ITAT Rules Capital Gains on Flipkart Share Sale Not Taxable in India under India-Singapore DTAA

ITAT Rules Capital Gains on Flipkart Share Sale Not Taxable in India under India-Singapore DTAA

The assessee, incorporated in Singapore, had sold its entire shareholding in Flipkart Singapore Pte. Ltd. in August 2018 for a total consideration of Rs. 7,440,79,50,063/-, resulting in capital gains of Rs. 2,257,91,95,035/-. It filed its return declaring Nil income and produced valid Tax Residency Certificates for the relevant calendar years to claim treaty protection under the India-Singapore Double Taxation Avoidance Agreement. The AO, however, denied treaty benefits and recommended taxation of gains under Section 9(1)(i) of the Income Tax Act, 1961, on the basis that the sale was an indirect transfer of Indian assets and that control and management of the assessee were actually in the hands of the U.S. parent company.

The assessee provided detailed proof, such as board resolutions, Singapore statutory filings, and board meeting minutes, to establish that it was controlled independently of Singapore and that its treaty claim was legitimate. The Dispute Resolution Panel supported the Assessing Officer’s position, adopting the principle of substance over form and upholding the entire addition. Aggrieved, the assessee filed the present appeal before the Tribunal, asserting that both the transferor and the company whose shares were sold were Singapore residents and that the gain, therefore, was not taxable in India under Article 13(5) of the DTAA.

Central Issue: Whether the capital gains arising from the sale of shares of Flipkart Singapore, a foreign company, by a Singapore-based entity were taxable in India under Section 9(1)(i) as indirect transfer of Indian assets, or whether such gains were taxable exclusively in Singapore under Article 13(5) of the India-Singapore DTAA.

ITAT’s Ruling: The Tribunal went thoroughly through Article 13 of the India-Singapore DTAA and observed paragraphs (1) to (4C) fix taxing rights in some situations relating to immovable property, permanent establishments, and shares whose value stems from such property, none of which applied in the present case. The transferring shares were of a Singapore entity, and the transferor as well as the transferee were non-residents; therefore, the residuary provision of Article 13(5) was applied to the transaction. According to this provision, the sole right of taxing is assigned to the residence state of the seller, i.e., Singapore. The Tribunal further held that deeming provisions under Section 9(1)(i) and its Explanations under domestic law are not to prevail over treaty provisions in view of the overriding effect of Section 90(2) of the Act. It was not able to find anything on record to support Revenue’s argument that the assessee was effectively controlled in the U.S., observing that coordination at the group level is not transfer of control and management. On the basis of the Tax Residency Certificates and Singapore board records, the Tribunal concluded the assessee to be a bona fide resident of Singapore who was eligible for treaty protection.

The Bench noted that the India-Singapore DTAA does not contain any look-through clause similar to the indirect transfer provisions introduced under domestic law; therefore, invoking domestic law to tax a transaction that clearly falls outside India’s taxing jurisdiction would be contrary to settled principles of treaty interpretation. Concluding that the capital gains arose from the transfer of a foreign asset between two non-residents and bore no nexus to India, the Tribunal deleted the entire addition of Rs. 2,257,91,95,035/-. The appeal was accordingly allowed, reaffirming that treaty provisions must prevail over domestic law in case of any inconsistency.

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