Recently the Rajkot Bench of the Income-tax Appellate Tribunal in the case of: Alabra Shipping Pte Ltd, Singapore v. Income Tax Officer– held that the benefit of the India-Singapore income tax treaty was not to be denied to the taxpayer by applying provisions of the limitation of benefit (LOB) clause.
The tribunal determined that the LOB provisions can only be generated when following two conditions are fulfilled:
- There is low or no taxability in the source jurisdiction; and
- There is taxation on a “receipt basis” in the residence jurisdiction.
In this case, the income of the taxpayer was taxed in Singapore on an accrual basis. Therefore, the LOB provisions under Article 24 of the India-Singapore tax treaty were not applicable even though income was remitted to the UK account.
