Case Law Details
Atlantic Shipping Pvt. Ltd. Vs ITO (ITAT Rajkot)
In a recent ruling by the Income Tax Appellate Tribunal (ITAT) in Rajkot, the case of Atlantic Shipping Pvt. Ltd. vs. Income Tax Officer has brought to light critical issues regarding tax assessments for shipping companies operating in international waters and the applicability of the India-Singapore Double Taxation Avoidance Agreement (DTAA).
The case revolves around the income tax implications stemming from the certificate issued by the Inland Revenue Authority of Singapore, which affirmed that the income derived by Atlantic Shipping was assessable in Singapore on an accrual basis rather than on the remittance of funds.
Context of the Case
The Tribunal reviewed rival contentions and examined the relevant material, including past judgments and the implications of the certificate from Singapore. A key ruling from the Gujarat High Court regarding a similar issue in the case of M.T. Maersk Mikage was referenced. This earlier decision noted that the Singapore tax authority’s certificate indicated that income derived from operations in Singapore should be considered taxable there based on accrual rather than remittance.
The essence of the Gujarat High Court’s observations highlighted that the Singapore tax authority’s certificate had not been disputed by Indian revenue officials. The Court stated, “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 on the basis of remittance.”
Examination of the Certificate
However, the ITAT identified discrepancies in the certificate submitted by Atlantic Shipping. While the certificate stated that the charter income was derived from a business carried on in Singapore, the Tribunal noted the company had predominantly operated in international waters and at Indian ports.
The ITAT questioned the veracity of the certificate’s assertion that income was generated from a Singapore-based business, as it appeared contrary to the factual operations of Atlantic Shipping. Furthermore, the Tribunal pointed out that the certificate lacked a specific reference to Singapore tax laws, raising concerns about its validity and the basis of its conclusions.
The tribunal emphasized that Singapore’s territorial tax system only subjects income sourced from within Singapore to tax. This raises critical questions about how foreign income is treated under the treaty, particularly when the Indian entity is earning income from operations conducted in international waters.
Revenue’s Challenge
The ITAT also considered the revenue’s challenge to the certificate’s accuracy. The revenue argued that the assertions made in the certificate contradicted the provisions of the Singapore Income Tax Act, which focuses on remittance for offshore income to be taxable in Singapore. The Tribunal stated, “The Revenue does not question the genuineness of the certificate. It cannot dispute the contention on the ground that the same are opposed to the statutory provision.”
Despite the high court’s earlier rulings favoring the interpretation provided by the Singapore tax authority, the ITAT found that the ongoing dispute regarding the certificate’s contents warranted further investigation. The Tribunal concluded that since the revenue questioned the validity of the assertions made in the certificate, there was a need for a more detailed examination of the underlying facts and the certificate’s basis.
The Tribunal’s Decision
In light of these findings, the ITAT decided to restore the matter to the Assessing Officer for further verification of the certificate. The Tribunal instructed that if the revenue could not produce any substantial material to rebut the certificate’s claims, the company should be granted the necessary tax relief in line with the Gujarat High Court’s earlier rulings.
Consequently, the Tribunal’s ruling indicates a shift towards a more cautious approach, acknowledging the complexities of international tax law as it applies to companies like Atlantic Shipping, which engage in operations across multiple jurisdictions.
Conclusion
The ITAT’s ruling underscores the importance of precise documentation and clarity in tax assessments, especially for companies operating under international frameworks. As tax treaties evolve and interpretations of tax laws continue to develop, it becomes crucial for entities like Atlantic Shipping to navigate these complexities effectively.
The outcome of this case serves as a precedent for similar cases involving shipping companies and their tax obligations under international treaties, highlighting the need for rigorous scrutiny of claims made in tax authority certificates.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
These are appeals filed by the Assessee against orders passed by Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad & Commissioner of Income Tax (Appeals)-13, Ahmedabad (in short “CIT(A)”), vide orders dated 11.11.2013, 31.07.2019 & 29.08.2019 for A.Ys. 2012-13 and 2015-16. Since common facts and issues for consideration are before us for all the years under consideration, all the appeals are being disposed of by way of a common order.
