Revenue can’t go behind TRC issued by the other tax jurisdictions: Delhi High Court

 

M/s Black Stone Capital Partners VI FDI Three PTE Ltd (Singapore) (W.P.(C) 2562/2022)

Facts:

1. M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., has sold the shares of M/s Agile Electric Sub Assembly Pvt Ltd., to M/s Igarashi Electric Works Ltd., for sale consideration of Rs. 4,01,31,77,340/-. On open source enquiry by the Revenue, it was revealed that Black Stone Group Inc is controlled and managed from USA. As per filings of Blackstone Group with Securities Exchange Commission, USA, the funds were raised by Blackstone Group Inc., for investing through Blackstone Capital Partner VI (BCP VI).

2. Hence, the revenue was of the opinion that M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., is not entitled for the benefit as per Double Taxation Acoidance Agreement (DTAA) between India and Singapore.

3. There was an apprehension that M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., is not beneficial owner of the transaction and so a reassessment notice was issued under Section 147 of the Income Tax Act, 1961, to determine issues of residence status, treaty eligibility, and legal ownership.

4. The petitioner contended that a valid Tax Rrsidency Certificate (TRC) was issued by Singapore authorities. Petitioner also put forth the argument with relevant documents that its businesses were fully controlled and managed from Singapore and the shareholders/directors of the petitioners were all situated in Singapore with no role played by any outsider.

 

Hon. Delhi HC held as below:

1. Under the India Singapore DTAA, at the relevant time, capital gain was to be taxed on the basis of legal ownership and not on the basis of beneficial ownership. In fact, the concept of beneficial ownership, at the relevant time was attracted for taxation purposes only qua three transactions i.e. dividend, interest and royalty and not for capital gains.

2. The respondent-revenue cannot go behind the TRC issued by the other tax jurisdiction as the same is sufficient evidence to claim treaty eligibility, residence status, legal ownership and accordingly there is no capital gain earned by the petitioner liable to tax in India.

3. Even the clarificatory press release dated 1st March, 2013 issued by the Finance Ministry pursuant to the 2013 amendment makes it clear that a TRC is to be accepted and tax authorities cannot go behind it. Further, since on the basis of repeated assurances by the Government of India which have been upheld by the Apex Court, the petitioner had invested in India, the respondent is estopped from arguing to the contrary.

4. Keeping in view the aforesaid findings, this Court is of the view that no income chargeable to tax has escaped assessment in the present case. Reopening of assessment based on the return of income must show ‘reasons to believe’ that income chargeable to tax has escaped assessment.