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Income Tax – India-Singapore DTAA - Freight income – Denial of benefit of exemption – Appellant/assessee is a company incorporated in Singapore – During Financial Year 2016-17, assessee is engaged in business of operation of ships in international traffic and has earned freight income from such shipping operations with India – Assessee claimed exemption of freight income as per Article 8 of Double Taxation Avoidance Agreement (DTAA) between India and Singapore – Assessing Officer denied claim of assessee by holding that assessee did not qualify for tax exemption under Article 8 of DTAA between India and Singapore in view of Article 24 on ground that freight income was not directly remitted to Singapore and was never subjected to tax in Singapore – DRP dismissed objections raised by assessee – Whether AO/DRP has erred in denying benefit of Article 8 of DTAA between India and Singapore to freight income earned by assessee by invoking provisions of Article 24 – HELD – Provision of Article 24 of India Singapore DTAA is applicable for income which is exempt from tax as per tax treaty – Inland Revenue Authority of Singapore clarified that assessee derives shipping income (charter income) from third party from export voyages from Indian ports – Article 24(1) of India-Singapore DTAA does not apply to shipping income received by a Singapore Shipping Enterprises from Indian customers – Shipping profits derived by a Singapore resident shipping enterprise from operation of ships in international traffic shall be taxable only in Singapore in accordance with Article 8 and same does not confer right on Indian Authorities to tax such profits – Shipping income is taxable in Singapore on an arising basis when income is earned by shipping enterprise regardless of either shipping income is received in or remitted to Singapore – Freight income earned by assessee is liable to tax/assessable on accrual basis in Singapore – Since Article 24 of India-Singapore DTAA is not applicable, provisions of Article 8 should apply without any limitation – AO and DRP was not justified in denying benefit of Article 8 by invoking limitation of Article 24 of DTAA between India and Singapore – Order of lower authorities set-aside – Authorities are directed to allow benefit of Article 8 to all voyages carried out by assessee – Appeal is allowed

2022-VIL-1627-ITAT-RKT

IN THE INCOME TAX APPELLATE TRIBUNAL

RAJKOT BENCH, RAJKOT

I.T.A. Nos.17&18/Rjt/2022

(Assessment Year: 2017-18)

Date of Hearing: 01.09.2022

Date of Pronouncement: 30.11.2022

MAERSK TANKERS SINGAPORE PTE. LTD

THE ASSISTANT COMMISSIONER OF INCOME TAX

Appellant by: Shri Porus Kaka, Senior Advocate & Shri Manish Kanth

Respondent by: Shri Shramdeep Sinha, CIT D.R. & Shri Sanjay Punglia, CIT D.R.

BENCH

SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER

SHRI T. R. SENTHIL KUMAR, JUDICIAL MEMBER

ORDER

PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER

These two appeals are filed by the assessee as against the final assessment orders dated 02.12.2021 passed by the Assistant Commissioner of Income Tax, International Taxation, AC/DC (Int. Taxation), Rajkot in respect of two voyages and 16 voyages undertaken during the F.Y. 2016-17 under Section 172(4) r.w.s. 254 r.w.s. 144C (13) of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) relating to the Assessment Year 2017-18. As common issues are involved in both the cases, we take ITA No. 17/Rjt/2022 as the lead case and pass this common order.

2. The brief facts of the case is the assessee M/s. Maersk Tanker Pte. Ltd. (hereinafter referred to as ‘MTS’) is a company incorporated in Singapore and is engaged in the business of ship owning & operating, chartering and related business. During the Financial Year 2016-17 the assessee engaged in the business of operation of ships in international traffic and has earned freight income from such shipping operations with India. The assessee being a Singapore resident entitled to claim beneficial provision of Double Taxation Avoidance Agreement (in short ‘DTAA’) between India and Singapore with respect to taxability of it shipping income from Indian operations. M/s. Inchcape Shipping Services India Pvt. Ltd. is the Indian agent of the assessee and filed provisional Return under Section 172(3) of the Act, in respect of two voyages undertaken by the assessee’s Master Vessels during the F.Y. 2016-17. The Indian agent declared freight income for both the vessels totaling to US $ 5,65,000/-. Accordingly, no objection certificate under Section 172(6) of the Act was granted in respect the two vessels. Thereafter the Indian agents filed the final Returns, after completion of the respective voyages by the two master vessels. On perusal of the records the Assessing Officer found the assessee has remitted amount of freight/shipping income of Rs. 3,71,31,000/- to the account of Mearsk Tanker A/S resident of Esplanden 50, Copen Hagen, Denmark being the agents of the assessee. The assessee claimed exemption of the freight income as per Article 8 of DTAA between India and Singapore.

3. The then Assessing Officer after examining the material available on record, and considering the reply of the assessee passed an assessment order under Section 172(4) of the Act on 31.12.2017 holding that the assessee did not qualify for tax exemption under Article 8 of DTAA in view of the Article 24 of DTAA between India and Singapore, on the ground that the freight income was not directly remitted to Singapore, therefore, provision of Article 24 comes into picture, which override the provisions of Article 8 of DTAA between India and Singapore, as the same limit the relief, in case of some double non-taxation of such income. The Assessing Officer further held that the assessee is not eligible to claim exemption as provided under Article 8 in view of the fact that the income of the assessee was “eligible to tax” in Singapore, yet it was “not subject to tax” in Singapore, as the assessee claimed the benefit of exemption under Section 13F of Singapore Income-tax Act (hereinafter referred to as “SITA”). The Assessing Officer further relying upon ITAT Rajkot Bench decision in the case of BP Singapore vs. ITO in ITA No. 409/Rjt/2016 where the term “subject to tax” is different from being “liable to tax”. “Liable to tax” means that the customer only needs to be within the general scope of tax and on the other hand “subject to tax” means the relevant income has to be actually taxable and the customer cannot be exempt from tax on that income and the assessee was never “subject to tax” in Singapore. Thus, Article 24 (Limitation of relief) of India and Singapore DTAA came into picture, therefore, the income of the assessee was liable to tax in India and raising the demand of Rs. 12,04,715/- vide order passed under Section 174(2) of the Act dated 31.12.2017.

4. Aggrieved against this order the assessee filed an appeal before the Commissioner of Income Tax (Appeal)-13, Ahmedabad who dismissed the appeal vide order dated 29.08.2018 on the ground of applicability of Section 44B and 144C of the Act and thereby dismiss the assessee’s appeal.

5. Aggrieved against the same the assessee filed further appeal before this Tribunal. Coordinate Bench of this Tribunal in ITA No. 429 & 430/Rjt/2018 vide order dated 21.11.2019 set-aside the matter back to the Assessing Officer after following other decisions of Coordinate Bench of the Tribunal, held that draft assessment order under Section 144C was required to be issued for enabling the Assessing Officer for following the provisions of Section 144C which is applicable in the case of the assessee and directed the Assessing Officer to frame fresh assessment order under Section 172(4) after following the provisions envisaged in Section 144C of the Act.

6. Pursuant to the direction of the Hon’ble ITAT the Assessing Officer granted sufficient opportunity to the assessee. The assessee also filed its reply on various dates. After detailed discussion the Assessing Officer held that the shipping income for voyages performed by the vessels do not qualify for tax exemption in India under the provisions of DTAA between India and Singapore, because freight income was not directly remitted to Singapore and the freight income was never subjected to tax in Singapore. The operative portion of the Draft Assessment Order reads as follows:

“12.10 Applicability of the two conditions prescribed in Article 24 of the DTAA between India and Singapore (see para 4 above) In respect of two voyages undertaken by the vessel MT Maersk Tianjin are met under the following terms:

(a) The first condition is that if the agreement provides that the freight income from sources in a Contracting State (India) shall be exempt from tax or taxed at reduced rate in the Contracting state (India) then limitation to relief clause is applicable. In this case income tax is exempted in India as per the provisions of the DTAA with Singapore. Hence, first condition is applicable in this case.

(b) (1) The second condition is that if under the laws in force in the other Contracting state (Singapore) the said income is subject to tax by reference to the amount thereof which is remitted to or received (in Singapore) and not by reference to the full amount then the limitation to relief clause is applicable

(2) Two important terms in this condition are "subject to tax" and "by reference to the amount remitted/received and not by reference to full amount"

(3) The first term "subject to tax" was interpreted in the case of Paul Weiser v HMRC (TC02178) in United Kingdom, the first tier tribunal considered the interpretation of the double tax treaty between the UK and Israel and In particular the meaning of the phrase "subject to tax". Article XI of the UK-Israel double tax treaty provides that UK sourced pensions will not be subject to UK tax where they are received by a resident of Israel and subject to Israel tax in respect thereof. However, under Israeli tax rules, UK pension income is excluded from tax in Israel during the first 10 years of residence. HM Revenue and Customs therefore argued that because the pension income was exempt from tax in Israel it could not be said to subject to tax. On the other hand, the taxpayer claimed that he is covered by tax regime in Israel by virtue of his living there even though Israel does not levy tax in UK pension income because of the exemption.

(4) Following the decision in Bayfine UK v HMRC (STS 717), the tribunal found that the double tax treaty should be interpreted using a purposive rather that a literal approach. The primary purpose of the double tax treaty is to eliminate double tax and prevent the avoidance of tax, the purpose is not therefore to enable the double non-taxation of income. The case therefore centered around the meaning of the phrase "subject to tax" and the difference in international tax treaties between this phrase and the phrase "liable to tax". The first tier tribunal decided the case in favour of HM Revenue and Customs such that relief was not available under the UK-Israel tax treaty to exempt the pension from UK tax because the pension was not subjected to tax in Israel.

(5) The second term used in condition referred at (v) (b) above is "by reference to the amount remitted/received and not by reference to full amount". On plain reading it is clear that the amount should be subjected to tax by reference to amount remitted/received and not by reference to full amount. First, we take the case where the amount is subject to tax with reference to the full amount. In Singapore shipping income is exempt from tax under the provisions of sections 13A and 13F (refer para 7(xiv) above).

(6) Hence, it is clear that the amount cannot be claimed to have been subjected to tax with reference to the full amount. In the second case where the amount is subject to tax by reference to amount remitted/received in Singapore, it is clear that the amount has not been remitted in this case from India to Singapore.

(7) Therefore, it is clear that for the second condition the term "subject to tax" is essential. In this case the shipping profits received from voyages undertaken by the vessel M.T. Maersk Tianjin have not been subject to tax in Singapore.

12.11 Provisions of Article 24 override the provision of Article 8 of the DTAA between India and Singapore as they limit the relief in cases of double non-taxation of such income.

12.12 In this case "income exempt from tax" has not been interpreted as "income taxable only in one state". However, the conditions mentioned in the limitation of relief clause under Article 24 make it essential for actual remittance of the amount and also that the amount should be subjected to tax in Singapore.

12.13 The shipping income in question is subject to tax exemption in India on the basis of DTAA agreement with Singapore.

12.14 So far as Shipping freight income is considered for Singapore tax purposes, the most important criteria in cases where remittances have not been made directly to Singapore is that such income should actually been subjected to tax in Singapore. As per section 9(I) (i) of the Income Tax Act in India "all income accruing or arising, whether directly or indirectly, through or from anv business connection in India, or throuah or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India" shall be deemed to accrue or arise in India. For Income Tax purposes in India, an income which is deemed to accrue or arise in India cannot be deemed to accrue or arise in Singapore. Hence, he claim of the assessee to treat the shipping income as accrued or arisen in Singapore is not acceptable.

12.15 In this case if the shipping income is not treated as foreign income then the income accrued in or derived from Singapore operations should be subjected to tax in cases where remittances have not been made directly to Singapore Further, in this case it is clear that the source of freight Income is India as the activities have been carried out in India. Therefore, the stand taken by the Singapore Tax Authority that the income is to be taxed on accrual basis in Singapore is an anomaly due to the fact that the income is actually deemed to accrue or arise in India as per the Income Tax Act of India. The only redeeming factor is the DTAA between the two countries to avoid double taxation of Income, but not double avoidance as is be made out here.

12.16 In this case it is clear that the shipping business is handled by M/s Maersk Tankers Singapore Pte Ltd.. Singapore, an entity that is tax resident of Singapore.

12.17 The confirmation letter of the IRAS dated 6th August. 2013 is inconclusive to the extent that the taxability of such income has not been explained in detail with respect to the provisions of Article 24 of the DTAA between India and Singapore. In another case of ST Shipping vide correspondence dated 09/01/2013 the Singapore Tax Authority i.e. IRAS has opined that in view of the facts in that case, Article 24.1 of the DTAA would not be applicable and consequently Article 8 would apply. Hence, it is clear that the letter issued by the IRAS is to be treated as an opinion rather than a mandate, which is binding to the particular beneficiary for that tax year.

12.18 The latest confirmation letter of the IRAS dated 8^th November, 2017 is misleading to the extent that it does not clarify that the shipping income is not subjected to tax in Singapore because of the exemption granted to shipping companies under sections 13A or 13F of the Singapore Income Tax Act. If the shipping income is liable to tax on accrual basis in Singapore, then the same cannot be said to have accrued or arisen from the source state, which is India. This is a serious contradiction to the provision of sub-section 1(i) of section 9 of the Income Tax Act of India.

13. As discussed hereinabove Para's, it is clear that the shipping income for voyages performed by the following vessels do not qualify for tax exemption in India under the provisions of DTAA between India and Singapore because-

a) Freight income was not directly remitted to Singapore

b) Freight income was never subject to tax in Singapore

and therefore the relief claimed by the assessee under DTAA between India and Singapore is withdrawn and claim of the assessee for exemption of freight tax for the vessels mentioned above is hereby rejected.

14. In this case, M/s Inchcape Shipping Services India Pvt. Ltd., Mumbai, agent of the beneficiary in these cases, has been treated as the representative assessee even though actual freight beneficiary is declared to be M/s Maersk Tankers Singapore Pte. Ltd., Singapore. M/s Inchcape Shipping Services India Pvt. Ltd., Mumbai have filed indemnity bonds in each case stating that they were acting as agents to M/s Maersk Tankers Singapore Pte. Ltd., Singapore in cases listed at Exhibit-A As per the indemnity bond, the Government of India has powers to enforce or forbear to enforce the provisions of law. It is also stated in the indemnity bond that the agent would undertake any default in respect of tax made by the Principal or the Freight Beneficiary whom they represent. As such, M/s Inchcape Shipping Services India Pvt. Ltd., Mumbai is treated as the assessee for the purpose of recovery of the freight tax in respect of the above mentioned voyages.

15. The freight income and tax thereon is worked out as per the conclusion arrived at as under-

Total amount of freight earned in Indian rupees for the vessel - as per above Exhibit-A	Rs. 3,71,31,000
Taxable income u/s 172(2) of the IT. Act @ 7.5 of freight amount	Rs.27,84,825
Tax payable @ 43.26% on taxable income	Rs. 12,04,715

To sum-up, based on the direction of the Hon'ble ITAT-Rajkot, vide order No.429 & 430/2018 dated 21.11.2019, the draft assessment order is being passed, following the path envisage in section 144C of the Act. Accordingly, this draft assessment order framed u/s 172(4) rws 254(1) of the act is hereby forwarded to the assessee for file their acceptance or objections within 30 days of the receipts of the same. I am satisfied that by claiming exemption under Article 8 of DTAA between India and Singapore, the assessee has under reported the income within the meaning of section 270A of the Income-tax Act, 1961. I am also satisfied that this is a fit case for initiation of penal proceedings u/s 270A of the Act for under reporting of Income which is in consequence to misreporting of income.”

7. Aggrieved against the Draft Assessment Order, the assessee filed its objection before Dispute Resolution Panel (in short “DRP”), Mumbai. The assessee has filed its written submission, explanation and Paper Book with relevant documents, evidences in support of its objections raised before the DRP. After detailed discussion the Ld. DRP vide its order dated 26.11.2021 issued directions to the Assessing Officer under Section 144C (5) of the Act. The same is summarised by the Assessing Officer in his Final Assessment Order as follows:

“17.1 Directions with reference to objection No.1:-

The appellant has pleaded for declaring the order passed u/s. 172(4) of the Act by the A.O as bad in law deserving to be quashed. The said plea is not entertainable in view of the ITAT, Rajkot Bench, Rajkot's order in assessee's own case for the identical assessment order in the case of ISS Shipping India Pvt. Ltd Vs. DCIT (International Taxation) Rajkot, ITA No.429 & 430/RJT/2018 order dated 21.11.2019 which has upheld the order passed u/s. 172(4) with this observation that even such an order u/s. 172(4) is covered by the provisions of section 144C of the Act, meaning thereby that the AO should have forwarded the draft assessment order u/s. 172(4) to the DRP. We also make a note of the fact that the assessee has not opted for provisions of section 172(7) of the Act. In any case, this issue may now be treated as settled in view of the fact that the A.O has passed the set-aside assessment order in compliance with the directions given by the Tribunal by following the due process prescribed u/s 144C. Accordingly, this ground is dismissed.

17.2 Directions in respect of objection No.2:

We at DRP have considered carefully all the facts and circumstances of the case including the arguments put forward during the hearings. The appellant has pleaded that they be allowed the benefit of Article 8 of India Singapore Tax treaty to the freight income earned by the assessee. According to article 8 of the DTAA, shipping profits are to be taxed in the state of residence only, i.e. Singapore. It is contended that MTS is the tax resident of Singapore and therefore is eligible to claim tax benefit in India under Singapore tax treaty. The appellant has also relied upon the DRC issued by the Singapore Tax authorities to prove the residence. However, on the contrary, it is seen that the shipping income is exempt from tax in Singapore. The A.O says that the freight income is not liable to tax in Singapore in view of exemption claimed u/s 13F of Singapore Income Tax Act or SITA (Refer page 30 of the draft assessment order). However, the situation in the other contracting state, namely, India is different. Here, the income from shipping business is neither exempt from tax nor it is subjected to tax at a reduced rate. Therefore, the A.O has stated that non-taxation of the shipping income in India also, shall result into a situation of double non-taxation and that, it can never be the intention of any DTAA including that of Article 8. According to the A.O, the treaty of DTAA is to save any assessee from double taxation of the same income. Obviously, article 8 also aims on that only. However, the DTAA can and never should lead to a situation where any interpretation of any article therein leads to an occurrence of double non-taxation.

8. Now, here, there are many ponderables. Firstly, if some income is taxable in resident state but is not taxed due to any reason, can it be said that it cannot be taxed in other country also? Secondly, if some income is exempt in a resident state expressely as per law, can it be said that still, the other state does not have any rights to tax it? Can it be said that an exempt income has still accrued and therefore, has been deemed taxed in the resident state, thereby, precluding the other state not to tax it as it would tantamount to double taxation? Thirdly, if some income is to be taxed on actual receipt basis in the resident country and not on the basis of full amount receivable or accruable, so to say, can it still be said that the entire amount should continue to be untaxed in both the countries? Fourthly, what are the concepts of exempt income and accrual of income under Singapore Act? What are the provisions of Section 13F of SITA and What are the judicial opinion on that in Singapore? But, more importantly, do we have here in India jurisdiction to ponder over these aspects of SITA? Fifthly, what happens to the article 24, then? What does it exactly try to prohibit? When should it be applied! Then, there is Section 90(2) of Indian Act which says that provisions of this Act shall apply to the extent they are more beneficial to the assessee. But, than again, we find that there is a recent change wef 01-04-21 In the provisions of Section 90 (1) (b) which now say that DTAA should not result in creating opportunities for non-taxation or reduced taxation through either evasion or avoidance. The expression avoidance is not to be missed here. Of course, it is not strictly applicable to the present case because of its period. However, it does say something about how the law with respect to DTAA is still evolving. Suffice to say, these are not easy questions to answer, nor can perhaps there be universally acceptable stands on these issues.

9. Moving further, we find that the appellant has relied upon the decision of order of MT. Maersk Mikage Vs. DIT (International Taxation) (72 taxmann.com 359) wherein the Hon'ble High Court had held that where the shipping income was not taxable in Singapore on the basis of remittance, but on accrual, clause (1) of Article 24 would not be applicable. However, the Hon'ble Rajkot Tribunal in the case of BP Singapore vs. ITO (ITA 409/Rjt/2016) has observed that if the income of Singaporean Shipping is not chargeable to tax in Singapore u/s. 13F of the Act, Article 24 of the Tax Treaty will be applicable to the assessee. Reference is also made to excerpt in the assessment order of the decision of Hon'ble ITA T, Rajkot bench, Rajkot, in the case of BP Singapore Pte Ltd, Gandhidham vs Income Tax Officer (International Taxation), Gandhidham's order dated 28.11.2017 in which the Hon'ble Tribunal has stated that earlier, the assessee had given an impression that the income was indeed taxed and taxes were paid. Only now, it is learnt that actually, it is not so. No taxes have been paid in Singapore. The Tribunal found that the TRCs etc. and other evidence produced were misleading and aimed at creating wrong impression about Singaporean taxability of income in question. The Tribunal observed that the so-called TRCs give an impression that the freight income received from India has been subjected to tax in Singapore. The Hon'ble Tribunal at para 8 of the order (refer page 35 of draft assessment order) has observed that "clearly, therefore, the relief granted in the judicial precedents in question may have been based on an erroneous impression f the fact regarding actual taxability, in Singapore, of the income embedded in the freight receipts from India, particularly as the income was actually exempt from tax in Singapore as well. As a matter of fact, when the issue regarding non-taxability of this income in Singapore was raised before Hon'ble jurisdictional High Court in the case of MT MersekMikage (supra), their Lordships declined to deal with this aspect of the matter as it was being raised before their Lordships for the first time but then, their Lordships specifically left this issue open to be decided in an appropriate case by observing as follows:

...... Before closing, we may briefly touch on one more aspect sought to be raised by the Revenue viz. of the actual tax being paid by the assessee on such income at Singapore on the ground that such income is exempt from payment of tax, the Revenue desired to impose tax in India..........We leave such an issue open to be decided at an appropriate level.

10. It is clear that there is no judicial unanimity achieved so far on many an issues as flagged above in paragraph 8. If at all, there are nonflattering observations made on the assertions and evidence produced from the assessee' side in a similar though not the same case. We are also inclined to agree with the AO's view-point that there can never be a situation of double non-taxation of income, that too, as a result of interpretation of the articles of a DTAA. In fact, we find that the whole controversy in this case actually is boiling down to just one issue which is, whether any DTAA can lead to a situation of double non-taxation of income. It is of course obvious that just as double taxation is unfair to the tax-payer, double non-taxation is unfair to the Governments, Article 8 too does not support the principle of double non-taxation either. Taking into the entire facts and circumstances of the case, this DRP is inclined to keep this important issue alive and therefore, we are unable to agree with the contention of the appellant that article 8 of the DTAA can indeed give rise to an acceptable situation of double non-taxation of income. In view of the same, this plea of the assessee is dismissed.

17.3 Directions with reference to grounds No.3 & 4:

Vide grounds 3 and 4, the appellant has contended that the A.O has erred in invoking the provisions of Article 24 of DTAA. The appellant has stated that the provisions of article 24 shall apply only when both the conditions are satisfied, namely, firstly, that the income earned from the same state (i.e. India) is exempt from tax or taxed at a reduced rate in India, and secondly, such income is subject to tax in Singapore by reference to the amount which is remitted or received in Singapore and not by reference to the full amount. Therefore, the appellant's contention is that that since the freight income earned by the assessee is neither exempt in India nor taxable at a reduced rate in India, so, one of the condition is not fulfilled and therefore, provisions of section 24 cannot be invoked. On the other hand, the A.O says that because of article 24 of DTAA, the exemption or reduction of tax is to be allowed only to so much of income as is actually received in Singapore and further, subjected to tax. So, we find that the interpretation given to Article 24 by the assessee s starkly different from that of AO. According to AO, since the shipping income is taxable in India at full rate but not taxed in Singapore, so, article 24 comes into picture. According to the assessee, since the shipping income is taxable in India at full rate but not taxed in Singapore, so, article 24 does not come into picture. Now, this is very tricky. Both assertions cannot be correct at the same time. However, a common sense approach would tilt in favour of AO's interpretation, as, in that case, the income gets taxed and only once and thereby, the spirit and purpose of DTAA also get served.

13. The AO has also mentioned at page 30 of the draft assessment order that the freight income has been remitted to Denmark and not to Singapore and therefore, it needed to be ascertained whether the freight income is subject to tax in Singapore by reference to the amount which is actually remitted or by reference to full amount of freight income. It is found that provisions of Article 24 actually override the provisions of Article 8 as they limit the relief in case of double non-taxation of any income. Actually, Article 24 postulates two conditions-namely, firstly, there should be actual remittance of the impugned amount and secondly, this amount should be subjected to tax in Singapore also. Singapore follows a territorial system of taxation where actual amount received is only taxed. The mischief of Article 24 actually enters when either the amount is not received in Singapore and if received, is not taxed there (whereas it is taxable at full rates in India). Given these facts, it is wondered as to why then Article 24 is not being considered to be inviable, as, apparently, both the conditions are fulfilled and the touchstone of common sense is also met.

14. The major thrust of the argument of the AR of the appellant is no applicability of Article 24 (Limitation of Relief) of the India Singapore tax treaty to freight income earned by the Principal, Maersk Tankers Singapore Pte. Ltd. (MTS) from the voyages performed in India. According to the AR, the provisions of Article 24 of India Singapore tax treaty cannot be invoked on the facts of the present case for the reason that the shipping income of the appellant is "neither exempt from tax in India nor taxed at reduced rate in India" as envisaged in Article 24. Further, the AR has argued that the income in question is taxable in Singapore on accrual basis, and not on receipts basis, and therefore, Article 24 of India Singapore tax treaty cannot be invoked for income taxable on accrual basis.

15. It is noted that the benefit of DTAA between India and Singapore is governed by mainly Article 8 & Article 24, with Article 24 being the 'Limitation of Relief clause. Article 24 of the DTAA agreement between India and Singapore is reproduced below: 'LIMITATION OF RELIEF Where this Agreement provides (with or without other conditions) thai 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 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.’

16. The purpose of including Article 24, Limitation of Benefit clause, should first be considered to understand the context in right perspective. With the introduction of DTAAs, many corporations started exploiting treaty laws to evade tax liability completely. Therefore, in order to prevent abuse of treaty benefits and treaty shopping, countries revised their tax treaties to include an anti-abuse provision called the limitation of benefit clause, referred to as LOB clause.

17. The Appellant has admitted that no tax has been paid in Singapore, the Resident State, on the freight income earned by the Principal, Maersk Tankers Singapore Pte. Ltd. (MTS) from the voyages performed in India, the Source State, and there is an attempt to not pay tax in India also, the source state, by invoking provisions of Article 8 of the Tax treaty. It is for this very situation that anti-abuse provision has been brought in tax treaty to curb abuse of tax treaty provisions, as Tax treaty are meant to avoid Double taxation of an income, similarly, antiabuse provisions are to prevent double non-taxation of income. A clear objective of the India Singapore tax treaty is that if the income is actually exempt from tax in the residence state / other Contracting State and is not subjected to tax, treaty protection cannot be claimed in the first mentioned Contracting State. The treaty benefit of non-taxation of an income, or its being taxed at a lower rate, in a contracting state, thus, depends on the status of taxability in the other Contracting State.

18. The AR has relied upon Section 10(1)(a) of the Singapore Income Tax Act (SITA) which provides that tax shall be payable upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of gains or profits from any trade, business, profession or vocation. The appellant has further relied upon the letter issued by the Inland Revenue Authority of Singapore dated 8 November 2017 wherein it has been stated that freight income from the subject vessels shall be taxable in Singapore on an arising or accrual basis regardless of whether it is remitted to or received in Singapore and therefore Article 24 would not be applicable.

19. However, it is noted that when a similar issue was brought for deliberation, in the case of BP Singapore Pte Ltd, Gandhidham vs. Income Tax Officer (International Taxation), Gandhidham (ITA No.409/Rjt/2015), the Hon'ble ITAT had remarked as under :

"6. It is pointed out in these judicial precedents the assessee has all along given the impression that the income in question has been taxed in Singapore and evidence in support of this proposition were also filed, and yet, as it has now come out in open, no taxes were actually paid in Singapore either. The assessee has now accepted that the income in question was, as a result of an incentive provision in Singapore law, not taxable in Singapore. When assessee himself accepts that the income in question was exempt from tax in Singapore, it cannot be said to be have been subjected to tax in Singapore. These evidences, at the minimum, were misleading and aimed at creating a wrong impression about the Singaporean taxability of income in question. He points out that it is for the first time, and as a result of specific questions by the bench, that the fact of this income being exempt from tax in Singapore has come to the light now

"9. To us, it appears that the view expressed by the coordinate bench is so much out of context that even the IRAS certificate from the residence country, which has been reproduced in the order itself, does not envisage treaty benefit in a situation in which the shipping profits in India are taxed on remittance basis in Singapore and the remittances to Singapore have not been made, but then, going by the analysis of the coordinate bench, the taxation in Singapore in such a situation is wholly irrelevant That's clearly an incongruity and is going much beyond what is even imagined by Singapore."

20. Further, in the case of MT Maersk Mikage vs. DIT(International Taxation) [2016] 72 taxmann.com 359 (Gujarat), the Honorable Gujarat High Court left the issue open on the issue of exemption of freight income on the basis of payment of taxes in Singapore by observing as under:...

"Before closing, we may briefly touch on one more aspect sought to be raised by the Revenue viz. of the actual tax being paid by the assesses on such income at Singapore. On the ground that such income is exempt from payment of tax, the Revenue desired to impose tax in India......

22...... 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. "

21. It clearly emerges from the above decisions that the issue whether the freight income earned by the Principal, Maersk Tankers Singapore Pte. Ltd. (MTS) from the voyages performed in India was actually subjected to tax in Singapore or not, is vital for making decision about applicability of Article 24 of the India Singapore treaty.

22. To repeat, the Ld ARs have contended that the appellant is subject to tax on income on accrual basis and the letters from IRAS give an impression that the freight income received from voyages performed in India has been subjected to tax in Singapore. But the factual position is that the appellant has availed exemption under section 13F of the Singapore's Income Tax Act, and, thus, to that extent, the freight income has not actually been subjected to taxed in Singapore, even though as per Article 8 of the DTAA between India and Singapore shipping profits are liable to tax in the state of tax residency.

23. Undoubtedly, by the virtue of the appellant being fiscally domiciled in Singapore, the said income was 'liable to tax' in the state of tax residency but then 'liable to tax' is not the same thing as 'subject to tax'. Again, the observation of the Hon'ble Rajkot Tribunal in the case of BP Singapore vs. ITO (ITA 409/Rjt/2016) as to what is the scope of 'subject to tax' are relevant in this regard:

“As to what is the scope of ‘subject to tax’, we find guidance from UK’s HMRC international Manual (https://www.gov.uk/jmrcinternal~manuals/international-nabyak.utbn162090) which, interalia, states that”

"It should be noted that the term subject to tax is different from being 'liable to tax'. 'Liable to tax means that the customer only needs to be within the general scope of tax in the UK........

On the other hand, 'subject to tax' means that the relevant income has to be actually taxable and the customer cannot be exempt from tax on that income."

24. It is noted that the letter of the IRAS dated 8^th November, 2017, relied upon by the appellant, is inconclusive to the extent that it does not mention that the shipping income is not subjected to tax in Singapore because of the exemption granted to shipping companies under sections 13A or 13F of the Singapore Income Tax Act.

25. Further, if the shipping income is liable to tax on accrual basis in Singapore, then the same cannot be said to have accrued or arising from the source state, which is India. However, as per Section 9(1) (i) of the Income Tax Act in India "all income accruing or arising whether directly or indirectly through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India" shall be deemed to accrue or arise in India". Similarly, as per Section 172(2) of the Income Tax Act in India "amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage."

26. It is thus clear that the freight income earned by the Principal, Maersk Tankers Singapore Pte. Ltd. (MTS) from the voyages performed in India is accrued in India under section 172 of the Income-tax Act, 1961. An income, which is deemed to accrue or arise in India cannot be deemed to accrue or arise in Singapore. It is only as per Article 8(1) of the India-Singapore Tax Treaty, freight income from operation of ships by a Singapore resident company is taxable only in Singapore and hence, exempt / not taxable in India, though accrued and arising in India by virtue of section 9(1)(i) of the Income Tax Act, 1961 of India.

27. Therefore, the stand taken by the Appellant to treat the shipping income as accrued or arising in Singapore is contradictory to the provision of Section 172(2) of the Income Tax Act of India and Section 9 of the Act. It clearly emerges from the above facts that freight income earned by the Principal, Maersk Tankers Singapore Pte. Ltd. (MTS) from the voyages performed in India is exempt from tax in India by virtue of Article 8 of India Singapore tax treaty and it has not been subjected to tax Singapore because of the exemption granted to shipping companies under sections 13Aor13F of the Singapore Income Tax Act

28. Coming back to the judicial decisions, it is seen that the Hon'ble Gujarat High Court in the case of MT Maersk Mikagi vs. DIT (International Taxation) (72 Taxmann.com 359) has left the issue open on the issue of exemption of freight income on the basis of taxation in Singapore by observing that it was a ground sought to be raised for the first time by the revenue for which neither any factual evidence nor any legal argumentation was made. Therefore, the issue was being kept open, to be decided in any other appropriate case. But, in yet another case of BP Singapore Pte Ltd, Gandhidham Vs. Income Tax Officer (International Taxation), Gandhidham in ITA No.409/Rjt/2016, the Hon'ble ITAT, Rajkot bench, Rajkot has kept the issue actually alive by remitting the matter to the file of CIT(A) for a fresh adjudication. It is to be noted that the Ld. Tribunal has indeed considered the judgment of Hon'ble High Court while setting aside the issue.

29. Taking into account the entire facts and circumstance of the case and prevailing judicial opinion on the issue, it is found that basically, we are reverting back again to the fundamental question in this case as to whether there can be a situation of double non-taxation of income and if there cannot be any double non-taxation of income, whether the provisions of article 24 can be invoked to deny the benefit of article 8 to the appellant. The DRP here is of the considered opinion that the DTAA between two countries is essentially meant to avoid double taxation. Indeed, that is the touchstone. Therefore, it cannot be permitted to interpret any DTAA in such a manner which shall result in double nontaxation of income. Reference is also made to the unflattering observations of the Hon'ble Rajkot Tribunal in the case cited above where they have frowned upon the relief having been claimed on the basis of granting of incorrect facts or on the basis of omission of material facts. Taking into account the same, objection no. 3 & 4 are also found to be devoid of merits and are, therefore, also dismissed.

17.4 Directions of DRP with reference to Ground no 5:

The AO is directed to compute taxable income with reference to freight receipts at Rs. 3,55,18,450/- in place of Rs 3,71,31,000/-, after verifying the facts and figures once again at his end. This ground is being allowed in these terms.

17.5 Directions of DRP with reference to Ground no 6: The grounds of objection no. 6, relate to penalty proceedings u/s. 270A of the IT Act. In the scheme of DRP proceedings, an assessee can file objections before the DRP in respect of any proposed variations in income of the assessee and the DRP may confirm, reduce, or enhance the variations in income. Hence, the objection as to initiation of penalty proceedings cannot be a subject matter for consideration by the DRP. Therefore, the objection is not maintainable and, hence, rejected.

17.6 Directions with reference to the additional ground:

We have carefully considered the entire facts and circumstances of the matter concerning this additional ground. The issue was even remanded to the AO for his counter-comments. The comments of the AO were received on mail vide his report dtd 15-11-21. A rejoinder was also called for from the assessee on the remand report, which was duly submitted by mail. Very briefly, the undisputed facts are that the draft order was passed on 24-02-21 which was mailed to the assessee on this day only. The assessee filed its objections before DRP on 25-03- 21. The assessee intimated the assessee by mail on 26-3-21. Meanwhile, it seems that the AO, not taking any chances, passed the final assessment order on 26-3-21. However, it is found that even the AO has admitted in his report that the objection filed on 25-3-21 is within the time-limit. Even Section 268 largely supports the contentions of the assessee. As if this was not enough, the assessee has also cited the Hon'ble Apex Court order dtd 8-3-21 extending the time-limits for various limitation matters due to Corona Pandemic. Considering the entire gamut of facts, the additional ground is allowed to the extent that the AO's order is being treated as valid but only as a draft order, as per the provisions of Section 144C.

The Assessing Officer shall give effect to the above directions, as per provisions of section 1440(13) of the Income-tax Act, 1961.”

8. Thus, the Hon’ble DRP dismissed almost all the objections raised by the assessee. The Assessing Officer has given effect the directions by passing Final Assessment Order on 02.12.2022 with necessary modification regarding Ground No. 5 and passed the order determining the freight income of Rs. 3,55,18,450/- and taxable income under Section 172(4) at 7.5% of Rs. 26,63,884/- on which determined tax of Rs.11,52,396/-.

9. Aggrieved against the Final Assessment Orders the assessee is in appeal before us raising the following grounds of appeal:

“1. On the facts and in the circumstances of the case and in law, the learned ACIT/DRP has erred in holding that the freight income earned from the voyage performed is taxable in India. The order of the learned DCIT is bad in law and merits to be set aside.

2. Without prejudice to the above, the learned ACIT/DRP has erred in denying the benefit of Article 8 of the India-Singapore Double Taxation Avoidance Agreement ('Tax Treaty') to the freight income earned by the Appellant by invoking the provisions of Article 24 (limitation of relief) without appreciating that Article 24 of the Tax Treaty has no applicability in the present case.

2.1 The learned ACIT has erred in alleging that the letter of Inland Revenue Authority of Singapore dated 8 November 2017 is misleading and has further erred in not appreciating that the said letter provides the view of the State of Singapore regarding the taxability of freight income under the Income-tax Law of Singapore.

2.2 The learned ACIT / DRP erred in not appreciating that the accrual or otherwise of the freight income in Singapore shall be construed from the Singapore Income-tax Act ('SITA') and not from IT Act, while analysing the applicability of Article 24 to Article 8 of the Tax Treaty. The deemed accrual of the freight income in India as per IT Act does not mean the same cannot accrue or arise in Singapore as per SITA.

2.3 The learned ACIT / DRP has erred in holding that Article 24 of the Tax Treaty mandates that freight income earned by the appellant should be 'subject to tax' in Singapore without appreciating the fact that the criteria of subject to tax is relevant qua incomes which are taxable in Singapore (under the Income-tax Law of Singapore) on receipt or remittance basis. The learned ACIT/DRP ought to have appreciated that the freight income is assessable to tax in Singapore on the accrual basis (and not on receipt or remittance basis) and hence Article 24 has no application.

3. Without prejudice to the above, the learned ACIT/DRP erred in denying the benefit of Article 8 by applying Article 24 of the Tax Treaty despite of the fact that the freight was remitted ultimately into bank account of Appellant in Singapore.

4. On the facts and in the circumstances of the case and in law, the learned ACIT erred in initiating penalty proceedings under section 270A of the IT Act for under-reporting of income and under-reporting of income which is in consequence to misreporting of income.

The Appellant craves leave to add, to alter, to amend or to withdraw all or any of the above grounds of appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the time of hearing.”

10. Ld. Senior Counsel Mr. Porus Kaka appearing for the assessee and his arguments is summarised as follows: Ld. Senior Counsel drawn our attention to relevant provisions used in Article 24 of India-Singapore DTAA submitted that the provisions of Article 24 are not attracted to income which is governed by Article 8 of DTAA. The said provision will only apply to an income which is either “exempt 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 provides that the profits derived by an enterprise of contracting state (resident state herein namely Singapore) from the operation of ships or aircrafts in international traffic shall be taxable only in that 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 not have the right to tax the shipping profits. There is no exemption of income from shipping income as is contemplated under Article 24 DTAA. He drawn our attention to the difference between income being exempt from tax and income taxable only in one state. By way of illustration, he pointed out that Articles 20, 21 and 22 of India-Singapore DTAA specifically provides the incomes which are exempt from tax in a contracting state.

11. 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, the Ld Senior Counsel submitted that the issue is covered in favour of the assessee by the binding judgement of the jurisdictional Hon’ble Gujarat High Court in M.T. Maersk Mikage v. DIT (International Taxation) [2016] 72 taxmann.com 359 (Guj HC) wherein the Hon’ble High Court has held that Article 24 of India - Singapore Tax Treaty is not applicable, where the income is liable to tax in the hands of a Singapore resident on an accrual basis. The income in present case is taxable in Singapore on the basis of accrual and not on the basis of remittance and therefore the judgement of the jurisdictional High Court is squarely applicable to the facts of the case.

12. He further submitted that the freight earned by the 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 the assessee in Singapore on an accrual basis and not on remittance basis. Thus Article 24 applies only when income is taxable in the country of residence on remittance basis.

13. Ld Senior Counsel further relied on the ratio of the following decision, where the above propositions have been upheld:

DCIT vs D.B. International (Asia) Ltd in ITA No. 992/Mum/2015 dated 20 June 2018

APL Co Pte Ltd V. CIT [(2017) 78 taxmann.com 240 (Mum Trib)]

SET Satellite Singapore Pte Ltd. v. ADIT in M.A. No. 520/Mum/2010 dated 11 February 2011

DDIT v. M/s. MSM Satellite (Singapore) Pte. Ltd in I.T.A. No. 4449/Mum/2011 dated 27 January 2013

Accordingly, only such types of incomes, which are specifically exempt from tax or taxed at reduced rates as per the Tax Treaty would be covered by Article 24 of India-Singapore Tax Treaty. As per Article 8 of the India-Singapore Tax Treaty, the right to tax itself is allocated to the resident country and accordingly, the provisions of Article 24 are not applicable.

14. Further reliance is placed on the decision of Hon’ble Gujarat High Court in case of Venkatesh Karrier Ltd [2012] 349 ITR 124 (Guj HC), in the context of a shipping company from UAE, held that the agreement between the two contracting jurisdiction 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 other contracting state.

15. The main tax legislation in Singapore is Singapore Income Tax Act (SITA). Singapore adopts a semi-territorial tax system. This means, that Singapore-sourced income is taxed on accrual (regardless of receipt in Singapore), but foreign-sourced income is taxed only when received in Singapore, unless exemption applies. Section 10(1) of the SITA is the charging Section, it has two limbs namely [a] Income accruing in or derived from Singapore, and [b] Income received in Singapore from outside Singapore. In practice, the Inland Revenue Authorities of Singapore IRAS applies the 'operations test'. This is also acknowledged by the IRAS in their 'Income Tax Guide to E-Commerce' published on 23 February 2001 (copy enclosed at page nos. 109 to 119 of the factual paper book - volume II):

16. Under the domestic tax law of Singapore, the entire freight income earned by the assessee is treated as sourced in Singapore and liable to tax/assessable on accrual basis in Singapore. In other words, as per the domestic tax law of Singapore, the income earned by the assessee from operation of Singapore registered vessel accrues, arises and derived from business carried out of Singapore itself.

17. The above position is also confirmed by the IRAS in the letter dated 8 November 2017, wherein the IRAS has certified that freight income earned by MTS is Singapore sourced income, physical flow of funds is not relevant and hence Article 24 of India-Singapore Tax Treaty shall not be applicable to freight income from Indian operations (copy is enclosed at page nos. 95 to 96 of the factual paper book – volume II). Thus the above Certificate from the IRAS provides confirmation on the basis of taxation of assessee’s freight income (i.e. on accrual basis). Furthermore, it would be relevant to note that the Certificate (being issued by IRAS) itself a substantive confirmation regarding non-applicability of Article 24 to assessee’s shipping income and ought to be honoured by the Authorities of the other contracting state (i.e. India). Thus the Appellant is undisputedly a tax resident of Singapore, its income is liable to tax in Singapore as also evident from its Income Tax Return filed in Singapore. However, under SITA, shipping profits of Singaporean shipping company are presently exempt in Singapore subject to the terms and conditions prescribed under Sections 13A to 13F, however such income continues to be liable to tax there.

18. It is pertinent to note that the exemption available under Section 13F of the SITA is not exemption for all shipping income, but only for income prescribed therein. Further, such exemption is subject to certain conditions prescribed therein. E.g. approval from the relevant Singapore Authority for claiming such exemption. As such, if the aforesaid approval is not granted, the assessee will not be eligible for such exemption and consequently, its shipping income will be taxable in Singapore. In such case also taxability will be on accrual basis and not on remittance basis. Thus, requirement of remittance of income into Singapore will not apply and shipping income will be taxable in Singapore on accrual basis without any reference to remittance being made in Singapore. Thus neither section 10 nor section 13A & 13F operation depends on whether the income is remitted or not to Singapore. Therefore, as correctly stated by IRAS, Article 24 can have no operation in this regard, in view of the language of the Article 24 “subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereto.

19. The Coordinate Bench of Hon'ble Tribunal at Chennai in the recent case M/s. Bengal Tiger Line Pte. Ltd. vs. DCIT [IT (TP) A No. 11/CHNY/2020] has upheld non-applicability of Article 24 in case of shipping companies resident in Singapore. The relevant portion of the decision is as follows:

"13. As regards the main issue before us, we have considered arguments of counsels for both sides and perused materials on record along with relevant case laws cited before us. There is no dispute to the fact that the assessee is a tax resident of Singapore. Even the factual finding recorded by the Ld.DRP was that the assessee is a tax resident and does not have a PE in India. Undisputedly, the activities carried out by the assessee in India are covered under Article 8 of India Singapore DTAA. As per Article 8 of India Singapore DTAA, the 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. Therefore, by virtue of Article 8 of India Singapore DTAA, the international shipping income of a resident of a Contracting State is taxable only in that State i.e., the shipping income of a Singaporean resident by the operations of ships in international waters is taxable only in Singapore on accrual basis. Similarly, Article 24 of India Singapore DTAA limits the relief on the basis of income from sources in a Contracting State is 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 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. From the combined reading of Articles 8 and 24 of India -Singapore DTAA, it is very clear that article 8 provides exclusive right of taxation to country of residence, i.e. Singapore on accrual basis. Similarly, article 24 limits the exemption, in case income is exempt or taxed at reduced rate in source country, i.e. in India and further such income is taxable in country of residence on receipt basis. The AO, referring to Article 24 of the tax treaty, was of the opinion that although global shipping income of a Singapore tax resident is taxable only at resident State, but by virtue of Article 24 exemption would apply only to the extent of the amount repatriated / remitted to Singapore. In our view, the above conclusion of the AO is under the misconception of the provisions of India Singapore tax treaty, because as per Article 8 of India Singapore tax treaty, it was clearly specified that only the resident country has the right of taxation of freight income earned from operation of ships in international traffic. As may be seen from the provisions of Article 8(1), we are of the considered view that it is not an exemption provision but an enabling provision which provides an exclusive right of taxation of income to the residence country. Further, by entering in to treaty with Singapore, India has given up its right to taxshipping income of a non-resident in India. Therefore, any income of a non-resident shipping company which is a tax resident of Singapore is liable to tax only in Singapore but not in India.

14. The provision of Article 24 of India Singapore DTAA is applicable for income which is exempt from tax as per the tax treaty. As has been clarified above, it may be noted that Article 8 is unambiguously not an exemption provision but only a provision which provides a taxation right to the country of residence. Therefore, the international shipping income earned by the assessee is not exempted in India, whereas it is taxable only in the country of residence i.e., Singapore. From the above, it is very clear that exclusive right of taxation in one Contracting State is not the same as the specific exemption being available in other Contracting State. Further, shipping income dealt with in Article 8 states that profits derived by an enterprise of a Contracting State by operation of ships in international traffic shall be taxable only in the State of residence. The word 'only' debars the other Contracting State to tax the shipping income; i.e. India is precluded from taxing the shipping income even if it is sourced from India. When India does not have any taxation right on a shipping income of non-resident entity, exemption or reduced rate of taxation in the source state is of no relevance because once the taxing right has been given off, the other conditions like exemption or reduced rate of tax has no bearing on the taxability of particular income in other Contracting State. From the reading of Article 8, which clearly envisages derivable or jurisdictional rights for taxing the income and as per which India has no jurisdiction for taxing any income which are covered by Article 8. Therefore, we are of the considered view that international shipping income of a non-resident of a Contracting State is taxable only in that state and in this case, the assessee being tax resident of Singapore, shipping income earned from India on international waters is taxable only at Singapore on accrual basis.

15. Having said so, let us examine the applicability of Article 24 of India Singapore DTAA. Article 24 of India Singapore DTAA contemplates twin conditions for its applicability. The first condition is that income sourced in a Contracting State and such income should be exempt or taxed at a reduced rate by virtue of any article under the India Singapore DTAA. As we noted earlier Article 8 of India Singapore DTAA does not provide for exemption or reduced rate of taxation of such income. It is crucial to note that Article 8 of India Singapore DTAA contemplates the taxation rights of a particular income in particular State. As per said article, the country of residence is having exclusive right over taxation of shipping income and that being the case, the assessee being resident of Singapore vest with right to tax such income under the Singapore Income Tax laws. Accordingly, the shipping income earned in India is neither exempt nor taxed at reduced rate as per Article 8 of DTAA which is a condition precedent for applicability of Article 24. This fact has been clarified by the IRAS vide its letter dated 17.09.2018, where it was specifically sated that provisions of Article 24 of India Singapore DTAA would not be applicable to the shipping income. The second condition that is required to be looked in to before applying Article 24 of DTAA is income of the non-resident should be taxable on "receipt" basis in Singapore. As we have already noted in earlier para of this order, under Article 8 of India Singapore DTAA, global shipping income of a tax resident of Singapore is only taxable in the country of residence. Once the income is taxable in the country of residence on "accrual" basis, the second condition prescribed under Article 24 of India Singapore DTAA is not satisfied. This fact is further strengthened by the letter of the Inland Revenue Authority Singapore (IRAS) letter 17.09.2018, where it was clarified that the income of a Singaporean company from the operation of ships in international traffic is taxable in Singapore on "accrual" basis. Thus, both the conditions ofArticle 24 is not satisfied in the present case. We, therefore are of the considered view that the AO was erred in invoking Article 24 of India Singapore DTAA to tax the income earned by the assessee from shipping operations in India.

16. The interplay between Article 8 and 24 of India Singapore DTAA has been considered by various Tribunals and Courts. As per the settled position of law, the Article 24 Limitation of Benefit is not applicable once shipping income of a non-resident is taxable on "accrual" basis in the country of residence. This principle is well settled by the decision of the Hon'ble Gujarat High Court in the case of M.T. Maersk Mikage vs. DIT(International Taxation) supra, where the Hon'ble court clearly held that where income earned by Singapore based shipping company through shipping business carried out at Indian Ports, was not taxable at Singapore on basis of remittance but on basis of accrual, clause (1) of Article 24 of Indo-Singapore DTAA would not apply to deny benefit of Article 8 of Indo-Singapore DTAA to said company. The Hon'ble High Court while considering the issue has analyzed the provisions of Article 8 vis-à-vis Article 24 of DTAA and after considering relevant facts, the court held 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. The court further held that 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. The Hon'ble court while arriving at the above conclusion has taken support from the letter issued by Singapore Revenue Authority clarifying the taxation position of global shipping income of tax resident of Singapore and held that when shipping income of a tax resident of Singapore was taxable at Singapore on the basis of accrual, the very basis of applying Article 24 would not survive. This issue was further considered by the Mumbai Bench of ITAT in the case of APL Co. Pte Ltd vs. ADIT, 78 taxmann.com 240, where it was held that in order to invoke provisions of Article 24, two conditions need to be fulfilled. Firstly, income earned from source State (India) is exempt from tax or is taxed at a reduced rate in source State (India) as per DTAA; and secondly as per the laws in force of resident state (Singapore), such income is subject to tax by reference to amount thereof which is remitted to or received in resident State and not by reference to full amount thereof. The Tribunal further noted that 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 assessee 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 "accruing in or derived from Singapore". A similar view has been expressed by the Hyderabad Bench of the Tribunal in the case of Far Shipping (Singapore) Pte Ltd vs. ITO, 84 taxmann.com 297. Further, the Mumbai Bench of the Tribunal in the case of DCIT vs. D.B. International (Asia) Ltd., 96 taxmann.com 75 has dealt with the interplay between the Article 13 and 24 and after considering relevant clauses categorically held that income derived by a resident of a Contracting State shall be taxable only in that state in view of the clear and unambiguous terms of DTAA. Therefore, we are of the considered view that in terms of Article 8 of India Singapore DTAA, global income of a tax resident of Singapore from shipping operations, even though which is earned outside Singapore is taxable only in Singapore on accrual basis and consequently Article 24 of India Singapore DTAA cannot be invoked to deny the benefit of exemption merely for the simple reason that the said income was not taxed in Singapore by virtue of separate exemptions provided under Singapore Income Tax Act.

17. In this case, the Assessing Officer has attempted to deny the exemption claimed by the 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 the provisions of Section 13F of the Singapore Income Tax Act, ignoring the fact that Section 13F of the Singapore Income Tax Act was already in existence since 01.04.1991 and as such the articles provided in India Singapore DTAA which was came into existence from 27.05.1994 was inserted by the Competent Authorities of both the Contracting States after thoroughly considering the provisions of Section 13F of Singapore Income Tax Act and further choose not to alter the taxation right of shipping income which is generally available to the country of residence. We further noted that two sovereign nations have entered into a bilateral agreement and specifically agreed on the taxing rights of particular streams of income, the provisions of such agreement should be merely given effect to and as such the action of the AO to claim taxing right over the said income which is not provided in the treaty is ultra vires the power of the AO and will amount to dis-honoring the bilateral agreement between two sovereign nations. We further noted that the AO has taken support from 10(1) of Singapore Income Tax 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 u/s.13F of the Singapore Income TaxAct is only on a case to case basis for a limited period of time and it is subject to certain conditions. Therefore, we are of the considered view that the liability to taxation is not dependent on whether taxes are actually paid in the said jurisdiction. This fact is strengthened by the decision of the Hon'ble Supreme Court in the case of Union of India vs. Azadi BachaoAndolan, 132 Taxman 37 where the Hon'ble Supreme Court in para 79 of the order has states that "merely because exemption has been granted in respect of taxability of a particular source of income, it cannot be postulated that the entity is not 'liable to tax' as contended by the respondents." The ITAT, Mumbai Bench in the case of Bhagwan T. Shivlani vs. ITO, 20taxmann.com 821 has considered an identical issue and by following the decision of Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan supra has held that the expression 'liable to tax' in Contracting State as used in Article 4(1) of Indo-UAE DTAA does not necessarily imply that person should actually be liable to tax in that contracting State. It is enough if other contracting State has right to tax such person, whether or not such a right is exercised. This fact is further strengthened by Article 31(1) of Vienna Convention where it was stated that as per the general rule of interpretation, ordinary meaning is to be given to the terms of the treaty in the context and in the light of its object and purpose. The object and purpose of having Article 8 in the India Singapore DTAA is to clearly allocate the taxing rights of international shipping income to the residence country i.e., Singapore in the present assessee case. Therefore, as per sub-clause (2) of Article 31 of the Vienna Convention, the 'context' for the purpose of interpretation of a treaty would primarily include the text, preamble and annexure to the treaty. Therefore, in order to give the ordinary meanings to the terms in their

'context' the whole treaty should be read as it is without giving any meaning which is not the purpose intended by the Articles. In this case, the AO has stated that the preamble should be read to understand the object and purpose. However it may be noted that Article 31(2) of Vienna Convention does not cover object and purpose. Therefore, we are of the considered view that AO has misunderstood the general rules of interpretation in the Vienna Convention. Even assuming without conceding that the preamble should be referred to understand the object and purpose, the stated objective of the treaty is "avoidance of double taxation". This object can be achieved in two ways, which one way by credit mechanism when both the countries tax the same income and the second way is providing 'exclusive right of taxation' to one country and thereby double taxation can be avoided. In the present case, Article 8 provides exclusive right of taxation of shipping income to Singapore in order to avoid double taxation method where India has given up its right of taxation of international shipping income of a Singaporean resident and as such Singapore has reserved its exclusive right to tax the same. Once the country of resident is having exclusive rights to tax a particular income by way of separate Article, then limiting or denying such benefit by interpreting the other Articles which are provided for limiting the benefit in case such income is exempt or taxed at reduced rate of tax in other Contracting State is contrary to the purpose and object of DTAA.

18. In this case, the Assessing Officer has denied the benefit only on the simple ground that the income of the assessee received in India is exempt by virtue of separate provisions of Singapore Income Tax Act and on the misconception of law to come to the conclusion that once a country of residence has exempts particular income from tax, the other Contracting State (source country) can levy tax on such income without understanding the true meaning of Article 8 of India Singapore DTAA. The AO has also ignored the arguments taken by the assessee in the light of DIT relief certificate issued by the Department for the subject assessment year, where the AO after considering the TRC and supporting documents issued DIT Relief Certificate dated 25.06.2014 and 14.08.2014 by holding that Article 8 of India Singapore DTAA is applicable to the assessee and income from operation in international traffic will not be taxable in India. No doubt, the certificate is issued for the purpose of non-deduction of tax at source as argued by the Ld.DR, but fact remains is that unless the AO has bring on record any change in fact or law which was prevalent at the time of issuing DIT Relief Certificate and at the time of framing assessment, no contrary view can be taken in violation of Doctrine of Promissory Estoppel. No doubt, the fundamental principles of res-judicata will not be applicable to income tax proceedings, but the rule of consistency needs to be followed unless there is change in fact or law while taking a different view. This view is supported by the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT, 193 ITR 321.

……………………………………………….

20. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that Article 8 of India Singapore DTAA is applicable and as per which shipping income of a resident of Singapore is taxable only in Singapore but not in India. The AO has made an attempt to deny the benefit of exemption claimed by the assessee by invoking Article 24 of India Singapore DTAA, even though, the conditions stipulated under Article 24 are not satisfied. We, therefore are of the considered view that the AO as well as the Ld.DRP were erred in coming to the conclusion that income earned by the assessee from shipping operations in India is taxable in India by virtue of Article 24 of India Singapore DTAA. Hence, we direct the Assessing Officer to delete the additions made towards shipping income of assessee earned in India." [Emphasis supplied]

20. Similarly, following decisions of the Coordinate Benches have upheld non-applicability of Article 24 in case of shipping companies:

* Alabra Shipping Pte Ltd [2015] 62 taxamnn.com 185 (Rajkot Trib)-

Copy enclosed at page nos. 156 to 162 of legal paper book and relevant portion as follows: “…

9. We have noted that the only reason for declining Indo Singapore tax treaty benefits was the application of art. 24 and that there is no other dispute on the claim of treaty protection of shipping income under art. 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 AO was thus, in error in bringing 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 AO not to tax income of the assessee, from operation of ships in international traffic, in India. The assessee gets the relief accordingly.”

* APL Co. Pte Ltd [2017] 78 taxmann.com 240 (Mum Trib) - Copy enclosed at page nos. 175 to 208 of the legal paperbook and relevant portion is as follows:

“…. Freight income derived by the assessee, a Singapore company from Indian operations is to be reckoned as accrued in or derived from business carried on in Singapore and not some kind of foreign income which is to be taxed on remittance basis in terms of Singapore IT Act, and therefore art. 24 of the DTAA between India and Singapore is not applicable; further, assessee being a tax resident Singapore liable for taxation on its shipping income only in Singapore and not in India in view of art. 8 of the DTAA, it cannot be reckoned that the said shipping income is exempt from tax or liable to tax at reduce rate in the source State i.e., India, and, therefore, benefit of art. 8 could not be denied to the assessee by invoking the limitation clause of art. 24.”

* Far Shipping (Singapore) Pte. Ltd. v. ITO [2017] 84 taxmann.com 297 (HydTrib) - Copy enclosed at page nos. 209 to 216 of the legal paper book and relevant portion as follows:

"5.2. The aforesaid judgment of the Gujarat High Court clearly clinches the issue in favour of assessee, as the Hon'ble High Court has categorically held that the shipping company is not taxable in Singapore on the basis of remittance, but on accrual basis and therefore, para-1 of Article 24 would not be applicable. Hon'ble Court has relied upon the confirmation letter/certificate issued by the IRAS, which confirms the taxability of global shipping income in Singapore on accrual basis. The Court 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 findings of the Ld. CIT (A) stands negated by these decisions and therefore, the order of the CIT (A) is to be rejected. In the light of the judgment of the Hon'ble High Court, reliance on the decision of the DIT(IT) Vs. Thoresen Chartering Singapore (Pte.) Ltd., by the AO and CIT (A) is not correct, as the principles laid down there in no longer holds good.