Assessment Year 2012-13
2. The assessee has taken the following grounds of appeals:-
“1. On the facts and in the peculiar circumstances of the case and in law, the Hon’ble Commissioner of Income-tax (Appeals) [‘CIT(A)’] erred in not adjudicating Ground No. 1 raised by the appellant-agent i.e. the learned Income-tax Officer (‘ITO’) erred in assessing the income of the Principal, ST Shipping & Transport Pte. Ltd., Singapore (‘ST Shipping’) in the hands of the appellant-agent under section 172(4) of the IT Act without first issuing a draft of the proposed order as required under section 144C of the Income-tax Act, 1961 (‘IT Act’)
2. Without prejudice to Ground No. 1 above, on the facts and in the peculiar circumstances of the case and in law, the Hon’ble CIT(A) erred in not admitting the letter dated 9 January 2013 issued by the Inland Revenue Authority of Singapore (IRAS’) filed before him during the course of appellate proceedings without appreciating that this letter was issued only after completion of assessment and hence could not have been filed before the learned ITO.
2.1. Further, the Hon’ble CIT(A) erred in not admitting this letter even though an opportunity was granted to the learned ITO to furnish his remand report on the same.
3. On the facts and in the peculiar circumstances of the case and in law, the Hon’ble CIT(A) erred in confirming the action of the learned ITO in denying the benefit of Article 8 of India-Singapore Double Taxation Avoidance Agreement (‘Tax Treaty”) to the freight income earned by ST Shipping by invoking provisions of Article 24 (limitation of relief) of the Tax Treaty.
4. Without prejudice to Ground Nos. 1 to 3 above, on the facts and in the peculiar circumstances of the case and in law, the Hon’ble CIT(A) erred in holding that ST Shipping had failed to comply with the condition of remittance prescribed under Article 24 of the Tax Treaty.
5. Without prejudice to Ground Nos. 1 to 4 above, the Hon’ble CIT(A) erred in not appreciating that no income of ST Shipping could be brought to tax in India as the arm’s length commission paid to independent shipping agents in India, fully extinguishes the tax liability of ST Shipping in India.
6. Further to the above Grounds, the Hon’ble CIT(A) erred in:
- Not accepting that the provisions of section 172 apply only to occasional shipping business and not to shipping companies, like ST Shipping, engaged in ‘regular’ shipping business.
- Not appreciating that Article 24 of the Tax Treaty does not apply to ST Shipping as its freight income is taxable in Singapore on accrual basis and not remittance basis i.e. entire freight income is taxable in Singapore irrespective of remittance of freight to Singapore.
- Rejecting the clarification dated 9 January 2013 issued by the IRAS as a sufficient evidence in support of the accrual basis of taxation of ST Shipping’s income in Singapore under the Singapore tax laws as well as the non-applicability of Article 24 of the Tax Treaty to ST Shipping.
- Upholding the interpretation adopted by the learned ITO on the provisions of Singapore Income Tax Act i.e. the freight income cannot be regarded as Singapore sourced income under the provisions of Singapore Income Tax Act.
- Upholding the observations of the learned ITO that ST Shipping has filed incorrect / incomplete tax returns in Singapore although these were duly accepted by the IRAS.
The Appellant craves leave to add, later, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”
3. The brief facts relating to this case are that M/s. Atlantic Shippling Company Pvt. Ltd. (the assessee) filed return of income under Section 172(3) of the Act for various vessels operating in Indian territorial waters, during the impugned year under consideration. The Assessing Officer observed that the freight beneficiary in respect of various vessels was M/s. S. T. Shipping and Transport Pte. Ltd., a company based out of Singapore. The Assessing Officer called for certain details like copy of freight invoices and proof of remittances of the freight to the bank account of the beneficiary in Singapore. On perusal of the details filed by the assessee, the Assessing Officer observed that the amount had been remitted to a bank account in London, UK and was not received or remitted in Singapore. Accordingly, the Assessing Officer was of the view that the DTAA stipulates that the remittances have to be made to Singapore in order to claim the benefit of Article 8 of DTAA between India and Singapore, however, in this case, the funds have been remitted to a bank in London, UK. It therefore appears that it is not possible to allow the claim of exemption of the assessee under the relevant provisions of the DTAA. The Assessing Officer observed that the assessee has not filed any reply to the show-cause notice issued by the Assessing Officer, seeking to deny the treaty benefits in view of the express language of Article 24 of the India-Singapore DTAA (Limitation of Relief) which states that the receipts, from such transaction of shipping operations in international traffic should be remitted into contracting state for the assessee to claim the benefit of Article 8 of the DTAA. In this case, the funds were remitted to London and not to Singapore. Article 24 of the DTAA between India-Singapore specifically states that the funds have to be remitted to the country where the resident has claimed the benefits of the DTAA. In the instant case, the freight beneficiary was ST Shipping and Transport Pte. Ltd. of Singapore and hence the funds ought to have been remitted to Singapore. Since the funds have not been remitted to Singapore, the benefit of DTAA and subsequent exemption cannot be granted to the assessee.
