The case stemmed from the global acquisition of Flipkart by Walmart in 2018. As part of this transaction:
The Taxpayer: eBay Singapore Services Pte. Ltd., a Singapore-incorporated entity, acted as a regional holding company for the eBay Group. It held a significant stake in Flipkart Singapore Private Limited.
The Transaction: eBay Singapore sold its entire shareholding in Flipkart Singapore to another Singapore-based company, FIT Holdings S.a.r.l. (part of the Walmart group), for a substantial sum of approximately INR 7,440 crore.
The Tax Claim: Being a tax resident of Singapore with a valid Tax Residency Certificate (TRC), eBay Singapore claimed that the massive short-term capital gains (STCG) from this sale were exempt from Indian tax under the India-Singapore DTAA.
The Indian tax authorities, however, challenged this. The Assessing Officer (AO) and later the Dispute Resolution Panel (DRP) denied the exemption. Their primary argument was one of "Place of Effective Management" (POEM). They contended that the real management and control of eBay Singapore were exercised not from Singapore, but from its ultimate parent, eBay Inc., in the U.S. If accepted, this would have meant applying the India-USA DTAA instead, potentially exposing the gains to Indian tax.
The Tribunal’s Decision: A Resounding Victory for Treaty Provisions
Rejecting the tax department's stance, the ITAT ruled in favour of eBay Singapore. The Tribunal’s reasoning provides crucial clarity on several legal fronts:
1. Valid Tax Residency and Effective Management in Singapore:
The Tribunal accepted that eBay Singapore was a bona fide tax resident of Singapore. It held a valid TRC, and more importantly, the facts demonstrated that its central management and control were indeed in Singapore. Key factors included:
None of the company's directors were based in the U.S.
Board meetings and critical investment decisions were conducted in Singapore.
This finding cemented the company's right to claim benefits under the India-Singapore DTAA.
2. The Specifics of the India-Singapore DTAA Prevail:
The core of the case revolved around the interpretation of Article 13 of the India-Singapore DTAA, which deals with "Capital Gains." The Tribunal provided a step-by-step analysis:
Articles 13(1) to 13(4C) cover specific types of capital gains, such as those from the sale of immovable property or shares of a company deriving its value principally from Indian immovable property.
Since the transaction involved the sale of shares of a Singapore company (Flipkart) by another Singapore company (eBay), none of these specific clauses applied.
Consequently, the gains fell under the residuary provision, Article 13(5), which states that gains "from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4" shall be taxable only in the state of which the alienator (the seller) is a resident.
As eBay Singapore was a resident of Singapore, the exclusive right to tax the gains was granted to Singapore, making it exempt in India.
3. Treaty Override and No "Look-Through" Clause:
The tax authorities had attempted to use India's domestic law—specifically the provisions that deem the transfer of a foreign company’s shares as an indirect transfer of underlying Indian assets—to tax the gain.
The Tribunal firmly shut this down, reiterating the established principle of treaty override under Section 90(2) of the Income-tax Act. When a DTAA provides a more beneficial regime for the taxpayer, its provisions override the domestic law. Since the India-Singapore DTAA offered an exemption, the deeming fiction of domestic law could not be invoked.
Critically, the Tribunal highlighted a key distinction between India's treaties. Unlike the treaties with Mauritius or Cyprus, which were amended to include specific "look-through" clauses for taxing gains on shares deriving value from Indian assets, the India-Singapore DTAA contains no such express anti-abuse provision for this scenario. In the absence of such clear language, the general protection of Article 13(5) must prevail.
Key Takeaways for International Investors
This ruling offers vital reassurance for cross-border investments structured through Singapore:
Treaty Protection is Paramount: The decision powerfully reaffirms that tax treaties are binding agreements. Their beneficial provisions will be upheld by courts, preventing tax authorities from applying domestic law to override them without a specific treaty-based anti-abuse rule.
Substance Over Form, Correctly Applied: While the tax department argued "substance" (the ultimate value in India), the Tribunal focused on the legal substance of the taxpayer in Singapore—its genuine residency and effective management. A valid TRC and real commercial activities in Singapore are key to claiming treaty benefits.
Clarity on Offshore Transfers: For now, the India-Singapore DTAA remains a robust shield for investors selling shares of a Singaporean company that holds Indian assets, provided the transaction is structured as a straightforward offshore transfer between two non-Indian residents.
The eBay Singapore case serves as a critical precedent, emphasizing that treaty protection cannot be denied based on general anti-avoidance principles without a specific legal basis in the treaty itself. It underscores the need for investors to ensure substantive
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