NEW DELHI :The Supreme Court has put on hold a Delhi High Court ruling that had allowed foreign investors to benefit from zero or reduced tax rates in India based solely on possessing a tax residency certificate.
Foreign investors can avail these certificates, known as TRCs, based on treaties between India and tax haven countries such as Singapore and Mauritius.
This Supreme Court’s decision on Friday was in response to a petition by tax authorities challenging the Delhi High Court’s decision in a case involving Blackstone Capital Partners, a Singapore-based company facing a tax notice of about ₹108 crore.
However, the Supreme Court restrained the tax department from acting against the company based on the tax notices, and deferred the case until March.
The Delhi High Court had ruled in favour of Blackstone Singapore in January 2023.
The court had stated that a tax residency certificate was enough evidence for treaty eligibility, residential status, and legal ownership.
It rejected the tax authorities’ claim that Blackstone Singapore was not the beneficial owner of capital gains income, supporting Blackstone’s exemption from capital gains tax on the sale of shares acquired before 1 April, 2017 in an Indian company.
As per India’s domestic tax law, benefits under a Double Taxation Avoidance Agreement are available only to a non-resident with a valid tax residency certificate issued by their country of residence. India has such agreements with more than 80 countries, including Singapore, and plans to sign more such treaties.
These treaties are meant to avoid double taxation of the same income, benefiting institutions and individuals earning in countries other than their residence. The benefits include lower withholding tax, exemption from tax, and credits for taxes paid on doubly taxed income.
Industry watchers say the Supreme Court’s decision could be a matter for concern.
“Since the Blackstone Capital Partners ruling has been stayed it may no longer be considered as a binding precedent by courts/tribunals and it will create uncertainties and fear amongst foreign investors,” said Mitesh Jain, partner at Economic Laws Practice.
“In case the Supreme Court decides the issue against the taxpayer, foreign investors may have to establish that they are a resident of a foreign jurisdiction in substance and not merely by producing the residency certificate,” he added. “Also, an adverse ruling from the Supreme Court may trigger reassessment proceedings on foreign investors where tax authorities have reasons to doubt the residency of the taxpayer.”
During the hearing, Additional Solicitor General N. Venkataraman, representing tax authorities, expressed concerns about the high court’s judgment setting a precedent. He argued that Blackstone Singapore had not paid ₹108 crore following tax assessment, and the TRC for the entity was ambiguous.
In response, Blackstone’s counsel requested the apex court to decide the matter based on the money issue and not to issue a stay on the policy, stating that investors had relied on this policy for two decades.
However, the court rejected this, noting that the ruling of the high court was relatively new and not a long-standing policy.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
