|CORAM:||Pramod Kumar (AM), Rajpal Yadav (JM)|
|CATCH WORDS:||India-Singapore DTAA, Limitation of Benefits|
|DATE:||October 9, 2015 (Date of pronouncement)|
|DATE:||October 19, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Law on applicability of Article 24 of the India-Singapore DTAA (Limitation of Benefits) to a case where the income is not remitted to, or received in Singapore, explained|
The assessee, i.e. GAC Shipping India Pvt Ltd, filed a return in respect of MT Alabra, which is owned by Alabra Shipping Pte Ltd of Singapore (ASPL-S, in short) and the ASPL-S is freight beneficiary in respect of the same, as an agent of ASPL-S and under section 172(3) of the Act. The assessee claimed benefit of the India Singapore Double Taxation Avoidance Agreement, the funds were remitted to freight beneficiary’s account with The Bank of Nova Scotia in London UK. The AO held that as the freight was remitted to a country other than Singapore and remittance to Singapore is a sine qua non for availing the benefits of the Indo-Singapore tax treaty, the assessee was not entitled to the benefits of the benefits of the India Singapore tax treaty in view of Article 24 thereof. The CIT(A) confirmed the same by relying on 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.)]. On appeal by the assessee to the Tribunal HELD allowing the appeal:
(a) 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;
(b) On facts, there is no dispute that the business is being carried on by the assessee in Singapore and that the assessee is tax resident of Singapore. By letter dated 31st December 2013 (Reference no. 200716495G), 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, 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.
(c) 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.