Blackstone Capital Partners (Singapore) Vi Fdi Three Pte. Ltd. Vs ACIT (Delhi High Court)
Delhi High Court held that capital gain earned on sale of shares by non-resident is not taxable in terms of Article 13(4) of India and Singapore (DTAA) based on Tax Residency Certificate. Also held that revenue has to accept Tax Residency Certificate and cannot go behind it.
Facts-
The core issue that came up for consideration in the present writ petition filed by the aggrieved petitioner-assessee was whether the respondent-revenue can go behind the tax residency certificate issued by the other tax jurisdiction and issue reassessment notice under Section 147 of the Income Tax Act, 1961 to determine issues of residence status, treaty eligibility and legal ownership.
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”) in two tranches, i.e. on 16th August, 2013 and 31st October, 2013.
During the year under consideration, i.e. A.Y. 2016-17, the petitioner sold all the equity shares of Agile to Igarashi Electric Works Limited (“Igarashi”) and other parties on 30th July, 2015.
The petitioner claimed that the gains earned by it on 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 with regard to the investment and sale of shares like the petitioner is a non-resident in India and majority of its Directors were residents of Singapore.
The petitioner’s ROI was processed u/s. 143(1) of the Act with no demand. Later on, a notice was issued to the petitioner u/s. 148 of the Act for re-opening of assessment.
Conclusion-
Held that this Court is of the view that the respondent-revenue cannot go behind the 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. Even the clarificatory press release dated 1st March, 2013 issued by the Finance Ministry pursuant to the 2013 amendment makes it clear that a TRC is to be accepted and tax authorities cannot go behind it. Further, since on the basis of repeated assurances by the Government of India which have been upheld by the Apex Court, the petitioner had invested in India, the respondent is estopped from arguing to the contrary.
Held that reopening of assessment based on the return of income must show ‘reasons to believe’ that income chargeable to tax has escaped assessment.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
The core issue that arises for consideration in the present writ petition is whether the respondent-revenue can go behind the tax residency certificate issued by the other tax jurisdiction and issue re-assessment notice under Section 147 of the Income Tax Act, 1961 (for short ‘the Act’) to determine issues of residence status, treaty eligibility and legal ownership.
FACTS
2. The relevant facts of the present case are that during the Assessment Year 2014-15, 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”) in two tranches, i.e. on 16th August, 2013 and 31st October, 2013.
3. 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 (“Igarashi”) and other parties on 30th July, 2015.
4. The petitioner electronically filed its return of income for the Assessment Year 2016-17 on 29th September, 2016. In terms of the said return of income, the petitioner claimed that the gains earned by it on 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 with regard to the investment and sale of shares like the petitioner is a non-resident in India and majority of its Directors were residents of Singapore.
5. The petitioner’s return of income was processed under Section 143(1) of the Act with no demand, on 8th October, 2016.
6. On 31st March, 2021 a notice was issued to the petitioner under Section 148 of the Act for the Assessment Year 2016-17. The petitioner filed a return of income on 28th April, 2021 and vide letter dated 28th April, 2021 requested for the reasons. After eight months the reasons were supplied to the petitioner vide letter dated 02nd December, 2021. The ‘Reasons’ are reproduced hereinbelow:-
“RECORDING OF REASONS FOR REOPENING THE CASE OF BLACKSTONE CAPITAL PARTNERS (SINGAPORE) VI FDI THREE PTE. LTD., A.Y. 2016-17
PAN: AAFCB5584L
1. Background:-
The assessee is a company andfiled ITR for the AY 2016-17 at nil income. ITR was processed u/s 143(1) of the Act, however no scrutiny assessment was made in this case.
Subsequently vide letter F.No. ITO/Intl.Tax (2)(1)(1)/2020-21/88 dated 19.03.2021; following information was received from ITO, TDS, Ward 2(1)(1), lntl. Taxn., New Delhi related to the assessee.
2. Information receivedfrom the ITO, TDS, Ward 2(1)(1), Intl. Taxn., New Delhi
In the case of M/s Igarashi Electric Works Ltd., (PAN AABC16394M), verification u/s 133(6) of the act was made w.r.t. foreign remittances made during FY 2015-16. On perusal of the documents furnished by the assessee as well as the information available on ITBA portal, it is revealed that during the year under consideration M/s Igarashi Electric Works Ltd., (PAN AABC16394M) made total foreign remittance of Rs.4,01,31,77,340/-, to M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., stating nature of Payment as consideration paid for acquisition of Shares. Further, the reason for non-deduction of tax was explained that M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., is a resident of Singapore and as such not subject to tax in India on Sale of said shares as per the provisions of India-Singapore DTAA. As per submission of the assessee, M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., has sold the shares ofM/s Agile Electric Sub Assembly Pvt Ltd., to M/s Igarashi Electric Works Ltd., for sale consideration of Rs. 4,01,31,77,340/- M/s Igarashi Electric Works Ltd., has relied upon the advice of Deloitte Haskins & Sell LLP for taxation of capital gain on part of M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd. On open source enquiry it is revealed that Black Stone Group Inc is a USA based alternative investment Management Company and thus controlled and managed from USA. As per filings of Blackstone Group with Securities Exchange Commission, USA, the funds were raised by Blackstone Group Inc., for investing through Blackstone Capital Partner VI (BCP VI), therefore, it appears that the source offunds and management of affairs ofBlackstone Capital Partners (Singapore) VI FDI Three Pte Ltd., was from USA. Hence, M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., is not entitled for treaty benefit of Singapore. There is an apprehension that M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., is not beneficial owner of this transaction.
As per the information received in case of the assessee, the assessee has indulged in following transactions during the year:
