In a welcome ruling for investors coming from treaty countries, the Delhi High Court has dismissed allegation of tax evasion against Blackstone Group’s Singapore entity.
The high court set aside reassessment proceedings against Blackstone Capital Partners (Singapore) VI FDI Three Pte., while emphasising that revenue authorities cannot question the sanctity of the tax residency certificate.
This decision would provide a huge relief to foreign investors, since the court has categorically recorded that the TRC is statutorily the only evidence required to be eligible for the benefit under the Double Tax Avoidance Agreement, Kumarmangalam Vijay, partner at JSA, told BQ Prime.
The transaction, which prompted a notice from the tax authorities, related to Blackstone’s acquisition in India-based Agile Electric Sub Assembly Pvt. back in 2013. Blackstone had later sold its shares in Agile to Igarashi Electric Works Ltd. and others in 2015.
While filing its 2016-17 returns, Blackstone had claimed that the gains earned by it on sale of shares were not taxable by virtue of the DTAA entered into between India and Singapore. In December 2021, the tax department issued a reassessment notice saying that the nature and genuineness of the transaction was not verified.
In its response, Blackstone said that the transaction between the parties was genuine and it was entitled to the benefit of India-Singapore DTAA. To support its contentions, Blackstone relied on various documents such as its bank statement, audited financial statement, memorandum and articles of association, etc. The department disagreed stating that the power to reopen the assessment is wide in nature.
Aggrieved by the department’s stance, Blackstone approached the Delhi High Court.
The court noted the revenue authorities’ reason for reassessment, namely for verifying the nature and genuineness of the transaction. This, the high court pointed out, is untenable in law as the return of income had been filed by the petitioner within time and with full particulars. The time period for verification as well as for seeking clarification or additional documents and information had also expired, the court said.
“The Assessing Officer has to show that there is a live link or close nexus between the material before the Assessing Officer and the belief that there has been escapement of the income chargeable to tax.”