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Judgment
PER RENU JAUHRI:
The above captioned three appeals i.e., ITA No. 3602/Del/2023, IT(IT)A. No. 542/Del/2025 & ITA. No. 3601/Del/2023 are preferred by the assessee against the orders of the AO for A.Ys. 2021-22 and 2022-23.
ITA No. 3602/Del/2023 & ITA No. 3601/Del/2023, are against the Final Assessment Orders passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 18.10.2023 and 31.10.2023, respectively, pursuant to the directions of the Hon’ble Dispute Resolution Panel (DRP) vide order dated 13.09.2023 u/s 144C(5) of the Act for Assessment Year (AY.) 2021-22. In IT (IT)A No. 542/Del/2025, for A.Y. 2022-23, the assessee has preferred appeal against the Final Assessment Order passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 25.11.2024, pursuant to the directions of the Hon’ble Dispute Resolution Panel (DRP) vide order dated 11.11.2024 u/s 144C(5) of the Act for Assessment Year 2022-23.
In all these appeals, the grounds of appeals are identical, therefore, are being disposed off by a common order. ITA No. 3602/Del/2023, is being taken up as the lead case wherein the grounds of appealsraised are as under:
“1.For that the order of the Dispute Resolution Panel and consequently the order of the Assessing Officer is without jurisdiction, is contrary to law, facts and circumstances of the case and at any rate is opposed to the principles of equity, natural justice and fair play.
Benefit of DTAA between India and Singapore denied by the Assessing Officer
2.For that the Assessing Officer ought to have appreciated that the benefit of Article 8 of Double Taxation Avoidance Agreement (DTAA) between India and Singapore is available to the appellant and consequently no part of the income is taxable in India.
No Permanent Establishment in India, no attribution of profits
3.Without prejudice, the Assessing Officer failed to appreciate that since there is no Permanent Establishment in India in terms of Article 5c 5 of India-Singapore DTAA, no profits would be attributable to India operations as per the provisions of Article 7 of the said DTAA and thus no part of the income is taxable in India.
4.For that the Dispute Resolution Panel erred in not adjudicating the ground relating to applicability of Article 7 of the India-Singapore DTAA and absence of Permanent Establishment of the appellant in India.
Provisions of section 44B not invocable in the instant case
5.For that the Assessing Officer erred in determining the income of the appellant at Rs.58,74,415/- by invoking the provisions of section 44B of the Income Tax Act.
6.Without prejudice, the Assessing Officer failed to appreciate that the provisions of section 44B of the Income Tax Act can be applied only in respect of that portion of the income that is attributable to the Permanent Establishment in India.
Levy of interest/fee
7.The appellant objects to the levy of interest / fee to the tune of Rs.1,34,404/-.”
ITA No.3601/Del/2023, brief facts are that the assessee is a Singapore based company, which has leased a vessel to Bharat Petroleum Company Ltd. (BPCL) for transporting oil and oil products which has been operated for a part of the period in India & partly abroad. The assessee claimed benefit of Article 8 of the India-Singapore Double Taxation Avoidance Agreement (DTAA), with regard to receipts from BPCL. Accordingly, the assessee company filed its original return for A.Y. 2021-22 on 26.12.20221 declaring Nil income. The case was selected for scrutiny on a/c of large refund (Rs.80,52,130/-) claimed on a/c of TDS deducted by BPCL. During the year, the assessee had received an income of Rs.7,83,25,536/- from BPCL which has been claimed as exempt under Article 8 of the DTAA. The assessee is engaged in the business of chartering of ships, barges and boats etc. and ship management services. It has also submitted its Tax Residency Certificate (TRC) of Singapore before the AO. After going through the agreement with BPCL and upon further enquiries made from BPCL, ld. AO held that the vessel was used only in Indian waters instead of international waters and held that Article 8 of DTAA is not applicable to the facts of the case. He, therefore, held that in the instant case, section 44B being special provisions for computing profits and gains of shipping business in the case of non-residents is applicable and computed the profit @7.5% on total receipts of which worked out to Rs.58,74,415/-.
Against the proposed addition, the assessee filed the following objections before the DRP:
Draft order not passed in accordance with statutory provision.
Benefit of DTAA between India and Singapore denied.
No taxable profit to be apportioned to Indian operation as per Article 7 since there is no Permanent Establishment (PE) of the assessee in India as
per Article 7 of the DTAA.
