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2024 (3) TMI 1120 - AT - Income TaxEntitlement to benefits of treaty exemption - India-Singapore DTAA - Taxation of shipping companies - funds which have been received in Singapore or not? - assessee's 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” - HELD THAT:- 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 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. Accordingly, this argument of assessee is hereby rejected for the aforesaid reasons cited above. 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 - As 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. In the result, the matter is restored to the file of AO 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 [2016 (9) TMI 19 - GUJARAT HIGH COURT] relief may be granted to the assessee, in accordance with law. Appeal of the assessee is allowed for statistical purposes.
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