APL CO. PTE LTD., MUMBAI V. ADIT (INT'L TAXATION)-1(1), MUMBAI

ITA 4435/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8336 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 24-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 03-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment; Question of law; Wholly owned subsidiary; Competent authority
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 4435/MUM/2013 : (A.Y : 2008 - 09) APL CO. PTE LTD. C/O APL INDIA PVT. LTD., 247, PARK HINCON HOUSE, B - WING, 8 TH FLOOR, LBS MARG, VIKHROLI (W), MUMBAI 400 083 (APPELLANT) PAN : AAECA1501B VS . ADIT(IT) - 1(1), MUMBAI (RESPONDENT) ASSESSEE BY : SHRI P.J. PARDIWALA, MS. AARTI VISANJI, SHRI FAIZAN NURSUMAR& SHRI VIVEK CHOUHAN REVENUE BY : MS. VANDANA SAGAR, CIT - DR : MR. JASBIR SINGH, CIT - DR DATE OF HEARING : 14 /0 2 /201 7 DATE OF PRONOUNCEMENT: 16 / 02 /2017 O R D E R PER AMIT SHUKLA , JM: THE AFORESAID APPEAL HAS BEEN FILED BY ASSES SEE AGAINST IMPUGNED ORDER DATED 28.3.2013 , PASSED BY LD. CIT(A PPEALS ) - 10, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FOR THE ASSESSMENT YEAR 2008 - 09.IN THE GROUNDS OF APPEAL, ASSESSE E HAS RAISED THE FOLLOWING GROUNDS: - 2 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 1. ON THE FACTS AND IN THE PECULIAR CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE COMMISSIONER OF INCOME - TAX (APPEALS) [ CIT ( A)] ERRED IN MAKING AN ADDITION BY DENYING THE BENEFIT OF ARTICLE 8 OF INDIA - SINGAPORE DOUBLE TAXATION AVOIDANCE AGREEMENT ('TAX TREATY') TO FREIGHT OF RS. 98.66 CRORES COLLECTED BY THE APPELLANT FROM 101 VESSELS WHICH SAILED OUT OF INDIA. 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 CROS S 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. WIT HOUT PREJUDICE TO THE ABOVE, THE HON'BLE CIT ( A) ERRED IN NOT APPRECIATING THAT NO INCOME OF THE APPELLANT COULD BE BROUGHT TO TAX IN INDIA AS THE ARM'S LENGTH COMMISSION PAID TO APL INDIA (AND ACCEPTED BY THE TAX DEPARTMENT), WHICH IS TAXABLE IN INDIA IN THE HANDS OF APL INDIA, FULLY 3 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 EXTINGUISHES THE TAX LIABILITY OF THE APPELLANT IN INDIA. NOTWITHSTANDING THE ABOVE AND: 6. FURTHER TO GROUND NO. 1, THE HON'BLE CIT(A) ERRED IN DENYING THE BENEFIT OF ARTICLE 8 OF THE TAX TREATY WITH RESPECT TO THE FOLLOWI NG FREIGHT COLLECTED BY THE APPELLANT: RS. 63.93 CRORES FROM GOODS TRANSPORTED ON 81 VESSELS (FOR WHICH CONNECTING CARRIER AGREEMENTS WERE FURNISHED) WITHOUT APPRECIATING THAT THE APPELLANT WAS RESPONSIBLE TO CARRY CARGO FOR THE ENTIRE JOURNEY FROM THE PO RT OF ORIGIN TO THE PORT OF ULTIMATE DESTINATION. RS. 33.37 CRORES FROM GOODS TRANSPORTED ON 16 VESSELS (FOR WHICH JOINT SERVICE AGREEMENT AND SHIP VALIDATION CERTIFICATES WERE FURNISHED) WITHOUT APPRECIATING THAT THE APPELLANT WAS RESPONSIBLE TO CARRY CARGO FOR THE ENTIRE JOURNEY FROM THE PORT OF ORIGIN TO THE PORT OF ULTIMATE DESTINATION AND, IN ANY EVENT OF THE MATTER, THESE VESSELS WERE COVERED UNDER A POOL / JOINT BUSINESS ARRANGEMENT ENTERED INTO BY THE APPELLANT WITHIN THE MEANING OF ARTICLE 8(2) OF THE TAX TREATY. RS. 1.37 CRORES FROM GOODS TRANSPORTED ON 4 VESSELS (FOR WHICH DOCUMENTS TO THE SATISFACTION OF THE AO WERE NOT FURNISHED) WITHOUT APPRECIATING THAT THE APPELLANT BEING IN THE BUSINESS OF OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC IS E NTITLED TO THE BENEFIT OF ARTICLE 8 OF THE TAX TREATY WITH RESPECT TO ITS ENTIRE FREIGHT INCOME. 7. FURTHER TO GROUND NO. 1, THE HON'BLE CIT(A) ERRED IN NOT TREATING THE FREIGHT OF RS. 98.67 CRORES FROM CONTAINERS LOADED ON 101 VESSELS AS INCOME FROM USE / MAINTENANCE / RENTAL OF CONTAINERS IN CONNECTION WITH TRANSPORTATION WITHIN THE MEANING OF ARTICLE 8(4)(C) OF THE TAX TREATY AND THEREBY ERRED IN DENYING THE BENEFIT OF ARTICLE 8 OF THE TAX TREATY TO THE APPELLANT. 4 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 8. FURTHER TO GROUND NO. 2, THE HON'BL E CIT(A) ERRED IN: NOT APPRECIATING THAT ARTICLE 24 OF THE TAX TREATY DOES NOT APPLY TO THE APPELLANT AS THE APPELLANT'S FREIGHT INCOME IS TAXABLE IN SINGAPORE ON ACCRUAL BASIS AND NOT REMITTANCE BASIS I.E. ENTIRE FREIGHT INCOME IS TAXABLE IN SINGAPORE IR RESPECTIVE OF REMITTANCE OF FREIGHT TO SINGAPORE. REJECTING THE CLARIFICATION DATED 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 TH E 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 I NCOME 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 - TA X 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 APPELLANT IS NOT LIABL E TO INTEREST UNDER SECTION 234B OF 5 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 THE IT ACT SINCE THE APPELLANT WAS NOT LIABLE TO PAY ANY ADVANCE TAX ON THE BASIS OF (A) DOUBLE INCOME TAX RELIEF CERTIFICATE ISSUED BY THE TAX DEPARTMENT ITSELF AND (B) THE FACT THAT FREIGHT INCOME OF THE APPELLANT WAS TAX DEDUCTIBLE AT SOURCE HAVING REGARD TO THE SPECIFIC PROVISIONS OF SECTION 209(1)(D) OF IT ACT. 2. THE BRIEF FACTS AND BACKGROUND OF THE CASE ARE THAT THE ASSESSEE IS A NON - RESIDENT COMPANY INCORPORATED UNDER THE LAWS OF SINGAPORE AND IS ALSO A TAX - RES IDENT OF SINGAPORE. IT IS ENGAGED IN THE BUSINESS OF OPERATION OF SHIPS IN INTERNATIONAL WATERS, MAINLY TRANSPORTATION OF CARGO AND CONTAI NER SHIPS ALL ACROSS THE GLOBE. THE BUSINESS OPERATIONS AS WELL AS THE MANAGEME NT TEAM ARE BASED IN SINGAPORE. THE ASS ESSEE - COMPANY ALSO ACCEPTS CARGO FOR CARRIAGE INTERNATIONALLY TO AND FRO FROM INDIA. IN INDIA, ASSESSEE HAS A SHIPPING AGENT IN THE FORM OF A WHOLLY OWNED SUBSIDIARY , APL INDIA PVT. LTD . BEING A TAX - RESIDENT OF SINGAPORE IN TERMS OF ARTICLE 4(1) OF INDI A - SINGAPORE DTAA, IT SOUGHT THE BENEFIT OF ARTICLE 8 FOR ITS GROSS FREIGHT EARNINGS COLLECTED FROM INDIA. ACCORDINGLY, THE RETURN OF INCOME WAS FILED ON 28.9.2008 AT NIL INCOME ON THE GROUND THAT THE GROSS EARNINGS OF RS.1106,88,52,343 / - IS NOT TAXABLE IN INDIA IN VIEW OF ARTICLE 8(1) OF DTAA. THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE HAS SHOWN INCOME FROM SHIPPING IN RESPECT OF 136 SHIPS AND CLAIMED THE ENTIRE FREIGHT INCOME AS EXEMPT. THE ASSESSING OFFICER CALLED FO R DETAILS OF SHIPPING INCOME AND ALSO COPIES OF SHIP REGISTRATION CERTIFICATE, COPIES OF CHARTER PARTY AGREEMENTS AND POOLING AGREEMENTS, ETC. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COULD PRODUCE SHIP REGISTRATION CERTIFICATES AND COPIES OF CHARTER PARTY AGREEMENTS AND OTHER EVIDENCES IN 6 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 RESPECT OF 128 SHIPS AND FOR THE BALANCE 8 SHIPS ASSESSEE COULD NOT PRODUCE ANY EVIDENCES. ACCORDINGLY, HE HELD THAT THE FREIGHT PROCEEDS FROM FOLLOWING SHIPS WILL NOT BE ENTITLED FOR BENEFIT UNDER ARTICLE 8, DETAILS OF WHICH HAVE BEEN GIVEN AT PARA 4 OF THE ASSESSMENT ORDER AND WHICH FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREUNDER : - SR. NO. NAME OF THE SHIP GROSS RECEIPT RS. DETENTION CHARGES RS. 1 CONTI GERMANY 84,80,169 - 2 HOWRAH BRIDGE 3,00,696 85,467 3 RAJIV GANDHI 1,17,967 - 4 SATHABHUM 47,04,892 - 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 T HAT 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 OBSERV ED 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 ASSESSEES SHIPS ARRIVED. AFTER DETAILED DISCUSSION, HE CAME TO THE CONCLUSION THAT APL INDIA P VT. LTD. IS DEPENDENT AGENT PE IN TERMS OF ART ICLE 5 OF INDIA - SINGAPORE DTAA. ACCORDINGLY, HE BROUGHT TO TAX A SUM OF RS.22,98,870/ - IN THE FOLLOWING MANNER : - 7 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 GROSS RECEIPT AND DETENTION CHARGES FROM SHIPPING BUSINESS EXCLUDING THE RECEIPT ON WHICH DTA A 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 INCOME RS.33,13,75,908/ - RELIEF UNDER DTAA RS.33,13,75,908/ - INCOME ESTIMATED AS PER RULE 10 IN RESPECT OF 8 SHIPS ON WHICH BENEFIT OF DTAA NOT GRANTED RS.22,98,873/ TOTAL INCOME RS.22,98,873/ ROUNDED OFF TO RS.22,98,870/ 4. AGAINST THE SAID ORDER, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHEREBY THE LD. CIT(A) HAS ENHANCED THE INCOME, FIRSTLY , BY HOL DING THAT BENEFIT OF ARTICLE 8 CANNOT BE GIVEN IN RESPECT OF TOTAL FREIGHT OF RS.98.67 CRORES ON THE GROUND THAT THERE IS NO LINKAGE BETWEEN THE FEEDER VESSEL AND MOTHER VESSEL FOR TRANSPORTATION OF CARGO AS THEY HAVE BEEN TRANSPORTED THROUGH THIRD PARTY U NDER CHARTER PARTY AGREEMENT AND; SECONDLY, SHE PROCEEDED TO DENY THE ENTIRE EXEMPTION/BENEFIT OF ARTICLE 8 BY HOLDING THAT THE ENTIRE FREIGHT OF RS.1106.89 CRORES IS TO BE ASSESSED IN INDIA BY INVOKING THE LIMITATION CLAUSE OF ARTICLE 24 OF INDIA - SINGAPORE DTAA. NOW, AGAINST THE FIRST APPELLATE ORDER ASSESSEE HAS RAISED VARIOUS GROUNDS AND ALSO VARIOUS CONTENTIONS WHICH WE SHALL DISCUSS HEREINAFTER. 