Article 8 Benefit Under India–Singapore DTAA Cannot Be Curtailed Merely on Suspicion About IRAS Certificate

Background and Context

Indian shipping agents frequently claim treaty protection under the India–Singapore Double Taxation Avoidance Agreement (DTAA) on freight earned by their foreign principals operating ships in international traffic. A recurring controversy is whether Article 8 (Shipping and Air Transport) relief can be denied by invoking Article 24 (Limitation of Relief) where income is not remitted to Singapore, or where Revenue doubts the nature of taxation in Singapore.

In a recent decision involving Atlantic Shipping Pvt. Ltd. Vs ITO, the Gujarat High Court once again addressed this issue in the context of the India–Singapore DTAA and examined the effect of a certificate issued by the Inland Revenue Authority of Singapore (IRAS). The Court followed its earlier ruling in M.T. Maersk Mikage vs. DIT (International Taxation), 390 ITR 427 and clarified the limited scope of Article 24 where income is taxable in Singapore on an accrual basis.

This judgment has significant implications for:

  • Indian agents of Singapore-resident shipping enterprises
  • Application of Section 172 of the Income Tax Act 1961
  • Interpretation of Article 8 and Article 24 of the India–Singapore DTAA
  • The evidentiary value of foreign tax authority certificates in treaty interpretation

Facts of the Case

Parties and Business Model

  • The appellants were Indian companies acting as shipping agents for M/s. ST Shipping and Transport Pte. Ltd. (“ST Shipping”), a company incorporated and tax-resident in Singapore.
  • ST Shipping operated its own and chartered vessels in international traffic, including voyages to and from Indian ports.
  • During Financial Year 2011-12, various voyages were undertaken from Indian ports (including Sikka) carrying cargo for shippers/exporters, generating freight income.

Filing of Returns Under Section 172

  1. ST Shipping, through its Indian agents (the appellants), filed voyage returns under Section 172(3) of the Income Tax Act 1961 for vessels calling at Indian ports.
  2. The returns disclosed nil taxable income in India, claiming full exemption under Article 8 of the India–Singapore DTAA on the footing that profits from operation of ships in international traffic were taxable only in Singapore.

Assessing Officer’s Stand

  • The Assessing Officer (AO) sought:
    • Copies of freight invoices; and
    • Proof of remittance of freight to ST Shipping’s bank account in Singapore.
  • On scrutiny, the AO concluded that freight amounts were remitted to a bank account in London (UK), and not to Singapore.
  • Invoking Article 24 of the India–Singapore DTAA, the AO held that:
    • Since funds were not remitted to Singapore, the conditions of Article 24 were not fulfilled; and
    • The assessee could not claim exemption under Article 8.
  • Accordingly, the AO rejected the Article 8 claim and taxed the income under Section 172 of the Act.

Appellate Proceedings Before CIT(A)

Additional Evidence: IRAS Certificate

During appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessees sought to produce as additional evidence a certificate dated 09.01.2013 issued by IRAS in favour of ST Shipping. This certificate:

  • Clarified that the charter income in question was:
    • “income accruing in or derived from a business carried on in Singapore”; and
    • therefore assessable to tax in Singapore on an accrual basis.
  • Stated that the full amount of charter income was subject to tax in Singapore, not by reference to remitted amounts.
  • Concluded that Article 24.1 of the India–Singapore DTAA does not apply, and that Article 8 governs the situation.

CIT(A)’s Decision

The CIT(A):

  • Refused to admit the IRAS certificate as additional evidence, citing failure of the assessee to justify why it could not be filed at the assessment stage.
  • On merits, upheld the AO’s conclusion that Article 24 applied because:
    • Freight was remitted to London, not Singapore; and
    • The assessee did not prove that the funds were ever received in Singapore.
  • Held that exemption under Article 8 was unavailable in view of the language of Article 24.

Tribunal’s Order and Remand

Assessee’s Arguments Before ITAT

The assessees contended that:

  • Article 8 independently granted exclusive taxing rights to Singapore for profits from operation of ships in international traffic.
  • Article 24 is a limiting provision and applies only where its twin conditions are satisfied:
    1. The DTAA provides for exemption/reduced rate in one Contracting State; and
    2. Under the laws of the other Contracting State, such income is taxable by reference to the amount remitted or received, rather than the full amount.
  • Since the IRAS certificate confirmed that the income was taxable in Singapore on an accrual basis, Condition No. 2 of Article 24 was not satisfied; therefore Article 24 could not override Article 8.
  • The Gujarat High Court, in **M.T.