Treaty relief denied where a Singapore holding vehicle lacked commercial substance and failed the limitation of benefits test.

Capital gains on transfer of equity shares and compulsorily convertible debentures were treated as taxable in India because the foreign holding vehicle lacked real commercial substance and genuine business operations. Although the assessee held a Singapore Tax Residency Certificate, the surrounding facts showed it functioned as an interposed conduit within a Chinese-owned group, with no employees, no meaningful office, and no substantiated business activity in Singapore. On that basis, the limitation of benefits clause in Article 24A of the India-Singapore DTAA was applied to deny treaty relief; the TRC alone was not conclusive.

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Issues: Whether the capital gains arising on transfer of the assessee's equity shares and compulsorily convertible debentures in the Indian investee company were taxable in India, and whether treaty benefits under the India-Singapore DTAA were available despite the assessee's claim of Singapore residence and Tax Residency Certificate.

Analysis: The assessee was incorporated in Singapore and held a Tax Residency Certificate, but the surrounding facts showed that it was a wholly owned step-down subsidiary of a Hong Kong company ultimately owned by a Chinese parent. The investment route was interposed between the Chinese business group and the Indian project company, while the assessee had no employees, no conventional office, and no meaningful operating beyond professional fees. The Board and bank-account control was found to rest largely with persons based outside Singapore, and the record did not substantiate real and continuous business activity in Singapore. On these facts, the arrangement was held to fall within the limitation of benefits clause in Article 24A of the treaty and to lack sufficient commercial substance. Mere possession of a TRC was treated as not conclusive where the factual matrix showed that the entity functioned as a shell or conduit for treaty advantage.

Conclusion: The capital gains were held taxable in India under the source rule, and the assessee was denied the benefit of the India-Singapore DTAA.

Ratio Decidendi: Where a foreign holding vehicle is interposed without real commercial substance or genuine business operations, treaty relief under a capital gains article subject to a limitation of benefits clause can be denied notwithstanding the existence of a Tax Residency Certificate.

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