TMI Blog2023 (10) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1 The Ld. AO and Ld. Panel basis own surmises and conjectures has grossly erred on facts and in law in denying the beneficial provisions of DTAA between India and Singapore without appreciating that the Appellant has duly furnished a Tax Residency Certificate ( TRC ) obtained from the Singapore Revenue Authorities evidencing its residential status of Singapore and being entitled to avail the DTAA benefits. 2.2 The Ld. AO and the Ld. Panel has grossly erred on facts and in law by alleging that the Appellant lacks economic substance in Singapore as per the Limitation of Benefit (LOB) clause in India-Singapore DTAA and denying the DTAA benefit without appreciating that the Appellant fulfills all conditions of LOB clause as prescribed under the DTAA. 2.3 The Ld. AO has grossly erred in ignoring the facts that the Appellant has obtained all necessary approvals and complied with necessary filings in reference to impugned transaction of CCDs issued by Fortis Hospotel Limited (FHTL) with regulatory authority i.e. RBI without any inquiries/objections being raised by the regulatory body. 3. The Ld. AO and the Ld. Panel has grossly erred on facts in concluding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f and Phelps. 5.2 The Ld. AO has not appreciated that the sale consideration on INR 2444 per CCD has itself been accepted by the Ld. AO while computing the capital gain on sale of CCD by the Appellant. 5.3 The Ld. AO failed to appreciate that the Ld. Panel has not provided any observation or direction to verify the fair market value of CCD. 6. The Ld. AO and the Ld. Panel grossly erred on facts and in law in treating the transaction of sale of CCD as sale of equity instruments, without appreciating that the Appellant has never claimed it as an equity instrument and has always claimed that CCDs are debt unless converted into equity. 6.1 The Ld. AO failed to appreciate that, in any case, both sale of equity as well as debt instruments were not taxable in India prior to 1st April 2017 as per Article 13(4) of DTAA between India Singapore. 7. That the Ld. AO has grossly erred in law by enhancing the income which was not subject matter of dispute raised in draft assessment order and before Ld. Panel. 7.1 The Ld. AO has grossly erred in law by computing surcharge and cess on total assessed income of the Appellant, without appreciating that (a) interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Limited (FHML), an Indian incorporated company. Further, as per the laws in Singapore, all assets of the Trust has to be held by the trustee manager directly in its capacity as trustee-manager or indirectly through one or more holding subsidiaries. Accordingly, RHT Trust made all the investments via the Assessee, being its 100% subsidiary through money raised from IPO and debts/ loans obtained by the Assessee. 5. The Assessee had subscribed to, inter alia, 87,04,000 CCDs of face value of Rs. 1,000 each issued by Fortis Hospotel Limited ( FHTL ) in October 2012 for an aggregate consideration of Rs. 870,40,00,000/-. The subscription to CCDs issued by FHTL was made by the Assessee with due intimation to Reserve Bank of India ( RBI ) which was duly acknowledged and approved by the RBI vide letter dated 13 th August, 2013 (enclosed at pages 116 to 117 of the paper book Volume 1). 6. 51% of the said CCDs (44,39,040 CCDs) were sold during the previous year relevant to assessment year under consideration to Fortis Healthcare Limited ( FHL ) for aggregate sale consideration of Rs. 1099,98,40,802/-. The surplus on sale amounting to Rs. 656,08,00,802/- was claimed not liable to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the denial of the exemption under Article 13(4) of the Tax Treaty qua capital gains earned on sale of CCDs. 12. Facts relevant to the adjudication of the case are as under: The structure of the assessee group is below: RHT was listed on the Singapore Stock Exchange on 19 th October, 2012 with a business proposition to invest in medical and healthcare assets and services. RHT Trustee Manager Pte. Ltd. (Trustee Manager) acts as the Trustee Manager of RHT whereas Fortis Healthcare International Limited (FHIL) is the Sponsor of RHT and holds 28% units in RHT. The list of other substantial unit holders of the Trust as of 26 June 2013 is as under- S. No. Name of the Unit holder No. of Units % 1 Fortis Healthcare International Limited 220,676,944 28.00 2 DBS Nominees Pte. Ltd. 100,777,514 12.79 3 Raffles Nominees (Pte.) Ltd. 87,805,600 11.14 4 Citibank Nominees Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited i.e. FHTL. FHML, FHL and FHTL entered into a Shareholders Agreement (FHTL Shareholders Agreement) on 17 September 2012 to govern the relationship between FHL and FHML as shareholders of FHTL. Pursuant to FHTL Shareholders Agreement, FHML has a call option (FHTL Call Option) to the remaining 51% of the issued equity shares in FHTL which are held by FHL. The FHTL Call Option is exercisable any time FHL is entitled to transfer its 51% shareholding interest after having obtained the necessary approvals, including approval from HUDA. In the event where the FHTL Call Option is not exercised within 5 years from the date of the shareholders agreement (i.e. 17 September 2012), FHML will be entitled to exercise a put option (FHTL Put Option) requiring FHL to acquire FHML's 49% shareholding in FHTL. Refer page 17 of the Paper Book Volume-1. It was originally intended that RHT Group ultimately holds 100% equity interest in FHTL by acquiring remaining 51% equity interest in FHTL. For this purpose, FHL had submitted an application on 12 June 2013 to HUDA for approval to transfer the 51% equity interest in FHTL to FHML. Copy of said letter is enclosed as per pages 105- 108 to Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the issued and paid up Share Capital of the Company within 5 years from the date of execution of this agreement (the date falling 5 years from the date of execution of this Agreement referred to as the ( Option Commencement Date ) for reasons other than attributable to the Investor or its subsidiaries, then, without prejudice to the other rights available under Law, the Investor shall, for a period of 90 Business Days thereafter ( Put Option Period ), have the right to issue the put Option Notice (as defined hereinafter), requiring the Promoter and/or its nominee to purchase from the Investor, at the Investor's sole discretion, all, but not less than all the Investor CCDs then held by the Investor in the Company ( Put Securities ) to the Promoter and/or its nominee, and the Promoter and/or its nominee shall be obliged to purchase such Investor CCDs for the Put Option Consideration (defined in Clause 7.1.2). 13. In this background of investment, earning of interest on CCDs in India and subsequent sale of CCDs, it was argued that the capital gains earned on sale of CCDs by the assessee is not liable to tax in India by virtue of the exemption available under Article 13(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains arise; (ii) in the case of paragraph 4C of Article 13 of this Agreement, for the immediately preceding period of 12 months from the date on which the gains arise. 16. It was argued that Limitation of Benefit Clause (LOB Clause) has been inserted and accordingly, the DTAA was amended vide the Protocol which was made effective from 01.04.2017, meaning thereby that amended Article is applicable for assessment year 2018-19 and onwards. The Delhi bench of the Tribunal in the case of MIH India (Mauritius) Ltd. vs. ACIT has held that similar amendment made in the India Mauritius Tax Treaty w.e.f. 1.4.2017 would apply only from assessment year 2018-19 and onwards. Accordingly, it was argued that the amendment to the Tax Treaty vide the aforesaid Protocol is not applicable, at the threshold to the assessment year under consideration, viz., assessment year 2017-18. The ld. AR submitted that by no stretch of imagination, the assessee company can be regarded as a shell company/conduit entity. 17. It was submitted that the Assessee is wholly owned by RHT, a business Trust listed on Singapore stock exchange. In that view of the matter, it is the submission of the Assessee that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts are also maintained in Singapore. (iv) The Assessee has appointed Trustee Manager to advice and manage the investments, to whom substantial Trustee Manager fees is paid. (v) The Assessee is filing tax returns in Singapore. (vi) The Assessee has made necessary filing with the Accounting and Corporate Regulatory Authority of Singapore Ministry. (vii) The Assessee earns income by way of interest (on CCDs) and management fees (from assessment year 2017-18). (viii) The Assessee has incurred substantial expenditure by way of payment of interest to independent financial institutions, Trustee Manager fees, legal and professional fees, etc. (ix) The Assessee has an operational bank account in Singapore in its own name. 20. Invoking the rule of consistency, the ld. 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. The same was accepted by the assessing officer in the draft assessment order. The past assessments of the Assessee, too, have been completed taxing the said interest @ 10%, thereby accepting that the Assessee was entitled to the Treaty benefits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trued that any tax avoidance design was envisaged by the assessee and it cannot be said that the setting up of RHT in Singapore was motivated by consideration of tax avoidance. 23. Against the above, the ld. DR, Sh. Gangadhar Panda argued vehemently and also submitted his arguments in writing which are reproduced into: The appeals in the case of M/s THR Infrastructure Pte Ltd for AY 2017-18 (appellant/assessee) in respect of ITA No. 1915/DEL/2022 came up for hearing on 01/11/2022 and continued till 02/11/2022. The main issue argued during appeal hearing is regarding taxability of capital gains income in India on the sale of CCDs under Sec 112 of the IT Act due to denial of Tax Treaty benefits claimed by the applicant as per Art 13(4) of India -Singapore DTAA (DTAA). 2. Brief Facts: 2.1. During the year, the assessee received Rs. 1099,98,40,802/- from India on sale of 51% stake in CCDs (Compulsory Convertible Debentures) issued by Fortis Hospital Limited (FHTL). The assessee filed in its ITR for AY 2017-18 on 30.11.2017 and claimed Long Term Capital Gain (LT CG) of Rs. 656,08,00,802/- from the above transaction as fully exempt as per Article 13(5) of the India- S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive from 01.04.2017, is applicable for A.Y. 2018-19 and onwards. Further, assessee placed reliance on decision of IT AT, Delhi in the case of MIH India (Mauritius) Ltd. vs. ACIT (supra). Accordingly, the amendment to the Tax treaty vide the aforesaid Protocol is not applicable, at the threshold to the assessment year under consideration i.e. A.Y. 2017-18. 3.3.3 Assessee submitted as below, why assessee company is not to be regarded as a shell company/conduit entity. The appellant should be regarded as company listed on a recognized stock exchange of the Contracting State. Assessee submitted that the appellant is wholly owned by RHT, a business T rust listed on Singapore stock exchange. Therefore, it should be regarded as a listed company on a recognized stock exchange of Singapore. Further, assessee in support drew a reference of provisions of section 2(18)(B)(c) of the Act and placed reliance on decision of IT AT, Pune bench in the case of Daimler Chrysler India Pvt. Ltd. (ITA No. 968/PN/03). 3.3.4. Annual expenditure in Singapore on operations in that Contracting State is equal to or more than $200,000:- Assessee submitted the expenditure incurred by it in last 24 mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Facts compiled from the Final Assessment Order, DRP Order and Paper Books of Assessee. 4.1.1 The assessee company is incorporated and registered in Singapore on 31.03.2011. The assessee company is an investment holding company and is also engaged in provision of management and consultancy services. It has submitted a Tax Residency Certificate of Singapore in respect of interest income earned by it from India for the year under consideration. 4.1.2 Corporate Structure of the assessee s group: 4.1.3 RHT Health Trust: The India based Fortis Healthcare Ltd. (FHL) which is the lead member of the Fortis group wanted to raise funds for expanding the presence of healthcare services across India. For this purpose, it sponsored Religare Health Trust, a business trust in Singapore, by first creating a wholly-owned subsidiary in Mauritius named Fortis Mauritius. 4.1.4 Assessee company is a wholly owned subsidiary of Religare Health Trust (RHT). As per public domain information, Religare Health Trust is a registered Business Trust constituted in Singapore in July 2011. 4.1.5 RHT Trust s principal activity is to invest in medical and healthcare assets and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e latter is a tax resident of India for tax purposes and is a close associate and family member of the promoters of Fortis India at the time namely Malvinder Singh and Shivinder Singh. From the above, it is evident that the control and management of the assessee does not lie in Singapore. It is part of India-centric venture and is effectively controlled and managed from India. 4.1.13 In September 2012, the assessee company acquired 87,04,000 fully and compulsorily convertible debentures (CCD) in FHTL at a value of INR 1000 per CCD. The assessee company earned interest on the same at the rate of 17.5% per annum. The said CCDs were convertible into 267,400,000 shares of FHTL at share value of INR 32.55 within 18 years of issuance. 4.1.14 In July 2016, the assessee company entered into an agreement with Fortis India to sell 51% of the CCDs of FHTL (i.e. 44,39,040 CCDs) held by it for a consideration of Rs. 1099,98,40,802/- (SGD 2271 million). 4.1.15 Immediately thereafter, the assessee company declared a dividend of SGD 193 million to its parent RHT Trust and also extended a loan to it. The RHT Trust in turn declared a special distribution to all its unit holders at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough related parties. The trust control was with FHL (the parent company) which sponsored the trust by setting up wholly owned subsidiary in Mauritius. ii. There was no commercial rationale for FHL to incorporate wholly owned subsidiary in Mauritius. iii. There are no assets in RHT pursuant to disposal and distribution to the unit-holders. iv. No need to create trust. The trust being a pass through entity not entitled to treaty benefit. v. No commercial reason has been provided by the company for the purpose of transfer of Compulsorily Convertible Debentures (CCD s) within 5 years as CCD s were to be converted into Equity instrument within 18 years. The reason given regarding HUDA land conversion rule is an alibi to perpetuate this pre-conceived modus operandi to avoid taxation in Indian territory. vi. No basis of adopting fair market value at the time of issue of CCD to the Company in 2012 was furnished by the Company during the course of assessment proceedings. Fair market value of CCD s and sharp rise in the value of adopted at the time of disposal of CCD s also remains unsubstantiated by the Company. No commercial basis for undertaking the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicability of LOB clause in view of the trust being registered in Singapore Stock Exchange, it is submitted that the status of the assessee here is a Singapore company which is admittedly by the AR of the applicant is not registered in the Singapore Stock Exchange. Since, the trust and the assessee are two separate entity, so the applicability of LOB to the assessee company cannot be taken away, and it squarely applies to the assessee. x. It is a Scheme of Tax Avoidance, Control and Management of the Company does not lie in Singapore but lies in India. xi. The brain/control and management of the appellant is in India. Ravi Mehrotra also director of Fortis India. Board meetings not held in Singapore as Board Resolutions do not show place of meeting. xii. Tax Residency Certificate is not sufficient to establish tax residency if there is no economic substance in entity. TRC not conclusive in view of the ruling of Hon ble Supreme Court in the case of Vodafone (para 98). 5. Point-wise rebuttal for assessee Legal Objections on Tax Avoidance Scheme. 5.1 TRC is not Sufficient to Claim Treaty Benefits: 5.1.1 The assessee has stated that CBDT Circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itian company has been interposed as a device, it is open to the Income Tax Department to discard the device and take into consideration the real transaction between the parties, and the transaction maybe subjected to tax. In other words, T RC does not prevent enquiry into a tax fraud, for example, where an OCB is used by an Indian resident for round-tripping or any other illegal activities, nothing prevents the Revenue from looking into special agreements, contracts or arrangements made or effected by Indian resident or the role of the OCB in the entire transaction. 5.1.3 The recent ruling of the AAR in AB Mauritius (2018) 402 ITR 311 and observations made by the Bombay High Court in Indo star Capital v. CIT also held on similar view based on 'substance over the form' principle. 5.1.4 The place of incorporation argument is based on the premise that form is required to be recognized for deciding taxation issues. The Azadi Bachao Andolan of the Hon'ble Supreme Court is also based on this argument. However, the primacy of form of the taxpayer in deciding tax liability has not been approved under a tax treaty framework. For instance, under a dual residency sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on seems an adequate basis for treaties with countries that have no or very low taxation and where little substantive business activities would normally be carried on. Even in these cases it might be necessary to alter the provision or to substitute for it another one to safeguard bona fide business activities 5.2.2 Thus, to infer look through approach one may look for following indicators: a) There is a common management or substantially a common controlling mechanism exercised over the intermediary entity in the Resident State. b) Such controlling mechanism is more than routine guidance and supervision. c) There is very little discretion with the management of intermediary concern and all the major decisions are taken by the controlling company and passed on to the entity. d) Funds received are immediately transferred to the holding company and funds only to the extent of requirement are remitted by the holding company. e) There is very little infrastructure or, employees or business activities with the intermediary concern. f) There is no or very low taxation in the Country of Residence of the intermediary concern. 5.2.3 In this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d conflicting views. Investors should know where they stand. It also helps the tax administration in enforcing the provisions of the taxing laws... Further, similar view taken in another landmark case as reproduced below: In any view, look through provision cannot shift situs of a transaction in the absence of an in-built provision as decided in Federal Commission of Taxation v. Lamesa Holdings BV(LN)[1998] 157 ALR 290 . 5.2.4 Thus, to invoke look through approach one has to find the facts which should indicate: i. The decision-making process is transferred to the holding company. ii. In Management of intermediary entity is acting as puppet. iii. There is no reasonable business purpose in running the intermediary entity. In view of the above, the legal position and based on the facts and circumstances analysis in para-4 above, it is intended to use the legal doctrine of substance. 5.3 Substance Over Form squarely the Doctrine Applicable to assessee: 5.3.1 The doctrine of substance over the form means to brush aside and disregard the deeds, legal structure, the legal rights and liabilities arising under a contract be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not eligible for India- Singapore DTAA and Capital taxable as per Income Tax Act, 1961. 5.4 Conduit Company Argument: Thus as no substance has been demonstrated by the assessee company it can at best be treated as Conduit company based on the arguments made in para 8 to 10. Conduit company i.e. our assessee company merely forwards passive income to persons who are not residents of one of the states that are parties to the treaty in question. On the facts of the current case, when the role of the intermediary i.e. assessee company in question is taken into account, the intermediary should be denied treaty benefits according to the policy of double tax treaties because it does not satisfy the requirement of being the beneficial owner of the income at issue. 5.4 Beneficial Ownership: (a) However, in the light of the traditional legalistic view of companies, and of the meaning of ownership , it seems that foreign courts decided that they were unable to apply the beneficial ownership test literally. As a result, in order to prevent residents of non-contracting states from obtaining treaty benefits by means of the interposition of conduit companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific LOB clause in the relevant DTAA. In regard to applicability of the LOB clause to Art 13(5) of DTAA, the assessee argued that the LOB clause of India- Singapore DTAA came into effect from 01.04.2017 onwards and since the subject transaction took place in 2016, thus Revenue does not have a case to look through the transaction for tax evasion for reasons of - substance over form doctrine, Conduit Company rule, Beneficial Ownership and Dominion Rules, and consequently, production of TRC issued by Singapore Tax Authority sufficed the condition to enjoy DTAA benefits by assessee as per sec 90(2) of IT Act read with DTAA. 6.2. However, contrary to insistence of assessee, the LOB clause would squarely apply to the assessee s transaction executed in 2016. Even though the latest amending Protocol of Indo-Singapore DTAA came into effect from 01.04.2017 for applicability of Art 12 (4A) on capital gain income for LOB Clause as stated by the AR of the assessee, but the fact remains that the LOB Clause as introduced in the year 2005, (which was reproduced in new amending Protocol of 2017), being applicable w.e.f. 01.04.2005 continues to operate in respect of income under Article 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2017. Prior to its omission, said Article read as under: Article 1 Article 1 . ARTICLE 3 1. A resident of a Contracting State shall not be entitled to the benefits of Article 1 of this Protocol if its affairs were arranged with the primary purpose to take advantage of the benefits in Article 1 of this Protocol. 2. A shell/conduit company that claims it is a resident of a Contracting State shall not be entitled to the benefits of Article 1 of this Protocol. A shell/conduit company is any legal entity falling within the definition of resident with negligible or nil business operations or with no real and continuous business activities carried out in that Contracting State. 3. A resident of a Contracting State is deemed to be a shell/conduit company if its total annual expenditure on operations in that Contracting State is less than S$200,000 or Indian Rs. 50,00,000 in the respective Contracting State as the case may be, in the immediately preceding period of 24 months from the date the gains arise. 4. A resident of a Contracting State is deemed not to be a shell/conduit company if (a) it is listed on a recognized stock exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factual matrix of the assessee s case for this AY strongly made out a case for limitation of Treaty Benefits as the main purpose of its business structure and transactions were designed for tax evasion . The same is discussed as under. 6.7. From the facts of this case following features of LOB clauses are triggered: affairs were arranged with the primary purpose to take advantage of the benefits Explanation. The cases of legal entities not having bona fide business activities shall be covered by Article 3.1 of this Protocol: A shell/conduit company is any legal entity falling within the definition of resident with negligible or nil business operations or with no real and continuous business Annual expenditure on operations in that Contracting State is less than S$200,000 Thus it shall not be entitled to the benefits of Article 1 of this Protocol DTAA Preamble on the prevention of fiscal evasion is also violated, and therefore as per Vienna Convention, it breaches the object and purpose of the Treaty. Thus, the assessee by not adhering to the objects of the DTAA in good faith, has thus forfeited to proceed further to avail an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rolling all vital decisions of subsidiary company and that latter may be implementing such decisions. This may be true but if an entity claims treaty benefits it must establish the economy rationale and substance for treaty entitlement. Treaty shopping is well known for international tax planning whereby an entity is interposed in a country with favourable tax laws. Lately, the world over it is reckoned that improper nature of treaty shopping structure is created if the following factors are satisfied i.e., the beneficial owner of the treaty shopping entity does not reside in the country where entity is created; the interposed entity has minimal or no economic activity in the jurisdiction where it is located and lastly its income is subject to minimal tax in the country of location. [Para 62] AAR Mumbai further stated that The doctrine of substance over form mandates taxing transaction pursuant to its economic effect rather than its form and that a valid transaction must have both a substantial purpose apart from reduction of tax liability. Consequently, AAR Mumbai denied the benefits of India-Singapore DTAA to the assessee in this case. 7.4 Hon'ble Madras High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax evasion by laying down the important pricoples to be followed to deal with such tax evasion cases. 8.2 Further, attention is also invited to the foreign jurisprudence laid out in this regard. Case C-196/04 Cadbury Schweppes Pic. Cadbury Schweppes Overseas Ltd. V. Commissioners of Inland Revenue was adjudicated before UK courts and it was finally referred to (European Court of Justice) wherein the ECJ pronounced the landmark decision and laid down the judicial ratio based on the concept of wholly artificial arrangements with reference to CFC legislation in UK . However, the judicial ratio could be applied here to examine whether assessee company is wholly artificial arrangements. A wholly artificial arrangement does not exist where an assessee company carried on genuine economic activities in the Contracting State. T he taxpayer must be given an opportunity to prove such genuine economic activity on the basis of objective factors (e.g. premises, staff and equipment of the assessee company in Contracting State) 8.3 Applying the above judicial ratio it is noted that there is only one employee, no effective resident director or neither any assets apart from meager op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing beneficiaries of the trust, hold beneficial interest in assets of the BT. BTs also differ from other traditional trusts such as a private family trust or a unit trust as they actively undertake business operations. These unique characteristics of BTs call for a new regulatory framework that is set out in the BT Bill. In accordance with Business Trust Laws in Singapore, the investments of the Assessee Company in health care sector were managed by the Trustee Manager and a substantial fee is paid to trustee manager in this respect. Further, for day to day operations, Assessee has one employee on its payroll. The management consultancy activities were rendered by hiring external consultants directly by the Assessee. It is submitted that merely because the Assessee has one employee only cannot be a ground to hold that the Assessee has no commercial substance when the Assessee has appointed separate Trustee Manager to make and manage investments, to whom substantial fees is paid. Further, the issue whether the Assessee is a shell/conduit entity has to be seen in the light of the cumulative circumstances, discussed at pages 9 to 12 of this written submission. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as shell / conduit entity, not entitled to the Treaty benefit, even going by the argument of the Ld. CIT DR. DR s Contention No need to create trust Assessee's Rebuttal As mentioned hereinabove, the group intended to raise funds from institutional investors in order to make investments in the healthcare sector. Accordingly, in 2012 several jurisdictions in Asia region such as Hong Kong, Malaysia, Singapore, Taiwan and South Korea were evaluated for setting up a trust structure. Among these jurisdictions, the maximum number of business trusts were functional in Singapore. Considering the comparative business advantages, Singapore was selected for making investments in healthcare sector. RHT was set up as a pooling vehicle for attracting funds from institutional investors. Listing of RHT on Singapore Stock Exchange helped raise substantial funds from reputed and large institutional investors, which was invested through the Assessee in various operating entities in the healthcare sector. The Revenue cannot question the commercial rationale for setting up the trust structure in Singapore, considering the substantial funds mobilized by RHT throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee's Rebuttal Mr. Gurpreet Singh Dhillon is tax resident of Singapore. The residence of Mr. Dhillon can be proved from the documents submitted at pages 128-134 submitted as Paper-book Volume- 1. From documents, it is clear that he resides outside India and hence not tax resident in India. Rebuttal to judicial precedents relied upon by L d. CIT DR- The Ld. CIT DR relied upon the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. v. Union of India (supra), specifically para 67 of the said judgment for the principle of lifting of corporate veil or the doctrine of substance over form. The Assessee, too, is seeking to rely upon the said judgment in extenso. It is further submitted that it is not permissible to read a sentence in a judgment in isolation, de hors the context/the facts in which the judgment was rendered (Refer CIT vs. Sun Engineering Works P. Ltd.: 198 ITR 297 (SC) @pg 320) The Assessee is seeking to refer to the dictum of the Supreme Court judgment in the case of Vodafone International Holdings B.V. v. Union of India (supra) in the separate, concurring judgments by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the documents enclosed at pages 128-134 of Paper Book Volume 1. This is sufficient to proof that the Board meetings were held outside India and not in India. In that view of the matter, POEM of the Assessee cannot be said to be in India. DR's Contention-TRC not conclusive It was the submission of the Ld. CIT DR that the TRC was issued by the tax authorities in Singapore on the basis of the representation made by the Assessee and was not based on records. In that view of the matter, it was claimed that the TRC cannot be regarded as conclusive. In support thereof, the Ld. CIT DR relied upon para 98 of the Hon'ble Supreme Court judgment in the case of Vodafone International Holdings B.V. v. Union of India (supra). Assessee's Rebuttal Issuance of TRC is an annual exercise done by the revenue authorities across the globe, of the Assessee Company. TRC is issued on an annual basis, considering the past records also and has never been denied to the Assessee. It is, therefore, incorrect to allege that TRC is issued basis only the confirm action from the Assessee. Further, TRC issued to the Assessee has been duly accepted while concluding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing reversed. 25. Heard the arguments of both the parties and perused the material available on record. 26. As per the facts on record, the 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., has held that Union of India vs. Azadi Bachao Andolan (supra) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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