Tyco Electronics Singapore Pte Limited Vs DCIT (ITAT Delhi)
Allowability of DTAA Benefit on long-term capital gain (LTCG) from sale of share of Indian Entity if having valid Tax Residency Certificate (TRC)
Conclusion: Where there was a valid Tax Residency Certificate (TRC) which was certainly statutory evidence and the company had been availing the treaty benefits with respect to such income for all such years, the benefit under Article 13(4) on long term capital gains on sale of share of an Indian company was allowable and no liability of tax on the same.
Held: Assessee-company was engaged in the business of trading of electromechanical relays, wire and wireless equipment, high performance polymeric products, highly specialized energy related products, was subject to scrutiny. During assessment, AO disallowed assessee’s claim that being a tax resident of Singapore, assessee was covered by the beneficial provisions of the India-Singapore DTAA under Article 11, thus interest income received from Compulsory Convertible Debentures (CCD) could not be taxed under the provisions of the Act. AO held the capital gain on sale of shares of an Indian company to be taxable and accordingly, made addition of Rs. 211.61 Crore by applying the tax as per rates of the Act as against the beneficial rate, claimed by Assessee. Assessee, as part of global restructuring, sold 10,37,030 shares of TE Connectivity Global Shared Services India Private Limited to a third party resulting in the long-term capital gains and claimed that it 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. It was held that TRC, although not conclusive evidence of a tax residency of an entity, it certainly was statutory evidence and the burden was on the Revenue to establish from the facts and circumstance that the entity had been formed and operated in a manner that the only intention was to take DTAA benefit without there being actual intention of an economic activity. The initial burden was discharged by assessee by filing the statutory evidence of tax residency in the form of TRC, but, the same was not rebutted by any inquiry or evidence by the AO. As per the applicable Limitation of Benefit clause, assessee fulfilled the specified criterions for having significant business operations/activities in Singapore, and hence, it could not be alleged that assessee was not a resident in Singapore and that it had no taxable existence in any other country. The Company had been consistently filing its return of income in India and has been availing the treaty benefits with respect to such income for all such years. AO had not denied the treaty benefits in any of such years. Without assigning any reasons for drifting from the rule of consistency, AO could not have sustained the draft addition. The transaction of sale of shares of Indian company which the AO alleged to be out of tax evasion and treaty shopping was, in fact, a long-term investment decision by the Singapore based Assessee which had sufficient managerial and operational structure to run an entity based in Singapore. Hence, addition was deleted.
