A tax tribunal has ruled that the treaty benefit in the form of concessional tax under the double taxation avoidance agreement (DTAA) between India and Singapore will be available to companies if income is actually received in the southeast Asian country.
The ruling came in a hearing of a case relating to taxation on Abacus International Pvt Ltd, Singapore, which is engaged in the business of computerised reservations system, used by travel agents and others.
Curiously, the case relates to tax on interest paid by the Income-Tax Department itself, along with tax refund to Abacus International.
During the assessment year 2004-05, Abacus International received income-tax refund, including interest on tax paid by it, for its income in India. In the return of income, the taxpayer offered the interest income for taxation at 15 per cent as per Article 11 of the India-Singapore DTAA.
The tax officer, placing reliance on Article 24 of DTAA, held that the taxpayer was not eligible for beneficial treatment under Article 11 since it did not furnish any proof of remittance of interest to Singapore. He, accordingly, taxed the interest income at 20 per cent as per section 115A of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals), Mumbai, recently upheld the order of the tax officer. Issues before the Mumbai tribunal was that whether income had to be actually remitted to or received in Singapore for claiming benefits prescribed under DTAA.
The tribunal held that Article 24 of DTAA limited the relief provided by other articles including Article 11. The para one of Article 24 provides that income shall be taxed at the reduced rate prescribed in DTAA, provided the income is "remitted to or received in" Singapore.
It held that Article 24 of DTAA makes it clear that the receipt or remittance of income in Singapore is 'sine qua non' (essential condition) for claiming the benefit of lower rate of tax on the interest income from India. It also held that even though the taxpayer did not have a bank account in India, unless it is positively shown that the income was received in Singapore, the mere encashment of the refund cheque cannot be inferred that amount has been received by the taxpayer in Singapore.
The burden is on the taxpayer to prove that the amount of income was remitted to or received in Singapore. Such a burden can be discharged by showing a credit in the bank account maintained by the taxpayer in Singapore, production of a copy of pay-in slip showing deposit of refund voucher in a bank account in Singapore or even a certificate from a bank in the Southeast Asian country, it held. The taxpayer was unable to produce any direct evidence to show that the amount was received in Singapore and hence the benefit of the lower rate under Article 11 would not be available. As such, the interest income would be taxable at the rate of 20 per cent as per section 115A of the Act.
Deloitte Haskins and Sells partner N C Hegde said the Mumbai Tribunal had laid down an important principle that the receipt or remittance of income in Singapore was a pre-condition for claiming the beneficial treatment under DTAA. Further, for claiming benefit, the receipt or remittance of income in Singapore needs to be proved by corroborating evidence, he added.
Headquartered in Singapore, Abacus International is owned by a consortium of Asia's leading airlines, including All Nippon Airways, Cathay Pacific, China Airlines, EVA Airways, Garuda Indonesia, Dragonair, Philippine Airlines, Malaysia Airlines, Royal Brunei Airlines, SilkAir and Singapore Airlines.
Abacus is also backed by US owned Sabre, the global leader in the electronic distribution of travel and travel related services. The company has offices in Mumbai and Bangalore.
