Delhi High Court: The present petition was filed by the petitioner ,Blackstone Capital Partners (Singapore) challenging the order passed by Revenue Authorities (respondent) affirming that the proceedings initiated against the petitioner are valid, vide notice under Section 148 of Income Tax Act for the Assessment Year 2016-17, a division bench of Manmohan and Manmeet Pritam Singh Arora, JJ., held that the impugned reassessment proceedings are without jurisdiction as the respondent-revenue cannot go behind the Tax Residency Certificate (TRC) issued by the other tax jurisdiction as the same is sufficient evidence to claim treaty eligibility, residence status, legal ownership and accordingly, there is no capital gain earned by the petitioner liable to tax in India.
The petitioner, Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. acquired equity shares of Agile Electric Sub Assembly Private Limited, a Company incorporated in India (“Agile”) and during the year under consideration, i.e. assessment Year 2016-17, the petitioner sold all the equity shares of Agile to Igarashi Electric Works Limited.
The petitioner electronically filed its return of income for the Assessment Year 2016-17 and claimed that the gains earned by it on the sale of Agile shares were not taxable in India by virtue of Article 13(4) the Double Tax Avoidance Agreement entered into and subsisting between India and Singapore (“India-Singapore DTAA”) based on the Tax Residency Certificate (‘TRC’). In its return of income, the petitioner made all the requisite disclosures which were processed under Section 143(1) of the Act with no demand.
However, on 31-03-2021, a notice was issued to the petitioner under Section 148 of Income Tax Act for the Assessment Year 2016-17 and the petitioner filed a return of income and requested for the reasons which was thereby supplied. The petitioner then filed for objections that were rejected by the revenue holding the proceedings initiated as valid. It is this order which stands impugned in the present case.
The Assessing officer in the present proceedings has sought to place reliance upon the data extracted from a third-party online source having URL: https://recordowl.com. Placing reliance on Hewlett Packard India Sales Pvt. Ltd. v. Commissioner of Customs (Import), Nhava Sheva, 2023 SCC OnLine SC 31, the Court observed that Supreme Court recently issued a note of caution to the governmental authorities such as Commissioner of Customs (Appeal), to refrain from using online sources to arrive at any conclusion, since the information available therein is based on crowd – sourced and user – generated editing model, veracity whereof may be disputed and might promote misleading information.
The Court expressed that the notice under Section 148 of the Act was based on information forwarded by the TDS Officer of Igarashi without any independent application of mind or verification or investigation and thus, the impugned notice has been issued on borrowed satisfaction and is merely a ‘cut and paste’ job which is impermissible in law.
The Court further noted that the powers of the Assessing Officer to reopen an assessment, though wide, are not plenary having words in the statute like “reason to believe” and not “reason to suspect” and therefore the Assessing Officer must show that there is a live link or close nexus between the material before the Assessing Officer and the belief that there has been escapement of the income chargeable to tax. However, in the present case, there is no live link between the material disclosed and the formation of the belief that any income chargeable to tax has escaped assessment.
The Court observed that under the India-Singapore DTAA, at the relevant time, capital gain was to be taxed based on legal ownership and beneficial ownership. In fact, the concept of beneficial ownership, at the relevant time under the India-Singapore DTAA, was attracted for taxation purposes only qua three transactions i.e. dividend, interest and royalty and not for capital gains.
Further, the Court observed that the respondent has incorrectly referred to Explanation 2(b) to Section 147 of the Act as the same applies only if the assessee understates its income or claims excessive loss, deduction, allowance or relief in its return of income. The claim of benefit in Article 13(4) of the DTAA does not qualify as a deduction, relief or exemption but merely allocates the taxing rights visà-vis capital gains to Singapore. Consequently, the provisions of Explanation 2(b) to Section 147 of the Act are not applicable in the present case and the impugned order does not give any reason as to how the said Explanation applies.
The Court stated that the amended Protocol to the India-Singapore DTAA provides for an objective and not a subjective test, namely, the Limitation of Benefit (LOB) clause. The Protocol limits the application of the DTAA to entities that are not shell/conduit companies in Singapore with negligible or nil business operations or with no real and continuous business activities carried out in Singapore.
Thus, the Court concluded that the petitioner is a bonafide entity and not a shell / conduit entity as it complies with the LOB clause to the India-Singapore DTAA as the expenditure has been incurred in Singapore and the same has been certified by an independent chartered accountant and accepted by the authorities in Singapore i.e. Income Tax authorities, Monetary Authority of Singapore. Accordingly, the allegation of treaty shopping is irrelevant in the present case as the India-Singapore DTAA has a limitation of benefit clause which the petitioner satisfies.
The Court remarked that the entire attempt of the respondent in seeking to question the TRC is wholly contrary to the Government of India’s repeated assurances to foreign investors by way of CBDT Circulars as well as press releases and legislative amendments and decisions of the Courts.
The petitioner has a valid TRC dated 03-02-2015 from IRAS Singapore evidencing that it is a tax resident of Singapore and thereby is eligible to claim tax treaty benefits between India and Singapore. Thus, the Court held that the TRC is statutorily the only evidence required to be eligible for the benefit under the DTAA and the attempt to question and go behind the TRC is wholly contrary to the Government of India’s consistent policy and repeated assurances to Foreign Investors. In fact, the Inland Revenue Authorities of Singapore has granted the petitioner the TRC after a detailed analysis of the documents, and the Indian Revenue authorities cannot disregard the same as doing the same would be contrary to international law.
[Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd v. The Assistant Commissioner of Income Tax, 2023 SCC OnLine Del 475, decided on 30-01-2023]
Advocates who appeared in this case:
Mr. Porus F. Kaka, Senior Advocate along with Mr. Vishal Kalra, Mr. S.S. Tomar and Mr. Divesh Chawla, Advocates for the Petitioner;
Mr. Sunil Kumar Agarwal, Senior Standing Counsel for Revenue along with Mr. Tushar Gupta, Junior Standing Counsel for Revenue and Mr. Utkarsh Tiwari, Advocate for the Respondent.
*Arunima Bose, Editorial Assistant has reported this brief.