India: Singaporean company entitled to treaty benefits on capital gains from transfers of shares of Indian companies
Company furnished valid evidence to prove commercial substance and residency in Singapore
Company furnished valid evidence to prove commercial substance and residency in Singapore
The Delhi Bench of the Income-tax Appellate Tribunal held that a Singaporean company was eligible for benefits under the India-Singapore income tax treaty on capital gains arising from transfers of shares of Indian companies.
The tribunal held that the company had furnished valid evidence to prove commercial substance and residency in Singapore and that the affairs of the taxpayer were not controlled from outside Singapore. Further, the general anti-avoidance rule (GAAR) provisions did not apply.
Background
Claims of tax treaty benefits on capital gains arising in the hands of non-resident shareholders from sales of shares of Indian companies has been a controversial issue for a long time. In many cases, the Assessing Officer has disregarded the intermediary company and treated the ultimate holding company as the beneficial owner, and thus denied tax treaty benefits to the taxpayer. In contrast, the courts/tribunal have given the benefit of the tax treaty based on various factors like valid tax residency certificate (TRC), period of holding, genuineness of business, and place of management.
Read a September 2023 report [PDF 396 KB] prepared by the KPMG member firm in India
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