FULLERTON FINANCIAL HOLDINGS PTE. LTD.,SINGAPORE vs. THE ASSISTANT COMMISSIONER OF INCOME-TAX - (INTERNATIONAL TAXATION), CIRCLE 2(3)(1) - MUMBAI, MUMBAI

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 4.10 In addition to the above grounds, the AO/DRP erred in disregarding the standalone audited financials of the Appellant prepared under the Singapore Accounting Standards. 4.11 The AO/DRP erred in holding that some of the expenditure incurred by the Appellant for the period 30.11.19 to 29.11.20 and 30.11.20 to 29.11.21 cannot be considered as "expenditure on operations", and consequentially erred in concluding that S$200,000 threshold prescribed in Article 24A(3) was notsatisfied. 4.12 The finding of the AO/DRP certain expenses should not be considered to test the S$200,000 threshold under the India- Singapore DTAA is erroneous and contrary to law and ought to be quashed. 4.13 The AO/DRP failed to appreciate the evidence and documentation submitted, which substantiated that the Appellant had incurred S$200,000 on its operations in Singapore. Therefore, the benefits under Article 13(4A) should be granted. Prayer The Appellant prays that the benefits under Article 13(4A) of the India-Singapore DTAA be granted and that the capital gains taxed by the AO/DRP be deleted. Ground 5: Without prejudice to the above, the taxability in the hands of the holding entity. 5.1 Without prejudice to the above grounds, it is submitted that if the Appellant were appropriately deemed a shell or conduit company under Article 24A(3), the capital gains would have been assessable in the hands of its parent, Fullerton Management Pte. Limited ('FMPL') and not taxable under the DTAA. Ground No.6: Without prejudice to the above grounds, the AO/DRP failed to consider the revised sales price of the share arising from a contingent deferred consideration that was not received by the assessee. 6.1 The AO/DRP failed to consider the revised sale price arising due to the contingent deferred consideration that was not received by the Appellant during the year under consideration or subsequently cannot be taxed on a hypothetical basic.

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 6.2 The AO/DRP failed to consider that income taxable under Sections 4 and 5 of the Act cannot include hypothetical income that has not been received or will not be received by the Appellant. 6.3 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the sales consideration to be considered for the purposes of computing capital gains, if any, should be INR 90.84 per share as against INR 94.20 per share as considered by the AO/DRP. Prayer The Appellant prays that the Assessing Officer be directed to consider the revised sales price of INR 90.84 per share and to recompute the capital gains accordingly. Ground No. 7: Levy of interest u/s. 234D of the Act: 7.1 The AO has erred in levying interest u/s. 234D of the Act. 7.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the stand taken by the AO in this regard is incorrect, erroneous and misconceived. Prayer The Appellant submits that the AO be directed to delete the interest so levied and to re-compute its tax liability accordingly. Ground No. 8: Initiation of penalty u/s. 270A of the Act: 8.1 The AO has erred in initiating penalty u/s. 270A of the Act. 8.2 The Appellant submits that considering the facts and circumstances and thelaw prevailing on the subject it has not under reported its income and hence the initiation of penalty proceedings u/s. 270A of the Act by the AO is erroneous” Brief facts of the case are as under:

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 2.2 It was submitted that Temasek was incorporated under the Singapore Companies Act in 1974 and is a global investment company headquartered in Singapore with strong focus in Asia. It was submitted that Temasek owns all of the invested assets by its subsidiaries. It was submitted that the assessee is an indirect subsidiary of Temasek and all income and expenses of the assessee are consolidated into Temasek, which belong to the Government's annual budget pursuant to an approved budgetary framework. It was also submitted that, the assessee is 100% owned by the Government of the Republic of Singapore, which has entered into the DTAA with the Government of India. 2.3 The Ld.AO noted that the assessee and its 100% subsidiary Angelica Investments Pte. Ltd. ('AIPL') made investments in Fullerton India Credit Co. Ltd.(FICCL), a Non-Banking Financial Company engaged in the SME and Micro Finance. The assessee invested in the FY 2008-09 (i.e., prior to April 1, 2017). It was submitted that such investment was made by the assessee and AIPL, with a primary objective of holding it as a long-term investment, consistent with the Group's objective as an investment holding company. It was submitted that, over the holding period, FICCL witnessed substantial growth: its total loan portfolio grew from INR 138.8 crore to INR 22,695 crore (a growth of approximately 16,246%), and its total assets increased from INR 226.2 crore to INR 27,244 crore (an increase of approximately 11,943%). It was submitted that the assessee held 3.79% stake (i.e., investment of an aggregate 8,52,56,357 equity shares having face value of INR 10 each) "FICCL" in the year under consideration.

