GAC Shipping (India) P. Ltd., as agent of M.T. ALABRA, GANDHIDHAM V. The Income Tax Officer, International Taxation, GANDHIDHAM

ITA 392/RJT/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0509 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-10-2015
• Assessment Year: 2012-2013
• Appeal Filed On: 16-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Competent authority

Judgement Text

I.T.A. NO.: 392/RJT/2014 ASSESSMENT YEAR: 2011 - 12 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT [CORAM : PRAMOD KUMAR AM AND RAJPAL YADAV JM] I.T.A. NO. : 392/RJT/2014 ASSESSMENT YEAR: 2011 - 12 ALABRA SHIPPING PTE LTD, SINGAPORE GAC SHIPPING INDIA PVT LTD - AS AGENTS FOR .APPELLANT SONALI PARK, PLOT NO. 317, WARD 12 B GANDHIDHAM 370 201 VS. INCOME TAX OFFICER - INTERNATIONAL TAXATION GANDHIDHAM . RESPONDENT APPEARANCES BY: PAURAMI SHETH FOR THE APPELLANT YOGESH PANDEY FOR THE RESPONDENT DATE OF CONCLUDIN G THE HEARING : OCTOBER 6 , 201 5 DATE OF PRONOUNCING THE ORDER : OCTOBER 9 TH , 201 5 O R D E R PER PRAMOD KUMAR AM : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGE D CORRECTNESS OF THE ORDER DATED 21 ST MARCH 2014 PASSED BY TH E LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 172(4) OF THE INCOME TAX ACT, 1961, IN RESPECT OF VESSEL MT ALABRA IN THE ASSESSMENT YEAR 2012 - 13. 2. THE ISSUE IN APPEAL LIES IN A VERY NARROW COMPASS OF MATERIAL FACTS. THE APPELLANT, I.E. GAC SHIPPING INDIA PVT LTD, FILED A RETURN IN RESPECT OF MT ALABRA, WHICH IS OWNED BY ALABRA SHIPPING PTE LTD OF SINGAPORE ( ASPL - S , IN SHORT) AND THE ASPL - S IS FREIGHT BENEFICIARY IN RESPECT OF THE SAME, AS AN AGENT OF ASPL - S I.T.A. NO.: 392/RJT/2014 ASSESSMENT YEAR: 2011 - 12 PAGE 2 OF 5 AND UNDER SECTION 172(3) OF THE A CT. IN THE COURSE OF SCRUTINIZING THIS RETURN, THE ASSESSING OFFICER NOTICED THAT WHILE THE ASSESSEE HAS CLAIMED THE BENEFIT OF INDIA SINGAPORE DOUBLE TAXATION AVOIDANCE AGREEMEN T [ (1994) 209 ITR (ST) 1 ; HEREINAFTER REFERRED TO AS INDO SINGAPORE TAX TREAT Y ], THE FUNDS WERE REMITTED TO FREIGHT BENEFICIARY S ACCOUNT WITH THE BANK OF NOVA SCOTIA IN LONDON UK. IT WAS IN THIS BACKGROUND, AND NOTING THAT THE FREIGHT HAS BEEN REMITTED TO A COUNTRY OTHER THAN SINGAPORE AND THAT REMITTANCE TO SINGAPORE IS A SINE QU A NON FOR AVAILING THE BENEFITS OF THE INDO - SINGAPORE TAX TREATY, THAT THE ASSESSING OFFICER PROCEEDED TO, IN VIEW OF LIMITATIONS OF BENEFITS SET OUT IN ARTICLE 24 OF INDIA SINGAPORE TAX TREATY, DECLINE THE BENEFITS OF INDO - SINGAPORE TAX TREATY . AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BROADLY, CONTENTIONS OF THE ASSESSEE, BEFORE THE CIT(A), WERE AS FOLLOWS. IT WAS CONTENDED THAT THE FREIGHT