The ITAT, New Delhi in Reverse Age Health Services Pte Ltd v. DCIT [ITA No.1867Del/2022 dated February 17, 2023] has directed the Revenue Department to delete the disallowance of Short Term Capital Gains (“STCG”) and allow the benefit of the provisions of an India- Singapore Double Taxation Avoidance Agreements (“DTAA”) to the assessee on the grounds that Section 90 (2) of the Income Tax Act, 1961 (“the IT Act”) allows the provisions of a DTAA to supersede the provisions of the IT Act, in case their application is more beneficial. Held that, though domestic GAAR provisions are applicable, the treaty benefit cannot be denied to the assessee.
This appeal has been filed by Reverse Age Health Services Pte Ltd. (“the Appellant”) challenging the order dated July 18, 2022 (“the Impugned Order”) framed under Section 143 (3), read with Section 144 C of the IT Act.
The Appellant’s Return of Income (“ROI”) was selected for complete scrutiny because of a high ratio of refund of Tax Deducted at Source (“TDS”). The TDS was deducted by M/s. VIC Enterprises Private Limited on the sale consideration of the sale of shares of Dr. Fresh Healthcare Private Limited (“Dr. Fresh Healthcare”) by the Appellant. The shares were acquired dated August 22, 2016 (“the Impugned Shares”) and were sold on January 2, 2018, resulting in STCG of INR 1,92,63,473/-. The Appellant claimed that the STCG amount of INR 1,92,63,473/- is not taxable as per Article 13 of India – Singapore DTAA and the entire TDS of INR 1,09,39,285/- has been claimed as refund.
The Revenue Department (“the Respondent”) denied the Appellant the benefit under Article 13 (4A) of the India – Singapore DTAA on the grounds that the Appellant had no economic substance or commercial substance (“the doctrine of substance over form”) and that it was a “shell” or a “conduit” company by invoking Article 3 (1) of the 2005 protocol to the India – Singapore DTAA.
The Appellant contended that, the Revenue Department completely ignored the tax residency certificate of the Appellant issued by the Singapore Tax Authority, the tax assessments carried out by the Singapore Tax Authority pertaining to the assessment between 2016 and 2018 Assessment Year (“A.Y”) 2016-2017 and A.Y 2017-2018 and the financials for the Appellant of the 3 years ending March 31, 2016, March 31, 2017, March 31, 2018.
The ITAT, New Delhi in ITA No.1867Del/2022 held as under:
Section 90 (2) of the IT Act:
“Agreement with foreign countries or specified territories
Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.”
Rule 10 U (1) (d) of the IT Act:
“(1) Chapter X-A not to apply in certain cases
(d) “any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of investments made before the [1st day of April, 2017] by such person.”
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