Case Law Details
Brief facts of the case are that the assessee is tax resident of Singapore and registered as Foreign Institutional Investor (FII) in Debt segment, with Security and Exchange Board of India (SEBI). The assessee filed return of income on 30.09.2009 declaring total income of Rs. 33,99,75,350/-. In the return the assessee declared a Capital Gain of Rs. 86,62,63,158/- on sale of debt instruments and claimed exemption under Article 13(4) of India-Singapore Double Taxation Avoidance Agreement (DTAA or Treaty). During the assessment the assessing officer asked the assessee to explain as to how the provision of Article 24 stand complied in order to claim Capital Gain as exempt in India. The assessee filed its submission before the AO contending therein that assessee is liable to tax in Singapore of its worldwide income. The Singapore’s Revenue authority has confirmed the taxation on assessee in Singapore. The Article 13(4) provides for taxation of Capital Gain in Singapore. The intention of entering into DTAA to avoid double taxation. If the assessee is offering is worldwide income for taxation in Singapore then remittance of such income to Singapore has no relevance for purpose of claiming benefit under India-Singapore DTAA.
Provisions of Article 24 are not attracted to the income which is covered by Article 13(4) of Treaty. The said provision will only apply to the income which is either ‘exempt’ from tax in India or ‘tax as reduced’ rate in India. The income earned by assessee being FII is liable to tax in Singapore on its worldwide income. The Singapore tax authority has given a certificate certifying that assessee is buying and selling Indian Debt Securities from Foreign Exchange Transaction in India. Under Singapore tax law the income accrued or derived from Singapore on such income would be brought to tax in Singapore without reference to the amount remitted or received in Singapore.
Limitation prescribed under Article 24 of the Treaty is not applicable in the present case as the income earned by assessee on sale of debt instrument is not taxable in India as per Article 13(4) of Treaty. Thus, the observation of DRP that the assessee has not furnished any evidence that the Capital Gain earned in India, was remitted to Singapore has no relevance
Full Text of the ITAT Order
1. This appeal by assessee under section 253 of the Income-tax Act (‘the Act’) is directed against the order passed under section 143(3) r.w.s. 144C (13) in pursuance of direction of Dispute Resolution Penal (DRP), for Assessment Year (AY) 2010-11. The assessee has raised the following grounds of appeal:
(i) The ld. Assessing Officer has erred in law and on facts in denying to the Appellant, the benefit of Article 13(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
(ii) The ld. ld. Assessing Officer ought to have held that Article 24 of the DTAA between India and Singapore has no application to the Appellant.
2. Brief facts of the case are that the assessee is tax resident of Singapore and registered as Foreign Institutional Investor (FII) in Debt segment, with Security and Exchange Board of India (SEBI). The assessee filed return of income on 30.09.2009 declaring total income of Rs. 33,99,75,350/-. In the return the assessee declared a Capital Gain of Rs. 86,62,63,158/- on sale of debt instruments and claimed exemption under Article 13(4) of India-Singapore Double Taxation Avoidance Agreement (DTAA or Treaty). During the assessment the assessing officer asked the assessee to explain as to how the provision of Article 24 stand complied in order to claim Capital Gain as exempt in India. The assessee filed its submission before the AO contending therein that assessee is liable to tax in Singapore of its worldwide income. The Singapore’s Revenue authority has confirmed the taxation on assessee in Singapore. The Article 13(4) provides for taxation of Capital Gain in Singapore. The intention of entering into DTAA to avoid double taxation. If the assessee is offering is worldwide income for taxation in Singapore then remittance of such income to Singapore has no relevance for purpose of claiming benefit under India-Singapore DTAA. The contention of assessee was not accepted by AO with the following reasons:
i) In order to allow any benefit under the Tax Treaty, we are required to follow the provisions of Articles in the said treaty.
ii) Though the provisions of Article 13(4) allows exemption of Capital Gains in source country i.e India, the provisions of Article 24 asks for restriction of exemption of such Capital Gains to the extent repatriation of such income to the other country i.e Singapore.
iii) Even, the Section 10(1) relating to Charge of Income Tax under the Singapore Income Tax Act, as quoted by assessee, reveals that it taxes income on receipt basis of such income in Singapore from outside Singapore.
iv) Assessee has neither adduced any evidence nor cared to furnish anything to show that such required repatriation as mandated by Article 24 has taken place, to be entitled to the exemption claimed.
v) In fact, from the details on record it is revealed that assessee had earned Capital Gains of Rs. 82,58,83,330/- on 15.03.2010, however, there is no repatriation of said income reflected in the banks statement furnished.
Therefore, the AO disallow the exemption claimed by assessee under Article 13(4) of India-Singapore DTAA and treated the Capital Gain as taxable in India in draft assessment order dated 24.03.2014.
3. Aggrieved by the treatment of Capital Gain as taxable in India in draft assessment order the assessee filed objection before the Dispute Resolution Panel (DRP). The DRP sustained the action of AO vide its order dated 14.11.2014 passed u/s 144C (5). Thus, in pursuance of direction of DRP, the AO completed the assessment order on 30. 12.2014 u/s 143(3) r.w.s. 144C(13) of the Act. Further aggrieved by the order passed in pursuance of direction of DRP u/s 143(3) r.w.s. 144C(13), the assessee has filed the present appeal before the Tribunal.
4. We have heard Shri P. J. Pardiwala ld. Sr Advocate (ld Counsel) and Shri Jasbir Chouhan, ld. Sr Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. Counsel for assessee referred before us the contents Article 13 and the relevant phrase used in Article 24 of India-Singapore DTAA and submitted that the provisions of Article 24 are not attracted to the income which is covered by Article 13(4) of Treaty. The said provision will only apply to the income which is either ‘exempt’ from tax in India or ‘tax as reduced’ rate in India. The income earned by assessee being FII is liable to tax in Singapore on its worldwide income. The Singapore tax authority has given a certificate certifying that assessee is buying and selling Indian Debt Securities from Foreign Exchange Transaction in India. Under Singapore tax law the income accrued or derived from Singapore on such income would be brought to tax in Singapore without reference to the amount remitted or received in Singapore. In support of his submission, the ld. Counsel for the assessee relied upon the decisions of Mumbai Tribunal in case of SET Satellite (Singapore) Pte Ltd. vs. ADIT in M.A. No. 520/M/2010 dated 11.02.2010 and further a latest decision in APL Company Pte Ltd. vs. ADIT (ITA No. 4435/Mum/13) dated 16.02.2017. On the other hand, ld. DR for the Revenue supported the orders of authorities below.
5. We have considered the rival contention of the parties and gone through the order of authorities below. For appreciation of the fact, we may first refer Article 13 & 24 of the India-Singapore Tax Treaty which are as under:
ARTICLE 13
CAPITAL GAINS
1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6, and situated in the other Contracting State may be taxed in that other State.
2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such fixed base, may be taxed in that other State.
3. Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State of which the alienator is a resident.
1 [4. Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned In paragraphs 1, 2 and 3 of this Article shall be taxable only in that State.]
1.Substituted for paragraphs 4, 5 and 6 by Notification No. SO 1022(E), dated 18-7-2005.
ARTICLE 24
LIMITATION OF RELIEF
l . Where this Agreement provides (with or without other conditions) that income from sources in a Contracting India State shall be exempt from tax, or taxed at a reduced rate III 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.
2. However, this limitation does not apply to income derived by the Government of a Contracting State or any person approached by the competent authority of that -State for the purpose of this paragraph. The term “Government” includes its agencies and statutory bodies.
We may also refer the certificate issued by Singapore Tax Authority certifying that selling of India debt securities from foreign exchange transaction in India, the income accrued or derived by assessee is taxable in Singapore. The contents of the certificate issued by Singapore Tax Authorities are reproduced below;
“Dear Sir/Madam”
CITICORP INVESTMENT BANK (SINGAPORE) LIMITED (“CIBSL”) TAX REFERENCE NO. 197200204M
We refer to your letter dated 4 April 2012
As requested, we confirm that income derived by CIBSL from the buying and selling of India debt securities and from foreign exchange transactions in India would be considered under Singapore tax law as accruing in or derived from Singapore (“i.e. Singapore-sourced income”). Such income would be brought to tax in Singapore without reference to the amounts remitted or received in Singapore. The tax treatment would be based on the FRS 39 accounting treatment of the relevant financial instruments on revenue account without further adjustments.
