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Facts
eBay Singapore, a Singapore-resident company, sold shares of Flipkart Singapore, realizing substantial capital gains. The assessee claimed these gains as non-taxable in India under the India-Singapore DTAA, citing its tax residency and Article 13(5) of the treaty. The AO contended that the gains were taxable in India, considering the underlying Indian assets and potentially applying the India-US DTAA.
Held
The Tribunal held that the capital gains arising from the alienation of shares of Flipkart Singapore by eBay Singapore were not taxable in India. The Tribunal ruled that Article 13(5) of the India-Singapore DTAA, which allocates taxing rights to the State of residence, prevailed over domestic law deeming provisions. The transaction did not fall under other applicable clauses of Article 13.
Key Issues
Whether capital gains arising from the sale of shares of a foreign company (holding Indian assets) by a tax resident of Singapore are taxable in India, considering the provisions of the India-Singapore DTAA, specifically Article 13(5).
Sections Cited
143(2), 143(3), 144C, 153, 234A, 234B, 234D, 253, 270A, 9(1)(i), 90(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SMT. RENU JAUHRI
A.Y. 2019-20 Ebay Singapore Services Private Limited The present appeal arises out of the final assessment order dated 25/07/2022 passed by the DCIT Circle 2(2)(1) for assessment year 2019-20 on the following grounds of appeal: “ Based on the facts and the circumstances of the case, eBay Singapore Services Private Limited (hereinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal under Section 253 of the Income-tax Act, 1961 ('Act') against the order passed by the Deputy Commissioner of Income-tax (International Taxation) Circle 2(2)(1), Mumbai (AO) dated
25. July 2022 ('final assessment order') in pursuance of the directions issued by Dispute Resolution Panel I ('DRP'). Mumbai dated
21. June 2022 ('DRP directions') on the following grounds which are independent and without prejudice to each other: On the facts and in the circumstances of the case and in law - 1. the learned AO has erred in determining the total income of the Appellant at Rs. 2257,91,95,035 (though in the computation sheet accompanying the final assessment order tax has been computed on Rs 2339,45,11,029) instead of 'Nil' income as declared by the Appellant in its return of income. 2. a) the learned AO has erred in carrying out assessment proceedings initiated by National e-Assessment Centre (now known as National Faceless Assessment Centre) by issuance of notice under section 143(2) of the Act, which was without jurisdiction and accordingly, the assessment be treated as bad in law and be quashed. b) the learned AO has erred in not issuing notice under section 143(2) of the Act, after transfer of jurisdiction from Delhi to Mumbai, before proceeding with the assessment proceedings and accordingly, the assessment be treated as bad in law and be quashed. c) the learned DRP erred in failing to adjudicate the additional ground filed by the Appellant in connection with lack of jurisdiction of National e-Assessment Centre (now known as National Faceless Assessment Centre) to issue notice under section 143(2) of the Act. 3. the learned DRP/ the learned AO have erred in denying the entitlement of the Appellant to the benefits of the India-Singapore DTAA. The Appellant prays the treaty benefits are granted.
A.Y. 2019-20 Ebay Singapore Services Private Limited 4. the learned DRP/ the learned AO have erred in holding that the short-term capital gains of Rs. 2257,91,95,035 arising to eBay Singapore on the sale of shares of Flipkart Private Limited, Singapore (tax resident of Singapore) are taxable in India by denying the benefit under Article 13 of the India-Singapore DTAA. The Appellant prays the short-term capital gains be held non- taxable in India. 5. the findings of the learned DRP/ the learned AO: a) that eBay Singapore should be governed by the India-US DTAA as against the India-Singapore DTAA since the control and management of eBay Singapore was with eBay Inc in the USA; b) that the control and management of the Appellant was not in Singapore; c) on an incorrect reading of the resolution passed by the board of directors of the Appellant on 9 December 2013 wherein the learned DRP read "the Company" in the resolution to be eBay Inc instead of the Appellant, d) that the Appellant had no commercial purpose; are perverse, factually incorrect, contrary to record and ought to be set aside and the benefit under Article 13 of India Singapore DTAA be granted. 6. the learned AO has erred in not considering the additional evidence submitted by the Appellant before the learned DRP, despite the learned DRP admitting the evidence after the learned AO having stated that the learned AO does not have any objection. 7. in the computation sheet accompanying the final assessment order, the learned AO has erred in computing tax on Rs 2339,45,11,029 by including other income amounting to Rs. 81,53,15,994 in the taxable income, despite the draft assessment order, DRP directions and final assessment order not including the said income in the taxable income for the year. 8. in the computation sheet accompanying the final assessment order, the learned AO has erred in considering a sum of Rs. 8,56,25,156 (being the amount of tax stated as withheld on interest under section 244A of the Act in the intimation dated 31 December 2020 issued to the Appellant under Section 143(1) of the Act for the year under consideration) as refund already issued to the Appellant.
