TaxTMI 
TaxTMI 
2025 (10) TMI 900
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....ed by Dispute Resolution Panel I ('DRP'). Mumbai dated 21 June 2022 ('DRP directions') on the following grounds which are independent and without prejudice to each other: On the facts and in the circumstances of the case and in law - 1. the learned AO has erred in determining the total income of the Appellant at Rs. 2257,91,95,035 (though in the computation sheet accompanying the final assessment order tax has been computed on Rs 2339,45,11,029) instead of 'Nil' income as declared by the Appellant in its return of income. 2. a) the learned AO has erred in carrying out assessment proceedings initiated by National e-Assessment Centre (now known as National Faceless Assessment Centre) by issuance of notice under section 143(2) of the Act, which was without jurisdiction and accordingly, the assessment be treated as bad in law and be quashed. b) the learned AO has erred in not issuing notice under section 143(2) of the Act, after transfer of jurisdiction from Delhi to Mumbai, before proceeding with the assessment proceedings and accordingly, the assessment be treated as bad in law and be quashed. c) the learned DRP err....
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....of tax stated as withheld on interest under section 244A of the Act in the intimation dated 31 December 2020 issued to the Appellant under Section 143(1) of the Act for the year under consideration) as refund already issued to the Appellant. 9. the learned AO has erred in completing the assessment without granting adequate time to the Appellant and has thereby acted against the principles of natural justice. 10. the learned AO has erred in levying consequential surcharge, cess and interest thereon under sections 234A, 234B and 234D of the Act. 11. the learned AO has erred in initiating penalty proceedings under Section 270A of the Act. Each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend or to delete any or all of the above grounds of appeal, at any time during the appellate proceedings." Brief facts of the case are as under: 2. The assessee is a non-resident company incorporated in 2003 in Singapore. It provides e-commerce-related services to its group companies, such as product management, business development, customer service support, legal, human resourc....
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.... with Section 144C(1) of the Act, proposing to deny the exemption under Article 13(5) of the India Singapore DTAA and thereby taxing the capital gains arising on sale of the shares of Flipkart Singapore. 3. On receipt of the draft assessment order, the assessee filed its objections before the Dispute Resolution Panel (hereinafter referred to as 'DRP"). 3.1 The DRP issued its directions on 21/06/2022 under Section 144C(5) of the Act, upholding the proposed addition in the draft assessment order. 3.2 On receipt of the direction of the DRP, the Ld.AO completed the assessment proceeding order vide the final assessment order dated 25/07/2022, making addition of short-term capital gain taxable in India of Rs. 2257,91.95,035/- 3.3 Aggrieved by the final assessment order passed by the Ld.AO, the assessee is in appeal before this Tribunal. 4. Ground Nos.1 The Ld.Sr.Counsel submitted that assessee has raised issue of non issuance of section 143(2) of the Act by NFAC. 4.1 He submitted that the said issue may be treated academic at this stage. The Ld.Sr.Counsel submitted that the assessee has filed an application dated 14/04/2023 for admission of Additional ground challen....
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....ipt of USD 225 million worth of shares of Flipkart Singapore. It is submitted that eBay's exit from the Indian market was compensated with an equity stake in Flipkart Singapore. 3. Primary Cash Infusion: In addition to receiving shares in Flipkart Singapore, the assessee also made a primary cash infusion of USD 500 million into Flipkart Singapore on 31/07/2017. It is submitted that the additional investment indicates a further commitment to Flipkart Singapore by the assessee, to strengthen its position within the company. 4. Minority Stake: The Ld. Sr.Counsel submitted that, despite substantial cash infusion and shareholding in Flipkart Singapore, the assessee retained only minority stake in Flipkart, meaning it did not hold a controlling interest in the company post-transaction. 5.4 The Ld.Sr.Counsel submitted that, subsequently in 2018, the Walmart group decided to acquire a majority stake in Flipkart Singapore from its other shareholders through Fit Holding S.a.r.l. (a Walmart group company) in Singapore. It was submitted that the assessee had no option but to sell its shares, as Fit Holding S.a.r.l. acquired majority (70%) stake in Flipkart Singapore from t....
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....ingapore is entitled to the beneficial provisions of the India- Singapore DTAA for the capital gains earned from the sale of shares in Flipkart Singapore to Fit Holdings Sa.r.l. He placed reliance on the following decisions, which lay down that a taxpayer has the option to choose the provisions of the Act or the tax treaty, whichever is beneficial, in determining its liability to tax in India: Decision of Hon'ble Supreme Court in the case of UOI v Azadi Bachao Andolan reported in 263 ITR 706 Decision of Hon'ble Supreme Court in the case of CIT vs. P.V.A.L. Kulandagan Chettiar reported in 267 ITR 654 5.9 The Ld.Sr.Counsel thus submitted that TRC is conclusive proof of assessee's tax residency status in Singapore and thus the assessee is eligible for the beneficial provisions as per India India-Singapore DTAA. 5.10 The Ld.Sr.Counsel placed reliance on Article 13 under India India-Singapore DTAA which reads as under: ARTICLE 13 CAPITAL GAINS 1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6, and situated in the other Contracting State may be taxed in that other State. ....
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....able to tax in India. He also submitted that there is no reason to differ from the plain language of the provision, particularly in the absence of any material to suggest so. Reliance was placed on the decision of Hon'ble Andhra Pradesh High Court in case of Sanofi Pasteur Holdings SA vs. Department of Revenue, Ministry of Finance reported in (2013) 354 ITR 316, wherein indirect transfers (ie. transfers of shares in foreign companies that held Indian company shares) were held to be not taxable in India in terms of the relevant tax treaty. He also relied on the decision in support of the contention that a tax treaty is a code in itself, and one cannot challenge the intent of a tax treaty unless the same is mentioned in the tax treaty. A tax treaty is to be read as is without importing artificial interpretation. 5.13 The Ld.Sr.Counsel submitted that as per Article 13(4B), gains from the alienation of shares acquired on or after 1 April 2017 in a company which is a resident of a Contracting State (i.e. Singapore in this case) may be taxed in that State (ie, Singapore in this case). Thus, a plain reading of this Paragraph 4B also does not explicitly give India the right to tax gains....
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....good faith principle and construed in the light of applicable principles of statutory construction). There is no ambiguity in the Article 14(5) expressions - alienation or participation, and since these terms (identical, not synonymous) are neither employed nor defined in the Act, there is no warrant for invoking provisions of Article 3(2) of the DTAA and thereby provisions of the Act to the transaction in issue, and in transgression of provisions of the DTAA, and (d) the transaction in issue is not liable to tax in India, under the provisions of the Act read in conjunction with provisions of the DTAA." 5.17 In respect of the allegation on the management and control not in Singapore but in USA, the Ld.Sr.Counsel submitted that two out of the three directors of the assessee were Singapore residents, who were originally employees of eBay Singapore, and the third director was based in Hong Kong. The Ld.Sr.Counsel submitted that from 2015 till 2018, assessee did not have any Director who held any post at eBay Inc., USA. He placed on record details of the Board of directors as under: BEFORE THE INCOME TAX APPELLATE TRIBUNAL (I) BENCH, MUMBAI eBay Singapore Services ....
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....ere the Supreme court has noted at Paragraph-36 from the Judgment of the Allahabad High Court that, "For a provision of a statute to be an 'express' provision affecting another statute or part of it, it would have, I think to refer to so many words to the other statute or to the relevant portion of it and also to the effect intended to be produced on it. "Failing this, it could hardly be said to be express' - The ..... Allahabad High Court Judgment has been approved in Para-38 of the above Judgment. 6. As per Section 9 (1) Explanation - 5 A - "Capital assets being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be an asset always be deemed to have been situated in India." If the share or interest derived, directly or indirectly, its value substantially from the assets located in India. Flipkart Singapore derives its total value from the shares it holds in its subsidiaries in India i.e. Flipkart India and other subsidiaries(para 4 of Assessment Order). 7. Therefore, the sale of shares of Flipkart, Singapore by eBay Singapore is taxable in India. 8. Without prejudice, even otherwise on a r....
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.... Lee (SG) Resigned Dec 7th. 2017 Joo Man Park (SG) Appointed March 18, 2018 James Jung Hwan Moon (SG) James Jung Hwan Moon (SG) James Jung Hwan Moon (SG) James Jung Hwan Moon (SG) James Jung Hwan Moon (SG) Cheol Ung Jeong (SG) Cheol Ung Jeong (SG) Resigned April 5. 2015 Seung Key Lee (Korea) Seung Key Lee (Korea) Resigned May 12. 2017 Stephen Man (HK) Seung Key Lee (Korea) Appointed April 6, 2015 Stephen Man (HK) Appointed May 11. 2017 SG : Singapore Director Name Designation Educational Qualification HK : Hong Kong Jay Hyun Lee Regional VP. APAC MBA, Harvad University James Jung Hwan Moon APAC CFO MBA, Finance and Strategy Seung Key Lee Senior Manager MBA Joo Man Park APAC CEO MBA, Finance and Strategy Stephen Man APAC Legal head MBA 5.18 The Ld.Sr.Counsel submitted that the assessing officer relied on incorrect information to come to the conclusion that one of its Director (Jae Hyun Lee) held post in eBay Inc in USA is factually incorrect. It is submitted that Jae Hyun Lee was a director of ....