4. The assessee filed appeal before the Ld. CIT(A) against the order passed by the Assessing Officer, denying the benefits of treaty exemption to the assessee in view of Article 24 of the India-Singapore DTAA. During the course of appellate proceedings, the assessee sought to file additional evidence in support of non-applicability of provisions of Article 24 of the DTAA. The assessee filed furnished certificate dated 09.01.2013 issued by Inland Revenue Authority of Singapore (“IRAS”) to ST Shipping Confirming non-applicability of provisions of Article 24 of the India-Singapore Tax Treaty. Accordingly, the CIT(A) sought comments and remitted the matter to the Assessing Officer for his verification and his views on the admissibility of additional evidence, sought to be filed by the assessee. On going through the remand report issue by the concerned Assessing Officer and the assessee’s rejoinder to the same, the Ld. CIT(A) refused to admit the additional evidence with the following observations:-
“Admissibility of additional evidences
It is observed from the records that the time limit under section 172(4) was getting expired on December 31, 2012, arid the show cause notice was issued on December 10, 2012. I am of the view that sufficient opportunity was afforded to the appellant to substantiate the claim and submit all the information called upon by the AO. However the appellant company has failed to prove before me circumstances which prevented him to furnish all the information before the AO, It is also not the case of the appellant that the AO had refused to admit evidences submitted before him. The appellant’s application for admission of additional evidences is also silent on the circumstances which led him to file additional evidences for the first time before me. Accordingly the evidences filed by the appellant cannot be admitted under Rule 46A of the Income Tax Rules, 1962.”
5. On merits, Ld. CIT(A) observed that that language of Article 24 of the India-Singapore Treaty is categorical on this issue and in terms of the language on the India-Singapore Treaty the benefit has to be restricted to the amount of income received / remitted in Singapore. The CIT(A) observed that the Assessing Officer had specifically directed the assessee to bring on record whether the funds which have been received in Singapore. However, the assessee did not file any details before the Ld. A.O. Further, even during the remand proceedings, the assessee failed to provide any proof that proceeds have eventually been transferred to Singapore. The assessee instead get a post facto approval from Singapore Tax Authority to the effect that the case of the assessee is not covered under Article 24 of the India-Singapore Treaty. The CIT(A) observed that the letter issued by IRAS (Singapore Tax Authority) is silent on the fact whether the sums/proceeds have been received in Singapore or not. The letter only gives a view that the charter income is taxable in Singapore on accrual basis. Further, the CIT(A) was of the view that the aforesaid letter is only an opinion of the Singapore Tax Authority and the assessee has not proved that the income has been offered for taxation in Singapore. Further, nowhere in the letter the Singapore Tax Authority had certified that said proceeds were received in Singapore and have been offered to tax return filed as per Singapore Tax Laws. The CIT(A) was of the view that receipt of funds in Singapore is a sine qua non for getting relief under Article 8 of the India-Singapore Tax Treaty as held by Mumbai ITAT in the case of Abacus International Pvt. Ltd. 34 taxmann.com 21 (Mumbai-Tribunal). Further, the Ld. CIT(A) was of the view that the Article 24 is applicable both to exempt income and income at reduced rate of taxation and the argument of the assessee that Abacus International Pvt. Ltd. (supra) is not applicable, is a flawed argument. Accordingly, Ld. CIT(A) was of the view that the assessee is not eligible for Tax Treaty benefit in view of express language of Article 24 of the India-Singapore Tax Treaty.
6. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) upholding the order of Assessing Officer that the assessee is not eligible for Tax Treaty benefits in view of the express language of Article 24 of the India-Singapore Treaty, since in this case the funds were not remitted to Singapore which is a pre-requisite for claiming benefit of Article 8 of the India-Singapore Tax Treaty.
7. We shall discuss the specific arguments of the Ld. Counsel for the assessee and our views / decision on the same. Before us, the Ld. Counsel for the assessee firstly argued that since the assessee has earned freight income by shipping goods to ports in India, the benefit of Article 8 of India-Singapore Treaty is available to the assessee. With regard to applicability of Article 24, the Counsel for the assessee submitted that there are two conditions which are required to be fulfilled for Article 24 of India-Singapore Tax Treaty to be applicable. It was submitted that since both the conditions have not been satisfied, in the instant facts, the restriction imposed by Article 24 of the India-Singapore Tax Treaty would not be applicable to the instant facts.
8. The first argument of the Counsel for the assessee is that the first condition for Article 24 of India-Singapore Treaty to be applicable is that “income from sources in a Contracting State shall be exempt from tax or taxed at a reduced rate in that Contracting State”. Accordingly, the Counsel for the assessee submitted that Article 24 limits the exemption, in case income is “exempt from tax” or “taxed at reduced rate” in India and further such income is taxable in country of residence (Singapore) on receipt basis. The Counsel for the assessee submitted that as per Article 8 of India-Singapore Treaty, only the recipient country has the right of taxation of freight income earned from operation of ships in international traffic. Therefore, Article 8(1) of Treaty is not an “exemption provision” but an “enabling provision” and by entering into Treaty with Singapore, India has given up his it’s to tax shipping income of a non-resident in India. Therefore, it was submitted that Article 8 is not an “exemption provision”, but only a provision which provides a taxation right to the country of residence. Therefore, international shipping income earned by the assessee is not “exempted” in India, and is taxable only in the country of residence i.e. Singapore. The Counsel for the assessee submitted that exclusive right of taxation in Singapore is not same as specific exemption being available in India. Therefore, when India does not have any taxation rights on shipping income of nonresident entity, “exemption” or “reduced rate of taxation” in the source State is of no relevance because once the taxing right has been given up, the other conditions like exemption or reduced rate of tax has no bearing on the taxability on a particular income in the other Contracting State. The Counsel for the assessee placed reliance on some judicial precedents in support on the above contention.
9. We observe that some of the case laws on which reliance is sought to be placed are not related to shipping companies and hence does not involve applicability of Article 8 in relation to taxation of shipping companies. Accordingly, in our considered view, reliance cannot be placed on those decisions since the applicable treaty provisions (Article 8) is differently worded and have no application with respect to taxation of shipping companies.
10. Secondly, in our considered view, we are unable to agree with the contention / arguments of the Counsel for the assessee on this point, because if the aforesaid interpretation were to be accepted, then this would imply that whenever a specific clause of tax treaty gives taxing rights to the country of residence, then by necessary implication Article 24 (Limitation of Relief clause) will have no applicability. This would effectively render Article 24 of the India Tax Treaty otiose / redundant. The limitation of relief clause has been introduced primarily with a view to ensure that the tax treaty benefits are not abused / misused and no benefit is derived which was not intended to be granted to a Contracting State under the Tax Treaty. Singapore has a territorial tax system so that only income sourced in Singapore is subject to tax. Taxation of on foreign sourced income (income earned off-shore) by a Singapore resident company is not subject to tax unless the income is received in Singapore or deemed remitted to Singapore. The term “received” in Singapore includes remitted to, transmitted to or brought into Singapore, used to satisfy any debt incurred in respect of a trade or business carried on in Singapore or used to purchase any movable property (such as equipment, raw material etc.) that is then brought into Singapore. Therefore, the limitation of relief clause has been introduced with the objective that in case “exemption from taxation in source country” has been claimed by the resident Singapore Company under the relevant Article under the India-Singapore Treaty DTAA, then it should not happen that such income is not remitted by the Singapore resident company to Singapore (which follows a territorial tax system) and such income is remitted to another country levying no tax or reduced tax on such foreign sourced income. This would result in the resident Singapore company claiming the benefit of double non-taxation (neither taxed in India, nor taxed in Singapore), which is not the intention under the India-Singapore Treaty and specifically, it is this unintended benefit, which is sought to be curtailed by Article 24 of the India-Singapore Tax Treaty.