A.Y. 2019-20 Ebay Singapore Services Private Limited 9. the learned AO has erred in completing the assessment without granting adequate time to the Appellant and has thereby acted against the principles of natural justice. 10. the learned AO has erred in levying consequential surcharge, cess and interest thereon under sections 234A, 234B and 234D of the Act. 11. the learned AO has erred in initiating penalty proceedings under Section 270A of the Act. Each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend or to delete any or all of the above grounds of appeal, at any time during the appellate proceedings.” Brief facts of the case are as under:
2. The assessee is a non-resident company incorporated in 2003 in Singapore. It provides e-commerce-related services to its group companies, such as product management, business development, customer service support, legal, human resources, and finance. These operations have been continued since 2003 to date. From 2018, the assessee is also licensed to provide an online platform to facilitate export sales from Indian sellers to overseas buyers. The assessee has always been a resident of Singapore and has duly obtained the Tax Residency Certificates (hereinafter referred to as 'TRC') for the calendar years 2018 and 2019. During the year under consideration, the assessee sold its shares in Flipkart Singapore on 17/08/2018 for a sale consideration of Rs. 7440,79,50,063/-. 2.1 It filed its return of income on 3/010/2019 declaring Nil income. The case was selected for scrutiny, and the assessment proceedings were initiated by the National e-Assessment Centre.
A.Y. 2019-20 Ebay Singapore Services Private Limited 2.2 The assessee filed a response to the notice issued under section 143(2) of the Act, challenging the validity of the jurisdiction of NFAC to issue the notice. Thereafter, notice was issued under section 142(1) by the Ld.DCIT-1(2)(2). Delhi, against which the assessee filed a letter requesting to transfer the jurisdiction of assessee to Mumbai. Subsequently, the assessment proceedings were transferred and conducted by Ld. DCIT (2)(2)(1), Mumbai. The assessee, through its representatives, furnished details as called for by the Ld.AO. 2.3 The Ld.AO noted that the assessee has claimed Short term capital gain upon sale of shares of Flipkart Singapore to FIT Holding S.a.r.l (a Singapore company), as not taxable in India as per India Singapore Double Tax Avoidance Agreement ('hereinafter referred to as India Singapore DTAA), based on the TRC of assessee being in Singapore. From the details filed by the assessee, the Ld.AO also noted that the in substance the management and control of the assessee was situated in USA and not in Singapore. The Ld.AO was of the opinion that the head and brain of the assessee was in USA. 2.4 The Ld.AO during the assessment proceedings, called upon the assessee to show cause as to why, benefit under DTAA between India and Singapore be denied on the short-term capital gain amounting to Rs.22257,91,95,035/- and be taxed in India as per provisions of the Act read with India USA DTAA. 2.5 The assessee made various legal and factual submissions before the Ld.AO. After considering the submissions of the assessee, the Ld.AO passed draft assessment order dated 30/09/2021 under Section 143(3) read with Section 144C(1) of A.Y. 2019-20 Ebay Singapore Services Private Limited the Act, proposing to deny the exemption under Article 13(5) of the India Singapore DTAA and thereby taxing the capital gains arising on sale of the shares of Flipkart Singapore.
