TMI Blog2017 (11) TMI 1925X X X X Extracts X X X X X X X X Extracts X X X X ..... llant has challenged correctness of the order dated 12th August 2016 passed by the learned Commissioner of Incometax (Appeals)-13, Ahmedabad upholding the assessment under section 172(4) of the Income Tax Act, 1961, in respect of m.v. Pacific Rainbow for the assessment year 2015-16. 2. Grievances raised by the assessee are as follows: 1. The Commissioner of Income Tax (Appeals), Ahmedabad [hereinafter referred to as the CIT (A) ] erred in confirming the order of the Income Tax Officer (International Taxation), Gandhidham (hereinafter referred to as the ITO ) denying Appellant the benefit of the Agreement for Avoidance of Double Tax between India and Singapore (hereinafter referred to as DTAA ). 2. The CIT (A) erred in not directing ITO to assess the 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hlighted by the AO or that the remittance of freight to Singapore has not been still evident and hence conclusion drawn by AO in denying the benefit would be justified. 9. The Appellant submits that matter arising out of interpretation of DTAA cannot lead to initiation of penalty proceedings u/s 271(1) (c) of the Act. 10. The Appellant craves leave to add, alter, delete, modify or rescind any of the grounds as and when necessary. 3. Learned representatives fairly agree that whatever we decide in the case of BP Singapore Pte Ltd vs. ITO (ITA No. 409/Rjt/2016) will be equally applicable here as well. Vide our order of even date, in the said case, we have held as follows: 4. The assessee before us is a Singapore based company said to be engaged in the 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional evidence. Ordered, accordingly. 3. Learned counsel was then asked whether the freight receipts in question were actually subjected to tax in Singapore. He replies in affirmative. Our question was followed up by an even more specific question i.e. whether the assessee availed the exemption under section 13F of Singapore Income Tax Act, and, as such, the freight receipts were not actually subjected to tax in Singapore. He admits that the exemption under section 13 F was indeed availed by the assessee in Singapore, and that, to that extent, his earlier submission was giving an incorrect impression and was rather technically worded. Learned counsel admits that the impression given by the certification by the Inland Revenue Authority of Singapore, though technically correct, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax it at all, and since it is not an income exempt from tax in India, Article 24 of India Singapore tax treaty cannot at all be invoked. Learned counsel then relies upon an order passed by the Tribunal in the case of APL Co Pte Ltd Vs CIT [(2017) 78 taxmann.com 240 (Mum)] in support of this proposition. Learned counsel then submits that the income in question is taxable on accrual basis, and not on receipts basis, and, for this short reason alone, article 24 of Indo Singapore tax treaty does not come into play at all. He then submits that based on the certificate issued by the Inland Revenue Authority of Singapore, regarding shipping income being brought to tax on accrual basis, this very bench of the Tribunal, in the case of Alabra Shipping Pte Ltd Vs ITO [(2015) 62 taxmann.com 185], has upheld treaty entitlement of the Singaporean shipping companies in India, which has 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 Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of the Indo Singapore tax treaty, which specifically states that only such income can be given treaty benefit in India which has suffered tax in Singapore- as evident from article 24, an income which is not taxed in Singapore cannot be granted tax exemption in India. Learned Departmental Representative relies upon the stand of the authorities below, and, as if taking a cue from the observations made by us from the bench, submits that article 24 at least makes it clear that what has not actually suffered tax in one country cannot at all be allowed treaty benefit in the other country, and, for this short reason alone, the assessee cannot be allowed treaty benefit in India. He seeks liberty to file the written submission on the basis of inputs from the international taxation wing, and, in any case, submits that, as evident from the questions put by the bench- which learned counsel has not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 2015). We trust the above is sufficient for your requirements. 7. These certificates give an impression that the freight income received from India has been subjected to tax in Singapore. In response to assessee s request for confirming that freight income received from India has been taxed in Singapore , the IRAS has stated that, based on their review of information supplied by the assessee, the freight income received from India has been brought to tax in Singapore . Let us consider this is in the light of the factual position admitted before us to the effect that the assessee has availed exemption under section 13F of the Singapore s Income Tax Act, and, to that extent, the income embedded in these receipts has not actually been taxed in Singapore. When learned counsel is confronted with this glaring contradiction, he submits that a mere exemption of income in Singapore does not take that income out of the ambit of income 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... micile, residence, place of management, place of incorporation or any other criterion of similar nature . These DTAAs are quite different from the one that we are dealing with inasmuch as the emphasis on subject to tax in the India Singapore DTAA is clear and unambiguous, and article 24 leaves no doubt about this underlying thrust of the double taxation avoidance agreement. As to what is the scope of subject to tax , we find guidance from UK s HMRC International Manual (https://www.gov.uk/hmrc-internalmanuals/ international-manual/intm162090) which, inter alia, states that It should be noted that the term subject to tax is different from being liable to tax . Liable to tax means that the customer only needs to be within the general scope of tax in the UK .. On the other hand, subject to tax means that the relevant income has to be actually taxable and the customer cannot be exempt from tax on that income. 8. Clearly, therefore, the relief 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning must be adopted in the present context . The expression exempt from tax is an undefined term in the treaty and the context in which it is used in Article 24 is that when an income is granted an exclusion from taxable income in one of the contracting state or taxed at a lower rate in one of the contracting state, such an exclusion must depend on its status of taxability in the other contracting state. The context in which expression exempt from tax is set out in article 24, it essentially implies that the treaty benefit of non-taxation of an income, or its being taxed at a lower rate, in a contracting state depends on the status of taxability in another contracting state. In such a situation, to hold that only income covered by article 20, 21 and 22 can be said to be exempt in the source state because the expression exempt from tax is used therein, is plainly contrary to the context in which expression exempt from tax is used; it is the net effect not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich article 24 is otiose but then, as is the elementary legal position, a treaty or a statute cannot be interpreted in such a manner so as to make a provision redundant, as is reflected in the legal maxim ut res magis valeat quam pereat [ see Herman J s observations in Union Texas Petroleum Corporation vs. Critchley (1988) STC 69, affirming the observations of Goulding, J. in IRC vs. Exxon Corporation (1982) STC 356 at p. 359 referred in Hindalco Industries (supra)]. In any case, the interpretation of a tax treaty is not the same thing as interpretation of a statute and there are well settled ground rules for interpretation of statutes which have been laid down by several decisions of the coordinate benches, and the interpretation by the coordinate bench is clearly contrary to the law laid down by these binding judicial precedents. For all these reasons, taken together as also independent of each other, the views of the coordinate bench do not appeal to us and 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted at the stage of proceedings before us and as the new facts have come to light at the stage of hearing before us, the parties also should have a full opportunity of presenting their case in the light of these facts, even though this situation has arisen due to their evasive and not so transparent conduct. Let all the relevant aspects be examined afresh in this light and the perspectives of both the parties be taken to the record and be analysed properly, particularly as this issue concerns a large number of Singaporean companies operating India. In view of these discussions and bearing in mind entirety of the case, we deem it fit and proper to remit the matter to the file of the learned CIT(A) for adjudication de novo in the light of the new facts emerging as above, in accordance with the law and by way of a speaking order. All the issues are left open. We direct so. 4. We see no reasons to take any other view of the matter than the view so taken by us as above. Respectfully following our views as above, we remit the matter to the file of the Assessing Officer in this case as well. Our observations as above will apply mutatis mutandis in this case as well. 5. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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