Double taxation of income has been a persistent issue in the realm of international tax space, which is dealt with in Double Tax Avoidance Agreements (‘DTAA’) signed between two sovereigns. However, inter alia, owing to different tax regimes of each country, the issue of taxpayers evading taxes in both jurisdictions i.e., double non-taxation, has also gained significance. The issue of double non-taxation is more prevalent where the host country, to whom the taxing rights have been allocated by a particular DTAA, taxes income on remittance basis such as Singapore.

Therefore, conceptually, it is possible for a Singaporean resident to have earned income from a source located in India, without paying any income-tax either in India or Singapore, by virtue of India – Singapore DTAA allocating taxing rights to Singapore alone and Singapore not taxing it eventually, if such income is not received in Singapore. It is in this context and to curb this event of double non-taxation, that India – Singapore DTAA in Article 24 limits the relief (as may be provided by the DTAA in the form of an exemption or reduced rate of tax) that may be available to a Singaporean resident to the extent of income which is received in Singapore.

Recently, the Bombay High Court in the case of CIT v. Citicorp Investment Bank (Singapore) Ltd.^[1], had the occasion to analyse the scope of this “limitation of relief” clause as envisaged under Article 24 of the India – Singapore DTAA. In this case, a Singaporean resident being a foreign institutional investor (‘FII’) claimed the exemption from capital gains tax in India on the sale of debt securities held in India under Article 13(4) of the DTAA. However, the Assessing Officer had invoked Article 24 of the DTAA to deny such exemption whilst observing that the FII had failed to establish whether the gains derived by it were received in Singapore and subjected to tax in Singapore.

Before the Income Tax Appellate Tribunal, Mumbai bench (‘Tribunal’), the FII brought on record certificate issued by Singaporean Revenue Authorities certifying that the capital gains in question were liable to be taxed in Singapore. In this certificate it was clarified by the Singaporean Revenue Authorities that the income derived by the FII from buying and selling of India debt securities and from foreign exchange transactions in India would be considered under Singapore tax law as accruing in or derived from Singapore. It was further clarified in this certificate  that the income would be brought to tax in Singapore without reference to the amounts remitted or received in Singapore. Therefore, because it was clear that the income in question was being subjected to tax in Singapore de hors of whether it is remitted to Singapore or not, the Tribunal held that Article 24 of the India – Singapore DTAA had no applicability.

This decision of the Tribunal also touched upon the interpretation of the word “exempt” as appearing in Article 24 of the India – Singapore DTAA. In that context, it was held by the Tribunal that because the capital gains derived by the FII were not taxable in India as per Article 13(4) of the India – Singapore DTAA, there was no question of there being an “exemption” from tax in India.^[2] That apart, there was no stipulation of any reduced rate of tax in the capital gains provision under the India – Singapore DTAA. Accordingly, the Tribunal held that the primary condition of availing relief in terms of Article 24 was not satisfied, and, therefore, the benefit of Article 13(4) of the India – Singapore DTAA could not have been denied to the FII.

This decision of the Tribunal has been affirmed by the Bombay High Court primarily on the fact that the FII was subjected to tax in Singapore as clarified in the certificate issued by the Singaporean Revenue Authorities. While there is no specific discussion on the other reason of the Tribunal around the interpretation of the term “exempt”, the dismissal of Revenue’s appeal has led to the merger of decision of the Tribunal with the decision of the High Court.

The decision of the Bombay High Court reiterates the established principle of interpretating DTAAs by adopting a purposive and holistic approach rather than a myopic one. What would also be relevant to highlight is that the decision rendered by the Bombay High Court would hold fort qua transfer of debt securities post the amendment brought in under Article 13 of the DTAA in 2017, since the amendments specifically relates to sale of shares and hence, debt securities are outside its purview. However, such exemption on taxation of sale of debt securities would still be subject to the limitation of benefit clause as envisaged under Article 24A of the India-Singapore DTAA and General Anti Avoidance Rules as existing under Chapter X of the Income Tax Act, 1961.

[1] [2023] 151 taxmann.com 501 (Bombay High Court).

[2] ALP Company Pte Ltd. v. ADIT, [2017] 78 taxmann.com 240 (Mumbai Tribunal); SET Satellite Singapore Pte Ltd. v. ADIT [Order dated February 11, 2020, in M.A. No. 520/Mum./2010] (Mumbai Tribunal). A Special Leave Petition against the decision of Set Satellite Singapore Pte Ltd. is pending before the Supreme Court of India, however, no stay has been granted on the said decision.