Bombay HC relied upon foreign country tax documents.

  

The decision of Bombay High Court in the case of Commissioner of Income-tax (IT)-2 v. Citicorp Investment Bank (Singapore) Ltd. [2023] 151 taxmann.com 501 (Bombay)

 

Facts of the Case

·       Citicorp Investment Bank (Singapore) Ltd(“Citicorp”) is a tax resident of Singapore and is registered as a Foreign Institutional Investor (FII) in the debt segment with the Securities and Exchange Board of India (SEBI). During the year under consideration, it had earned substantial capital gain during the year on the sale of debt instruments and claimed exemption under Article 13(4) of the India-Singapore Double Taxation Avoidance Agreement (DTAA).

·       During the assessment proceedings, the Assessing Officer (AO) invoked Article 24, contending that though the provisions of Article 13(4) allow exemption of Capital gains in the source country, i.e., India, provisions of Article 24 of DTAA provides for restriction of exemption of such capital gains to the extent of repatriation of such income to other country, i.e., Singapore.

·       In response, the Citicorp furnished a certificate from Singapore Authorities confirming Citicorp’s taxation in Singapore. Unsatisfied, AO made additions to the Citicorp’s income by denying the exemption.

·       Aggrieved by the said treatment of capital gains, Citicorp approached the Dispute Resolution Panel (DRP) wherein the DRP upheld the order passed by the tax officer. Pursuant to which Citicorp preferred an appeal before the Mumbai Tax Tribunal.

·       Mumbai Tax Tribunal allowed the Citicorp’s appeal. The Mumbai Tax Tribunal overturned the contention of the tax officer and held that the Citicorp is eligible to claim the exemption under Article 13(4) of the DTAA.

·       The Tax Authorities, aggrieved by the order of the Mumbai Tax Tribunal, preferred an appeal before the Bombay High Court.

 

Decision of the Bombay High Court

·       The High Court held Citicorp would come under Article 13(4) of DTAA, which says gains from the alienation of any property (debt instrument in this case) shall be taxable only in Singapore, of which the alienator (Citicorp) is a resident. Thus, the entire capital gain shall be taxed in Singapore.

·       The Hon’ble Bombay High Court further held that the provisions of Article 24(1) of the DTAA would not trigger wherein the entire income is subject to tax under the laws in force in Singapore regardless of remission or receipt in Singapore.

·       In the instant case, Singapore authorities have themselves certified that the capital gain income would be brought to tax in Singapore without reference to the amount remitted or received in Singapore. Such certificates issued by the Singapore Tax Authorities will constitute sufficient evidence for accepting the legal position. In this regard, a reference was made to the Central Board of Direct Taxes (CBDT) Circular No.789, dated 13 April 2000 issued with reference to India-Mauritius DTAA, which stated that certificate issued by Mauritius authorities shall constitute sufficient evidence.

·       Therefore, the entire capital gain shall be taxed in Singapore as per Article 13 without invoking Article 24 of the Tax Treaty.

Impact of the Ruling:

·       From a Resident point of view, Indian Company can rely on the documents obtained from the Tax authorities of a Foreign Country by a Non- Resident to pass on the benefits of DTAA, if the same is Beneficial.

·       The Indian Tax Authorities cannot question the documents so obtained.