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 2.4 The Ld.AO noted that, the assessee sold its entire stake held in FICCL to Sumitomo Mitsui Financial Group (a company incorporated in Japan), and earned long term capital gains of Rs. 681,32,13,572/- pursuant to the Sale. In the return of income, the assessee claimed that the gains that arose from the sale of shares in FICCL are not taxable in India in view of Article 13(4A) of the India-Singapore Double Taxation Avoidance Agreement ('DTAA'), which governs capital gains arising from thealienation of shares acquired before April 1, 2017. 2.5. During the course of assessment proceedings, the assessee was asked to submit details of its employees and expenses. On analyzing the same, the Ld.AO noted that the assessee did not fulfil the conditions of Article 24A of India-Singapore DTAA. Accordingly, a show cause notice was issued to the assessee on 15.03.2024. 2.6. In response to the said SCN, assessee made its submission on 21.03.2024 stating as under : • FFH was incorporated on 23/01/2003, your goodself may note that Article 24A of the India Singapore DTAA was only introduced in 2005. In addition, FFH was formed for bonafide business purposes as described above to hold investments for the long term and its affairs were not arranged with the "primary purpose" to take advantage of Article 13 sub-article 4 • FFH is part of a Singapore group with substantive business presence in Singapore and was formed for bona fide business purposes to ring-fence business and political risks, avoid cross-liability risks across different assets, have the A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. ability to raise financing independently and for ease of management and regulatory compliance as India may have different rules from other jurisdictions. Such structures are common in the investment management industry, thus its affairs were clearly not arranged with the "primary purpose" to take advantage of sub-article 4 of Article 13. Article 24A should not apply as the mischief for which it is intended as articulated in sub-article 1 is not present in our case. • For FFH to perform its principal activity, i.e., as an investment holding company, it avails operations related services from Fullerton Financial Holdings (International) Pte. Ltd FFHI. FFHI is the management company where all the employees are hired to support the operations of FFH as a strategic investor. FFHI renders management services to FFH and charges a management fee plus mark-up on an arms-length basis. Such management fee expenses are expenses incurred for operations of FFH. • FFH has submitted documents in past submissions filed with your goodself, which confirms FFH's annual expenditure on operations in Singapore was more than SGD 200,000 for each of the 12-month periods in the immediately preceding period of 24 months from the date of disposal of shares in FICCL (i.e., 30 November 2021), specifically:

(a) FFH's financials for Calendar Year 2019, CY 2020 and CY 2021, which encapsulate expenses incurred in the profit and loss account statement. Additionally, FFH also submitted details of invoices and service agreements as (b) A letter dated 31 August 2023 issued by KPMG LLP Singapore (FFH's statutory auditor), which determines the expenditure incurred to satisfy the aforesaid expenditure test; and (c) Letter from Inland Revenue Authority of Singapore ("IRAS") dated 22/09/2023, which confirms that FFH's annual significant expenditure on operations in Singapore was more than SGD 200,000 for each of the 12-month periods in the immediately preceding period of 24 months from the date of disposal of shares in FICCL (i.e., 30 November 2021). • The words "expenditure on operations" in sub-articles 3 and 4 of Article 24A are to be interpreted considering the purpose sought to be achieved by sub-articles 1 and 2 of Article 24A. FFH is clearly not a shell or conduit entity under sub-article 2 of Article 24A as it was incorporated for bona fide business purpose and it has operations in Singapore as explained above. • The above view is supported by the Delhi (I)AAR ruling in the case of BG Asia Pacific Holding (P.) Ltd.,reported in [2021] 125 taxmann.com 2. In that case, the AAR accepted that the taxpayer did not have employees on its payroll and the payroll cost of the employees was initially borne by a subsidiary and then recharged to the taxpayer, which was A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. part of the operations expense for purposes of satisfying the SGD 200,000 expenditure criteria. • To this end, we wish to refer your goodself to the Hon'ble Delhi Tribunal observation in the case of Reverse Age Health Services [2023] 147 taxmann.com 358 that the veracity of expenditure incurred in Singapore is a subject matter of scrutiny in Singapore. The Hon'ble Tribunal observed as under: "Even the treatment of the assessee company as 'Shell' or 'conduit' also do not hold any water in as much as the veracity of the expenditure incurred by the assessee in Singapore was a subject matter of tax scrutiny in Singapore and the same has been accepted to be genuine by the Singapore tax authorities as per assessment orders mentioned elsewhere." • It was submitted that the Singapore IRAS letter clearly states that it had made its determination after reviewing the entirety of "the financial statements, tax computation and additional information"; the IRAS letter is submitted as Annexure 2 to submission dated 3 March 2024. It is therefore factually erroneous to assume that the Singapore IRAS had not verified the content, allocation, basis of allocation, questioned the commercial expediency.