3. On receipt of the draft assessment order, the assessee filed its objections before the Dispute Resolution Panel (hereinafter referred to as 'DRP"). 3.1 The DRP issued its directions on 21/06/2022 under Section 144C(5) of the Act, upholding the proposed addition in the draft assessment order. 3.2 On receipt of the direction of the DRP, the Ld.AO completed the assessment proceeding order vide the final assessment order dated 25/07/2022, making addition of short-term capital gain taxable in India of Rs. 2257,91.95,035/- 3.3 Aggrieved by the final assessment order passed by the Ld.AO, the assessee is in appeal before this Tribunal.
Ground Nos.1 The Ld.Sr.Counsel submitted that assessee has raised issue of non issuance of section 143(2) of the Act by NFAC. 4.1 He submitted that the said issue may be treated academic at this stage. The Ld.Sr.Counsel submitted that the assessee has filed an application dated 14/04/2023 for admission of Additional ground challenging the validity of the final assessment order dated 25/07/2022 passed beyond the period of limitation as provided under section 153 of the Act. HE submitted that the said issue may be kept open at this stage and submitted that he would proceed to place his arguments on merits of the addition.
A.Y. 2019-20 Ebay Singapore Services Private Limited 4.2 Based on the submission by Ld.Sr.Counsel, we are not adjudicating the said issue and liberty is granted to contest the issue in an appropriate circumstance. Accordingly the application seeking admission of additional ground is not admitted.
5. The Ld.Sr.Counsel raised various Ground Nos.3-7: prepositions challenging denial of treaty benefit to the assessee as per India India-Singapore DTAA. Before raising his arguments, he took us through the facts that led to the issue under consideration 5.1 The Ld.Sr.Counsel submitted that, assessee is a holding company for investments in the Asia-Pacific region for eBay group. He submitted that the assessee over the years made investments in following Indian entities: a. Jasper Infotech Private Ltd (from February 2014-SGD 143.76mn) b. eBay India (from April 2015 (originally Baazee India Private Limited) - SGD 208.88mn) c. ES Online Services (India) Pvt.Ltd., (from April 2017-SGD 12.38mn) d. Paytm E-commerce Pvt.Ltd., ('Paytm') (July 2019-USD 160mn) 5.2 The Ld.Sr.Counsel submitted that, in 2005, the eBay group acquired Baazee group globally, which included subsidiary in India, namely Baazee India Pvt. Ltd. It was further submitted that, Baazee India Pvt. Ltd. was initially held by a Mauritian entity until April 2015. As part of the structure inherited by the eBay group following its acquisition of the Baazee group, the assessee acquired eBay India from the said Mauritian entity. It is submitted that, the Mauritian entity has since been de-registered and/or liquidated.
A.Y. 2019-20 Ebay Singapore Services Private Limited 5.3 The Ld. Senior Counsel drew our attention to the evolving e- commerce market in India during the relevant period, particularly with the rise of Amazon and Flipkart as dominant players. He submitted that:
1. 1. Sale of eBay India Business: The assessee decided to sell its India e-commerce operations to Flipkart. This transaction occurred through a share purchase agreement on 10/04/2017.
2. Consideration for the Sale: The consideration for the sale of the shares in eBay India was the receipt of USD 225 million worth of shares of Flipkart Singapore. It is submitted that eBay’s exit from the Indian market was compensated with an equity stake in Flipkart Singapore.
3. Primary Cash Infusion: In addition to receiving shares in Flipkart Singapore, the assessee also made a primary cash infusion of USD 500 million into Flipkart Singapore on 31/07/2017. It is submitted that the additional investment indicates a further commitment to Flipkart Singapore by the assessee, to strengthen its position within the company.
4. Minority Stake: The Ld. Sr.Counsel submitted that, despite substantial cash infusion and shareholding in Flipkart Singapore, the assessee retained only minority stake in Flipkart, meaning it did not hold a controlling interest in the company post-transaction.
