9911796707
TMI Blog2023 (9) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 2. That the Final Assessment Order passed by the AO is not in conformity with the Directions dated 27.04.2022 issued by the Dispute Resolution Panel ("DRP") and is therefore liable to be quashed being in gross violation of the strict mandate of section 144C(13) of the ITA. 3. That the AO has demonstrated most callous approach while conducting the verification as directed by the DRP on very specific issues, thereby transgressing his authority under the ITA, and rendering the Final Assessment Order bad in law and liable to be quashed. 4. That the verification carried out by the AO in the Final Assessment Order demonstrates complete non- application of mind, since the same is based wholly on assumptions, surmises and conjectures and is explicitly in contradiction to the findings of facts as carried out by the DRP and is thus liable to be struck down. 5. That the Final Assessment Order passed by the AO does Same as not mention his office or designation and is therefore, not a validly authenticated electronic record in terms of section 282A(1) of the ITA read with Rule 127A(1)(b) of the Income-tax Rules, 1962. Re: Short term capital gains of INR 1,92,63,473/- on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded by the DRP in its Directions. 14. That the observation of the AO in Final Assessment Same as a Order that the business activities of the Appellant were not conducted from Singapore since no expenses on account of electricity, of electricity, employee salary, travelling. communication etc. were incurred and reported by the Appellant during AY 2018-19 is based on selective reading of financial statements of the Appellant and is therefore perverse. 15. That the over-emphasis by the AO on lack of expenses like electricity, employee salary, travelling, communication etc., is no ground for denying benefit of the DTAA, since that is an approach which may be applicable to brick and mortar companies and not in the case of Appellant. 16. That the finding of the AO qua verification as directed by the DRP vis-à-vis the issue at hand, is wholly perverse because for the period under consideration, neither any consultancy fee was paid nor received by the Appellant from any entity and hence there was no question of any benefit having been passed on to any person. Re: Long term capital loss of INR 3,16,74,056/- on account Pvt. Ltd. by Dr. Fresh Sez Ph 1 Pvt. Ltd. by the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Rules, 1962 ("Rules"). 24. That the AO erred in denying the benefit of the DTAA to the Appellant, disregarding that the threshold for prevention of fiscal avoidance as contained under Chapter X-A of the ITA was lower than that contained in the DTAA. 25. That the AO erred in failing to appreciate that in terms of section 90(2) of the ITA, the ITA to the extent it is more beneficial, even issues in relation to fiscal avoidance, will be applicable over the DTAA. 26. That the AO erred in denying the Appellant the benefit of Article 13(4A) of the DTAA in disregard to Rule 10U(1)(a) of the Rules, which exempts arrangements having tax benefit not exceeding INR 3,00,00,000/- from the purview of General Anti- Avoidance Rule contained in Chapter X-A of the ITA. 27. That without prejudice to the fact that the AO has not specifically invoked Article 24A of the DTAA, since income from the transfer of investments made by the Appellant were specifically exempt from the General Anti-Avoidance Rule contained in Chapter X-A of the ITA read with Rule 10U(1)(a) and/ or (d) of the Rules, there was no occasion for the AO to invoke the test of "substance over form" to deny the benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AO to explain the commercial rationale behind the creaton of the Assessee company and also to prove with evidence as to whether the Assessee was engaged in real economic activity in Singapore. In response to that, the Assessee submitted that it was incorporated for the purpose of investing in various kinds of assets for generating profits through capital appreciation, dividends etc. The Assessee further stated that it holds valid TRC in Singapore and has carried out sale of securities during the year under consideration. It also submitted that it had employed qualified director to carry out its business activity. Its books are maintained and audited in Singapore and regular corporate tax returns were duly filed in Singapore. 