The Delhi High Court has overturned reassessment proceedings against a Singaporean company owned by Blackstone Group holding a Tax Residency Certificate (TRC). The proceedings were initiated due to the claim that the company was not the beneficial owner of the share transactions, as the source of funds and its management was in the US. However, the High Court held that the Revenue cannot go behind the Tax Residency Certificate (TRC) issued by another tax jurisdiction and that it is sufficient evidence for claiming eligibility for DTAA benefits, residence status, and legal ownership. The capital gains earned by the company were deemed not liable for tax in India. The company was being reassessed for the assessment year 2016-17 in regards to the sale of shares of the Indian company “Agile Electric Sub Assembly (P) Ltd.” to “Agile to Igarashi Electric Works Ltd.” The company claimed treaty benefits on capital gains under the India-Singapore DTAA on the basis of the Tax Residency Certificate (TRC) and its ITR was processed without any demand. The reassessment proceedings were challenged in a writ petition.
The High Court relied on the Punjab & Haryana High Court ruling in “Serco BPO (P) Ltd. v. Authority for Advance Rulings, New Delhi” which held that the Tax Residency Certificate (TRC) is sufficient to claim relief under the DTAA. The High Court also observed that the said ruling had not been challenged by the Revenue and had been accepted. As a result, the High Court held that the Tax Residency Certificate (TRC) is the only evidence required to be eligible for the benefits under the DTAA and the Revenue’s attempt to question it is contrary to the government’s policy and assurances to foreign investors. The High Court also noted that the Singaporean authorities granted the Tax Residency Certificate (TRC) after a thorough analysis of the documents and that Indian authorities cannot disregard it as it would be contrary to international law.
In regards to the Limitation of Benefit (LOB) Clause, the High Court stated that the Revenue did not question the satisfaction of the clause or the independent Chartered Accountant certificate until the writ proceedings. The company was deemed to be a bonafide entity and not a shell/conduit entity as it complied with the LOB clause, thus, the allegations of treaty shopping were irrelevant.
The High Court also observed that the company was incorporated with nominal capital, which is common for companies to be established as special purpose vehicles for a specific investment or project. The company was later adequately capitalized and made a genuine investment in India which grew exponentially. The reassessment proceedings were found to be invalid as the notice was based on information obtained from a third-party online source without independent verification or investigation. The High Court also found that there was no link between the material before the Revenue and the belief that there was an escapement of income chargeable to tax.
In regards to the residential status of the company, the High Court found that the Form-10K filed by Blackstone Group before the US Securities Exchange Commission in December 2011 relied upon by the Revenue did not pertain to the company as it was not listed as a subsidiary. The High Court held that the residential status of the company could not be determined based on the information provided in the Form-10K.
In conclusion, the Delhi High Court quashed the reassessment proceedings initiated against the Singaporean company owned by Blackstone Group holding a Tax Residency Certificate (TRC). The High Court held that the Tax Residency Certificate (TRC) is sufficient evidence for claiming eligibility for DTAA benefits and that the capital gains earned by the company were not liable for tax in India.
