9911796707
TMI Blog2017 (2) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. 2. On the facts and in the peculiar circumstances of the case and in law, the Hon'ble CIT (A) erred in making an addition by denying the benefit of the Tax Treaty to the entire freight of Rs. 1106.89 crores earned by the appellant from its India operations by invoking provisions of Article 24 (limitation of relief) of the Tax Treaty. 3. On the facts and in the peculiar circumstances of the case and in law, the Hon'ble CIT(A) erred in holding that the appellant had failed to comply with the condition of remittance prescribed under Article 24 of the Tax Treaty without appreciating that: * adjustment of cross claims and settlement on account of set-off tantamount to an actual/constructive receipt in Singapore * money was ultimately remitted to Singapore as certified by the appellant's bankers 4 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 Assessing Officer ('AO') in holding APL India Pvt. Ltd. ('APL India") as an agency permanent establishment ('PE') of the appellant in India under Article 5(8) of the Tax Treaty. 5. Without prejudice to the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 21 February 2013 issued by the Singapore Revenue Authorities as sufficient evidence in support of the accrual basis of taxation of appellant's income in Singapore under the Singapore tax laws as well as the non-applicability of Article 24 of the Tax Treaty to the appellant. * Wrongly interpreting the provisions of a foreign tax law (i.e. Singapore Income Tax Act and Circulars issued there under) by holding that the freight income cannot be regarded as Singapore sourced income under the provisions of Singapore Income Tax Act and further disregarding the clarification issued by the Singapore Revenue Authorities on the subject. * Holding that the appellant has filed incorrect tax returns in Singapore although these were duly accepted by the Singapore revenue authorities. 9. On the facts and in the peculiar circumstances of the case and in law, the Hon'ble CIT(A) erred in enhancing the assessment under section 251 of the Income-tax Act, 1961 although she had no powers to do so. 10. On the facts and in the peculiar circumstances of the case and in law, the Hon'ble CIT(A) erred in not adjudicating Ground No. 1.6 and 2.6 raised before her to the effect that the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,04,892 - 5 TS Nagoya 30,41,420 - 6 Ninos 24,66,622 89,607 7 San Isidro 3,01,568 8 IthaBhum 33,36,428 63,896 2,27,49,762 2,38,970 3. The Assessing Officer further held that assessee could not establish that it is operating these 8 ships on its own and it is quite possible that these ships might be operated by third parties. Accordingly, he applied the provisions of Sec. 44B of the Act and taxed the said receipt @ 7.5%. The Assessing Officer further observed that assessee had an exclusive agent in the form of "APL India Pvt. Ltd.", who performed all the work relating to assessee in all the Indian ports where the assessee"s ships arrived. After detailed discussion, he came to the conclusion that "APL India Pvt. Ltd." is dependent agent PE in terms of Article 5 of India-Singapore DTAA. Accordingly, he brought to tax a sum of Rs. 22,98,870/- in the following manner :- Gross receipt and detention charges from shipping business excluding the receipt on which DTAA relief is not granted Rs.11,04,58,63,611/- 7.5% of the above as per Sec. 44-B of the Act Rs.82,84,39,711/- Tax payable @ 40% on the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. The freight income accrues in or is derived from India and it cannot be said to accrue in or derived from Singapore. * Under section 10(1) of the "Singapore Income Tax Act" (SITA), tax is levied on income that accrues in or is derived from Singapore and also on income, that is, received in Singapore from outside Singapore. Freight income from India does not accrue in Singapore so it can be taxed in Singapore only if it is received in/ remitted to Singapore. ii) On nexus between remittance of freight collected in India and finally remitted to Singapore:- * No nexus / direct link between freight collected from India and amount finally remitted to Singapore by group entity. * The freight collected from India is initially merged with freight remittances from other countries in the central bank account of the assessee maintained in New York. * Thereafter the funds are remitted from the assessee's New York bank account to APL Bermuda's New York bank. Here again the funds get merged with the other funds of APL Bermuda which are maintained in its New York bank account. Hence, there is no basis to conclude that any remittance made by APL Bermuda from its New York ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 24 applies only to incomes which are 'exempt from tax' and not to incomes which are 'taxable only in one state', by making a distinction between the wordings used in Article 24 and Article 8 of the DTAA, is rejected holding that Art.24 applies only to income which accrues outside Singapore and is not remitted to Singapore. * Reliance placed by the assessee on the decision of Mumbai Tribunal in case of Set Satellite Singapore (Pte) Ltd is distinguishable, albeit the Assessee's case is covered by the decision of the Mumbai Tribunal in case of Thoresen Chartering Singapore Pte Ltd. vi) On accrual of (Indian) freight income in Singapore and taxability on accrual basis and not on remittance basis in Singapore, Ld. CIT(A) held that - Freight income accrues in India. * Argument of the Assessee that the freight income from India has accrued in Singapore because income accrues where control and management is exercised, is totally contrary to the settled position of law in India regarding interpretation of the term 'accrual'. * The Assessee is essentially rendering a service of transportation. In the case of provision of services, the income accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singapore Return, it is seen that the entire income has been claimed as exempt and no tax is really payable in Singapore based on the Return. Hence the assessee incurs no liability by wrongly including the freight income from India in the return of Singapore. Similarly, the lRAS cannot tax the shipping income in any event and their acceptance of a Nil return does not establish that income has accrued in Singapore. x) Conclusion on Article 24 - summary:- * The language of Article 24 is categorical and it provides in clear terms that income for which relief is claimed under the DTAA in India has to be received in or remitted to Singapore. Thus nexus has to be established which the assessee has not shown in this ease. * The requirement of nexus between the Indian Freight and the remittance in Singapore is all the more important because Singapore has similar limitation on relief clause in its DTAA with various other countries. * The onus is on the assessee to produce proper evidence to show that the income has been received in Singapore. The evidence produced must be clear and unambiguous, leaving no room for doubt. If the evidence is in the form of a certificate, it must not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a resident of a contracting state if he is liable to unlimited taxation his global income there. Since Singapore does not tax overseas income of its residents unless remitted to Singapore, article 4 of India Singapore DTAA is differently worded, and has to read with article 24. In this case DTAA benefit is not being denied because assessee is not considered as a resident of Singapore but rather in terms of article 24 of the DTAA. It was particularly noted by the SC in AzadiBachaoAndolan that there was no Limitation of Benefit provision in India- Mauritius DTAA. 7. Before us, the ld. Senior Counsel, Mr.Pardiwala after referring to the relevant phrases used in Article 24 of India- Singapore DTAA submitted that the provisions of Article 24 are not attracted to income which is governed by Article 8 of DTAA. The said provision will only apply to an income which is either "exempt from tax in India" or "taxed at a reduced rate" in India as per the DTAA. Article 8(1) which deals with taxability of shipping profits provides that the profits derived by an enterprise of contracting state (resident state) from the operation of ships or aircrafts in international traffic shall be taxable only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of his contention, he drew our specific attention to income-tax returns filed by assessee in Singapore for the relevant year to show that the entire freight income from shipping business has been declared and shown in the income-tax return. Thereafter, he drew our specific attention to the Certificate/Confirmation given by "Inland Revenue Authority of Singapore" (IRAS) which is appearing at page 106 of the Paper Book, wherein it has been categorically confirmed that Article 24 of DTAA does not apply to freight income earned by the assessee. The said clarification from IRAS clearly clinches the issue that basis of taxation of assessee"s freight income from shipping business is on accrual basis. Thus, the entire income from shipping has been shown on actual basis in Singapore and it will not make any difference whatsoever even if under the Singapore Income- tax Act, shipping income is ultimately not taxable. 8. In support of the aforesaid contentions, Shri Pardiwala strongly relied on the decision of ITAT, Rajkot Bench in the case of Alabra Shipping Pte Ltd., 62 taxmann.com 185, wherein the Tribunal has held that Article 24 has no applicability in the case of shipping compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee"s shipping operations is first collected in bank account centrally maintained in New York (Citibank account), which is done purely for commercial and administrative reasons due to time difference between New York and Singapore and once the funds are deposited, various debts and liabilities are discharged and the balance amount is remitted to Singapore bank account. Thus, the condition of remittance to Singapore stands settled. 10. On the other hand, the ld. CIT-DR, Ms. Vandana Sagar after referring to the various observations and findings given by the ld. CIT(A) (as incorporated above), submitted that this issue is squarely covered by the decision of ITAT, Mumbai Bench in the case of DIT(IT) vs. Thoresen Chartering Singapore (Pte.) Ltd., 315 ITR(AT) 376 (Mumbai). In this case, the Tribunal while dealing with the issue of Article 8 and 24 of India- Singapore DTAA held that the shipping income remitted or received in Singapore will not be entitled for benefit of Article 8 of DTAA after analysing the provisions of Article 24. She further submitted that once the assessee has chosen to take the benefit of the DTAA, then it cannot go back to rely upon the Singapore tax laws. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material referred to before us. Before we dwell upon the issue as to whether the limitation clause as appearing in Article 24 of India-Singapore DTAA is applicable to the facts of present case or not, it would be relevant to peruse the relevant Article itself, which for the sake of ready reference is reproduced hereunder :- "Article 24: Limitation of relief - 1. Where this Agreement provides (with or without other conditions) that income from sources in a Contracting State shall be exempt from tax, or taxed at a reduced rate in that Contracting State and under the laws in force in the other Contracting State the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under this Agreement in the first-mentioned Contracting State shall apply to so much of the income as is remitted to or received in that other Contracting State. 2. However, this limitation does not apply to income derived by the Government of a Contracting State or any person approved by the competent authority of that State for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws of Singapore is regarded as "accruing in or derived from Singapore". The shipping income from overseas is not treated as foreign income because it is accrued in and derived from Singapore. From the plain reading of Sec. 10(1) of Singapore Income Tax Act it can be inferred that firstly, the tax is on income accruing in or derived from Singapore and it is completely irrelevant whether the income is received in Singapore or not and; secondly, where the income is accrued or is derived from outside Singapore, the liability to tax arises on such foreign income only if the foreign income is received in Singapore. It has already been brought on record and also it is an undisputed fact that the Singapore Income Tax Act requires that the shipping enterprises should file their statement of each year of assessment for the amount of income derived from its operations of Singapore or foreign ships in Singapore. The entire income is to be disclosed in the return of income and the statement is issued when the Comptroller of Income-tax is satisfied that a company has correctly reported its income accrued in or derived from Singapore from its business carried on in Singapore. We have already peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business carried on in Singapore. As such, it is regarded as Singapore sourced income and assessed to tax in Singapore on accrual basis and not on remittance basis. In light of this Certificate, there cannot remain any iota of doubt that the freight income derived by assessee-company from Indian operations in terms of Singapore Income Tax Act is to be reckoned as accrued in or derived from business carried in Singapore and not some kind of foreign income which is to be taxed on remittance basis. The authenticity of the aforesaid Certificate had come up for consideration before the Hon'ble Gujarat High Court in the case of India-Singapore DTAA and that too, in the case of a shipping company, M.T. Maersk Mikage vs. DIT (IT) (supra).The relevant observations of Hon"ble Court are reproduced hereunder:- "15. This brings us to the core issue strenuously debated by both sides viz. that of applicability of Article 8 vis-a-vis Article 24 of DTAA. We may quickly refresh the facts. ST Shipping is a company based in Singapore. Through the shipping business carried out at Indian ports, ST Shipping earned income, on which, it claims immunity from Indian income tax. The Revenue contends th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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." 20. Under the circumstances,in our opinion, Assessing Officer and the Commissioner committed serious error in passing the impugned orders. Before closing, we may briefly touch on one more aspect sought to be raised by the Revenue viz. of the actual tax being paid by the assessee on such income at Singapore. On the ground that such income is exempt from payment of tax, the Revenue desired to impose tax in India. In this context, the petitioner has relied on the decision of Delhi High Court in case of Emirates Shipping Line, FZE (supra), in which it was held that the assessee, a UAE based shipping company, whose income from such business was exempt from tax in such country, would still not be liable to pay tax in India by virtue of Article 8 of the DTAA between the said two countries. It was held that a person does not have to actually pay taxes in other country to be entitled to benefit of DTAA. We may notice that a somewhat similar issue came up before this Court in case of Director of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclude tax exemption in India if the income is not remitted or received in Singapore for taxation purpose on the premise that this is a foreign income to Singapore. First of all, it has to be seen whether shipping income is exempt from tax in India and; secondly, whether the shipping income is foreign income to Singapore which would then be taxable upon receipt or remittance to Singapore. The shipping income is dealt with under Article 8, which states that "profits derived by an enterprise of a contracting state from the operation of ships in international traffic shall be taxable only in that state, i.e., resident state." The word "only" debars the other contracting state to tax the shipping income, that is, India is precluded from taxing the shipping income even if it is sourced from India. An enterprise which is tax-resident of Singapore is liable for taxation on its shipping income only in Singapore and not in India. Whence India does not have any taxation right on a shipping income of non- resident entity, which is exclusive domain of the resident state, there is no question of any kind of exemption or reduced rate of taxation in the source state. It only envisages territorial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, which is the condition precedent for availing benefit under Article 8. After reproducing Article 8, she held that the profits derived from transportation by sea should be on the ships owned or leased or chartered by the assessee. The assessee, for earning the income from operation of ships, so as to be eligible under Article 8(4) should be the owner, lessee or charterer and if anything is operated as slot charterer or connecting carrier agreement, same will not fall within the ambit of Article 8 as defined in India-Singapore DTAA. In support of her contention, she strongly relied on the following four decisions:- i) DDIT vs. Cia de NavegacaoNorsul Brazil, [2009] 121 ITD 113 (Mum); ii) ACIT vs. Federal Express Corporation, [2010] 125 ITD 1 (Mum); iii) Jt. DIT vs. ANL Container Line Pte. Ltd.; and iv) Delta Airlines vs. ADIT, [2010] 124 ITD 114. After referring to these decisions, she observed that the following principles emerge while interpreting the provisions of Article 8 in India-Singapore DTAA:- "(i) If the term "operation of ship" is not defined at all in the DTAA, a broad interpretation of the Article can be made in those cases. The India-UK DTAA is an examp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,303 II Ship Validation Certificate 16 30,84,44,733 33,36,45,878 64,20,90,611 TOTAL 97 167,35,92,168 97,29,89,746 2,64,65,81,914 III No Documents (Addition made by AO) 04 1,36,89,191 1,36,89,191 TOTAL 101 167,35,92,168 98,66,78,937 2,66,02,71,105 14. She also distinguished the decision of Hon'ble Bombay High Court in the case of Balaji Shipping UK Ltd. vs. DIT, [2012] 253 CTR Bom 460 on the ground that Article 8 of India- Singapore DTAA and Article 9 of India-U.K DTAA are quite different because Singapore treaty contains specific definition of the term "operation of ships", whereas, in India-UK Treaty there is no specific definition and hence it has been interpreted in wider terms. 15. We have heard the rival submissions made by both the parties and also perused the relevant findings given in the impugned orders as well as the material referred before us. The main plank of argument of ld. Senior Counsel, Shri Pardiwala has been that, the ld. CIT (A) has proceeded on the premise that "slot charter arrangement", i.e. transportation done through feeder vessel to mother vessel and solely from feeder vessel will not be entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the sake of ready reference the relevant provision of Article 8 under India-Singapore DTAA reads as under:- "Article 8: Shipping and air transport 1. 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. 2. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency engaged in the operation of ships or aircraft. 3. Interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of Article 11 shall not apply in relation to such interest. 4. For the purposes of this Article, profits from the operation of ships or aircraft in international traffic shall mean profits derived from the transportation by sea or air of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of the ships or aircraft, including profits from: (a) the sale of tickets for such transportation on behalf of other enterprises; (b) the incidental lease o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as "an indenture of covenants and agreements made between merchants and mariners concerning their sea affairs. It is a contract by which a ship or some principal part thereof, is let to a merchant for conveyance of goods on a determined voyage to one or more places". From this definition, it is amply evident that the word "charterer" means hiring of a ship for a voyage, either whole of the ship or a part of a ship. The word "charter" completely eludes the concept of ownership. A charterer of a ship cannot be the owner of a ship. Therefore, the contention of the learned Departmental Representative that the word "charterer" has to be understood in the context of owner or lessee that is having control of the ship is perhaps not the correct understanding of the word "charterer". The principle of noscitur-a-sociis i.e., the meaning of doubtful word may be ascertained by reference to the meaning of the words associated with it will also not apply here. In other words, the meaning of the word "charterer" cannot be imported from or to be understood from the meaning of the word "owner" or "lessee". The learned counsel, before us, has also filed various meaning of the term "charter" or "c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be deduced:- i) Firstly, the operation of a ship can be done as charterer which does not mean to own or control the ship either as an owner or as a lessee; ii) Secondly, charterer is a hirer of a ship under an agreement or arrangement to acquire the right to use a vessel or a ship for the transportation of a good on a determined voyage, either the whole of the ship or part of the ship or some space of the ship in a charter party agreement; and iii) Thirdly, the word "charterer" includes a voyage charter of a part of a ship or a slot, as it is also arrangement or agreement to hire a space in a ship owned and leased by other persons. Thus, in our opinion, the word "charterer" should not be confused from the word "owner" or "lessee" or having control of the ship or as an operator of the ship. The operation of ship can be done as a charterer, which includes part of a ship or particular space in a ship." From the above analysis of these phrases, the Tribunal had come to the conclusion that the definition of "operation of ships" also alludes to the concept of charterer of ships, which even includes part of ship in an arrangement such as slot charter, space charter or joint ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all under Article 9(1). Article 9 would apply in respect of an enterprise that carries on the business of operation of ships in international traffic but for a valid reason is required to transport the cargo availing entirely a slot hire facility obtained by it on a ship of another. The illustrations we furnished in respect of the first type of case will also apply to these cases. An enterprise may not ply the ships owned or chartered or otherwise controlled or managed by it in respect of certain routes. It would however, on account of the business exigencies, be required to carry cargo on such routes. Business expediency could arise on account of a number of reasons and different situations such as obliging regular clients, or cultivating new ones. If it were not to do so, it may well loose clientele. Ships owned or chartered or otherwise controlled or managed by an enterprise may not be available on the particular route on a given day or for a particular period. The enterprise may already have entered into contracts or may even be required to enter into contracts for the carriage of goods on that route on that day or during that period. The trade would expect the enterprise to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "s Rep.21) Clarke L J said "...... there is no distinction in principle between a slot charter and a voyage charter of a part of a ship. They are both in sense charterers of a space in a ship. A slot charter is simply an example of a voyage charter of part of a ship". Clarke LJ further on in his judgment at p. 22 gave his view that a slot charterer could even be described as the charterer of the ship, not merely a charterer." The reference to this commentary which in turn refers to the judgment is only to indicate what a slot charter is and that such agreements have been in use for decades. Needless to add that our reference to the same has no bearing upon Admiralty law including on the aspect of arrest of ships. The assessment order sets out clause 2 of the Connecting Carrier Agreement between the respondent and OEL, which reads as under:- "2(a) The carrier has offered container slots space to the line (respondent) and the line (respondent) has accepted to use such space on as/when required basis." [Emphasis added] The observations of the Hon"ble High Court may be general but is universally applicable wherever interpretation of "operation of ships" is required, beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... journey from Indian port to hub port through feeder vessel was eligible for benefit of Article 8 or not, to which the Tribunal has decided the matter in favour of the assessee as discussed above. It was in this context the Tribunal has observed that the linkage between transportation by feeder vessel and mother vessel was established and therefore, benefit of Article 8 cannot be denied. The decision as relied by the ld. CIT(A) has also been discussed and distinguished by the Tribunal in the case of MISC Berhad (supra). Therefore, we are not adjudicating the applicability of said decisions separately because, now in the wake of decision of Hon'ble Jurisdictional High Court in the case of Balaji Shipping U.K Ltd. (supra), these judgments are no longer applicable. Once it is held that chartering includes slot charter, space charter and it falls within the ambit of "operation of ships", then the benefit of Article 8 cannot be denied simple on the ground that the transportation has been done either partly or fully through slot charter arrangement or joint charter arrangement, etc. Thus, in view of our discussion above, we hold that so far as denial of benefit of Article 8 in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
