INCOME TAX ACT, 1961

Section 90

Double taxation relief - DATA between India and Singapore - Non-resident-Assessee claimed exemption from tax on income received from shipping operations in India in pursuant to Article 8 -

Assessee, based at Singapore, was involved in operation of ships in International Traffic. Assessee was the freight beneficiary in respect of various vessels which sailed from ports in Indian sub-continent and South East Asia during financial year 2014-15. Assessee claimed exemption from tax on income received from shipping operations in India in pursuant to DTAA between India-Singapore on the ground that as per article 8 of India-Singapore DTAA, tax resident of Singapore involved in the operations of ships in international traffic, was assessable to tax in Singapore on global income received (including income earned in India) from its shipping business. AO denied benefit of article 8 and further, taxed income received from shipping operations in India under sections 44B on the ground that article 24 of India-Singapore DTAA limits benefits of exemption, in case income received outside India is exempt from tax under Singapore Income Tax laws. Since, income of assessee from its shipping operations was exempt under section 13F of Singapore IT Act, AO took the view that benefit of article 8 of India-Singapore DTAA was not applicable to assessee because of specific restriction provided under article 24 of India-Singapore DTAA. Held: AO attempted to deny exemption claimed by assessee under Article 8 by invoking Article 24 of India-Singapore Tax Treaty on a misconception of two clauses of India-Singapore DTAA by referring to section 13F of Singapore Income Tax Act, ignoring the fact that section 13F of said Act was already in existence since 1-4-1991 and as such articles provided in India-Singapore DTAA which came into existence from 27-5-1994 was inserted by Competent Authorities of both Contracting States after thoroughly considering section 13F of said Act and further chose not to alter taxation right of shipping income which was generally available to the country of residence. Further, two sovereign nations had entered into a bilateral agreement and specifically agreed on taxing rights of particular streams of income, the provisions of such agreement were to be merely given effect to and as such, action of AO to claim taxing right over said income which was not provided in the treaty was ultra-vires the power of AO and amounted to dishonoring bilateral agreement between two sovereign nations. Further, AO took support from section 10(1) of said IT Act to argue that any income of a Singaporean resident that is accrued or received in Singapore is chargeable to tax in Singapore at the specified income-tax rates. But, fact remains is that although profits derived by an international shipping enterprise is exempted from taxation as per section 13F of Singapore Income Tax Act, but such income is always liable to tax in Singapore. The exemption provided under section 13F of said Act is only on a case to case basis for a limited period of time and it is subject to certain conditions. Therefore, liability to taxation was not dependent on whether taxes were actually paid in said jurisdiction. Accordingly, article 9 of India-Singapore DTAA was applicable as per which shipping income of resident of Singapore was taxable only in Singapore but not in India. AO erred in concluding that income earned by assessee from shipping operations in India was taxable in India by virtue of article 24 of India Singapore DTAA. Hence, we direct the AO to delete the additions made towards shipping income of assessee earned in India.

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