5. TO PUT IT SUCCINCTLY, OUT OF TOTAL FREIGHT RECEIPTS OF RS.1106.89 CRORES FROM 136 SHIPS, THE ASSESSING OF FICER HAS GIVEN THE BENEFIT OF ARTICLE 8 IN RESPECT OF 128 SHIPS FOR TOTAL 8 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 FREIGHT OF RS.1104.58 CRORES AND HELD THAT THE SAME IS NOT TAXABLE IN INDIA. FOR THE BALANCE 8 SHIPS, FOR TOTAL FREIGHT OF RS.2.29 CRORES, AO DENIED THE BENEFIT OF ARTICLE 8. FROM TH E FIRST APPELL ATE STAGE, THE LD. CIT(A) FIRST DENIE S THE BENEFIT OF ARTICLE 8 QUATHE FREIGHT RECEIPTS AGGREGATING RS.98.67 CRORES AND THEREAFTER, THE ENTIRE FREIGHT OF RS.1106.89 CRORES HAS BEEN HELD TO BE ASSESSABLE I N INDIA BY INVOKING ARTICLE 24. 6. SIN CE THE LD. CIT ( A) HAS DENIED THE ENTIRE BENEFIT OF ARTICLE 8 BY INVOKING THE PROVISION OF ARTICLE 24 OF INDIA - SINGAPORE DTAA AND HAS TAXED THE ENTIRE FREIGHT RECEIPT IN INDIA, THEREFORE, WE ARE TAKING UP AT THE FIRST , THE ISSUE OF ARTICLE 24 FOR ADJUDICATI ON. THE RELEVANT OBSERVATIONS AND FINDINGS ON THIS ASPECT BY THE LD. CIT ( A) APPEARS FROM PAGES 20 TO 56 OF THE IMPUGNED ORDER , WHEREIN SHE HAS ELABORATELY DEALT AND DISCUSSED THE ISSUE. IN SUM AND SUBSTANCE, HER RELEVANT FINDINGS AND KEY OBSERVATIONS ARE SUMMARIZED IN THE FOLLOWING MANNER: - I) ON APPLICABILITY OF ARTICLE 24 : - FREIGHT INCOME IS EARNED FROM EXPORT OF GOODS FROM INDIA , I.E. , SOURCE OF FREIGHT INCOME IS LOCATED 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 S INGAPORE I NCOME T AX A CT (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 SINGAPOR E. FREIGHT INCOME FROM INDIA DOES NOT ACCRUE IN SINGAPORE SO IT 9 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 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 / DI RECT 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 MAINT AINED 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 BANK ACCOUNT TO ITS SINGAPORE BANK ACCOUNT IS OUT OF INDIAN FREIGHT. DUE TO THE SEMI - TERRITORIAL SYSTEM OF TAXATION ADOPTED BY SINGAPORE, IT HAS SIMILAR LIMITATIO N OF RELIEF CLAUSE IN ITS TAX TREATIES WITH MANY COUNTRIES. THE ASSESSEE MUST ESTABLISH A DIRECT LINK BETWEEN INDIAN FREIGHT AND RECEIPT IN SINGAPORE . IT MAY BE ALSO POSSIBLE THAT FUNDS REMITTED FROM APL BERMUDA'S NEW YORK BANK ACCOUNT TO ITS SINGAPORE BANK ACCOUNT PERTAINS TO FREIGHT COLLECTED FROM VARIOUS COUNTRIES AND NOT INDIA. III) ON CONSTRUCTIVE RECEIPT OF INDIAN FREIGHT BY ASSESSEE, WHETHER IN SINGAPORE OR IN NEW YORK: - CONCEPT OF CONSTRUCTIVE RECEIPT CAN BE USED ONLY TO DECIDE WHETHER AN IT EM OF INCOME HAS BEEN RECEIVED OR 10 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 NOT. HOWEVER, THE CONCEPT HAS NO RELEVANCE IN DECIDING PLACE OF RECEIPT . EVEN IF IT IS PRESUMED THAT INDIAN FREIGHT WAS USED TO DISCHARGE LIABILITIES OF THE ASSESSEE, THE SAID DISCHARGE HAS TAKEN PLACE IN NEW YORK AND N OT IN SINGAPORE . IV) ON DEEMED RECEIPT OF INDIAN FREIGHT IN SINGAPORE AS PER SITA - INDIAN FREIGHT CANNOT BE DEEMED TO BE RECEIVED IN SINGAPORE : - AS PER ARTICLE 3(2) OF THE TAX TREATY, TERMS NOT DEFINED IN THE TAX TREATY HAVE TO BE INTERPRETED BY REFER RING TO THE DEFINITION CONTAINED IN THE DOMESTIC LAW OF THE COUNTRY APPLYING THE DTAA (I.E. INDIA). THEREFORE, THERE IS NO BASIS FOR REFERRING TO THE PROVISIONS (I.E. SECTION 10(25)) CONTAINED IN SITA FOR INTERPRETING A TERM RECEIVED / REMITTED CONTAINED I N ARTICLE 24 OF THE DTAA . EVEN IF CLAUSE (B) OF SECTION 10(25) OF SITA IS ASSUMED TO BE APPLICABLE, IT REQUIRES THAT INCOME SHOULD BE APPLIED TOWARDS SATISFACTION OF ANY DEBT INCURRED IN RESPECT OF A TRADE OR BUSINESS CARRIED ON IN SINGAPORE. IN CASE OF THE ASSESSEE, THE ASSESSEE CARRIES ON BUSINESS PARTLY IN SINGAPORE AND PARTLY OUTSIDE SINGAPORE AND ANY DEBT (CHARTER HIRE CHARGES PAYABLE TO APL BERMUDA FOR CHARTER OF SHIPS) INCURRED CANNOT BE PRESUMED TO RELATE ONLY TO SINGAPORE BUSINESS. SHIPS CHARTER ED BY THE ASSESSEE FROM APL BERMUDA ARE USED NOT ONLY FOR SINGAPORE ACTIVITY BUT FOR ENTIRE GLOBAL OPERATIONS. CHARTER HIRE CHARGES ARE ATTRIBUTABLE TO THE GLOBAL OPERATIONS OF THE ASSESSEE. HENCE, DISCHARGE OF DEBT DOES NOT AMOUNT TO DISCHARGE OF DEBT INCURRED IN RESPECT OF A TRADE OR BUSINESS CARRIED ON IN SINGAPORE . V) ON APPLICABILITY OF ARTICLE 24 TO INCOME COVERED BY ARTICLE 8 11 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 THE A SSESSEE 'S CONTENTION THAT ARTICLE 24 APPLIES ONLY TO INCOMES WHICH ARE 'EXEMPT FROM TAX' AND NOT TO INCOMES WHIC H 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. RELIA NCE PLACED BY THE ASSESSEE ON THE DECISION OF MUMBAI TRIBUNAL IN CASE OF SET SATELLITE SINGAPORE (PTE) LTD IS DISTINGUISHABLE , ALBEIT T HE A SSESSEE '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 A SSESSEE THAT THE FREIGHT INCOME FROM INDIA HAS ACCR UED 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 A SSESSEE IS ESSENTIALLY RENDERING A SERVICE OF TRANSPORTAT ION. IN THE CASE OF PROVISION OF SERVICES, THE INCOME ACCRUES AT THE PLACE WHERE THE SERVICES ARE RENDERED . IT CANNOT BE SAID THAT TRANSPORTATION OF GOODS WHICH START FROM INDIAN PORTS AND PASSES THROUGH THE INTERNATIONAL WATERS TO THE DESTINATION PORT, IS PERFORMED IN SINGAPORE . VII) ON CERTIFICATE ISSUED BY IRAS INGAPORE, SHE HELD THAT IT D OES NOT HAVE ANY PERSUASIVE VALUE AS IT DOES NOT HAVE INDEPENDENT REASONING : - 12 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 THE LETTER ISSUED BY THE IRAS CONFIRMING THAT FREIGHT INCOME OF THE ASSESSEE FROM IT S INDIAN OPERATIONS HAS ACCRUED IN OR DERIVED FROM A BUSINESS CARRIED ON IN SINGAPORE CANNOT BE RELIED UPON SINCE: IT IS NOT CLEAR UNDER WHICH PROVISION OF SINGAPORE LAW SUCH LETTER WAS ISSUED. IT IS NOT A CIRCULAR ISSUED BY THE IRAS. IT CAN BE REGARDE D JUST AS AN OPINION NOT BACKED BY ANY STATUTORY AUTHORITY. IT CANNOT BE TREATED AS CONCLUSIVE EVIDENCE [PARA 95, PAGE 49] THEIR OPINION IS BASED ON THE ASSUMPTION / REASONING THAT IF A BUSINESS IS PARTLY CARRIED ON IN SINGAPORE AND PARTLY OUTSIDE SIN GAPORE, THE ENTIRE INCOME OF THE BUSINESS WILL STILL ACCRUE ONLY IN SINGAPORE BECAUSE THE CONTROL AND MANAGEMENT OF THE BUSINESS IS SITUATED THERE . THIS ASSUMPTION IS WRONG AS THE PLACE OF ACCRUAL OF INCOME DEPENDS ON THE NATURE OF THE TRANSACTION GENER ATING THE INCOME AND NOT THE PLACE OF CONTROL AND MANAGEMENT . IF THE REASONING BASED ON CONTROL AND MANAGEMENT IS ACCEPTED AS CORRECT THEN IN ALL CASES OF A SINGAPORE RESIDENT COMPANY, THEIR GLOBAL INCOME WILL ACCRUE IN SINGAPORE AND HENCE ARTICLE 24 WI LL NOT APPLY TO ANY SINGAPORE COMPANY . VIII) ON APPLICATION FILED BY APPELLANT FOR OBTAINING TAX RESIDENCY CERTIFICATE AND CIRCULAR ISSUED BY IRAS - APPELLANT HAS STATED NATURE OF INCOME AS 'FREIGHT DERIVED FROM INDIA' : - SINGAPORE HAS PRESCRIBED A STAN DARD FORM FOR APPLYING FOR TRC. IN THIS FORM, THE ASSESSEE HAS SPECIFIED THE 13 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 NATURE OF INCOME FOR WHICH TRC IS SOUGHT AS 'FREIGHT DERIVED FROM INDIA'. SINGAPORE HAS ISSUED A PUBLIC CIRCULAR DATED 30TH MAY 1998 WHICH WAS REVISED ON 15TH MARCH 2005 AND A GAIN ON 2ND MAY 2006 ON THE SUBJECT OF TRC. AT PARAS 6 - 10, THE CIRCULAR EXPLAINS THAT TRC WILL BE ISSUED ONLY WHEN ASSESSEE HAS RECEIVED THE AMOUNT IN SINGAPORE FOR WHICH TAX TREATY RELIEF IS ASKED FOR . IX) ON TAX RETURN FILED IN SINGAPORE - FREIGHT INCOM E CLAIMED AS EXEMPT IN SINGAPORE, NO LIABILITY INCURRED BY (WRONGLY) INCLUDING FREIGHT INCOME IN THE SINGAPORE TAX RETURN : - FROM THE SINGAPORE RETURN, IT IS SEEN THAT THE ENTIRE INCOME HAS BEEN CLAIMED AS EXEMPT AND NO TAX IS REALLY PAYABLE IN SINGAPOR E 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 ESTAB LISH THAT INCOME HAS ACCRUED IN SINGAPORE . X) CON CLUSION 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 REMITTE D 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 RE LIEF CLAUSE IN ITS DTAA WITH VARIOUS OTHER COUNTRIES. 14 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 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 BE COUCHED IN VAGUE AND GUARDED LANGUAGE SUCH THAT INTERPRETATION OF THE CERTIFICATE BECOMES AN ISSUE. RECEIPT IN SINGAPORE MUST BE BY THE ASSESSEE ONLY BECAUSE THE LANGUAGE OF ARTICLE 24 IS PRECISE AND RECEIPT BY OR BEHALF OF THE ASSESSEE IS NOT COVERED BY IT. FURTHER EVEN IF THE PRINCIPLE OF CONSTRUCTIVE RECEIPT IS APPLIED IT CANNOT WAIVE THE REQUIREMENT OF RECEIPT OF INCOME IN SINGAPORE. A PAYMENT TO A CREDITOR OF THE ASSESSEE CAN BE REGARDED AS RECEIPT BY THE ASSESSEE, ONLY WHEN BEFORE PAYMENT, THE INCOME IS REMITTED TO SINGAPORE. HOWEVER APL BERMUDA (CREDITOR OF THE ASSESSEE) HAS BEEN PAID OFF IN NEW YORK AND NOT IN SINGAPORE. HENCE CONDITION OF RECEIPT IN SINGAPORE IS NOT FULFILLED IN THIS C ASE. THE FREIGHT INCOME ACCRUES IN INDIA IN ACCORDANCE WITH THE LAW LAID DOWN BY SUPREME COURT IN INDIA. THE ACCRUAL IS IN INDIA EVEN IN ACCORDANCE WITH THE SOURCE RULE CONTAINED IN SINGAPORE TAX LAWS. THE LETTER ISSUED BY THE SINGAPORE TAX AUTHORI TIES DOES NOT HAVE ANY PERSUASIVE VALUE AS IT DOES NOT HAVE INDEPENDENT REASONING. WHEN FREIGHT IS NOT REMITTED TO SINGAPORE THE ASSESSEE IS NOT LIABLE T O TAX ON THE SAID FREIGHT IN SINGAPORE A WRONG INCLUSION IN THE RETURN OF INCOME IN SINGAPORE O F INCOME ON WHICH THE ASSESSEE IS NOT LIABLE TO TAX IN SINGAPORE DOES NOT BAR THE INDIAN AUTHORITIES FROM CONCLUDING THAT THE ASSESSEE WAS NOT LIABLE TO TAX IN 15 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 SINGAPORE ON THAT INCOME. MORE SO WHEN SUCH INCOME IS THEREAFTER EXEMPT IN SINGAPORE. INDIA SINGAPORE DTAA HAS BEEN HELD TO BE A 'SUBJECT TO TAX' DTAA IN THE CASE OF THOMSEN CHARTERING (SUPRA) BY THE ITAT TO THE EXTENT THAT DTAA BENEFITS ARE EXTENDED ONLY IF THE FUNDS ARE REMITTED TO SINGAPORE AND THE ASSESSEE IS SUBJECTED TO TAX IN SINGAPORE. TH EREFORE, WHEN THE FUNDS ARE NOT REMITTED TO SINGAPORE THE ASSESSEE IS NEITHER LIABLE TO TAX IN SINGAPORE NOR CAN HE BE SUBJECTED TO TAX THERE. WHEN A PERSON IS NOT LIABLE TO TAX AND HENCE CANNOT BE SUBJECTED TO TAX IN SINGAPORE THE BENEFIT OF DTAA HAS TO HE DENIED AS PER ARTICLE. 24. MISTAKEN INCLUSION OF SUCH INCOME IN A RETURN AND THEREAFTER EXEMPTING THE SAME IS OF NO RELEVANCE. THE ASSESSEE HAS RELIED ON THE DECISION OF THE SC IN THE CASE OF AZADIBACHAOANDOLAN TO SUBMIT THAT DTAA BENEFIT SHOULD BE EXTENDED TO IT. THE SAID DECISION IS NOT APPLICABLE BECAUSE IT CONSIDERS ARTICLE 4 OF INDIA MAURITIUS DTAA WHICH PROVIDES THAT A PERSON IS A RESIDENT OF A CONTRACTING STATE IF HE IS LIABLE TO UNLIMITED TAXATION HIS GLOBAL INCOME THERE. SINCE SINGAPORE D OES 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 RESID ENT 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 16 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 NOT ATTRACTED TO INCOME WHICH IS GOVERNED BY ARTICLE 8 OF DTAA. THE SAID PROVISION WILL ONLY APPLY TO AN INCOME WHICH IS EITHER E XEMPT 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 PROVIDE S THAT THE PROFITS DERIVED BY AN ENTERPRISE OF CONTRACTING STATE (RESIDENT STATE) FROM THE OPERATION OF SHIP S OR AIRCRAFTS IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THAT STATE (RESIDENT STATE). THIS ARTICLE GIVES EXCLUSIVE RIGHT TO TAX THE SHIPPING PROFITS TO THE COUNTRY OF RESIDENCE. HERE, THE ASSESSEE BEING A RESIDENT OF SINGAPORE, HENCE , INDIA DOES NO T HAVE THE RIGHT TO TAX THE SHIPPING PROFITS. THERE IS NO EXEMPTION OF INCOME FROM SHIPPING INCOME AS IS CONTEMPLATED UNDER ARTICLE 24. HE SUBMITTED THAT THERE IS A DIFFERENCE BETWEEN INCOME BEING EXEMPT FROM TAX AND INCOME TAXABLE ONLY IN ONE STATE. BY WAY OF ILLUSTRATION, HE POINTED OUT THAT ARTICLE S 20, 21 AND 22 OF INDIA - SINGAPORE DTAA SPECIFICALLY PROVIDES THE INCOMES WHICH ARE EXEMPT FROM TAX IN A CONTRACTING STATE. SIMILARLY, THE DTAA ALSO PROVIDES GENRES OF INCOME WHICH ARE TAXED AT REDUCED RATE, E.G., ARTICLE 11 DEALING WITH INTEREST AND ARTICLE 12 DEALING WITH ROYALTY AND FEES FOR TECHNICAL SERVICES. IN SUPPORT OF HIS CONTENTION, HE STRONGLY RELIED UPON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF SET SATELLITE SINGAPORE PTE LTD. VS. ADIT IN M.A NO. 520/MUM/2010 DATED 11.2.2011 . HE SUBMITTED THAT THE FREIGHT EARNED BY ASSESSEE IS ASSESSABLE TO TAX IN SINGAPORE UNDER THE DOMESTIC LAWS OF SINGAPORE ON AN ACCRUAL BASIS AND NOT ON REMITTANCE BASIS. IRRESPECTIVE OF REMITTANCE OF FREIGHT INCOME TO SINGAPORE, THE ENTIRE FREIGHT INCOME IS ASSESSABLE TO TAX IN THE HANDS OF APL IN SINGAPORE ON AN ACCRUAL BASIS AND NOT ON REMITTANCE BASIS. ARTICLE 24 APPLIES ONLY WHEN INCOME IS TAXABLE 17 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 IN THE COUNTRY OF RESIDENCE ON REMITTANCE BASIS. WHETHER THE ASSESSEE IS TAXABLE ON REMITTANCE BASIS IN SINGAPORE CAN ONLY BE DECIDED/DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SINGAPORE INCOME - TAX LAW. HE ALSO REFERRED TO SEC. 10(1) OF SINGAPORE INCOME - TAX ACT , WHICH IS THE CHARGING SECTION AND POINTED OUT THAT INCOME ACCRUING IN OR DERIVED FROM SINGAPORE IS TAXABLE ON AN ACCRUAL BASIS WHEREAS THE FOREIGN SOURCE D INCOME IS TAXABLE ON REMITTANCE BASIS IN SINGAPORE. IN CASE WHERE THE TRADE OR BUSINESS IS CARRIED ON IN SINGAPORE, I.E. THE PLACE OF MANAGEMENT IS IN SINGAPO RE THEN , THE INCOME FROM SAID TRADE OR BUSINESS IS TREATED AS ACCRUIN G IN OR DERIVED FROM SINGAPORE. HERE, THE ASSESSEE IS CARRYING ON BUSINESS IN SINGAPORE AND IS ALSO EFFECTIVELY MANAGED FROM SINGAPORE ,THEREFORE , UNDER THE DOMESTIC LAW OF SINGAPORE THE E NTIRE FREIGHT INCOME EARNED BY ASSESSEE FROM ITS GLOBAL SHIPPING OPERATIONS IS TREATED AS ACCRUED IN SINGAPORE AND IS TAXABLE IRRESPECTIVE OF ITS REMITTANCE. IN SUPPORT OF HIS CONTENTION, HE DREW OUR SPECIFIC ATTENTION TO INCOME - TAX RETURNS FILED BY ASSESS EE 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 AU THORITY 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 TH E ISSUE THAT BASIS OF TAXATION OF ASSESSEES 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 18 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 ANY DIFFERENCE WHATSOEVER EVEN IF UNDER THE SINGA PORE 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 TRIBU NAL HAS HELD THAT ARTICLE 24 HAS NO APPLICABILITY IN THE CASE OF SHIPPING COMPANIES OPERATING FROM SINGAPORE BECAUSE THE SECOND CONDITION PRESCRIBED IN ARTICLE 24, I.E., TAXABILITY OF INCOME IN SINGAPORE ON RECEIPT BASIS IS NOT SATISFIED.THE TRIBUNAL HELD THAT THERE WAS NOTHING ON RECORD TO SUGGEST THAT THE FREIGHT INCOME OF ASSESSEE WAS TAXABLE ON RECEIPT BASIS IN SINGAPORE. THERE ALSO, THE TRIBUNAL HAS RELIED UPON THE CONFIRMATION/CERTIFICATE GIVEN BY IRAS. HE POINTED OUT THAT , NOW THERE IS A DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF M.T. MAERSK MIKAGE VS. DIT (IT), (2016) 72 TAXMANN.COM 359 , WHEREIN THE HONBLE HIGH COURT IN THE CONTEXT OF INDIA - SINGAPORE DTAA HAS HELD THAT SHIPPING COMPANYS INCOME IS NOT TAXABLE IN SINGAPORE ON THE BASIS OF REMITTANCE, ALBEIT ON ACCRUAL BASIS AND, THEREFORE, PARA 1 OF ARTICLE 24 WOULD NOT BE APPLICABLE. WHILE HOLDING SO, THE HONBLE COURT HAS HEAVILY RELIED ON THE LETTER/CONFIRMATION ISSUED BY IRAS WHICH CONFIRMED THE TAXABILITY OF GLOBAL SHIPPING INCOME IN S INGAPORE ON ACCRUAL BASIS. T O PROVE HIS POINT, HE DREW OUR SPECIFIC ATTENTION TO THE VARIOUS OBSERVATIONS MADE IN THE SAID JUDGMENT BY T HEIR LORDSHIPS. AS REGARDS THE OBSERVATION OF THE LD. CIT(A) THAT CONFIRMATION GIVEN BY IRAS WILL NOT HAVE SIGNIFICANCE , HE SUBMITTED THAT FIRSTLY, WHETHER THE ASSESSEES INCOME IS TAXABLE IN SINGAPORE ON ACCRUAL BASIS OR REMITTANCE BASIS IS A QUESTION OF LAW, WHICH IS TO BE DETERMINED HAVING 19 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 REGARD TO THE LAW IN FORCE IN SINGAPORE AND NOT IN INDIA; AND SECONDLY, ONCE THE SINGAPORE TAX AUTHORITIES HAVE CONFIRMED THE POSITION OF TAXABILITY OF ASSESSEES INCOME, THEN SAID POSITION IS BINDING ON OTHER CONTRACTING STATE WHICH HAS BEEN HELD SO IN THE DECISION OF THE HON'BLE GUJARAT HIGH COURT AS AFORESAID AND ALSO WELL - SETTLED BY THE JUDGMENT S OF HON'BLE SUPREME COURT IN THE CASE OF UOI VS. AZADIBACHAOANDOLAN, 263 ITR 706 (SC) AND HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. LAKSHMI TEXTILE EXPORTERS LTD., 245 ITR 521 (MAD) , THAT CERTIFICATE ISSUED BY TAX AUTHORITIES OF THE F OREIGN STATE IS BINDING. 9. WITHOUT PREJUDICE TO THE AFORESAID ARGUMENTS THAT THE CONDITIONS SPECIFIED IN ARTICLE 24 ARE NOT FULFILLED, MR.PARDIWALLA SUBMITTED THAT , SINCE THE FREIGHT COLLECTED FROM INDIAN OPERATIONS ARE ULTIMATELY REMITTED TO SINGAPORE, THE CONDITION OF REMITTANCE OF FREIGHT COLLECTED TO SINGAPORE AS PROVIDED IN ARTICLE 24 STANDS SATISFIED. HE EXPLAINED THAT THE FREIGHT INCOME ARISING FROM ASSESSEES 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 SI NGAPORE 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), SUBMITT ED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT, MUMBAI BENCH IN 20 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 THE CAS E 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 INDI A - 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 BENEFI T OF THE DTAA, THEN IT CANNOT GO BACK TO RELY UPON THE SINGAPORE TAX LAWS. HERE, THE ISSUE IS NOT OF TAX NEUTRALITY BECAUSE ASSESSEE IS NOT PAYING ANY TAX ON SHIPPING INCOME IN SINGAPORE. THEREFORE, IT CANNOT BE HELD THAT THERE IS ANY KIND OF REMITTANCE O F RECEIPTS OR INCOME IN SINGAPORE SO AS TO ATTRACT TAX IN SINGAPORE. ONCE THE INCOME ITSELF IS EXEMPT FROM TAX, IT INTER - ALIA MEANS THAT THERE IS NO REMITTANCE AND CONSEQUENTLY BY VIRTUE OF ARTICLE 24 , THE ENTIRE INCOME IS TO BE TAXED IN TH E SOURCE STATE, I.E. IN INDIA. THE FREIGHT INCOME FROM INDIA DOES NOT ACCRUE IN SINGAPORE SO THAT IT CAN BE TAXED IN SINGAPORE ONLY BECAUSE THE SINGAPORE LAW ENVISAGES TAXABILITY OF FOREIGN SOURCED INCOME ONLY ON THE BASIS OF REMITTANCE. SHE ALSO FILED A COPY OF DOWNLOADE D VERSION OF LITERATURE OF TAXABLE AND NON - TAXABLE INCOME FROM IRAS INGAPORE WEBSITE TO SHOW THAT U/S 10(25) OF SITA , INCOME FROM OUT OF SINGAPORE IS CONSIDERED RECEIVED IN SINGAPORE ONLY WHEN IT IS REMITTED OR TRANSMITTED OR BROUGHT INTO SINGAPORE. HERE, I N THIS CASE, THE LD. CIT(A) HAS AMPLY DEMONSTRATED THAT FIRSTLY, THERE IS NO REMITTANCE TO SINGAPORE AND SECONDLY, INCOME ITSELF IS NOT TAXABLE IN SINGAPORE. THE FOREIGN SOURCED INCOME HAS BEEN DEFINED IN SINGAPORE INCOME TAX ACT AS FOREIGN INCOME THAT DOES NOT ARISE FROM A TRADE OR BUSINESS CARRIED ON IN SINGAPORE AND FOREIGN INCOME IS TAXABLE ONLY WHEN IT IS ACTUALLY RECEIVED IN SINGAPORE 21 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 AND ONCE THIS CONDITION IS FULFILLED, THEN IN TERMS OF ARTICLE 24 THE SOURCE STATE, I.E., INDIA HAS A RIGHT TO TAX THE SHIPPING INCOME. IN SUPPORT OF HER POINT S HE ALSO FILED CERTAIN DECISIONS OF THE COURT OF APPEALS OF SINGAPORE SPECIFICALLY IN THE CASE OF COMPTROLLER OF INCOME T AX VS . HY [2006] 2 SLR 405; SG [2006] SGCA 7 TO SHOW AS TO HOW THE COURTS HAVE INTERPRETED TH E WORDS DERIVED FROM OR ACCRUING IN SINGAPORE. THUS, AFTER REFERRING TO THE VARIOUS DOCUMENTS AND LITERATURE SHE SUMMARISED HER ARGUMENTS THAT SINGAPORE FOLLOWS A QUASI - TERRITORIAL BASIS OF TAXATION WHEREBY ONLY INCOME EARNED IN OR DERIVED FROM SINGAPOR E IS TAXED IN SINGAPORE.THE INCOME EARNED FROM SOURCES OUTSIDE SINGAPORE IS NOT SUBJECT TO SINGAPORE TAX TILL SUCH TIME THAT THE INCOME IS RECEIVED /REMITTED IN SINGAPORE. THUS, THE OBSERVATIONS AND CONCLUSION OF CIT(A) ARE IN ACCORDANCE WITH THE CORRECT I NTERPRETATION OF ARTICLE 24 AND ALSO THE SINGAPORE TAX LAWS. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER AS WELL AS THE 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 A RTICLE ITSELF, WHICH FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREUNDER : - ARTIC LE 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 22 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 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 PURPOSE OF THIS PARAGRAPH. THE TERM 'GOVERNMENT' INCLUDES ITS AGENCIES AND STATUTORY BODIES.' THE AFORESAID ARTICLE PROVIDES A LIMITATION ON RELIEF PROVISION RELAT ED TO REMITTANCE BASIS OF TAXATION WHICH IS APPLIED IN FEW COUNTRIES LIK E SINGAPORE AND UNITED KINGDOM. UNDER THE REMITTANCE BASIS OF TAXATION, INCOME ARISING OUTSIDE THE COUNTRY IS TAXABLE NOT WHEN THE INCOME IS EARNED OR ARISES OR IS DERIVED, BUT ONLY WH EN THAT INCOME IS REMITTED TO AND RECEIVED IN THE RESIDENT COUNTRY. IN SINGAPORE, THE RESIDENT COMPANIES ARE GENERALLY TAXED ON INCOME ACCRUING IN OR DERIVED FROM SINGAPORE ON ACCRUAL BASIS , HOWEVER, INCOME ACCRUING OR DERIVED FROM OUTSIDE SINGAPORE IS TAX ED ON REMITTANCE BASIS. THIS IS THE CONSEQUENCE OF SEC. 10(1) OF SINGAPORE INCOME TAX ACT, WHICH READS AS UNDER: - CHARGE OF INCOME TAX : 10 (1) INCOME TAX SHALL, SUBJECT TO THE PROVISIONS OF THIS ACT, BE PAYABLE AT THE RATE OR RATES SPECIFIED HEREINAFT ER FOR EACH YEAR OF ASSESSMENT UPON THE INCOME OF ANY PERSON ACCRUING IN OR DERIVED FROM SINGAPORE OR RECEIVED IN SINGAPORE FROM OUTSIDE SINGAPORE IN RESPECT OF - 23 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 (A) GAINS OR PROFITS FROM ANY TRADE, BUSINESS, PROFESSION OR VOCATION, FOR WHATEVER PERIOD OF TIME SUCH TRADE, BUSINESS, PROFESSION OR VOCATION MAY HAVE BEEN CARRIED ON OR EXERCISED (EMPHASIS ADDED IS OURS ) IF WE ANALYSE THE RELEVANT PHRASES USED IN ARTICLE 24, IT IS QUITE APPARENT THAT TWO CONDITIONS HAVE BEEN ENVI SAGED THAT NEEDS TO BE FULFILLED; FIRSTLY, INCOME EARNED FROM THE SOURCE STATE (HERE IN THIS CASE, INDIA) IS EXEMPT FROM TAX OR IS TAXED AT A REDUCED RATE IN THE SOURCE STATE (INDIA) AS PER THE DTAA; AND SECONDLY, UNDER THE LAWS IN FORCE OF THE RESIDENT ST ATE (SINGAPORE), SUCH INCOME IS SUBJECT TO TAX BY REFERENCE TO THE AMOUNT THEREOF WHICH IS REMITTED TO OR RECEIVED IN THE RESIDENT STATE AND NOT BY REFERENCE TO THE FULL AMOUNT THEREOF. IF BOTH THE CONDITIONS ARE SATISFIED, THEN ONLY THE EXEMPTION IS ALLOW ED OR THE REDUCED RATE OF TAX IS LEVIED ON THE AMOUNT SO REMITTED. THE KEY PHRASES WHICH NEED TO BE BORNE IN MIND WHILE UNDERSTANDING ARTICLE 24 IS UNDER THE LAWS IN FORCE IN OTHER CONTRACTING STATE (SINGAPORE) . HERE, IN THIS CASE, THE INCOME OF ASSESSE E - COMPANY FROM SHIPPING OPERATIONS IS NOT TAXABLE ON REMITTANCE BASIS UNDER THE LAWS OF SINGAPORE, ALBEIT IS LIABLE TO BE TAXED IN - PRINCIPLE ON ACCRUAL BASIS BY VIRTUE OF THE FACT THAT THIS INCOME UNDER THE INCOME TAX LAWS OF SINGAPORE IS REGARDED AS ACCR UING 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, TH E 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 24 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 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 O F 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 CO MPANY HAS CORRECTLY REPORTED ITS INCOME ACCRUED IN OR DERIVED FROM SINGAPORE FROM ITS BUSINESS CARRIED ON IN SINGAPORE. WE HAVE ALREADY PERUSED THE COPY OF THE RETURN OF INCOME ALONG WITH THE COMPUTATION FILED WITH THE IRAS FOR THE YEAR ENDING ON 31.12.200 8, RELEVANT FOR ASSESSMENT YEAR 2008 - 09, COPY OF WHICH IS APPEARING FROM PAGES 23 TO 30 OF THE PAPER BOOK. IN THE SAID RETURN, THE COLUMN MENTIONING THE FOREIGN INCOME RECEIVED IN SINGAPORE HAS BEEN REPORTED TO BE NIL , WHEREAS INCOME ACCRUING IN OR DERIV ED FROM SINGAPORE HAS BEEN SHOWN AT S G D 2,207,928. A CONFIRMATION /CERTIFICATE HAS ALSO BEEN OBTAINED FROM IRAS, THE CONTENT OF WHICH IS REPRODUCED HEREUNDER: - DEAR SIR/MADAM APL CO. PTE LTD. (THE COMPANY) FREIGHT INCOME YEARS OF ASSESSMENT (YAS) 200 8 & 2009 1. WE REFER TO OUR DISCUSSIONS ON THE SUBJECT. 2. YOU HAVE STATED THAT THE COMPANY IS PRIMARILY ENGAGED IN SHIPPING AND RELATED BUSINESSES AND IT RECEIVES FREIGHT PAYMENTS FOR ITS SERVICES. DURING CALENDAR YEARS 2007 AND 2008, THE COMPANY DERIV ED FREIGHT INCOME 25 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 FROM THIRD PARTIES INCLUDING FREIGHT INCOME FROM INDIAN OPERATIONS, THAT IS, INCOME FROM THE CARRIAGE OF GOODS/CARGO TO AND FROM INDIAN PORTS. THE COMPANY HAS REPORTED THE FREIGHT INCOME IN ITS SINGAPORE TAX RETURNS FOR THE YAS 2008 AND 2009. 3. YOU WISH TO SEEK OUR CLARIFICATION TO THE EFFECT THAT ARTICLE 24(1) OF THE INDIA - SINGAPORE DOUBLE TAXATION AGREEMENT (DTA) IS NOT APPLICABLE TO THE FREIGHT INCOME DERIVED FROM INDIAN OPERATIONS. 4. THE FREIGHT INCOME DERIVED BY THE COMPANY FROM INDIAN OPERATIONS WAS ACCRUED IN OR DERIVED FROM A BUSINESS CARRIED ON IN SINGAPORE. AS SUCH, IT WAS REGARDED AS SINGAPORE SOURCED INCOME AND ASSESSED TO TAX IN SINGAPORE ON ACCRUAL BASIS (I.E. NOT REMITTANCE BASIS) IN THE YAS 2008 AND 2009. 5. IN THIS RE GARD, THE PHYSICAL FLOW OF FUNDS IS NOT RELEVANT AND ARTICLE 24(1), WHICH SEEKS TO LIMIT RELIEF UNDER THE DTA WHERE THE RELEVANT INCOME IS SUBJECT TO TAX IN SINGAPORE ON A REMITTANCE BASIS, WOULD NOT BE APPLICABLE TO THE FREIGHT INCOME FROM INDIAN OPERATIO NS. 6. WE HOPE THAT THIS IS SUFFICIENT TO ADDRESS YOUR QUERY. IF YOU REQUIRE ANY FURTHER CLARIFICATIONS, PLEASE DO NOT HESITATE TO CONTACT US. YOURS FAITHFULLY LAU KIAT PENG (MS) SENIOR TAX OFFICER CORPORATE TAX DIVISION FOR COMPTROLLER OF INCOME TAX [ EMPHASIS ADDED IS OURS ] 26 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 FROM THE AFORESAID CERTIFICATE/CONFIRMATION GIVEN BY IRAS, IT IS OSTENSIBLY CLEAR THAT THE FREIGHT INCOME DERIVED BY THE ASSESSEE - COMPANY FROM THE INDIAN OPERATIONS WAS ACCRUED IN OR DERIVED FROM 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 RELEV ANT OBSERVATIONS OF HONBLE 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 C OMPANY 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 THAT THE REMITTANCE OF SUCH ACCRUED INCOME NOT HAVING TAKEN PLACE AT SINGAPORE, ARTICLE 24 WILL APPLY AND CONSEQUENTLY ARTICLE 8 PROVIDING FOR AVOIDANCE OF TABLE TAXATION WOULD NOT APPLY. 16. THE FACT, THAT THE INCOME IN QUESTION WHICH ARISES OUT OF SHIPPING OPERATIONS BY VIRTUE OF CLAUSE - 1 OF ARTICLE 8 OF THE DTAA WOULD BE TAXABLE ONLY IN SINGAPORE, IS NOT IN SERIOUS DISPUTE. THE MOOT QUESTION THEREFORE IS WHETHER OPERATION OF ARTICLE 8 IS OUSTED BY VIRTUE OF CLAUSE - 1 OF 27 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 ARTICLE 24. AS NOTED, ARTICLE - 24 OF DTAA PERTAINS TO LIMITATION OF RELIEF. UNDER CLAUSE - 1 THEREOF W HERE THE AGREEMENT PROVIDES THAT THE INCOME FROM SOURCES IN CONTRACTING STATES (IN THE PRESENT CASE, INDIA) SHALL BE EXEMPT FROM TAX OR TAX AT A REDUCED RATE AND UNDER THE LAWS IN FORCE IN OTHER CONTRACTING STATES (I.E. SINGAPORE), SUCH INCOME IS SUBJECT T O TAX BY REFERENCE TO THE AMOUNT THEREOF WHICH IS REMITTED OR RECEIVED IN THAT STATE AND NOT BY REFERENCE TO THE FULL AMOUNT THEREOF THEN THE EXEMPTION OR REDUCTION OF TAX UNDER THE AGREEMENT WOULD BE LIMITED TO SO MUCH OF THE INCOME AS IS REMITTED TO OR R ECEIVED IN THAT CONTRACTING STATE. IN PLAIN TERMS THEREFORE, IF THE INCOME IN QUESTION WAS TAXABLE IN SINGAPORE ON THE BASIS OF RECEIPT OR REMISSION AND NOT BY REFERENCE TO THE FULL AMOUNT OF INCOME ACCRUING, CLAUSE - 1 OF ARTICLE 24 WOULD APPLY AND DEPENDE NT ON THE FACTS OF THE CASE, EXEMPTION AS PER ARTICLE 8 EITHER IN WHOLE OR IN PART WOULD BE EXCLUDED. 17. IT IS, IN THIS CONTEXT, THAT THE CERTIFICATE DATED 09.01.2013 ISSUED BY THE INLAND REVENUE AUTHORITY OF SINGAPORE ASSUMES SIGNIFICANCE. IN THE SAID C ERTIFICATE, AS NOTED, IT WAS CERTIFIED THAT THE INCOME IN QUESTION DERIVED BY ST SHIPPING WOULD BE CONSIDERED AS INCOME ACCRUING IN OR DERIVED FROM THE BUSINESS CARRIED ON IN SINGAPORE AND SUCH INCOME THEREFORE, WOULD BE ASSESSABLE IN SINGAPORE ON ACCRUAL BASIS. IT WAS ELABORATED THAT THE FULL AMOUNT OF INCOME WOULD BE ASSESSABLE TO TAX IN SINGAPORE NOT BY REFERENCE TO THE AMOUNT REMITTED TO OR RECEIVED IN SINGAPORE. IN FACT, THE CERTIFYING AUTHORITY WENT ON TO OPINE THAT IN VIEW OF SUCH FACTS, ARTICLE 24.1 OF THE DTAA WOULD NOT BE APPLICABLE AND CONSEQUENTLY, ARTICLE 8 WOULD APPLY. 18. TO THIS LATER OPINION OF THE REVENUE AUTHORITY OF SINGAPORE, WE MAY NOT BE FULLY GUIDED SINCE IT FALLS WITHIN THE REALM OF INTERPRETATION OF THE RELEVANT CLAUSES OF DTAA. HO WEVER, IN ABSENCE OF ANY REBUTTAL MATERIAL PRODUCED BY THE REVENUE, WE WOULD CERTAINLY BE GUIDED BY THE FACTUAL DECLARATION MADE BY THE SAID AUTHORITY IN THE SAID 28 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 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 TH E 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 ACCOR DING 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, APPLICABILITY OF ARTICLE 8 WOULD BE OUSTED TO THE EXTENT SUCH INCOME IS NOT REMITTED. THIS CLAUSE DOES NOT PROVIDE THAT IN EVERY CASE OF NON - REMITTANCE OF INCOME TO THE CONTRACTING STATE, ARTICLE 8 WOULD NOT APPLY IRRESPECTIVE OF TAX TREATMENT SUCH INCOME IS GIVEN. WHEN IN THE PRESENT CASE, WE HOLD TH AT THE INCOME IN QUESTION WAS NOT TAXABLE AT SINGAPORE ON THE BASIS OF REMITTANCE BUT ON THE BASIS OF ACCRUAL, THE VERY BASIS FOR APPLYING CLAUSE - 1 OF ARTICLE 24 WOULD NOT SURVIVE. THE CONTENTION OF SHRI MEHTA FOR REVENUE THAT THE CERTIFICATE OF THE SINGAP ORE REVENUE AUTHORITIES IS OPPOSED TO PROVISIONS OF SECTION 10 OF THE SINGAPORE INCOME TAX ACT ALSO CANNOT BE ACCEPTED. THE REVENUE DOES NOT QUESTION GENUINENESS OF THE CERTIFICATE. IT CANNOT DISPUTE THE CONTENTION ON THE GROUND THAT THE SAME ARE OPPOSED T O THE STATUTORYPROVISION. 19. BY WAY OF A REFERENCE, WE MAY NOTICE THAT THE TRIBUNAL ALSO IN CASE OF THIS VERY ASSESSEE IN CASE OF ALABRA SHIPPING PTE LTD. V. INCOME - TAX OFFICER - INTERNATIONAL TAXATION, GANDHIDHAM, REPORTED IN 62 29 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 TAXMANN.COM 185 HAS TAKEN A SOMEWHAT SIMILAR VIEW BY OBSERVING AS UNDER: '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 IS EXEMPT FROM TAX IN THAT SOURCE STATE O R 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 CONTRACTING STATE, RATHER THAN WITH REFERENC E 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 W HICH 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 JURISDICTION AND THE TAXABILITY FOR INCOME FROM ACTIVITIES CA RRIED OUT OUTSIDE THE HOME JURISDICTION IS RESTRICTED TO THE INCOME REPATRIATED TO SUCH TAX JURISDICTION, AS IN THE CASE OF SINGAPORE, THE TREATY PROTECTION MUST REMAIN CONFINED TO THE AMOUNT WHICH IS ACTUALLY SUBJECTED TO TAX. ANY OTHER APPROACH COULD RES ULT 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 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 VI Z. 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 30 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 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 ARTI CLE 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 INCOME - TAX (INTERNATIONAL TAXATION) V. VENKATESH KARRIER LTD. REPORTED IN 349 ITR 124, - INWHICH THE COURT OBSERVED AS UNDER: '10. AFTER TAKING INTO CONSIDERATION THE ABOVE CIRCULARS ISSUED BY THE BOARD AND ALSO THE PROVISIONS CONTAINED IN ARTICLE 8 OF TH E DTAA, WE FIND THAT BOTH THE TRIBUNAL BELOW AND THE CIT [APPEALS] RIGHTLY HELD THAT IN SUCH A SITUATION, THE OWNER OF THE SHIP BEING ADMITTEDLY A RESIDENT OF UAE, THERE WAS NO SCOPE OF TAXING THE INCOME OF THE SHIP IN ANY OF THE PORTS IN INDIA. THE AGREEM ENT BETWEEN THE TWO COUNTRIES HAS OUSTED THE JURISDICTION OF THE TAXING OFFICERS IN INDIA TO TAX THE PROFITS DERIVED BY THE ENTERPRISE ONCE IT IS FOUND THAT THE SHIP BELONGS TO A RESIDENT OF THE OTHER CONTRACTING COUNTRY AND SUCH POSITION HAS ALSO BEEN CLA RIFIED BY THE CIRCULARS ISSUED BY THE BOARD AS INDICATED ABOVE.' 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 HAS REFUSED TO GRANT T HE BENEFIT TO THE PETITIONER. IT IS A GROUND SOUGHT TO BE RAISED FOR THE FIRST TIME BEFORE US BY THE REVENUE, FOR WHICH, NEITHER FULL FACTUAL EVIDENCE, NOR LEGAL FOUNDATION IS LAID. WE LEAVE SUCH AN ISSUE OPEN TO BE DECIDED IN THE APPROPRIATE CASE. 31 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 THE A FORESAID JUDGMENT OF HON'BLE GUJARAT HIGH COURT CLEARLY CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE , WHEREIN THE HONBLE HIGH COURT HAS CATEGORICALLY HELD THAT THE SHIPPING INCOME IS NOT TAXABLE IN SINGAPORE ON THE BASIS OF REMITTANCE, BUT ON ACCRUAL BASI S AND, THEREFORE, PARA 1 OF ARTICLE 24 WOULD NOT BE APPLICABLE. HERE, IN THIS CASE ALSO, THE HONBLE COURT HAS HEAVILY RELIED UPON THE CONFIRMATION LETTER/CERTIFICATE ISSUED BY IRAS WHICH CONFIRMED THE TAXABILITY OF GLOBAL SHIPPING INCOME IN SINGAPORE ON A CCRUAL BASIS. THEIR LORDSHIPS HAVE ALSO REFERRED TO THE RAJKOT BENCH OF THE TRIBUNAL IN THE CASE OF ALABRA SHIPPING PTE LTD., (SUPRA), WHICH ALSO LAYS DOWN THE SAME PROPOSITION. THUS, THE CONCLUSION AND FINDING OF LD. CIT ( A) STANDS NEGATED BY THESE DECISI ONS AND SAME IS REJECTED. FURTHER IN LIGHT OF THE HONBLE HIGH COURT JUDGMENT, THE RELIANCE ON THE DECISION IN DIT (IT) VS. THORESEN CHARTERING SINGAPORE (PTE.) LTD. (SUPRA) AS HEAVILY RELIED UPON BY LD. CIT (A) AND LD CIT DR, NO LONGER HOLDS GOOD. 12. T HERE IS ANOTHER ANGLE TO INTERPRET ARTICLE 24, WHICH IS THAT , THE SAID ARTICLE PURPORTS TO EXCLUDE 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 32 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 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 TAXATI ON IN THE SOURCE STATE . IT ONLY ENVISAGES TERRITORIAL AND JURISDICTIONAL RIGHTS FOR TAXING THE INCOME AND INDIA HAS NO JURISDICTION FOR ANY TAXING RIGHT WHICH ARE GOVERNED BY ARTICLE 8. THERE IS NO STIPULATION ABOUT EXEMPTION UNDER ARTICLE 8 OF THE SHIPPI NG INCOME WHICH AS POINTED OUT BY LD. SENIOR COUNSEL HAS BEEN SPECIFICALLY PROVIDED IN SOME OF THE ARTICLES LIKE ARTICLE 20, 21 & 22. HENCE , IT CANN OT BE RECKONED THAT SHIPPING INCOME EARNED FROM INDIA IS TO BE TREATED AS EXEMPT FROM TAX OR TAXED AT REDUCE D RATE, WHICH IS A CONDITION PRECEDENT FOR APPLICABILITY OF ARTICLE 24 , ALBEIT INDIA AT THE THRESHOLD DOES NOT HAVE THE JURISDICTION TO TAX THE SHIPPING INCOME OF THE NON - RESIDENT ENTITY . THUS, THE CONDITION OF ARTICLE 24 IS NOT SATISFIED IN THE PRESENT CA SE FROM THIS ANGLE ALSO. IN CONCLUSION, WE HOLD THAT THE LD. CIT ( A) WAS NOT JUSTIFIED IN DENYING THE BENEFIT OF ARTICLE 8 BY INVOKING THE LIMITATION CLAUSE OF ARTICLE 24 OF INDIA - SINGAPORE DTAA AS PER OUR DISCUSSION ABOVE AND MOST IMPORTANT, NOW THIS ISSU E STANDS SQUARELY COVERED BY THE DECISION OF HON'BLE GUJARAT HIGH COURT AS REFERRED ABOVE. IN THE LIGHT OF OUR AFORESAID FINDING, WE DO NOT DEEM FIT TO ENTER INTO THE SEMANTICS OF OTHER FINDINGS OF LD. CIT ( A) LIKE NEXUS BETWEEN REMITTANCE OF FREIGHT COLLE CTED IN INDIA AND FINALLY TO SINGAPORE VARIOUS AND OTHER ASPECTS RAISED BY HER AND ALSO THE VARIOUS 33 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 ARGUMENTS AS RAISED BY LD. SR. COUNSEL AND LD. CIT - DR QUA THE ISSUE OF ARTICLE 24. 13. NOW, THE NEXT ISSUE FOR OUR CONSIDERATION IS ELIGIBILITY OF ARTICLE 8 IN RESPECT OF INCOME EARNED FROM SHIPPING OPERATIONS BY THE ASSESSEE FROM INDIA . AS STATED IN OUR EARLIER PART OF THE ORDER, DURING THE RELEVANT PREVIOUS YEAR ASSESSEE HAD SHOWN FREIGHT RECEIPTS FROM SHIPPING IN RESPECT OF 136 SHIPS AND CLAIMED THE FREI GHT INCOME OF THESE SHIPS AS NOT TAXABLE IN INDIA IN TERMS OF ARTICLE 8 OF INDIA - SINGAPORE DTAA. THE ASSESSING OFFICER HELD THAT OUT OF 136 SHIPS, ASSESSEE COULD NOT PRODUCE THE CERTIFICATES IN RESPECT OF 8 SHIPS ON WHICH HE DENIED THE BENEFIT OF ARTICLE 8 AND ACCORDINGLY, OUT OF THE TOTAL FREIGHT RECEIPT OF RS.1104.58 CRORES, THE BENEFIT OF ARTICLE 8 WAS DENIED ON THE FREIGHT AMOUNT OF RS.2.29 CRORES ONLY . THE CIT ( A) NOTED THAT OUT OF 136 SHIPS, 81 SHIPS WERE UNDER CONNECTING CARRI ER AGREEMENT (CHARTER P ARTY AGREEMENT) AND IN RESPECT OF 16 SHIPS , ONLY VALIDATION CERTIFICATES WERE FILED . THUS, 97 SHIPS WERE NOT OWNED, LEASED OR OPERATED BY THE ASSESSEE , 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 CARRI ER AGREEMENT, SAME WILL NOT FALL WITHIN THE AMBIT OF ARTICLE 8 AS D EFINED IN INDIA - SINGAPORE DTAA. IN SUPPORT OF HER CONTENTION, SHE STRONGLY RELIED ON THE FOLLOWING FOUR DECISIO NS: - 34 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 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 REFERRI NG 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 EXAMPLE OF SUCH A CASE. (II) WHERE THE TERM OPERATION OF SHIP IS DEFINED AS TRANSPORTATION OF GOODS IN VESSELS OWNED, LEASED OR CHARTERED BY THE ENTERPRISE, THE BENEFIT OF ARTICLE 8 CAN BE EXTENDED O NLY IF THE TRANSPORTATION IS DONE BY THE ENTERPRISE BY OPERATION OF SHIPS THAT ARE OWNED, LEASED OR CHARTERED BY IT. (III) WHERE THE TERM OPERATION OF SHIP ALSO COVERS ANY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION, THE FREIGHT BOOKED THROUGH FEEDER VESSELS WILL BE ELIGIBLE FOR DTAA BENEFIT ONLY WHEN THE GOODS TRANSPORTED THROUGH FEEDER VESSELS ARE FURTHER TRANS - SHIPPED THROUGH MOTHER VESSELS OPERATED BY THE ASSESSEE. THE ASSESSEE HAS TO LINK THE GOODS IN THE FEEDER VESSELS WITH MOTHER VESSELS OPERATED BY IT, TO CLAIM BENEFIT. SHE FURTHER OBSERVED THAT 81 VESSELS WERE UNDER THE CONNECTING CARRIER ARRANGEMENT WHICH ARE GENERALLY TERMED AS FEEDER VESSELS WHERE ONLY SPACE IS GIVEN TO THE ASSESSEE ON ADHOC BASIS 35 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 BY THE FEEDER OPERATOR A ND SUCH TRANSPORTATION OF GOODS THROUGH FEEDER VESSEL DO NOT FULFIL THE REQUIREMENTS OF ARTICLE 8 BECAUSE THESE FEEDER VESSELS ARE NOT OWNED, LEASED OR OPERATED BY THE ASSESSEE. REGARDING THE OTHER 16 SHIPS, SHE OBSERVED THAT THOUGH THESE SHIPS WERE CLAIME D TO BE UNDER JOINT SERVICE AGREEMENT, HOWEVER, THE ASSESSEE HAD PRODUCED SHIP VALIDATION CERTIFICATE, WHICH ARE ONLY OF FEEDER OPERATORS. IT DOES NOT REFER TO ANY JOINT SERVICE AGREEMENT. HENCE, SOLELY BASED ON SUCH SHIP VALIDATION CERTIFICATE, DTAA BENEF IT CANNOT BE EXTENDED TO THE ASSESSEE. SHE FURTHER NOTED THAT THE ASSESSEE HAD EXPLAINED THAT IN ALL 211 MOTHER VESSELS WERE USED TO TRANSPORT THE GOODS FROM 97 FEEDER VESSELS. HOWEVER, THE ASSESSEE WAS ABLE TO SHOW THAT ONLY 60 VESSELS OUT OF THE 211 MOTH ER VESSELS USED IT TO FURTHER TRANSPORT THE GOODS WERE OPERATED BY IT. IN RESPECT OF THIS FREIGHT THE ASSESSEE IS ELIGIBLE FOR DTAA BENEFIT IN TERMS OF CLAUSE (D) OF PARA 4 OF ARTICLE 8 OF THE DTAA. BASED ON HER OBSERVATION, SHE DENIED THE BENEFIT OF ARTIC LE 8 OF ON THE FREIGHT RECEIPTS OF RS.97,29,89,746/ - IN THE FOLLOWING MANNER : - S R. NO. NAME OF AGREEMENT/ VESSEL NAME NO OF SHIP S COLLECTIONS (MOTHER VESSEL DOCUMENTS SUBMITTED) COLLECTIONS (MOTHER VESSEL DOCUMENTS NOT SUBMITTED) FREIGHT + DETENTION I N ON - EXCLUSIVE C ONNECTING CARRIER AGREEMENT (INCLUDES 4 SHIPS FOR WHICH ADDITION MADE BY AO) 81 136,51,47,435 63,93,43,868 200,44,91,303 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 2,64,65,8 1,914 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 2,66,02,71,10 5 36 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 14. SHE ALSO DISTINGUISHED THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF BALAJI SHIPPING UK LTD. VS. DIT , [2012] 2 53 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 PLAN K 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 LED FOR BENEFIT UNDER ARTICLE 8 , BECAUSE THE ENTIRE LEG OF JOURNEY HAS NOT BEEN DONE BY THE SHIP OWNED, LEASED OR CHARTERED BY THE ASSESSEE. SUCH A PREMISE OF LD. CIT(A) NOW STANDS ANSWERED BY THE DECISION OF THE COORDINATE BENCH OF TRIBUNAL IN THE CASE OF MISC BERHAD VS. ADIT IN ITA NO. 6499/MUM/2012 DATED 16.7.2014 AND ALSO BY THE DECISION OF HON'BLE HIGH COURT IN THE CASE OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF BALAJI SHIPPING UK LTD. (SUPRA) , WHEREIN THE HON'BLE HIGH COURT HAS CATEGORICALLY HELD THA T EVEN SHIPPING OPERATIONS DONE THROUGH SLOT CHARTER ARRANGEMENT IS TO BE TREATED AS INCOME FROM SHIPPING OPERATIONS. ON THE OTHER HAND, THE LD. CIT - DR HAD MAINLY RELIED UPON THE RELEVANT OBSERVATION AND FINDING OF CIT(A) AND SHE ALSO REFERRED TO THAT PORT ION OF THE DECISION OF MISC BERHAD (SUPRA) , WHEREIN THE TRIBUNAL HAS HELD 37 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 THAT A LINKAGE HAS TO BE ESTABLISHED BETWEEN THE TRANSPORTATION OF FEEDER VESSEL AND THE MOTHER VESSEL WHICH IS OWNED OR LEASED BY THE ASSESSEE. ONCE THAT LINKAGE IS NOT ESTABLISHED, BENEFIT OF ARTICLE 8 CANNOT BE GIVEN. SHE FURTHER RELIED UPON ANOTHER DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF DELTA AIR LINES INC. VS. ADIT(IT) REPORTED IN [2015] 69 SOT 45 (MUMBAI - TRIB.) . 16. FROM THE FACTS AND OBSERVATIONS MADE BY LD. CI T(A) AS DISCUSSED ABOVE, IT IS SEEN THAT THE MAIN GROUND FOR DENYING THE BENEFIT OF ARTICLE 8 IN RESPECT OF CERTAIN SHIPS BY HER IS THAT FIRSTLY, THE ENTIRE LEG OF JOURNEY HAS NOT BEEN DONE THROUGH A VESSEL WHICH IS OWNED, LEASED OR CHARTERED BY THE ASSESS EE, I.E., IT HAS BEEN DONE THROUGH FEEDER VESSELS AND; SECONDLY, IN RESPECT OF CERTAIN SHIPS THERE WAS ONLY JOINT SERVICE AGREEMENT WITH THE FEEDER VESSEL, I.E., THERE WAS NO USE OF ANY MOTHER VESSEL OWNED BY THE ASSESSEE. SHE HAS MAINLY RELIED UPON THE DE FINITION OF ARTICLE 8 AS GIVEN IN INDIA - SINGAPORE DTAA TO COME TO THE CONCLUSION THAT OPERATION OF THE SHIPS IN INTERNATIONAL TRAFFIC SHOULD BE CARRIED ON BY THE OWNERS OR LESSEES OR CHARTERERS OF THE SHIPS. IN THE CASE OF JOURNEY, PART OR FULL JOURNEY BY FEEDER VESSELS UNDER SLOT CHARTER ARRANGEMENT DOES NOT FALL WITHIN THE SCOPE OF GOOD CARRIED BY THE OWNER S , LESSEE OR CHARTERER OF SHIPS, THEREFORE, BENEFIT OF ARTICLE 8 CANNOT BE GIVEN AND FOR THIS PROPOSITION SHE HAD RELIED UPON CERTAIN COORDINATE BENCH DECISIONS . AGAIN T HIS ASPECT OF THE ISSUE SHE HAS INFERRED FROM PARA 4 OF ARTICLE 8. FOR THE SAKE OF READY REFERENCE T HE RELEVANT PROVISION OF ARTICLE 8 UNDER INDIA - SINGAPORE DTAA READS AS UNDER: - 38 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 ARTICLE 8: SHIPPING AND AIR TRANSPORT 1. PROFITS DER IVED 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 BUSIN ESS 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 O R 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 OF SHIPS OR AIRCRAFT USED IN SUCH TRANSPORTATION; (C) THE USE, MAINTENANCE OR RENTAL OF CONTAINERS (INCLUDING TRAILERS AND RELATED EQUIPMENT FOR THE TRANSPORT OF CONTAINERS) IN CONNECTION WITH SUCH TRANSPORTATION; AND (D) ANY OTHER ACTIVITY DIRECTLY CONN ECTED WITH SUCH TRANSPORTATION. THE KEY PHRASES ON WHICH HEAVY RELIANCE HAS BEEN PLACED ARE OPERATION OF SHIPS , TRANSPORTATION BY SEA OR AIR CARRIED ON 39 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 BY THE OWNERS OR LESSEES OR CHARTERERS OF THE SHIPS. THIS PRECISE MATTER OF THE ISSUE HAD COME UP FOR CONSIDERATION BEFORE THIS BENCH IN THE CASE OF MISC BERHAD (SUPRA) , WHEREIN ON INTERPRETATION OF ARTICLE 8 OF MALAYSIA INDIA - DTAA, WHICH CONTAINS A SIMILAR PHRASEOLOGY, IT WAS OBSERVED AND OPINED AS UNDER : - 23. WE WILL NOW INDEPENDENTLY EXAMINE ARTI CLE 8(1) AND ARTICLE 8(2) OF INDO MALAYSIA DTAA. THE CRUCIAL PHRASE OR WORDS WHICH NEED TO BE ANALYSED HERE ARE OPERATION OF SHIPS, TRANSPORTATION BY THE OWNER OR LESSEES OR CHARTERERS OF SHIPS. FIRST OF ALL, THE WORD OPERATION IS DIFFERENT FROM THE WORD OPERATE OR OPERATOR. THE WORD OPERATE MEANS TO CONTROL THE FUNCTIONING OF MACHINE, PROCESS OR SYSTEM. HERE, THE PERSON IN CONTROL IS IMPORTANT. THE WORD OPERATOR MEANS, A PERSON WHO OPERATES THE EQUIPMENT OR A MACHINE. HERE FOR OUR PURPOSE OPERATOR OF SHIP. WHEREAS, THE WORD OPERATION CONNOTES THE FACT OR CONDITION OF FUNCTIONING OR BEING ACTIVE I.E., SOME KIND OF ACTIVITY. THE OPERATION OF SHIPS CANNOT BE UNDERSTOOD MERELY AS AN OPERATOR OF SHIPS OR A PERSON WHO OPERATES THE SHIPS. THE WORD OPERATION OF SHIPS HAS TO BE UNDERSTOOD IN A BROADER SENSE OF CARRYING OUT SHIPPING ACTIVITY. THE CARRYING OF SHIPPING ACTIVITY COULD BE AS AN OWNER OF A SHIP OR AS A LESSEE OF A SHIP OR AS A CHARTERER OF A SHIP. HERE, THE WORD OWNER HAS TO BE INF ERRED AS A PERSON WHO OWNS A SHIP AND THE WORD LESSEE AS A PERSON WHO OWNS THE SHIP FOR A GIVEN LEASE PERIOD. THE WORD CHARTERER HAS TO BE UNDERSTOOD AS A PERSON WHO CHARTERS OR HIRES A SHIP FOR A VOYAGE. THE LAW LEXICON (P. RAMANATHA AYIER, 2 ND EDN.), DEFINES THE WORD CHARTERER AS ONE WHO, BY CONTRACT ACQUIRED THE RIGHT TO USE A VESSEL BELONGING TO ANOTHER. ONE WHO CHARTERS OR HIRES OR ENGAGES THE WHOLE OR PART OF A SHIP UNDER AN AGREEMENT OF CHARTER PARTY FOR A VOYAGE. HERE, THE WORD CHARTERER D OES NOT MEAN THE OWNER OR LESSEE OF A SHIP. THE WORD CHARTER PARTY HAS BEEN DEFINED IN LAW LEXICON AS AN INDENTURE 40 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 OF COVENANTS AND AGREEMENTS MADE BETWEEN MERCHANTS AND MARINERS CONCERNING THEIR SEA AFFAIRS. IT IS A CONTRACT BY WHICH A SHIP OR SOME PRI NCIPAL 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 O F 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 ASSOCIA TED 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 TE RM CHARTER OR CHARTERER, WHICH ARE AS UNDER: I) DICTIONARY OF INTERNATIONAL BUSINESS TERMS (FINANCIAL WORLD PUBLISHING), DEFINES THE TERM CHARTER AS UNDER: TO RENT AN AIRCRAFT OR VESSEL, OR A PART OF ITS CARGO SPACE, FOR A PARTICULAR JOURNEY OR A PERIOD OF TIME. II) BLACKS LAW DICTIONARY (9 TH EDITION) DEFINES THE TERM CHARTER WHICH INCLUDES THE TERM SPACE CHARTER WHICH IS DEFINED AS UNDER: A CHARTER FOR A PART OF A VESSELS CAPACITY, SUCH AS A SPECIFIED HOLD OR DECK OR A SPECIFIED PART OF T HE VESSELS CARRYING CAPACITY. III) K.J. AIYARS JUDICIAL DICTIONARY (12 TH EDITION) DEFINES THE TERM CHARTER PARTY AS UNDER: 41 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 AN AGREEMENT IN WRITING BY WHICH A SHIP OWNER AGREES TO LET AN ENTIRE SHIP OR PART THEREOF, TO A MERCHANT, FOR THE CARRIAGE O F GOODS ON A SPECIFIED VOYAGE, OR DURING A SPECIFIED PERIOD, FOR A SUM OF MONEY WHICH THE MERCHANT AGREES TO PAY AS FREIGHT FOR THEIR CARRIAGE. IV) CONCISE LAW DICTIONARY BY P. RAMANATHA AIYAR (YEAR 2005), DEFINES THE TERM CHARTERER AS UNDER: ONE WHO CHARTERS OR HIRES OR ENGAGES THE WHOLE OR PART OF A SHIP UNDER AN AGREEMENT OF CHARTER PARTY FOR A VOYAGE. V) CHAMBERS 20 TH CENTURY DICTIONARY DEFINES THE TERM CHARTERER AS UNDER: TO ESTABLISH BY CHARTER: TO LET OR HIRE, AS A SHIP, ON CONTRACT. VI) M ODERN LEGAL USAGE DICTIONARY DEFINES THE TERM CHARTERER AS UNDER: A PERSON TO WHOM A VESSEL IS CHARTERED IN A CHARTER PARTY. VII) OXFORD DICTIONARY DEFINES THE TERM CHARTERER AS UNDER: A CONTRACT TO HIRE AN AIRCRAFT, SHIP, ETC. FOR A SPECIAL PURPO SE. VIII) MARITIME AND SHIPPING DICTIONARY 2012, DEFINES THE TERM CHARTER AS UNDER: A VOYAGE CHARTER WHEREBY THE SHIP OWNER AGREES TO PLACE A CERTAIN NUMBER OF CONTAINER SLOTS (TEU AND/OR FEU) AT THE CHARTERERS DISPOSAL. 24. FROM THE ABOVE DEFINITIO NS OF THE TERM CHARTER OR CHARTERER, ONE THING IS AMPLY CLEAR THAT IT MEANS HIRING OF 42 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 VESSELS OR A SHIP OR A PART OF ITS SPACE UNDER AN AGREEMENT FOR A VOYAGE. THUS, EVEN A PART OF A SPACE IN THE VESSELS FOR A PARTICULAR JOURNEY IS ALSO CONSIDERED AS CHARTER OF SHIP OR CHARTERER. IN THE DECISION OF BALAJI SHIPPING U.K. LTD. (SUPRA), WHILE REFERRING TO THE JUDGMENT OF TYCHY (SUPRA), THE HIGH COURT HAVE NOTED THAT A SLOT CHARTER AND A VOYAGE CHARTER OF A PART OF A SHIP ARE IN A SENSE CHARTERERS OF A SPACE IN A SHIP. 25. FROM THE ABOVE DISCUSSION, THE FOLLOWING INFERENCES CAN 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, CHART ERER 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 PART Y 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 SH OULD 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 HA D 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 CHARTER. T HE SLOT CHARTER AND SPACE 43 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 CHARTER OF A SHIP CANNOT BE SEGREGATED OR READ IN ISOLATION FROM THE MEANING OF CHARTER ER AS APPEARING IN PARA 4 OF ARTICLE 8. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BALAJI SHIPPING U.K LTD. (SUPRA) HA S CLEARLY EXP LAINED THE CONCEPT OF SLOT CHARTER. THE RELEVANT OBSERVATIONS OF THE HON'BLE COURT READS AS UNDER: - 24. SLOT HIRE AGREEMENTS HAVE BEEN AND REMAIN A REGULAR FEATURE OF THE SHIPPING INDUSTRY FOR DECADES. WHETHER THEY CONSTITUTE A CHARTER OF A PORTION OF A S HIP OR NOT IS A DIFFERENT MATTER. IN A CASE OF THE FIRST TYPE, THE CARRIAGE OF GOODS BY AVAILING OF THE SLOT HIRE FACILITY IS AN INTEGRAL PART OF THE CONTRACT OF CARRIAGE OF GOODS BY SEA. WITHOUT IT, THE ENTERPRISE / ASSESSEE WOULD BE GREATLY HAMPERED IN ITS BUSINESS IN RELATION TO INTERNATIONAL TRAFFIC, CARRIAGE OF GOODS BY SEA. ENTERPRISES OPERATING IN ANY MODE OR MANNER, DO NOT ALWAYS PLY THEIR SHIPS ALL OVER THE GLOBE. EVEN IF THEY DO, THEIR SHIPS MAY NOT BE READILY AVAILABLE WHEN REQUIRED ON A PARTIC ULAR ROUTE IN CONNECTION WITH A CONTRACT OF CARRIAGE OF GOODS. IT IS NECESSARY, THEREFORE IN SUCH CASES FOR THEM TO RESORT TO SLOT HIRE AGREEMENTS. THIS ENABLES THEM TO TRANSPORT THE GOODS NOT ON BEHALF OF THE OWNER OF THE VESSEL WHICH HAS GRANTED THEM A S LOT HIRE FACILITY, BUT IN THEIR OWN NAME ON BEHALF OF THEIR CLIENTS. THE CONTRACT OF CARRIAGE OF GOODS BY SEA IS THUS PERFORMED BY SUCH ENTERPRISES ON A PRINCIPAL TO PRINCIPAL BASIS WITH THEIR CLIENTS AND NOT AS AGENTS OF THE OWNERS OF THE SHIPS AND/OR THE IR CLIENTS. THE SLOT HIRE AGREEMENTS ARE THEREFORE, AT LEAST INDIRECTLY, IF NOT DIRECTLY, CONNECTED AND INTERLINKED WITH AND ARE AN INTEGRAL PART OF THE ENTERPRISE'S BUSINESS OF OPERATING SHIPS. 25. WITHOUT AVAILING SLOT HIRE FACILITIES, AN ENTERPRISE WOUL D BE UNABLE TO CARRY ON ITS BUSINESS OF OPERATING SHIPS IN INTERNATIONAL TRAFFIC AT ALL IN MANY CASES. THEY MAY WELL LOOSE MUCH OF THEIR BUSINESS. EVEN IF BUSINESS EXPEDIENCY IS IRRELEVANT TO THE INTERPRETATION OF THE DTAA, IT INDICATES THE CLOSE NEXUS BET WEEN SLOT HIRES AND THE BUSINESS OF 44 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC. IF THE DTAA IS CONSTRUED TO INCLUDE ACTIVITIES DIRECTLY OR INDIRECTLY CONNECTED TO THE OPERATION OF SHIPS, IT WOULD INCLUDE SLOT CHARTERS. 26. THE SECOND TYPE OF CASE POSES S OME DIFFICULTY. WE ARE, HOWEVER, OF THE VIEW THAT EVEN SUCH CASES FALL 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 SITUATIO NS 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 PERFORM ITS CONTRACTS AND/OR ENSURE THERE IS NO BREAK IN ITS SERVICES. THIS IT CAN DO BY AVAILING SLOT HIRE AGREEMENTS. THEIR REFUSAL OR FAILURE TO DO SO, MAY WELL AFFECT THEIR BUSINESS AND REPUTATION ADVERSELY. 27. BY AVAILING THE FACILITY OF SLOT HIRE AGREEMENTS, THE ENTERPRISE DOES NOT ARRANGE THE SHIPMENT ON BEHALF OF THE OWNER OF THE SAID VESSEL, BUT DOES SO ON ITS OWN ACCOUNT ON A PRINCIPAL TO PRINCIPAL BASIS WITH ITS CLIENTS. SUCH CASES ALSO HAVE A NEXUS TO THE MAIN BUSINESS OF THE ENTERPRISE OF THE OPERATION OF SHIPS. THEY ARE ANCILLARY TO AND 45 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 COMPLEMENT THE OPERATION OF SHIPS BY THE ENTERPRISE. IF THEY ARE NOT MERELY ANCILLARY TO THE MAIN BUSINESS OF OPERATION OF SHIPS BUT CONSTITUTE THE PRIMARY AND MAIN ACTIVITIES OF THE ENTERPRISE, IT MAY BE A DIFFERENT MA TTER, WHICH WE ARE NOT CALLED UPON TO CONSIDER IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. [EMPHASIS ADDED IS OURS] EVEN THOUGH THE JUDGMENT HAS BEEN RENDERED IN THE CONTEXT OF ARTICLE 9 OF IN DIA - U.K DTAA, WHEREIN THERE IS NO SPECIFIC DEFINITION OF OPERATION OF SHIPS, I.E., IT IS NOT QUALIFIED BY THE WORDS, OWNER, LESSEE OR CHARTERER, HOWEVER, THE INTERPRETATION OF THE WORD SLOT CHARTER WITHIN THE AMBIT OF DEFINITION OF OPERATION OF SHIP S CLEARLY INDICATES THAT EVEN IF THE JOURNEY HAS BEEN UNDERTAKEN EITHER PARTLY BY FEEDER VESSEL UNDER A CHARTER/SLOT CHARTER ARRANGEMENT AND PARTLY BY MOTHER VESSEL OR THROUGH AND THROUGH A CHARTER / SLOT CHARTER ARRANGEMENT, IT WOULD STILL FALL WITHIN THE AMBIT OF OPERATION OF SHIPS IN TERMS OF ARTICLE 8. THEIR LORDSHIPS AFTER REFERRING TO THE ENGLISH JUDGMENT HAVE OBSERVED AS UNDER: - 12. BEFORE REFERRING TO THE PROVISIONS OF THE ACT AND THE DTAA, IT IS NECESSARY TO UNDERSTAND THE NATURE OF CONNECTING CARRIER AGREEMENTS WHICH PROVIDES FOR THE HIRE OF CONTAINER SLOT SPACES. IN MARITIME LAW (6 TH EDITION) THE AUTHOR CHRISTOPHER HILL STATES: SLOT CHARTER PARTIES THIS HAS REFERENCE TO THE CARRIAGE OF CONTAINERS, OR TO USE CURRENT JARGON, TEUS (20 FOOT E QUIVALENT UNITS). THE SHIP OWNER OR OPERATOR RENTS OUT OR HIRES A PIECE OF SPACE (A PERCENTAGE OF THE TOTAL SPACE AVAILABLE ON THE VESSEL) FOR CARRYING TEUS IN RETURN FOR WHICH HE RECEIVES HIRE CALCULATED IN ACCORDANCE WITH THE NUMBER OF SLOTS 46 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 (ACCOMMO DATION FOR EACH TEU) PAYABLE WHETHER OR NOT THOSE SLOTS OR SPACES ARE ACTUALLY USED. IN HIS JUDGMENT IN THE TYCHY (1999) 2 LLOYD 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 HONBLE HIGH COURT MAY BE GENERAL BUT IS UNIVERSALLY APPLICABLE WHEREVER INTERPRETATION OF OPERATION OF SHIPS IS REQUIRED, BECAUSE THEI R LORDSHIPS HAVE E XPLAINE D THE CONCEPT OF OPERATION OF SHIPS QUA SLOT /SPACE CHARTER ARRANGEMENTS WITH THIRD PARTY , ESPECIALLY AS EXPLAINED IN PARA 26 & 27 OF THE JUDGMENT ( AS REPRODUCED ABOVE ) . ON CE THE WORD CHARTER OF A SHIP IS RECKONED OR UNDERSTOOD AS SLOT/SPACE 47 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 CHAR TER ARRANGEMENT OR JOINT SERVICE ARRANGEMENT WITH THIRD PARTY , THEN IT WOULD BE TOO MYOPIC TO RESTRICT THE MEANING OF OPERATION OF SHIPS ONLY TO THE JOURNEY UNDERTAKEN AS OWNER OR LESSEE OR CHARTERER OF A SHIP EITHER FOR WHOLE LEG OF JOURNEY OR PART OF J OURNEY. THERE IS NO STIPULATION UNDER ARTICLE 8 THAT WHEREVER PASSENGERS OR CARGOS ETC. ARE TRANSPORTED UNDER CHARTER ARRANGEMENT WITH THIRD PARTY WHICH INCLUDES SLOT OR SPACE CHARTER, THEN, ONE LEG OF JOURNEY SHOULD BE ON VESSEL OWNED OR LEASED BY THE SHI PPING OR AIRCRAFT COMPANY. AS MENTIONED ABOVE , THE WORD CHARTERER WILL INCLUDE THIRD PARTY/JOINT SERVICE ARRANGEMENT OF SLOT OR SPACE IN A SHIP AND HENCE THE TRANSPORTATION UNDER SUCH ARRANGEMENT WILL BE RECKONED AS PROFIT FROM OPERATION OF SHIPS. THUS, WE AGREE WITH THE CONTENTIONS OF THE LD. SENIOR COUNSEL THAT EVEN IF THE ENTIRE LEG OF JOURNEY IS UNDERTAKEN BY A SHIPPING COMPANY THROUGH AND THROUGH CHARTER ARRANGEMENT OR JOINT SERVICE ARRANGEMENT, THE BENEFIT OF ARTICLE 8 CANNOT BE DENIED , BECAUSE IT W ILL STILL FALL WITHIN THE AMBIT AND SCOPE OF OPERATION OF SHIPS UNDER ARTICLE 8 (EVEN UNDER INDIA - SINGAPORE DTAA) . 17. SO FAR AS THE ISSUE OF ESTABLISHING LINKAGE BETWEEN TRANSPORTATION BY FEEDER VESSEL AND MOTHER VESSEL OF THE SHIP OWNED OR LEASED BY THE ASSESSEE, AS DISCUSSED IN THE DECISION OF MISC BERHAD (SUPRA), WHICH HAS BEEN HEAVILY RELIED UPON BY THE LD. CIT - DR, WE FIND THAT IN THAT CASE THE BENEFIT OF ARTICLE 8 WAS DENIED TO PART OF THE SHIPPING JOURNEY WHICH WAS CARRIED THROUGH FEEDER VESSE LS UNDER SLOT CHARTER ARRANGEMENT WITH THIRD PARTY DESPITE THE FACT THAT ASSESSING OFFICER HIMSELF HAS GIVEN A FINDING THAT THERE WAS A LINKAGE BETWEEN THE TRANSPORTATION CARGO BY FEEDER VESSEL BELONGING TO OTHER 48 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 ENTERPRISE TO THE MAIN VOYAGE CARRIED OUT B Y THE MOTHER SHIP OWNED BY THE ASSESSEE. THE ASSESSEE IN THAT CASE HAD ESTABLISHED THAT THERE IS A LINKAGE BETWEEN THE TRANSPORTATION RIGHT FROM THE INDIAN PORT TO HUB PORT BY THE FEEDER VESSEL AND FROM HUB PORT TO MOTHER VESSEL AND THEN TO THE FINAL DESTI NATION PORT. T HE ONLY CONTROVERSY INVOLVED THERE WAS , WHETHER PART OF THE 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 DIS CUSSED 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 ALS O 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 O F 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 RESPECT OF 97 SHI PS FOR SUMS AGGREGATING TO RS.97,29,89,746/ - IS NOT JUSTIFIED AND WE DIRECT THE ASSESSING OFFICER TO GIVE THE BENEFIT OF ARTICLE 8 IN RESPECT OF 97 SHIPS, WHICH HAS BEEN DENIED BY THE CIT(A). 49 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 1 8 . SO FAR AS THE FREIGHT RECEIPT OF RS.1,36,89,191/ - IN R ESPECT OF 4 SHIPS IS CONCERNED , IT IS AN ADMITTED FACT THAT NO EVIDENCE WHATSOEVER OR DOCUMENTS COULD BE FURNISHED BY THE ASSESSEE EITHER BEFORE THE ASSESSING OFFICER OR THE CIT(A) OR EVEN BEFORE US AND, THEREFORE, WE HOLD THAT TO THE EXTENT OF FREIGHT REC EIPT OF RS.1,36,89,191/ - , THE BENEFIT OF ARTICLE 8 WILL NOT BE AVAILABLE TO THE ASSESSEE AND SAME IS DIRECTED TO BE TAXED IN INDIA UNDER THE RELEVANT STATUTORY PROVISIONS. THUS, THE ISSUE RELATING TO BENEFIT OF ARTICLE 8 IS DECIDED PARTLY IN FAVOUR OF THE ASSESSEE. 1 9 . IN VIEW OF OUR FINDING GIVEN ABOVE, THE ISSUE RELATING TO PERMANENT ESTABLISHMENT (PE) AND ATTRIBUTION OF INCOME TO PE, AS RAISED VIDE GROUND NOS. 4 AND 5, HAS BECOME PURELY ACADEMIC AND, THEREFORE, NO SEPARATE ADJUDICATION IS REQUIRED. O NCE WE HAVE HELD THAT ASSESSEE IS ENTITLED FOR BENEFIT OF ARTICLE 8, THEN ATTRIBUTION OF INCOME IN INDIA THROUGH AGENCY PE WILL NOT ARISE. THUS, GROUND NOS. 4 AND 5 IS TREATED AS INFRUCTUOUS. 20 . AS REGARDS THE ISSUE RAISED WITH REGARD TO ALLOWABILITY OF INTEREST U/S 234B OF THE ACT, IT IS ADMITTED BY BOTH THE PARTIES THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF NGC NETWORK ASIA LLC, 313 ITR 187 (BOM.) . ACCORDINGLY, IN VIEW OF THE AD MITTED POSITION, WE HOLD THAT THE ASSESSEE IS NOT LIABLE FOR LEVY OF INTEREST U/S 234B OF THE ACT. 2 1 . IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED. 50 APL CO. PTE. LTD. ITA NO. 4435/MUM/2013 ORDER PRO NOUNCED IN THE OPEN COURT ON 1 6 T H F E B R U A R Y , 2017. SD/ - SD/ - ( G.S. PANNU ) ACCOUNTANT MEMBER ( AMIT SHUKLA ) JUDICIAL MEMBER MUMBAI, DATE: 1 6 . 2 . 2017 *SSL* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, L BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI