ISS SHIPPING INDIA PVT. LTD., (AS AGENT FOR MAERSK TANKERS SINGAPORE PTE. LTD., SINGAPORE),NAVI MUMBAI vs. DY. COMMR. OF INCOME TAX ( INTERNATIONAL TAXATION),, RAJKOT

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT Before: Shri Rajpal Yadav, Judicial Member and Shri Amarjit Singh, Accountant Member [Conducted through E-Court at Ahmedabad] ITA Nos. 429 & 430/Rjt/2018 Assessment Year 2017-18

ISS Shipping India Pvt. The Dy. CIT, Ltd. (As Agent for Maersk (International Taxation), Room No. 312, 3rd Floor, Tankers Singapore Pte. Vs Ltd. Singapore) Unit No. Amruta Estate, M.G. 101, 1st Floor, Reliable Road, Near Girnar Plaza, Plot No. K-10, Cinema, Rajkot Thane Belapur Road, (Respondent) Airoli Navi Mumbai -400002 PAN: AAACS6213Q (Appellant)

Revenue by: Shri Jitendra Kumar, CIT-D.R. Assessee by: Shri Porus Kaka, A.R. Date of hearing : 28-09-2019 Date of pronouncement : 21-11-2019 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

These two appeals filed by assessee for A.Y. 2017-18, arise from order of the CIT(A)-13, Ahmedabad dated 29-08-2018, in proceedings under section 172(4) of the Income Tax Act, 1961; in short “the Act”.

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I.T.A Nos. 429 & 430/Rjt/2018 A.Y. 2017-18 Page No 3 ISS Shipping India Pvt. Ltd. vs. Dy. CIT

Progress 9 MT Maersk Katalin 1 4,03,64,849 10 MT Maersk Pearl 1 11,11,17,500 11 MT Maersk 1 5,60,60,747 Messina 12 MT Maersk Pelican 1 12,81,37,500 Total 106,37,40,738

On the perusal of the above information, the assessing officer was of the view that Article 24 of the DTAT between India and Singapore is applicable since shipping income has been directly remitted to Singapore. The relevant part of the article 24 of the DTAA agreement between India and Singapore is reproduced as under:- “1. Where this Agreement provides (with or without oilier conditions) thai income from sources in a Contracting State shall be exempt from tax, or taxed tit a reduced rate in that Contracting State and under the laws in force in the other Contracting State they said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under this Agreement in the first-mentioned Contracting State shall apply to so much of the income as is remitted to or received in that other Contracting State. 2. However, this limitation does not apply to income derived by the Government of a Contracting State or any person approved by (lie competent authority of that State for the purpose of this paragraph. The term "Government" includes its agencies and statutory bodies."

The assessing officer has observed from the above referred article 24 of DTAA between India and Singapore that one of the primary objectives of DTAA is “Avoidance of Double Taxation and Prevention of fiscal evasion”. The assessing officer observed that if any income becomes non-taxable in both the countries, it would defeat very purpose of the object of the treaty and limitation of benefit clause is entered into the treaties to avoid misuse of the treaty so that an enterprise does not have the benefit of double non- taxation i.e. cases where the taxpayer neither pay the tax in the source country as it is to be taxable in the residence state and the residence state does not tax it due to some reasons. Singapore follows territorial system of taxation where foreign source income is taxable only if the same is received

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in Singapore, therefore, if the money is not remitted to Singapore, the same is not taxable and hence it results in double non-taxation which cannot be the objective of any treaty. The assessing officer was of the view that Article 24 of the DTAA has universal application to all the articles of the treaty including article 8 of the DTAA between India and Singapore. The assessing officer has also observed that since income from shipping forms part and parcel of the treaty, the same is also covered as per article 24 of the DTAA and therefore, the income having source in India would be exempt only if it were subject to tax in Singapore. However, as per the provisions of section 13 of the Singapore Income Tax freight receipts are not actually subjected to tax in Singapore and thus the claim of the assessee of exemption from freight receipt is hit by article 24 of the DTAA. The assessing officer has stated that Article 24 of the DTAA in the agreement between India and Singapore states explicitly that benefit of exemption from tax in a contracting state shall be available only subject to the funds being remitted in the other contract states as well subject to tax. The assessing officer has also referred provision of section 10 of the Income Tax Act Singapore as charging section and the relevant part of the section is reproduced as under:- “Charge of income tax: 10. (1) Income tax shall, subject to the provisions of this Act, be payable at the rate or rates specified hereinafter for each year of assessment upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of- (a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised;…”

From the provision of above cited section 10 of Income Tax Act Singapore, , the assessing officer has observed that it is clear that income chargeable to income tax in Singapore should either be accrued or derived in Singapore or it should be received from outside Singapore. Therefore, the assessing officer has issued show cause notice dated 18th December, 2017 for 16

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voyages performed by the various vessels listed as above in this order. Vide submission dated 22nd December, 2017, the assessee (agent) has contended that article 24 of the DTAA between India and Singapore was not applicable in the case of these vessels on the following grounds:- “(i) The Gujarat High Court has decided the issue in favour of the beneficiary i.n. M/s Maersk Tankers I Singapore Pte, Ltd., Singapore in the case of MT Maersk Mikage vs. DIT(lnternational Taxation! I (72 taxmann.com 359) wherein it was held that the shipping income was not taxable in Singapore on remittance basis but on accrual basis, thus rendering Article 24 inapplicable. While deciding the issue, the Hon'ble Gujarat High Court has relied on the confirmation issued by the Singapore Tax Authority i.e. IRAS. (ii) Order of the Jurisdictions! High Court being a binding precedent ought to be followed by all subordinate authorities including assessing officers. Reliance is placed on the following decisions wherein this principle has been upheld: (a) G.M. Mittul Stainless Steel Private Limited (130 Taxman 67)(SC) (b) East India Commercial Co. Ltd. vs Collector of Customs, AIR 1962 SC 180.1 (SC) (c) Baradhuiita Misltra vs. Bhimsen Dixit, AIR 1972 SC 2466 (SC) (d) Devi Karunariamman Educational Trust Vs OCIT(233 Taxman 420)(Mad) (e) CIT vs. Thana Electricity Supply Limited (206 ITR 727)(Bom) (iii) As per Article 8 of the DTAA between India and Singapore shipping profits taxable only in the state of tax residency. Thus, it is clear that taxing rights are given exclusively to the state of residence, In the case of Singapore companies like M/s Maersk Tankers Singapore Pte, Ltd, the exclusive rights to tax shipping profits lies with the Singapore Tax Authority. (iv) The conditions mentioned in Article 24 of the DTAA between India and Singapore are not met in the case of the 16 voyages (mentioned at exhibit-A) undertaken by the various vessels, (v) The provisions of Article 24 are not attracted to income governed by Article 8 of the India Singapore DTAA. (vi) Income exempt from tax cannot be interpreted as income taxable only in one state. The provisions of the DTAA between India and Singapore contained in Articles 20, 21 and 22 are specific as to the relevance of the term exempt from tax. it is submitted that this claim has been upheld by the Hon'ble ITAT, Mumbai in (he case of APL Co Pte Ltd v. CIT [(2017) 79 taxmann.com 240] wherein on similar facts the Hon'ble Tribunal has held as under:. "12,,,. An enterprise which is tux-resident of Singapore is liable for taxation on its stripping income only in Singapore and not in India. When India does not have tiny taxation right on n shipping income of non-resident entity, which is exclusive domain of the resident state, there is no question of any kind of exemption or reduce rate of taxation in the source state, It only envisages territorial and jurisdictional rights for taxing the income find India has no jurisdiction for any taxing right which are governed by Article 8. There is no stipulation about exemption under Article 8 of the shipping income which has been specifically provided in some of the Articles like Article 20, 21 & 22. Hence, it cannot be reckoned that shipping income earned from India is to be treated as exempt from tax or taxed at reduced rate, which is a condition precedent for applicability of Article 24, albeit India at the threshold does not have the jurisdiction to tax the shipping income of the non-resident entity. Thus, the condition of Article 24 is not satisfied in the present case from this angle also." (vii) Only such types of incomes, which are specifically exempt from tax or taxed at reduced rates as per the DTAA between India and Singapore are covered by Article 24 of the agreement. This has been upheld by the Hon'ble ITAT, Mumbai in the case of SET Satellite Singapore Pte. Ltd., vs. ADIT in M.A. No, S20/fV1um/2010 dated 11/02/2011. (viii) Irrespective of remittances made, shipping freight income is taxable In Singapore on the basis of accrual and the entire freight income is liable to tax in Singapore. Only foreign sourced income is taxed on remittance basis in Singapore as per Section 10 of the Singapore income Tax Act while income which is construed to be accruing in or derived from Singapore is taxable even

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when it is not received in Singapore, The phrase "accruing in or derived from Singapore" is not defined in Singapore Tax Act but the term derive was held to have the same meaning in C!R vs. Kirk [1900] AC 588, In practice, the Inland Revenue Authority Singapore (IRAS) applies the 'operation test' to determine whether the income is derived in Singapore or not. This has been acknowledged by the IRAS in their 'income Tax Guide' to E-Commerce published on 23rd February 2001 as under: "The brood principle of "operation test" is used to determine whether the income is derived in Singapore so as to be liable to tax in Singapore. If the business operations are carried out in Singapore, then income derived from these operations is usually said to be sourced in Singapore and thus liable to tax here. Whether business operations are carried out In Singapore Is largely a question of fact and degree." The e-Tax guide published by the IRAS on 31st May 2013 detailing the tax exemption for (ix) certain foreign sourced income provides guidance on what is foreign-sourced income. As per para 3 of the e-Tax guide, foreign income is income that does not arise from a trade or business carried on in Singapore. (x) The IRAS e-Tax guide for tax exemption for foreign sourced income (second edition) at para 6 provides for scope of specified foreign income, As per para 6.3 service income refers to income from professional, technical, consultancy or other services provided by a specified resident taxpayer in the course of its trade, profession or business. Such service income is considered foreign-sourced If the services are provided through a fixed place of operation in a foreign country. The shipping business of M/s Maersk Jankers Singapore Pte. Ltd, is not carried out through any fixed place of operation in India and cannot be construed as Singapore sourced income. The IRAS vide letter dated 6ih August 2013 (Exhibit- D) has confirmed that Article 24 of (xi) the DTAA between India and Singapore does not apply in the case of income earned fay Maersk Tankers Singapore Pte, Ltd. As per this certificate ihti IRAS has confirmed that the freight income derived by the beneficiary i.e, M/s Maersk Tankers Singapore Pte. Ltd., Singapore is income accruing in or derived from a business carried out in Singapore. The IRAS vide letter dated 8th November 2017 (exhibit Ej has certified that freight income (xii) earned by M/s Maersk Tankers Singapore Pte. Ltd., Singapore is Singapore sourced income, physical flow of funds is not relevant and hence Article 24 of the DTAA between India and Singapore shall not be applicable. The assessee has stated that shipping income is liable to tax in Singapore, subject to conditions prescribed under sections 13A to 13F of the Singapore Income Tax Act. The basic exemption clauses of Singapore income Tax Act for shipping income are reproduced hereunder: "Exemption of shipping profit 13 A. -(l)There shall he exempt from tax the Income of a shipping enterprise derived of deemed to be derived from the operation of Singapore .ships or foreign ships are hereinafter provided. (1A) Such exemption in respect of Singapore ships shall he backdated to the date of provisional registration if the owner has subsequently obtained a permanent certificate of registry in respect of the ship, (IB) For the year of assessment 2009 find subsequent years of assessment, the income of a shipping enterprise referred to in this section shall include income derived from foreign exchange and risk management activities which are carried out in connection with and incidental to the operation by the shipping enterprise of Singapore ships. ,,,." “Exemption of International Shipping Profits: 13F -(1) Subject to subsections (I A) mid (2), (here shall he exempt front tax the income of an approved international shipping enterprise derived- fa) on or after V April 1991 from ...... (b) for the year of assessment ZOOS and subsequent years of assessment front....... (c)for tile year of assessment 2003 and subsequent years of assessment from ,.,., (IA) Unless the Minister or such person ns lie may appoint permits in a particular case, subsection (l)(e) does not apply the (2) The exemption for each approved international shipping enterprise-

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(a) Shall be for such period not exceeding 10 yean front She date of its approval as the Minister of such person as he may appoint may specify, except that the Minister or such person ax lie may appoint may extend the period so specified for such further periods, not exceeding 10 years at a time, as he thinks fit; or (b) If, at the time of its approval, the company does mil, in ilia opinion of the Minister or such person as he may appoint, satisfy such qualifying conditions as the Minister or person may determine for the purposes of paragraph (a), shall be far such period not exceeding 5 years from the date of its approval as the Minister or person may specify ……………………” (xiv) The assesses has quoted the following decisions in the submission made on 22/12/2017 to validate the claim that Article 24 is not applicable in its case: (a) Case of M.T, Maersk Mikage vs. DIT (international Taxation) (72 taxmann.com 359} before the Hon'ble Gujarat High Court. (b) Case of Alabra Shipping Pte. Ltd (62 taxmarm.com 185} before the Hon'ble ITAT, Rajkot. (c) Case of APL Co. Pte. Ltd, [(2017) 78 taxmann.com 240] before the Hon'ble ITAT, Mumbai. (d) Case of Far Shipping (Singapore) Pte. Ltd. vs. 170 [{2017) 84 taxmann.com 297] before the Hon'ble ITAT, Hyderabad. (e) Case of Citicorp Investment Bank (Singapore) Ltd, vs. DCIT(IT) [(2017) 81 taxmann.com 368] before the Hon'ble ITAT, Mumbai.”

The assessing officer has further stated that in a recent decision dated 28th Nov, 2017, the Hon’ble ITAT, Rajkot has kept the issue open in the case of B.P. Singapore Pte Ltd. Gandhidham vs. ITO (International Taxation), Gandhidham by remitting the matter to the file of the ld. CIT(A) for fresh adjudication de-novo. The assessing officer has not accepted the submission of the assessee on the following reasons:- “(a) The first condition is that if the agreement provides that the freight income from sources in a Contracting State (India) shall be exempt from tax or taxed at reduced rate in the Contracting state (India) then limitation to relief clause is applicable, In this case income tax is exempted in India as per the provisions of the DTAA with Singapore, Hence, first condition is applicable in this case. (b) (1) The second condition is that if under the laws In force in the other Contracting state (Singapore) the said income is subject to tax by reference to the amount thereof which is remitted to or received (in Singapore) and not by reference to the full amount then the limitation to relief clause is applicable. (2) Two important terms in this condition are "subject to tax" and "by reference to the amount remitted/received and not by reference to full amount". (3) The first term "subject to tax" was interpreted in the case of Paul Weiser v HMRC (TC02178) in United Kingdom, the first tier tribunal considered the interpretation of the double tax treaty between the UK and Israel and in particular the meaning of the phrase "subject to tax", Article XI of the UK-Israel double tax treaty provides that UK sourced pensions will not be subject to UK tax where they are received by a resident of Israel and subject to Israel tax in respect thereof. However, under Israeli tax rules, UK pension income is excluded from tax in Israel during the first 10 years of residence. HM Revenue and Customs therefore argued that because the pension income was exempt from tax In Israel It could not be said to subject to tax. On the other hand, the taxpayer claimed that he Is covered by tax regime in Israel by virtue of his living there even though Israel does not levy tax in UK pension income because of the exemption, (4) Following the decision in Bayflne UK v HMRC (STS 717), the tribunal found that the double tax treaty should be interpreted using a purposive rather that a literal approach. The primary

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purpose of the double tax treaty is to eliminate double tax and prevent the avoidance of tax, the purpose is not therefore to enable the double non taxation of income, The case therefore centered around the meaning of the phrase "subject to tax" and the difference in international tax treaties between this phrase and the phrase "liable to tax", The first tier tribunal decided the case In favour of HM Revenue and Customs such that relief was not available under the UK-Israel tax treaty to exempt the pension from UK tax because the pension was not subjected to tax in Israel. (5) The second term used in condition referred at (v)(b) above is "by reference to the amount remitted/received and not by reference to full amount". On plain reading it is clear that the amount should be subjected to tax by reference to amount remitted/received and not by reference to full amount. First, we take the case where the amount is subject to tax with reference to the full amount. In Singapore shipping income is exempt from tax under the provisions of sections 13A and 13F (refer para 7(xiv) above). (6) Hence, it Is clear that the amount cannot be claimed to have been subjected to tax with reference to the full amount. In the second case where the amount is subject to tax by reference to amount remitted/received in Singapore, it is dear that the amount has not been remitted in this case from India to Singapore. (7) Therefore, it is clear that for the second condition the term "subject to tax" is essential in this case the shipping profits received from voyages undertaken by the vessel M.T. MaerskTianjin have not been subject to tax in Singapore, (v) Provisions of Article 24 override the provision of Article 8 of the DTAA between India and Singapore as they limit the relief in cases of double non-taxation of such income, (vi) In this case "income exempt from tax" has not been interpreted as "income taxable only in one state". However, the conditions mentioned in the limitation of relief clause under Article 24 make it essential for actual remittance of the amount and also that the amount should be subjected to tax in Singapore. (vii) The shipping income in question is subject to tax exemption in India on the basis of DTAA agreement with Singapore. (viii) So far as Shipping freight income is considered for Singapore tax purposes, the most important criteria in cases where remittances have not been made directly to Singapore is that such income should actually be subjected to tax in Singapore. As per section 9(1)(1) of the Income Tax Act in India “ all income accruing or arsing, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any assets or source of income in India, or through the transfer of capital asset situate in India’ shall be deemed to accrue or arise in India, For Income Tax purposes in India, an income which is deemed to accrue or arise in India cannot be deemed to accrue or arise in Singapore, Hence, the claim of the assessee to treat the shipping income as accrued or arisen in Singapore is not acceptable. (ix) In this case if the shipping income is not treated as foreign income then the income accrued in or derived from Singapore operations should be subjected to tax in cases where remittances have not been made directly to Singapore, Further, in this case it is clear that the source of freight income is India as the activities have been carried out In India. Therefore, the stand taken by the Singapore Tax Authority that the income is to be taxed on accrual basis In Singapore is an anomaly due to the fact that the income is actually deemed to accrue or arise in India as per the Income Tax Act ot india, The only redeeming factor is the DTAA between the two countries to avoid double taxation of Income , but not double avoidance as is being made out here. (x) In this case it is clear that the shipping business is handled by M/s Maersk Tankers Singapore Pte. Ltd., Singapore, an entity that is tax resident of Singapore. (xi) The confirmation letter of the IRAS dated 6th August, 2013 is inconclusive to the extent that the taxability of such income has not been explained in detail with respect to the provisions of Article 24 of the DTAA between India and Singapore, In another case of ST Shipping vide correspondence dated 09/01/2013 the Singapore Tax Authority i.e. IRAS has opined that in view of the facts in that case, Article 24.1 of the DTAA would not be applicable and consequently Article 8 would apply. Hence, it is clear that the Setter issued by the IRAS is to ba treated as an opinion rather than a mandate, which is binding to the particular beneficiary for that tax year,

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(xii) The latest confirmation letter of the IRAS dated 8!h November, 2017 is misleading to the extent that it does not clarify that the shipping income is not subjected to tax in Singapore because of the exemption granted to shipping companies under sections 13A or 13F of the Singapore Income Tax Act. If the shipping income is liable to tax on accrual basis in Singapore, then the same cannot be said to have accrued or arisen from the source state, which is India. This is a serious contradiction to the provision of sub-section 1(i) of section 9 of the income Tax Act of India. (xiii) This point has been covered above at (xii). (xiv) The decisions quoted by the assessee have been taken into consideration, but the same have not been accepted by the Department. The Department has filed SLP before the Hon'ble Supreme Court in the case of M.T. Maersk Mikage v, OIT(lnternational Taxation) [case No. 9283 of 2017]”

In the light of the above observation, the assessing officer has stated that the shipping income for voyages performed by the following vessels Sr. No. Name of vessel Sailing Date S. No. Name of vessel Sailing Date 1 MT Maersk Producer 29/09/2016 9 MT Maersk 20/10/2016 2 MT Maersk Tangier 19/11/2016 10 MT Maersk 01/12/2016 3 MT Maersk Producer 14/03/2017 11 MT Maersk 30/01/2017 4 MT Maersk Misaki 30/09/2016 12 MT Maersk 22/08/2016 5 MT Maersk Piper 05/12/2016 13 MT Maersk 25/07/2016 6 MT Maersk Teesport 09/09/2016 14 MT Maersk 17/07/2016 7 MT Maersk Princess 28/02/2017 15 MT Maersk 02/09/2016 8 MT Maersk Kiera 06/02/2017 16 MT Maersk 29/06/2016

were not qualified for tax exemption in India under the provisions of DTAA between India and Singapore, therefore relief claimed by the assessee under DTAA between India and Singapore was withdrawn even through the shipping receipts were remitted directly to Singapore.

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The context in which the term 'exempt from tax is used in Article 24 of the treaty is that there should be limitation of relief to be derived from tax treaty. Therefore, if an income is to be granted an exclusion from taxable income in one of the contracting state, such an exclusion must depend on its status of taxability in the other contracting stale. The context in which expression 'exempt from tax' is set out in article 24, essentially implies that the treaty benefit of non-taxation of an income, or its being taxed at a lower rate, in a contracting state depends on the status of taxability in another contracting state. The purpose of the LOB clause is very clear and the same was brought in to prevent abuse of tax treaty or treaty shopping. Therefore, the provision of the LOB clause in India Singapore tax treaty was to prevent double non-taxation of any income. A clear objective of the India Singapore tax treaty is that if the income us actually exempt from tax in the residence state and is not: subjected to tax, treaty protection cannot be claimed the other contracting state. Avoidance of double non-taxation is a clear objective of Article 24 of India Singapore tax treaty. Therefore, the contention of the appellant that freight receipts from. India cannot be termed as exempt from tax' in India, is contrary to the scheme of the India Singapore tax treaty. While assigning meaning to a term employed in the tax treaty, one must not lose sight of article 3(2) which gives primacy to the context in which the term is used. Elaborating upon this principle, the Hon'ble Tribunal, in the case of Hindalco Industries Limited Vs ACIT [(2005) 94 ITD 242 (Mum)] in paragraph 18 thereof, had observed that : "... the purpose of the relevant provision in the tax treaty is indeed one of the relevant considerations in deciding the contextual meaning. Second, even if it is debatable as to whether contextual meaning of a term has precedence over the domestic tax law meaning of that term, it is also certainly not anybody's case that domestic law meaning of a term will have precedence over the contextual meaning of that term; the dispute is only with regard to whether an interpretation seeking adoption of contextual meaning, or treaty meaning as learned authors put it, has to onus to demonstrate that such a meaning must be adopted in the present context". The Hon'ble Rajkot Tribunal in the case of BP Singapore vs. ITO (ITA 409/Rjt/2016) has observed: "As a result of these factual aspects coming to light, there are some interesting legal propositions have also come to the centre stage. It is an aspect to be considered whether even if the income is actually exempt from tax in the residence jurisdiction, given the unambiguous thrust of the treaty on income being subjected to tax in one contracting state to be able to claim treaty protection in the other contracting state, and avoidance of double non-taxation is a clear objective of the Indo Singapore tax treaty, such an exempt income will also be liable to get treaty protection in the source state.. even though this situation has arisen due to their evasive and not so transparent conduct." Article 24 of tax treaty makes it clear that what has not actually suffered tax in one contracting state cannot be allowed treaty benefit in the: other contracting state. Article 24 is an anti-abuse provision brought in to curb abuse of tax treaty in such situations only. A tax treaty is to be interpreted in 'good faith' in accordance with the ordinary meaning given to the terms of the treaty in their context in light of its objects and purpose. If particular words and phrases in a treaty are doubtful, their construction should be governed by the general object of the treaty and by the context. The 'purpose' is not the same as the subjective intention of Contracting States. It refers to the goals of the treaty as reflected objectively by the treaty as a whole. An interpretation should be achieving the treaty objectives of (a) avoidance of double taxation and (b) prevention of double non-taxation. The Appellant has admitted that no tax has been paid in Singapore, the Resident State, on the freight income earned by the Principal, Maersk Tankers Singapore Pte. Ltd.(MTS) from the voyages performed in India, the Source State, and the AR is attempting to not pay tax in India also, the source state, by invoking provisions of Article 8 of the Tax treaty. It is for this very situation that anti-abuse provision has been brought in tax treaty to curb abuse of tax treaty provisions and to prevent treaty shopping. As Tax treaty are meant to avoid Double

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taxation of an income, similarly anti abuse provisions are to prevent double non -taxation of income, A literal or legalistic interpretation has to be avoided if that could defeat the basic object of a treaty. The objective of the LOR clause: of India Singapore tax treaty is avoidance of double non-taxation. Any different interpretation would lead to an incongruous result. The contention of the Appellant that only income covered by article 20, 21 and 22 can be said to be exempt in the source state because the expression 'ex.em.pt from tax' is used therein, is plainly contrary to the context in which expression 'exempt from, tax.1 has been used in Article 24 It is the operatingresultand not the literal meaning which is relevant in the present context. In view of the contextual requirements, such aninterpretation of the term 'exempt from tax needs to be discarded in the present context. Exemption under article 20, 21 and 22 of Indo Singapore tax treaty in the source state, are conditional exemptions subject to the riders. In the present context, the operating result of Article 8 is that an income is liable to tax in the resident state but is exempt from tax in the residence state and therefore provisions of Article 24, 'Limitation of Relief Clause, is invoked and the income is subject to tax in the source state. The AR has further, relied upon Section 10(l)(a) of the Singapore Income Tax Act (SITA) which provides that tax shall be payable upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of gains or profits from any trade, business, profession or vocation, The AR has made a failed attempt to distinguish income 'accrued or derived' from the term 'received. The AR has very conveniently ignored the fact that the term used in the treaty is 'received or remitted and the term 'remitted' finds no mention in Singapore Income Tax Act (SITA). Appellant talks about taxation of accrual basis under section 10(1) of the Singapore Income Tax Act, without any comments on actual taxability of the impugned income in Singapore, The appellant has relied upon the letter issued by the Inland Revenue Authority of Singapore dated 8 November 2017 in the assessment order passed under section 172(4) of the IT Act where in it has been confirmed in the said letter that freight, income from the subject vessels shall be taxable in Singapore on an arising or accrual basis regardless of whether it is remitted to or received in Singapore and therefore Article 24 would not be applicable. What this letter or arguments miss out is the vital fact that the said income was never actually taxed in Singapore because of a specific exemption provision, It has not been disputed that, because of the appellant being fiscally domiciled in Singapore, the said income was 'liable to tax' but then 'liable to tax1 is not the same thing as 'subject to tax1. Elaborating upon important difference between the scope of these two impressions, Hon'ble Authority for Advance Ruling, in the case of General Electric Pension Trust In Re [(2006) 280 ITR 425 (AAR)], has observed that, "It is worth pointing out that the phrase liable to tax' in para 1 and the phrase 'subject to tax' in proviso {b) are not synonymous. If both were to be read as synonymous, proviso (b) would become otiose". There cannot be any dispute on this proposition that 'liable to tax' is not the same thing as 'subject to tax', A 'holistic approach' should be adopted for interpreting a treaty considering its history, context, object and purpose. The treaties are not to be taken as words of statutes and are to be interpreted under the common parlance meaning. While interpreting a tax treaty, its statutory context and purpose have to be looked into. Terms and conditions in a treaty should be construed in the 'context' in which they have been incorporated. The interpretation of tax treaties must depend upon the 'context'. The words in a treaty, are to be given a general meaning. When a treaty did not define a term contained therein, and when the context of the treaty so required, it could be given a meaning different from the domestic law meaning of that term. x The appellant has relied upon several judicial precedents. However, it has been established that the relief granted in the judicial precedents were based on an erroneous impression of the fact regarding actual taxability, in Singapore, of the freight income from

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voyages performed in India, particularly as the income was actually exempt from tax in Singapore as well. As a matter of fact, when the issue regarding non-taxability of this income in Singapore was raised before Hon'ble jurisdictional High Court in the case of MT Mersek Mikage, the Hon'ble Court specifically left this issue open to be decided in an appropriate case. All along, shipping companies gave an impression that the freight income received from voyages performed in India has been subjected to tax in Singapore. In the instant case also, the AR has contended that the appellant is subject to tax on income on accrual basis. But the factual position is that the appellant has availed exemption under section 13F of the Singapore's Income Tax Act, and, to that extent, the freight income from voyages performed in India is riot actually subjected to tax in Singapore even though it was liable to be taxed there by the virtue of residence of the appellant. The AR of the appellant submitted that a mere exemption of income in Singapore does not take that income out of the ambit of income liable to be taxed in Singapore on accrual basis, and it will be eligible for treaty benefits nevertheless. The contention of the appellant that income taxable on accrual basis in Singapore is not subject to provisions of Article 24 of the treaty is a self-serving argument. Article 24 is an anti abuse provisions in the tax treaty with emphasis on 'subject to tax1 to avoid double non-taxation. As regards Appellant's reliance, upon the judicial precedents in the cases of AzadiBachrioAndolan, Vcnkatesh Karrier and Emirate Shipping Lines, in these cases, expression used is 'liable to tax1. These DTAAs are different from India Singapore DTAA as the expression used in the India Singapore DTAA is 'subject to tax' and the objective is clear and unambiguous, and Article 24 leaves no doubt about the underlying thrust of the prevention of double non taxation. Hon'ble Rajkot Tribunal in the case of BP Singapore vs. ITO (ITA 4O9/Rjt/2016) has elaborated as to what is the scope of'subject; to tax'. "we find guidance from UK's HMRC International Manual (https://www. gov. uk/ hm.rc-internal-manua.ls/ international-manual/ intm 162090) which, inter alia, states that" It should be noted that the term, subject to tax is different from being 'liable to tax'. 'Liable to tax' means that the customer only needs to be within the general scope of tax in the UK........ On the other hand, 'subject to tax' means that the relevant income has to be actually taxable and the customer cannot be exempt from tax on that income." Coming to the facts of the instant case, the voyages remittances of shipping freight income, in the case of the appellant, have been made in the following manner: Name of vessel Number of Freight/ Shipping Details of remittance voyages Income (in Rs.) 1 MT Maersk Producer 2 12,16,08,984 The funds remitted into the 2 MT Maersk Tangier 1 1,24,05,600 account of the bnenefidary I.e. "MAERSK TANKEHS MT Maersk Misakl SINGAPORE PTE LTD." at 3 1 3,35,27,716 account maintained 4 MT Maersk Piper 1 4,68,78,299 with the The Hongkong and 5 MT Maersk Teesport 1 1,21,68,000 Shanghai Banking 6 MT Maersk Princess 3 26,96,32,792^ Corporation Limitd, 21 Collyer Quay ft 02-00 HSBC Building, Singapore 7 MT Maersk Kiera 1 4,03,04,065 MT Maersk Progress 1

I.T.A Nos. 429 & 430/Rjt/2018 A.Y. 2017-18 Page No 13 ISS Shipping India Pvt. Ltd. vs. Dy. CIT

8 19,15.34,687

9 MTMaersk Kata/in 1 4,03,64,849 10 MT Maersk Pearl 1 11,11,17,500 MT Maersk Messina 11 50,60,747 12 MT Maersk Pelican 12,81,37,500 Total 106,37,0738

The benefit of DTAA between India and Singapore is governed by mainly Article 8 & 24, with Article 24 being the limitation of relief clause. In the above 16 voyages, the remittance has not been subjected to tax in Singapore and therefore Article 24 of the DTAA comes directly into play, Article 24 of the DTAA agreement between India and Singapore is reproduced below: LIMITATION OF RELIEF 1. Where this Agreement provides (with or without other conditions) that income from sources in a Contracting State shall be exempt from tax, or taxed at a reduced rate in that Contracting State and under the laws in force in the other Contracting State the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof then the exemption or reduction of tax to be allowed under this Agreement in the first-mentioned Contracting State shall apply to so much of the income as is remitted to or received in that other Contracting State,' In the case of Vessel 'MT Maersk Tianjin1 it is clear that the freight income is liable to tax but not subjected to tax in Singapore. Therefore, the freight income is not subjected to tax in Singapore by reference to the amount which is actually remitted. In the case of MT Maersk Mihage vs. DITflnternational Taxation) [2016] 72 toxmann.com 359 (Gujarat), the Honorable Gujarat High Court left the issue open on the issue of exemption of freight income on the basis of payment of taxes in Singapore by observing as under: ... "Before closing, we may briefly touch on one more aspect sought to be raised by the Revenue viz. of the actual tax being paid by the assessee on such income at Singapore. On the ground that such income is exempt from payment of tax, the Revenue desired to impose tax in India...... 22. ..... It is a ground sought to be raised for the first time before us by the Revenue, for which, neither full factual evidence, nor legal foundation is laid. We leave such an issue open to be decided in the appropriate case. " Further, in a recent decision dated 28th November, 2017in the case of BP Singapore Pte Ltd, Gandhidham vs. Income Tax Officer (International Taxation), Gandhidham (ITA No.409/Rjt/2Q15), the Hon'ble 1TAT, Rajkot has kept the issue -alive: by remitting the matter to Lite file of the CIT(A) for fresh adjudication de novo. The relevant portion of the judgment is reproduced as under: "6. It is pointed out in these judicial precedents the assesses has all along given the impression that the income in question has been taxed in Singapore and evidence in support of this proposition were also filed, and yet, as it has now come out in open, no taxes were actually paid in Singapore either. The assessee has now accepted that the income in question was, as a result of an incentive provision in Singapore law, not taxable in Singapore. When assessee himself accepts that the income in question was exempt from tax in Singapore, it cannot be said to be have been subjected to tax in Singapore. These evidences, at the minimum, were misleading and aimed at creating a wrong impression about the Singaporean taxability of income in question. He points

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out that it is for the first time, and as a result of specific questions by the bench, that the fact of this income being exempt from tax in Singapore has come to the light now Thus, it is noted that in the instant case, letters from IRAS give an impression that the freight income received from voyages performed in India has been subjected to tax in Singapore, but the factual position is that appellant has availed exemption under section 13F of the Singapore's Income Tax Act, and, to that extent, the freight income has not actually been taxed in Singapore, even though as per Article 8 of the DTAA between India and Singapore shipping profits are liable to tax in the state of tax residency. Undoubtedly, by the virtue of the appellant being fiscally domiciled in Singapore, the said income was 'liable to tax.' in the state of tax residency but then 'liable to tax' is not the same thing as 'subject to tax'. The confirmation letter of (he IRAS dated 8th November, 2017, relied, upon by the appellant, is misleading to the. extent that it does not mention that the shipping income is not subjected to tax in Singapore because of the exemption granted to shipping companies under sections 13A or 1.3F of the Singapore Income Tax Act. If the shipping income is liable to tax on accrual basis in Singapore, then the same cannot be said to have accrued or arisen from the source state, which is India. As per section 9(l)(i) of the Income Tax Act in India "all income accruing or arising whether directly or indirectly through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in, India, or through the transfer of a capital asset situate in India" shall be deemed to accrue or arise in India". Similarly, for Income Tax purposes in India, as per Section 172(2) of the Act: "amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage." An income, which is deemed to accrue or arise in India cannot be deemed to accrue or arise in Singapore. Hence, the claim of the assessee to treat the shipping income as accrued or arisen in Singapore is in serious contradiction to the provision of Section 172(2} of the Income Tax Act of India and Section 9 of the Act. Further, in this case, it is clear that the freight income earned by the Principal, Maersk Tankers Singapore Pte. Ltd.(MTS) from the voyages performed in India is Sourced in India under section 172 of the Income-tax Act, 1961. Therefore, the stand taken by the Appellant that, the income is taxable on accrual basis in. Singapore is an anomaly due to the fact that the income is deemed to accrue in India as per section 172(2) as well as Section 9(1) of the Income Tax Act of India. DTAA between the two countries to avoid double taxation of the same Income, but not double avoidance of tax us is being made out. in the instant case. A tax treaty is required to be interpreted as a whole, which, essentially implies that the various provisions of the treaty are required to be construed in harmony with each other and in harmony with domestic laws of both contracting States. A different interpretation could lead to an incongruous result. The undefined term in a tax treaty is to be given a general meaning. When a treaty did not define a term contained therein, and when the context of the treaty so required, it could be given a meaning different from* the domestic law meaning of that term. There could not be any residual presumption in favour of a domestic law while ascertaining the meaning of an undefined termin treaty. When connotations of a treaty term were to be adopted as per the domestic law of a contracting state, it could not be done as a thoughtless and mechanical process. While applying Art. 3(2) of the treaty for ascertaining the meaning of an undefined term, one had to ask whether context suggested a different interpretation. The above interpretation by the appellant is against the provisions of Article 24 of the treaty, which was brought in to prevent abuse of treaty benefits. It is the duty of the person to provide with full and fair disclosure of all the material facts and the Appellant cannot leave j out material facts germane to decision of the issue and argue that the appellant is subject to tax on its income on accrual basis'. The appellant has not made true and full disclosure of all the material facts that it has availed exemption in Singapore on its shipping income earned in India. It's not just about leaving out a specific detail but not providing

I.T.A Nos. 429 & 430/Rjt/2018 A.Y. 2017-18 Page No 15 ISS Shipping India Pvt. Ltd. vs. Dy. CIT

the authorities with 'all the information - half truths is lying by to protect self-interests. The factum as to the income was actually exempt from tax in Singapore was sheet anchor to the decision making about applicability of Article 24 of the India Singapore treaty, The appellant has chosen to state facts in the manner suited to the appellant by giving an impression to the appellate authority that the case, of the Appellant is covered under Article 8 of the treaty, whereas, the limitation of relief clause in Article 24 overrides the relief granted in Article 8 of the DTAA between India and Singapore in cases where the shipping profits are not directly remitted to (he state of tax residency as well as subjected to tax. It is a settled legal position that those seeking legal remedies come with clean hands. "Omission of material facts," wherein the facts are not so much distorted, the appeal filed by the appellant is liable to be dismissed on account of suppression of material facts and deliberate misrepresentation. Clearly, therefore, the relief granted in the judicial precedents have been based on an erroneous impression of the fact regarding actual taxability, in Singapore, of the freight income from India, particularly as the income was actually exempt from tax in Singapore as well. When a similar issue was brought for deliberation, even Hon'ble ITAT had remarked in the case of BP Singapore Pte Ltd, Gandhidham vs. Income Tax Officer of International Taxation), Gandhidham(ITA No.4O9/Rjt/2G15) as under : "9. To us, it appears that the view expressed by the coordinate bench is so much out of context that even the IRAS certificate from the residence country, which has been reproduced in the order itself, does not envisage treaty benefit in a. situation in which the shipping profits in India are taxed on remittance basis in Singapore and the remittances to Singapore have not been made, but then, going by the analysis of the coordinate bench, the taxation in Singapore in such a situation, is wholly irrelevant That's clearly an incongruity and is going much beyond what is even imagined by Singapore," The freight income earned in the 16 voyages with the vessel MT Maersk Tianjin was not subjected to tax in Singapore. Hence, it is clear that Article 24 of the DTAA between India and Singapore is applicable, in this case. The AO has held as under: "Applicability of the two conditions prescribed in Article 24 of the DTAA between India, and Singapore in respect of two voyages undertaken by the vessel MT Maersk Tianjin are met under the following terms: (a) The first condition, is that, if the agreement provides that freight income from sources in a Contracting State (India) shall be exempt from tax or taxed at reduced rate in the Contracting state (India) then 'limitation of relief clause is applicable. In this case income tax is exempted in India as per the provisions of Article 8 of the DTAA with Singapore. Hence, first condition is applicable in this case. (b) (1) The second condition is that if under the laws in, force in the other Contracting state(Singapore) the said income is subject to tax by reference to the amount thereof which is remitted to or received (in Singapore) and not by reference to the full amount then the limitation to relief clause is applicable." I am in conformity with the findings of the AG, The double tax treaty avoidance agreement should be interpreted using a purposive rather than a literal approach. The primary purpose of the double tax treaty is to eliminate double tax and prevent the avoidance of tax; the purpose is not therefore to enable the double non-taxation of income. Provisions of Article 24 override the provision of Article 8 of the DTAA between India arid Singapore as they limit the relief in cases of double non-taxation of such income. The conditions mentioned in the limitation of relief clause under Article 24 make it essential for actual remittance of the amount and also that the amount should be subjected to tax in Singapore. In this case the shipping profits received from voyages undertaken by the vessel M,T, Maersk Tianjia have not been subjected to tax in Singapore. As discussed above, the shipping income for following voyages performed by the vessel 'M.T, Maersk. Tianjin1 do not qualify for tax exemption in India under the provisions of Article 24 of the DTAA between India and Singapore and therefore the relief claimed by the assessee under DTAA between India and Singapore is rejected.

I.T.A Nos. 429 & 430/Rjt/2018 A.Y. 2017-18 Page No 16 ISS Shipping India Pvt. Ltd. vs. Dy. CIT

In this case M/s. Inchcape Shipping Services India Pvt. Ltd., has been treated as the representative assessee for the purpose of recovery of the freight tax in respect of the above mentioned voyages made by the Principal, MTS. On the basis of the above observations, this ground of appeal is dismissed. All related grounds of appeal are dismissed.” 5. During the course of appellate proceedings before us, the ld. counsel has contended that article 24 of the tax treaty between India and Singapore is not applicable to the case of the assessee as article 24 of the tax treaty has been incorporated to limit the benefits available in certain cases where the income is subject to tax in Singapore on the basis of remittances. The ld. counsel has also referred Volume No. 1 of the paper book to page no. 1 to 18 comprising double tax avoidance agreement with Singapore and page no. 105 to 111 on clarification issued by inland revenue authority of Singapore on non-applicability of article 24 of the India Singapore tax treaty to the shipping companies of Singapore. The ld. counsel has also referred article 10 at page 19 of volume 1 of DTAA between India and Singapore pertaining to charging of income tax on accrual basis. The ld. counsel has also referred page no. 81 of volume 1 of paper book pertaining to section 13A of Singapore Income Tax Act which provide exemption of shipping profit. The ld. counsel has also referred the decision of Hon’ble Gujarat High Court in the case of MT Maersk Milkage Vs. Income Tax (International Taxation) dated 24th August, 2016 placed at page no. 113 of the Volume 1 of the paper book. The ld. counsel has also referred page no. 163 and 164 of the paper book volume 1 pertaining to the decision of ITAT Mumbai Bench ‘L’ in the case of Citicrop Investment Bank (Singapore) Ltd. vs. Dy. CIT (International Taxation) dated 24th March, 2017 wherein it is held that income earned by assessee, a Singapore based company on sale of debt instrument was not taxable in India as per Article 13(4) of India Singapore DTAA. The ld. counsel has also referred decision of ITAT vide ITA No.

I.T.A Nos. 429 & 430/Rjt/2018 A.Y. 2017-18 Page No 17 ISS Shipping India Pvt. Ltd. vs. Dy. CIT

992/Mum/2015 in the case of Dy. CIT Vs. D.B. International (Asia) Ltd. dated 20.06.2018 placed at page 231 of the paper book, Vol. No. 1. The ld. counsel has also referred decision of LRL Management K/S (as foreign Commercial Manager/Agent of Maersk Tankers Singapore Pvt. Ltd. ) vs. ITO (International Taxation) in ITA No. 756/Rjt/2014 and ITA 276/Rjt/2015 (Rajkot ITAT) page 8 of para 11 of this judgment on the issue that there was no dispute with regard to application to section 144C and the only issue was as to what should be done in cases in which the scheme of section 144C though admittedly applicable to the fact of the case was not adhered to. The ld. counsel has also placed reliance on the decision of Hon’ble Supreme court in the case of Union of India Vs. Azadi Bachao Andolan (2003) 132 taxman 373 (SC) dated 7th Oct, 2003 and also decision of Hon’ble High Court of Punjab and Haryana in the case of Serco BPO (P) Ltd. vs. Authority of Advance Rulings New Delhi (2015) 620 taxman.com 433 (Punjab & Haryana) dated 26th August, 2015 The ld. counsel has vehemently contended that the assessing officer was required to first issue a draft of the proposed order on assessment as per the provisions of section 144C of the act if he proposes to make any variation in the income returned which is prejudicial to the interest of the assessee. It is further contended that assessment framed by the assessee u/s. 172(4) of the act is bad in law as the same is contrary to the mandatory provision contained in section 144C of the act. Further, it is also submitted that article 24 of the tax treaty are not applicable to income governed by article 8 of the tax treaty and the provisions of article 24 apply only to such income which is either exempt from tax in India or taxed at reduced rate in India as per tax treaty. On the other hand, ld. departmental representative has placed reliance on the order

I.T.A Nos. 429 & 430/Rjt/2018 A.Y. 2017-18 Page No 18 ISS Shipping India Pvt. Ltd. vs. Dy. CIT

of assessing officer and ld. CIT(A). The ld. departmental representative has also referred to para 8 to 10 of the assessment order citing the various reasons that the shipping income for voyages performed by the vessels was not qualified for tax exemption in India under the provisions of DTAA between India and Singapore. The ld. departmental representative has also contended that judicial pronouncements relied upon by the assessee in the case of far shipping (Singapore) Pte Ltd. vs. ITO International Taxation Hellore by a single member SMC Bench of Hyderabad ITAT dated 16th June, 2017 and other judgments relied upon by the ld. counsel were pertaining to capital gain tax and not applicable to the fact of the case of the assessee. The ld. departmental representative has also referred page no. 48 to 76 of ld. CIT(A)’s order and contended that the ld. CIT(A) has rightly held that provision of article 24 override the provisions of article 8 of the DTAA between India and Singapore as they limit the relief in cases of double non-taxation of such income.

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the details and document, the assessing officer has issued NOC to 16 vessels voyages as mentioned above in this order in accordance with the provisions of section 172(3) of the act. The aforesaid agent in India of the assessee has filed vessel voyages return along with relevant document. The assessing officer has initiated proceedings u/s. 172(4) of the act for the 16 vessel voyages. During the course of assessment proceedings, the assessing officer has disallowed the claim of benefit for article 8 of the tax treaty by invoking provision of Article 24 stating that the provision of article 24 override the provision of Article 8 of the DTAA between India and Singapore as they limit the relief in cases of double non taxation of such income.

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of the Act including provisions contained in section 172 of the Act. The assessee has also referred the decision of the ITAT Bench Rajkot in its own case in ITA Nos. 756 of 2014 & 276 of 2015. It is pleaded that action of the assessing officer in passing the final assessment order under section 172(4) of the Act, without first issuing a draft of the proposed order is not in accordance with the express provisions of the law contained in section 144C of the Act. Regarding contention of the assessee that order u/s. 172(4) of the income tax act 1961 is bad in law without first issuing draft of the assessment order as is required u/s. 144C of the act, we observed that the Co-ordinate Bench on identical issue on identical facts in the case of assessee itself LRS Management K/S (As foreign commercial manager/agent of principal freight beneficiary Maersk Tankers Singapore Pvt. Ltd. (MTSPL) Shipping Pvt. Ltd. vs. ITO (International Taxation) Rajkot Bench vide ITA Nos. 756/Rjt/2014, 276/Rjt/2015 and 91/Rjt/2016 dated 9-08-2018 after following the decision in the case of LR2 Management K/S vs. Income Tax Officer (2015) 63 taxmann 42 of Rajkot Tribunal held that draft order u/s. 144C was required to be issued and for enabling the assessing officer for following the path envisaged in section 144C the matter was remitted back to the file of assessing officer. The relevant part of the decision is reproduced as under:- “2. Learned representatives fairly accept that this issue is covered in favour of the assessee, in the case of LR2 Management K/S Vs. Income Tax Officer [(2015) 63 taxmann.com 42 (Rajkot Trib.)], wherein we have observed as follows:- “5. The fundamental question that we have to first consider is whether an order under section 172(4) can be said to be an 'assessment order' because the requirement of serving a draft order on the assessee is only in respect of an 'assessment order'. Section 144C(1) categorically states that the Assessing Officer is required to "forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee" and thus give an eligible assessee option of approaching the Dispute Resolution Panel before the final assessment order is passed. Unless, therefore, the impugned order passed under section 172(4) can be treated as an 'assessment order', the requirements of Section 144C cannot come into play.

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I.T.A Nos. 429 & 430/Rjt/2018 A.Y. 2017-18 Page No 22 ISS Shipping India Pvt. Ltd. vs. Dy. CIT

'Reference to dispute resolution panel. 144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,— (a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,— (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (3) The Assessing Officer shall complete the assessment on the basis of the draft order, if— (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section 153B, pass the assessment order under sub-section (3) within one month from the end of the month in which,— (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub- section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:— (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub- section (5),—

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(a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. Explanation.—For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. (14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee. (15) For the purposes of this section,— (a) "Dispute Resolution Panel" means a collegium comprising of three [Principal Commissioners or] Commissioners of Income-tax constituted by the Board for this purpose; (b) "eligible assessee" means,— (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any foreign company.' 8. If the above provisions of reference to the DRP are to be applied in the context of orders passed under section 172(4), in terms of the provisions of Section 144(1), it is incumbent upon the Assessing Officer to first forward a draft assessment order under section 172(4) to the assessee, and it is only when the assessee does not raise any objection under section 144C(2)(b) or when the time limit for raising such objections expires, the Assessing Officer can go ahead to pass the final assessment order as proposed. While, in terms of the provisions of Section 144C(4) and 144C(15),

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the limitation period for passing the assessment orders gets suitably extended for this exercise so far as the assessment orders under sections 143, 144, 147, 148 and 153A etc. are concerned, there is no such enabling provision for extension of limitation period. This aspect of the matter becomes even more significant in case the assessee indeed opts for making a reference to the DRP because in such a case, in order to make the provisions workable, the limitation period for passing the assessment order has to suitably get extended for taking care of the period of time taken by the DRP in adjudicating upon the objections of the assessee and for the period of time taken by the Assessing Officer to give effect to such directions but then there is no provision in the statute for so extending the limitation period so far as the orders under section 172(4) are concerned. The time limit for passing order under section 172(4) is set out in section 172(4A) which provides that, "No order assessing the income and determining the sum of tax payable thereon shall be made under sub-section (4) after the expiry of nine months from the end of the financial year in which the return under sub-section (3) is furnished". While under section 144C(15), notwithstanding time limit set out in sections 153 and 153B, the order giving effect to the directions of the DRP can be passed within one month from the end of the month in which such directions are received, there is no statutory provision under which such time limit under section 172(4A) can be relaxed. When the DRP itself is allowed a period of nine months from the date on which the draft assessment order is served on the assessee, the entire time allowed to the Assessing Officer to pass order under section 172(4A) is nine months from the end of the financial year in which the vessel voyage return, i.e. return under section 172(3), is received by the Assessing Officer. When all these provisions of the statute are given literal interpretation, such a time limit, in the case of DRP reference being actually made by the assessee, is wholly unworkable. To give an example, if a vessel voyage return is received on 30th March of an year, the Assessing Officer will have just one day to furnish the draft assessment order under section 172(4) to the assessee, and not even a day to implement the directions of the DRP as issued under section 144C(8). The reason is this. In respect of voyage vessel returns received in the month of March of an year, under section 172(4A), the Assessing Officer has to necessarily pass the order within December of that year and unless he forwards the draft assessment order to the assessee within March itself, the DRP cannot be under a statutory obligation to issue directions on or before the end of December that year. Similarly, when a VVR is received at the closing of the working hours of the last working day of March of an year, no assessment can at all be done in the case of an eligible assessee. These results are clearly incongruous and patently absurd. 9. That takes us to the question as to what should the judicial authorities like this Tribunal to do when faced with such a situation. We find guidance from Hon'ble Supreme Court's judgment in the case of CIT v. Hindustan Bulk Carriers [2003] 259 ITR 449/126 Taxman 321, wherein it is observed that, "a construction which reduces the statute to a futility has to be avoided" and that "a statute or any enacting provision therein must be so construed as to make it effective and operative on the principle expressed in maxim ut res magis valeat quam pereat i.e., a liberal construction should be put upon written instruments, so as to uphold them, if possible, and carry into effect the intention of the parties. [See Broom's Legal Maxims (10th Edition), p. 361, Craies on Statutes (7th Edition) p. 95 and Maxwell on Statutes (11th Edition) p. 221.]" Unless the relaxation on the period of limitation for passing the assessment orders is read as including the relaxation on the period of limitation for all the assessment orders, and the references to Section 153 and 153B as illustrative rather than exhaustive, the provisions of Section 144C cannot be treated as including all the cases of assessment orders, and not merely for assessment orders under sections 143(3) and 153A. The interpretation that relaxation in time limit for passing the assessment orders is only under sections 143(3) and 153A as the intention of Section 144C was only to cover the assessments under sections 143 and 153A will also be contrary to the scheme of the Act as evident from the Notes on Clauses to the Finance Bill 2009 which clearly indicated that the provisions of Section 144C were intended for the foreign companies in respect of matters relating to international taxation and transfer pricing, and not merely for the assessments under section 143(3) or 153A- which appears to be wholly irrelevant in this context. These notes on clauses, at page 63 of the document (http://www.indiabudget.nic.in/ub2009- 10/fb/bill10.pdf), state as follows:

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Clause 55 of the Bill seeks to insert a new section 144C in the Income-tax Act relating to Dispute Resolution Panel. The subjects of transfer pricing audit and the taxation of foreign company are at nascent stage in India. Often the Assessing Officers and Transfer Pricing Officers tend to take a conservative view. The correction of such views takes very long time with the existing appellate structure. With a view to provide speedy disposal, it is proposed to amend the Income-tax Act so as to create an alternative dispute resolution mechanism within the income-tax department and accordingly, section 144C has been proposed to be inserted so as to provide inter alia the Dispute Resolution Panel as an alternative dispute resolution mechanism. 10. There is thus no meeting ground between implementing the law laid down by Hon'be Courts above, which is also in harmony with the intent of the legislature as evident from the above extracts from 'Notes on Clauses', and the literal interpretation to the provision regarding relaxation to the time limits set out in Sections 153 and 153B. The choice that we now have is between interpreting the connotations of an assessment order as per the law laid down by Hon'ble Courts above, in furthering the scheme of the legislative amendment, in introducing section 144C, and thus reading the references to Section 153 and 153B, as appearing in Section 144C(4) and 144C(15), as illustrative rather than exhaustive, and between interpreting the connotations of an assessment order contrary to the law laid down by Hon'ble Courts above, in construing the scheme of Section 144C contrary to the scheme of the legislative amendment, in inserting section 144C, and, and in thus reading the references to Sections 153 and Section 153B, as appearing in Section 144C(4) and 144C(15), as exhaustive. In view of the above discussions, in our humble and limited understanding, the way forward is that while upholding the plea of the assessee in principle that the Assessing Officer ought to have first forwarded him a draft assessment order under section 172(4) before passing the impugned final assessment order under section 172(4), we also hold that the references to Sections 153 and 153B, appearing in Section 144C(4) and 144 C(15), as illustrative rather than exhaustive and in effect, thus, a reference to section 172(4A) is to be read into these provisions as well. We do feel that this kind of a litigation before judicial bodies, i.e. whether or not an assessee is eligible for approaching the DRP in respect of order under section 172(4), could be easily prevented by more thoughtfully drafting the relevant provision. Either it could be made clear, in the stature itself, that the option of DRP is only with reference to a specific type of assessment orders such as under section 143(3) or 153A or the relaxation on time limit for passing the orders, which could be carried before the DRP, could be more general rather than confined to time limit for specific type of orders as in Section 153 or 153B. Of course, time limit under section 172(4A) being set out in Section 153 itself could also achieve that objective. It can never be too late for the tax administration to take a call in this respect and take a clear cut stand on the matter. Be that as it may, once we hold that an order under section 172(4) is also covered by the scheme of Section 144C, the next question which needs to be adjudicated by us is whether in a situation in which an eligible assessee has not been forwarded a draft assessment order, the assessment order will stand quashed or whether the matter will have to be remitted to the file of the Assessing Officer for taking the matter further in accordance with the scheme of Section 144C. Learned counsel's submission is that this aspect of the matter is also no longer res integra inasmuch as Hon'ble Madras High Court, following Hon'ble AP High Court's judgment in the case of Zurai Cement Ltd. v. ACIT (unreported judgment dated 21st February 2013 in WP No. 5557 of 2012) and in the case of Vijay Television (P.) Ltd. v. DRP [2014] 369 ITR 113/225 Taxman 35/46 taxmann.com 100 (Mad.) has held that such an order will be "null and void". It is also pointed out that a Delhi bench of this Tribunal, in the case of Capsugel Healthcare Ltd. v. Asstt.CIT [2014] 50 taxmann.com 324/152 ITD 142 (Delhi- Trib.) and vice versa also holds so. Learned Departmental Representative, on the other hand, submits that if, in the wisdom of the Tribunal, this matter is to be held to be covered by the scheme of Section 144C, the matter can best be remitted to the file of the Assessing Officer for following that path.

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dealing with such foundational aspects directly at this stage will deprive this adjudication of the proper departmental perspective on the same. The assessee will, however, be at liberty to raise all these issues in the remanded proceedings. With these observations, the matter stands restored to the file of the Assessing Officer.”

In the above cited decision, the Co-ordinate Bench was of the view that the Assessing Officer ought to have first forwarded a draft assessment order under section 172(4) before passing the final assessment order under section 174(4) holding that the reference to sections 153 and 153B appearing in section 144(C)(4) and 144C(15) as illustrative rather than exhaustive and in effect reference to sections 172(4A) to be read in these provisions as well. The Co-ordinate Bench in the case of the assessee itself as cited above has also concluded that in all the precedents cited by the ld. counsel there was no dispute about the applicability of the provision of section 144C of the Act, however, the dispute in the case of the assessee was pertained to the issue of applicability the scheme of section 144 of the Act to the order passed under section 172(4) of the Act. We observe that in this case neither the assessing officer has forwarded draft assessment order under the scheme of section 144C of the I.T. Act nor the assessee has opted under the provision of section 172(7) of the Act for assessment to be made in accordance with other provision of this Act. In accordance with the decision of the Co-ordinate Bench of the ITAT Rajkot in the case of the assessee elaborately discussed as supra, we hold that an order under section 172(4) is also covered by the scheme of section 144C of the Act. During the course of appellate proceedings, the ld. counsel had also referred the decision of the Hon’ble Supreme Court in the case of Union of India Vs. Arabian Express Line & another vide Civil Appeal No. 10328 of 1995 wherein it is held that orders passed under section 172(4) of the act are appealable in view of the provisions of section 246(1)(a) of the Act.

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Respectfully following the decision of Co-ordinate Bench of the ITAT, we also remit this case to the file of assessing officer for framing fresh assessment order u/s. 172(4) after following the path envisaged in section 144C of the act. Therefore, at this stage, we are not dealing with other issues in appeal and the assessee is at liberty to raise all these issues in the set aside proceedings. With these observations, the matter has been restored to the file of assessing officer. Therefore, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 21-11-2019

Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 21/11/2019 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Rajkot