Income Tax Appellate Tribunal - Chennai
Pacific International Lines P Ltd, ... vs Dcit International Taxation-2(1), ... on 29 May, 2024
आयकर अपीलीय अिधकरण, 'डी' यायपीठ, चे ई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH: CHENNAI
ी एबी टी. वक , ाियक सद एवं
ी जगदीश, लेखा सद के सम
BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND
SHRI JAGADISH, ACCOUNTANT MEMBER
IT (TP) A No.59/Chny/2019
िनधा रणवष /Assessment Year: 2015-16
&
IT (TP) A No.01/Chny/2020
िनधारणवष/Assessment Year: 2016-17
&
IT (TP) A Nos.12 to 14/Chny/2021
िनधारणवष/Assessment Years: 2012-13 to 2014-15
&
IT (TP) A Nos.36 & 37/Chny/2022
िनधारणवष/Assessment Years: 2017-18 & 2018-19
M/s.Pacific International Lines- v. The DCIT / ACIT,
Pvt. Ltd., International Taxation-2(1),
Unit 807/809, Raheja Towers, Chennai-600 006.
Anna Salai, Chennai-600 002.
[PAN: AADCP 5513 D]
(अपीलाथ /Appellant) ( यथ /Respondent)
IT (TP) A No.79/Chny/2019
िनधा रणवष /Assessment Year: 2016-17
M/s.Advance Container Lines- v. The DCIT,
Pte. Ltd., International Taxation-1(1),
Unit 807-809, Raheja Towers, Chennai-600 006.
Anna Salai, Chennai-600 002.
[PAN: AAFCA 1707 N]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से/ Appellant by : Shri S. Sridhar, Advocate
यथ क ओर से /Respondent by : Shri A. Sasikumar, CIT
सुनवाईक तारीख/Date of Hearing : 24.04.2024
घोषणाक तारीख /Date of Pronouncement : 29.05.2024
IT (TP) A No.59/Chny/2019 for AY 2015-16
IT (TP) A No.01/Chny/2020 for AY 2016-17
IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15
IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19
M/s.Pacific International Lines Pvt. Ltd.
&
IT (TP) A No.79/Chny/2019 for AY 2016-17
M/s.Advance Container Lines Pte. Ltd.
:: 2 ::
आदेश / O R D E R
PER ABY T. VARKEY, JM:
At the outset, both parties agreed that in all the captioned appeals, the issue permeating in all the appeals are same/identical. Therefore, as agreed by both the parties, appeal for AY 2015-16 has been taken up as the lead case and the result of which will be followed mutatis mutandis for all other captioned appeals.
2. The assessee has raised the following grounds of appeal in IT (TP) A No.59/Chny/2019 for AY 2015-16:
1. The order of The Deputy Commissioner of Income Tax, International Taxation-
2(1), Chennai dated 30.07.2019 read with the order of the DRP-2, Bangalore dated 30.05.2019 for the above assessment year is contrary to law, facts, and in the circumstances of the case.
2. The DCIT/DRP erred in bringing to the tax the freight income of Rs.64,17,08,105/- (gross freight income Rs.855,61,08,066/-) on the application of section 44B of the Act in the computation of taxable total income without assigning proper reasons and justification.
3. The DCIT/DRP failed to appreciate that the assessment of freight income invoking section 44B of the Act was wrong, erroneous, unjustified, incorrect and not sustainable in law and ought to have appreciated that the provisions of section 44B of the Act had no application to the facts of the case, thereby vitiating the entire computation of taxable total income in the impugned order on various facets.
4. The DCIT/DRP failed to appreciate that the misconstruction of the treaty provisions in Article 8 read with Article 24 of India Singapore Double Taxation Avoidance Agreement would vitiate the decision to tax the freight income earned by the appellant foreign company from operating the ships from Indian Ports.
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 3 ::
5. The DCIT/DRP failed to appreciate that the treaty benefit claimed under Article 8 of the D'TAA between India and Singapore was correct and sustainable in law especially on the consideration of true intention of granting such benefit and further in the light of assignment of taxing rights vested with Singapore under the said treaty.
6. The DCIT/DRP failed to appreciate that the Article 8 of the treaty clearly would restrict the profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic in confirming the taxation of such income only in that state while in such circumstances invoking/shifting the chargeability of the income under Article 24 is completely incorrect and not tenable in law.
7. The DCIT/DRP failed to appreciate that the limiting provisions under Article 24 had no application to the facts of the case and ought to have appreciated that the distinction between the expressions 'subject to tax' and 'liable to tax' was erroneous while the judicial trend on the granting of treaty benefit under Article 8 was completely overlooked.
8.The DCIT/DRP failed to appreciate that Article 24 had no application to the facts of the case and ought to have appreciated that the restriction of the amount claimed as relief was in respect of the amount accrued in the contracting state minus the amount remitted to the other contracting state, provided that the income chargeable to tax in the other contracting state was on the basis of the amount received/remitted while the limitation as attempted would have no impact in respect of the amount taxed in the other contracting state vis a vis the amount of tax payable in the contracting state.
9. The DCIT/DRP failed to appreciate that the various findings forming part of the draft assessment order, DRP's Order and the impugned final assessment order in denying the treaty benefit were wrong, erroneous, unjustified, incorrect and not sustainable in law.
10. The DCIT/DRP failed to appreciate that having noticed the fact of compliance of the provisions of section 172 of the Act, the consequential granting of treaty benefit from non taxation under the Indian Income Tax Laws was wrongly denied while the effect of DITR issued by the Revenue was not considered in proper perspective.
11. The DCIT/DRP failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles of natural justice would be nullity in law.
12. The Appellant craves leave to file additional grounds/arguments at the time of hearing.
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 4 ::
3. At the outset, the Ld.AR of the assessee submitted that he is not pressing Ground Nos.1 & 12, which are general in nature, so it stands dismissed. The Ld.AR also submitted that the assessee had raised an additional ground in respect of DIN, which is not being pressed, so that the additional ground also stands dismissed.
4. According to the Ld.AR, even though, the assessee has raised Ground Nos.2 to 10, there are basically on one issue i.e. whether the assessee's income from freight income of Rs.64,17,08,105/- was taxable u/s.44B of the Income Tax Act, 1961 (hereinafter 'the Act') in view of Treaty [Double Taxation Avoidance Agreement (DTAA)] between India and Singapore. Brief facts of the case as noted by the AO are that the assessee is a foreign company incorporated in Singapore which plies its ships globally including through Indian Ports and earns freight and other charges that arise from this activity. The AO noted that assessee's Indian Agent M/s.PIL (India) Pvt. Ltd., collects these charges, debits its commissions and sundry expenses incurred for the business of assessee and remits the balance sum to Singapore. And the assessee (Singapore company) filed its return of income for AY 2015-16 on 23.12.2015 reported income accrued in India to the tune of Rs.70,33,31,521/-, but IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 5 ::
claimed the treaty benefit viz., entire income as not taxable in India by virtue of Article 8 of DTAA between India-Singapore. According to assessee, it is a resident of Singapore and therefore, as per Article 8 of India-Singapore DTAA, profits derived from its global business of shipping is excigable to tax as per Singapore Tax Law. In other words, as per the Treaty/DTAA, Singapore has exclusive right to tax the global shipping income of the resident-assessee; and to that extent, India is precluded from taxing the shipping income even if it is sourced from India. However, the AO did not agree and according to him, the purpose of DTAA between India and Singapore is agreement for the avoidance of double taxation and the prevention of fiscal evasion of taxes on income. And he was of the opinion that purpose of DTAA was only to prevent an income from being taxed twice. However, in a case, where a certain category of income is not taxable at all in a contracting State, according to AO, then the question of double taxation does not arise. The AO noted from perusal of assessee's Return of Income [RoI] in Singapore that the shipping income (including the income earned from operation in India) have been claimed as exempt; which means according to AO, the assessee has not paid any tax on the shipping income earned by it. In such a scenario, IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 6 ::
according to AO, when tax has neither been paid by assessee in the country of residence nor at the country of source, then question of double taxation relief would not arise. Therefore, he issued show cause notice (SCN) to assessee as to why the treaty benefits as per Article 8 of India-
Singapore treaty should be allowed to assessee, when the income in question has not been taxed even at the country of residence (Singapore). Pursuant to SCN, the assessee replied that as per Article 8 of Treaty, profits derived by an enterprise of a contracting state from operation of ships in international traffic shall be taxable only in that state i.e. resident state viz. Singapore and therefore, according to assessee, India is precluded from taxing the shipping income, even if it is sourced from India. In other words, an enterprise which is tax resident of Singapore is liable for taxation on its shipping income only in Singapore and not in India. Hence, according to assessee, India does not have any taxation right on shipping income of non-resident/Singaporean entity, which is exclusive domain of the resident state. However, AO did not agree, according to him, in a situation where both India & Singapore are laying claim of taxation rights on the shipping income of a company, then in that case, the country of residence, will have exclusive right of IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 7 ::
taxation. But, in a situation where the country of residence is not taxing the income in question, then according to AO, the question of double taxation does not arise in the first place and the other country i.e. the source country very much gets the right of taxation. According to AO, the word 'only' in Article 8 merely signifies it as a tie-breaker when multiple parties are taxing the same income and when only one party remain as the contender, then the term 'only' loses all significance. And since, the Singapore (resident state) is not laying any claim of taxation at all on the shipping income of the assessee by virtue of Sec.13A (income derived from operation of Singapore ships) & Section 13 F (income derived from foreign ships) of Income tax Act of Singapore, the word 'only' is stripped of its meaning and Article 8 itself is redundant and paves way for the country of source to lay its claim on taxation of this shipping income. The AO further noted that, Article 7 (business profits) or Article 14 (independent service) though gives power to resident state by using the expression "shall be taxable only in that state", however, provide for certain exception clauses and thus, according to AO, such an exception of Article 8 is provided for by Article 24 of DTAA of India-Singapore Treaty.
Therefore, AO referred to Article 24 (limitation of relief) and was of the IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 8 ::
opinion that Article 24 stresses the point "subject to tax" and the benefit of Article 8 can be given only if the income actually was subjected to tax, and distinguished the expression "subject to tax" (actual taxation) & "liable to tax" (only to be within general scope of tax). According to AO, since shipping income earned from India has not been remitted/'subjected to tax' in Singapore, the same does not qualify for tax exemption under the provisions of Article 24 of DTAA. And the AO repelled the contention of assessee taking support from Article 25 as well as CBDT Circular No.732 dated 20.12.1995 and case laws cited by assessee, and the AO after excluding the detention charges received i.e. Rs.45,77,81,055/- took note that net shipping income earned in India was Rs.8,09,83,27,011/-
and computed the deemed income u/s.44B @ 7.5% which comes to Rs.60,73,14,526/-. The AO, therefore, separately proposed addition of Rs.45,77,81,055/- (detention charges) as income from other sources. And the AO passed the draft assessment order on 31.08.2018. The assessee filed objection before the Dispute Resolution Panel (hereinafter 'Ld.DRP') on 24.09.2019 and directions u/s.144C(5) of the Act, was issued by the Ld.DRP on 30.05.2019, received in AO's Office on 04.06.2019.
Thereafter, the AO passed the final assessment order on 30.07.2019 IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 9 ::
u/s.143(3) r.w.s.144C(13) of the Act, wherein, the AO was pleased to compute the income u/s.44B of the Act @7.5% i.e. Rs.64,17,08,105/-.
5. Aggrieved by the aforesaid decision of the AO, the assessee is before us.
6. Assailing the action of the AO/the Ld.DRP, the Ld.AR made his oral submission which we will refer to (infra) and also submitted the written submissions which are as following:
01. The taxability of shipping income earned by the Appellant foreign companies admittedly incorporated in Singapore is the core issue for adjudication and the assessment of the shipping / freight income in terms of Section 44B of the Act at the rate of 7.5% of the unremitted difference is vehemently objected to in the present batch of appeals.
02. The taxability of detention charges from the operation of the ships by the Appellant foreign companies was initially treated as "Income from Other Sources"
in the draft assessment order(s) and on objections filed before the DRP along with the main issue, the DRP directed the Assessing Officer to treat the detention charges as part of Freight income / shipping income, which directions was incorporated in the final assessment order(s) under challenge before this Hon'ble Bench.
03. The taxability of the shipping income was also challenged before the DRP by the appellant(s) unsuccessfully and the said issue of taxability of shipping income is also part of the final assessment order(s) / impugned order(s) before this Hon'ble Tribunal for adjudication.
04. The Article 8 of India - Singapore DTAA should be construed as standalone and the taxability of the shipping income specifically is vested with Singapore under the treaty, there is no scope / power for taxing the said income of a Singapore resident company under the Indian Tax Regime.
05. The Article 24 of India Singapore DTAA cannot make inroads into Article 8 inasmuch as Article 24 talks about limitation of relief in the treaty under 2 IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 10 ::
scenarios, namely: Exemption of income or Income taxed at a reduced in the source country.
06. Whereas, Article 8 of India Singapore DTAA talks about / envisages the right of taxation vesting with Singapore inasmuch the 2 circumstances envisaged in Article 24 should not come in the way of the appellant's claim of taxability of such income in Singapore by virtue of Article 8, solely based on its residence.
07. The main concern of the revenue is on the double non taxation of the freight income as the appellant(s) included the income earned from India on accrual basis by reporting in the Singapore Income Tax return(s) and claimed exemption by virtue of Section 13F of the said Act.
08. Therefore, the theory of double non taxation mooted by the revenue in the present case to justify its persistent stand to bring to tax such income within the Indian Income tax regime is uncalled for and the negotiated position as reflected in Article 8 by assigning the right of taxation to Singapore by India, even after the incentives available for the shipping industry in Singapore by way of concession/tax holiday, is completely lost sight off by the revenue while persisting on its stand, which according to the appellant is not legally correct.
09. The standalone nature of Article 8 of India - Singapore DTAA is approved by jurisdictional Bench in the decision enclosed in the Case Laws Paper book at Page No. 64 and in the said decision, the theory mooted by the revenue, namely "double non taxation theory" is completely negated (Refer Page No. 95).
10. The decision referred to in the preceding / previous para is followed by the Rajkot Bench (Refer Page No. 128 of the Case Laws Paper book) and in the said case, the revenue maintained the same theory as could be seen from para 37 (Page No. 167 of the Case Laws Paper book) and rejecting the said stand, the Rajkot Bench concluded that the provisions in Article 8(1) should apply without any limitation.
11. There is another decision of Hyderabad Bench Refer Page No. 104 of the Case Laws Paper book), which is considered / presumed by the revenue as the decision rendered in their favour. However, in Page No. 126 of the Case Laws Paper book, the Hyderabad Bench decided the issue by invoking Article 24 because of the failure of the said assessee in not discharging its onus by not filing any document for establishing the reporting of the shipping income earned in India in the Singapore Tax return on accrual basis.
12. However, in the present case, the income earned from Indian source is also included as part of the Shipping Income earned by the Appellant on accrual basis by filing periodical tax returns and the returns covering the Assessment Years under consideration were also placed on record from the original Stage onwards.
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 11 ::
13. In the discharge of initial burden by reporting the shipping income including the shipping income earned from India, the decision of the Hyderabad Bench should be read so as to apply the principles laid down in para 19 (Refer Page Nos. 125 & 126 of the Case Laws Paper book) and for granting the relief as prayed for by applying Article 8 on standalone basis.
14. On the wrong presumption of cleavage of opinion between the decision of the Chennai Bench and the Hyderabad Bench, the revenue attempted by filing a petition in the present batch of appeals before the Hon'ble President for constitution of Special Bench and the said request is understandably rejected leading to the present proceedings of final hearing in the said batch of appeals.
15. The Chennal bench has passed the second order on the said issue (Refer Page No. 174 of the Case Laws Paper book) and the said decision was rendered both on jurisdiction as well as on merits in favour of the said assessee. The said decision was challenged on the issue of jurisdiction as well as on the correctness of the Appellate Tribunal in deciding the merits after quashing the re-assessment. The revenue has challenged the decision on merits by raising Substantial Questions of Law, apart from the Substantial questions of law relating to the jurisdictional issues referred to herein before.
16. The Madras High Court in their admission order (Refer Page No. 246 of the Case Laws Paper book) has only admitted the substantial questions of law raised on technical issues and not admitted the substantial questions of law raised by the revenue on merits. As a consequence, the issue of the standalone reckoning of the Article 8 by the Chennai Bench in their decision on merits so as to negate the theory of double non taxation has reached finality.
17. In fact, the Chennai Bench while deciding the issue on merits has taken note of the Hyderabad Bench decision at para 28 (Refer Page No. 241 of the Case Laws Paper book) and has rendered the decision in favour of the said assessee. In any event, the decision on merits having reached finality by virtue of non admission of the Substantial Questions of Law by the Madras High Court, arising out of the Chennai Bench's second order, the rule of consistency and the doctrine of judicial precedent would forcefully apply to the facts of the present case.
18. The Chennai Bench rendered a third decision (Refer Page No. 243 of the Case Laws Paper book) by confirming the independent nature of Article 8 of India - Singapore DTAA, thereby fortifying the application of consistent decision to be rendered in the Appellant's case by excluding the freight income earned from Indian Ports from the purview of Indian taxation.
19. Apart from the above decisions, there are 6 judgments of various High Courts on the said issue and the taxability of Income sourced from India under similar IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 12 ::
circumstances is considered in favour of those companies and the said decisions are placed in the Case Laws Paper book (Refer Page No. 1 to 63 of the Case Laws Paper book).
20. The decisions cited herein before have given due weightage to the opinion expressed by the Singapore Income Tax authorities and holding the opinion given in the present case as self serving statement in the final assessment order(s) is legally not correct.
21. The impact of certificate issued by the Indian authorities, namely DITR, which are placed on record in Volume 1 of the paper book filed, reading along with Section 172 of the Act, needs to be considered inasmuch as having conceded initially on the non taxability of the shipping income under the Act by issuing the no objection for the ships to sail out of the various ports of India, the revenue is precluded from taxing the said income at the later point in time on the wrong premise of the new theory mooted, namely "double non taxation".
22. Even in the context of remittance theory invoked by the revenue by citing Article 24, the unremitted portion, which is now the subject matter of dispute, especially the taxation of such component invoking Section 44B of the Act is effectively and to be deemed as remitted in view of the incurring of the port handling expenses by the agent on behalf of the appellant, thereby negating the taxability of such presumed unremitted portion by invoking Section 44B of the Act in view of the revenue's understanding of Article 24.
23. The deemed remittance theory would oust the applicability of Article 24 even going by the stand of the revenue on the facts and in the circumstances of the present case.
24. It is not the case of venturing into various articles of DTAA and it is case of understanding the purpose of each one of the Articles, negotiated by both the countries and it is the endeavour of the appellant(s) for getting the appropriate relief as per Article 8 as the right of taxation is undisputedly vested with Singapore.
25. The revenue is unreasonably bringing in the tax evasion theory and it is not the case of treaty shopping as claimed by the revenue inasmuch as the appellant(s) is incorporated five decades ago not in anticipation of the inclusion of Article 8 as well is incorporated only to claim the tax exemption as per Article 8 and the appellant is operating number of ships worldwide across various ports, thereby negating the theory of tax evasion / treaty shopping.
26. Further, in the final assessment order(s), Section 10 of the Singapore Income Tax Act, 1947 was referred to and concluded in Para 2.5 as income received in Singapore from outside Singapore being part of the said charging provisions in Section 10 of the said Act, the issue of taxability of such amounts remitted to IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 13 ::
Singapore would alone be considered for taxation under Article 8. The said understanding is completely proved the mis-direction on the part of the Revenue and the said charging provisions incorporates three scenarios including accrual based taxation.
27. Moreover, the accrual based taxation based on Section 10 r.w.s 13F of the said Act being established by the Appellant(s) herein, the other scenario referred to by the Assessing Officer (captured in the preceding paragraphs) has no relevance to the facts of the present case.
28. In such circumstances, the shipping income including the detention charges which are directed to be reckoned as part of the shipping income may be excluded from the purview of Section 44B of the Indian Tax Regime and thus render justice.
7. Per contra, the Ld.DR's written submissions are as under:
The appellants in the above cases have sought to rest their case on the decision of this tribunal in the case of M/s.Bengal Tiger Lines Pte Ltd [in ITTPA No.11/CHNY/2020]. With due regards to the said decision of the Hon'ble members, the submission of the revenue is that the said decision does not espouses the correct position of law, for the elaborate reasons as stated below:
With respect to each of the major observations/conclusions drawn by the tribunal, the submission of the revenue is as under
1. Enabling provision vs Exemption provision In para 13 & 14 of the said order the Hon'ble Tribunal observed as under ......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 in to 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 shipping company which is a tax resident of Singapore is liable to tax only in Singapore but not in India.
14. The provision of Article 24 of India Singapore DTAA is applicable for income which is exempt from tax as per the tax treaty. As has been clarified above, it may be noted that Article 8 is unambiguously not an exemption provision but only a provision which provides a taxation right to the country of residence. Therefore, the international shipping income earned by the assessee is not exempted in India, whereas it is taxable only in the country of residence 1.e., Singapore. From IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 14 ::
the above, it is very clear that exclusive right of taxation in one Contracting State is not the same as the specific exemption being available in other Contracting State......
.......Article 8 states that profits derived by an enterprise of a Contracting State by operation of ships in international traffic shall be taxable only in the State of residence. The word 'only' debars the other Contracting State to tax the shipping income; i.e. India is precluded from taxing the shipping income even if it is sourced from India. When India does not have any taxation right on a shipping income of non-resident entity, exemption or right has been given off, the other conditions like exemption or reduced rate of tax has no bearing on the taxability of particular income in other Contracting State.
First and foremost it is to be understood that there are two states involved here viz. source state and resident state. Resident state for tax purposes is the one in which the taxable entity is having its place of business and source state is the state from which the income is earned and which state should have rightful claim to tax the income earned from its territory. In the cases under consideration, it is an undisputed fact that the resident state of the appellants is Singapore and the source state for the income under dispute is India and hence India should have the rightful claim to tax that income. But as per Article 8 of India Singapore DTAA, on the profits derived from operation of ships in International traffic the source country India has given away its rightful claim to tax that income. At this juncture it is to be noted that the provisions of Article 8 is universal in respect of India's treaties with all the countries in the world based on OECD model tax convention and also in respect of treaties of all the nations with other nations, but for few exceptions.
It is a fact that OECD model based tax treaties accord pre-eminence to the state of residence and hence modelled along the lines of taxability of income in the resident state as a primary case and that in source state as a residuary case.
The view expressed in the order of the Hon'ble Tribunal referred supra is that, the Article 8 is only an enabling provision and not an exemption provision.
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.
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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From the above, it is seen that the enabling word giving exclusive right of taxation to the resident state viz,, Singapore is the word "only". This is the position which has been strongly emphasised by the Hon'ble ITAT in its order referred supra. Now it is our endeavor to point out the flaws in such reliance on the word "only". 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 reproduced as follows:
ARTICLE 7 BUSINESS PROFITS
1. The 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 therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as it directly or indirectly attributable to that permanent establishment.
ARTICLE 13 CAPITAL GAINS [4A. Gains from the alienation of shares acquired before 1 April 2017 in a company which is a resident of a Contracting State/shall be taxable only in the Contracting State in which the alienator is a resident.
ARTICLE 14 INDEPENDENT PERSONAL SERVICES
1. Income derived by an individual who is a resident of a Contracting State from the performance of professional services or other independent activities of a similar character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State:
ARTICLE 15 DEPENDENT PERSONAL SERVICES IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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1. Subject to the provisions of Articles 16, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment......
ARTICLE 19 NON-GOVERNMENT PENSIONS AND ANNUITIES
1. Any pension, other than a pension referred to in Article 18, or any annuity derived by a resident of a Contracting State from sources within the other Contracting State may be taxed only in the first-mentioned State.
While the above provisions enables the resident state to solely tax said incomes on the contrary at the same time in the source state exempts such incomes from its rightful claim to taxation. Hence the conclusion is that Article 8 along with all the above provisions are both enabling provisions (in respect of resident state) as well exemption provisions (in respect of source state).
A plain reading of all the above articles goes on to prove that even though it is "shall be taxable only in that state" it can still come with certain riders thereby providing taxation rights to the source state as well. A classic instance of such case is the clause 4 of Article 13 Capital Gains, while the said clause provides for taxation of Gains derived by resident of Singapore from the alienation of shares held in an Indian company shall be taxable only in Singapore, even though sources for said income are in India, also vide
1. A resident of a Contracting State shall not be entitled to the benefits of paragraph 4A or paragraph 4C of Article 13 of this Agreement if its affairs were arranged with the primary purpose to take advantage of the benefits in the said paragraph 4A or paragraph 4C of Article 13 of this Agreement, as the case may be.
2. A shell or conduit company that claims it is a resident of a Contracting State shall not be entitled to the benefits of paragraph 4A or paragraph 4C of Article 13 of this Agreement. A shell or conduit company is any legal entity falling within the definition of resident with negligible or nil business operations or with no real and continuous business activities carried out in that Contracting State.."
provides for instances wherein said income can also be taxable in the source state. Similarly. Article 8 being, both an enabling provision in respect of resident state and an exempt provision in respect of source state also has a similar provision wherein the rider enabling the source state to tax shipping income is provided at Article 24 Limitation of Relief IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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ARTICLE 24 LIMITATION OF RELIEF
1. 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.
Hence the submission of the revenue is that as in the case of a Limitation of Benefits provided for in the India Singapore treaty in case of capital gains income, the Article 24 Limitation of Relief is applicable in respect of all the incomes mentioned in the treaty not only the articles which mentions 'ONLY" but also the articles like Article 10 Dividends, Article 11 Interest, Article 12 Royalties and Fee for Technical Services which provide for incomes accruing/arising in the source state to be taxed at reduced rate in the source state.
II. DIT relief Certificate issued u/s 172 of the Act On the ground raised by the appellant w.r.to the certificate issued u/s 172 of the Act as follows:
1.1 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 Appellant was granted relief under Article 8 of the India Singapore treaty and as such the AO is precluded from subjecting to tax the same income under section 44B of the Act for the same AY.
The Hon'ble ITAT in para 18 of the order held as under
......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 25.06.2014 and 14.08.2014 by holding that Article 8 of India Singapore DTAA is applicable to the assessee and income from operation in international traffic will not be taxable in India. No doubt, the certificate is issued for the purpose of non- deduction of tax at source as argued by the Ld.DR, but fact remains is that unless the AO has bring on record any change in fact or law which was prevalent at the time of issuing DIT Relief Certificate and at the time of IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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framing assessment, no contrary view can be taken in violation of Doctrine of Promissory Estoppel. No doubt, the fundamental principles of res- judicata will not be applicable to income tax proceedings, but the rule of consistency needs to be followed unless there is change in fact or law while taking a different view.
In this regard we wish to reiterate the position of the revenue that the certificate issued was only provisional and in fact the certificate issued clearly mentions so and hence the said certificate cannot serve as a bar to the assessment proceedings. In this regard it would be pertinent to note that the DIT relief certificate is issued during the course of the year when no accounts are prepared/returns are filed and in fact based on provisional Information. The above view of the revenue has in fact been affirmed by the Hon'ble Delhi High Court in two two different instances viz case of WP(C) No.12859, 12860, 12863, 12864, 12865, 12866 of 2009 Areva T &D SA vs The Asst Director of Income Tax & Ors.
21. On a perusal of the order passed, it is clear as day that the same is interim in nature and in fact, the same could not have been anything else but interim in character as the scope of Section 197 is limited.
22. In this context, we may profitably refer to the decision in Dodsal Pvt.
Ltd. (supra) wherein it has been held thus:
It is well settled that the orders passed under Section 195(2) of the Income-tax Act are provisional and tentative. These orders do not bind the Income-tax Officer in regular assessment proceedings. In the present case, the orders passed by the Income-tax Officer under Section 195(2) state that the orders are provisional in nature and that they are subject to modifications in the regular assessment proceedings.
23. In Elbee Services P. Ltd. (supra), it has been held thus:
It is well settled that the orders passed under Section 195(2) of the income-tax Act are not conclusive. They do not preempt the Department from passing appropriate orders of assessment. We have already taken a view in Income-tax Appeal No.217 of 2000 (CIT v. Tata Engineering and Locomotive Co. Ltd. [2000] 245 ITR 823 (Bom)), in which this court has laid down that the findings given under Section 195(2) of the Income-tax Act will not preclude the Department from taking a contrary view in the assessment proceedings.
.......28. Explanation 2(a) of the aforesaid Section clearly takes care of the situation where no return has been filed. On a conjoint reading of Sections 195 and 197 of the Act, we are of the view that if any opinion is expressed at the time of grant of certificate it is tentative or provisional or interim in IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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nature and the same would not debar the assessing officer from initiating a proceeding under Section 147 of the Act on the ground that there has been a change of opinion......
Reliance in this regard is also placed on the decision of the Hon'ble Delhi HC in the case of Writ Petition(civil) No.9780/2009 Emirates Shipping Line, FZE vs Assistant Director of Income-
.....The High Court pointed out the difference between an assessment under Section 172(4) of the Act which was classified and regarded as provisional, ad- hoc or for special purpose assessment and observed that this does not preclude the Assessing Officer from resorting to Section 448 of the Act in regular assessment proceedings, which could be resorted to and enforced by the Assessing Officer. It was observed that even when an ad-hoc assessment is made under Section 172(4), the assessee can exercise option under Section 172(7) or the Assessing Officer could have made regular assessment in terms of Section 448 of the Act. We need not examine the legal ratio but what is relevant and material for us is a factum and acceptance of the principle that Section 172 does not preclude operation of all provisions of the Act. Provisions which are in consonance and do not come into conflict with Section 172 continue to apply and can be enforced.
21. Accordingly, the first contention of the petitioner that provisions of Section 147/148 cannot be invoked, has to be rejected. We also rely upon decision of a Division Bench of this Court in Areva T&D, SA vs. ADIT, 179(2011)DLT314.
III. Certificate issued by the Singapore Income Tax Authority It should be noted at the very outset that this letter has not been received from the designated Competent Authorities as required under the DTAA and so it's very veracity is questionable. Such communications clarifying any stand should come from CBDT whose instructions and circulars are binding on tax authorities. It should also be borne in mind that such unilateral letters will not be taken cognizance of unless such a stand is deliberated between the competent authorities of India and Singapore and is duly ratified and notified through a Protocol under the existing DTAA.
This letter also basically takes the line that shipping income even if earned abroad accrues in Singapore and therefore it is taxed in Singapore due to its "accrual" in Singapore and not on receipt. What is odd is that the Singapore Income Tax Act does not actually make such a clarification, Nowhere is it mentioned that income earned by a Singapore resident company from shipping operations conducted in foreign countries is deemed to "Accrue" in Singapore. Hence, it is unclear on what legal basis this tax authority is making such a claim. The submission of the revenue is that the certificate issued by the Singapore tax authorities represent a wrong and more beneficial interpretation in favour of country of residence and IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 20 ::
without proper application of law. To cite section 10(1) of the Singapore Income Tax Act "10.-(1) Income tax shall, subject to the provisions of this Act, be payable at the rate or rates specified hereinafter for each year of assessment upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of-
(a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised;
(b) gains or profits from any employment;
(c) [Deleted by Act 29 of 65]
(d) dividends, interest or discounts;
(e) any pension, charge or annuity;
(f) rents, royalties, premiums and any other profits arising from property, and
(g) any gains or profits of an income nature not falling within any of the preceding paragraphs."
So as per the Singapore Income Tax Act, there are three scenarios when income will be taxable in Singapore:
i. When income accrues in Singapore ii. When income is derived in Singapore iii. When Income received in Singapore from Outside Singapore From the above it is evident that Singapore adopts a territorial basis of taxation. Under section 10(1), income tax is levied only on income "accruing in or derived from Singapore or received in Singapore from outside Singapore". In other words, the source of the income must be in Singapore before it can be subject to Singapore income tax.
As per various judicial precedents of Singapore courts, the source of a trade or business is to be decided based on the following principles viz., • Ascertaining the actual source of income is a practical matter of fact CH Pte Ltd v Comptroller of Income Tax (1988) 1 MSTC 7,022).
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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• An inquiry on source should be based on a consideration of "what the taxpayer has done to earn the profit in question". CIR v Hang Seng Bank Ltd [1991] 1 AC 306 • "the question is to be addressed by reference to what the taxpayer has done to earn the profit in question and where he has done it." CIR v HK- TVB International Ltd [1992] 3 WLR 439 at 444:
• incomes arising from the sale of securities by a Singapore-incorporated subsidiary of an overseas company effected on an overseas exchange by way of instruction to an overseas broker by taxpayer's non-resident director outside of Singapore are not incomes "accruing in or derived from Singapore Hang Seng Bank case • the place where whereby the contract was made and executed to be a relevant factor TTT Pte Ltd v Comptroller of Income Tax (1995) 2 MSTC 5189.
• establishing the geographical location of the taxpayer's profit-producing transactions themselves as distinct from activities antecedent or incidental to those transactions. Such antecedent activities will often be commercially essential to the operations and profitability of the taxpayer's business, but they do not provide the legal test for ascertaining the geographical source of profits ING Baring Securities (Hong Kong) Ltd. v. Commissioner of Inland Revenue [2007] HKCU 1666 Hong Kong Court of Final.
The Indian Jurisprudence on the concept of accrual and place of accrual are also on. similar lines viz • the decision in E. D. Sassoon and Company, Ltd., v. The Commissioner of Income-tax, Bombay City(1). In that decision the Court accepted the definition given to the words "accrue" and "arise" by Mukerji, J., in Rogers Pyatt Shellack & Co. v. Secretary of State for India(2), which is as follows:
.......both the words are used in contradistinction to the word "receive" and Indicate a right to (1) [1955] 1 S.C.R. 313, 342:(1954) 28 I.T.R. 27, 50. (2) (1925) 1 LT.C. 363, 371:(1925) ILR. 52 Cal. 1. L/IP(D) ISCI-25(a) receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate." Under this definition accepted by this Court, an income accrues or arises when the assessee acquires a right to receive the same........
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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• It is well to remember that the problem in this case is not so much when the commission accrued as where it accrued, though the question as to where and when may be interlinked. We think that normally, the commission-payable to the managing agents of a company accrues at the place where the services are performed by the managing agents. It was so held by this Court in K. R. M. T. T. Thiagaraja Chetty and Company v. Commissioner of Income-tax, Madras, No. 2(1) • In Re: The Aurangabad, Mills Ltd.(") where a reference was made to Commissioner of Taxation v. Kirk, (1900) Appeal Cases, page 588 and it was pointed out that the circumstance that the affairs of the company were directed from Bombay was not the determining test was the test was where the processes (1) [1921] I.L.R. 45 Bom. 1286, which yielded the income were carried out.
From the above jurisprudence, the broad principles emerging on the issue of place of accrual is a combination of factors such as, the place of execution of contracts, the place where the processes towards earning the said income has been carried out, place of receipt of income etc., and our submission is that in the case of appellant all the above conditions have been satisfied.
The appellant Pacific International Lines Pte Ltd has an permanent agent in its subsidiary in India in PIL (India) Private Limited, who has in respect of the entire income earned by appellant from India has negotiated and entered into the contracts with the clients, the entire process of shipping of goods from and into Indian territory has happened in India and the income is received In India.
Given the above fact and both Singapore and Indian Jurisprudence, the Income of the appellant has accrued and arisen only in India and not in Singapore as claimed in the certificate issued by the Singapore tax authorities.
IV. Decision in the case of Bengal Tiger Line Ltd vs. DDIT(International Taxation [2013] 33 taxmann.com 307 In para 19 of the said order ........We further noted that this issue is considered by the Tribunal in the assessee own group company case in Bengal Tiger Line Ltd vs. DDIT (International Taxation) (2013) 33 taxmann.com 307, where the Tribunal has considered the India Cyprus DTAA and has clearly held that where assessee, a non-resident company registered in Cyprus DTAA and has clearly held that where assessee, a non-resident company registered in Cyprus, was in shipping business and it had effective management of enterprise in Cyprus, Income earned by assessee from shipping business was not taxable in India.
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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The Hon'ble Tribunal erred in placing reliance on the above decision for the reason that the Indie Cyprus treaty and India Singapore treaty are different in their provisions as India Cyprus treaty did not have a Limitation of Benefits clause during the relevant year and hence not analogous.
V. Decision of the Hon'ble Gujarat HC MT Maersk Mikage Vis BCIT (gujarat High Court) SCA No.9150 of 2014 With regards to the MT Maersk Mikage case passed by the Hon'ble Gujarat High Court, it must be noted here that in that case also, there were two issues raised before the Hon'ble HC as is similar in the case on hand. While on the issue applicability of Article 24 to the shipping income, the appellant had submitted a letter from the Singapore tax authorities which stated that the shipping Income of the Singapore company is taxed on accrual basis and not on receipt, the Hon'ble Court itself expressed its reservations about the applicability of such letters. The relevant portion from the judgment is reproduced below:
"...16. The fact, that the income in question which arises out of shipping operations by virtue of Clause-1 of Article 8 of the DTAA would be taxable 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 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 IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 24 ::
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 in 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 in Singapore on the basis of accrual and not remittance."
Therefore it can be seen that the Hon'ble High Court has itself expressed its reservations about such certificates. It is only because the Revenue at that time did not counter the said Certificate did the Court take a call to admit it and allow appellant's claim. But unlike in the above case, the veracity of the certificate in the case at hand is in doubt since it hasn't come through the competent authorities. It is also being questioned on merits since it is in contradiction to the Income Tax laws of Singapore as well as the DTAA.
And on the issue of double non taxation the court had declined to comment on the issue as when the issue regarding non-taxability of the income in Singapore was raised before Hon'ble jurisdictional High Court. Their Lordships declined to deal with this aspect of the matter as it was being raised before Their Lordships for the first time but then Their Lordships specifically left this issue open to be decided in an appropriate case by observing as follows:
21. .......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 appellant 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..............
22. In the present case, however, we are not inclined to conclude this issue since this was not even a ground on which either the Assessing Officer or the Commissioner has refused to grant the benefit to the petitioner. It is a ground sought to be raised for the first time before us by the Revenue, for which, neither full factual evidence, nor legal foundation is laid. We leave such an issue open to be decided in the appropriate case.
While in the case on hand the issue of double non taxation is the premise on which assessment has been framed and the same has been examined and upheld IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 25 ::
by the DRP as well. The same constitutes one of the main grounds raised by the appellant both before the Hon'ble DRP and Hon'ble ITAT as well. Hence the issue has not been raised for the first time before the Hon'ble ITAT. On the above fact also, the said case law stands distinguished, VI. Conditions prescribed in Article 24 In para 20 of the said order .....The AO has made an attempt to deny the benefit of exemption claimed by the assessee by invoking Article 24 of India Singapore DTAA, even though, the conditions stipulated under Article 24 are not satisfied.
This brings us once again to Article 24, which states that when an income in the source state is exempt from tax under this Agreement, and that income is subject to tax by reference to the amount remitted to that state, then the benefit will be restricted to the remitted amount. This Article therefore envisages situations such as this one, where an income, in this case shipping income is exempt from tax in the source states i.e. India, due to provisions of Article 8. But when such income is exempt in source state and is "subject to tax in resident state with reference to the amount of remittance, then this exemption provided in source state, le, India will be restricted to the amount actually remitted to Singapore. 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 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 subject to tax by reference to the amount actually remitted to the state of Residence, As has already been mentioned, the income in question is exempt from tax in India i.e, the source state. This income is also subject to tax by reference to the sum actually remitted to Singapore by virtue of Section 10 of the Singapore Income Tax Act. However, such Income was exempted by virtue of Section 13F of Singapore Income Tax Act, India has exclusive right to tax such income under domestic tax laws by virtue of Article 24 of the India Singapore DTAA. India Singapore DTAA is unique for the reason that the said DTAA has an Article 24 Limitation of Benefits which insists on subject to tax as against other DTAAs wherein the mandate is only on 'liable to tax and therefore there is a clear distinction between liable to tax and subject to tax. Since the income of the assessee is not subject to tax in Singapore, the AO has rightly taxed said income in India under domestic tax laws by virtue of Article 24 of India Singapore DTAA.
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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So, if this income had actually been subjected to tax in Singapore, the amount that was actually remitted to Singapore would be exempt in India i.e, the source state and the rest would not. However, since none of the income in question has been subjected to tax in Singapore, the exemption cannot be extended to any portion of this income.
Reference is invited to the United Nations Model Double Taxation Convention between Developed and Developing Countries 2017 Update issued by the Department of Economic & Social Affairs, United Nations, which explains the genesis of Article 24 in the tax treaties Provision on remittance based taxation
108. Another example of a tax regime with respect to which treaty benefits might be specifically restricted is that of remittance based taxation. Under the domestic law of some States, persons who qualify as residents but who do not have what is considered to be a permanent link with the State (sometimes referred to as domicile) are only taxed on income derived from sources outside the State to the extent that this income is effectively repatriated, or remitted, thereto. Such persons are not, therefore, subject to potential double taxation to the extent that foreign income is not remitted to their State of residence and it may be considered inappropriate to give them the benefit of the provisions of the Convention on such income. Contracting States which agree to restrict the application of the provisions of the Convention to income that is effectively taxed in the hands of these persons may do so by adding the following provision to the Convention:
"Where under any provision of this Convention income arising in a Contracting State is relieved in whole or in part from tax in that State and under the law in force in the other Contracting State a person, in respect of the sald income, is subject to tax by reference to the amount thereof which is remitted to or received in that other State and not by reference to the full amount thereof, then any relief provided by the provisions of this Convention shall apply only to so much of the income as is taxed in the other Contracting State."
In some States, the application of that provision could create administrative difficulties if a substantial amount of time elapsed between the time the income arose in a Contracting State and the time it were taxed by the other Contracting State in the hands of a resident of that other State. States concerned by these difficulties could subject the rule in the last part of the above provision, i.e. that the income in question will be entitled to benefits in the first-mentioned State only when taxed in the other State, to the condition that the income must be so taxed in that other State within a specified period of time from the time the income arises in the first-mentioned State.
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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Without prejudice to the above arguments, even if benefit of Article 8 is given to the appellant, it will be limited to the amount actually remitted as is set forth by Article 24 of the DTAA and the charging section of the Singapore Income Tax Act.
8. We have heard both the sides and perused the records. We note that the sole issue raised in the grounds of appeal is regarding taxability of shipping income of the non-resident, assessee company which is incorporated in Singapore. At this juncture, it would be gainful to recapitulate the fundamental principles of international taxation. There are two fundamental systems of taxation, one is based on residency of the taxpayer and the other is based on the source of the income. In the international arena, most of the countries follow the residency based taxation system. According to this system, a country can tax its residents on the global income of the taxpayer while the non-residents are taxed only on the income sourced inside the country. And India has such a system of Taxation, which is discernable in Section 5 of Income-tax Act, 1961 which give scope of total income of the assessee who is resident of India; and as per the same, the income of a resident in India is taxable in India which includes all income from whatever source derived which is received or is deemed to be received in India by or on behalf of such person or accrues or arises or is deemed to accrue or arise in India during such year or accrues or arises to him outside India during such year.
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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Thus, the scope of the total income in the case of a resident also extended to the income accrues or arises to him outside India during such year. Under the source based system, a country can tax a person whether resident or non-resident, only on income sourced inside the country. If all the countries in the world followed source based taxation system, then the problem of double taxation would not have arisen in the first place.
However, under the resident based system, there arises situation of double taxation because countries where the taxpayer is a resident will be required to pay tax on its global income. To avoid the double taxation, two rules are devised in the DTAA's, i.e., one is by way of providing Distributive Rules under which taxing rights allocated between contracting State with respect to various kinds of income; and the Second rule is to put state of residence under an obligation to give either credit for taxes paid in the source state or to exempt the income which is taxed in source state. These two rules have also been explained in para 19 of OECD Commentary which reads as under:-
"19. For the purpose of eliminating double taxation, the Convention establishes two categories of rules. First, Articles 6 to 21 determine, with regard to different classes of Income, the respective rights to tax of the State of source or situs and of the State of residence, and Article 22 does the same with regard to capital. In the case of a number of items of income and capital, an exclusive right to tax is conferred on one of the IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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Contracting States. The other Contracting State is thereby prevented from taxing those items and double taxation is avoided. As a rule, this exclusive right to tax is conferred on the State of residence. In the case of other items of income and capital, the right to tax is not an exclusive one. As regards two classes of income (dividends and interest), although both States are given the right to tax, the amount of tax that may be imposed in the State of source is limited. Second, insofar as these provisions confer on the State of source or situs a full or limited right to tax, the State of residence must allow relief so as to avoid double taxation; this is the purpose of Articles 23 A and 23 B. The Convention leaves it to the Contracting States to choose between two methods of relief, i.e. the exemption method and the credit method."
The taxation law in India follows the credit method for relieving the burden of double taxation. Under the Distributive Rules, the taxing rights are distributed between the contracting states. Exclusive rights to taxation in respect of certain incomes are given to one state and thus other state is precluded from taxing those incomes and therefore the double taxation is avoided. As a rule, such exclusive rights are given to state of residence. In respect of the other types of income, the right to tax is not exclusive one. The other state may also tax that income and depending upon taxing rights of the source state, income are classified into three categories and such classification are provided in para 20 to 23 of the OECD Commentary which read as under:-
20. Income and capital may be classified into three classes, depending on the treatment applicable to each class in the State of source or situs: -
-income and capital that may be taxed without any limitation in the State of source or situs,
- income that may be subjected to limited taxation in the State of source, and
- income and capital that may not be taxed in the State of source or situs.
21. The following are the classes of income and capital that may be taxed without any limitation in the State of source or situs:
- income from immovable property situated in that State (including income from agriculture or forestry), gains from the alienation of such property, and capital representing it (Article 6 and paragraph 1 of Articles 13 and 22);
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
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- profits of a permanent establishment situated in that State, gains from the alienation of such a permanent establishment, and capital representing movable property forming part of the business property of such a permanent establishment (Article 7 and paragraph 2 of Articles 13 and 22); an exception is made, however, if the permanent establishment is maintained for the purposes of international shipping, inland waterways transport, and international air transport (cf. paragraph 23 below);
- income from the activities of artistes and sportsmen exercised in that State, irrespective of whether such income accrues to the artiste or sportsman himself or to another person (Article 17);
- directors' fees paid by a company that is a resident of that State (Article 16);
- remuneration in respect of an employment in the private sector, exercised in that State, unless the employee is present therein for a period not exceeding 183 days in any twelve month period commencing or ending in the fiscal year concerned and certain conditions are met; and remuneration in respect of an employment exercised aboard a ship or aircraft operated internationally or aboard a boat, if the place of effective management of the enterprise is situated in that State (Article
15);
- subject to certain conditions, remuneration and pensions paid in respect of government service (Article 19).
22. The following are the classes of income that may be subjected to limited taxation in the State of source:
- dividends: provided the holding in respect of which the dividends are paid is not effectively connected with a permanent establishment in the State of source, that State must limit its tax to 5 per cent of the gross amount of the dividends, where the beneficial owner is a company that holds directly at least 25 per cent of the capital of the company paying the dividends, and to 15 per cent of their gross amount in other cases (Article 10);
- interest: subject to the same proviso as in the case of dividends, the State of source must limit its tax to 10 per cent of the gross amount of the interest, except for any interest in excess of a normal amount (Article 11).
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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23. Other items of income or capital may not be taxed in the State of source or situs; as a rule they are taxable only in the State of residence of the taxpayer. This applies, for example, to royalties (Article 12), gains from the alienation of shares or securities (paragraph 5 of Article B), private sector pensions (Article 18), payments received by a student for the purposes of his education or training (Article 20), and capital represented by shares or securities (paragraph 4 of Article 22). Profits from the operation of ships or aircraft in international traffic or of boats engaged in inland waterways transport, gains from the alienation of such ships, boats, or aircraft, and capital represented by them, are taxable only in the State in which the place of effective management of the enterprise is situated (Article 8 and paragraph 3 of Articles 13 and 22). Business profits that are not attributable to a permanent establishment in the State of source are taxable only in the State of residence (paragraph 1 of Article 7).
The Distributive Rules uses the word "shall be taxed only", "may be taxed" and "may also be taxed". Thus, if a contracting state is to give exclusive right to tax a particular kind of an income, then relevant article of convention uses the phrase "shall be taxed only". As a rule, such exclusive right is given to state of residence, though there are a few articles where exclusive right to tax is given to state of source. The phrase "shall be taxed only" precludes other contracting state from taxing that income. In the cases, where distribution of right to tax is not exclusive, the convention uses the phrase "may be taxed". In such Model of Convention, the use of the phrase "may be taxed" does not give exclusive right of taxation to state of residence. As per these Model of Convention, the word "may be taxed" and "may also be taxed" gives simultaneous taxing rights to state of source. If, in the DTAA, an item of income is "may be taxed" in state of source and nothing is mentioned about taxing right of state of residence in convention itself, then state of residence is not precluded from taxing such income and can tax such income using inherent right of state of residence to tax such global income of its resident. Only in the case of phrase "shall be taxed only"
used, then only the state of residence is precluded from taxing it. In such cases, where the phrase "may be taxed" used, the state of residence has not given up its inherent right to tax. In such case, the convention leaves it to contracting state to choose between two methods of relief, the exemption method or the credit method. (and India follows credit method).
9. Having taken note of the aforesaid fundamental principles (supra), we find that Article 8 of India-Singapore Treaty mandates that income of IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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assessee enterprise from shipping business in international traffic "shall be taxable only" in the State of residence i.e. Singapore. Article 24(1) of the Treaty is not applicable in cases where assessee was able to demonstrate that its income is taxable in Singapore on accrual basis [like in this case, assessee has adduced material in the form of Inland Revenue Authority of Singapore clarifiying that its resident's income are taxable on the basis of accrual]. And it is noted that on the basis of such a clarification of Singapore Inland Revenue Authority which was not rebutted by the Indian tax Authorities as not genuine, or in the absence of any other material to take a view that global income of Singapore resident is assessable to taxation on remittance basis, we note that the Hon'ble Gujarat High Court in similar case of M/s.M.T. Maersk Mikage by order dated 24.08.2016 (Special Civil Application No.9150/2014) held that income of Singapore resident was charged to tax on accrual basis (i.e. full amount would be assessable to tax on accrual and not on remittance) (refer Para 18 of the order). In the light of the Hon'ble High Court (supra) view and other case laws, on the facts and circumstances of the presenr appellanta/assessees, we concur with the view of the co-
ordinate bench decision in similar case, wherein identical issue had IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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cropped up in the case of M/s.Bengal Tiger Line Pte Ltd. v. DCIT in IT(TP) A No.11/Chny/2020 [refer Page Nos.64-103 of Paper Book], wherein, the Tribunal have held in favour of the assessee /Singapore entity by holding that Article 8 of DTAA between India & Singapore gives exclusive right to the state of residence of assessee i.e. Singapore to tax the global shipping income and have addressed all the contentions raised by the Revenue including the main contention of the AO that assessee's global/shipping income is exempt from taxation by virtue of Sec.13F of Singapore Income Tax; and also the contention of AO regarding applicability of Article 24 of Treaty in the light of Sec.10(1) of Singapore Income tax Act, has been considered and by speaking order vide order dated 06.11.2020 held as under:
"....Therefore, we are of the considered view that in terms of Article 8 of India Singapore DTAA, global income of a tax resident of Singapore from shipping operations, even though which is earned outside Singapore is taxable only in Singapore on accrual basis and consequently Article 24 of India Singapore DTAA cannot be invoked to deny the benefit of exemption merely for the simple reason that the said income was not taxed in Singapore by virtue of separate exemptions provided under Singapore Income Tax Act.
17. In this case, the Assessing Officer has attempted to deny the exemption claimed by the assessee under Article 8 by invoking Article 24 of India Singapore tax treaty on a misconception of two clauses of India Singapore DTAA by referring to the provisions of Section 13F of the Singapore Income Tax Act, ignoring the fact that Section 13F of the Singapore Income Tax Act was already in existence since 01.04.1991 and as such the articles provided in India Singapore DTAA which was came in to existence from 27.05.1994 was inserted by the Competent Authorities of both the Contracting States after thoroughly considering the IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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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. We further noted that two sovereign nations have entered into a bilateral agreement and specifically agreed on the taxing rights of particular streams of income, the provisions of such agreement should be merely given effect to and as such the action of the AO to claim taxing right over the said income which is not provided in the treaty is ultra- vires the power of the AO and will amount to dishonoring the bilateral agreement between two sovereign nations. We further noted that the AO has taken support from 10(1) of Singapore Income Tax Act to argue that any income 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 Union of India vs. Azadi Bachao Andolan, 132 Taxman 37 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 vs. ITO, 20 taxdmann.com 821 has considered an identical issue and by following the decision of Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan supra has held that the expression 'liable to tax' in Contracting State as used in Article 4(1) of Indo-UAE DTAA does not necessarily imply that person should actually be liable to tax in that contracting State. It is enough if other contracting State has right to tax such person, whether or not such a right is exercised. This fact is further strengthened by Article 31(1) of Vienna Convention where it was stated that as per the general rule of interpretation, ordinary meaning is to be given to the terms of the treaty in the context and in the light of its object and purpose. The object and purpose of having Article 8 in the India Singapore DTAA is to clearly allocate the taxing rights of international shipping income to the residence country i.e., Singapore in the present assessee case. Therefore, as per sub-clause (2) of Article 31 of the Vienna Convention, the 'context' for the purpose of interpretation of a treaty would primarily include the text, preamble and annexure to the treaty. Therefore, in order to give the ordinary meanings to the terms in their 'context' the whole treaty should be read as it is without giving any meaning which is not the purpose intended by the Articles. In this case, the AO has stated that the preamble should be read to understand the object and purpose. However it may be noted that Article 31(2) of Vienna Convention does not cover object and purpose. Therefore, we are of the considered view that AO has misunderstood the general rules of interpretation in the Vienna Convention. Even assuming without conceding that the preamble IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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should be referred to understand the object and purpose, the stated objective of the treaty is "avoidance of double taxation". This object can be achieved in two ways, which one way by credit mechanism when both the countries tax the same income and the second way is providing 'exclusive right of taxation' to one country and thereby double taxation can be avoided. In the present case, Article 8 provides exclusive right of taxation of shipping income to Singapore in order to avoid double taxation method where India has given up its right of taxation of international shipping income of a Singaporean resident and as such Singapore has reserved its exclusive right to tax the same. Once the country 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 fax 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 issuerf DIT Relief Certificate dated 25.06.2014 and 14.08.2014 by holding that Article 8 of India Singapore DTAA is applicable to the assessee and income from operation in international traffic will not be taxable in India. No doubt, the certificate is issued for the purpose of non-deduction of tax at source as argued by the Ld.DR, but fact remains is that unless the AO has bring on record any change in fact or law which was prevalent at the time of issuing DIT Relief Certificate and at the time of framing assessment, no contrary view can be taken in violation of Doctrine of Promissory Estoppel.No doubt, the fundamental principles of res-judicata will not be applicable to income tax proceedings, but the rule of consistency needs to be followed unless there is change in fact or law while taking a different view. This view is supported by the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT, 193 ITR 321.
19. We further noted that this issue is considered by the Tribunal in the assessee own group company case in Bengal Tiger Line Ltd vs. DDIT(International Taxation), [2013] 33 taxmann.com 307, where the Tribunal has considered the India Cyprus DTAA and has clearly held that where assessee, a non-resident company registered in Cyprus, was in shipping business and it had effective management of enterprise in Cyprus, income earned by assessee from shipping business was not taxable in India. The Tribunal while arriving at above conclusion has taken support from the decision of Hon'ble Gujarat High Court in the case of Arabian Express Line Ltd of United Kingdom and also considered Circular No.333 IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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issued by CBDT and held that in the DTAA between India and Cyprus and India and U.K the provisions relating to taxation of shipping business are pari materia. Therefore, the income earned by the assessee from shipping operations in India is taxable only at Contracting State (country of residence). The relevant findings of the Tribunal are as under:-
"7. We have heard the submissions made by both the parties. We have perused the order of the Assessing Officer and the directions of the DRP and also the judgements relied on by the AR. In the present case it is not in dispute that the assessee/appellant is a foreign company and has its effective management in Cyprus. The AR has placed on record a copy of DTAA between India and Cyprus. A perusal of Article 7 of the DTAA shows that Article 7 relates to business profits of an enterprise having permanent establishment in India. Article 7 specifically states that such profits shall be 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 proti derived by enterprise registered and having headquarters (Le effective Pragement) in a Contracting State from the operation by that enterprise of ships or aircraft in international traffic shall be taxable only in that State Le. profits from aircraft inn er 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 cave 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 Le Article regarding taxation of enterprise having shipping business. The Hon'ble Gujarat High Court in the case of Venkatesh Karrier Ltd. (supra) has reiterated the same view and held that the agreement between two countries has ousted the jurisdiction of the taxing officer 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 Board. The Homble Gujarat High Court referred to Circular Nos.333 dated 2.2.1982 and 732 dated 20th December, 1995. Circular No.333 states that the provisions made in DTAA would prevail over the general provisions of the Act and Circular no.732 clarifies that if ships are owned by an enterprise belonging to a country with which India has entered into an agreement of avoidance of double taxation and the agreement provides for taxation of shipping profits only in the country of which the enterprise is a rexident, no tax is payable by such ships at the IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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Indian ports. In the DTAA between India and Cyprus and India and U.K. the provisions relating to taxation of shipping business are pari materia. Therefore, the income earned by the assessee is not taxable in India. Rather the Assessing Officer had no jurisdiction to levy tax on the appellant/assessee.
20. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that Article 8 of India Singapore DTAA is applicable and as per which shipping income of a resident of Singapore is taxable only in Singapore but not in India. The AO has made an attempt to deny the benefit of exemption claimed by the assessee by invoking Article 24 of India Singapore DTAA, even though, the conditions stipulated under Article 24 are not satisfied. We, therefore are of the considered view that the AO as well as the Ld.DRP were erred in coming to the conclusion that income earned by the assessee from shipping operations in India is taxable in India by virtue of Article 24 of India Singapore DTAA. Hence, we direct the Assessing Officer to delete the additions made towards shipping income of assessee earned in India.
21. In the result, the appeal of the assessee is allowed.....'
10. Further, we find that similar issue came up before the ITAT, Rajkot Bench, in the case of Maersk Tankers Singapore Pte. Ltd. v. ACIT in ITA Nos.17 & 18/Chny/2022 vide order dated 30.11.2022, wherein Rajkot Tribunal took similar view as taken by the Tribunal in the case of M/s.Bengal Tiger Lines (supra) especially after taking note of the Revenue contention at Para No.37 of that order, as under:
".....37. To sum-up, it is an admitted fact that, no tax has been paid by the assessee in Singapore (i.e. its Resident state) on the freight income earned in India from the voyages performed in India (i.e. the Source state) and now attempt is being made to justify non-payment of tax in India by invoking provisions of article 8 of DTAA. It is for this very situation that provisions in the form of "Limitation of Benefit" has been brought in Tax Treaty, to curb abuse of tax treaty provisions, as treaties are made to avoid double taxation of an income, as well as to prevent double non-taxation of income. In view of the above, the appeals of the assessee may be rejected and the order-of the Revenue may kindly be upheld...."
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
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11. The Ld.CIT-DR drew our attention to the order of the Hyderabad Bench of ITAT in the case of M/s.PACC Container Line Pvt. Ltd. v. ITO (International Taxation) [in ITA No.25/Hyd/2018 placed at Page No.104- 127 of Paper Book] vide order dated 24.07.2022, wherein, the Tribunal passed the order in favour of the Revenue. However, we note such a view was taken, after taking note that in that case Article 24 of Treaty is applicable, since, the assessee in that case [M/s.PACC Container Line Pvt.
Ltd.] could not discharge its burden that the related income is taxable in Singapore on accrual basis, which fact was observed by the Tribunal at Page No.19. "In the present case, as mentioned above, the assessee has not discharged his onus as no document was filed in this regard". At Para 17 of this order, the Tribunal notes "Further, it is not the case of the assessee before the lower authorities or before us that the entire amount was accrued in favour of the assessee at Singapore", and therefore, such a view was taken by Hyderabad ITAT by observing as under at Para No.19:
19. We may further point out that the ld.AR during the course of argument has not relied upon any other judgment. However in the Paper Book filed by him, there is a reference to two decisions namely, Alabra Shipping Pvt. Ltd. Singapore Vs. ITO (International Taxation), Gandhidham (ITA 392/RJT/2014 dt.09.10.2015) at Page 79 of the paper book and also the decision in the case of Emirates Shipping Line, FZE VS.
ADIT (WP(Civil) No.9780 of 2009 dt.26.07.2012) at Page 84 of the paper book. In our opinion, the finding recorded by the Tribunal in the first decision namely Alabra IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 39 ::
Shipping Pvt. Ltd (supra) does not come to the rescue of the appellant for the reasons mentioned at Para 8 of the said decision, which are self-explanatory. We are reproducing the said Para 8 hereinbelow for ready reference.
*8. As regards reliance of the authorities below on the decision of this Tribunal, in the case of Abacus International (supra), suffice to say that it was in the context of interest income of the assessee and there was nothing on record to suggest that such an income was to be taxed in Singapore on accrual basis, rather than on receipt basis. The Assessing Officer thus derives no advantage from this decision. Having said that we may add that we are in complete agreement with the coordinate bench that, in order to come out of the mischief of Article 24, the onus is on the assessee is to show that the amount is remitted to, or received in Singapore, but then such an onus is confined to the cases in which income in question is taxable in Singapore on limited receipt basis rather than on comprehensive accrual basis. However, in a case in which it can be demonstrated, as has been demonstrated in the case before us, that the related income is taxable in Singapore on accrual basis and not on remittance basis, such an onus does not get triggered."
In the present case, as mentioned above, the assessee has not discharged his onus as no document was filled in this regard. (Emphasized by us)
12. Therefore, according to the Ld.AR, the decision of the Hyderabad Tribunal (supra) was distinguishable, since that assessee, M/s.PACC Container Line Pvt. Ltd., could not discharge the burden that its income was taxable in Singapore on accrual basis as noted therein and therefore, the Tribunal took a different view and upheld the action of the AO in that case. However, according to Ld AR that is not the case in the present case. The assessee has shown that its global shipping income was taxable on accrual basis as per Singapore Law. In other words, the assessee was able to place material before us (Inland Revenue Authority letter) that being a Singapore resident as per Singapore Income Tax Act, IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 40 ::
the global shipping income which accrued to it was taxable in the resident country (Singapore) and therefore, assessee had offered in its return, the entire shipping income [including the income which is sourced from India]. And since, assessee in this case has filed the letter from the Inland Revenue Authority of Singapore clarifying that the shipping income earned by the shipping enterprises incorporated in Singapore for providing international transport services is taxable in Singapore in full [meaning on accrual basis], therefore, Article-24(1) is not applicable and therefore, by virtue of Article 8(1) of the DTAA profits derived by an enterprise of contracting state (Singapore) from the operations of ships shall be taxable only in that state (Singapore). Therefore, decision of the Tribunal (Hyderabad Bench) in the case of M/s.PACC Container Line Pvt.
Ltd. v. ITO (International Taxation) is not applicable.
13. The Ld.AR further drew our attention to the decision of this Tribunal (Chennai Bench) in the case of M/s.Bengal Tiger Line Pte. Ltd. in IT(TP) A No.18/Chny/2021 placed at Page Nos.174-242 of the Paper Book, wherein, the decision of the Tribunal (Hyderabad Bench) in the case of M/s.PACC Container Line Pvt. Ltd. v. ITO (supra) was also considered while deciding the merit of the action of Revenue as well as the Tribunal IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 41 ::
decided the issue on jurisdiction of reopening of assessment u/s.147 of the Act. This Tribunal allowed the appeal filed by the assessee both on legal issue as well as on merits by observing as under:
28. The Ld. CIT-DR has cited the decision of Hyderabad Tribunal in Mis PACC Container Line Pvt. Ltd. (supra). Having gone through the same, we find this case law deal with a situation wherein the authorities have granted the benefit of DTAA to the assessee but restricted the same to the extent of amount remitted by the assessee.
This decision does not consider any of the decision as cited before us including the cited decision of Hon'ble Gujarat High Court in M.T. Maersk Mikage (supra). As against this, we have decision of coordinate bench in assessee's own case on similar facts. In fact, the impugned additions stem from the view taken by revenue in AY 2015-16 and this view has already been negated by the coordinate bench. Therefore, this case law renders no assistance to the case of the revenue.
29. Finally, considering the facts and circumstances of the case, we would hold that reassessment proceedings, for all the years, fail on legal grounds as well as on merits. It is undisputed position that the case of all the years has been reopened on identical reasons by Ld. AO. Therefore, the assessee succeeds in all the appeals. Consequently, the connected stay applications filed by the assessee has been rendered infructuous.
14. Further, the Ld.AR brought to our notice that aforesaid decision of this Tribunal was challenged by the Department before the Hon'ble Madras High Court; and even though, the Department challenged the decision of the Tribunal on merits, the Hon'ble High Court did not admit the question of law of Tribunal on merits; and only admitted the question of jurisdiction of AO reopening the assessment i.e. legal issue decided by Tribunal; and drew our attention to the question of law framed by the Hon'ble Madras High Court which is reproduced as under:
TCA Nos.4, 6, 7, 8 and 9 of 2024 IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 42 ::
(Order of the court was made by R.MAHADEVAN, J.) Heard Mr.Karthik Ranganathan, learned Standing Counsel appearing for the appellant/Revenue and Mr.P.S.Raman, learned Senior Counsel appearing for the respondent/assessee.
2. These tax case appeals are admitted on the following common substantial questions of law:
"(i) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that there is no tangible material for the assessing officer to form an opinion that income had escaped taxation?
(ii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the statements recorded during survey do not constitute tangible material for the assessing officer to form an opinion that income had escaped taxation and that there is no reason to believe that income has escaped despite the evidences collected during the course of survey proceedings?
(iii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that there is no valid jurisdiction acquired by the AO?
(iv) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in adjudicating on merits even after quashing the assessment order on legal/technical grounds?"
3. Post these appeals on 27.02.2024.
15. Thus, according to the Ld.AR, the findings given by the Tribunal that Article 24(1) of the DTAA between India and Singapore would not apply in the facts of the assessee's case, since its income is taxable on accrual basis in Singapore; and by virtue of Article 8(1) of DTAA.; the assessee's global shipping income is taxable only in Singapore and not in India. For completion, the Ld.AR also drew our attention to the decision of the Hon'ble Gujarat High Court in the case of DCIT (International Taxation) v.
IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 43 ::
Venkatesh Karrier Ltd. reported in [2012] 349 ITR 124. In that case, the Hon'ble High Court upheld the action of the Tribunal holding that in the light of applicability of Article 8 of DTAA between India and UAE, and assessee being a resident of UAE, there was no scope of taxing the income of the ships in any port in India. And that the agreement between two countries has ousted the jurisdiction of 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 state (UAE). The Ld.AR also draw our attention to the decision of the Hon'ble Gujarat High Court in the case of M.T. Maersk Mikage & 4 v. DCIT (International Taxation) in Special Civil Application No.9150 of 2014 dated 24.08.2016 (supra), wherein, the Hon'ble Gujarat High Court has taken note of all contentions raised by the Tribunal and also took note, inter alia, Article 8 and Article 24 and thereafter, taking note of all case laws 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 8 of the DTAA would be taxable 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 IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 44 ::
limitation of relief. Under clause-1 thereof where the agreement provides that the income from sources in 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 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 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 IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 45 ::
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 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 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.
21. We may notice that a somewhat similar issue came up before this Court in case of Director Of Income Tax International Taxation v. Venkatesh Karrier Ltd. reported in 349 ITR 124 in which the Court observed as under:
"10. After taking into consideration the above circulars issued by the Board and also the provisions contained in Article 8 of the DTAA, we find that both the Tribunal below and the CIT [Appeals] rightly held that in such a situation, the owner of the ship being admittedly a resident of UAE, there was no scope IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 46 ::
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 Board as indicated above."
22. In the present case, however, we are not inclined to conclude this issue since this was not even a ground on which either the Assessing Officer or the Commissioner has refused to grant the benefit to the petitioner. It is a ground sought to be raised for the first time before us by the Revenue, for which, neither full factual evidence, nor legal foundation is laid. We leave such an issue open to be decided in the appropriate case.
23. In the result, petition is allowed. Impugned order dated 25.03.2014 passed by the Commissioner is set aside. Resultantly, order of assessment dated 26.12.2011 is also quashed. Petition disposed of accordingly.
16. in the light of the judicial precedents cited (supra), and considering the facts and circumstances of the appeals, we concur with the view of the co-ordinate Bench of this Tribunal in M/s.Bengal Tigers Line Pte (supra) and the decision of the Hon'ble Gujarat High Court in the case of M.T. Maersk Mikage Mikage (supra) and hold that in terms of Article 8 of India Singapore DTAA, global income of a tax resident of Singapore from shipping operations, even though, which is earned outside Singapore is taxable only in Singapore on accrual basis; and consequently Article 24 of India Singapore DTAA ought not to have been invoked to deny the benefit of DTAA exemption merely for the reason that the said income was not taxed in Singapore by virtue of separate exemptions provided under Singapore Income Tax Act. We are, therefore, of the considered view that IT (TP) A No.59/Chny/2019 for AY 2015-16 IT (TP) A No.01/Chny/2020 for AY 2016-17 IT (TP) A Nos.12 to 14/Chny/2021 for AYs 2012-13 to 2014-15 IT (TP) A Nos.36 & 37/Chny/2022 for AYs 2017-18 & 2018-19 M/s.Pacific International Lines Pvt. Ltd.
& IT (TP) A No.79/Chny/2019 for AY 2016-17 M/s.Advance Container Lines Pte. Ltd.
:: 47 ::
the AO as well as the Ld.DRP erred in coming to the conclusion that income earned by the assessee from shipping operations in India is taxable in India by virtue of Article 24 of India Singapore DTAA. Hence, we direct the AO to delete the additions made towards shipping income of assessee earned in India.
17. In the result, all the appeals filed by the assesses are allowed.
Order pronounced on the 29th day of May, 2024, in Chennai.
Sd/- Sd/-
(जगदीश) (एबी टी. वक )
(JAGADISH) (ABY T. VARKEY)
लेखा सद य/ACCOUNTANT MEMBER याियक सद य/JUDICIAL MEMBER
चे ई/Chennai,
!दनांक/Dated: 29th May, 2024.
TLN, Sr.PS
आदेशक ितिलिपअ&ेिषत/Copy to:
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु (अपील)/CIT(A)
4. आयकरआयु /CIT
5. िवभागीय ितिनिध/DR
6. गाडफाईल/GF