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2008 (6) TMI 227 - AT - Income TaxApplicability of s. 44B - income from "ship operation" - Additional Evidence - charter party agreement - Applicability of Article 8 vis-a-vis Article 24 of DTAA between India and Singapore - Assessee company is incorporated and tax resident of Singapore - AO denied the exemption provided by art. 8 on the ground that the assessee had not furnished any charter party agreements before him - Interest u/s. 234B. Applicability of art. 8 - HELD THAT:- The assessee has not carried on the transportation of passenger or goods by itself but simply acted as one of the links between the actual transporter Hero Shipping Co. Ltd. and the owner of cargo (Ruchi Soya Industries). The activity of actual transportation was done by Hero Shipping. The assessee simply earned US$ 0.18 PMT as difference between the amount settled as payable by it to Hero Shipping Co., i.e., US$ 17.42 PMT and the amount receivable from Aavanti Shipping & Chartering Ltd. at US$ 17.60 PMT. It is, therefore, vivid that the assessee is only an agent between the owner of ship and the contractor of owner of cargo and hence cannot be characterised as the transporter as it is not satisfying the condition of actual transportation - Unless the main activity of transportation is carried on by the assessee, the question of other directly connected activity with transportation cannot arise. Under these circumstances. we are convinced that the learned CIT(A) erred in coming to the conclusion that the assessee is entitled to the benefit of art. 8 of the DTAA - As the nature of business carried on by the assessee does not satisfy the conditions laid down in art. 8, we are of the considered opinion that the learned CIT(A) was not justified in entitling the assessee to the benefit flowing therefrom. The impugned order, on this aspect of the matter is therefore, overturned. Applicability of art. 24 vis-a-vis art. 8 - HELD THAT:- It would be relevant to consider the impact of art. 24 being "limitation of relief". This article stipulates that where income from sources in Contracting State is exempt from tax or tax at a reduced rate and is taxable in the other Contracting State, the exemption or reduction of tax shall be restricted to the extent the income is remitted to or received in the other Contracting State. In other words, if the income is not taxable in the country of source, but is taxable in the country of residence by virtue of any provision in DTAA, as the art. 8 in the present case, then the source country (India in the present case) would allow the exemption only to the extent to which the income has been received in other Contracting State (Singapore). If the amount of income is not remitted to the country of residence, then the country of source shall be entitled to charge tax on that part of the income as per its own provisions - the learned CIT(A) has rightly held that the amount of income which is not remitted to or received in Singapore is not entitled to the benefit of art. 8. The additional ground, therefore, raised by the assessee is dismissed. Applicability or otherwise of art. 7 - HELD THAT:- The benefit of art. 8 was held to be not available to the assessee in view of art. 24 and the total freight collected amounting to Rs. 19,70 crores was subject to tax under s, 44B of the Act, The AO has not gone into the applicability or otherwise of art. 7. The learned CIT(A) held that art. 8 was applicable to the extent of income remitted or received in Singapore and allowed the relief accordingly. It is austere that if the benefit of art. 8 cannot be provided then the taxability of business profit has to be considered in terms of art. 7. Taxability would be attracted as per art. 7 only if the business is carried out in India through a PE and only that much of the profit which is directly or indirectly attributable to that PE can be taxed in India. Thus, it is of paramount importance to first determine whether the assessee has a PE in India or not. If the AO comes to the conclusion that there is a PE in India, then only that much of the profit as is attributable to that PE can be taxed in India. None of these questions have been addressed to in the assessment order inasmuch as there is no discussion about the PE and the profit attributable to such PE. The assessment was concluded only by examining arts. 8 and 24. In view of the AO's finding of non-applicability of art. 8, the mandate of art. 7 should have been examined for the purpose of taxation. In our considered opinion, the ends of justice would meet sufficiently if the impugned order is set aside and the matter is restored to the file of the AO for de novo adjudication of the matter in terms of our decision rendered in earlier paras after allowing a reasonable opportunity of being heard to the assessee. Interest under s. 234B - HELD THAT:- Once it is held that the income of assessee is subject to TDS, no liability for payment of advance tax can be fastened on the assessee. An identical issue came up before the Mumbai Bench of the Tribunal in Dy. Director of IT vs. R. Liners Ltd. held that interest u/s. 234B cannot be charged under these circumstances. Both of us are party of this order. We, therefore, approve the action of the learned CIT(A) in holding that interest u/s. 234B cannot be charged in the present case. The appeals are partly allowed for statistical purposes.
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