The apex court this week has given an interim stay on a significant Delhi High Court ruling in early 2023 that a tax residency certificate (TRC) is sufficient for a foreign investor’s claim to pay zero or lower tax under treaties between India and overseas jurisdiction like Mauritius, Singapore and The Netherlands.
TRC is given by authorities of these offshore financial centres to FPI and FDI entities set up in such countries for betting on Indian securities. The treaties with Mauritius and Singapore, though amended later, still allow foreign investors to avoid tax on capital gains generated by selling stocks which were bought before April 2017.
AgenciesThe Delhi HC, ruling on a writ petition by Blackstone Capital Partners, a Singapore firm, had said that the I-T department cannot go behind the TRC to challenge treaty benefits on the grounds that the foreign entity incorporated in the treaty country is just a shell company with no substance.
Though tax officials continued to slap notices to foreign investors after the HC’s decision, asking a slew of questions on their origin and nature of presence in the tax havens, the HC ruling on the validity of TRC came in handy in contesting the stand of the tax office. Now, if the SC eventually confirms the stay in its final ruling, it would have an unsettling effect on many overseas investors and influence the course of ongoing litigations.