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....Treasury team at the directors instructions. Tests he submitted that the investment and flip card Singapore and its subsequent sale was approved by the Board of Directors of the eBay Singapore. Upon the approval by the board, the transaction and other conditions are met with, as Treasury team only executive the transaction's. It is submitted that unless the Board of Directors, the Treasury team cannot transfer any funds of eBay Singapore. 5.23 The Ld.Sr.Counsel submitted that assessee also satisfy the condition of Limitation of Benifit (LOB) under the Indian Singapore DTAA and it cannot be held as a shell or a conduit company. A fully functional Board of Directors who take all the management decisions. It is submitted that most of the employees are managers or above the level and comprises of senior people like VP and Senior VP's. The Ld.Sr.Counsel submitted that apart from holding strategic investments in India assessee also has substantial business revenues and expenses which is evident from the financial statements furnished with the authorities below. The Ld.Sr.Counsel submitted that details of operating revenues and expenses over the years excluding income from sale of inve....
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....ary of eBay Inc. U.S.A. Due to the sale of eBay India Business to Flipcart Limited, eBay Singapore got Shares of Flipkart Limited in 2017 vide agreement dated 10th April 2017.It further subscribed to shares of Flipcart Ltd Singapore. These transactions were concluded on 31st July 2017(page 53 of compilation of assessee and internal page 2 of DRP directions). eBay Singapore sold its shares held in Flipkart Limited, Singapore, to Fit Holding S.a.r.l on 17th August 2018. Tax treaty between India and Singapore does not cover transactions of a Singapore Company in respect of sale of shares of a company registered outside India? 2. Sale of Shares in Flipkart Ltd. Singapore is not a sale of the shares held in India, therefore Article 13 of the Indo-Singapore Tax Treaty is not applicable to the sale of shares by eBay Singapore. 3. The Authority for Advance Rulings in the case of Tiger Global International II Holdings Mauritius reported in 429 ITR 288(AAR) has held that " the objective of the Mauritius treaty was to allow exemption of Capital Gains on transfer of shares in Indian Companies only, exemption on transfer of shares in a company not resident in India, w....
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.... * In 4B which deals with shares acquired on or after 1st April 2017 it is stated that "gains from alienation of shares acquired on or after 1st April 2017 in a company which is a resident of a contracting state may be taxed in that state." This provision does not use the words shall be taxable only nor does it expressly prohibit India from taxing gains on sale from a Singapore Company if according to her laws the sale is taxable. * 4C limits the taxability of gains on sale of shares by the Country in which the Company is a resident to 50% and does not limit the extent of taxability by India in this particular case. * 5 cannot apply since the property is sale of shares in Singapore which is the property described to in 4A to C acting independently and was under the control of the USA parent company. (para 12.2, pg 42 of A.O) C. Communication of directions issued by the assessee company. There is no formal mechanism put in place for communication from the assessee to the treasury team. The treasury team starts acting independently without the nod from the assessee company as if the entire assessee company and parent company are not distinct entit....
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.... by the revenue on record contrary to the evidences filed by the assessee. 7.3 Keeping in mind the fact that Hon'ble Supreme Court in case of AAR vs. Tiger Global International II Holding (supra) admitted SLP against the decision of Hon'ble Delhi High Court decision in case of Tiger Global International II Holding vs. AAR reported in (2024) 165 taxmann.com 850, unless a layered transaction is established the revenue the preliminary observation by Hon'ble Supreme Court in case of AAR vs. Tiger Global International II Holding (supra) may not be applicable. Thus we have to consider the transaction as per Article 13 of India Singapore DTAA. 8. It is noted that, clause 1 of Article 13 is not applicable as what was sold is shares of Flipkart Singapore. 8.1 Clause 2 of Article will be applicable only if eBay Singapore has PE in India. It is an admitted fact that eBay Singapore sold its entire business in India to flipkart Singapore on 10/04/2017, against which assessee received consideration as per the share purchase argument. Under such circumstances eBay Singapore cannot be said to have a PE in India. 8.2 Clause 3 would not apply as it deals with alienation of ships, airc....
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.... India-Singapore DTAA does not include such a clause. In the absence of such language, Article 13(5) operates as a shield, consistent with paragraph 37.9 of OECD Commentary (2017 amended) which clarifies that source-state taxation of indirect transfers states as under: "The source State may tax capital gains arising from the alienation of immovable property situated in its territory. Gains from the alienation of shares or interests in a company or entity that is not resident in the source State are generally taxable only in the State of residence of the alienator, unless the Convention expressly provides otherwise (for example, where the shares derive more than a specified proportion of their value from immovable property situated in the source State)." 9.1 The assessee before this Tribunal is eBay Singapore, a company incorporated and tax resident in Singapore being the alienator of shares of Flipkart Singapore. 9.2 Under section 9(1)(i) of the Act, an indirect transfer may be deemed to be taxable in India. However, in the present facts of the case, what is transferred are shares of Flipkart Singapore, a company incorporated and tax resident in Singapore. The gains ....