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TMI Blog2017 (11) TMI 1924X X X X Extracts X X X X X X X X Extracts X X X X ..... income as nil of freight beneficiary i.e. BP Singapore Pte Ltd. while losing sight of the fact that BP Singapore Pte Ltd. is a Singapore tax resident company engaged in operation of ships in international traffic and hence entitled to benefit of Article 8 of the DTAA and their income from operation of ships in international traffic cannot be taxed in India. 3. The CIT (A) erred in confirming the order of ITO applying Article 24 of DTAA which provides for Limitation of Relief which is made applicable to only limited category which have been exempted from payment of tax as per DTAA or taxed at reduced rate and has no application to the income referred to in Article 8. 4. The CIT (A) erred in confirming the order of ITO holding that since the freight beneficiary was of Singapore and hence funds ought to have remitted to Singapore but funds were not remitted to Singapore, the benefit of DTAA cannot be granted. The CIT(A) failed to appreciate that when Article 24 of DTAA has no application, it has no relevance whether the funds have been received by BP Singapore Pte Ltd. in Singapore or USA or somewhere else. 5. The CIT (A) erred in not appreciating that the ITO has misinterpreted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of, inter alia, operations of ships in the international traffic. The assessee is freight beneficiary in respect of a vessel, by the name of MT Pacific Rainbow, which sailed from Vadinar, an Indian port, on 30th June 2014. It was in this backdrop that Indian agent of the assessee, i.e. Seaworld Shipping and Logistics Pvt Ltd, had filed a return under section 172(4) and claimed exemption, under article 8 of Indo Singapore tax treaty, of income embedded in the relevant freight receipts aggregating to Rs. 5,19,63,857. This claim did not find favour with the Assessing Officer. He was of the view that there is no evidence to show that the money has been actually remitted to Singapore and suffered the tax. It seems that as for the claim of the assessee that the monies, though remitted to USA, have actually suffered tax in Singapore, the Assessing Officer rejected the same and observed that "this is not in the purview of the Indian tax authorities to verify the tax treatment of the remittances made by any person from USA to Singapore, and also not aware about whether the receipts were considered for tax at Singapore or not .... (and)... hence the claim of the assessee is not acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was giving a rather misleading impression about the status of actual taxability of the freight receipts from India, in Singapore. He also stated that even he was not aware about this aspect of the matter until he, in response to bench's question, sought specific instructions from the assessee. Learned counsel, however, hastens to add that it will not affect the outcome of present appeal inasmuch as all that it is necessary, to invoke the treaty protection, is Singapore's right to tax the subject freight receipts and not the actual taxability in Singapore. He seeks the permission to raise the formal plea to that effect. Learned counsel seeks one day's time so that the bench may be addressed on this aspect. 4. Learned counsel's prayer is accepted, and, accordingly, the adjournment is granted for one day. The hearing of these appeals will resume tomorrow i.e. on 3rd November 2017 Sd/xx 2.11.17 Sd/xx 2.11.17 Rajpal Yadav Pramod Kumar Judicial Member Accountant Member Sd/xx 3.11.2017 Neeraj Agarwal (AR) 6. The matter was then heard on 3rd November 2017. Pursuant to the liberty granted by us, the assessee has also filed written submissions which are taken to record. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now been confirmed by Hon'ble Gujarat High Court in the case of MT Maersk Mikage Vs DIT [(2016) 72 taxmann.com 359 (Guj)]. Learned counsel then refers, apparently treating the expressions 'liable to tax' and 'subject to tax' as synonymous, to Hon'ble Gujarat High Court's judgment in the case of DIT Vs Venkatesh Karrier Ltd [ (2012) 349 ITR 124 (Guj)] and Emirates Shipping Line FZE Vs ADIT [(2012) 349 ITR 493 (Del)] upholding treaty protection from UAE shipping companies even though, beyond any dispute or controversy, these shipping companies did not pay any taxes in UAE either. It is thus contended that the payment of tax is not a condition precedent for availing the treaty benefit. Learned counsel then refers to Hon'ble Supreme Court's judgment in the case of Union of India Vs Azadi Bachao Andolan [(2003) 276 ITR 370 (SC)] and specifically refers to the observation made therein to the effect that "to the extent an exemption is agreed to, its effect, in principle, is independent of both whether the other contracting state imposes a tax in a situation to which the exemption applies and of whether the state actually applies the tax" and that "the treaty not only prevent current but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been able to answer, these pleas are not sustainable in law. We are urged to confirm the stand of the authorities below and decline to interfere in the matter. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We may begin by reproducing the certificates obtained by the assessee from the KPMG and the Inland Revenue Authority of Singapore which read as follows: 1. Certificate from the KPMG Services Pte Ltd 20 February 2017 ................ We issue this clarification in the capacity as tax advisors to BP Singapore Pte Ltd. Based on the auditor's certification dated 14 June 2016 that the freight income of BP Singapore Pte Ltd (as specified previously in Appendix 1 of our fetter dated 24 June, 2016) for the financial years ended December 2014 and December 2015 have been included as part of the Company's profits in the respective financial years, we confirm that such freight income has been liable to Singapore income tax and has been included in the Singapore income tax returns for the Years of Assessment 2015 and 2016 respectively. 2. Certificate from Inland Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome liable to be taxed in Singapore, and it will be eligible for treaty benefits nevertheless. We will take up these legal niceties a little later but staying with the factual aspect of the matter, it is not in dispute that the income embedded in the freight receipts from India was not actually subjected to tax in Singapore even though it was liable to be taxed there by the virtue of fiscal domicile of the assessee. To put a question to ourselves, is it what is actually conveyed by the certificates issued by the Inland Revenue of Authority of Singapore or the public accounting firm KPMG. We do not think so. KMPG certificate talks about taxation of accrual basis under section 10(1) of the Singapore Income Tax Act, without any firm comments on actual taxability, and IRAs certificate, relying upon the information furnished by the assessee confirms that the said income "has been brought to tax in Singapore". "Bringing an income to tax in Singapore" to a layman, and even to judicial officers like us with cumulative experience of over 33 years in the Income Tax Appellate Tribunal itself, suggests an "income being actually taxed in Singapore", but this is admittedly not the correct positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief granted in the judicial precedents in question may have been based on an erroneous impression of the fact regarding actual taxability, in Singapore, of the income embedded in the freight receipts from India, particularly as the income was actually exempt from tax in Singapore as well. As a matter of fact, when the issue regarding non-taxability of this income in Singapore was raised before Hon'ble jurisdictional High Court in the case of MT Mersek Mikage (supra). Their Lordships declined to deal with this aspect of the matter as it was being raised before Their Lordships for the first time but then Their Lordships specifically left this issue open to be decided in an appropriate case by observing as follows: 21. .........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. ............. 22. In the present case, however, we are not inclined to conclude this issue since this was not even a ground on which either the Assessing Officer or the Commissioner ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the wording which is relevant in the present context. In any case, what is referred to as exemption under article 20, 21 and 22 of Indo Singapore tax treaty in the source country are conditional exemptions subject to the riders, whereas an income exempt under article 8 is plain vanilla provision. Whether an income is taxed only in the residence country or whether an income is exempt from tax in the source country, the effect on exemption of income in the source country is the same- particularly in the context of the treaty benefit being dependent on the taxation inn the residence country is concerned. The wordings may differ but the impact is the same, and that is all the more clear when seen in the context in which the issue arises. Even if the meaning canvassed by the learned counsel was to be defined in the statute or the treaty itself, in view of the contextual requirements, such a meaning was to be discarded in the present context. Having said that we are aware that there is a division bench which has taken a contrary view on the basis of a very erudite analysis of the treaty provisions, but, without taking into account the provisions of Article 3(2) and binding judicial pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not think it appropriate to uphold this plea of the assessee. Notwithstanding our inability to concur with the views of the coordinate bench, however, we see no need to refer the matter to a larger bench as the earlier binding judicial precedents, such as Hindalco Industries (supra), on the role of context in interpretation of a treaty term were not brought to the notice of the bench, and, to that extent, this decision does not constitute a binding judicial precedent in the light of law laid down by Hon'ble AP High Court's full bench decision in the case of CIT Vs B R Constructions [(2002) 202 ITR 222 (AP)]. That apart, for the reasons we will set out in a short while, we are not adjudicating the matter on merits anyway, and, therefore, there cannot be any occasion to refer this issue, which is purely academic as on now, to a larger bench. 10. We have noted that the additional evidence submitted by the assessee was admitted by us and this additional evidence has not been considered by any of the authorities below, and that certain factual aspects of the matter have come to light only as a result of questions put by the bench and the authorities below, therefore, did not have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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