AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1057
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....d ACIT (International Taxation) - 2(3)(1), Mumbai ("the jurisdictional assessing officer") under section 143(3) read with section 144C(1) of the Income-tax Act, 1961 ('the Act'), the final assessment order dated 16 January 2025 passed by the Learned ACIT (International Taxation) 2(3)(1), Mumbai ('Ld. AO') under section 143(3) read with section 144C(13) of the Act and the directions issued by the Learned Dispute Resolution Panel ('Ld. DRP') dated 18 December 2024 under section 144C(5) of the Act ('DRP Directions') are erroneous, contrary to law, without jurisdiction, and/ or invalid, and/ or bad in law and are ought to be quashed and the capital gain be held not taxable under the DTAA. Ground No. 2: Final Assessment Order barred by limitation: 2.1 The Appellant submits that considering the facts and circumstances of its case and the prevailing law, the impugned order dated 16 January 2025 passed u/ s. 143(3) r.w.s. 1440 (13) of the Act is ab initio void as it is barred by limitation u/ s. 153 of the Act and, therefore, ought to be struck down/ quashed. Your Appellants pray the assessment be quashed. Ground No 3: Validity of ....
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....icate furnished by the Appellant. 4.9 In addition to the above grounds, the AO/DRP erred in disregarding the certificate issued by an independent accounting firm prepared under the Singapore Accounting Standards. 4.10 In addition to the above grounds, the AO/DRP erred in disregarding the standalone audited financials of the Appellant prepared under the Singapore Accounting Standards. 4.11 The AO/DRP erred in holding that some of the expenditure incurred by the Appellant for the period 30.11.19 to 29.11.20 and 30.11.20 to 29.11.21 cannot be considered as "expenditure on operations", and consequentially erred in concluding that S$200,000 threshold prescribed in Article 24A(3) was not satisfied. 4.12 The finding of the AO/DRP certain expenses should not be considered to test the S$200,000 threshold under the India- Singapore DTAA is erroneous and contrary to law and ought to be quashed. 4.13 The AO/DRP failed to appreciate the evidence and documentation submitted, which substantiated that the Appellant had incurred S$200,000 on its operations in Singapore. Therefore, the benefits under Article 13(4A) should be granted. Prayer ....
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.... Act. 8.2 The Appellant submits that considering the facts and circumstances and thelaw prevailing on the subject it has not under reported its income and hence the initiation of penalty proceedings u/s. 270A of the Act by the AO is erroneous" Brief facts of the case are as under: 2. The assessee is a non-resident [Fullerton Financial Holdings Pte. Ltd. ("FFH")] private limited company incorporated under the Singapore Companies Act and domiciled in Singapore since 23.01.2003. Return of income for the year under consideration was filed by the assessee on 26.10.2022, declaring total income at Rs. NIL. The case was selected for scrutiny and notice under section 143(2) of the Act was issued. Subsequently, notices u/s 142(1) of the Act was issued on various dates calling upon assessee to furnish details. The assessee was issued show cause notices on various dates in respect of return filed for the year under consideration. In response to the notices issued, the assessee filed its submission electronically on ITBA/ e- assessment. 2.1 The Ld.AO observed that assessee is an investment holding company incorporated in Singapore in 2003, wholly owned by Temasek Holdings Priv....
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....ximately 11,943%). It was submitted that the assessee held 3.79% stake (i.e., investment of an aggregate 8,52,56,357 equity shares having face value of INR 10 each) "FICCL" in the year under consideration. 2.4 The Ld.AO noted that, the assessee sold its entire stake held in FICCL to Sumitomo Mitsui Financial Group (a company incorporated in Japan), and earned long term capital gains of Rs. 681,32, 13,572/- pursuant to the Sale. In the return of income, the assessee claimed that the gains that arose from the sale of shares in FICCL are not taxable in India in view of Article 13(4A) of the India-Singapore Double Taxation Avoidance Agreement ('DTAA'), which governs capital gains arising from the alienation of shares acquired before April 1, 2017. 2.5. During the course of assessment proceedings, the assessee was asked to submit details of its employees and expenses. On analyzing the same, the Ld.AO noted that the assessee did not fulfil the conditions of Article 24A of India-Singapore DTAA. Accordingly, a show cause notice was issued to the assessee on 15.03.2024. 2.6. In response to the said SCN, assessee made its submission on 21.03.2024 stating as under : ....