11. Article 8 of the India-Singapore Tax Treaty (Shipping and Air Transport) provides that profit derived by enterprise of Singapore shall be taxable only in Singapore. Further, in our view, Article 24 (Limitation of Relief), while it states that “this agreement provides that income from sources in a Contracting State shall be exempted from tax”, should be read in a manner that such income is exempted from “source taxation” or “exempted from tax in the source country” as this would be a harmonious interpretation of Article 8 read with Article 24 of the India-Singapore Tax Treaty. Notably, even OECD commentary speaks of exemption from “source taxation” especially when discussing about permanent establishment being “exempted from tax in the source country”. Therefore, on a harmonious interpretation, Article 24 of the DTAA speaks of those incomes, which are exempted from “source taxation”, as well. This is for the reason that profits derived from operation of ships in international traffic, should be normally subject to tax in the country of residence under Article 8. However, this is subject to the limitation in Article 24 that such profits are remitted to Singapore, which follows a territorial system of taxation wherein offshore income is taxed in Singapore on part that only which has been received or remitted in Singapore. Accordingly, in our considered view Article 8 of India-Singapore Tax Treaty exempts income earned by an enterprise from operation of ships in international traffic from “source taxation”, subject to such profits being remitted / or received in Singapore which alone are taxable in Singapore. Therefore, in our considered view, looking into the instant facts, the argument of the Ld. Counsel for the assessee that condition “one” has not been satisfied in the instant facts cannot be accepted, for this would lead to Article 24 of the India-Singapore DTAA as being redundant / otiose and the non-resident taxpayer getting benefit of double non-taxation of India sourced income, which is clearly not intended under the India-Singapore Tax Treaty.
12. Accordingly, this argument of the Counsel for the assessee is hereby rejected for the aforesaid reasons cited above.
13. The second argument of the Counsel for the assessee was that Article 24 provides that this Article is applicable when the said income is subject to tax in country at residence i.e. Singapore by reference to the amount “which is remitted to or received in Singapore”. The Counsel for the assessee submitted that Article 24 is not applicable to the instant facts because under the laws in force in Singapore, the said income is subject to tax on “accrual basis” and not by reference to the amount which is “remitted to or received in” Singapore. The Counsel for the assessee made two contentions in support of this argument.
14. Firstly, the Counsel for the assessee placed reliance on a certificate from the Inland Revenue Authority of Singapore (IRAS) which certified that the income in question would be considered as income derived from business carried on in Singapore and such income, therefore, would be assessable in Singapore on “accrual basis” (and not with reference to the amount which has been remitted or received in Singapore).
15. Secondly, the Counsel for the assessee placed reliance on various judicial precedents on this issue including the one rendered by the Gujarat High Court in the assessee’s own case in the case of M. T. Maersk Mikage vs. DIT (Intl. Taxation) 72 com 359 (Gujarat H.C.) for the immediately preceding year. Accordingly, the Counsel for the assessee submitted before us that this issue is covered in favour of the assessee in view of the letter issued by the Singapore Tax Authorities, which has also been considered by the Gujarat High Court in the assessee’s own case in the preceding assessment years, while giving relief to the assessee on an identical issue. Accordingly, in view of the above facts, and letter issued by the Singapore Tax Authorities, this issue stands covered in favour of the assessee.
16. In response, the Ld. D.R. challenged the applicability of the letter issued by Singapore Tax Authorities. The Ld. D.R. placed reliance on the observations made by Ld. CIT(A) and the Ld. A.O. forming part of the remand report (as encapsulated in the order passed by Ld. CIT(A)) and submitted that the contents of the letter cannot be placed reliance upon. The Ld. D.R. also sought time for obtaining further clarity from the Singapore Tax Authority on the contents of the letter. However, owing to paucity of time, the clarification could not be obtained despite substantial efforts by Ld. CIT D.R. and the matter being adjourned several times.
