Fullerton Financial Holdings Private Limited Vs DCIT (ITAT Mumbai)
ITAT Mumbai: Treaty Benefit Cannot Be Denied to Temasek Entity Merely for Lack of Employees; ITAT Allows Capital Gains Exemption Under India–Singapore DTAA for Temasek Holding Company; ITAT: Principal Purpose Test Not Violated—Singapore Entity’s Investment Pre-2017 Grandfathered; ITAT: Absence of Employees Does Not Make a Company a Shell—Substance Shown Through Governance and Spending; ITAT Upholds DTAA Benefit for Singapore Holding Company—Rejects Shell Company Allegation; ITAT Mumbai: Sovereign Investment Entity Eligible for DTAA Capital Gains Exemption; ITAT: India Cannot Tax Gains of Temasek’s Singapore Arm on Sale of Indian NBFC Shares; ITAT Rejects Revenue’s ‘Shell Company’ Charge—Singapore Entity Proven Substantive and Independent; ITAT: Treaty Exemption Allowed as Investment Made Before PPT Amendment; ITAT Clarifies: Commercial Substance Exists Even Without Employees for Sovereign Investment Arms.
Summary: The Income Tax Appellate Tribunal (ITAT) Mumbai held that Fullerton Financial Holdings Pvt. Ltd., a Singapore tax resident and part of the Temasek Group, was entitled to capital gains exemption under Article 13(4) of the India–Singapore DTAA on the sale of shares of its Indian NBFC subsidiary. The Tribunal rejected the Revenue’s contention that the assessee was a shell or conduit company lacking commercial substance, noting that it was a policy-driven sovereign investment arm of the Government of Singapore engaged in long-term strategic investments. It observed that all key decisions were made in Singapore, the company maintained independent accounts and operations, and its annual expenditure exceeded SGD 200,000, thereby fulfilling the treaty’s substance requirements. The ITAT clarified that the absence of direct employees or group-appointed directors does not negate substance for sovereign investment entities that legitimately outsource management support. It further held that the investment, made in 2009–10, was grandfathered as it predated the 2017 introduction of the Principal Purpose Test. Concluding that the transaction represented a bona fide commercial divestment aligned with Temasek’s regional objectives, the Tribunal ruled that the capital gains were taxable only in Singapore, affirming the assessee’s eligibility for treaty protection.
