Capital Gain To Be Taxed In Singapore: Bombay High Court Allows Capital Gains Exemption To FII

The Bombay High Court has granted the capital gains exemption to Foreign Institutional Investors (FII).

The bench of Justice K.R. Shriram and Justice Firdosh P. Pooniwalla has observed that 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 come to a conclusion otherwise.

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 filed its return of income, declaring a total income of Rs. 33,99,75,350. In its return, the assessee declared a capital gain on the sale of debt instruments and claimed exemption under Article 13(4) of the India-Singapore Double Taxation Avoidance Agreement (DTAA).

During the assessment, the assessee was asked to explain how the provisions of Article 24 of the DTAA were complied with in order to claim capital gain as an exemption in India.

The assessee contended that being an FII, it was liable to tax Singapore on its worldwide income. Even the Singapore Revenue Authority has confirmed the taxation of the assessee in Singapore via their certificate dated April 4, 2012. Article 13 (4) of the DTAA provides for the taxation of capital gains in Singapore, and if the assessee is offering its worldwide income for taxation in Singapore, then the remittance of such income to Singapore has no relevance for the purpose of claiming benefit under the DTAA.

The AO rejected the certificate issued by the tax authority in Singapore and proceeded to interpret the laws of Singapore on his own. The AO held that the assessee did not show that repatriation of the capital gains was made to Singapore, and in view of Article 24 of the DTAA, the assessee is not entitled to the exemption claimed.

The assessee contended that the limitations of relief under Article 24 of the 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. Since the Singapore authorities have also certified that under the Singapore Laws, the income derived by the assessee from buying or selling 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, and the limitation as prescribed in Article 24 would not apply to the case at hand.

The court referred to Circular No. 789 dated April 13, 2000, and though it applied to the Indo-Mauritius Double Tax Avoidance Convention with reference to certificates of residence, the purport and principle are clear. Such certificates issued by the Singapore Tax Authorities will constitute sufficient evidence for accepting the legal position.

Case Title: CIT Versus M/s Citicorp Investment Bank

Case No.: Income Tax Appeal No. 256 Of 2018

Date: 21/06/2023

Counsel For Petitioner: Devvrat Singh

Counsel For Respondent: P. J. Pardiwalla

Click Here To Read The Order