Bombay High Court Grants M/s Citicorp Investment Bank Tax Benefit under India-Singapore DTAA

Bombay High Court Grants M/s Citicorp Investment Bank Tax Benefit under India-Singapore DTAA

The Bombay High Court has rejected the appeal filed by the Commissioner of Income Tax and ruled in favour of M/s Citicorp Investment Bank (assessee) in a recent ruling. The Court held that since the property alienated were debt instruments, the assessee would fall under Article 13(4) of the Double Tax Avoidance Agreement (DTAA).

According to this article, gains from the alienation of any property, in this case, debt instruments shall be taxable only in the country of which the alienator (the assessee) was a resident, which in this case was Singapore. Therefore, the entire capital gain of ₹82,58,83,330 would be subject to taxation in Singapore.

Registered as a Foreign Institutional Investor (FII) in the debt segment with the Securities and Exchange Board of India (SEBI), the assessee, a tax resident of Singapore, had invested in debt securities in India during the relevant assessment year. In the tax return, the assessee disclosed a capital gain of ₹86,62,63,158 resulting from the sale of debt instruments and sought exemption under Article 13(4) of the India-Singapore Double Tax Avoidance Agreement (DTAA).

However, the Assessing Officer (AO) maintained that in order for the assessee to benefit from the Double Tax Avoidance Agreement, the assessee must satisfy the provisions outlined in the DTAA. The AO concluded that the assessee failed to demonstrate that the repatriation of capital gains was made to Singapore, and therefore, according to Article 24 of the DTAA, the assessee was not eligible for the claimed exemption.

Dissatisfied with the draft assessment order, the assessee raised objections before the Dispute Resolution Panel (DRP). The DRP upheld the AO's decision. As a result, the assessee decided to appeal the assessment order before the Income Tax Appellate Tribunal (ITAT) in Mumbai. The ITAT, in turn, allowed the appeal filed by the assessee, overturning the previous decisions.

In their observations, the division bench of Justices K.R. Shriram and Firdosh P Pooniwalla pointed out that Article 24 of the DTAA stipulates that if income from sources in India is exempted from taxation or subject to a reduced tax rate in India, while in Singapore, the capital gain is taxed based on the amount remitted to or received in Singapore (and not the entire amount), then the exemption or reduction of tax under the agreement in India should only apply to the portion of income that was actually remitted to or received in Singapore.

The bench additionally highlighted that the Singapore authorities had officially certified that the capital gain income would be subject to taxation in Singapore without considering the specific amount remitted or received in Singapore. The bench emphasised that the AO could not have arrived at a contradictory conclusion.

Furthermore, the bench referred to Circular No. 789 dated April 13, 2000, which pertained to the Indo-Mauritius Double Tax Avoidance Convention and established a clear principle. According to the circular, certificates issued by the Singapore Tax Authorities would serve as adequate evidence to support the acceptance of the legal position.

Therefore, the Bombay High Court concluded that no significant legal issues were present in the given circumstances, resulting in the dismissal of the appeal.