RECEIPTS BY ASPL - S WERE TAXABLE IN SINGAPORE AS THE ASSESSEE WAS A TAX RESIDENT OF THE AS SESSEE. IN SUPPORT OF THIS CONTENTION, CERTIFICATE DATED 31 ST DECEMBER 2013 FROM SINGAPORE INLAND REVENUE SERVICE AND CERTIFICATE DATED 4 TH DECEMBER 2013 FROM INDEPENDENT PUBLIC ACCOUNTANT IN SINGAPORE WERE ALSO FILED. IT WAS CONTENDED THAT THE PROVISIONS OF ARTICLE 8 OF INDO - SINGAPORE TAX TREATY WILL APPLY TO THIS CASE, AND, ACCORDINGLY, THE FREIGHT RECEIPTS BY THE ASPL - S CANNOT BE BROUGHT TO TAX IN INDIA . NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE CIT(A). HE TOOK NOTE OF A DECISION OF THIS TRIBUN AL, IN THE CASE OF ABACUS INTERNATIONAL PVT LTD VS DDIT [ITA NO. 1045/MUM/2008; ORDER DATED 31 ST MAY 2013; NOW REPORTED AS (2013) 34 TAXMANN.COM 21 (MUMBAI - TRIB.)] WHICH HAS, INTER ALIA, OBSERVED THAT, THE REQUIREMENT OF ART ICLE 24 . IS THAT THE ASSES SEE MUST HAVE RECEIVED THE INTEREST INCOME IN SINGAPORE AND PROCEEDED TO CONCLUDE, IN HIS RATHER BRIEF OPERATIVE PORTION OF THE ORDER, THAT HUMBLY FOLLOWING THE ABOVE DECISION, AND IN THE ABSENCE OF ANY EVIDENCE OF BANK SLIP OR CERTIFICATE FROM THE BANK THAT THE SUM HAS BEEN REMITTED TO SINGAPORE, I HOLD THAT THE BENEFIT OF ARTICLE 8 CANNOT BE AVAILED BY THE APPELLANT AND THAT ACCORDINGLY, THE ACTIONS OF THE AO ARE CONFIRMED . 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON REC ORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 4. THE SHORT ISSUE THAT WE ARE REALLY REQUIRED TO ADJUDICATE ON IN THIS CASE IS WHETHER OR NOT, IN VIEW OF THE LIMITATION OF BENEFITS PROVISIONS SET OUT IN THE INDO SINGAPORE TREATY, THE ASSESSEE CAN INDEED BE DECLINED THE BENEFITS OF INDIA SINGAPORE TAX TREATY. 5. AS THE ASSESSEE SEEKS BENEFIT OF TREATY PROTECTION, IN TERMS OF ITS SHIPPING INCOME COVERED BY ARTICLE 8, THE ONLY LIMITATION ON BENEFIT PROV ISION WHICH COMES INTO PLAY IN THIS CASE IS THE PROVISION SET OUT IN ARTICLE 24. WHILE INDO I.T.A. NO.: 392/RJT/2014 ASSESSMENT YEAR: 2011 - 12 PAGE 3 OF 5 SINGAPORE TAX TREATY DOES CONTAIN CERTAIN OTHER SIGNIFICANT LOB CLAUSES, AS SET OUT IN PROTOCOL DATED 29 TH JUNE 2005 [(2005) 196 CTR (STAT) 177], THESE LOB CLAUSES ARE RELEVANT ONLY FOR THE PURPOSES OF TREATY PROTECTION RELATED TO PROTOCOL ARTICLE 1. COMING BACK TO ARTICLE 24, FOR THE SAKE OF READY REFERENCE, THIS PROVISION IS REPRODUCED BELOW: 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 REF ERENCE 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 STAT E 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 O F THAT STATE FOR THE PURPOSE OF THIS PARAGRAPH. THE TERM 'GOVERNMENT' INCLUDES ITS AGENCIES AND STATUTORY BODIES. 