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....penditure test; and (c) Letter from Inland Revenue Authority of Singapore ("IRAS") dated 22/09/2023, which confirms that FFH's annual significant expenditure on operations in Singapore was more than SGD 200,000 for each of the 12-month periods in the immediately preceding period of 24 months from the date of disposal of shares in FICCL (i.e., 30 November 2021). * The words "expenditure on operations" in sub-articles 3 and 4 of Article 24A are to be interpreted considering the purpose sought to be achieved by sub-articles 1 and 2 of Article 24A. FFH is clearly not a shell or conduit entity under sub-article 2 of Article 24A as it was incorporated for bona fide business purpose and it has operations in Singapore as explained above. * The above view is supported by the Delhi (I)AAR ruling in the case of BG Asia Pacific Holding (P.) Ltd.,reported in [2021] 125 taxmann.com 2. In that case, the AAR accepted that the taxpayer did not have employees on its payroll and the payroll cost of the employees was initially borne by a subsidiary and then recharged to the taxpayer, which was part of the operations expense for purposes of satisfying the SGD 200,000 expe....
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....that The DTAA does not prescribe nor proscribe the way an entity may decide to run its operations and incur expenditure accordingly. Assessee has further referred few case laws to support its claim that management fee is expense on operations of the Assessee. 2.8. The Ld.AO further observed that :- 7.1.3 While the agreement clearly provides that FFH will be billed only those costs which are incurred solely in connection with the provisions of services to FFH and FFH is authorized to access complete records of FFHI in connection with the services performed, no such supporting documents are provided by the Assessee to prove the services received by it solely for itself. 7.1.4 So, there is nothing on records as to how much services were consumed by the Assessee and its group entities each. The payment of management fee is to group entity only. The assessee has failed to provide details as to number of hours spent by FFHI employees for the Assessee, details of the advices/recommendations and other services, received by FFH from FFIH and how these advices/recommendations and other services received by FFH from FFIH are utilized by FFH, along with supporting document....
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....that FFH has no employee and the directors are appointed by group entities only, any expense for these directors can not be attributed to the operational expenses of the assessee. Assessee has stated that benchmarking is not mentioned as a requirement under Article 24A. Assessee has also stated that fees of only three directors are paid to the group companies because such directors are employed by the group companies and remaining three directors received payments directly from FFH. However, no details regarding the same is provided by the Assessee. Assessee has further stated that board of directors and officers exercise control over FFH. Not paying director fee to Directors directly and paying the same to group entities clearly show that the Directors are acting as nominees of group entities. The Assessee has also failed to provide details to prove that the group entities have provided services to the Assessee. 7.3.1 Further, Assessee has claimed that directors and officers' insurance premium was paid by FFH to protect the directors and officers from liability that may emanate from activities and decisions undertaken by the employees of FFHI as directors and officers....
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....or any third party or country involved, as the Appellant is wholly owned by the Government of Singapore. Hence, on the first principle, there is no reason to invoke Article 24A to deny Article 13(4A) relief to the Appellant, ultimately owned by the Government of Singapore. 12. It is respectfully submitted on a pure reading of Article 24A(1) and (2) that, prior to invoking Article 24(3) of the India-Singapore DTAA, the threshold conditions set out in Article 24A(1) and (2) must first be satisfied * Article 24A(1) of the India-Singapore DTAA states that a resident of Singapore shall not be entitled to the benefits of Clause 4A or Clause 4C of the India-Singapore DTAA, where the affairs of the company are arranged with primary purpose to avail benefits under the India-Singapore DTAA * While Article 24A(2) of the India-Singapore DTAA, a Singapore resident entity would not be eligible for treaty benefits if such entity is a "shell or conduit" company, i e. it is an entity which has nil or negligible business operations in Singapore or does not have real or continuous business activities undertaken in Singapore. 13. The Appellant was incorporated in 20....