2.7. The Ld.AO after considering the submissions rejected the claim of non-taxability of capital gains by invoking Article 24A(3) of the India-Singapore DTAA and observed as under:

The submission made by the assessee has been perused carefully but the same is not tenable for the reasons discussed in detail in following paragraphs.

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 7.1 The management service fee exp., which is the largest exp. is paid to group entity Fullerton Financial Holdings (International) Pte. Ltd. (FFHI). It has been stated by the Assessee that no employee has been employed by FFH and all the employees were employed by FFHI. Assessee was specifically asked to provide details of number of hours spent by them each month for work related to FFH and detail of the work performed by them for FFH, no such details have been provided by you. Assessee has only stated that FFH is the management company where all the employees are hired to support the operations of FFH as a strategic investor. Assessee further stated that FFHI renders management services to FFH and charges a management fee plus mark-up on an arms-length basis and the costs so charged comprised the full salary costs of FFHI employees. The assessee has claimed that The DTAA does not prescribe nor proscribe the way an entity may decide to run its operations and incur expenditure accordingly. Assessee has further referred few case laws to support its claim that management fee is expense on operations of the Assessee. 2.8. The Ld.AO further observed that:-

7.1.3 While the agreement clearly provides that FFH will be billed only those costs which are incurred solely in connection with the provisions of services to FFH and FFH is authorized to access complete records of FFHI in connection with the services performed, no such supporting documents are provided by the Assessee to prove the services received by it solely for itself. 7.1.4 So, there is nothing on records as to how much services were consumed by the Assessee and its group entities each. The payment of management fee is to group entity only. The assessee has failed to provide details as to number of hours spent by FFHI employees for the Assessee, details of the advices/recommendations and other services, received by FFH from FFIH and how these advices/recommendations and other services received by FFH from FFIH are utilized by FFH, along with supporting documents Assessee is able to produce only Transfer Pricing Study Report, which provide none of the information requested for. While assessee has raised other arguments that Article 24A has no conditions regarding payment, mode of payment or need - benefit - evidence test, it has failed to provide any supporting to justify the huge payment made to the group entity. 7.1.5 The case of the Assessee is different from the case laws referred by the Assessee in respect to management fee as in this case, the Assessee is not even able to provide supporting for basis of payment of A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. management fee, as discussed above. Assessee has failed to provide supporting for services received, time spent by the FFIH, how services received were used by it, how time spent by FHIH for other group entities is cross charged etc. the onus in on the Assessee to prove that the expenses claimed to be made for the operations are indeed made for operations ……………… 7.1.7 There is no legal validity of the letter from IRAS and KPMG. Assessee has simply stated that there is no requirement under Article 24A and no reasonable grounds to question the exercise (a) by KPMG LLP to apply Singapore accounting rules and (b) by the Inland Revenue Authority of Singapore ("IRAS") of its authority to apply Singapore tax law to determine and satisfy itself that FFH has met the SGD 200,000 expenditure criteria in the relevant periods under the DTAA. The Assessee has conveniently stated that there is no requirement under Article 24A to question the exercise (a) by KPMG LLP to apply Singapore accounting rules and (b) by the Inland Revenue Authority of Singapore ("IRAS") of its authority to apply Singapore tax law to determine and satisfy itself that FFH has met the SGD 200,000 expenditure criteria in the relevant periods under the DTAA. This contention of the Assessee is not correct. There is no provision at all in DTAA or the Act enabling/authorizing KPMG or IRAS to issue such letter. Further, the Assessee is not taking benefit in Singapore, but in India ………………. ……………………….. 7.3 The Directors' fee is also paid by FFH to group companies. Again, no supporting as the benchmarking of these payment is provided, Further, FFH paid insurance premium fees in relation to Directors and Officers Liability insurance. However, as it may be seen that FFH has no employee and the directors are appointed by group entities only, any expense for these directors can not be attributed to the operational expenses of the assessee. Assessee has stated that benchmarking is not mentioned as a requirement under Article 24A. Assessee has also stated that fees of only three directors are paid to the group companies because such directors are employed by the group companies and remaining three directors received payments directly from FFH. However, no details regarding the same is provided by the Assessee. Assessee has further stated that board of directors and officers exercise control over FFH. Not paying director fee to Directors directly and paying the same to group entities clearly show that the Directors are acting as nominees of group entities. The Assessee has also failed to A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. provide details to prove that the group entities have provided services to the Assessee. 7.3.1 Further, Assessee has claimed that directors and officers' insurance premium was paid by FFH to protect the directors and officers from liability that may emanate from activities and decisions undertaken by the employees of FFHI as directors and officers in the course of carrying out their duties and rendering services to FFH. As discussed earlier regarding management fee, fee, the Assessee has failed to provide supporting for services received, time spent by the FFIH, how services received were used by it, how time spent by FHIH for other group entities is cross charged etc. the onus in on the Assessee to prove that the expenses claimed to be made for the operations are indeed made for operations. As these Director's exp. are also of similar nature, same arguments are applicable to these expenses also. 2.9. The Ld. AO thus passed draft assessment order disallowing the beneficial treatment under Article 13(4A) of India Singapore DTAA as claimed by the assessee. On receipt of the draft assessment order, the assessee preferred appeal before the DRP.

9. At the outset, it is submitted that the Appellant is an investment holding company indirectly wholly owned by Temasek, which is wholly- owned by the Government of Singapore, which is the other Contracting State that has signed the DTAA with India

• Article 24A(1) of the India-Singapore DTAA states that a resident of Singapore shall not be entitled to the benefits of Clause 4A or Clause 4C of the India-Singapore DTAA, where the affairs of the company are arranged with primary purpose to avail benefits under the India-Singapore DTAA • While Article 24A(2) of the India-Singapore DTAA, a Singapore resident entity would not be eligible for treaty benefits if such entity is a "shell or conduit" company, i e. it is an entity which has nil or negligible business operations in Singapore or does not

• Tax Residency Certificate (TRC) issued by the Singapore tax authority (refer to Page Nos. 11 and 12 of the Factual PB), • Profile and credentials of the Board of Directors (refer to Page Not. 1357 to 1363 of the Factual PB), • Minutes and presentations from board meetings held in Singapore from 2008 to 2021 (referto Page Nos. 1337 to 1354 of the Factual PB), • Audited Financial statements (refer to Page Nus. 279 to 935 of the Factual PB), A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. • Details of bank accounts used to receive proceeds (refer to Page No. 130 of the Factual PB), • Constitution of the Appellant (refer to Page No. 1270 of the Factual PB); and • Business profile of FFH as published by the Accounting and Corporate Regulatory Authority (Secretary Board) (refer to Page Nos. 1314 to 1332 of the Factual PB).

FFH FY2024 FY202 FY2022 FY2021 FY202 FY2019 3 0 Standalone P/L (In S$OOO)

Total 7,61,45 15,932 7,289 18,51,57 8,534 23,48,29 Income 6 0 1

Total 65,225 17,259 2,37,03 89,918 98,925 67,873 Expenses 6 (including impairment)

Profit/(Loss 6,96,23 -1,327 - 17,61,65 -90,391 22,80,41 2,29,74 2 8 ) before tax 1 7

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 22. Also, the Hon'ble Court in para 68 beld that the Revenue must disregard or object to the holding structure "at the threshold" and not at a subsequent stage. It may be noted that the investment by Appellant/AIPL in FICCL has existed for more than 10 years. No objection at anytime was raised during its existence by the department In-fact, the approval for investing in FICCL. was also obtained from the Reserve Bank of India

The investment by the Appellant/ AIPL. in FICCL has existed for more than 10 years d) Generation of taxable revenues in India:

During the period of holding, FICCL's revenue has grown from INR 5.40 crore to-INR 4,092 crore (refer Page No. 251 of the factual PB). e) Continuity of business on such exit.

Following the sale of shares of FICCL by the Appellant during the year under consideration, Temasek and its subsidiaries, including the A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. Appellant/AIPL, have continued to exist both within and outside India, and their investments likewise continue to be held in and outside India.

1) Corporate business purpose of a transaction:

Based on the above and the absence of treaty shopping/ conduit/ inter- positioning, the corporate business purpose over 15 years is self-evident and undisputable.

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 36. The expenditure incurred in Singapore, as certified by the competent authority of the Treaty Partner (ie, IRAS), constitutes credible evidence of compliance. The genuineness of such expenditure, supported by official certification, ought not to be doubted or disregarded in the absence of any contrary evidence or cogent reasons. The certificate has been issued after due consideration of the relevant records

• Union of India v/s. AzadiBachaoAndolan [2003] 263 ITR 706 (SC) (refer to Page Nos. 76 to 110 of the legal PB), • CIT v/s. API. Co. Pte. Ltd. (2023) 156 taxmann.com 530 (Bombay) (refer to Page Nos. 372 to 376 of the legal PB). • CIT v/s. Citicorp Investment Bank (Singapore) Lid. [2023] 151 taxmann com 501 (refer to Page Nos. 377 to 381 of the legal PB), • Maersk Tankers Singapore Pte. Ltd. v/s ACIT(IT) (2022) 145 taxmann.com 260 (Rajkot Trib) (refer to Page Nos. 382 to 405 of the legat PB), • Serco BPO (P.) Ltd v/s AAR, New Delhi (2015) 379 ITR 256 (P&11) (refer to Page Nos. 140 to 158 of the legal PB), • M.T. Maersk Mikage v/s. DIT(IT) [2017] 390 ITR 427(Guj) (refer to Page Nos. 406 to 414 of the legal PB); • CIT v/s. Lakshmi Textile Exporters Ltd. (2000) 245 ITR 521 (Mad) (refer to Page Nos. 415 to 416 of the legal PB), • Arabian Express Line Ltd. of United Kingdom vis. Union of India (1995) 212 ITR 31 (Guj) (refer to Page Nos. 417 to 421 of the legal PB)

