Wednesday, June 5, 2013

‘Limitation on benefit’ clause denies treaty benefit for non-remittance of interest to Singapore

Interest on tax refund received by Singaporean resident won’t be taxed at concessional rate of 15% under Article 11 of India-Singapore DTAA, as mere proving that it has not been deposited in bank account in India wouldn’t be sufficient to prove its receipt in or remittance to Singapore to satisfy limitation of benefit clause.

In the instant case, the assessee, a resident of Singapore, had received interest on Income Tax refund. Assessee contended that it was taxable at concessional rate of 15% as per Article 11(2) of India-Singapore DTAA. However, Revenue taxed it at 20% as per section 115A by applying Article 24 (limitation on benefit) of India-Singapore DTAA. The CIT(A) upheld order of AO. Thus, the instant appeal was filed by assessee against CIT(A)’s decision.

The Tribunal held as under:

1) Article 24 of the India-Singapore DTAA limits the relief granted by other relevant Articles, including article 11 of the DTAA, subject to the fulfillment of the conditions enshrined therein;

2) Article 24 of the DTAA provides that the receipt or remittance of income in Singapore is sine qua non for claiming the benefit of lower rate of tax on the interest income from India. Thus, if the income hadn’t been remitted to or received in Singapore, then the benefit of Article-11 providing for a reduced rate of tax of 15% couldn’t be extended to the assessee. In that situation, the income would be taxed as per the Act, as had been done by the IT authorities;

3) The acceptance of Ld AR claim, that assessee had no bank account in India and, hence, the only possibility of receipt, was of receiving the amount in Singapore, would lead to making the Article 24 redundant and putting an unending burden on the Revenue to prove the negative, the positive of which is otherwise required to be established by the assessee;

4) The assessee had its presence in several countries and he could, instead of depositing the refund voucher in some bank account in Singapore, also deposit it in its bank account maintained in some other country, in which case again the requirement of Article 24 would be wanting;

5) The burden was on the assessee to prove that the amount of income was remitted to or received in Singapore. This burden could be discharged by showing a credit in the bank account maintained by the assessee in Singapore;

6) A submission not backed by any supporting evidence to prove the fulfillment of the requisite condition, couldn’t be a good reason for drawing an inference in favour of the assessee. The authorities below were justified in refusing the benefit of Article-11 of the DTAA to the assessee by taxing the interest on income-tax refund @ 20% as per section 115A of the Act - Abacus International (P.) Ltd. v. Dy. DIT( International taxation) [2013] 34 21 (Mumbai - Trib.)