6. The issue also can be looked into in another angle. Whether the provisions of Article 24 will apply when the shipping income is taxed in the other contracting state exclusively by Article 8. This issue is analysed and considered by the Co-ordinate Bench in the case of APL Co. Pte Ltd., Vs. ADIT (IT)-1(1), Mumbai in ITA No. 4435/Mum/2013 dt. 16-02-2017, wherein vide para 12, the issue has been analysed as under:

"12. There 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 "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 taxation 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 shipping 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 cannot be reckoned that shipping income earned from India is to be treated as exempt from tax or taxed at reduced 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 case 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 issue 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 collected in India and finally to Singapore various and other aspects raised by her and also the various arguments as raised by ld. Sr. Counsel and ld. CIT-DR qua the issue of Article 24".

6.1. In view of the clear findings on the issue, I am to hold that the AO/ 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. Since the issue is squarely covered by the decision of the Hon'ble Gujarat High Court as referred above, I am of the firm opinion that the exercise undertaken by the AO and CIT (A) in correlating the remittances and denying the certificate issued by the Government authority of Singapore is not proper and can further hold that they have no jurisdiction to enquire into those matters, once Article 8 is invoked. The shipping income is to be exclusively taxed by the other contracting state once the residence of the ship is established. Since there is no dispute with reference to residence of the ship being that of Singapore, the jurisdiction to tax the remittances specified therein under Article 8 lies exclusively with Singapore. In view of that, the orders of the AO and CIT (A) are set aside and they are directed to allow the benefit of Article 8 to all the voyages involved in all these appeals.

7. In the result, all the appeals are allowed."

* Citicorp Investment Bank (Singapore) Ltd v. DCIT (IT) [2017] 81 taxmann.com 368 (Mum Trib) - Copy enclosed at page nos. 163 to 174 of the legal paper book

* SET Satellite Singapore Pte. Ltd. v. ADIT [M.A. No. 520/Mum/2010] - Copy enclosed at page nos. 217 to 222 of the legal paper book

* DDIT v. M/s. MSM Satellite (Singapore) Pte. Ltd. [ITA No. 4449/Mum/2011] - Copy enclosed at page nos. 223 to 230 of the legal paper book.

21. Ld. Senior Counsel further placed reliance on the letter dated 17.09.2018 issued by IRAS in response to the application filed by Kandla Port Steamship Agent Association wherein the IRAS has confirmed that provisions of Article 24(1) do not apply to the shipping income as the income earned by Singaporean shipping companies are taxable in Singapore on accrual basis. Accordingly, provisions of Article 8(1) should apply without any limitation. Reliance in this regard is placed on the decision of Hon’ble Gujarat High Court in the case of Maersk Mikage (supra) wherein the Hon’ble High Court has observed and relied on the IRAS certificate to extent of factual confirmation provided by IRAS on the taxability of shipping income earned by ST Shipping as income accruing in or derived from business carried in Singapore and hence, the said income would be assessable in Singapore on accrual basis. The relevant portion of the judgment reads as under:

“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 certificate, 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. However, 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 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 the 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 according 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 that 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 Singapore 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 to the statutory provision.”

22. In view of the above factual and legal position, Ld Senior Counsel submitted that once the IRAS has confirmed the taxability of the global shipping income of MTS in Singapore on an accrual basis, the same cannot be questioned by the Ld. AO unless there is any contrary evidence to support that the freight income is taxable in Singapore on remittance basis. Accordingly, the second condition of Article 24 which refers to the income (foreign sourced income) that is subject to tax on remittance basis is not satisfied.

23. It is further submitted that the assessee's income from shipping business is governed by the provisions of section 172(4) of the IT Act. As per the provisions of section 90(2) of the IT Act, where the Central Government has entered into an agreement (Tax Treaty) with the Government of any country outside India or specified territory outside India, then in relation to the assessee to whom such agreement applies, the provisions of the IT Act shall apply to the extent they are more beneficial to the assessee. In this regard, reliance is placed on the decision of the Hon'ble Gujarat High Court in the case of Arabian Express Line v. Union of India [1995] 82 Taxman 6 (Guj HC) wherein the court has held that Section 90 of the IT Act would have overriding effect and Section 172 of the IT Act would not be applicable in case where there is convention between the Government of India and foreign country. Reliance is also placed on decision of Hon'ble Supreme Court in the case of Union of India & ORS v. Arabian Express Line & ANR [Civil Appeal No. 10328 of 1995]. Similar observations have been made in the following circulars issued by CBDT:

Circular No. 732 dated 20 December 1995 (Refer Annexure 2 of the written submission)

Circular No. 30/2016 dated 26 August 2016 (Refer Annexure 3 of the written submission)

24. It is further submitted, to determine the applicability of Article 24 to a person resident in Singapore, what is required to be seen is, whether the income of such person is taxable in Singapore on the basis of remittance or on the basis the accrual. If the income of such person is not taxable on remittance basis, but on the basis of accrual as per Domestic Laws of Singapore, Article 24 will not be applicable. In facts of the case, the income is accruing and arising in Singapore under provisions of section 10(1) of the SITA, therefore the provisions Article 24 does not apply and accordingly, the right to tax such income is allocated to Singapore under Article 8 of the India-Singapore Tax Treaty. It is relevant to quote the observations of the Hon'ble Supreme Court in case of Azadi Bachao Andolan (263 ITR 706) wherein the Supreme Court has held that the purpose of a Tax Treaty is to allocate taxing jurisdiction between the contracting states. Merely because the freight income is exempt in the country of residence i.e. Singapore, it does not alter the taxing rights of the said income so as to shift the right to tax to the other contracting state i.e. India.

25. Ld. Senior Counsel drawn our attention that even the residents of India are granted various deductions/exemptions from tax under the IT Act under provisions like sections 10A, 10AA, 10B, 80IA, etc. Such exemptions/ deductions are provided by the Government of India to promote and support the industries for the public welfare and to boost the economy. This doesn't mean that the income of a person resident in India getting benefits under the Indian domestic laws are not liable to tax in India. Similarly, Singapore has provided an exemption to an approved international shipping enterprise in Singapore under section 13F of the SITA subject to the terms and conditions prescribed under sections 13A to 13F. The overall objective is to develop Singapore into a vibrant International Maritime Centre.

26. The Ld. Senior Counsel reiterated that it is the sovereign decision of the Government of Singapore to exempt such income. Hence, such policy decision of Singapore to not tax the shipping income of the Singaporean residents does not shift the right to India to tax such income. Accordingly, Assessee's freight income is liable to tax/assessed in Singapore on accrual basis and hence, as per Article 8(1), income from operation of ships is taxable in country of residence i.e. only in Singapore. Therefore, the orders passed by the Ld DRP and the Final assessment orders passed by the Assessing Officers are liable to deleted and the appeals are allowed in favour of the assessee.

27. Per contra the Ld CIT DR Mr. Shramdeep Sinha appearing for the Revenue strongly supported the orders of the Lower Authorities and submitted that the assessee claimed exemption of freight income as per Article-8 of DTAA between India and Singapore, though the assessee has remitted freight income in respect of two voyages to Denmark and sixteen voyages to Shanghai but still claimed that Article 24(1) is not applicable in its case.

28. As the remittances were not made to or received in Singapore, Article 24(1) of DTAA between India and Singapore would apply and dependent on the facts of the case, exemption as per Article 8 either in whole or in part would be excluded as per the interpretation given by the Hon'ble High Court of Gujarat at para 16 in the case of M.P. MerskMikage vs DIT (IT) (2016) - 242 taxmann 300.

29. The letter dated 8th November 2017 issued by the Inland Revenue Authority of Singapore to claim the benefit of Article-8, it is relevant to mention that a letter cannot override the express provisions given in Article 24 of DTAA. For example, any certificate issued by an Income Tax authority in India which is in violation of DTAA is void ab-initio and therefore, cannot override the provisions of DTAA with a contracting country. The DTAA with any country are concluded after lot of deliberations and negotiations and with the approval of the top most authority of the respective country. Therefore, any unilateral letter issued by an Income Tax Authority of a country cannot override the provisions of DTAA. Hence, the letter submitted by the assessee needs to be rejected.

30. The Ld. D.R. further submitted that if the assessee's contention is accepted then it will lead to a situation of double non-taxation, whereas the purpose of DTAA is to protect the assessee from a situation of double taxation of the same income. When this issue regarding non-taxability of the freight income in Singapore was raised before the Hon'ble Gujarat High Court in the case of M.P. Mersk Mikage (supra), their Lordship left this issue open to be decided in an appropriate case by making observation in para 22 of their order. The department has filed SLP in this case. The Hon'ble Supreme Court while dismissing the SLP on the basis of low tax effect stated that "it will be open to Income Tax Department to seek review in any of these matters if the tax effect is more than Rs. l crore." Hence the decision of the Hon'ble High Court regarding applicability of Article 24 on merit has still not attained legal finality. Therefore, this decision of the Hon'ble High Court may not be relied upon.

31. Thus the provisions of Article 24 actually override the provisions of Article 8 and it limits the relief in case of double non-taxation of any income. Article 24 postulates two conditions - firstly, there should be actual remittance of the impugned amount and secondly this amount should be subjected to taxation in Singapore. Whereas in the case under consideration neither the income has been remitted to Singapore nor it is subject to tax in Singapore.

32. The Ld CIT DR further submitted that the purpose of including Article 24 [Limitation of Benefit] should first be considered to understand the context in right perspective. With the introduction of DTAAs, many corporations started exploiting treaty laws to evade tax liability completely. Therefore, in order to prevent abuse of treaty benefits and treaty shopping, countries revised their tax treaties to include an anti-abuse provision called the “limitation of benefit” clause. By ignoring this Article by placing reliance on a letter of IRAS would defeat the very purpose of Article 24 and would be case of double non-taxation. So, both the Governments will be not getting any tax.

33. In this regard reference is also invited to the provisions of section 90 of Income Tax Act by which authority for entering into the DTAA with any country is derived. As per Section 90(l)(b) of the Act DTAA is entered into or signed for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country (here Singapore) in this regard. At the same time, the DTAA should not result in creating opportunities for non-taxation or reduced taxation or avoidance including through treaty shopping arrangements aimed at obtaining relief provided in the said agreement. In the case under consideration the assessee has received the income in Denmark and Shanghai but trying to take the benefit of Article -8 of DTAA for avoidance of tax payments by completely disregarding Article-24 of DTAA. Actually, to handle such situation only, the “limitation of Relief” clause is made part of the DTAA as per which assessee is not eligible to claim benefit of Article-8 on its income.

34. Further reference is also invited to the decision of Hon'ble Rajkot Tribunal in the case of BP Singapore vs. ITO (ITA 409/Rjt/2016) where the Coordinate Bench have observed that if the income of Singaporean Shipping is not chargeable to tax in Singapore u/s. 13F of the Act then Article 24 of the Tax Treaty will be applicable to the assessee.

35. Reference is also made to excerpt in the assessment order of the decision of Hon'ble ITAT, Rajkot bench, Rajkot in the case of BP Singapore Pte Ltd. Gandhidham vs. Income Tax Officer (International Taxation), Gandhidham's order dated 28.11.2017 in which the Hon'ble Tribunal has stated the assessee had given an impression that the income was indeed taxed and taxes were paid. Only now, it is learnt that actually it is not so. No taxes have been paid in Singapore. The Tribunal found that the TRCs etc. and other evidence produced were misleading and aimed at creating wrong impression about Singaporean taxability of income in question. The Tribunal observed that the so-called TRCs give an impression that the freight income received from India has been subjected to tax in Singapore. The Hon'ble Tribunal at para 8 of the order has observed that "clearly, therefore, the relief granted in the judicial precedents in question may have been based on an erroneous impression of the fact regarding actual taxability, in Singapore, of the income embedded in the freight receipts from India, particularly as the income was actually exempt from tax in Singapore as well.

36. Reliance is also placed on the elaborate directions given by the DRP in their orders and as reproduced by the Assessing Officer in his order. DRP has given detailed directions after considering the factual position, judicial precedents and the provisions of the Act as well as DTAA.

37. To sum-up, it is an admitted fact that, no tax has been paid by the assessee in Singapore (i.e. its Resident state) on the freight income earned in India from the voyages performed in India (i.e. the Source state) and now attempt is being made to justify non-payment of tax in India by invoking provisions of article 8 of DTAA. It is for this very situation that provisions in the form of “Limitation of Benefit” has been brought in Tax Treaty, to curb abuse of tax treaty provisions, as treaties are made to avoid double taxation of an income, as well as to prevent double non-taxation of income. In view of the above, the appeals of the assessee may be rejected and the order-of the Revenue may kindly be upheld.

38. We have extensively heard the rival parties with detailed Paper Books and case laws compilations as well as written arguments filed by both the parties. In our considered view, the issue is no more res integra because of the series of judgments passed by Coordinate Benches of the Tribunal. Jurisdictional High Court in the case of M.T. Maersk Mikage v. DIT (International Taxation) (cited supra) held that the income in question arises out of shipping operations by virtue of Clause (1) of Article 8 of DTAA would be taxable only in Singapore, is not in serious dispute. The moot question, therefore, is whether the operation of Article 8 is ousted by virtue of Clause (1) of Article 24 (Limitation of Relief). Under Clause 1 of Article 24 the income from sources in contracting states (India) shall be exempted from tax at a reduce rate and under the laws in force in other contracting states namely Singapore, such income is subject to tax by reference to the amount thereof which is remitted on received in that state and not by reference to 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 received in that contracting State. That is 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 dependent on the facts of each case, exemption as per Article 8 either in whole or in part would be excluded. It has been admitted by the Inland Revenue Authority of Singapore vide letter dated 08.11.2017 which is extracted from Page 95 & 96 of the Paper Book which reads as follows:

“Tax Reference No: 200708781H			INLAND REVENUE
Date : 08/11/2017			AUTHORITY
			Of SINGAPORE

MAERSK TANKERS SINGAPORE PTE. LTD.
6 SHENTON WAY
#23-08
SINGAPORE 068809			55 Newton Road
			Singapore 307987
			Tel:63513397
			ctmail@iras.gov.sg

Dear Sir/Madam

MAERSK TANKERS SINGAPORE PTE, LTD. (Company)

YEARS OF ASSESSMENT 2017 AND 2018

FINANCIAL YEAR ENDED 31 DECEMBER 2016 AND 2017

1. We refer to your letter dated 31/07/2017.

2. You have stated the following:

a. The Company is primarily engaged in shipping and related business, and receives charter income from employment of its vessels,

b. During the financial years ended 31 December 2016 and 31 December 2017, the Company derived/will derive shipping income (i.e. charter income) from third parties from export voyages from Indian ports,

c. The Company will report the charter income in its Singapore tax return for Years of Assessment 2017 and 2018.

3. You wish to seek our clarification to the effect that Article 24(1) of the India-Singapore Avoidance of Double Taxation Agreement ("DTA") is not applicable to the charter income derived from these export voyages from Indian ports.

4. The charter income derived by the Company from export voyages from Indian ports is income accruing in or derived from a business carried on in Singapore. The charter income is therefore shipping income sourced in Singapore and assessable to tax in Singapore on an accrual basis and not on a remittance basis for Year of Assessment 2016 and 2017. The physical flow of funds is therefore not relevant. As such, Article 24(1) of the Singapore-India Avoidance of Double Taxation Agreement ("DTA"), which seeks to limit the relief under the DTA where the relevant income is subject to tax in Singapore on a remittance basis, would not be applicable to the charter income derived from these export voyages from Indian ports.

5. Please note that if the background and facts remain unchanged for future Years of Assessment the tax position as stated in paragraph 4 will apply as well.

6. If you require any further clarifications, please do not hesitate to contact us.

Yours faithfully

WONG PI TING (MISS)

TAX SPECIALIST

CORPORATE TAX DIVISION

For COMPTROLLER OF INCOME TAX

This is a computer generated letter and requires no signature.”

39. From reading of this letter, the IRAS Authority have stated that the assessee company derives shipping income (charter income) from third party from export voyages from Indian ports. The assessee company would report the chartered income in its Singapore Tax Return for the years of Assessment 2017 and 2018. It is clarified that Article 24(1) of India-Singapore DTAA is not applicable to the charter income derived by the assessee on the voyages from Indian ports. For the reason that the income, if accruing in or derived from a business carried on in Singapore. The chartered income is, therefore, shipping income sourced in Singapore and assessable to tax at Singapore on accruing and not on remittances basis, for the Year of Assessment 2016 and 2017. It is further clarified that a physical flow of funds is therefore not relevant and the chartered income is subject to tax in Singapore on remittances basis.

40. We also find that the assessee also has filed its bank statement for remittances at Paper Book Page No. 99 to 108 (ITA No. 17/Rjt/2022) and 287 to 422 (ITA No. 18/Rjt/2022). The assessee also produced before us the Singapore Income Tax Returns in Form No. C with all annexures at Page No. 137 to 205 for the calendar Year 2017 and the Return of Income for the Calendar Year 2018 at Page No. 206 to 284 with Computation of Income, Audited financial statements of the assessee company. Further letter dated 17.09.2018 issued by ACIT (International Tax and Relations Division) of Inland Revenue Authority of Singapore (IRAS) to Kandla Port Steamship Agents Association. Wherein it is clarified that Article 24(1) does not apply to the shipping income received by a Singapore Shipping Enterprises from Indian customers and the shipping income is taxable in Singapore, on an arising basis when the income is earned by the shipping enterprise regardless of whether the shipping income is received in or remitted to Singapore. Since Article 24(1) is not applicable, the provisions of Article 8(1) should apply without any limitation. As such the shipping profits derived by a Singapore resident shipping enterprise from the operation of ships in international traffic shall be taxable only in Singapore in accordance with Article 8(1) and the same does not confer the Indian Authorities to the right to tax such profits.

41. We find this view has been followed by the Chennai Benches of the Tribunal in M/s. Bengal Tiger Line Pte. Ltd. vs. DCIT [IT (TP) A No. 11/CHNY/2020] extracted in Paragraph No. 21 above. Coordinate Bench of this Tribunal in the case of Alabra Shipping Pte Ltd [2015] 62 taxamnn.com 185 at Para No. 22, Mumbai Tribunal in the case of APL Co. Pte Ltd [2017] 78 taxmann.com 240 (Mum Trib) and Hyderabad Tribunal in the case of Far Shipping (Singapore) Pte. Ltd. v. ITO [2017] 84 taxmann.com 297, Mumbai Tribunal in the case of Citicorp Investment Bank (Singapore) Ltd v. DCIT(IT) [2017] 81 taxmann.com 368, SET Satellite Singapore Pte. Ltd. v. ADIT and DDIT v. M/s. MSM Satellite (Singapore) Pte. Ltd.

42. Respectfully following the above decisions, we held that the Assessing Officer and Ld. DRP was not justified in denying the benefit of Article 8 by invoking the limitation of Article 24 between India and Singapore DTAA following Jurisdictional High Court judgment in M.T. Maersk Mikage v. DIT (International Taxation) (cited Supra). We are therefore of the considered opinion that the exercise under taken by the Assessing Officer and the Ld. DRP in co-relating the remittances and denying the certificate issued by the Singapore Tax Authorities is not proper and both the Assessing Officer and the Ld. DRP has not considered the Singapore Income Tax Returns filed by the assessee. In view of the above the order of the lower authorities namely final Assessment Order passed by the Assessing Officer and directions issued by Ld. DRP are hereby set-aside and they are directed to allow the benefit of Article 8 to all the voyages carried out by the assessee in this appeal.

43. In the result, the appeal filed by the assessee is allowed.

ITA No. 18/Rjt/2022(2017-18):-

44. Facts in this appeal is identical in nature with that of ITA No. 17/Rjt/2022 except the reasons that the freight income arising to the assessee out of 16 voyages performed by its vessels. Therefore, following the ratio rendered in ITA No. 17/Rjt/2022, this appeal is also allowed.

45. In the combined result, both the appeals filed by the assessee are allowed.

Order pronounced in the Court on 30.11.2022 at Ahmedabad.

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