TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 260
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....e case of the assessee was passed by the AO u/s 144C(1), dated 17.05.2023(DIN & Order No. ITBA/AST/F/144C/2023-24/1052904151(1)). The assessee filed objections with learned DRP against the draft assessment order dated 17.05.2023 which were disposed off by ld. DRP vide orders dated 26.02.2024. 2. The grounds of appeal raised by the assessee in memo of appeal filed with Income Tax Appellate Tribunal, New Delhi(hereinafter called "the Tribunal") reads as under:- "The grounds mentioned herein by the Appellant are without prejudice to each other. 1. On facts and circumstances of the case and in law, the final assessment order ('order') passed by the Deputy Commissioner of Income Tax, International Taxation, Circle 2(1)(1), C.R. Building, New Delhi ('the Ld. AO') and directions issued by the Dispute Resolution Panel -1, New Delhi ('the Ld. Panel') are erroneous on facts and are bad in law. 2. That on the facts and circumstances of the case and in law, the Ld. AO and the Ld. Panel has erred on the taxability of capital gains arising in the hands of Appellant on the transfer of securities which is governed by the provisions of the Income-tax Act, 1961 ("the Ac....
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....res (CCDs) of M/s Renew Solar Energy (Karnataka) Pvt. Ltd. to M/s Renew Solar Power Pvt. Ltd., and the said amount was claimed as an exempt income not chargeable to tax in India as per the provisions of Article 13 of India-Singapore DTAA. The case of the assessee was selected by Revenue for complete scrutiny for the reasons that there were capital gains/income on sale of property and a claim of refund. Statutory Notices u/s 143(2) was issued by the AO and duly served on the assessee. During the course of assessment proceedings, the AO asked the assessee to submit the shareholding pattern and the group structure (upstream and downstream) of the Group of entities of which the assessee is a part as well the assessee was asked by AO to submit the organizational structure of the group. The assessee submitted that the assessee is subsidiary of Hareon Solar Co. Ltd., Hong Kong who holds 100% shares of the assessee company, and further that the Hareon Solar Co. Ltd., Hong Kong is subsidiary of Hareon Solar Technology Co. Ltd., China who holds 100% shares of Hareon Solar Co. Ltd., Hong Kong. Thus, it was submitted that the ultimate holding company of the assessee is Hareon Solar Technology ....
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.... AO observed that the assessee has not brought anything on record to exhibit the functioning on normal day to day basis. Thus, onus casted on the assessee to provide the real existence of the company, and it not being a conduit/shell company remained unexplained. The assessee was asked by the AO to submit the KYC documents submitted by it to HSBC Bank, Singapore. The assessee provided copy of form for KYC submitted by it to Hongkong and Shanghai Banking Corporation Ltd.. The AO observed from the KYC documents submitted that the same was signed by Mr. Rubin Sidhu, a resident of USA. It was also observed by the AO that the authorized signatories/key controllers for operation of bank account were Mr. Rubin Sidhu, a resident of USA and Eddie Woo, resident of Taiwan, who have been authorized for the operations of bank account. The AO observed that it can be seen that the actual control of bank account and decision regarding the utilization of funds lies with Mr. Rubin Sidhu and, thus outside Singapore. The assessee also submitted copy of Minutes of the meeting wherein the decision regarding the appointment of authorized signatory for operation of the bank account was taken. The AO obser....
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....CDs. The assessee submitted that the chargeability to tax of capital gains is covered by the provisions of the Income-tax Act, 1961 read with the provisions of India-Singapore DTAA. The assessee referred to the provisions of Section 9 and Section 45 of the Act. The assessee also submitted that as per provisions of Section 90 of the 1961Act, where the tax payer is a resident of a country with which the Government of India has entered into a Double Taxation Avoidance Agreement(DTAA), tax is required to be computed as per the provisions of the Income-tax Act or as per the DTAA whichever is more beneficial to the tax payer. The assessee relied upon Article 13(4A) to submit that the shares were acquired by the assessee in an Indian Company namely Renew Solar Energy (Karnataka) Private Ltd. prior to 1st April, 2017 and, hence, shall be taxable in Singapore as the assessee is resident of Singapore. Similarly, the assessee relied upon Article 13(5) of the DTAA, and submitted that the gains arising from the transfer of CCDs shall also be taxable only in Singapore as the assessee company is resident of Singapore. The assessee further submitted that in terms of DTAA between India and Singapor....
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....ore while the holding company of the assessee is in Hongkong, and ultimate holding company is in China. The shares of an Indian unlisted company namely Renew Solar Energy (Karnataka) Private Ltd. as were held by the assessee were transferred merely to get the benefit of India- Singapore Double Taxation Avoidance Agreement(DTAA) as the transfer of shares of Indian company acquired before 01.04.2017 were only taxable in Singapore as the alienator i.e. the assessee is tax resident of Singapore. It was observed by the AO that the Singapore has no tax on capital gain from alienation of shares. Thus, the AO observed that the company is a mere shell company or sham arrangement without adequate commercial substance with the beneficial ownership and control and management effectively lying outside Singapore, and the only purpose behind establishing this paper or letter box company in Singapore is to take advantage of the treaty between India and Singapore. The AO observed that the purpose of the tax treaties is to prevent double taxation and not to allow tax evasion by means of such shell companies. The AO observed that there is no commercial rationale behind creation of the assessee compan....
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....majority of the Directors were present in Singapore at the time of meeting, but, the AO rejected the contention of the assessee by holding that 3 of the Directors of the assessee company are Non Resident based in USA and Taiwan. The AO observed that Mr. Rubin Sidhu, Woo Yao Tung, Zhang Jie and Ruan Jun are the authorized signatories of the bank account and are responsible for managing the funds and taking all the key decisions of the assessee company being based outside Singapore. The 100% parent holding company of the assessee company is based in Hongkong, and the ultimate 100% holding company of the assessee is based in China, and the Singapore route is only taken to take the benefit of DTAA. The AO also rejected the contention of the assessee that TRC has been issued by Singapore Revenue Authorities, and hence it cannot be denied the benefit of India Singapore DTAA. The AO referred to the decision of the Hon'ble Bombay High Court in the case of Vodafone BV to hold that merely holding of TRC is not conclusive to decide the tax residency wherein the Hon'ble Bombay High Court has held as under:- "99. It is to be noted that LOB and look through provisions cannot be read int....
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....t the assessee is not entitled to the benefits of DTAA between India and Singapore for the following reasons:- "1. The scheme of arrangement employed by the assessee is one of tax avoidance through treaty shopping mechanism. 2. The TRC is not sufficient to establish the tax residency if the substance establishes otherwise. 3. The assessee company is just a conduit and the actual of the income is not the assessee company but the entities based in Hong Kong/China. 4. There is no commercial rationale of establishment of assessee company in Singapore. 5. The control and management of the assessee company is also not present in Singapore. 4.5 The AO applied source rule to tax the assessee by invoking provisions of the 1961 Act, denying treaty benefits to the assessee. The AO referred to the Hon'ble Supreme Court judgment in the case of GVK Industries 332 ITR 130. The AO observed that the capital gains arising from capital asset situated in India would be deemed to accrue or arise in India. The AO referred to Explanation 4 and 5 to Section 9(1)(i). The AO observed that the capital asset derived its value substantially from assets located in....
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....which was subjected to withholding income-tax @ 15% as per DTAA. It was submitted that the same was brought to tax by the AO under the provisions of India Singapore DTAA, and treaty benefit was allowed by the AO. It was submitted that in earlier years also, the assessee offered to tax interest on CCD by invoking provisions of India-Singapore DTAA, which claim of treaty benefit was accepted by the Revenue. It was submitted by learned counsel for the assessee that as per provisions of DTAA, exemption was claimed on the capital gain arising from sale of equity shares and the CCDs while filing the return of income in India as the same is taxable in Singapore where the alienator is resident. It was submitted that capital gains arising on sale of equity shares and CCD's are not taxable in Singapore as per the Singapore tax-laws. It was submitted that so far as the capital gain on the transfer of equity shares and CCDs are concerned, the AO has denied the Treaty benefits(India-Singapore DTAA), and has brought to tax the said capital gain under the provisions of the Income-tax Act, 1961 although as per the India-Singapore DTAA the same is to be brought to tax in Singapore. It was submitted....
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....e agreement dated 01.07.2015 between M/s Renew Solar Power Pvt. Ltd., Renew Power Ventures Private Limited, Renew Solar Energy (Karnataka) Pvt. Ltd., Hareon Solar Technology Company Limited, China and the assessee company for subscription/purchase of equity shares and CCDs. Our attention was also drawn to page 370 of the paper book, para 9.2 and it was submitted that the assessee company Hareon Solar Technology Company Limited, China and the Hareon Solar India Private Limited shall provide the benefit of their experience and expertise to Renew Solar Energy (Karnataka) Pvt. Ltd. Our attention was also drawn to page 887 of the paper book and it was submitted that the assessee is still holding Class H Redeemable Preference Shares in Nereus Capital Investments (Singapore) Pte Ltd. as an investment. It is also holding equity shares in Hareon Dalmia Solar Private Limited, which is based in India. It was submitted that, thus, it could not be said that the assessee company is merely a shell company as it has made other investments also apart from making investment in Renew Solar Energy(Karnataka) Private Limited which now stood divested. It was submitted that TDS was duly deducted on the s....
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....ve been charged to tax in India. It was also submitted that the place of effective management is not situated in Singapore and rather it is situated outside Singapore, in Hong Kong and China as well as the Directors are based in USA and Taiwan who are taking the key decisions. The bank accounts were operated by the persons who are not residents of Singapore. It was submitted that the minutes have been submitted by the assessee and claim has been made that the said signatories and Directors were present in Singapore in the Board meeting, but, no proof has been submitted to the effect of their presence in Singapore by way of passport or authentication by the Embassy or High Commission and, rather, a self serving un-authenticated document has been submitted by the assessee. The ld. CIT-DR relied upon the assessment order. The ld. CIT DR also relied upon judgment of Hon'ble Supreme Court in the case of Mansarovar Commercial Private Limited v. CIT, reported in (2023) 149 taxmann.com 178(SC). 8.3. In rebuttal, the ld. counsel for the assessee submitted that the place of effective management is based in Singapore as Board of Directors meeting has taken place in Singapore, and it was su....
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....0%) subsidiary of Hareon Solar Co. Ltd., Hong Kong, which aforesaid Hong Kong based company in-turn is wholly owned (i.e. 100%) subsidiary of Hareon Solar Technology Co. Ltd., China. Thus, the ultimate holding/parent company of the assessee is based in China, while immediate holding/parent company of the assessee is based in Hongkong. 9.3 It is observed that there was a meeting of Board of Directors of the assessee company held at its Registered office on 15th June, 2015 wherein decision was taken to enter into Joint Venture agreement in relation to investment and subscription by the assessee company to the tune of 40,92,941 equity shares of Rs. 100 each and 14,89,180 fully, compulsory and mandatorily convertible debenture(CCD) having a face value of Rs. 120 each of Renew Solar Energy (Karnataka) Private Ltd., India(PB/Page 782-881). The JV agreement as is mentioned in the aforesaid Minutes of Board of Directors Meeting is entered into by and between Renew Solar Power Private Limited, India, Renew Power Ventures Private Limited, India, Hareon Solar Technologies Company Limited, China, the assessee company which is based at Singapore and Renew Solar Energy (Karanatka) Private Lim....
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.... CGM /(IPC & PMM)/APSPDCL/F/ Bidding- 2014/D.No.1088/14 dated 07.11.2024. It is also provided in the aforesaid JV agreement that the Renew Solar Power (Karnataka) Private Limited has entered into Power Purchase Agreement(PPA) with APSPDCL. The assessee company had made aforestated investments in equity shares as well CCD's in the Renew Solar Power (Karnataka) Private Limited,India. Thus, in nut-shell, the Renew Solar Power (Karnataka) Limited, India is implementing a project for setting up 60MW(AC) power generation plant based on solar module for which it has entered into Power Purchase Agreement with APSPDCL. The solar PV modules required for setting up aforesaid solar power project of the capacity of 60MW(AC) were supplied by Hareon Solar Technology Company Limited, China. Hareon Solar Technology Company Limited, China has wholly owned (100%) subsidiary in Hongkong namely Hareon Solar Company Limited, Hongkong. The said Hongkong based company has wholly owned (100%) subsidiary in Singapore i.e. the assessee company namely Hareon Solar Singapore Private Limited. Thus, for supply of PV Modules to Renew Solar Energy(Karnataka) Limited for its 60MW(AC) solar power project, the Chines....
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.... India, in India in view of Article 13(4A) of India-Singapore DTAA as the assessee is tax resident of Singapore. The assessee has claimed that it is well settled that provision of DTAA or domestic tax laws, which ever is beneficial to the assessee shall be applicable. Thus, it is claimed that assessee is entitled to protection of Article 13(4A) of India-Singapore DTAA, and no income-tax is payable on the capital gains so arisen on sale/transfer of aforesaid equity shares. Similarly, for capital gains on sale/transfer of CCD's, the assessee has claimed that the same shall not be chargeable to tax in India in view of Article 13(5) of the India-Singapore DTAA. The assessee has claimed that its control and management is exercised in Singapore, and hence it is Resident in Singapore. Thus, in nut-shell it is claimed that the claim is setup for non taxability of capital gains on sale/transfer of equity shares /CCD of an unlisted Indian company, in view of Article 13(4A) and 13(5) of India-Singapore DTAA, based on the claim that it holds TRC issued by Singapore Revenue authorities, based on the claim that the control and management is exercised in Singapore. 9.5 It will be profitable at....
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....Hareon Dalmia Solar Private Limited, India and thirdly in Nereus Capital Investments (Singapore) Pte. Limited, Singapore(with understanding to make further investments in India through Nereus). Perusal of the Statement of Comprehensive income for the year ended 31.12.2019 reveals that the income(gross) of the assessee for the year was US$ 27,25,372 (US$ 4,76,768 for the year ended 31.12.2018). This income for the year ended 31.12.2019 constituted gain on disposal of investments of US $ 25,39,872, interest income US $ 1,29,759 and profit on redemption of preference shares to the tune of US $ 55,741(for the year ended 31.12.2018, the income constituted interest income to the tune of US $ 2,69,309 and profit on redemption of preference shares to the tune of US $ 2,07,459). There is no other income reported for these two years for the year ended 31.12.2019 and 31.12.2018. Perusal of the expenditure side reveals that majority of the expenses/ losses were booked towards fair value loss of investment, and impairment loss on investments/ investments in subsidiary company. There are ' other operating expenses' claimed by the assessee to the tune of US $ 16,01,711 for the year ended 31.12.20....
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....essee company which is Singapore based company. The assessee has no independent business activities apart from holding few investments, and is dependent on its 100% parent company at Hongkong for funding. Thus, there are no other activities of the assessee company apart from being an investment company. Thus, in nut-shell the assessee company was interposed (incorporated on 24.04.2015) for routing investment in Renew Solar Energy (Karnataka) Limited, India(June,2015). Since, the Ultimate Parent Company based at China was supplying Solar PV Modules to Renew Solar Energy (Karnataka) Limited, India for its 60MW(AC) solar power plant vide supply contract in 2015, and there is a condition of fulfilling of the commitment towards making investments by the Chinese Parent in Renew Solar Energy(Karnataka) Limited before payments for supplies under supply contract can be effectuated vide para 13.2 of JV Agreement, nothing prevented the ultimate parent company of the assessee based at China to make direct investment in the Renew Solar Energy (Karnataka) Limited, India. Thus, the obvious reasons for routing the said investment made in equity shares/CCD's of Renew Solar Energy(Karnataka) Limited....
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....ich the alienator is a resident. 4. ^1[***] ^2[4A. Gains from the alienation of shares acquired before 1 April 2017 in a company which is a resident of a Contracting State shall be taxable only in the Contracting State in which the alienator is a resident. 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 may be taxed in that State. 4C. However, the gains referred to in paragraph 4B of this Article which arise during the period beginning on 1 April 2017 and ending on 31 March 2019 may be taxed in the State of which the company whose shares are being alienated is a resident at a tax rate that shall not exceed 50% of the tax rate applicable on such gains in that State. 5. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3, 4A and 4B of this Article shall be taxable only in the Contracting State of which the alienator is a resident.] [ARTICLE 24A 1. A resident of a Contracting State shall not be entitled to the benefits of paragraph 4A or paragraph 4C of Article 13 of this Agreement if its affairs were arrange....
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....l be covered by paragraph 1 of this Article.] 9.5 Vide Article 13(4A) of India-Singapore DTAA, If the shares are acquired before 01.04.2017 in a company which is Resident of a Contracting State shall be taxable only in the Contracting State in which the alienator is a resident, but, however, the aforesaid Article 13(4A) is subject to Article 24A of the India Singapore DTAA which is a Limitation of Benefit(LOB) Clause which, interalia, stipulate vide para 1 that 'A resident of a Contracting State shall not be entitled to the benefits of paragraph 4A or paragraph 4C of Article 13 of this Agreement if its affairs were arranged with the primary purpose to take advantage of the benefits in the said paragraph 4A or paragraph 4C of Article 13 of this Agreement, as the case may be.' As we have already observed in preceding paragraph that the assessee company(assessee being 100% subsidiary of Hareon Solar Company Limited, Hongkong) is interposed/incorporated in Singapore by its ultimate Chinese Holding Company(Hareon Solar Technology Company Limited, China) through its 100% subsidiary in Hongkong(Hareon Solar Company Limited, Hongkong), as an investment holding company to route investmen....
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....that the said legal and professional fee are paid to TMF for accounting, reporting, management of accounts, audit assistant, tax filing etc., and/or to its Auditors. There are no other expenses incurred by the assessee. There are no employees of the assessee. The assessee has claimed that its Board of Directors Meeting's were held in Singapore. No Directors Salary, Director Fees, Directors Travel Cost, Hotel Bills, Entertainment etc are booked in the books of accounts prepared by the assessee. It is observed that there were four Directors (Page 1018/PB) of the assessee company on 15th June, 2015 when Board of Directors Meeting was claimed to be held at Singapore to take decision to invest in Renew Solar Energy(Karnataka) Limited was taken, out of which 3 Directors were stated to have attended the meetings namely Mr. Woo Yao-Tung, Mr. Rubin Sidhu and Ms. Chek Khi Juat, while Mr. Zhang Jie did not attended the meeting. It is claimed that Mr. Woo Yao-Tung is based in Taiwan, Mr. Rubin Sidhu is based in USA and Ms. Chek Khai Juat is based in Singapore. It is strangely submitted by the assessee for the reasons best known to it through out the proceedings from assessment stage itself and....
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....rations and / or regular/continuous business carried out in Singapore. It is also observed from the HSBC KYC document (Page 972-980/PB) that the assessee is having Bank account with HSBC Bank, Singapore, and the said bank account is operated by Rubin Sidhu(US Citizen/national) and by Mr. Eddie Woo(Taiwan National/Citizen). Thus, none of the signatory to bank account is based at Singapore. Thus, under the circumstances enumerated above, it could be said that the place of control and management of the assessee is not situated in Singapore. The assessee, under these circumstances, could not be said to be resident in Singapore. It is claimed that the assessee holds TRC issued by Singapore Revenue Authorities, and hence the assessee would be entitled or eligible to tax benefit under India Singapore DTAA.It is now well settled that mere holding of TRC is not sufficient. Reference is drawn to Section 90(4) and 90(5). Further, the authorities have to see the surrounding facts and circumstances w.r.t. the claim of the taxpayer for residency based on TRC, and to make enquiries to see whether the claim of residency based on TRC is genuine or merely a sham claim tainted by misrepresentation or....
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....vernment of Singapore. The tax-payer in that case functions as an active investment and operating platform for Temasek's financial services portfolio. The tax-payer Board of Directors comprised experienced professionals from the field of banking, finance and public administration. The tax-payers had investments spanning in multiple jurisdiction, including Singapore, Cambodia, China, India, and Malyasia, with focus on MSME sector and mass-market banking segments. The tax-payer maintained substance and control in Singapore, as all key managerial and administrative functions, including Board and subcommittee meetings, strategic decision-making, and oversight of investee entities, are undertaken in Singapore. Thus, based on the above facts, the Tribunal decided in favour of the tax-payer that it will be entitled to benefits under India-Singapore DTAA, but while in the instant case before us, the facts are completely different which we have elaborately discussed above. Thus, reliance of the assessee on decision of Mumbai ITAT in the case of Fullerton(supra) is not justified and is rejected. The assessee has also claimed that the AO allowed treaty benefit while bringing to tax, interest ....