LOB clause can’t be invoked to deny benefit of Article 8 of DTAA to a Singapore shipping enterprise: ITAT

Judiciary and Counsel Details

• • T.R. Senthil Kumar, Judicial Member & Smt. Annapurna Gupta, Accountant Member
  • Porus Kaka, Senior Advocate & Manish Kanth for the Appellant.
  • Shramdeep Sinha, CIT D.R. & Sanjay Punglia, CIT D.R. for the Respondent.

Facts of the Case

Assessee-company was incorporated in Singapore and was engaged in the business of ship owning & operating, chartering, and related business. During the assessment year, it claimed exemption of the freight income as per Article 8 of DTAA between India and Singapore.

However, the Assessing Officer (AO) held that the assessee did not qualify for tax exemption under Article 8 of DTAA. AO held that the freight income was not directly remitted to Singapore. Thus, the provision of Article 24 comes into the picture, which overrides the provisions of Article 8, as the same limit the relief, in case of some double non-taxation of such income.

On appeal against the draft assessment order, the Dispute Resolution Panel (DRP) upheld the findings of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that exemption to shipping profits under Article 8 of Indo-Singapore DTAA can’t be denied to Singapore resident shipping enterprise by invoking Article 24 of the said DTAA.

The moot question was whether the operation of Article 8 is ousted by virtue of Clause (1) of Article 24 (Limitation of Relief). Article 24(1) does not apply to the shipping income received by a Singapore Shipping Enterprise from Indian customers.

It has been clarified by Singapore Tax Authority i.e. IRAS that 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.

Since 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 cannot be taxed in India.

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