Section 44B is not applicable. 4.2 After considering the submissions of the assessee, DRP issued the following
directions:
11.Income from operation of ships under the domestic law: The income of a foreign shipping company which is received or is deemed to be received in India; or accrues or arises or is deemed to accrue or arise in India is taxable in India as per the section 4 & 5 of the Act. The domestic law further provides for certain special provisions i.e. section 44B for computing profits and gains of shipping business in the case of non-residents. Section 44B reads as under:
“(Special provision for computing profits and gains of shipping business in the case of non-residents.
44B. (1) Notwithstanding anything to the contrary contained in section 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be and gains of business or profession.”
(2)The amounts referred to in sub-section(1) shall be the following, namely:-
(i)the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India; and
(ii)the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India.]
[Explanation - For the purposes of this sub-section, the amount referred to in clause (i) or clause(ii) shall include shall the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature.]”
Pursuant to the directions of DRP, the final assessment order was passed at assessed income of Rs.58,74,415/- which was taxed @40% (plus cess & surcharge) as per the provisions of Act. Aggrieved with the assessment order dated 31.10.2023, the assessee is now in appeal before the Tribunal and has raised relevant grounds which are discussed below:
Ground No. 2: Denial of Benefit of Article 8 of DTAA
Briefly stated the Ld. AO, after examining the agreement dated 20.10.2020 with BPCL and after facts and circumstances of the case held that Article 8 of DTAA is not applicable.
We have heard the rival submissions and perused the material placed on record. From the Coastal Conversion Certificate placed on record, it is seen that the Vessel “M. T. Splendour Chiltern” was converted from foreign run to coastal run vessel on 16.12.2020. Further, ld. AO after examining the agreement dated 20.10.2020 between the assessee and the BPCL and after enquiring from BPCL, held that Article 8 applied only in case of operation of ships in international traffic and held that provisions of Article 8 are not applicable in this case. We further note that the income received from BPCL for the period 16.12.2020 to 31.03.2021 only has been taxed by the ld. AO. Thus after considering the facts and circumstances of the case, in the light of Article 8 of the DTAA, we hold that the assessee was not entitled to the benefit of Article 8. Thus the claim of the assessee regarding applicability of Article 8 is hereby rejected.
Ground No. 3& 4: No PE in India/No Attribution of profits
Before us, Ld. AR has submitted that even if the benefit of Article 8 is not given, then alternatelyprovisions of Article 5 of the DTAA dealing with PE and Article 7 regarding the attribution of business profits would be applicable in the instant case. As there was no PE in India during the year under consideration, the income of the assessee would not be chargeable to tax in India.
We have heard the rival submissions and perused the material on record as well as the relevant Articles of the DTAA. We note that the assessee had raised the issue regarding there being no PE before the DRP and had claimed that since it had no PE in India in terms of Article 5 of DTAA and therefore no profits would be attributable to the Indian operation as per provisions of Article 7 of the DTAA.However, the DRP did not adjudicate on these issues as can be seen from the directions of the DRP reproduced in para 4.2 hereinbefore. Accordingly, the AO has also not considered these objections/assertions of the assessee regarding PE in his final assessment order.
In view of above facts, we deem it appropriate to restore the matter to the ld. AO to examine these issues which were raised before the DRP and pass a fresh order on merits. Thus, ground Nos. 3 & 4 are allowed for statistical purposes.
In the result, the assessee’s appeal is partly allowed for statistical purposes.
Since, the issues raised in ITA No.3602/Del/2023 are identical, the above decision will apply to this appeal also. In this case, the assessee M/s Splendor Marine Trading FZE is a company incorporated in UAE and engaged in the business of chartering of ships, barges and boats with crew and ship management services. It has submitted its tax residency certificate of UAE.
During the year, the assessee had entered into a Charter Party Agreement with BPCL for hire of trading vessel called Splendour Emerald and claimed benefit of Article 8 of India-UAE Double Taxation Avoidance Agreement (DTAA) to declare Nil income. Since the issues involved and facts and circumstances of this case are identical to these in ITA No.3601/Del/2023 in the case of Splendour Marine PTE, Ltd. decided hereinbefore, the above decision shall apply mutatis mutandis to this appeal also. Accordingly, appeal of the assessee is partly allowed for statistical purposes.
In ITA No.542/Del/2025 for A.Y. 2022-23 in the case of Splendour Marine Trading FZE, facts and issues involved are identical except that the issue regarding no PE in India was raised before the Ld. AO in this year but Ld. AO rejected the same and applied provisions of Section 44B of Act. Since, the issues involved and facts and circumstances in this appeal are similar as in the assessee’s case of earlier year decided hereinbefore in ITA No. 3602/Del/2023, the above decision will apply mutatis mutandis to this appeal also.
In the result, appeal of the assessee is party allowed for statistical purposes.
Thus, all the three appeals are partly allowed for statistical purposes.