This alert summarizes a recent ruling of the Rajkot Income Tax Appellate Tribunal (Tribunal) in the case of Alabra Shipping Pte. Ltd. (Taxpayer), in which the Tribunal had to evaluate granting of the India-Singapore double taxation avoidance agreement (DTAA) benefits with respect to freight income received by the Taxpayer in its bank account in London. The Tribunal observed that the limitation of relief (LOR) Article under the DTAA is triggered when: (i.) The income is exempt from tax or is subject to low or no tax in the Source State (i.e., India) (ii.) The said income is taxable on receipt basis in the Resident State (i.e., Singapore). In the present case, the income was fully taxed in Singapore on accrual basis. Therefore, the anti-abuse rule in the LOR Article of the DTAA did not trigger to deny DTAA benefits to the Taxpayer.
This decision provides useful guidance that the anti-abuse provision to check double non-taxation, as provided in the LOR Article of the India-Singapore DTAA, applies only where income is taxed on remittance basis in Singapore. In cases where such income is comprehensively taxed in Singapore on accrual basis, the LOR Article has no application.