Yours faithfully
TAY AND SIM
SENIOR TAX SPECIALIST
CORPORATE TAX DIVISION
For COMPTROLLER OF INCOME TAX”
The AO while framing draft assessment order disallowed the benefit of Article 13(4) of the Treaty on Capital Gain earned in India holding that provision of Article 24 of Treaty speaks about the restriction of exemption of such Capital Gain to the extent of repatriation of such income to the other country (Singapore). The AO further hold that assessee has not produced any evidence to show such required repatriation as mandated by Article 24 of Treaty for entitlement of exempt income. The DRP while considering the objection observed that as per Article 13(4) of Treaty between India and Singapore, the Capital Gain earned to resident of Singapore shall be taxed on in Singapore, however, in view of Article 24 of Treaty where income claimed exemption or taxed at lower rate in India was subject to tax in Singapore on receipt basis, than the exemption (in India) would be applicable to such income which has been remitted to Singapore. The DRP also referred the certificate of Singapore Tax Authority in their order and concluded that the letter/certificate issued by Land Revenue of Singapore cannot override the Treaty between India and Singapore. The DRP finally concluded that assessee has not furnished any evidence that the Capital Gain earned in India was remitted to Singapore and confirmed the addition.
6. We have seen that assessee has placed on record that the certificate dated 16.04.20 12 from Singapore Tax Authorities certifying that the income derived by assessee on sale of Indian Debt Security would be brought to tax in India. Article 13(4) of Treaty (supra) clearly speaks that gain derived by a resident of contracting State (Singapore) from the alienation of any property other than those mentioned in paragraph 1 & 2 of this Article (13) shall be taxable in that State (Singapore). Article 24 of the Treaty provides the limitation of benefit provision used by such country which imposes on a tax of certain payer on remittance basis. The limitation provided under this Article operates in conjunction with the provisions of Treaty which are related with ‘reduced rate of tax’ or ‘exempted’ not taxed in the country of source. The Co-ordinate Bench of Mumbai Tribunal in SET Satellite (Singapore) Pte Ltd. vs. ADIT (supra) while discussing the scope of limitation of Article 24 of the Treaty held as under:
2. After considering the argument of both the sides and perusing the material on record, we find that an error apparent on record has crept into the order of the Tribunal dated 25th June, 2010. We, therefore, rectify the same by deleting para 21 of the said order and substituting the same with the following:
21. “Article 24 of the India-Singapore Treaty reads as follows:
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 the other Contracting State and not by reference to the full amount therefore, 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” 21.1 Article 24(1) contains a form of limitation of benefit provision used by countries such as Singapore which impose tax on certain taxpayers on a “remittance basis”. These limitations of benefit provisions operate in conjunction with the provisions of the Treaty which provide for reduced rate of tax or exemption of tax in the country of source.
21.2. It is fundamental to these provisions that they apply only to income paid from sources in one Contracting state, where they are exempt from tax or enjoy tax at a reduced rate, to a recipient resident in the other Contracting State who is taxable on a remittance basis. This is amply clear from the wording of the Article 24(1) which states “Where this Agreement provides the income from sources in a Contracting State ” Thus, Article 24(1) can only apply to income from a source in one Contracting State (India in this case) which under the laws in force in the other Contracting State (Singapore in this case) is subject to tax by reference to the amount thereof which is remitted to Singapore
21.3 As explained earlier in this order the income in the instant case, even if it is construed as Royalty, do not arise in India under Article 12(7)because the payer (SET Singapore) is a resident of Singapore. Paragraph 26 of the OECD Commentary to Article 11 states: “This paragraph lays down the principle that the state of source of the royalties is the state of which the payer of royalties is resident”. In this case, the state of source of royalties is Singapore as the payer is a resident of Singapore. The royalties are not therefore “income from sources in India which under the laws in force in Singapore are subject to tax by reference to the amount therefore which is remitted to Singapore”.
21.4 Furthermore, as the Learned Counsel pointed out the Treaty specifically mentions cases where an income is exempt from tax in a Contracting state. There is a distinction between income ‘exempt from tax’ and income which is ‘not taxable’; in the instant case there is no question of income being exempt from tax in India and therefore Article 24 should not apply on this count as well. Finally, based on the documents filed, it is clear that the amount paid by SET Satellite (Singapore) Pte Ltd to GCC, in Jersey, was subject to tax in Singapore under its domestic laws and hence Article 24 cannot apply on this count too. We therefore believe that the provisions of Article 24 of the DTAA do not apply to the facts of this case and the assessee is entitled to the benefits under the India- Singapore Treaty.
Further, the Co-ordinate Bench of Mumbai Tribunal in APL Company Pte Ltd. vs. ADIT (supra), again considered the scope of limitation prescribed under Article 24 of Treaty. Wherein, almost similar certificate related with freight income as provided under Article 8 of Treaty, issued by Singapore Revenue Authority (as given in the present case related with buying and selling of debt security) was also relied by assessee (in that case) and the bench held as under:
“If we analyse the relevant phrases used in Article 24, it is quite apparent that two conditions have been envisaged that needs to be fulfilled; firstly, income earned from the source state (here in this case, India) is exempt from tax or is taxed at a reduced rate in the source state (India) as per the DTAA; and secondly, under the laws in force of the resident state (Singapore), such income is subject to tax by reference to the amount thereof which is remitted to or received in the resident state and not by reference to the full amount thereof. If both the conditions are satisfied, then only the exemption is allowed or the reduced rate of tax is levied on the amount so remitted. The key phrases which need to be borne in mind while understanding Article 24 is “under the laws in force in other contracting state” (Singapore). Here, in this case, the income of assessee-company from shipping operations is not taxable on remittance basis under the laws of Singapore, albeit is liable to be taxed in-principle on accrual basis by virtue of the fact that this income under the income tax laws of Singapore is regarded as “accruing in or derived from Singapore”. The shipping income from overseas is not treated as foreign income because it is accrued in and derived from Singapore. From the plain reading of Sec. 10(1) of Singapore Income Tax Act it can be inferred that firstly, the tax is on income accruing in or derived from Singapore and it is completely irrelevant whether the income is received in Singapore or not and; secondly, where the income is accrued or is derived from outside Singapore, the liability to tax arises on such foreign income only if the foreign income is received in Singapore. It has already been brought on record and also it is an undisputed fact that the Singapore Income Tax Act requires that the shipping enterprises should file their statement of each year of assessment for the amount of income derived from its operations of Singapore or foreign ships in Singapore. The entire income is to be disclosed in the return of income and the statement is issued when the Comptroller of Income-tax is satisfied that a company has correctly reported its income accrued in or derived from Singapore from its business carried on in Singapore. We have already perused the copy of the return of income along with the computation filed with the IRAS for the year ending on 3 1.12.2008, relevant for Assessment Year 2008- 09, copy of which is appearing from pages 23 to 30 of the paper book. In the said return, the column mentioning the foreign income received in Singapore has been reported to be „NIL‟, whereas income accruing in or derived from Singapore has been shown at SGD 2,207,928. A confirmation/Certificate has also been obtained from IRAS, the content of which is reproduced hereunder:-
“Dear Sir/Madam
APL Co. Pte Ltd. (“the company”)
FREIGHT INCOME YEARS OF ASSESSMENT (“YAs”) 2008 & 2009
1. We refer to our discussions on the subject.
2. You have stated that the company is primarily engaged in shipping and related businesses and it receives freight payments for its services. During calendar years 2007 and 2008, the company derived freight income from third parties including freight income from Indian operations, that is, income from the carriage of goods/cargo to and from Indian ports. The company has reported the freight income in its Singapore tax returns for the YAs 2008 and 2009.
3. You wish to seek our clarification to the effect that Article 24(1) of the India-Singapore double taxation agreement (DTA) is not applicable to the freight income derived from Indian operations.
4. The freight income derived by the company from Indian operations was accrued in or derived from a business carried on in Singapore. As such, it was regarded as Singapore sourced income and assessed to tax in Singapore on accrual basis (i.e. not remittance basis) in the YAs 2008 and 2009.
5. In this regard, the physical flow of funds is not relevant and Article 24(1), which seeks to limit relief under the DTA where the relevant income is subject to tax in Singapore on a remittance basis, would not be applicable to the freight income from Indian operations.
6. We hope that this is sufficient to address your query. If you require any further clarifications, please do not hesitate to contact us.
Yours faithfully
LAU KIAT PENG (MS)
SENIOR TAX OFFICER CORPORATE TAX DIVISION
for COMPTROLLER OF INCOME TAX”
[Emphasis added is ours]
From the aforesaid Certificate/Confirmation given by IRAS, it is ostensibly clear that the freight income derived by the assessee- company from the Indian operations was accrued in or derived from business carried on in Singapore. As such, it is regarded as Singapore sourced income and assessed to tax in Singapore on accrual basis and not on remittance basis. In light of this Certificate, there cannot remain any iota of doubt that the freight income derived by assessee-company from Indian operations in terms of Singapore Income Tax Act is to be reckoned as accrued in or derived from business carried in Singapore and not some kind of foreign income which is to be taxed on remittance basis. The authenticity of the aforesaid Certificate had come up for consideration before the Hon’ble Gujarat High Court in the case of India-Singapore DTAA and that too, in the case of a shipping company, M.T. Maersk Mikage vs. DIT (IT) (supra).The relevant observations of Hon‟ble Court are reproduced hereunder:-
“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 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 24would 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 asses sable in Singapore on accrual basis. It was elaborated that the full amount of income would be asses sable 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 24.1of 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 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 tax ability 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. 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 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 not a ground sought to be raised for the first time before us by the Revenue, for which, full factual evidence, nor legal foundation is laid. We leave such an issue open to be decided in the appropriate case.”
The aforesaid judgment of Hon’ble Gujarat High Court clearly clinches the issue in favor of the assessee, wherein the Hon’ble High Court has categorically held that the shipping income is not taxable in Singapore on the basis of remittance, but on accrual basis and, therefore, para 1 of Article 24 would not be applicable. Here, in this case also, the Hon’ble Court has heavily relied upon the confirmation letter/ Certificate issued by IRAS which confirmed the tax ability of global shipping income in Singapore on accrual basis. Their Lordships have also referred to the Rajkot Bench of the Tribunal in the case of Alabra Shipping Pte Ltd., (supra), which also lays down the same proposition. Thus, the conclusion and finding of ld. CIT (A) stands negated by these decisions and same is rejected. Further in light of the Hon’ble High Court judgment, the reliance on the decision in DIT (IT) vs. Thoresen Chartering Singapore (Pte.) Ltd. (supra) as heavily relied upon by ld. CIT (A) and Ld CIT DR, no longer holds good.
12. There is another angle to interpret Article 24, which is that, the said Article purports to exclude tax exemption in India if the income is not remitted or received in Singapore for taxation purpose on the premise that this is a foreign income to Singapore. First of all, it has to be seen whether shipping income is exempt from tax in India and; secondly, whether the shipping income is foreign income to Singapore which would then be taxable upon receipt or remittance to Singapore. The shipping income is dealt with under Article 8, which states that “profits derived by an enterprise of a contracting state from the operation of ships in international traffic shall be taxable only in that state, i.e., resident state.” The word “only” debars the other contracting state to tax the shipping income, that is, India is precluded from taxing the shipping income even if it is sourced from India. An enterprise which is tax-resident of Singapore is liable for taxation on its shipping income only in Singapore and not in India. Whence India does not have any taxation right on a shipping income of non- resident entity, which is exclusive domain of the resident state, there is no question of any kind of exemption or reduced rate of taxation in the source state. It only envisages territorial and jurisdictional rights for taxing the income and India has no jurisdiction for any taxing right which are governed by Article 8. There is no stipulation about exemption under Article 8 of the shipping income which as pointed out by ld. Senior Counsel has been specifically provided in some of the Articles like Article 20, 21 & 22. Hence, it cannot be reckoned that shipping income earned from India is to be treated as exempt from tax or taxed at reduced rate, which is a condition precedent for applicability of Article 24, albeit India at the threshold does not have the jurisdiction to tax the shipping income of the non-resident entity. Thus, the condition of Article 24 is not satisfied in the present case from this angle also.
In conclusion, we hold that the ld. CIT (A) was not justified in denying the benefit of Article 8 by invoking the limitation clause of Article 24 of India- Singapore DTAA as per our discussion above and most important, now this issue stands squarely covered by the decision of Hon’ble Gujarat High Court as referred above. In the light of our aforesaid finding, we do not deem fit to enter into the semantics of other findings of Ld. CIT (A) like nexus between remittance of freight collected in India and finally to Singapore various and other aspects raised by her and also the various arguments as raised by ld. Sr. Counsel and ld. CIT-DR qua the issue of Article 24.”
7. Thus, in view of the legal position as held by Co-ordinate Bench of this Tribunal, we find that the limitation prescribed under Article 24 of the Treaty is not applicable in the present case as the income earned by assessee on sale of debt instrument is not taxable in India as per Article 13(4) of Treaty. Thus, the observation of DRP that the assessee has not furnished any evidence that the Capital Gain earned in India, was remitted to Singapore has no relevance. Thus, we respectfully following the decision of Co-ordinate Bench in APL Company Pte Ltd. (supra) and in SET Satellite (supra) hold that the authorities below erred in denying the benefit of Article 13(4) of India-Singapore DTAA as Article 24 of the Treaty has no application. Hence, the appeal of the assessee is allowed.