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....e primary purpose of securing the benefit under Article 13(4A) of the India-Singapore DTAA. This fact is not disputed by the AO or DRP. 18. The Appellant, alongwith its subsidiary AIPL., began investing in FICCL, in the 2000s, with the principal objective of long-term investment. This investment was consistent with the Appellant's stated business purpose as an investment holding company. The Appellant is a bona fide long-term investor with a global portfolio, including investments in Singapore, India, Cambodia, the People's Republic of China, Malaysia and other Asian Countries (refer to Page No. 26 of the factual PB) It is not an entity with nil, negligible, or non-continuous business operations, and hence Article 24A(2) has no application 19. Further, the profit loss before tax of the Appellant in Singapore, as provided in the audited financials, which shows a consistent income, is as under: FFH Standalone P/L (In S$000) FY 2024 FY 2023 FY 2022 FY 2021 FY 2020 FY 2019 Total Income 7,61,456 15,932 7,289 18,51,570 8,534 23,48,291 Total Expenses (including impairment) 65,225 17,259 2,37,036 89,918 9....
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....io grew from INR 138.8 crore to INR 22,695 crore (a growth of approximately 16,246%) b) Duration of time during which the Holding Structure exist Temasek, the grandparent of the Appellant, has existed since 1974, and the Appellant has existed since 2003. The Holding Structure is fully owned by the Government of Singapore and has remained unchanged. c) Period of business operations in India: The investment by the Appellant/ AIPL. in FICCL has existed for more than 10 years d) Generation of taxable revenues in India: During the period of holding, FICCL's revenue has grown from INR 5.40 crore to-INR 4,092 crore (refer Page No. 251 of the factual PB). e) Continuity of business on such exit. Following the sale of shares of FICCL by the Appellant during the year under consideration, Temasek and its subsidiaries, including the Appellant/ AIPL, have continued to exist both within and outside India, and their investments likewise continue to be held in and outside India. 1) Corporate business purpose of a transaction: Based on the above and the absence of treaty shopping/ conduit/ inter- positionin....
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....ss operations or lacking continuous business activities carried out in Singapore. 30. It is submitted that the action of the AO/DRP in invoking Article 24A(3) to treat the Appellant, which is ultimately owned by Temasek, as a deemed shell or conduit entity, is contrary to the terms and intended objects and purpose of Article 24A and contrary to the principles of treaty interpretation. 31. Further, the Appellant would rely on the case of BG Asia Pacific Holding (Pte) Ltd (2021) 125 taxmann.com 2 (AAR-New Delhi) (refer to Page No. 111 of the Legal PB), wherein the AARwas considering Article 24A and has held that it cannot be said that the affairs of BCI Asia were arranged with the primary purpose to take advantage of the benefits of Article 13(4) on the sale of shares of GOCL. (refer Para 30 to 36 on Page Nos. 125 and 126 of the legal P 32. In addition, it is a settled proposition of law that while interpreting a provision introduced to remedy a mischief, the mischief sought to be addressed and the intended purpose of the legislature must be considered. This principle has been consistently applied by various Courts, including * Heydon's case, (....
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....n reliance on the certificates issued by authorities of the Contracting State has been respected: * Union of India v/ s. AzadiBachaoAndolan [2003] 263 ITR 706 (SC) (refer to Page Nos. 76 to 110 of the legal PB), * CIT v/ s. API. Co. Pte. Ltd. (2023) 156 taxmann.com 530 (Bombay) (refer to Page Nos. 372 to 376 of the legal PB). * CIT v/s. Citicorp Investment Bank (Singapore) Lid. [2023] 151 taxmann com 501 (refer to Page Nos. 377 to 381 of the legal PB), * Maersk Tankers Singapore Pte. Ltd. v/s ACIT(IT) (2022) 145 taxmann.com 260 (Rajkot Trib) (refer to Page Nos. 382 to 405 of the legat PB), * Serco BPO (P.) Ltd v/s AAR, New Delhi (2015) 379 ITR 256 (P&11) (refer to Page Nos. 140 to 158 of the legal PB), * M.T. Maersk Mikage v/ s. DIT(IT) [2017] 390 ITR 427(Guj) (refer to Page Nos. 406 to 414 of the legal PB); * CIT v/ s. Lakshmi Textile Exporters Ltd. (2000) 245 ITR 521 (Mad) (refer to Page Nos. 415 to 416 of the legal PB), * Arabian Express Line Ltd. of United Kingdom vis. Union of India (1995) 212 ITR 31 (Guj) (refer to Page Nos. 417 to 421 of the legal PB) 38. In fact, the Hon'ble Punjab and Hary....
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....ld, including, inter alia, management fees, directors' fees, insurance charges for directors, SAP-related expenses, and audit expenses. Documentary evidence substantiating these expenditures has been duly furnished before the AO and the DRP. 44. In addition to the expenditures noted above, the Appellant has also incurred other operating expenses in Singapore, including company secretarial expenses, legal and professional fees, Citibank and investment banker fees (specifically in connection with the transaction in question), and miscellaneous administrative expenses. 45. The nature of the substantial expenditure incurred by the Appellant, along with relevant pages of the paper book, is set out below: Management fees paid to Fullerton Financial Holdings (International) Pte. Ltd. ('FFHI') FFHI renders management services to the Appellant. FFHI and the Appellant entered into a management services agreement in 2009 under which the former renders management services to the Appellant and charges a management fee of a cost plus 10 percent mark-up. Appellant avails operations-related services from FFHI, as the employees reside in FFHI. Such services include In....
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....mentation, including, inter-alia, the Management Services Agreement, minutes of meeting/presentations spanning from 2008 to 2021 made by the management services company, corresponding invoices, directors' profiles and qualifications along with their respective invoices, SAP-related invoices, directors' insurance policies, relevant bank statements, etc. 47. The management services rendered by FFHI to the Appellant have been substantiated through comprehensive documentation, including the Management Services Agreement (executed in 2009), invoices raised by FFHI, and minutes of meetings/presentations spanning the period from 2008 to 2021. Despite the availability of such evidence, the AO/DRP has completely disregarded the actual manner in which the Appellant's business is conducted to achieve operational and administrative efficiencies. The AO/DRP has erroneously read into Article 24A(3) a condition that expenditure on operations cannot include amounts that are cross-charged without appreciating that management fees in respect of services rendered by FFHI are, infact, its direct expenditure and not any cross charge 48 Further, Article 24A(3) requires only....
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....has clearly fulfilled this requirement. Accordingly, the Appellant has satisfied the conditions under Article 24A(3) and cannot be deemed a shell or conduit company. 52. It is important to note that the objective of Article 24A(3) is to test whether an expenditure is genuinely actually incurred on operations in the other state. It is not a test of deductibility, etc., where there is no doubt on the genuineness of expenditure incurred and is also, in addition, accepted by the Treaty Partner as having been incurred and hence genuine. The wholly erroneous process of sitting in judgement on reasoning, such as whether it should have been incurred, justification for incurring, such as timesheets, etc., is wholly contrary to law. Treaty principles of good faith would result in an absurd situation where a company wholly owned by a Treaty Partner itself is denied the benefits of the treaty that its own Government has entered into 53. The AO DRP, without appreciating the commercial and operational realities of the Appellant's business and document/ evidences filed by the Appellant, hat proceeded on the basis of conjecture. suspicion, and unfounded assumptions to conclud....
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.... (vi) It is important to note that the Appellant has submitted various documents before the AO/DRP, including extracts of Board of Directors' meeting minutes, presentations made to the Board in Singapore, profiles of the Board members, and invoices, to substantiate the genuineness of the aforementioned operations-related services. (vii) At the pain of repetition, the Treaty Partner, viz. The Government of Singapore has accepted that the Appellant satisfies the threshold expenditure test also. As stated above, this being an aspect of Singapore Corporate and Accounting law, and on the facts and circumstances of the case, it ought to be respected. Re: Ground of Appeal No. 5: Without prejudice to the above, the taxability in the hands of the holding entity: 55. It is respectfully submitted that if the Appellant is deemed a shell or conduit company under Article 24A(3), the capital gains would have been assessable in the hands of its parent or the Government of Singapore, in which case the same will also not be taxable in India under the DTAA. Re: Ground of Appeal No. 6; Without prejudice to the above, Contingent Deferred Consideration ....
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....ins cannot be subjected to tax. 4.1. The Ld. DR on the contrary filed his written submissions summarising his arguments as under :- OFFICE OF THE COMMISSIONER OF INCOME-TAX (DR) ITAT-11, 'I' Bench, Room No. 703, 7th floor, CGO Annexe Building, M. K. Road, Mumbai - 400020 Phone No. 022-22082270 Email id : [email protected] No. CIT(DR)/ ITAT 11/ 'I' Bench/ 2025 26/1890 Date: 04.08.2025 To, The Hon'ble Members ITAT-11, 'I' Bench Mumbai Sir/Madam, Sub: Submission in the case of Fullerton Financial Holdings Pte. Ltd for A.Y: 2022-23 ITA No. 1137/M/2025 reg- ******** Pursuant to the appeal filed by the assessee, Fullerton financial holdings Pte. Ltd, the revenue hereby submits the following: The present appeal arises from the assessee's claim for exemption from capital gains tax in India under Article 13(4A) of the India-Singapore Double Taxation Avoidance Agreement (DTAA), in respect of a sum of Rs. 8,03,11,61,532 received from the sale of shares of Fullerton India Credit Company Ltd. (FICCL). The Revenue respectfully submits that the ....
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....n out to cover directors across the group, not specifically for FFH's own operations. These expenses do not demonstrate active or independent business functioning and therefore cannot satisfy the conditions under Article 24A. Additionally, the assessee has not produced any evidence to substantiate active operations in Singapore, such as task-specific service agreements, consultancy records, time sheets, or internal cost breakups reflecting operational relevance to FFH. The AO also noted the absence of board resolutions, strategic business plans, or commercial documents justifying the setup and maintenance of FFH as a business entity with independent purpose. These deficiencies led the AO to conclude that the corporate structure of FFH appears to be designed to avail tax benefits under the India-Singapore DTAA, with no commercial justification beyond routing investments through a favourable jurisdiction a classic case of treaty shopping. The assessee's argument that FFH was incorporated prior to the introduction of Article 24A is misplaced, as the relevant date for determining eligibility is the date of the capital gains transaction and the corresponding cl....
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....6,357 equity shares of face value Rs. 10/- each in FICCL, which were subsequently transferred to Sumitomo Mitsui Financial Group (SMFG), an unrelated company incorporated in Japan, on 30/11/2021, corresponding to the financial year 2021-22. 5.2 The revenue denied exemption of capital gain under Article 13(4A) of India Singapore Double tax Avoidance Agreement (DTAA) on the ground that the assessee has no employee and the Directors are appointed by the group entities only. The revenue is thus of the opinion that the expenses of the Directors cannot be attributed to the operational expenses of the assessee. 5.3 The issue, therefore, that arises for consideration is whether, on the facts and circumstances of the case, the assessee satisfies the Principal Purpose Test (PPT) prescribed under Article 24A(1) and (2) of the India-Singapore DTAA for availing treaty benefit under Article 13(AA) in respect of the impugned transaction. 5.4 Before addressing the issue under consideration, it is necessary to understand the constitution of the assessee, placed at pages 1270 to 1312 of paperbook : * The assessee is a company incorporated under the provisions of the Companies Act, ....