7. The ld AO observed that the Assessee has invested only in two companies throughout its existence viz. DFHPL on 22.08.2016 and DFHPPL on 12.12.2011 and 04.03.2015. The Assessee company then disposed of these investments on 02.01.2018. Further, for the years 2016, 2017 and 2018, revenue and expenses were booked under consultancy head- meaning thereby, that revenue is for consultancy services rendered and expenses towards consultancy services taken. Moreove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lleged by the ld AO. The ld AO had alleged that there is lack of beneficial ownership at the level of the Assessee just due to the fact that the proceeds from sale of shares of DFHPL and DFSPPL have been used to repay the loans obtained by the Assessee from its holding company. In this regard, the Assessee submitted that the settlement agreement entered by the Assessee with the buyer of the shares proves beyond doubt that the Assessee is a beneficial owner of the shares. Further, it was pointed that TRC issued by Singapore Tax authorities would indeed serve as valid proof that Assessee is a tax resident of Singapore and accordingly eligible to claim treaty benefit of India-Singapore Treaty. Further, with regard to the financials of the Assessee for the years ending on 31.08.2016 and 31.08.2017, the Assessee submitted that it had indeed incurred operating expenses 221160 SGD for 2016 and 221277 SGD for 2017. Further, it was pointed out that there was no consultancy revenue earned and no consultancy expenditure incurred for the year 2018 by the Assessee. Admittedly, the shares were sold by the Assessee company in the year 2018 relevant to AY 2018-19. Moreover, it was pointed out befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.2018 between Mr. Sumeet Nanda, Mr. Puneet Nanda, Ms. Shikha Nanda, Mr. Ritesh Kumar Mittal, Dr. Fresh Assets Ltd, The Golden State Pte Ltd (Assessee herein before us), Reverse Age Health Services Pte Ltd, Mr. V. C. Burman, Mr. Abhay Kumar Aggarwal, Mr. Ajay Kumar Marwah, Mr. Arun Gupta, Mr. Pankaj Bharadwaj, Ms. Vasudha Mehra, Mr. Atul Bansal, VIC Enterprises Ltd, New Age Capital Services Pvt. Ltd, Burman Finvest Pvt. Ltd, Touchstone Fund Advisors Pvt. Ltd, Burman GSC Estate Pvt. Ltd, Dr. Fresh Healthcare Pvt. Ltd, Dr. Fresh SEZ Phase I Pvt. Ltd, Dr. Fresh Buildcon Pvt. Ltd, Burman GSC Pvt Ltd, Burman GSC Fund Management Pvt. Ltd and Burman GSC Serviced Apartments Operations Pvt. Ltd before the ld AO. On perusal of the said agreement, a plain reading would make it clear that the Assessee had filed a petition before the Hon'ble National Company Law Tribunal (NCLT), New Delhi by placing the settlement agreement before it and that no company would file bogus petition before NCLT just to obtain tax benefit. This goes to prove that the dispute was a genuine dispute and to avoid any further damage to the parties involved, the Assessee entered into a settlement agreement and disposed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany if the annual expenditure on operations in that contracting state (i.e. Singapore in the present case) is less than SGD 200000 in Singapore or Rs. 50,00,000/- in India, as the case may be, for each of the 12 month periods in the immediately preceding period of 24 months from the date on which the capital gains arose. 13. It was submitted that both the aforesaid conditions are not satisfied in the instant case. The Assessee, as stated earlier, was incorporated in 2009 in Singapore as an investment company engaged in investing in various class of assets for generating profit through capital appreciation, dividends etc. The Assessee during the year had indeed sold the shares held by it in Indian entities for a fair consideration (which is not disputed by the ld AO) and had used the proceeds thereon for repayment of loan to its holding company which was subsisting in the books of the Assessee company. The Assessee company is doing operations in Singapore for 8 years prior to the date of transfer of shares. The Assessee company have been regularly filing its tax returns in Singapore and assessment orders for three years were indeed passed by the Singapore tax Authorities which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld AO that affairs and governance structure of the company were managed just to take benefit of treaty, as inconclusive. The Assessee is regularly engaged in the business for last many years and the ld AO has not brought any incidence showing that the management of affairs of the company were carried out from a place outside Singapore. Further, Article 24A of India-Singapore DTAA is a deeming provision requiring strict construction and unless it is proven otherwise, the denial of TRC may not be resorted to. The ld DRP observed that in order to deny the benefits available to the Assessee in the treaty, there has to be some cogent evidence, rather than conjecture, with the revenue and the onus is on the revenue to prove otherwise. The ld DRP relied on the decision of the Hon'ble Supreme Court in the case of Vodafone International Holding Vs. Union of India reported in 17 taxmann.com 202 and by quoting the relevant observations made thereon, held that revenue has power to lift the corporate veil in case of sham transactions, however, the revenue may invoke the "substance over form" principle or "piercing the corporate veil" test only after it is able to establish on the basis of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to non-grant of deduction for premium component in the cost of acquisition of shares, the ld AO observed that Assessee has not submitted any documentary evidence like valuation report to justify the share premium on both the transaction of share acquisition. Accordingly, the share premium component in both the transaction was not considered by the AO. 19. The ld. AR filed written submissions on 29.11.2022. The ld. DR also filed his written submissions dated 06.12.2022. Later the ld. AR also filed a rejoinder to the submissions made by the ld. DR. Considering all these submissions that are placed on record, our findings are as under:- a) At the outset, we hold that the ld. AO while passing the final assessment order had not followed the directions of the ld. DRP. As per the provisions of section 144C(10) of the Act, every direction issued by the ld. DRP shall be binding on the ld. AO and that the ld. AO is not empowered to raise any new issue in the giving effect proceedings and continue the addition based on some other reasoning. b) With regard to the claim of long term capital loss of Rs 3,16,74,056/-, we find that the ld. AO in the draft assessment order had not doubted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecords before the ld. AO which would enable him to draw adverse conclusion on the issue of allowability of long term capital loss on sale of shares. In this factual background, we hold that the ld. AO had not adhered to the directions of the binding directions of ld. DRP with regard to denial of deduction for premium component paid on acquisition of shares of DFSPL. c) We find that the ld. DRP had directed the ld. AO to examine two aspects before framing the final assessment order viz. a) Whether the affairs of the Assessee were controlled from outside Singapore and b) Whether any benefit in the form of interest, dividend or otherwise had been paid by the Assessee to BVI entity. With regard to first direction of ld. DRP to the ld. AO to check whether the affairs of the Assessee were controlled from outside Singapore, the ld. AO simply reiterated what has been stated by him in the draft assessment order. The draft assessment order was the subject matter of adjudication by the ld. DRP and the ld. DRP on perusal of the same had directed the ld. AO to give a clear finding after due verification as to whether the affairs of the Assessee company were controlled from outside Singapore. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity and hence the benefit has been passed on by the Assessee company to BVI entity. We find from the financials of the Assessee company for the year under consideration, absolutely no consultancy charges had been paid to any entity during the year and there is no debit towards consultancy charges paid in the financials. The ld. AO had considered the payment of consultancy charges made by the Assessee in the earlier years and linked the same to the year under consideration. We find that the ld. AO had approached the entire issue with a pre-conceived mind in order to reach the pre-determined destination of denying the treaty benefits somehow to the Assessee. e) With regard to the short term capital gains in the sum of Rs 1,92,63,473/- earned by the Assessee, we find that the Assessee had claimed that in view of Article 13(4A) of India Singapore DTAA, the same would be liable to be taxed only in Singapore and not taxable in India. The ld. AO had denied the treaty benefits to the Assessee. The ld. DRP had observed that the conclusions of the ld. AO for denying the treaty benefit to be inconclusive. Once the first direction given by the ld. DRP to the ld. AO as stated supra had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Reverse Age Health Services Pte Ltd for Asst Year 2018-19 in page 5 of his order thereon had observed that in the case of sister concern i.e. The Golden State Capital Pte Ltd (assessee herein before us), tax avoidance has been established for the same transaction conclusively. Hence it could be seen that the facts adjudicated by this Tribunal in the Reverse Age case are identical to the facts of the assessee before us. The operative portion of the decision of this Tribunal in the case of Reverse Age Health Services Pte Ltd are as under:- 9. At this stage it would be pertinent to refer to the decision of the Hon'ble High Court of Delhi in the case of Black Stone Capital Partners, Singapore in W.P.(C) 2562/2022 decided on 30.01.2023 and the most relevant observations of the Hon'ble High Court pertinent to the facts of the appeal under consideration read as under :- "73. In the objections dated 28th December, 2021, the petitioner has furnished the details of compliance with the LOB clause to the India- Singapore DTAA. The Assessing officer has not questioned the satisfaction of the LOB clause or the Independent Chartered Accountant certificate at any stage except in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of India-Singapore DTAA to the extent at it is more favourable than the Act. 79. Section 90(4) of the Act provides that a non-resident taxpayer to whom a DTAA applies, shall not be entitled to claim any relief under DTAA unless a certificate of it being a resident (i.e. Tax Residency Certificate) of such country is obtained from the Government of that country. Section 90(4) of the Act clarifies that a non-resident taxpayer is eligible to claim DTAA benefits. 80. Article 1 of the India-Singapore DTAA states that the tax treaty applies only to one or more person who is a resident of one or more contracting state. Article 3(l)(j) of the said DTAA defines a person to include an individual, a company, a body of persons and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States. The relevant extract of Article 3(1) (j) is provided below: "(]) the term "person" includes an individual, a company, a body of persons and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States" 81. Further, as per Article 3(l)(d) of the India-Singapore DTAA, a Company h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court judgment in Union of India v. Azadi Bachao Andolan (supra) is reproduced hereinbelow: - "9 Sometime in the year 2000, some of the income tax authorities issued show cause notices to some FIIs functioning in India calling upon them to show cause as to why they should not be taxed for profits and for dividends accrued to them in India. The basis on which the show cause notice was issued was that the recipients of the show cause notice were mostly 'shell companies' incorporated in Mauritius, operating through Mauritius, whose main purpose was investment of funds in India It was alleged that these companies were controlled and managed from countries other than India or Mauritius and as such they were not "residents" of Mauritius so as to derive the benefits of the DTAC. These show cause notices resulted in panic and consequent hasty withdrawal of funds by the FIIs. The Indian Finance Minister issued a Press note dated April 4, 2000 clarifying that the views taken by some of the income-tax officers pertained to specific cases of assessment and did not represent or reflect the policy of the Government of India with regard to denial of tax benefits to such FIIs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax incentives given by them, such as tax holidays, grants, etc. 123. Developing countries need foreign investments, and the treaty shopping opportunities can be an additional factor to attract them. The use of Cyprus as a treaty haven has helped capital inflows into eastern Europe. Madeira (Portugal) is attractive for investments into the European Union. Singapore is developing itself as a base for investments in South East Asia and China. Mauritius today provides a suitable treaty conduit for South Asia and South Africa. In recent years, India has been the beneficiary of significant foreign funds through the "Mauritius conduit". Although the Indian economic reforms since 1991 permitted such capital transfers, the amount would have been much lower without the India-Mauritius tax treaty. 124 Overall, countries need to take, and do take, a holistic view. The developing countries allow treaty shopping to encourage capita and technology inflows, which developed countries are keen to provide to them. The loss of tax revenues could be insignificant compared to the other non-tax benefits to their economy. Many of them do not appear to be too concerned unless the revenue losses are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eny benefits of the DTAA. 89. In the Finance Bill, 2013 as introduced in the Lok Sabha on 28th February, 2013, the Union of India sought to insert sub-Section 5 in Section 90 of the Act to stipulate precisely what the learned counsel for the respondent had argued namely that TRC shall be a necessary eligibility condition but shall not constitute sufficient evidence of residency and shall not be binding on the authorities. Sub-Section 5 of Section 90 of the Act sought to be introduced by way of proposed amendment is reproduced hereinbelow: - "21. In section 90 of the Income Tax Act,- (a) to (b) ** (c) after sub-section (4) and before Explanation 1, the following subsection shall be inserted, namely: - "(5) The certificate of being a resident in a country outside India or specified territory outside India, as the case may be, referred to in subsection (4), shall be necessary but not a sufficient condition for claiming any relief under the agreement referred to therein." 90. However, serious concerns were expressed by the Foreign investors with regard to the aforesaid proposed amendment. On the very next day, namely 1st March, 2013 the Finance Minister vide Press release c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to accrue arise to or received or deemed to be received by any person from transfer of investments made before the first day of April, 2017 by such person." 17. In the light of the aforementioned relevant provisions and rules, in the case in hand the short term capital gain is Rs. 1,92,63,473/- the tax on which is below the threshold set out in Rule 10 U (1) (a) (supra) further the impugned shares were acquired by the assessee on 22.08.2016 which is prior to the cut off date set out in Rule 10 U (1)(d) (supra). 18. On these undisputed facts it can be safely concluded that assuming domestic GAAR provision are applicable but for the aforestated facts the treaty benefit cannot be denied to the assessee. 19. The AO / DRP have also invoked the doctrine "substance over form" to deny the benefit of Article 13 (4A). In our considered opinion the said doctrine is prior to the codification of domestic GAAR and the legislators were conscious enough when they were providing exemptions under Chapter X-A of the Act. 20. Even the treatment of the assessee company as "Shell" or "conduit" also do not hold any water in as much as the veracity of the expenditure incurred by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
