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2017 (4) TMI 102 - AT - Income TaxSale of debt instrument - Benefit of Article 13(4) of DTAA between India and Singapore - non application of Article 24 of the DTAA between India and SingaporeHeld that - The limitation prescribed under Article 24 of the Treaty is not applicable in the present case as the income earned by assessee on sale of debt instrument is not taxable in India as per Article 13(4) of Treaty. Thus, the observation of DRP that the assessee has not furnished any evidence that the Capital Gain earned in India, was remitted to Singapore has no relevance. Thus, we respectfully following the decision of Co-ordinate Bench in APL Company Pte Ltd. (2017 (2) TMI 849 - ITAT MUMBAI) and in SET Satellite (2011 (2) TMI 1513 - ITAT MUMBAI) hold that the authorities below erred in denying the benefit of Article 13(4) of India-Singapore DTAA as Article 24 of the Treaty has no application. Hence, the appeal of the assessee is allowed.
Issues Involved:
1. Denial of benefit under Article 13(4) of the India-Singapore Double Taxation Avoidance Agreement (DTAA). 2. Applicability of Article 24 of the India-Singapore DTAA. Issue-wise Detailed Analysis: 1. Denial of Benefit under Article 13(4) of the India-Singapore DTAA: The assessee, a tax resident of Singapore and registered as a Foreign Institutional Investor (FII) in the Debt segment with SEBI, declared a capital gain on the sale of debt instruments and claimed exemption under Article 13(4) of the India-Singapore DTAA. The Assessing Officer (AO) disallowed the exemption, arguing that while Article 13(4) allows for exemption of capital gains in the source country (India), Article 24 restricts this exemption to the extent of repatriation of such income to Singapore. The AO noted that the assessee did not provide evidence of repatriation of the capital gains to Singapore, thus treating the capital gains as taxable in India. 2. Applicability of Article 24 of the India-Singapore DTAA: The Dispute Resolution Panel (DRP) upheld the AO's decision, stating that Article 24 limits the exemption under Article 13(4) to the amount of income remitted to Singapore. The DRP emphasized that the certificate from the Singapore Tax Authority, which confirmed that the income derived from the sale of Indian debt securities is taxable in Singapore, cannot override the treaty provisions. The DRP concluded that the assessee had not demonstrated that the capital gains earned in India were remitted to Singapore. Tribunal's Analysis and Conclusion: The Tribunal examined the provisions of Articles 13 and 24 of the India-Singapore DTAA. Article 13(4) specifies that capital gains derived by a resident of Singapore from the alienation of any property other than those mentioned in paragraphs 1, 2, and 3 shall be taxable only in Singapore. Article 24, on the other hand, limits the relief provided under the treaty to income that is subject to tax in the resident state (Singapore) on a remittance basis. The Tribunal referred to the certificate issued by the Singapore Tax Authority, which confirmed that the income derived from the sale of Indian debt securities is considered Singapore-sourced income and is taxable in Singapore on an accrual basis, not on a remittance basis. This certificate was crucial in establishing that the income is not subject to tax on a remittance basis under Singapore law. The Tribunal also cited previous decisions, including SET Satellite (Singapore) Pte Ltd. vs. ADIT and APL Company Pte Ltd. vs. ADIT, which clarified that Article 24 applies only to income that is exempt or taxed at a reduced rate in the source country and is subject to tax on a remittance basis in the resident country. Since the income in question is taxable in Singapore on an accrual basis, Article 24 does not apply. In light of these findings, the Tribunal concluded that the limitation prescribed under Article 24 is not applicable in this case. The Tribunal held that the authorities erred in denying the benefit of Article 13(4) of the India-Singapore DTAA, as Article 24 has no relevance to the income earned by the assessee on the sale of debt instruments. Consequently, the appeal of the assessee was allowed. Conclusion: The Tribunal allowed the appeal, holding that the benefit of Article 13(4) of the India-Singapore DTAA should be granted to the assessee, as Article 24 does not apply to the income earned from the sale of debt instruments, which is taxable in Singapore on an accrual basis. The decision underscores the importance of the nature of income taxation in the resident state when determining the applicability of treaty provisions.
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