The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the benefit of Double Taxation Avoidance Agreement (DTAA) cannot be denied without finding the assessee’s residence.
The bench of Anubhav Sharma (Judicial Member) and B.R.R. Kumar (Accountant Member) has observed that the Assessee’s business is managed and controlled in Singapore. All the board meetings and shareholders meetings are held in Singapore and all the key decisions relating to business are taken in Singapore. The assessee company was not liable to pay any tax on the capital gains as the same was tax exempted under Article 13(4) of India-Singapore DTAA.
The appellant/assessee is in the business of trading of electromechanical relays, wire and wireless equipment, high performance polymeric products, highly specialized energy-related products and other electrical and electronic and electronic components.
The return of assessee was picked for complete scrutiny and AO had made an addition in the draft assessment order. The AO had denied assessee, being a tax resident of Singapore, to be eligible for the benefit as provided by the India-Singapore DTAA and therefore, taxed the capital gain on sale of shares of an Indian company.
Assessee had claimed that being a tax resident of Singapore, assessee is covered by the beneficial provisions of the India-Singapore DTAA (Article 11) and accordingly, interest income received from Compulsory Convertible Debentures (CCD) could not be taxed under the provisions of the Act.
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The AO had applied the tax as per rates of the Act as against the beneficial rate, claimed by the assessee, as per India-Singapore DTAA.
The assessee approached DRP and filed objections. The assessee submitted that the AO has erred in disregarding the Tax residency certificate (TRC) and other relevant documents furnished by the Company to support the fact that it is entitled to the beneficial provisions of the India- Singapore DTAA. The AO has erred in not appreciating the facts as disclosed by the Company through a declaration duly signed by the director of the Company furnished during the course of its assessment proceedings and the company duly satisfies Article 24 (Limitation of Relief clause) of India-Singapore DTAA.
The tribunal stated that the Tax Residency Certificate, even if it is not a conclusive evidence of a tax residency of an entity, it certainly is a statutory evidence and the burden is on the department to establish that the entity has been formed and operated in the manner that the only intention was to take benefit of the tax treaty without there being actual intention of an economic activity.
The tribunal opined that the draft assessment order, it also puts the burden on the assessee that the assessee has failed to conclusively establish its eligibility for exemption of taxability of Long Term Capital Gain (LTCG) in India on sale of shares, that the treaty benefits in the case of the assessee were accordingly withdrawn and the provisions of tax were made applicable. Thus, at first instance the initial burden was discharged by the assessee by filing the statutory evidence of tax residency in the form of TRC, but, it was not rebutted by any inquiry or evidence by the AO.
The tribunal while allowing the appeal held that transfer of shares resulted in long term capital gains (held for more than 24 months) for the relevant AY. However, the Company was not liable to pay any tax on the capital gains as the same was tax exempted under Article 13(4) of India-Singapore DTAA.
Case Title: Tyco Electronics Singapore Versus DCIT
Case No.: ITA No.1760/Del/2022
Date: 05.09.2024
Counsel For Appellant: Ajay Vohra
Counsel For Respondent: Vizay B. Vasanta