6. AS A PLAIN READING OF ARTICLE 24(1) WOULD SHOW, THIS LOB CLAUSES COMES INTO PLAY WHEN (I) INCOME SOURCED IN A CONTRACTING STATE I S EXEMPT FROM TAX IN THAT SOURCE STATE OR IS SUBJECT TO TAX AT A REDUCED RATE IN THAT SOURCE STATE, (II) THE SAID INCOME (I.E. INCOME SOURCED IN THE CONTRACTING STATE) IS SUBJECT TO TAX BY REFERENCE TO THE AMOUNT REMITTED TO, OR RECEIVED IN, THE OTHER CONT RACTING STATE, RATHER THAN WITH REFERENCE TO FULL AMOUNT OF SUCH INCOME; AND (III) IN SUCH A SITUATION, THE TREATY PROTECTION WILL BE RESTRICTED TO THE AMOUNT WHICH IS TAXED IN THAT OTHER CONTRACTING STATE. IN SIMPLE WORDS, THE BENEFIT OF TREATY PROTECTION IS RESTRICTED TO THE AMOUNT OF INCOME WHICH IS EVENTUALLY SUBJECT MATTER OF TAXATION IN THE SOURCE COUNTRY. THIS IS ALL THE MORE RELEVANT FOR THE REASON THAT IN A SITUATION IN WHICH TERRITORIAL METHOD OF TAXATION IS FOLLOWED BY A TAX JURISDI C TION AND THE TAXABILITY FOR INCOME FROM ACTIVITIES CARRIED OUT OUTSIDE THE HOME JURISDICTION IS RESTRICTED TO THE INCOME REPATRIATED TO SUCH TAX JURISDICTION , AS IN THE CASE OF SINGAPORE, THE TREATY PROTECT ION MUST REMAIN CONFINED TO THE AMOUNT WHICH IS ACTUALLY SUBJEC TED TO TAX. ANY OTHER APPROACH COULD RESULT IN A SITUATION IN WHICH AN INCOME, WHICH IS NOT SUBJECT MATTER OF TAXATION IN THE RESIDENCE JURISDICTION, WILL ANYWAY BE AVAILABLE FOR TREATY PROTECTION IN THE I.T.A. NO.: 392/RJT/2014 ASSESSMENT YEAR: 2011 - 12 PAGE 4 OF 5 SOURCE COUNTRY. IT IS IN THIS BACKGROUND THAT THE S COPE OF LOB PROVISION IN ARTICLE 24 NEEDS TO BE APPRECIATED. 7. SO FAR AS THE CASE BEFORE US IS CONCERNED, THERE IS NO DISPUTE THAT THE BUSINESS IS BEING CARRIED ON BY THE ASSESSEE IN SINGAPORE AND THAT THE ASSESSEE IS TAX RESIDENT OF SINGAPORE. BY LETTER DATED 31 ST DECEMBER 2013 ( REFERENCE NO. 200716495G), INLAND REVENUE AUTHORITY OF SING APORE HAS CONFIRMED THAT, IN THE CASE OF ALBARA SHIPPING PTE LTD, FREIGHT INCOME HAS BEEN REGARDED AS SINGAPORE SOURCED INCOME AND BROUGHT TO TAX ON AN ACCRU AL BASIS (AND NOT REMITTANCE BASIS) IN THE YEAR OF ASSESSMENT . THE ASSESSEE HAS ALSO FILED A CONFIRMATION DATED 4 TH DECEMBER 2013 FROM ITS PUBLIC ACCOUNTANT THAT THE FREIGHT OF US $ 6,71,366 EARNED ON MT ALBARA S SAILING FROM SIKKA PORT HAS BEEN INCLUDED IN THE GLOBAL INCOME OFFERED TO TAX BY THE COMPANY IN SINGAPORE. ON THESE FACTS, IN OUR CONSIDERED VIEW, THE PROVISIONS OF ARTICLE 24 CANNOT BE PUT INTO SERVICE AS THIS PROVISION CAN ONLY BE TRIGGERED WHEN TWIN CONDITIONS OF TREATY PROTECTION, BY LOW OR NO TAXABILITY, IN THE SOURCE JURISDICTION AND TAXABILITY ON RECEIPT BASIS, IN THE RESIDENCE JURISDICTION, ARE FULFILLED. THERE IS NOTHING ON THE RECORD TO EVEN VAGUELY SUGGEST THAT THE FREIGHT RECEIPTS OF ASPL - S WERE