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 38. In fact, the Hon'ble Punjab and Haryana High Court in the case of Serco (Supra) held that a refusal to accept the validity of a certificate issued by the Contracting States would be contrary to the convention and constitute an erosion of the faith and trust reposed by the Contracting States in each other. It is for the Government of India to decide whether or not such a certificate ought to be accepted.

• Jabil Circuit India (P.) Ltd. vis. ACIT [2018] 100 taxmann.com 165 (Mumbai) • Cairn Energy India Pty. Ltd. vis. ACIT [2009] 126 TTJ 226/[2010] 2 ITR(T) 38 (Chennai)

Without prejudice to the above:

Proposition No. 4: Compliance with Article 24A(3) of India-Singapore DTAA and substantiated through the documentary evidence:

Management fees paid to FFHI renders management services to Fullerton Financial Holdings the Appellant. FFHI and the Appellant (International) Pte. Ltd. (‘FFHI’) entered into a management services agreement in 2009 under which the former renders management services to the Appellant and charges a management fee of a cost plus 10 percent mark-up. Appellant avails operations-related services from FFHI, as the employees reside in FFHI. Such services include Investment Planning, Investment Research, Investment Execution, Investment Approval, Portfolio Management, Risk Management and Compliance, Finance, Treasury, HR. Corporate Communications, Legal, etc Director’s Fees The board of directors and officers provide leadership and strategic guidance, direction and thrust to the operations of the Appellant. The board of directors and officers exercise control over the Appellant and at the same time, remain accountable to the shareholders of the Appellant to formulate and review overall strategy and operations policy, to create, protect and enhance the Appellant's wealth and resources and report it to the various stakeholders in a fair and transparent manner. Director’s and Officer’s The Appellant incurs insurance premium Insurance fees in relation to Directors and Officers Liability insurance to protect the directors and officers from liability that may emanate from activities and decisions undertaken by the directors and officers in the course of carrying out their duties and rendering the services for the operations of the Appellant.

SAP related expense The Appellant avails licensed software and related software support and maintenance services from SAP / software license used. It utilizes the software services from SAP for its operations, viz., to maintain its financials and group accounts consolidation. Audit Fees This expenditure has been incurred by the Appellant for conducting statutory audit services in order to report its financials, which is a statutory requirement under the Singapore Companies Act and for statutory audit services rendered to the Appellant. Investment banker fees This is the fees itself paid to the investment banker (i.e. Citigroup Global Markets Singapore Pte. Ltd.) on the transaction of sale of shares of FICCL, being the capital gains involved in the appeal. Company Secretary Fees The fee has been incurred by the Appellant for carrying out its statutory compliances, maintenance of the corporate records, etc. Legal Fees Legal fees are paid in connection with inter-alia drafting of share purchase agreement, etc., on the transaction of sale of shares of FICCL, being the capital gains involved in appeal.

• BG Asia Pacific Holding (Pte) Ltd (2021] 125 taxmann.com 2 (AAR-New Delhi) (refer to Page No. 111 of the legal PB) • R.B. BansilalAbirchandSpg&Wvg. Mills vis. CIT (1971) 81 ITR 34 (Bombay) (refer to Page Nos. 658 to 668 of the legal PB); • CIT v/s. Ganga Properties Ltd. [1993] 199 ITR 94 (Cal) (refer to Page Nos. 669 to 671 of the legal PB); • Nakodar Bus Service (P.) Ltd. v/s. CIT (1989) 179 ITR 506 (P&H) (refer to Page Nos. 672 to 673 of the legal PB). • CIT v/s. Rampur Timber & Turnery Co. Ltd. (1981) 129 ITR 58 (All) (refer to Page Nos. 674 to 675 of the legal PB), • AtulBabubhai Shah v/s. JCIT [2020]116 taxmann.com 966 (Ahmedabad Trib.) (refer to Page Nos. 676 to 686 of the legal PB) 51. The only test under Article 24A(3) is whether the expenditure has been incurred for operations in Singapore. The Appellant has clearly fulfilled this requirement. Accordingly, the Appellant has satisfied the conditions under Article 24A(3) and cannot be deemed a shell or conduit company.

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd.

