eBay Singapore eligible for DTAA benefit as STCG on sale of Flipkart Singapore’s shares not taxable in India: ITAT Mumbai

eBay Singapore Service Private Limited Vs DCIT (ITAT Mumbai)

Facts:

• The assessee, eBay Singapore Services Pvt. Ltd. (“eBay Singapore” or “the assessee”), is a company incorporated in Singapore in 2003 and part of the global eBay Group. It provides a wide range of e-commerce support services to group entities, including product management, business development, legal compliance, customer support, finance, and human resources. Over the years, it has also engaged in strategic investments in the Asia-Pacific region and, from 2018, has operated an online platform facilitating exports from Indian sellers to international buyers. Throughout its existence, the assessee has been treated as a tax resident of Singapore and has consistently obtained valid Tax Residency Certificates (TRCs) from the Singapore tax authorities.
• During the financial year relevant to AY 2019–20, the assessee sold its shareholding in Flipkart Singapore, a Singapore-incorporated company, to Fit Holding S.a.r.l., a subsidiary of Walmart Group, for a total consideration of 7,440.79 crore. This sale followed eBay’s earlier strategic decision to divest its Indian e-commerce business to Flipkart in 2017, in exchange for an equity stake in Flipkart Singapore and a primary cash infusion of USD 500 million. Subsequently, Walmart acquired a majority stake in Flipkart, compelling the assessee to sell its shares as part of the larger acquisition transaction. Upon receipt of the proceeds, the assessee retained approximately 30% for future business activities and distributed the remainder as dividend and capital repayment to its shareholder, eBay International AG.
• The assessee claimed that the capital gains arising from the sale were not taxable in India under Article 13(5) of the India–Singapore Double Taxation Avoidance Agreement (DTAA), as the transfer involved shares of a Singapore company between two Singapore tax residents. However, the Assessing Officer (AO) denied the claim, asserting that the “head and brain” of eBay Singapore were situated in the United States with eBay Inc., and that control and management were exercised from there. The AO concluded that the India–US DTAA was applicable, under which the gains would be taxable in India. He also argued that the layered structure effectively resulted in the ultimate economic benefit accruing to the U.S. parent entity. The Dispute Resolution Panel (DRP) upheld the AO’s position. Aggrieved, the assessee preferred an appeal before the ITAT.
• The assessee’s submissions were multi-faceted, grounded both in factual evidence and well-established principles of international tax law. It was argued that the assessee was a tax resident of Singapore as per Article 4 of the DTAA and held valid TRCs for the relevant period, which under settled law constituted conclusive proof of residency (UOI v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC); CBDT Circular No. 789, dated 13 April 2010). Accordingly, it was entitled to invoke the beneficial provisions of the India–Singapore DTAA.
• It was contended that Article 13(5) specifically governs taxation of gains from the alienation of property not covered under the preceding paragraphs, including shares of foreign companies. Since both the seller (eBay Singapore) and the company whose shares were sold (Flipkart Singapore) were tax residents of Singapore, the gains were taxable exclusively in Singapore. The domestic deeming fiction under Section 9(1)(i) of the Income-tax Act, 1961, read with Explanation 5, could not override the allocation of taxing rights under the treaty, as held in Vodafone International Holdings B.V. v. UOI (341 ITR 1) and Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT [(2021) 125 taxmann.com 42 (SC)].
• On the allegation of U.S.-based control, the assessee produced extensive evidence showing that the board of directors primarily Singapore-based, took all key strategic decisions, including those relating to investment and divestment of Flipkart shares. None of the directors held managerial positions in eBay Inc. during the relevant period, and board meetings were held exclusively in Singapore. It was further pointed out that there was no overlap between the directors of eBay Singapore and those of eBay Inc., and no nominee directors had been appointed by the U.S. parent. The company also had significant business operations, employees, and revenues, satisfying the Limitation of Benefits (LOB) clause under the DTAA. Therefore, it could not be characterised as a “shell” or “conduit” entity.
• The assessee also contended that indirect transfers are outside the scope of taxation under the India–Singapore DTAA. Relying on Sanofi Pasteur Holdings SA v. Department of Revenue [(2013) 354 ITR 316 (AP HC)], it was argued that treaty provisions must be interpreted based on their plain language and cannot be expanded by implication. In the absence of a “look-through” provision—present in other treaties like the India–Mauritius and India–Cyprus DTAAs—India could not tax capital gains arising from the alienation of shares of a foreign company, even if such shares derived substantial value from underlying Indian assets.
• The Revenue’s case centred on the argument that the transaction was effectively controlled from the United States and that eBay Inc. was the ultimate beneficiary of the sale proceeds. It was argued that the India–US DTAA should govern the transaction instead of the India–Singapore DTAA. The Revenue also contended that the sale was part of a layered transaction structured to route capital gains through Singapore solely for tax avoidance purposes. Emphasis was placed on the ruling in AAR v. Tiger Global International II Holding [(2025) 170 taxmann.com 706], where similar layered structures were examined for taxability in India. Based on these contentions, the Revenue maintained that the gains were taxable under the domestic law as well as under the India–US DTAA.

Issues:

• Whether eBay Singapore was entitled to the benefits of the India–Singapore DTAA, notwithstanding the Revenue’s claim that control and management were exercised from the United States.
• Whether the short-term capital gains arising from the sale of shares of Flipkart Singapore were taxable in India or exclusively in Singapore under Article 13(5) of the DTAA.
• Whether the domestic deeming provisions under Section 9(1)(i) could override treaty allocation of taxing rights.

Obervations:

• The Tribunal engaged in a detailed examination of the evidence and applicable legal principles. It found that the Revenue had failed to substantiate its claim that control and management were exercised from the United States. The evidence presented by the assessee—including board resolutions, directorial records, and minutes of meetings—established that all key decisions were made by the board in Singapore. There was no evidence of U.S. involvement in decision-making or of eBay Inc. being the “ultimate beneficiary” of the transaction. Mere assertions without corroborative material could not displace the legal and factual presumption of Singaporean residency.
• The Tribunal then turned to the interpretation of Article 13 of the India–Singapore DTAA. It held that none of the specific clauses (1 to 4C) applied to the present case: Clause 1 concerned immovable property; Clause 2 applied only where a permanent establishment existed in India, which was not the case since the assessee had sold its Indian business in 2017; Clause 3 dealt with ships and aircraft; Clause 4A applied to grandfathered shares acquired before 1 April 2017; Clause 4B covered cases where the alienator and the company whose shares were being sold were residents of different contracting states. Consequently, the case fell squarely within Clause 5, which covers residual capital gains and allocates exclusive taxing rights to the state of residence of the alienator (Singapore).
• The Tribunal reaffirmed that treaty provisions override domestic law under Section 90(2) of the Act, and domestic deeming provisions cannot be invoked to expand the scope of source-based taxation where the treaty does not provide for it. Referring to Vodafone, Sanofi, and Engineering Analysis, the Tribunal held that indirect transfers of foreign shares cannot be taxed in India absent an express provision in the DTAA. It also noted that the India–Singapore DTAA does not contain a “look-through clause” similar to those introduced in other treaties through later protocols. As a result, Article 13(5) operated as a shield against source-based taxation of such gains.

FULL TEXT OF THE ORDER OF ITAT MUMBAI