SC Lowy P.I. (LUX) S.A.R.L Vs ACIT (ITAT Delhi)
The assessee, SC Lowy P.I. (LUX) S.A.R.L, a limited liability company incorporated in Luxembourg and a subsidiary of SC Lowy Primary Investments Limited (Cayman Islands), appealed against the denial of treaty benefits by the AO during assessment under the Income Tax Act. The AO had concluded that the arrangement constituted tax avoidance via treaty shopping, alleging that the Luxembourg entity was merely a conduit, with the real owner being the Cayman-based holding company. The AO also questioned the validity of the TRC (Tax Residency Certificate) and claimed lack of beneficial ownership, commercial rationale, and control, thereby denying DTAA benefits.
The key issues before the ITAT were:
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Whether the TRC issued by Luxembourg authorities suffices for availing DTAA benefits, including compliance with the Limitation of Benefits (LOB) clause under the respective DTAA and MLI.
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Whether the Revenue could impose additional conditions beyond those specified in the treaty to deny DTAA benefits.
The ITAT referred to the Delhi High Court decision in Tiger Global International III Holdings, which held that:
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TRCs issued by competent authorities must be accorded due weight and presumed valid unless there is cogent evidence of fraud, sham transactions, or complete absence of economic substance.
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Circular No. 789/2000 confirms that a TRC is sufficient evidence to establish fiscal residence and beneficial ownership.
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The Revenue cannot rely on mere suspicion to deny treaty benefits and can pierce the corporate veil only under narrow circumstances of fraud or illegality with stringent standards of proof.
The Tribunal observed that under the MLI with Luxembourg, Article 29 on Limitation of Benefits was modified, requiring the Revenue to establish that obtaining treaty benefits was one of the principal purposes of the arrangement. Mere structural arrangements or the presence of a holding company does not invalidate the treaty claim without evidence.
The assessee submitted a valid TRC and demonstrated substantial operations in Luxembourg, including incorporation as an investment holding company, investments in distressed assets, registration with SEBI as a Category II Foreign Portfolio Investor, and a diversified geographical investment portfolio. The assessee filed tax returns and paid taxes in Luxembourg on worldwide income, including income from Indian investments. Operational expenses for legal, consulting, and administrative purposes were also incurred in Luxembourg.
The Tribunal found that:
