Capital gains article under tax treaty allocates taxation right and is not subject to limitation of relief clause

In the case of Prashant Kothari, the Mumbai Bench of the Tribunal upheld the non-taxability in India of capital gains arising to a Singapore tax resident from the sale of shares in an Indian company as per the India-Singapore tax treaty (treaty).

The Revenue denied the treaty benefit by invoking the ‘limitation of relief’ provisions under the treaty, which stipulate that income should be exempt in India under the treaty where such income is taxed in Singapore on remittance or receipt basis. In the absence of evidence showing taxation/ remittance in Singapore, the capital gains should be taxable in India.

However, the Tribunal rejected the Revenue’s argument, distinguishing between ‘exemption provisions’ and ‘taxability provisions’ under the treaty, and upheld the taxpayer’s claim.

The Tribunal also allowed carry-forward of capital losses arising on sale of shares in other Indian companies without setting them off against the capital gains not taxable in India under the treaty.