TAXATION ONLY ON RECEIPT BASIS IN SINGA PORE. QUITE TO THE CONTRARY, THERE IS REASONABLE EVIDENCE TO DEMONSTRATE THAT SUCH AN INCOME WAS TAXABLE, ON ACCRUAL BASIS, IN THE HANDS OF THE ASSESSEE. ALL THIS MATERIAL WAS DULY CONFRONTED TO THE ASSESSING OFFICER, IN THE REMAND PROCEEDINGS, AND THE ASS ESSING OFFICER COULD NOT DEMONSTRATE THAT THE STAND TAKEN BY T HE ASPL - S IN THIS REGARD WAS INCORRECT. 8. AS REGARDS RELIANCE OF THE AUTHORITIES BELOW ON THE DECISION OF THIS TRIBUNAL, IN THE CASE OF ABACUS INTERNATIONAL (SUPRA), SUFFICE TO SAY THAT IT WAS IN THE CONTEXT OF INTEREST INCOME OF THE ASSESSEE AND THERE WAS NOTHING ON RECORD TO SUGGEST THAT SUCH AN INCOME WAS TO BE TAXED IN SINGAPORE ON ACCRUAL BASIS , RATHER THAN ON RECEIPT BASIS. THE ASSESSING OFFICER THUS DERIVES NO ADVANTAGE FROM THIS D ECISION. HAVING SAID THAT WE MAY ADD THAT WE ARE IN COMPLETE AGREEMENT WITH THE COORDINATE BENCH THAT, IN ORDER TO COME OUT OF THE MISCHIEF OF ARTICLE 24, THE ONUS IS ON THE ASSESSEE IS TO SHOW THAT THE AMOUNT IS REMITTED TO, OR RECEIVED IN SINGAPORE, BUT THEN SUCH AN ONUS IS CONFINED TO THE CASES IN WHICH INCOME IN QUESTION IS TAXABLE IN SINGAPORE ON LIMITED RECEIPT BASIS RATHER THAN ON COMPREHENSIVE ACCRUAL BASIS . HOWEVER, IN A CASE IN WHICH IT CAN BE DEMONSTRATED, AS HAS BEEN DEMONSTRATED IN THE CASE BEF ORE US, THAT THE RELATED INCOME IS TAXABLE IN SINGAPORE ON ACCRUAL BASIS AND NOT ON REMITTANCE BASIS, SUCH AN ONUS DOES NOT GET TRIGGERED. I.T.A. NO.: 392/RJT/2014 ASSESSMENT YEAR: 2011 - 12 PAGE 5 OF 5 9. WE HAVE NOTED THAT THE ONLY REASON FOR DECLINING INDO SINGAPORE TAX TREATY BENEFITS WAS THE APPLICATION OF ARTICLE 24 AND THAT THERE IS NO OTHER DISPUTE ON THE CLAIM OF TREATY PROTECTION OF SHIPPING INCOME UNDER ARTICLE 8(1) WHICH PROVIDES THAT, 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 . IN THIS VIEW OF THE MATTER , ENTIRE FREIGHT INCOME OF THE ASSESSEE, WHICH IS ONLY FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC, IS TAXABLE ONLY IN SINGAPORE. THE ASSESSING OFFICER WAS THUS IN ERROR IN BRIN GING THE SAME TO TAX IN INDIA. 10. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE PLEA OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER NOT TO TAX INCOME OF THE ASSESSEE, FROM OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC, IN INDIA. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 11. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED TODAY ON 9 TH DAY OF OCTOBER, 2015. SD/ - SD/ - RAJPAL YADAV PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 9 TH DAY OF OCTOBER , 201 5 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ET C ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT