By GEETA JANI I DHISHAT B. MEHTA
Chartered Accountants
Article 11, 23
of India-Singapore DTAA –relief from capital gains taxation in India cannot be
termed as ‘exemption’ – conditions for trigger of Limitation of Relief clause
not satisfied.
Facts
The Taxpayer, a tax
resident of Singapore, was carrying on its business operations including
trading in securities from Singapore. It did not have any PE in India. During
the year, Taxpayer earned capital gain on sale of shares, debt instruments and
derivatives (collectively referred to as “securities”) in India and claimed it
as non-taxable in India under the DTAA which provides exclusive taxation rights
on such gains to Singapore as resident country.
The AO contended that
since capital gains were not remitted/repatriated to Singapore, capital gain
benefit under the DTAA cannot be allowed. This resulted in non-satisfaction of
Limitation of Relief (LOR) article under the DTAA which restricts exemption in
source country (India) to the extent of repatriation of such income to resident
country (Singapore).
As against this, the
Taxpayer contended that the gains were not taxable in India because under
capital gains article, gains from sale of securities in India are taxable only
in Singapore. Once the entire worldwide income was assessed at Singapore, a
part of it cannot be taxed in India as it will amount to double taxation of the
same income. Thus, LOR provision is of no relevance in this case. In support of
its contention, the Taxpayer relied on Mumbai Tribunal ruling in the case of
Citicorp Investment Bank Singapore Ltd.
The Dispute Resolution
Panel (DRP), ruled in the favour of the Taxpayer. Aggrieved by this the AO
appealed before the Tribunal.
Held
u The LOR provision applies if income derived
from a source state is either exempt from tax or taxed at a reduced rate in
that source State. The above condition is not fulfilled in the present case as
capital gains derived by the Taxpayer from sale of Indian securities is taxable
only in the resident state, i.e., Singapore. The provision is clear and
unambiguous and expresses itself as not an exemption provision but it speaks of
taxability of particular income in a particular State by virtue of residence of
the Taxpayer.
u The expression “exempt” with reference to the
capital gain derived by the Taxpayer has been loosely used. Therefore, capital
gain which was not taxable in India due to allocation of exclusive taxation
rights to country of residence cannot be termed as an “exemption”. This is also
supported by Mumbai Tribunal ruling in the case of Citicorp Investment Bank
Singapore Ltd. as referred by the Taxpayer.
u LOR provisions are thus not applicable to the
facts of the case.
