Income Tax Appellate Tribunal - Hyderabad
Sjj Marine Private Limited Rep. By Agent ... vs Ito, International Taxation, Nellore, ... on 29 September, 2017
ITA No 264 of 2017SJJ Marine P Ltd Nellore.
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' B ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA No.264/Hyd/2017
(Assessment Year: 2014-15)
M/s. SJJ Marine Private Vs Income Tax Officer
Limited (International Taxation)
Nellore Nellore
PAN: AABCG 4164 H
(Appellant) (Respondent)
For Assessee : Shri R. Sreenivasan
For Revenue : Shri L. Ramji Rao, DR
Date of Hearing: 20.09.2017
Date of Pronouncement: 29.09.2017
ORDER
Per Smt. P. Madhavi Devi, J.M.
This is assessee's appeal for the A.Y 2014-15 against the order of the CIT (A)-10, Hyderabad, dated 06.09.2016.
2. Brief facts of the case are that the assessee is a non- resident company. M/s. GAC Shipping (India) Pvt. Ltd, Nellore filed an application for grant of no objection certificate on 20.2.2014 on behalf of the assessee in respect of vessel "MV MARIA STAR" on receipt of which, it had departed from Krishnapatnam Port on 12.03.2014 to Vietnam with a cargo of 32700 MT of Maize. The agreed freight rate was US$ 22.75 per M.T and thus the total freight worked out to US$ 7,43,925.00 for the voyage under consideration.
Page 1 of 9ITA No 264 of 2017SJJ Marine P Ltd Nellore.
3. The local agent claimed that the freight beneficiary is a resident of Singapore and in view of the DTAA between India and Singapore, the entire freight earned by the freight beneficiary is exempt from tax in India. At the time of obtaining NOC, the local agent furnished a copy of the Tax Residency Certificate (TRC) in respect of freight beneficiary in evidence of the fact that it is a resident of Singapore. The local agent had also filed a certificate from the freight beneficiary to enable the local agent on their behalf to execute the guarantee bond. After verification of the information filed, an order u/s 163, dated 10.03.2014 was passed treating the local agent as the representative of the assessee. Subsequently, a return u/s 172(3) was filed by the local agent on 26.03.2014. In view of the Article 24 of the Double Taxation Avoidance Agreement (DTAA) between India & Singapore, the AO called for details of net freight paid to the freight beneficiary and the amount credited to the Bank A/c of the freight beneficiary of Singapore. The local agent did not file any of the information called for and therefore, a further reminder was issued. The representative of the assessee filed the necessary information. On verification of the details filed, the AO noticed that out of the total freight of USD 7,43,925.00, only an amount of USD 3,66,175 was remitted to the Bank A/c of the freight beneficiary on 10.03.2014 maintained with the Korea Exchange Bank, Singapore Branch. He observed that the DTAA between India & Singapore, has "limitation of relief" clause as mentioned in Article 24, according to which, the exemption of tax to be allowed is only to the extent of the income remitted to the recipient in the other contracting state i.e. Singapore. Observing that the local agent has not filed evidence of remitting the balance of USD 3,77,750 and also that Page 2 of 9 ITA No 264 of 2017SJJ Marine P Ltd Nellore.
the entire amount of USD 7,43,925 has been offered to tax at Singapore, treated the taxable freight at USD 3,77,750 and brought it to tax in India.
4. Aggrieved, the assessee preferred an appeal before the CIT (A). Before the CIT (A), the assessee filed the details of the remittance of US D 3,66,175 on 10.03.2014 and US D 50,192.36 on 26.06.2014. This proof was submitted as additional evidence before the CIT (A). The CIT (A) called for a remand report from the AO and the AO has submitted his remand report. After calling for assessee's objections to the remand report, the CIT (A) held that he is not admitting the additional evidence. Thereafter he proceeded to confirm the assessment order. Aggrieved by the same, the assessee is in second appeal before us.
5. The learned Counsel for the assessee submitted that the assessee has initially filed evidence of remittance of USD 3,66,175 only to the assessee in Singapore before the AO and the AO has confirmed the addition only to the extent of the balance of the amount in respect of which no evidence was filed. He submitted that the evidence of remitting the balance to the extent of USD 3,38,246 was furnished before the CIT (A) and the AO in the remand report has accepted that the additional evidence in the form of remittance to the extent of USD 7,05,421 qualifies for relief under Article 24 r.w. Article 8 of the DTAA between India & Singapore. Therefore, according to him, to that extent the assessee is eligible for exemption from tax. He placed reliance upon the decision of the Coordinate Bench of the Tribunal at Page 3 of 9 ITA No 264 of 2017SJJ Marine P Ltd Nellore.
Rajkot in the case of Alabra Shipping Pte Ltd, Singapore in ITA No.392/RJT/2014 dated 9.10.2015 and also the decision of the Hon'ble Gujarat High Court at Ahmedabad in the case of M.T. Maersk Mikage & 4 Petitioner(s) vs. DIT (IT) in Special Civil Application No.9150 of 2014 dated 24.08.2016 in support of his contentions.
6. The learned DR, on the other hand, supported the orders of the authorities below and submitted that though the assessee has filed evidence for remittance of USD 7,05,421 to the assessee in Singapore, it has not filed any evidence of offering the same to tax in Singapore and therefore, the same is not exempt from tax in India as per Article 24 r.w. Article 8 of the DTAA between India & Singapore. Therefore, the learned DR prayed that the order of the CIT (A) be confirmed.
7. Having regard to the rival contentions and the material on record, we find that the AO has held a part of the receipt which has been received by the assessee in Singapore as exempt from tax in India and the balance has been brought to tax on the ground that the assessee has not furnished the proof of its remittance to the assessee in Singapore. During the appellate proceedings, the assessee has furnished the information and the AO in his remand report has accepted the remittance of a total of USD 7,05,421. 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 Page 4 of 9 ITA No 264 of 2017SJJ Marine P Ltd Nellore.
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) reported in 291 CTR 184 (Guj.), wherein the Hon'ble High Court has held as under:
""15. This brings us to the core issue strenuously debated by both sides viz. that of applicability of Article 8 vis-a-vis Article 24 of DTAA. We may quickly refresh the facts. ST Shipping is a company based in Singapore. Through the shipping business carried out at Indian ports, ST Shipping earned income, on which, it claims immunity from Indian income tax. The Revenue contends that the remittance of such accrued income not having taken place at Singapore, Article 24 will apply and consequently Article 8 providing for avoidance of table taxation would not apply.
16. The fact, that the income in question which arises out of shipping operations by virtue of Clause- 1 of Article 8of the DTAA would be taxable :- 5 -: M/s. Far Shipping (Singapore) Pte. Ltd., Rep. by M/s. Samsara Shipping (P) Ltd., only in Singapore, is not in serious dispute. The moot question therefore is whether operation of Article 8 is ousted by virtue of Clause-1 of Article 24. As noted, Article-24 of DTAA pertains to limitation of relief. Under clause-1 thereof where the agreement provides that the income from sources in Page 5 of 9 ITA No 264 of 2017SJJ Marine P Ltd Nellore.
contracting states (in the present case, India) shall be exempt from tax or tax at a reduced rate and under the laws in force in other contracting states (i.e. Singapore), such income is subject to tax by reference to the amount thereof which is remitted or received in that State and not by reference to the full amount thereof then the exemption or reduction of tax under the agreement would be limited to so much of the income as is remitted to or received in that contracting State. In plain terms therefore, if the income in question was taxable in Singapore on the basis of receipt or remission and not by reference to the full amount of income accruing, clause-1 of Article 24 would apply and dependent on the facts of the case, exemption as per Article 8 either in whole or in part would be excluded.
17. It is, in this context, that the certificate dated 09.01.2013 issued by the Inland Revenue Authority of Singapore assumes significance. In the said certificate, as noted, it was certified that the income in question derived by ST Shipping would be considered as income accruing in or derived from the business carried on in Singapore and such income therefore, would be assessable in Singapore on accrual basis. It was elaborated that the full amount of income would be assessable to tax in Singapore not by reference to the amount remitted to or received in Singapore. In fact, the certifying authority went on to opine that in view 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 Page 6 of 9 ITA No 264 of 2017SJJ Marine P Ltd Nellore.
very basis of the Assessing Officer and Commissioner for invoking clause-1 of Article 24 of DTAA. Both the authorities considered the question of remittance of income as the sole requirement for invoking Article 24.1 of DTAA an interpretation which according to us does not flow from the language used. As noted the essence of Article 24.1 is that in case certain income is taxed by a contracting State not on the basis of accrual, but on :- 6 -: M/s. Far Shipping (Singapore) Pte. Ltd., Rep. by M/s. Samsara Shipping (P) Ltd., the basis of remittance, applicability of Article 8 would be ousted to the extent such income is not remitted. This clause does not provide that in every case of non-remittance of income to the contracting state, Article 8 would not apply irrespective of tax treatment such income is given. When in the present case, we hold that the income in question was not taxable at Singapore on the basis of remittance but on the basis of accrual, the very basis for applying clause-1 of Article 24 would not survive. The contention of Shri Mehta for revenue that the certificate of the Singapore revenue authorities is opposed to provisions of section 10 of the Singapore Income Tax Act also cannot be accepted. The Revenue does not question genuineness of the certificate. It cannot dispute the contention on the ground that the same are opposed to the statutory provision.
19. By way of a reference, we may notice that the Tribunal also in case of this very assessee in case of Alabra Shipping Pte Ltd. v. Income-tax Officer (International Taxation), Gandhidham, reported in 62 Taxmann.com 185 has taken a somewhat similar view by observing as under:
"6. As a plain reading of Article 24(1) would show, this LOB clauses comes into play when (i) income sourced in a contracting state is exempt from tax in that source state or is subject to tax at a reduced rate in that source state,
(ii) the said income (i.e. income sourced in the contracting state) is subject to tax by reference to the amount remitted to, or received in, the other contracting state, rather than with reference to full amount of such income; and (iii) in such a situation, the treaty protection will be restricted to the amount which is taxed in that other contracting state. In simple words, the benefit of treaty protection is restricted to the amount of income which is eventually subject matter of taxation in the source country. This is all the more relevant for the reason that in a situation in which territorial method of taxation is followed by a tax jurisdiction and the Page 7 of 9 ITA No 264 of 2017SJJ Marine P Ltd Nellore.
taxability for income from activities carried out outside the home jurisdiction 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 :- 7 -: M/s. Far Shipping (Singapore) Pte. Ltd., Rep. by M/s. Samsara Shipping (P) Ltd., 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 AO is therefore, directed to tax only such part of the freight charges which have not been remitted to the assessee in Singapore.
8. In the result, assessee's appeal is partly allowed.
Order pronounced in the Open Court on 29th September, 2017.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 29th September, 2017.
Vinodan/sps
Page 8 of 9
ITA No 264 of 2017SJJ Marine P Ltd Nellore.
Copy to:
1 M/s. Rangamani & Co. CAs, CARD Bank Building, 2nd Floor, V.C.S.B Road, Alleppey 688001 2 Income Tax Officer International Taxation, Nellore 3 CIT (A)-10 Hyderabad 4 CIT - (I.T. & T.P) Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 9 of 9