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Treaty between India and Singapore – Indian decision on limitation of benefit clause

The Income Tax Appellate Tribunal (ITAT) issued its decision on 31 May 2013 in the case of Abacus International (P) Ltd. v. DDIT (ITA 1045/Mum/2008) that, in absence of any evidence of remittance or receiving of interest income in Singapore, beneficial provisions of article 11(2) of the India - Singapore Income Tax Treaty (1994) (as amended through 2005)(the Treaty) will not apply (tax rate of 15%). Accordingly, interest income would be taxable at a tax rate of 20% as per the Income Tax Act 1961 (section 115A).

(a) Facts. The Taxpayer (i.e. Abacus International (P) Ltd.), a resident of Singapore, had received interest on a tax refund and contended that it would be subject to a tax rate of 15% as per article 11(2) of the Treaty. The tax authorities refused the beneficial provision of article 11(2) by applying article 24 of the Treaty which states that "reduction of tax to be allowed under this agreement shall apply to so much of the income as is remitted to or received in that Contracting State". The Taxpayer stated that, in absence of any bank account in India, the interest income was remitted or received in Singapore. It had not provided any evidence in support of its claim.

(b) Issue. Whether the Taxpayer is eligible to claim the beneficial provisions of article 11(2) of the Treaty?

(c) Decision. The ITAT agreed with the contention of the tax authorities and stated that, by merely not having any bank account in India, it did not necessarily mean that the income was remitted or received in Singapore and in order to be eligible to avail the beneficial provisions of the Treaty, the Taxpayer will have to prove that the income was actually remitted or received in Singapore.

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