ITAT Rajkot held In the case of GAC Shipping India Pvt. Ltd. vs. ITO – International Taxation that entire freight income of the assessee, which is only from operation of ships in international traffic, is taxable only in Singapore.
It was held 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 the current case it is clear that the related income is taxable in Singapore on accrual basis and not on remittance basis, such an onus does not get triggered.
Facts of the Case
The appellant filed a return in respect of MT Alabra, which is owned by Alabra Shipping Pte Ltd of Singapore (ASPL-S) and the ASPL-S is freight beneficiary in respect of the same, as an agent of ASPL-S and under section 172(3). In the course of scrutinizing this return, the Assessing Officer noticed that while the assessee has claimed the benefit of India Singapore Double Taxation Avoidance Agreement [(1994) 209 ITR (St) 1 (Indo–Singapore tax treaty), the funds were remitted to freight beneficiary’s account with The Bank of Nova Scotia in London UK. It was in this background, and noting that the freight has been remitted to a country other than Singapore and that remittance to Singapore is a sine qua non for availing the benefits of the Indo-Singapore tax treaty, that the Assessing officer proceeded to, in view of limitations of benefits set out in article 24 of India Singapore tax treaty, decline the benefits of Indo-Singapore tax treaty.
Held by CIT (A)
The CIT (A) confirmed the action of the AO. It was held that following the judgment of Abacus International Pvt. Ltd Vs DDIT [ITA No. 1045/Mum/2008; order dated 31st May 2013; now reported as (2013) 34 taxmann.com 21 (Mumbai – Trib.)] in which it was held that the requirement of Article 24 is that the assessee must have received the interest income in Singapore, and also in absence of any evidence of bank slip or certificate from the bank that the sum has been remitted to Singapore, the benefit of Article 8 cannot be availed by the appellant.
Held by ITAT
There is no dispute that the business is being carried on by the assessee in Singapore and the assessee is a tax resident of the Singapore. By letter dated 31st December 2013, Inland Revenue Authority of Singapore has confirmed that, in the case of Albara Shipping Pte Ltd, “freight income has been regarded as Singapore sourced income and brought to tax on an accrual basis (and not remittance basis) in the year of assessment”. The assessee has also filed a confirmation dated 4th December 2013 from its public accountant that the freight of US $ 6,71,366 earned on MT Albara’s sailing from Sikka port has been included in the global income offered to tax by the company in Singapore.
On these facts, in our considered view, the provisions of Article 24 cannot be put into service as this provision can only be triggered when twin conditions of treaty protection, by low or no taxability, in the source jurisdiction and taxability on receipt basis, in the residence jurisdiction, are fulfilled. There is nothing on the record to even vaguely suggest that the freight receipts of ASPL-S were taxation only on receipt basis in Singapore. Quite to the contrary, there is reasonable evidence to demonstrate that such an income was taxable, on accrual basis, in the hands of the assessee. All this material was duly confronted to the Assessing Officer, in the remand proceedings, and the Assessing Officer could not demonstrate that the stand taken by the ASPL-S in this regard was incorrect.
As regards reliance of the authorities below on the decision of this Tribunal, in the case of Abacus International (2013) 34 taxmann.com 21 (Mumbai – Trib.), 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.
We have noted that the only reason for declining Indo Singapore tax treaty benefits was the application of Article 24 and that there is no other dispute on the claim of treaty protection of shipping income under article 8(1) which provides that, “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”. In this view of the matter, entire freight income of the assessee, which is only from operation of ships in international traffic, is taxable only in Singapore.
Accordingly, appeal of the assessee allowed.