5.4 The Ld.Sr.Counsel submitted that, subsequently in 2018, the Walmart group decided to acquire a majority stake in Flipkart Singapore from its other shareholders through Fit Holding S.a.r.l. (a Walmart group company) in Singapore. It was submitted that A.Y. 2019-20 Ebay Singapore Services Private Limited the assessee had no option but to sell its shares, as Fit Holding S.a.r.l. acquired majority (70%) stake in Flipkart Singapore from the other shareholders. Accordingly, the assessee sold its shares in Flipkart Singapore on 17/08/2018 for a sale consideration of Rs.7,440,79,50,063/-. 5.5 The Ld.Sr.Counsel submitted that, on receipt of sale proceeds, the assessee retained 30% funds with itself for future investment towards business opportunities and working capital. The balance amount over its requirement was remitted to the assessee’s shareholder, eBay International AG, by way of dividend in the regular course of business and capital repayment. At this juncture, the Ld.Sr.Counsel clarified that, as per the MOA and AOA of eBay Singapore, there is no obligation on the part of the assessee to make any distribution to its shareholders, which is also evidenced from the fact that eBay Singapore retained 30% of the sale proceeds with itself for utilization and usage as it deemed fit. Subsequently, USD 150 million was utilised by the assessee to make further investment in Paytm, an Indian company, in June 2019. 5.6 Based on the above facts, the Ld.Sr.Counsel submitted that, the assessee, being a tax resident of Singapore, is eligible for the beneficial provisions of India Singapore DTAA. He submitted that as per Article 13(5) of the India Singapore DTAA, capital gains on transfer of shares of Flipkart Limited, Singapore (a tax resident of Singapore) by assessee (tax resident of Singapore) are not taxable in India. He submitted that the TRC of assessee for calendar years 2018 and 2019 submitted before the Ld.AO was not disputed.
A.Y. 2019-20 Ebay Singapore Services Private Limited 5.7 The Ld.Sr.Counsel relied on Circular 789 dated 13/04/2010 issued by the Central Board of Direct Taxes(hereinafter referred to as CBDT) and decision of Hon’ble Supreme Court in the case of Vodafone International Holdings B.V. reported in (2012) 341 ITR 1, where in it was held that a TRC should constitute sufficient evidence for accepting status of residence and beneficial ownership for applying provisions of tax treaty. It is submitted that the assessee has valid TRC from the Singapore tax authorities. Thus, the assessee qualifies as a tax resident of Singapore and the authorities cannot go behind it. He placed reliance on the clarifying press release dated 01/03/2013, issued by the Finance ministry, read with section 90(4) of the Act. 5.8 The Ld.Sr.Counsel submitted that as per the provisions of Section 90 of the Act, the assessee, being a tax resident of Singapore is entitled to the beneficial provisions of the India- Singapore DTAA for the capital gains earned from the sale of shares in Flipkart Singapore to Fit Holdings Sa.r.l. He placed reliance on the following decisions, which lay down that a taxpayer has the option to choose the provisions of the Act or the tax treaty, whichever is beneficial, in determining its liability to tax in India: Decision of Hon’ble Supreme Court in the case of UOI v Azadi Bachao Andolan reported in 263 ITR 706 Decision of Hon’ble Supreme Court in the case of CIT vs. P.V.A.L. Kulandagan Chettiar reported in 267 ITR 654 5.9 The Ld.Sr.Counsel thus submitted that TRC is conclusive proof of assessee’s tax residency status in Singapore and thus the assessee is eligible for the beneficial provisions as per India India-Singapore DTAA.
A.Y. 2019-20 Ebay Singapore Services Private Limited 5.10 The Ld.Sr.Counsel placed reliance on Article 13 under India India-Singapore DTAA which reads as under: ARTICLE 13 CAPITAL GAINS 1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6, and situated in the other Contracting State may be taxed in that other State.
Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such fixed base, may be taxed in that other State.
Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State of which the alienator is a resident. 4. 1[***] 2 [ 4A. Gains from the alienation of shares acquired before 1 April 2017 in a company which is a resident of a Contracting State shall be taxable only in the Contracting State in which the alienator is a resident. 4B. Gains from the alienation of shares acquired on or after 1 April 2017 in a company which is a resident of a Contracting State may be taxed in that State. 4C. However, the gains referred to in paragraph 4B of this Article which arise during the period beginning on 1 April 2017 and ending on 31 March 2019 may be taxed in the State of which the company whose shares are being alienated is a resident at a tax rate that shall not exceed 50% of the tax rate applicable on such gains in that State.
Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3, 4A and 4B of this Article shall be taxable only in the Contracting State of which the alienator is a resident.] 5.11 The Ld.Sr.Counsel submitted that Article 13(5) of the India- Singapore DTAA, being a residuary article, relieves the source country from taxing capital gains upon alienation of any property other than those specifically referred to in paragraphs 1, 2, 3, 4A, and 4B of the Article. He submitted that Paragraphs 1, 2, 3, 4A, and 4B do not apply to the instant case. He submitted that "any A.Y. 2019-20 Ebay Singapore Services Private Limited property" referred to in paragraph 5 includes shares of Flipkart Ltd, Singapore. 5.12 The Ld.Sr.Counsel submitted that the literal language of the DTAA makes it clear that such indirect transfers were not chargeable to tax in India. He also submitted that there is no reason to differ from the plain language of the provision, particularly in the absence of any material to suggest so. Reliance was placed on the decision of Hon’ble Andhra Pradesh High Court in case of Sanofi Pasteur Holdings SA vs. Department of Revenue, Ministry of Finance reported in (2013) 354 ITR 316, wherein indirect transfers (ie. transfers of shares in foreign companies that held Indian company shares) were held to be not taxable in India in terms of the relevant tax treaty. He also relied on the decision in support of the contention that a tax treaty is a code in itself, and one cannot challenge the intent of a tax treaty unless the same is mentioned in the tax treaty. A tax treaty is to be read as is without importing artificial interpretation. 5.13 The Ld.Sr.Counsel submitted that as per Article 13(4B), gains from the alienation of shares acquired on or after 1 April 2017 in a company which is a resident of a Contracting State (i.e. Singapore in this case) may be taxed in that State (ie, Singapore in this case). Thus, a plain reading of this Paragraph 4B also does not explicitly give India the right to tax gains in such shares of a company that is a resident of Singapore. The Ld.Sr.Counsel thus emphasized that Article 13(4B) would be applicable only where, the alienator of the shares and the company whose shares are being transferred are residents of two different contracting states (unlike the present case where both the alienator (ie. eBay A.Y. 2019-20 Ebay Singapore Services Private Limited Singapore) and the company whose shares are being transferred (i.e., Flipkart Singapore) are resident in Singapore 5.14 He further submitted that Article 13(4B) will not apply in the instant case since the seller of shares and the company whose shares are being sold are both tax residents of Singapore. Article 13(4B) applies where the seller of shares is in Country A (i.e, Singapore) and the shares are being sold of a company which is tax resident of Country B (i.e, India). 5.15 The Ld.Sr.Counsel relied on the observation of the Hon’ble Andhra Pradesh High Court in the case of Sanofi Pasteur Holdings SA vs. Department of Revenue, Ministry of Finance(supra) in support of his submission wherein the Hon’ble Court observed as under: "5. Gains from the alienation of shares other than those mentioned in paragraph 4 representing a participation of at least 10 per cent in a company which is a resident of a Contracting State may be taxed in that Contracting State." 5.16 He also relied on the following observations by the Hon’ble Court: “On analyses of the relevant facts and attendant circumstances, duly considered in the light of curial and other authority referred to, we conclude: (a) that the transaction in issue (pursuant to the SPA dated 10-07-2009 between MA/GIMD and Sanofi) is for alienation of 100% ShanH shares held by MA. GIMD and Mr. Georges Hibon in favor of Sanofi (falling within Article 14(5) of the DTAA), and constitutes neither the transfer nor deemed transfer of shares or of the control, management, or underlying assets of SBL (Le, not a transfer, within the meaning of the expression as defined in Section 2(47) of the Act), (b) the consequent tax on the capital gain accrued to MA/GIMD, is clearly and exclusively allocated to France under the provisions of Article 14(5) of the DTAA (c) retrospective amendments to provisions of the Act (by the Finance Act, 2012) per se do not operate to deflect, modify, or subject DTAA provisions to provisions of the Act (interpreted on good faith principle and construed in the light of applicable principles of statutory construction). There is no ambiguity in the Article 14(5) expressions - alienation or participation, and since these terms (identical, not