Article 24 of the India-Singapore DTAA – Since income was taxable in Singapore on accrual basis, LOB Article could not be applied even though income was not repatriated to Singapore
Facts
The Taxpayer, a Singapore Co (FCo) owned a ship. FCo filed a tax return in India, through its representative assessee in India, in respect of freight earned from ship. Freight income of FCo was remitted to FCo’s bank account in UK.
In terms of Article 24 of India-Singapore DTAA provides that where an income is exempt from tax in a contracting state or where it is subject to beneficial rate of tax in a contracting state in terms of the DTAA and such income is subject to tax in that contracting state with reference to amount remitted to or received in the said contracting state, then the DTAA benefits would be available only with respect to amount remitted or received.
The Tax Authority contended that remittance to Singapore is a sine qua non for availing the benefits of the India- Singapore DTAA . Since the freight was remitted to UK, Tax Authority denied the benefits of DTAA.
FCo contended, freight income was taxable in Singapore on accrual basis by virtue of residence therein. This was confirmed by Singapore Tax Authority. Hence, the DTAA benefits should not be denied on freight income.
Held
Plain reading of Article 24 of the India-Singapore DTAA , indicates that provisions of Article 24 would apply only to the income which satisfies of the following two conditions
• Income should be exempt or taxed at reduced rate in source jurisdiction (i.e., India),
• Income should be taxed in residence jurisdiction (i.e., Singapore) only on receipt basis.
Scope of LOB Article should be appreciated in the background of a tax jurisdiction following territorial method of taxation. In such a case, the DTAA benefit must be confined to the amount which is actually subjected to tax in the home jurisdiction. The decision in Abacus International Pvt Ltd vs. DDIT (2013) 34 taxmann.com 21 (Mumbai – Trib.) can be distinguished since the onus is on the Taxpayer to show that income is taxable in Singapore on accrual basis, which the Taxpayer had not established in that case.
In this case, there is no dispute that the Taxpayer has offered its global income to tax in Singapore, on accrual basis, which is also confirmed by Singapore Tax Authority. Hence, Tax Authority cannot rely on the decision in case of Abacus. Accordingly, the LOB Article does not apply to the facts of the present case and DTAA benefit should be available in respect of freight income.