17. We have heard the rival contentions and perused the material on record.
18. At the outset, it would be useful to reproduce the relevant extracts of the ruling by the Gujarat High Court and the observations made by the Gujarat High Court with respect to the certificate issued by the Singapore Tax Authority:-
“As is held in M.T. Maersk Mikage (the case of very Assessee for the immediately preceding year) by the Hon’ble Gujarat High Court held as:
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 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. In the aforesaid decision, it may be observed that Gujarat High Court has stated that vide this letter, the Revenue Authority of Singapore went on to opine that Article 24.1 of DTAA would not be applicable, however, the High Court may not be fully guided by this because this falls within the realm of “interpretation” of relevant clauses of the DTAA. Secondly, the Gujarat High Court further noted that in absence of any rebuttal material produced by Revenue, the Court would be guided by the factual declaration made by the Singapore Authority considering the income is an income accruing or derived from business carried on in Singapore. The High Court observed contents of the certificate have not been doubted by the Department / Revenue therefore, this would knock out the very basis of invoking Article 24(1) of the Treaty. Therefore, effectively, the Gujarat High Court has made the following observations:.
Firstly, the certificate is in the form of an opinion, which is in the realm of interpretation of relevant clauses of DTAA, and the High Court cannot be guided by such interpretation.
Secondly, since the Revenue has not challenged or doubted the certificate issued by the Singapore Tax Authority, and had not produced any rebuttal material, the certificate has knocked out the very basis of applicability of Article 24(1) of the DTAA.
20. However, for the impugned assessment years, the factual situation is different from the preceding assessment year which were before Hon’ble Gujarat High Court, since the Ld. D.R. has challenged the veracity of the very certificate which was produced by the assessee for the first time during the course of appellate proceedings before Ld. CIT(A). Therefore, in view of the observations made by Gujarat High Court, and the challenge by the Ld. D.R. as to contents of the certificate issued by Singapore Tax Authority, it would be pertinent to take a closer look at the certificate issued by the Singapore Tax Authorities and it’s applicability to the instant facts.
21. As stated by us earlier, Singapore follows a territorial tax system so that only income sourced in Singapore is taxed. Taxation of foreign source income (income earned offshore) by a Singapore resident company is not subject to tax, unless the income is received in Singapore or deemed remitted to Singapore. The Counsel for the assessee has submitted a certificate which firstly states that the charter income has been derived by the assessee “from a business carried on in Singapore”, and therefore, assessable to tax in Singapore on “accrual basis”. However, in our view, there are certain factual inaccuracies in the aforesaid certificate issued by Singapore Tax Authorities. Admittedly, in the instant case, the assessee has been taken the benefit of Article 8 of India-Singapore Tax Treaty on the ground that it has been deriving profits from operation of ships in international waters. It is an admitted factual position that the assessee has been operating in international waters and earning income from transportation operations being carried out at ports in India. Therefore, the very basis of statement made in the certificate that income derived by the assessee is from “business carried on in Singapore” is questionable and it is not clear to us as to on what basis, this aforesaid statement has been made in the certificate, specifically when it is an admitted fact that the assessee has been earning foreign sourced income from plying in international waters. The certificate has not given any basis whatsoever as to how the assessee is deriving income from “business carried on in Singapore”, when admittedly, the assessee has been operating in international waters and taking benefit of Article 8 of the India Singapore Tax Treaty”.