A.Y. 2019-20 Ebay Singapore Services Private Limited synonymous) are neither employed nor defined in the Act, there is no warrant for invoking provisions of Article 3(2) of the DTAA and thereby provisions of the Act to the transaction in issue, and in transgression of provisions of the DTAA, and (d) the transaction in issue is not liable to tax in India, under the provisions of the Act read in conjunction with provisions of the DTAA." 5.17 In respect of the allegation on the management and control not in Singapore but in USA, the Ld.Sr.Counsel submitted that two out of the three directors of the assessee were Singapore residents, who were originally employees of eBay Singapore, and the third director was based in Hong Kong. The Ld.Sr.Counsel submitted that from 2015 till 2018, assessee did not have any Director who held any post at eBay Inc., USA. He placed on record details of the Board of directors as under:
5.18 The Ld.Sr.Counsel submitted that the assessing officer relied on incorrect information to come to the conclusion that one of its Director (Jae Hyun Lee) held post in eBay Inc in USA is factually incorrect. It is submitted that Jae Hyun Lee was a director of eBay Singapore during the period when assessee acquired shares of Flipkart Singapore. He referred to page 953 – 956 of the paper book to bring to the notice that the assessee adduced additional evidence before the DRP vide letter dated 17/11/2021 by eBay Singapore, denying the observation of Ld.AO in the draft assessment order. The remand report was A.Y. 2019-20 Ebay Singapore Services Private Limited called from the assessing officer in respect of the same. The Ld.Sr.Counsel submitted that referred to page 955 of the people the remand report dated 08/12/2021 has been placed. He submitted that the Ld.AR very categorically has left it to the discretion of the DRP to admit the additional evidence. The Ld.Sr.Counsel submitted that, the DRP did not take consider the same. 5.19 He submitted that the letter furnished by eBay Singapore states that Jae Hyun Lee was not even an employee and did not even hold any post at eBay during the years between 2014 to 2017. It is submitted that Jae Hyun Lee retired from the directorship of assessee on 07/12/2017. 5.20 The Ld.Sr.Counsel submitted that, eBay Singapore is involved in decision making process on the key issues like the decision to invest and to sell flip card Singapore shares which are the subject matter of the present appeal. He submitted that the decisions are taken by the board resolutions pleased at page 344- 345 and 366-370 of the paper book. The Ld.Sr.Counsel submitted that, all bold meetings were held in Singapore and eBay Inc neither have any nominee on the board of eBay Singapore, nor have any common directors. He submitted that a detailed submission in respect of the questionnaire issued by the Ld.AR wide show cause notice dated 28/09/2021 was furnished wide assessee’s submission dated 29/09/2021 pleased at page 925- 943 of the paper book. 5.21 The Ld.Sr.Counsel submitted that, the submitted that the authorities below have do not have any evidence in support to come to the conclusion that Jae Hyun Lee was a link between A.Y. 2019-20 Ebay Singapore Services Private Limited eBay Singapore and eBay in during the period when the investments were made by eBay Singapore or when the shares were sold. 5.22 The Ld.Sr.Counsel submitted that, as far as the role of Treasury team of the group is concerned, the directors of eBay Singapore are illegal signatories to the bank accounts of eBay Singapore. It is submitted that the Board of Directors have delegated executive should/implementation powers to the global Treasury team at the directors instructions. Tests he submitted that the investment and flip card Singapore and its subsequent sale was approved by the Board of Directors of the eBay Singapore. Upon the approval by the board, the transaction and other conditions are met with, as Treasury team only executive the transaction’s. It is submitted that unless the Board of Directors, the Treasury team cannot transfer any funds of eBay Singapore. 