(i) In this connection, it is submitted that it is common practice in the investment management industry to separate the employees (as housed in FFIII) and the assets (held in investment holding entities such as the Appellant or its subsidiaries), primarily for the purpose of ring-fencing risks and liabilities. (ii) FFHI's primary objective is to provide services and support to the Appellant. It could be inferred that FFHI is a "captive" service provider to the Appellant. FFIII and the Appellant have entered into a management services agreement under which the former renders management A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. services to the Appellant and charges a management fee of a cost plus 10 percent mark-up. The costs so charged comprised the full salary costs of FFHI employees. (iii) In order to perform its principal activity, ie, as an investment holding company, it avails operations-related services from FFHI, as the employees reside in FFIII. Such services include Investment Research, Investment Planning, Investment Approval, Investment Execution, Portfolio Management, Risk Management and Compliance, Finance, Treasury, HR, Corporate Communications, Legal, etc. (iv) The intercompany arrangement within the FFH group, wherein one entity provides services and recharges the corresponding expenses to the recipient entity, is a long-standing practice. This is evidenced by the Management Services Agreement, invoices, payments, etc., between FFHI and the Appellant, which dates back to 31 March 2009, (v) It is incorrect to allege that the Appellant failed to provide documentary support for its claims. The AO appears to rely solely on the absence of a timesheet summary to deny the benefit of Article 13(4A), thereby presuming that no evidence has been furnished. (vi) It is important to note that the Appellant has submitted various documents before the AO/DRP, including extracts of Board of Directors' meeting minutes, presentations made to the Board in Singapore, profiles of the Board members, and invoices, to substantiate the genuineness of the aforementioned operations-related services. (vii) At the pain of repetition, the Treaty Partner, viz. The Government of Singapore has accepted that the Appellant satisfies the threshold expenditure test also. As stated above, this being an aspect of Singapore Corporate and Accounting law, and on the facts and circumstances of the case, it ought to be respected. Re: Ground of Appeal

No. 5: Without prejudice to the above, the taxability in the hands of the holding entity:

55. It is respectfully submitted that if the Appellant is deemed a shell or conduit company under Article 24A(3), the capital gains would have been assessable in the hands of its parent or the Government of Singapore, in which case the same will also not be taxable in India under the DTAA. Re: Ground of Appeal

No. 6; Without prejudice to the above, Contingent Deferred Consideration A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. -Not Taxable in the Absence of Accrual or Receipt

56. As per the terms of the Share Purchase Agreement, SMEG had agreed to pay the said contingent deferred consideration upon fulfilment of certain specified conditions. However, since the stipulated conditions were not met, the contingent consideration of INR 3.36 per share was never paid to the Appellant and will never be paid as the period of the contingent deferred consideration has lapsed

57. SMFG confirmed the non-fulfilment of the conditions and the consequent non-payment of the contingent consideration by way of a written communication dated April 25, 2024 (refer to pages Nos. 1788 to 1790 of the Factual PB)

58. In light of the above, the Appellant requested the AO/DRP to adopt the actual sale consideration received, INR 7,74,43,34,335). (computed at INR 90.84 per share) in place of the assessed consideration of INR 8,03,11,61,532/- (computed at INR 94 20 per share). However, this request was not accepted by the AO/DRP

59. It is respectfully submitted that income which has neither accrued nor been received cannot be brought to tax under the provisions of the Income-tax Act, 1961 or under the DTAA. Notional or hypothetical income, including unrealised contingent consideration, is not subject to tax. Reliance is placed on the following judicial precedents wherein it has been held that deferred contingent consideration is not taxable unless it has accrued or has been received, or the contingency has materialised:

• CIT v/s. Mrs. Hemal Raju Shete (2016) 68 taxmann.com 319 (Bombay) (refer to Page Nos. 602 to 608 of the legal PB), • Dinesh Vazirani v/s. PCIT [2022] 140 taxmann.com 581 (Bombay) (refer to Page Nos. 638 to 644 of the legal PB), • Universal Medicare (P.) Ltd. v/s. DCIT [2020] 119 taxmann.com 377 (Mumbai - Trib.) (refer Page Nos. 609 to 625 of the legal PB), and A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. • Huntsman Investments (Netherlands) BV v/s. DCIT [2024] 166 taxmann.com 63 (Mumbai -Trib.) (refer to Page Nos. 645 to 657 of the legal PB) 60. In addition, the Hon'ble Supreme Court in CIT v. Balbir Singh Maini [2017] 86 taxmann.com 94 (SC) (refer to Page Nos. 626 to 637 of the legal PB) has categorically held that capital gains arising from a transaction that does not ultimately materialise constitutes, at best, hypothetical income, and such notional gains cannot be subjected to tax.

