Delhi Tribunal upholds eligibility of the India-Singapore treaty benefits

The Taxpayer (Golden State Capital Pte Ltd.)[1], a Singapore resident company, is held by an entity situated in British Virgin Islands. The Taxpayer had purchased shares of two Indian Companies (ICo.1 and ICo.2) at a premium prior to tax year 2017. During the relevant tax year under consideration, all these shares were sold, resulting in short-term capital gain on sale of ICo.1 shares and long-term capital loss on sale of ICo.2 shares. The sale proceeds were utilized to settle an interest-free loan as obtained from its holding company.

The tax authority denied treaty benefit to the taxpayer on the contention that it is a conduit company and there was no commercial rationale to establish the substance of the Taxpayer. Further, with respect to long-term capital loss as claimed by the Taxpayer on sale of shares of ICo.2, the tax authority disregarded the premium component paid on acquisition while determining the cost of acquisition.

The Tribunal noted that the Taxpayer was incorporated as an investment entity and assessments were made on the Taxpayer by the Singapore tax authority as a tax resident of Singapore. The lower tax authorities did not carry out a fact-finding exercise to determine whether the Taxpayer was controlled from outside Singapore. In absence thereof, the fact of regular tax return filing in Singapore, assessment orders passed by the Singapore authority, the Taxpayer’s utilization of the sales proceeds to repay its existing loan taken from parent company etc. were accepted to establish that the Taxpayer was carrying on its business activities in Singapore. Accordingly, the Tribunal held that the Taxpayer is eligible to claim treaty benefits. The Tribunal also followed its earlier ruling in case of Reverse Age Health Services Pte Ltd. [2] which held that Tax Residency Certificate (TRC) is sufficient for claiming treaty benefit and tax authority cannot go behind the TRC.

Further, on another issue of allowability of premium paid, the Tribunal noted that the Taxpayer has duly reflected the acquisition of shares of two Indian companies at premium in its audited balance sheet which were duly subjected to verification by the Singapore tax authority and tax assessment orders were passed on the Taxpayer for the past years. The Tribunal observed that the valuation report was never sought from the Taxpayer till the stage of draft assessment proceedings and was of the view that its non-submission may not be regarded as an anomaly. Further, it also observed that there is no mandate or requirement in the law to furnish the valuation report for justifying the premium component. Accordingly, the Tribunal allowed the premium cost incurred as cost of acquisition of the shares while computing capital gains income.

[1]  Golden State Capital Pte Ltd. v. DCIT, Circle 3(1)(1), International Taxation, Delhi ITA No. 1686/Del/2022 dated 23 August 2023
[2]  ITA No. 1867/Del/2022 dated 17 February 2023 for Assessment Year 2018-19