5.23 The Ld.Sr.Counsel submitted that assessee also satisfy the condition of Limitation of Benifit (LOB) under the Indian Singapore DTAA and it cannot be held as a shell or a conduit company. A fully functional Board of Directors who take all the management decisions. It is submitted that most of the employees are managers or above the level and comprises of senior people like VP and Senior VP’s. The Ld.Sr.Counsel submitted that apart from holding strategic investments in India assessee also has substantial business revenues and expenses which is evident from the financial statements furnished with the authorities below. The Ld.Sr.Counsel submitted that details of operating revenues and expenses over the years excluding A.Y. 2019-20 Ebay Singapore Services Private Limited income from sale of investments are pleased at page 910 of the paper book. He has furnished a summarised chart in the submissions filed before the Tribunal reproduced as under: Year Operating Revenue (SGD mn) Operating Expenses (SGD mn) 2013 36.02 30.07 2014 35.63 29.62 2015 32.18 28.55 2016 25.58 26.84 2017 34.21 38.50 2018 51.31 51.91 2019 71.07 71.36 5.24 The Ld.Sr.Counsel submitted that as per article 24A of Indian Singapore double taxation avoidance agreement, the assessee meets the requirement of having more than $200,000 expenditure threshold order to qualify for the benefit available under Indian Singapore double taxation avoidance agreement. He thus submitted that assessee cannot be considered to be a shell or a conduit company. 5.25 The Sr. Counsel thus concluded by submitting that India US DTAA is not applicable to the transaction under consideration. He further emphasised that, the transaction in question involves sale of shares of Flipkart Singapore by the assessee to Walmart Singapore. The capital gains so arising, it was urged, are not taxable in India under section 9(1) of the Income-tax Act, having regard to Article 13(5) of the India– Singapore DTAA, which allocates taxing rights over such gains exclusively to the State of residence. It was further contended that Article 13(5), by its very construction, excludes from Indian tax ambit an indirect transfer of underlying assets situated in India when effected through alienation of foreign-situs shares.
A.Y. 2019-20 Ebay Singapore Services Private Limited 6. On the contrary, the Ld.Special Counsel for the revenue harped on the applicability of India US DTAA. He urged that the present transaction being a layered transaction, the ultimate beneficiary of the slae proceeds of shares is US based company of assessee being eBay Inc. as the management and control of assessee is located in US. He emphasized applicability of the decision in case of AAR vs. Tiger Global International II Holding reported in (2025) 170 taxmann.com 706 6.1 He has filed written submission, reproduced as under:
We have perused the submissions advanced by both sides in light of records placed before us.
The revenue has urged applicability of the decision in case of AAR vs. Tiger Global International II Holding (supra). 7.1 From the documents furnished by assessee in the paper book, it is noted that Jae Hyun Lee was a director of eBay Singapore during the period when assessee acquired shares of Flipkart Singapore. We have perused letter dated 17/11/2021 by eBay Singapore placed at page 953 – 956 of the paper book (being the letter and remand report of the Ld.AO) filed by the assessee before the DRP. The DRP has not been able to rely on anything contrary to it. The Ld.Special Counsel has also not, brought anything contrary to such evidences on record. 7.2 The assessee has furnished plethora of evidences to establish that control and management of the assessee is with the Directors of the assessee situated in Singapore and Hongkong. The assessee has also submitted before the A.Y. 2019-20 Ebay Singapore Services Private Limited authorities below that neither there are any nominees of eBay Inc., amongst the directors of the assessee, nor eBay Inc., seconded any one to the Board of directors of assessee. The Board resolutions passed by the assessee and the directors of the other group companies including eBay Inc., are placed at pages 753 to 774 of the paper book. None of these documents have been found to be incorrect by the revenue. Unless there are evidences that would lead to eBay Inc., to be the ultimate beneficiary, the argument advanced by the revenue cannot be appreciated merely on assumption. There is nothing placed by the revenue on record contrary to the evidences filed by the assessee. 7.3 Keeping in mind the fact that Hon’ble Supreme Court in case of AAR vs. Tiger Global International II Holding (supra) admitted SLP against the decision of Hon’ble Delhi High Court decision in case of Tiger Global International II Holding vs. AAR reported in (2024) 165 taxmann.com 850, unless a layered transaction is established the revenue the preliminary observation by Hon’ble Supreme Court in case of AAR vs. Tiger Global International II Holding (supra) may not be applicable. Thus we have to consider the transaction as per Article 13 of India Singapore DTAA.
