Income of non resident shipping company u/s 172-Assessee asked to furnish proof /certificate from IRA

Income of non resident shipping company u/s 172-Assessee asked to furnish proof that income tax return filed in foreign country or certificate from IRA

ABCAUS Case Law Citation:
ABCAUS 3059 (2019) (07) ITAT

Important Case Laws Cited/relied upon by the parties:
Alabra Shipping Pte Ltd. (2016) 129 DTR (Rjt) (Trib) 43
M. T. Maersk Mikage & Ors. Vs. Director of Income Tax (International Taxation) 242 Taxman 0300

The instant appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) with respect to confirmation of the tax demand raised by the Assessing Officer (AO) u/s 172 of the Income Tax Act, 1961 (the Act).

In this case, the Representative Assessee was an Indian agent of a Singapore based shipping company (non-resident freight beneficiary). The Rep. assessee filed No Objection Certificate (NOC) in respect of the vessel with a request to treat it as agents to the Master of the said vessel and also to the non-resident freight beneficiary.

The AO issued NOC along with order u/s 163 of the Act treating the Rep. assessee as an agent of the Master of the vessel and also to the said non –resident shipping company i.e. freight beneficiary. The agent was also directed by the AO to file the return of income u/s 172(3) of the Act in respect of freight tax payable by the above stated non-resident freight beneficiary for the said voyage within 30 days from the date of departure of the vessel.

In response to the notice, the Representative assessee filed the return of income u/s 172(3) and claimed the entire amount as exempt under DTAA. Since there was no remittance proof furnished by the assessee, keeping in view of the provisions of Article 24 of Indo Singapore DTAA, the Assessing Officer (AO) raised the demand on the total income earned and tax payable on the freight of the said non-resident shipping company on account of the particular voyage.

Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and argued that in the assessee’s case, Article 24 had no application and relied on the decision of Coordinate Bench of the ITAT.

The CIT(A) observed that in the case law relied on by the assessee, the Inland Revenue Authority of Singapore had confirmed that the freight income had been regarded as Singapore sourced income and brought to tax on accrual basis and not on remittance basis in the year of the assessment. The assessee also had filed confirmation that the freight earned from the vessel was included in the global income offered to tax by the company in Singapore.

Accordingly, the CIT(A) distinguished the case law relied upon by the assessee. Since the assessee failed to produce any evidence with regard to the remittance made to Singapore or the relevant income is taxable on accrual basis in the source country, the CIT(A) held that in the instant case, Article 24 of DTAA was applicable and accordingly confirmed the demand raised by the AO and dismissed the appeal of the assessee.

Before the Tribunal, the assessee contended that since the income of the assessee is taxable on accrual basis with the Singapore, there was no application of Article 24 in the assessee’s case, but Article 8 was applicable, thus there was no requirement of furnishing of any evidence.

The Tribunal observed that perusal of Article 8 of Double Taxation Avoidance Agreement (DTAA) with Singapore showed that profits derived from operation of ship or international traffic shall be taxable in the contracting state. The said Article clearly showed that the profits from operation of ship or aircraft are taxable in the Contracting State. Since the assessee was non-resident and he was the owner of the ship, income was taxable in Singapore, but not in India.

The Tribunal noted that however, there was no evidence as per information filed by the assessee to show that the income representing voyage undertaken in India was admitted in the income tax return of the assessee filed in Singapore.

The Tribunal noted that the in the case law relied upon by the assessee, the Hon’ble High Court had was clarified that if the income in question is 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 the case, exemption as per Article 8 either in whole or in part would be excluded. The Hon’ble High Court observed that as per certificate issued by the Inland Revenue Authority of Singapore, it was certified that the income in question derived by Shipping company would be considered as income accrued in or derived from the business carried on in Singapore and such income therefore would be assessable in Singapore on accrual basis.

The Tribunal noted that the Hon’ble High Court had decided the issue on the basis of Inland Certificate issued by the Inland Revenue Authorities, Singapore and held that in the case of the assessee, Article 8 was applicable, but not Article 24.

The Tribunal observed that in the instant case, though the representative assessee had filed the return of income u/s 172(3), he had not furnished any evidence to show that the assessee’s income was taxed on accrual basis or filed the evidence including the income relating to voyage undertaken in India.

The Tribunal opined that the issue required further examination with regard to admission of income on accrual basis in the contracting state. Accordingly, the Tribunal remitted the matter back to the file of the AO to re-examine the issue with regard to admission of income and filing the return in the contracting state and decide the same on merits.

The Tribunal directed the assessee to file necessary information or certificate confirming that the income relating to the voyage undertaken in India, in respect of the vessel was included in the return of income filed by the assessee or to obtain the certificate from the Inland Revenue Authority that in the assessee’s case also, the shipping income is taxed on accrual basis

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