A Division Bench of the Bombay High Court granted a capital gain exemption to Foreign Institutional Investors (FII) in the matter of capital gains from alienation of any property taxable only in Singapore.
The appeal is impugning an order passed by the Income Tax Appellate Tribunal (ITAT) while disposing of an appeal filed under Section 254(1) of the Income Tax Act 1961.
The ITAT Mumbai in Citicorp Investment Bank (Singapore) Ltd v. DCIT, held that the sale consideration received by a Singapore based Company on the sale of the debt instrument is not taxable as capital gain under the Income Tax Act in view of article 13(4) of the India-Singapore Double Taxation Avoidance Agreement (DTAA).
The assessee, M/s Citicorp Investment Bank ) (Singapore) Ltd.)i.e., the respondent is a tax resident of Singapore. The assessee is registered as a Foreign Institutional Investor (FII) in the debt segment with the Securities and Exchange Board of India (SEBI). The assessee has been investing in debt securities in India during the year in consideration, which is A.Y.-2010-2011.
The assessee submitted that Article 13 (4) of the Double Taxation Avoidance Agreement (DTAA) provides for the taxation of capital gain in Singapore and if, the assessee is offering its worldwide income for taxation in Singapore then remittance of such income to Singapore has no relevance for claiming benefit under the DTAA.
PJ Pardiwalla for the assessee submitted that the limitations of relief under Article 24 of DTAA would only arise when the entire capital gain is taxed in Singapore on the remitted amount and not the entire amount whether remitted or otherwise.
The Counsel submitted that since in this case, the Singapore authorities have also certified that under the Singapore Laws the income derived by the assessee from buying or selling of Indian Debt Securities and from Foreign Exchange transactions in India would be considered under Singapore tax law as accruing in or derived from Singapore, such income would be brought to tax in Singapore without reference to the amounts remitted or received in Singapore, the limitation as prescribed in Article 24 would not apply to the case at hand.
The Coram of Justices KR Shriram and Firdosh P Pooniwalla observed that “The AO has held that the assessee has not produced any evidence to show such required repatriation as mandated by Article 24 of DTAA for entitlement of exempted income. This is an incorrect statement as rightly held by the ITAT. Therefore, Singapore authorities have themselves certified that the capital gain income would be brought to tax in Singapore without reference to the amount remitted or received in Singapore. The AO could not have concluded otherwise.”
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