It is noted that, clause 1 of Article 13 is not applicable as what was sold is shares of Flipkart Singapore. 8.1 Clause 2 of Article will be applicable only if eBay Singapore has PE in India. It is an admitted fact that eBay Singapore sold its entire business in India to flipkart Singapore on 10/04/2017, against which assessee received consideration as per the share A.Y. 2019-20 Ebay Singapore Services Private Limited purchase argument. Under such circumstances eBay Singapore cannot be said to have a PE in India. 8.2 Clause 3 would not apply as it deals with alienation of ships, aircraft operated in international traffic or movable property pertaining to operation of such ships or aircraft. 8.3 Clause 4A is a grandfathering clause and will not apply as the shares of Flipkart Singapore was acquired by assessee after 01/04/2017. 8.4 Clause 4B would be applicable only where, the alienator of the shares and the company whose shares are being transferred are residents of two different contracting states. In the present facts, the alienator (the assessee before this Tribunal) is resident of Singapore and the company whose shares are being alienated (Flipkart Singapore) is also a resident of Singapore. 8.5 The sunset clause in 4C is applicable only in case of applicability of clause 4B. As 4B is not applicable to the present facts, question of considering clause 4C to the said transaction do not arise. 8.6 Clause 5 is a residual clause applicable to any other asset, not falling under the above referred clauses. As the share of Flipkart Singapore (being the asset transferred) does not fall into any of the other clauses under Article 13, we have to analyse applicability of clause 5 to the transaction under consideration. Going by clause 5 of Article 13, the taxability of any gains upon transfer of any other asset will be in the state of residence of the alienator. In the present facts it is Singapore.
The assessee’s contention rests on the proposition that, while section 9(1)(i) of the Act read with Explanation 5 may, as a A.Y. 2019-20 Ebay Singapore Services Private Limited matter of domestic law, deem indirect transfers of Indian assets to be taxable in India, such deeming provisions cannot override treaty allocation. By virtue of section 90(2), the India–Singapore DTAA prevails being more beneficial. Article 13(5) thereof allocates exclusive taxing rights to the State of residence of the alienator in respect of gains not specifically covered by earlier paragraphs. Courts, including Vodafone(supra), Sanofi (supra) and the celebrated decision of Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT reported in (2021) 125 taxmann.com 42 have consistently held that treaty provisions prevail over domestic fictions. Significantly, unlike amended treaties in case of India Mauritius and India Cyprus (by way of Protocol 2016/2017) containing a “look-through” rule for shares deriving substantial value from immovable property, has been inserted, the India–Singapore DTAA does not include such a clause. In the absence of such language, Article 13(5) operates as a shield, consistent with paragraph 37.9 of OECD Commentary (2017 amended) which clarifies that source-state taxation of indirect transfers states as under: “The source State may tax capital gains arising from the alienation of immovable property situated in its territory. Gains from the alienation of shares or interests in a company or entity that is not resident in the source State are generally taxable only in the State of residence of the alienator, unless the Convention expressly provides otherwise (for example, where the shares derive more than a specified proportion of their value from immovable property situated in the source State).”
9.1 The assessee before this Tribunal is eBay Singapore, a company incorporated and tax resident in Singapore being the alienator of shares of Flipkart Singapore.
A.Y. 2019-20 Ebay Singapore Services Private Limited 9.2 Under section 9(1)(i) of the Act, an indirect transfer may be deemed to be taxable in India. However, in the present facts of the case, what is transferred are shares of Flipkart Singapore, a company incorporated and tax resident in Singapore. The gains therefrom, though arising from an entity with underlying Indian business assets, are gains from alienation of foreign-situs shares. As the transaction does not fall within the ambit of clause (2), or Clause 4B of Article 13 to India Singapore Treaty, by virtue of section 90(2), the provisions of the Article 13(5) of India– Singapore DTAA, would prevail. Article 13(5) of the DTAA allocates taxing rights over such residual category gains exclusively to the State of residence of the alienator, i.e. Singapore. Unlike certain other treaties that expressly confer source-state taxing rights on shares deriving value from immovable property or local assets, the India–Singapore DTAA does not contain such ‘look-through clause’. Accordingly, the gains in question cannot be held chargeable to tax in India.
Accordingly grounds 3-7 raised by the assessee stands allowed.
Ground no. 8 & 10 are in respect of refund already issued under section 143(1) of the act and interest under section 234 A, B, C in nature. The Ld.AO is directed to verify the claim is accordance with law. Accordingly grounds 8 & 10 raised by the assessee stands allowed. Ground No.9 is consequential in nature and do not require adjudication.