4.1. The Ld. DR on the contrary filed his written submissions summarising his arguments as under:-

We have perused the submissions advance by both sides in the light of record placed before us.

5.3 The issue, therefore, that arises for consideration is whether, on the facts and circumstances of the case, the assessee satisfies the Principal Purpose Test (PPT) prescribed under Article 24A(1) and (2) of the India–Singapore DTAA for availing treaty benefit under Article 13(AA) in respect of the impugned transaction.

5.4 Before addressing the issue under consideration, it is necessary to understand the constitution of the assessee, placed at pages 1270 to 1312of paperbook :

• The assessee is a company incorporated under the provisions of the Companies Act, Chapter 50 of Singapore, and is registered with the Registrar of Companies and Businesses functioning under the Accounting and Corporate Regulatory Authority (ACRA), Singapore. Assessee A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. functions as an active investment and operating platformfor Temasek’s financial services portfolio in Asia. • The assessee’s Board comprises experienced professionals from the fields of banking, finance, and public administration, several of whom have served with the Ministry of Finance, Singapore, or as members of the Temasek Advisory Panel. • The assessee maintains substance and control in Singapore, as all key managerial and administrative functions, including Board and sub-committee meetings, strategic decision-making, and oversight of its investee entities, are undertaken in Singapore. • The assessee, has, with investments spanning in multiple jurisdictions, including Singapore, Cambodia, China, India, and Malaysia. All activities relating to the management and administration of the assessee’s affairs, including regular meetings of the Board of Directors and its sub-committees, are carried out in Singapore.

6.1 In the present facts of the case, the investment in shares was made by the assessee, prior to01/04/2017, i.e., before the amendment introduced by the 2016 Protocol to the India– Singapore DTAA came into effect. Under the pre-amendment position, capital gains arising to a Singapore resident from the alienation of shares in an Indian company were taxable only in Singapore, subject to the limitation-of-benefits (LOB) conditions. Consequently, the gains arising to the assessee on sale of such pre-April 2017 investments would remain exempt from taxation in India in accordance with Article 13(4) of the DTAA read with paragraph 3 of the 2016 Protocol.

6.2 The Principal Purpose Test (PPT) was introduced under Article24A of the India–Singapore DTAA by way of the Third Protocol, with effect from 01/04/2017, in line with the OECD’s BEPS Action Plan 6 recommendations. The said provision embodies a general anti-abuse rule designed to deny treaty benefits in cases where it is reasonable to conclude that one of the principal purposes of an arrangement or transaction was to obtain a benefit under the DTAA, unless granting such benefit would be in accordance with the object and purpose of the relevant provisions of the Convention.

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 6.3 Accordingly, for the assessee to be entitled to exemption of capital gains under Article 13(4) or 13(4A) of the DTAA, it must be established, based on the totality of facts, that the investment structure and the subsequent transfer were driven by bona fide commercial considerations, consistent with the assessee’s legitimate business objectives, and not undertaken principally to secure a tax advantage under the Treaty.

7.1 Given the profile, the assesses is an independent management, economic substance, and operational control, and therefore does not fit the description of a “conduit company”, which typically refers to an entity interposed solely for treaty or tax benefits, lacking substantive functions or control over its income or investments.

7.2 On these admitted facts, primarily, the assessee cannot be regarded as a mere conduit or pass-through entity. It is a wholly owned portfolio company of Temasek Holdings (Private) Limited, incorporated under the Companies Act, Chapter 50 of Singapore, 7.3 In international tax jurisprudence, a “conduit company” refers to an intermediary entity interposed between the source and ultimate recipient of income, which merely acts as a pass- through without any real economic or commercial substance of its own. Such entities are generally characterised by the absence of independent decision-making authority or control over income and are used primarily to obtain treaty benefits or tax advantages. The OECD Commentary on Article 1 and judicial precedents, including the decision of the Hon’ble Supreme Court in case of UoI v. Azadi Bachao Andolan(supra), recognise that the concept of a “conduit company” must be distinguished from genuine resident entities having substantive commercial operations and management in the contracting State.

7.4 The Principal Purpose Test (PPT) was introduced under Article 24A of the India–Singapore DTAA by way of the Third Protocol, with effect from 1/04/2017, in line with the OECD’s BEPS Action Plan 6 recommendations. The said provision embodies a general anti-abuse rule designed to deny treaty benefits in cases where it is reasonable to conclude that one of the principal purposes of an arrangement or transaction was to obtain a benefit under the DTAA, unless granting such benefit would be in accordance with the object and purpose of the relevant provisions of the Convention.

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. 7.5 Accordingly, for the assessee to be entitled to exemption of capital gains under Article 13(4) or 13(4A) of the DTAA, it must be established, based on the totality of facts, that the investment structure and the subsequent transfer were driven by bona fide commercial considerations, consistent with the assessee’s legitimate business objectives, and not undertaken principally to secure a tax advantage under the Treaty.

