Abacus International (P.) Ltd. vs. DDIT [2013] 34 taxmann.com 21 (Mumbai ITAT) dated 31 May, 2013

Facts

The taxpayer is a company resident of Singapore engaged in the business of Computerised Reservation System (CRS). Its primary business is to make airline reservations for and on behalf of the participating airlines and for this purpose, it uses the CRS.

During the year under consideration the taxpayer was granted refund by the Income-tax department which included interest on such refund. The taxpayer offered such interest for tax at the rate of 15 per cent as per Article 11 of the tax treaty.

The Assessing Officer (the AO) denied the concessional tax rate under the tax treaty since the taxpayer did not furnish any proof of remittance to Singapore. Therefore, such interest income has to be taxed at the rate of 20 per cent in accordance with Section 115A of the Act.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the order of the AO.

Issue

Whether the interest received on income-tax refund can be taxed at concessional rate provided under the tax treaty if such interest is not received in Singapore?

Held

The taxpayer could not lead any direct evidence to show that such amount was received in Singapore.

As per Article 24(1) of the tax treaty, where the tax treaty provides that income from source in India shall be taxed at a reduced rate in India and shall also be taxed in Singapore, then the said income shall be taxed at the reduced rate prescribed in the tax treaty provided the income is 'remitted to or received in' Singapore.

Article 24 of the tax treaty limits the relief granted by other relevant Articles, including Article 11 of the tax treaty, subject to the fulfilment of the conditions enshrined therein.

Accordingly, if the income is not remitted to or received in Singapore, then the benefit of Article 11 of the tax treaty providing for a reduced rate of tax of 15 per cent cannot be extended to the taxpayer. In that situation, the income will be taxed as per the Act.

The requirement of Article 24 of the tax treaty is that the taxpayer must have received the interest income in Singapore. The relevant facts for proving this are available in the domain of the taxpayer alone. Simply not having a bank account in India does not mean that the amount was received in Singapore. The requirement of Article 24 is to receive the amount of interest in Singapore, which can't be established by proving that the amount was not received in India.

The burden is on the taxpayer to prove that the amount of income was remitted to or received in Singapore. However, the taxpayer has not shown any supporting evidence to prove the fulfilment of the requisite condition.

Accordingly, the interest on income-tax refund shall not be taxed at the concessional tax rate under the tax treaty and it shall be taxed at the rate of 20 per cent as per Section 115A of the Act.