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2023 (10) TMI 14 - AT - Income TaxTax the surplus on sale of CCDs as income under the head "capital gains" - tax levied thereon @10% u/s 112 - denying the benefit of the Tax Treaty but accepting the valuation adopted by the Assessee - invoking the rule of consistency, AR argued that the interest earned on CCDs have been offered to tax in India in the tax return filed in India @ 10% as provided under the Tax Treaty. HELD THAT:- Assessee is a tax resident of Singapore and TRC issued by the Singapore Tax Authorities is on record. The Hon’ble Supreme Court in the judgment of Vodafone International Holdings B.V. vs. Union of India and Anr. [2012 (1) TMI 52 - SUPREME COURT] has held that Union of India vs. Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME COURT] is correct law and TRC is sufficient evidence to show residence of the contracting state. The valuation of CCDs is not in dispute. Hence, the only issue is according the benefits of India-Singapore Treaty pertaining to exemption under Article 13(4) of the Tax Treaty with regard to the capital gains earned on sale of CCDs. The revenue alleged that there is a scheme of tax avoidance as more than 30% of units in the RHT Trust are held through related parties. While it is a fact that 35.5% of shares were primarily held by FHIL, the remaining 64% was raised from public and institutional investors. The place of effective managements of the assessee is situated in Singapore owing to the conducting of Board meetings and placing of the Directors at Singapore. With regard to the contention of the revenue that there was no commercial rationale for FHL to incorporate wholly on subsidiary in Mauritius is of no relevance and commercial justification to establish the business trust in Singapore has been duly explained by the assessee. The applicant could demonstrate incurring the expenditure of more than $ 2,00,000 so as to come out of the allegation of being a shell entity. The circular of CBDT No. 789 dated 13.04.2000 and also the press release of 2013 mentioned above leaves no scope for the revenue to tax the amounts and deny the treaty benefits. It is also point for consideration that the interest on the CCDs has been rightly taxed by the revenue as per the treaty in the earlier years and now revenue cannot turn around and deny the benefits of the treaty in case of sale CCDs. Even considering the Limitations of benefit clause (LOB), the look through approach, doctrine of substance over form as relied by the revenue, the benefit to the assessee at this juncture cannot be denied. To conclude allegations of the revenue that: a. The scheme of arrangement employed by the assessee is a tax avoidance through treaty shopping mechanism- Not proved. b. The assessee company is not the real owner of the income so generated from the transaction. Accordingly, it lacks beneficial ownership- Not proved. c. The TRC is not sufficient to establish tax residency if the substance establishes otherwise- Sufficient. d. The control and management of the assessee company is also not present in Singapore but rather in India- Not proved. e. The assessee was listed on Singapore Stock Exchange in 2011 hence it shall not be deemed to be a shell/conduit company and hence the LOB clause of Article 3 (now deleted) 2005 Protocol to the DTAA is not applicable to the assessee. Appeal of the assessee is allowed.
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