India: Capital gains exemption under Singapore treaty not available to shell company (tribunal decision)
Taxpayer incorporated in Singapore to obtain benefits under treaty.
The Delhi Bench of the Income-tax Appellate Tribunal held that capital gains recognized by the taxpayer, a company incorporated in Singapore, from its transfer of shares in an Indian company were not eligible for the capital gains exemption under the India–Singapore income tax treaty because the taxpayer was a shell or conduit company not entitled to the benefits of the treaty under the treaty’s limitation on benefits (LOB) clause.
Although the taxpayer’s annual expenditures (primarily legal and professional fees) exceeded the threshold prescribed under the “expenditure test” of the LOB clause, the tribunal found based on the entirety of the facts that there was no commercial purpose or economic substance in incorporating the taxpayer in Singapore and that the reason was to obtain benefits under the treaty. The tribunal also confirmed that the mere holding of a tax residency certificate (TRC) is not sufficient to claim treaty benefits.
The case is: Hareon Solar Singapore Pvt. Ltd v. DCIT (ITA No. 2226/Del/2024)
Read a February 2026 report prepared by the KPMG member firm in India