The Supreme Court of India has intervened in a significant tax-related matter, putting on hold a ruling by the Delhi High Court that permitted foreign investors to avail zero or reduced tax rates in India solely based on holding a tax residency certificate (TRC). The case pertains to Blackstone Capital Partners, a Singapore-based company facing a tax notice of approximately ₹108 crore.
The Delhi High Court had ruled in favor of Blackstone Singapore in January 2023, stating that a tax residency certificate served as sufficient evidence for treaty eligibility, residential status, and legal ownership. The court rejected tax authorities’ claims that Blackstone Singapore was not the beneficial owner of capital gains income, granting the company an exemption from capital gains tax on the sale of shares acquired before April 1, 2017, in an Indian company.
The Supreme Court’s decision on Friday came in response to a petition filed by tax authorities challenging the Delhi High Court’s ruling. While the Supreme Court restrained the tax department from taking action against Blackstone Singapore based on the tax notices, it deferred a detailed hearing on the case until March.
The crux of the matter revolves around the eligibility of foreign investors for tax benefits in India based on TRCs, particularly from countries with which India has Double Taxation Avoidance Agreements, including tax havens like Singapore and Mauritius. These agreements aim to prevent double taxation of the same income and provide benefits such as lower withholding tax, tax exemption, and credits for taxes paid on doubly taxed income.
The Supreme Court’s intervention has raised concerns among industry observers, as it puts the Delhi High Court’s ruling on hold and introduces uncertainty for foreign investors. If the Supreme Court rules against the taxpayer, foreign investors may face challenges in establishing their residency based on substance rather than solely relying on a TRC.
During the hearing, the Additional Solicitor General representing tax authorities expressed concerns about the high court’s judgment setting a precedent. The Supreme Court’s decision to temporarily suspend the ruling reflects the complex nature of tax residency issues for foreign investors and underscores the potential impact on India’s taxation laws. The case has broader implications for the interpretation and application of tax laws related to foreign investments in the country.
