate of tax in other Contracting State is contrary to the purpose and object of DTAA. 18. In this case, the Assessing Officer has denied the benefit only on the simple ground that the income of the assessee received in India is exempt by virtue of separate provisions of Singapore Income Tax Act and on the misconception of law to come to the conclusion that once a country of residence has exempts particular income from tax, the other Contracting State (source country) can levy tax on such income without understanding the true meaning of Article 8 of India-Singapore DTAA. The AO has also ignored the arguments taken by the assessee in the light of DIT relief certificate issued by the Department for the subject assessment year, where the AO after considering the TRC and supporting documents issued DIT Relief Certificate dated 25-6-2014 and 14-8-2014 by holding that Article 8 of India- Singapore DTAA is applicable to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxable only in that State unless the enterprise carries on business in other contracting State through a permanent establishment situated therein. The Article 8 of DTAA deals with shipping and air-transport business. Article 8 provides that profits derived by enterprise registered and having headquarters (i.e. effective management) in a Contracting State from the operation by that enterprise of ships or aircraft in international traffic shall be taxable only in that State i.e. profits from operation of ships or aircrafts in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated, which in the present case is Cyprus. 8. In view of specific clause in DTAA dealing with shipping business, we are of considered opinion that income of the assessee in the present case is not taxable in India. The Hon'ble Gujarat High Court in the case of Arabian Express Line Ltd of United Kingdom (supra) after taking into consideration the DTAA between India and UK has held that the ITO had no authority or jurisdiction to levy tax on the petitioner company. The DTAA between India and UK have similar provisions i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment (PE) in India. As per Article-8 of India-Singapore DTAA, the profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic, shall be taxable only in that State. Therefore, by virtue of Article-8 of India-Singapore DTAA, the international shipping income of a resident of a Contracting State is taxable only in that State. The Article-24 of India-Singapore DTAA limits the relief. Upon combined reading of Article-8 and 24 of India-Singapore DTAA, it is very clear that Article 8 provides exclusive right of taxation to country of residence i.e., Singapore on accrual basis. Similarly, Article 24 limits the exemption, in case income is exempt or taxed at reduced rate in source country i.e., in India and further such income is taxable in country of residence on receipt basis. However, the provisions of Article- 8(1) are not an exemption provision but an enabling provision which provides an exclusive right of taxation of income to the residence country. Further, by entering into treaty with Singapore, India has given up its right to tax shipping income of a non-resident in India. Therefore, any income of a non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Competent Authorities of both the Contracting States after thoroughly considering the provisions of Section 13F of Singapore Income Tax Act and further choose not to alter the taxation right of shipping income which is generally available to the country of residence. The exemption provided u/s.13F of the Singapore Income Tax Act is only on a case-to-case basis for a limited period of time and it is subject to certain conditions. Therefore, the liability to taxation would not be dependent on whether taxes are actually paid in the said jurisdiction or not. 27. Before us, Ld. CIT-DR has averred that the aforesaid decision has not considered various perspective of the case and therefore, the same could not be relied upon. However, we are not inclined to accept this proposition. We find that the facts are pari-materia the same in all these years before us. The co-ordinate bench, after considering the rival arguments, arrived at a conclusion that the Article-8 would apply and Article-24 would have no application as the conditions as specified in Article-24 were not fulfilled. This decision has been rendered after considering various judicial precedents as cited before us also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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