India: Limitation of relief provision under Singapore treaty not applicable to treaty provision relating to taxation of capital gains (tribunal decision)

The Mumbai Bench of the Tribunal held that the “limitation of relief” (LoR) provision under the India-Singapore income tax treaty did not apply to deny the taxpayer, a Singapore tax resident, the benefit under the treaty of not being subject to tax in India on capital gains from a sale of shares in an Indian company because the LoR provision only applies to “exemption” provisions under the treaty, and the provision under the treaty relating to the taxation of capital gains is a “taxability” provision pursuant to which taxation rights are allocated between the two jurisdictions.

The case is: Prashant Kothari v. Income Tax Ward

The tax authority sought to subject the taxpayer’s capital gains to tax in India on the grounds that under the LoR provision of the treaty, income is entitled to exemption only if it is shown to be subject to tax in Singapore on a remittance basis. However, the tribunal rejected the tax authority’s argument, concluding that the LoR provision only applies to exemption provisions, and the provision under the treaty relating to the taxation of capital gains is a taxability provision to which the LoR does not apply.

The tribunal also allowed the taxpayer to carry forward capital losses arising on sale of shares in other Indian companies without setting them off against the capital gains not taxable in India under the treaty.

Read a June 2025 report prepared by the KPMG member firm in India