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....apore, subject to the limitation-of-benefits (LOB) conditions. Consequently, the gains arising to the assessee on sale of such pre-April 2017 investments would remain exempt from taxation in India in accordance with Article 13(4) of the DTAA read with paragraph 3 of the 2016 Protocol. 6.2 The Principal Purpose Test (PPT) was introduced under Article24A of the India-Singapore DTAA by way of the Third Protocol, with effect from 01/04/2017, in line with the OECD's BEPS Action Plan 6 recommendations. The said provision embodies a general anti-abuse rule designed to deny treaty benefits in cases where it is reasonable to conclude that one of the principal purposes of an arrangement or transaction was to obtain a benefit under the DTAA, unless granting such benefit would be in accordance with the object and purpose of the relevant provisions of the Convention. 6.3 Accordingly, for the assessee to be entitled to exemption of capital gains under Article 13(4) or 13(4A) of the DTAA, it must be established, based on the totality of facts, that the investment structure and the subsequent transfer were driven by bona fide commercial considerations, consistent with the assessee's ....
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....'s BEPS Action Plan 6 recommendations. The said provision embodies a general anti-abuse rule designed to deny treaty benefits in cases where it is reasonable to conclude that one of the principal purposes of an arrangement or transaction was to obtain a benefit under the DTAA, unless granting such benefit would be in accordance with the object and purpose of the relevant provisions of the Convention. 7.5 Accordingly, for the assessee to be entitled to exemption of capital gains under Article 13(4) or 13(4A) of the DTAA, it must be established, based on the totality of facts, that the investment structure and the subsequent transfer were driven by bona fide commercial considerations, consistent with the assessee's legitimate business objectives, and not undertaken principally to secure a tax advantage under the Treaty. 7.6 The application of the PPT, therefore, requires a substantive examination of the assessee's commercial rationale, governance framework, economic substance, and functional control in relation to the transaction. Relevant factors would include whether the assessee carried on genuine investment and management activities from Singapore; whether the B....
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.... rendered by the directors and by FFHI through its employees in the course of the assessee's business operations. In addition, the assessee has incurred expenditure towards Directors' and Officers' (D&O) insurance premiums to safeguard its directors and officers against liabilities that may arise from decisions and actions undertaken in the discharge of their official duties. 8.4 The expenses are reimbursed by the assessee to FFHI are also on an arm's length basis, in compliance with the Singapore transfer pricing regulations, and are duly verified and audited in the financial statements of the assessee. The same have also been certified in the Agreed-Upon Procedures (AUP) report as having been appropriately incurred in accordance with applicable Singapore accounting standards. Dear Sir/Madam We refer to KPMG Services Pte. Ltd.'s letter dated 4 September 2023. Based on the financial statements, tax computation and additional information provided by the Company, we hereby confirm that the Company's annual expenditure on operations in Singapore was more than S$200,000 for each of the 12-month periods in the immediately preceding p....
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...., incorporated under the Companies Act, Chapter 50 of Singapore, and functions as Temasek's dedicated investment and operating platform for the financial services sector in Asia. The assesse forms part of the consolidated group financial statements of Temasek, whose audited group accounts are prepared in accordance with Singapore Financial Reporting Standards and reflect the consolidated position of Temasek and its subsidiaries. The assessee maintains its management and control in Singapore, where all key investment and strategic decisions are undertaken through regular meetings of its Board and sub- committees. The investment in Fullerton India Credit Company Limited (FICCL), made in the financial year 2009-10, was a long- term strategic investment aligned with its regional expansion objectives and not a tax-motivated arrangement. The subsequent sale of shares to Sumitomo Mitsui Financial Group (SMFG) in 2021 represented a genuine commercial realisation of investment, undertaken as part of an arm's length transaction with an unrelated foreign entity. 9.2 On these facts, it cannot be said that the obtaining of a treaty benefit was one of the principal purposes of the tra....