Commissioner Of Income Tax (It) - 2 )17[Th] Floor, Air India Building, )Nariman Point, Mumbai 400 021 v. M/S Citicorp Investment Bank )(Singapore) Ltd.)

Digitallysigned byMEERAMEERAMAHESHMAHESHJADHAVJADHAVDate:2023.08.0215:17:32+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO. 256 OF 2018 Commissioner Of Income Tax (IT) - 2 )17[th] floor, AIR India Building, )Nariman Point, Mumbai 400 021) ..Appellant Versus M/s Citicorp Investment Bank )(singapore) Ltd.) C/o. Citibank NA, )Securities and Fund Services, Citibank NA )FIFC, 11[th] Floor, C-54 & C-55, G-Block,)BKC, Bandra (E), Mumbai 400 051)..Respondent ---- Mr. Devvrat Singh for Appellant.for Respondent. Mr. P. J. Pardiwalla, Sr. Advocate a/w Mr. B. D. Damobar i/b Kanga & Co. ---- CORAM : K.R. SHRIRAM & FIRDOSH P POONIWALLA, JJ DATED : 21[st] JUNE 2023 (ORAL JUDGMENT PER K .R. SHRIRAM J.) : 1Appeal is impugning an order dated 24[th] March 2017 passed by theIncome Tax Appellate Tribunal (ITAT) while disposing an appeal filed underSection 254(1) of the Income Tax Act 1961 (the Act). The assessee, i.e.,respondent is a tax resident of Singapore. The assessee is registered as aForeign Institutional Investor (FII) in debt segment with Securities andExchange Board of India (SEBI). The assessee has been investing in debtsecurities in India during the year in consideration, which is A.Y.-2010-2011.The assessee filed its return of income on 30[th] September 2009 declaringtotal income of Rs.33,99,75,350/-. In its return, the assessee declared aMeera Jadhav:This judgment has been corrected pursuant to the minutes of order dated 19th July 2023. capital gain of Rs.86,62,63,158/- on the sale of debt instruments andclaimed exemption under Article 13(4) of India-Singapore Double TaxationAvoidance Agreement (DTAA). During the assessment, the assessee wasasked to explain as to how the provisions of Article 24 of DTAA stoodcomplied in order to claim capital gain as exemption in India. 2The assessee in its submission to the Assessing Officer (AO)contended that being a FII, assessee was liable to tax in Singapore of itsworldwide income. The assessee submitted that even Singapore RevenueAuthority has confirmed the taxation on the assessee in Singapore vide theircertificate dated 16[th] April 2012. The assessee further submitted that Article13 (4) of DTAA provides for taxation of capital gain in Singapore and if, theassessee is offering its worldwide income for taxation in Singapore thenremittance of such income to Singapore has no relevance for the purpose ofclaiming benefit under the DTAA. AO rejected this contention of theassessee on the ground that for the assessee to get any benefit under theDTAA, the assessee has to fall within the provisions of DTAA. According toAO, though the provisions of Article 13(4) allows exemption of capital gainsin source country, i.e., India, provisions of Article 24 of DTAA provides forrestriction of exemption of such capital gains to the extent of repatriation ofsuch income to other country, i.e., Singapore. According to AO, evenSingapore law under Section 10(1) relating to charge of income tax underthe Singapore Income Tax Act, reveals that it taxes income on receipt basisof such income in Singapore from outside Singapore. In other words, AO rejected the certificate issued by the tax authority in Singapore andproceeded by interpreting the laws of Singapore on his own. AO held thatthe assessee did not show that repatriation of the capital gains was made toSingapore and in view of Article 24 of DTAA, the assessee is not entitled tothe exemption claimed. 3Aggrieved by this treatment of capital gain as taxable in India in thedraft assessment order, the assessee filed objections before the DisputeResolution Panel (DRP). DRP by an order dated 14[th] November 2014 passedunder Section 114C(5) of Act upheld the action of AO. Relying on the saidorder of DRP, AO passed the assessment order on 30[th] December 2014 underSection 143(3) read with Section 144C(13) of the Act. rejected the certificate issued by the tax authority in Singapore andproceeded by interpreting the laws of Singapore on his own. AO held thatthe assessee did not show that repatriation of the capital gains was made toSingapore and in view of Article 24 of DTAA, the assessee is not entitled tothe exemption claimed. 3Aggrieved by this treatment of capital gain as taxable in India in thedraft assessment order, the assessee filed objections before the DisputeResolution Panel (DRP). DRP by an order dated 14[th] November 2014 passedunder Section 114C(5) of Act upheld the action of AO. Relying on the saidorder of DRP, AO passed the assessment order on 30[th] December 2014 underSection 143(3) read with Section 144C(13) of the Act. The assessment order dated 30[th] December 2014 was impugned bythe assessee in an appeal filed before the ITAT-Mumbai. The ITAT by anorder dated 24[th] March 2017, which is impugned in this appeal, allowed theappeal of the assessee. The ITAT held that the assessee was entitled to thebenefit of Article 13(4) of DTAA between India and Singapore. 4Following substantial questions of law are proposed in this appeal: “(a) Whether on the facts and circumstances of the case and in law,the ITAT is correct in holding that the assessee is entitled to the benefitof Article 13(4) of the Double Taxation Avoidance Agreement (DTAA)between India and Singapore without appreciating the provisions ofArticle 24 of treaty which asks for restriction of exemption of suchcapital gains to the extent of repatriation of such income to the othercountry i.e. Singapore ? (b) "Whether on the facts and circumstances of the case and in law,Hon'ble ITAT has erred in holding that Article 24 of the DTAA betweenIndia and Sinagapore has no application to the assessee's case ?" 6Mr. Pardiwalla for the assessee submitted that the limitations of reliefunder Article 24 of DTAA would only arise when the entire capital gain istaxed in Singapore on the remitted amount and not the entire amountwhether remitted or otherwise. Since in this case, the Singapore authoritieshave also certified that under the Singapore Laws the income derived by theassessee from buying or selling of Indian Debt Securities and from ForeignExchange transactions in India would be considered under Singapore taxlaw as accruing in or derived from Singapore, such income would bebrought to tax in Singapore without reference to the amounts remitted orreceived in Singapore, the limitation as prescribed in Article 24 would notapply to the case at hand. 7Mr. Pardiwalla also submitted relying on Direct Taxes Circular no.789dated 13[th] April 2000 and a judgment of Hon’ble Madras High Court in1Commissioner of Income Tax Vs. Lakshmi Textile Exporters Ltd. that thecertificate issued by the Singapore authorities should constitute sufficientevidence for accepting the position of the law in Singapore and the AOshould not try to interpret the laws of Singapore and in this regard acertificate, admittedly, is issued. The revenue cannot dispute the fact thatthe entire amount of capital gain whether remitted or not remitted, is taxedin Singapore on the face of the certificate issued by the tax authorities. 8In our view, the appeal does not raise any substantial question of lawand we find no infirmity in the order passed by the ITAT. 9Article 13 of DTAA as then applicable reads as under: ARTICLE 13 “1. Gains derived by a resident of a Contracting State from thealienation of immovable property, referred to in Article 6, and situatedin the other Contracting State may be taxed in that other State. 8In our view, the appeal does not raise any substantial question of lawand we find no infirmity in the order passed by the ITAT. 9Article 13 of DTAA as then applicable reads as under: ARTICLE 13 “1. Gains derived by a resident of a Contracting State from thealienation of immovable property, referred to in Article 6, and situatedin the other Contracting State may be taxed in that other State. 2. Gains from the alienation of movable property forming part of thebusiness property of a permanent establishment which an enterprise ofa Contracting State has in the other Contracting State or of movableproperty pertaining to a fixed base available to a resident of aContracting State in the other Contracting State for the purpose ofperforming independent personal services, including such gains fromthe alienation of such a permanent establishment (alone or togetherwith the whole enterprise) or of such fixed base, may be taxed in thatother State. 3. Gains from the alienation of ships or aircraft operated ininternational traffic or movable property pertaining to the operation ofsuch ships or aircraft shall be taxable only in the Contracting State ofwhich the alienator is a resident. 4. Gains derived by a resident of a Contracting State from thealienation of any property other than those mentioned In paragraphs1, 2 and 3 of this Article shall be taxable only in that State.” Since in this case, the property alienated are debt instruments, theassessee would come under Article 13(4) of DTAA, which says gains fromalienation of any property (debt instrument in this case) shall be taxableonly in Singapore, of which the alineator (the assessee) is a resident. Therefore, the entire capital gain of Rs.86,62,63,158/- shall be taxed in Singapore. 10Article 24 of DTAA reads as under: ARTICLE 24 LIMITATION OF RELIEF “1. Where this Agreement provides (with or without other conditions)that income from sources in a Contracting India State shall be exemptfrom tax, or taxed at a reduced rate III that- Contracting State andunder the laws in force in the other Contracting State, the said income is subject to tax by reference to the amount thereof which is remittedto or received in that other Contracting State and not by reference tothe full amount thereof, then the exemption or reduction of tax to beallowed under this Agreement in the first-mentioned Contracting Stateshall apply to so much of the income as is remitted to or received inthat other Contracting State. 2. However, this limitation does not apply to income derived by theGovernment of a Contracting State or any person approached by thecompetent authority of that -State for the purpose of this paragraph.The term "Government" includes its agencies and statutory bodies.” Applying Article 24 to the facts of this case, where the income fromsources in India shall be exempted from tax or taxed at a reduced rate inIndia and under the laws in force in Singapore the capital gain is subject totax by reference to the amount thereof which is remitted to or received inSingapore and not by reference to the full amount thereof, then theexemption or reduction of tax to be allowed under this agreement in Indiashall apply to so much of the income as is remitted to or received inSingapore. Clause 2 of Article 24 is not relevant to the case at hand. 11Therefore, the exemption or reduction of tax to be allowed under theDTAA in India shall only apply to so much of the income as is remitted to orreceived in Singapore where the laws in force in Singapore provides that thesaid income is subject to tax by reference to the amount which is remitted orreceived in Singapore. When under the laws in force in Singapore theincome is subject to tax by reference to the full amount thereof, whether ornot remitted to or received in Singapore, then in that case Article 24(1)would not apply. 12The AO while framing the draft assessment order has disallowed the 11Therefore, the exemption or reduction of tax to be allowed under theDTAA in India shall only apply to so much of the income as is remitted to orreceived in Singapore where the laws in force in Singapore provides that thesaid income is subject to tax by reference to the amount which is remitted orreceived in Singapore. When under the laws in force in Singapore theincome is subject to tax by reference to the full amount thereof, whether ornot remitted to or received in Singapore, then in that case Article 24(1)would not apply. 12The AO while framing the draft assessment order has disallowed the benefit of Article 13(4) of DTAA on capital gain earned in India holding thatprovisions of Article 24 of DTAA speaks about the restriction of exemption ofsuch capital gain to the extent of repatriation of such income to Singapore.The AO has held that the assessee has not produced any evidence to showsuch required repatriation as mandated by Article 24 of DTAA forentitlement of exempted income. This is an incorrect statement as rightlyheld by the ITAT. The assessee placed on record even before the AO acertificate dated 16[th] April 2012 from Singapore Tax Authorities certifyingthat the income derived by the assessee from buying and selling of IndianDebt Securities and from Foreign Exchange transactions in India would beconsidered under Singapore Taxes Law as accruing in or derived fromSingapore and such income would be brought to tax in Singapore withoutreference to the amount remitted or received in Singapore. 13Therefore, Singapore authorities have themselves certified that thecapital gain income would be brought to tax in Singapore without referenceto the amount remitted or received in Singapore. The AO could not havecome to a conclusion otherwise. As stated in the circular No.789 dated 13[th]April 2000, though it applied to Indo-Mauritius Double Tax AvoidanceConvention with reference to certificate of residence, the purport andprinciple is clear. Such certificates issued by the Singapore Tax Authoritieswill constitute sufficient evidence for accepting the legal position. We alsofind support for this view in Lakshmi Textile Exporters Ltd. (Supra). 14Mr. Singh also submitted that reliance placed by ITAT in the impugned order while arriving at its conclusion on decisions of Mumbai Tribunal inSet Satellite (Singapore) Pte. Ltd. Vs. ADIT in M.A. No.520/M/2010 andAPL Company Pte. Ltd. Vs. ADIT (ITA No.4435/Mum/13), was not properbecause SLP has been filed before the Apex Court by the department andthat petition has been admitted and converted into an appeal. Since SLPhas been admitted by the Apex Court against the judgment in the case ofSET Satellite (supra), this court should also admit this appeal. We see no reason to admit this appeal on this ground. We say thisbecause even if, the ITAT had not relied upon these two decisions, still theposition in law would not change. 15In the circumstances, no substantial questions of law arise. Appealdismissed. (FIRDOSH P POONIWALLA, J.) (K.R. SHRIRAM, J.)