22. Secondly, as noted by Gujarat High Court, the certificate is in the form of our opinion, which has no binding effect on the Court since it relates to interpretation of tax treaty provision. In the instant facts, first after having concluded that the assessee is deriving income from “business carried out in Singapore”, the certificate goes on to state that the income is therefore assessable to tax in Singapore on “accrual basis”. The certificate has not made reference to any specific taxing provision under the Singapore Tax Laws while coming to the conclusion that assessee is assessable to tax in Singapore on “accrual basis”. Apparently, the assessee is deriving substantial income from carrying out substantial shipping activities within the territorial waters of India and is seeking to override the limitation of relief provided under the Treaty on the ground that as per certificate, the assessee is carrying out operations in Singapore and hence is taxable in Singapore on “accrual basis”. Therefore, since Article 24(1) limits the relief only with respect to income which is taxed in Singapore on remittance / receipt basis and has no applicability on income taxable in Singapore on “accrual basis”, this certificate has the effect of ousting the applicability of the limitation of relief clause in the India-Singapore Tax Treaty. However, as noted above, the language of the certificate, as also observed by Hon’ble Gujarat High Court, is in the form of an opinion, specifically aimed at eclipsing the limitation of relief clause, by stating that the aforesaid income, which has been derived by the assessee from “business carried on in Singapore” is assessable to tax in Singapore on “accrual basis”. However, the certificate does not specify the factual basis on which the Singapore tax authority has come to the conclusion that income from shipping business have been derived by the assessee from “business carried on in Singapore”, when admittedly the aforesaid income has been earned by the assessee from transportation activities carried out at India ports. Secondly, there is no specific statutory provisions which has been mentioned in the letter which would lead to the conclusion that such shipping company derived from carrying out operations in international waters (more particularly Indian ports), would be taxable in Singapore on “accrual basis”, specifically in light of the fact that Singapore has a territorial tax system so that only income sourced in Singapore is subject to tax on accrual basis and taxation of a foreign source income (income earned offshore) by Singapore resident company is not subject to tax unless the income is received in Singapore or deemed remitted to Singapore. However, despite substantial attempts, due to paucity of time, the Department was unable to obtain the necessary clarification from the Singapore Tax Authority on this issue as how it can be stated that firstly, assessee is carrying on “business in Singapore” and on what basis has the Singapore Tax Authorities came to the conclusion that assessee is taxable on “accrual basis”. Further, even the Gujarat High Court has observed that this certificate is in the form of opinion and has sought to knock out the very basis of the Assessing Officer and CIT for invoking Clause (1) of Article 24 of the DTAA. Therefore, in view of the observations of the Hon’ble Gujarat High Court to the effect that in absence of any “doubt” as to contents of the certificate by the Indian Revenue Authorities, the Court is bound to accept the contents of the letter by IRAS as correct and the specific challenge to the contents of the certificate by the Revenue Authorities, both before passed Ld. CIT(A) as well as before us by Ld. D.R. during the course of appellate proceedings, we are of the considered view that it is a fit case where the contents of the certificate required further verification, since effectively the entire revenue earned by shipping companies from operating in territorial waters of India is sought to be claimed as exempt from applicability of provisions of Clause (1) of Article 24 of India-Singapore DTAA, on the basis of the contents of this letter issued by the Singapore Tax Authorities. However, as noted above, from a reading of the letter issued by the Singapore Tax Authorities, it is unclear to us as to how the income in question has been earned from a “business carried out in Singapore” and hence taxable on “accrual basis” in Singapore. This question has been raised by the Department both as part of the order of CIT(A) (in the remand report) and also before us by the Ld. D.R. We also observe that the letter issued by IRAS does not refer to any statutory provisions under the Singapore Tax Laws and is more in the form of a unilateral opinion / declaration that since the income has been earned by the assessee on “accrual basis”, Article 24 of the DTAA (Limitation of Relief Clause) will have no applicability to the assessee’s set of facts. Since the entire case of the assessee for various assessment years under consideration hinges on the statement issued by the Singapore Tax Authority and as noted by the Gujarat High Court, the certificate is merely in the form of an opinion, in our considered view, it is a fit case where the basis of issuance of this certificate needs to be looked into in more detail, especially in the absence of any statutory provisions being cited in the aforesaid certificate of as to how the assessee is taxable in Singapore on “accrual basis” (especially when Singapore follows a territorial tax system where offshore income is taxable on receipts / deemed remittance basis) and on what basis the Singapore Tax Authority has come to the unequivocal conclusion that income has been derived from “business carried on in Singapore” by the assessee.
23. In the result, the matter is restored to the file of Assessing Officer to verify the contents of the aforesaid certificate and in case, the Department is unable to obtain any specific material to rebut the contents of the certificate issued by Singapore Tax Authorities, then respectfully following the decision of Gujarat High Court in the assessee’s own case referred to above, relief may be granted to the assessee, in accordance with law.
24. In the result, the appeal of the assessee is allowed for statistical purposes.
25. The grounds raised by the assessee in relation to A.Ys. 2012-13 and 2015-16 are identical to A.Y. 2012-13 and our observations for A.Y. 2012-13 would apply to grounds of appeal raised by the assessee for A.Ys. 2012-13 and 2015-16 as well.
26. In the result, the appeal of the assessee is allowed for statistical purposes for the impugned A.Ys. 2012-13 and 2015-16.
This Order pronounced in Open Court on 21/03/2024
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