Income-Tax Dept. Cannot Ignore The Valid TRC Issued By The Govt.: Bombay High Court Allows DTAA-Benefits To Alibaba Singapore

The Bombay High Court has granted the benefit of the India-Singapore Double Tax Avoidance Agreement (DTAA) to the e-commerce platform Alibaba Singapore.

The bench of Justice K.R. Shriram and Justice Firdosh P. Pooniwalla upheld the order of the ITAT that if the Revenue was so convinced that the assessee’s activity in India with various subscribers was carried out by Alibaba Hong Kong, then the department was expected to act against Alibaba Hong Kong and not the assessee, i.e., Alibaba Singapore.

The respondent/assessee is a non-resident company incorporated in Singapore. The Assessee filed its Return of Income for the Assessment Year 2011–12 on September 27, 2011, showing a total income of NIL. The case was selected for scrutiny and assessed under Section 143(3) read with Section 144C (13) of the Income Tax Act, 1961.

The Assessing Officer assessed the returns of the Assessee. The AO denied the benefit of the India-Singapore DTAA to the assessee by holding that the assessee is merely an intermediary between the Indian subscribers and Alibaba.com Hong Kong Limited. The AO did not accept the certificate of incorporation and the Tax Residency Certificate (TRC) issued to the assessee by the authorities in Singapore.

The AO held that the assessee had a ‘business connection’ in India by way of its agreement and transactions with Infomedia, an Indian company. Therefore, the assessee’s income was taxable in India.

The AO held that in the alternative, the payments made by the Indian subscribers to the assessee were also taxable in India as Fees for Technical Services (FTS) within the meaning of the said Act as well as the DTAA.

The Dispute Resolution Panel (DRP) confirmed the order of the AO in respect of the denial of treaty benefit. The DRP also held Infomedia as a dependent agent permanent establishment (DAPE). The DRP held that there was a permanent establishment or business connection of the assessee in India, and its income was taxable in India as a business profit or business income. The DRP, however, rejected the argument of the AO that the payments received by the assessee were not taxable in India as FTS.

The assessee and the department filed Appeals and Cross-Appeals before the ITAT, Mumbai, against the directions of the DRP. The Department also filed an Appeal before the ITAT against the decision of the DRP. All the Appeals were disposed of by the ITAT. All Appeals of the Department were dismissed, and the Appeals of the respondent assessee were allowed.

The department contended that the assessee had no presence in Singapore and that the entire management as well as the services provided to the Indian subscribers are through Alibaba Hong Kong, based in Hong Kong, and not at the behest of the assessee, that is, Alibaba Singapore. The assessee does not have a permanent establishment in terms of Articles 5(8a) and 5(8c) in the form of Infomedia; that is, it would constitute a dependent agent of the permanent establishment of the assessee in India.

The court held that the tax residency certificate is sufficient to determine proof of residency, and the income-tax authorities cannot ignore the valid tax residency certificate issued by the governing authority of the other contracting state, that is Singapore.

The court found that no technical services had been provided by the Assessee and treated the subscription fees as being in the nature of fees for technical services.

Case Title: The Commissioner of Income International Taxation-1 Versus Alibaba.Com Singapore E-Commerce Private Ltd.

Case No.: ITA No. 212 Of 2018

Date: 16/06/2023

Counsel For Petitioner: P.C.Chhotaray

Counsel For Respondent: P.J.Pardiwalla

Click Here To Read The Order