MUMBAI: The Delhi bench of the Income-tax Appellate Tribunal (ITAT) has dominated on a case involving the taxation of features from the sale of shares in India and supplied reduction to The Golden State Capital Pte Ltd, a Singapore entity. Based on a number of key rules within the India-Singapore treaty, the entity was held eligible to treaty advantages, consequently tax on capital features didn’t come up in India.
The moot level within the ITAT order is that the importance of a tax residency certificate, issued by the jurisdiction, the place the taxpayer is a resident (on this case Singapore) has been upheld.
Golden State Capital (the taxpayer) contended that it was eligible for the good thing about the tax treaty provisions. Article 13 of the India-Singapore tax treaty gives for taxation of features arising out of the sale of shares acquired earlier than 1 April 2017, within the resident jurisdiction (on this case: Singapore) solely.
During the monetary yr 2017-18, the taxpayer disposed of shares held by it in Dr Fresh Healthcare Pvt. Ltd ( DFHPL) and Dr. Fresh SEZ Ph 1 Pvt. Ltd. (DFSPPL). It earned short-term capital features of Rs. 1.92 crore on sale of shares within the former firm and incurred a long-term capital lack of Rs. 3.16 crore- on account of sale of shares of the opposite firm. In its Income-tax (I-T) return it claimed that the short-term capital features had been exempt as per Article 13 of the tax treaty and carried ahead the long-term capital loss to subsequent years.
During evaluation, the tax advantages had been denied on the grounds that the transaction was routed by means of Singapore for tax avoidance. The Singapore entity was not the useful proprietor of shares, and the taxpayer lacked industrial substance in Singapore. The I-T officer additionally denied the deduction of premium in direction of the price of acquisition and invoked the General Anti Avoidance Regulations (GAAR).
On the opposite hand, Golden State Capital contended that it glad the circumstances of the LOB clause within the tax treaty, the transaction was real, and the premium paid ought to be thought of in computing the price of acquisition of the shares. It acknowledged that the sale of shares was not lined by GAAR provisions.
The key factors of this order are as follows:
The moot level within the ITAT order is that the importance of a tax residency certificate, issued by the jurisdiction, the place the taxpayer is a resident (on this case Singapore) has been upheld.
Golden State Capital (the taxpayer) contended that it was eligible for the good thing about the tax treaty provisions. Article 13 of the India-Singapore tax treaty gives for taxation of features arising out of the sale of shares acquired earlier than 1 April 2017, within the resident jurisdiction (on this case: Singapore) solely.
During the monetary yr 2017-18, the taxpayer disposed of shares held by it in Dr Fresh Healthcare Pvt. Ltd ( DFHPL) and Dr. Fresh SEZ Ph 1 Pvt. Ltd. (DFSPPL). It earned short-term capital features of Rs. 1.92 crore on sale of shares within the former firm and incurred a long-term capital lack of Rs. 3.16 crore- on account of sale of shares of the opposite firm. In its Income-tax (I-T) return it claimed that the short-term capital features had been exempt as per Article 13 of the tax treaty and carried ahead the long-term capital loss to subsequent years.
During evaluation, the tax advantages had been denied on the grounds that the transaction was routed by means of Singapore for tax avoidance. The Singapore entity was not the useful proprietor of shares, and the taxpayer lacked industrial substance in Singapore. The I-T officer additionally denied the deduction of premium in direction of the price of acquisition and invoked the General Anti Avoidance Regulations (GAAR).
On the opposite hand, Golden State Capital contended that it glad the circumstances of the LOB clause within the tax treaty, the transaction was real, and the premium paid ought to be thought of in computing the price of acquisition of the shares. It acknowledged that the sale of shares was not lined by GAAR provisions.
The key factors of this order are as follows:
- Eligibility for the India-Singapore tax treaty: The ITAT in its order emphasised that tax treaty entry can’t be denied to the taxpayer by invoking the doctrine of substance over type with out contemplating the supply of the Tax Residency Certificate (TRC) and different corroborative proof. Additionally, the satisfaction of the limitation of profit (LoB) clause should be thought of, as the Singapore entity had met the expenditure threshold.
- GAAR exemption: If the topic transaction is particularly exempt from GAAR, the I-T officer can not use the doctrine of substance over type to disclaim the advantages of the tax treaty.
- Computation: The ITAT concluded that the premium paid for the acquisition of shares can’t be ignored when calculating the price of acquisition of the shares bought, which had been offered throughout the yr.
- DRP instructions: The ITAT additionally confused that the instructions issued by the Dispute Resolution Panel (DRP) are binding on the I-T officer, and he can not make disallowances on a brand new foundation that contradicts the DRP’s instructions.