7.6 The application of the PPT, therefore, requires a substantive examination of the assessee’s commercial rationale, governance framework, economic substance, and functional control in relation to the transaction. Relevant factors would include whether the assessee carried on genuine investment and management activities from Singapore; whether the Board of Directors exercised effective decision-making in Singapore; and whether the investment in FICCL formed part of its long-term strategic portfolio rather than a mere conduit arrangement intended to channel gains through a low-tax jurisdiction.

7.7 The determination of compliance with the PPT is thus a question of fact and degree, to be tested in light of the overall conduct of the assessee and the economic reality of the transaction, rather than by mere reference to its legal form or group shareholding pattern.

7.8 The incorporation of the assessee was for sound commercial reasons, and the overall conduct of its affairs indicates that the same were not arranged with the primary purpose of taking 7.9 Under Article 24A(2) of the DTAA, treaty benefits may be denied to a “shell” or “conduit” company, defined as an entity having nil or negligible business operations in Singapore or lacking real and continuous business activities undertaken therein.

8.1 It is an admitted position that the assessee is a wholly owned subsidiary of Fullerton Financial Holdings International (FFHI). FFHI functions as the management company of the FFH Group, housing the employees who provide management, administrative, and operational support services to the various group entities, including the assessee.

8.2 The Board of Directors and officers of the assessee provide leadership, strategic direction, and oversight in the conduct of its affairs. The Board formulates, implements, and periodically reviews the overall investment strategy and operations with the objective of creating, protecting, and enhancing the assessee’s 8.3 The director remuneration and management fees paid by the assessee represent consideration for the services rendered by the directors and by FFHI through its employees in the course of the assessee’s business operations. In addition, the assessee has incurred expenditure towards Directors’ and Officers’ (D&O) insurance premiums to safeguard its directors and officers against liabilities that may arise from decisions and actions undertaken in the discharge of their official duties.

8.4 The expenses are reimbursed by the assessee to FFHI are also on an arm’s length basis, in compliance with the Singapore transfer pricing regulations, and are duly verified and audited in the financial statements of the assessee. The same have also been certified in the Agreed-Upon Procedures (AUP) report as having been appropriately incurred in accordance with applicable Singapore accounting standards.

8.5 Furthermore, the assessee has also produced a letter dated 31/08/2023 issued by KPMG LLP, Singapore (its statutory auditor), certifying that assessee’s annual operational expenditure in Singapore exceeded SGD 200,000 for each of the two consecutive 12-month periods immediately preceding the date of disposal of shares in FICCL (i.e., 30/11/2021). The aforesaid evidence clearly demonstrates that the assessee is not a shell or conduit company within the meaning of Article 24A(2) and therefore qualifies for the treaty benefit under Article 13(4) of the India–Singapore DTAA.

A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd.

9.1 Having regard to the material placed on record, it is evident that the assessee possesses demonstrable commercial substance and an independent economic presence in Singapore. The assessee is a wholly owned portfolio company of Temasek, incorporated under the Companies Act, Chapter 50 of Singapore, and functions as Temasek’s dedicated investment and operating platform for the financial services sector in Asia. The assesse forms part of the consolidated group financial statements of Temasek, whose audited group accounts are prepared in A.Y. 2022-23 Fullerton Financial Holdings Pte. Ltd. accordance with Singapore Financial Reporting Standards and reflect the consolidated position of Temasek and its subsidiaries. The assessee maintains its management and control in Singapore, where all key investment and strategic decisions are undertaken through regular meetings of its Board and sub- committees. The investment in Fullerton India Credit Company Limited (FICCL), made in the financial year 2009–10, was a long- term strategic investment aligned with its regional expansion objectives and not a tax-motivated arrangement. The subsequent sale of shares to Sumitomo Mitsui Financial Group (SMFG) in 2021 represented a genuine commercial realisation of investment, undertaken as part of an arm’s length transaction with an unrelated foreign entity.

9.2 On these facts, it cannot be said that the obtaining of a treaty benefit was one of the principal purposes of the transaction. Moreover, given that the ultimate beneficial owner of the investment is the Government of Singapore, if at all any entity were to be regarded as earning the income, it would be the Singapore sovereign itself, which is not subject to tax under the domestic law of India by virtue of the principle of sovereign immunity. Accordingly, it is held that the assessee satisfies the Principal Purpose Test (PPT) under Article 24A(1) and (2) of the India–Singapore DTAA, and the claim of treaty benefit cannot be denied on this ground. Accordingly, the grounds raised by the assessee stands allowed. In the result the appeal filed by the assessee stands allowed.