The Delhi High Court issued its decision in the case of Blackstone Capital Partners (Singapore) VI FDI Three Ltd vs ACIT, which dealt with the taxation of capital gains derived on Indian assets under the grandfathering clause in the India-Singapore tax treaty.

Pursuant to the grandfathering clause, capital gains derived on shares acquired prior to the prescribed 1 April 2017 cut-off date are taxable only in the country of residence of the seller, in casu Singapore. In the case at hand, Blackstone Capital Partners (Singapore) derived capital gains on the disposal of participations in Indian entities. The taxpayer filed nil tax returns in India on the assumption that the India-Singapore Art. 13(4) (A) of the tax treaty attributes the exclusive right to tax to Singapore, and also submitted a certificate of residence issued by the Singapore revenue authorities to substantiate their residence in Singapore. The Indian tax authorities, however, reopened the case on the grounds that the certificate of residence does not represent conclusive proof that the seller is indeed a resident of Singapore and, in addition, that the seller is likely not the beneficial owner of the gains so realized.

In its ruling, the High Court upheld the position of the taxpayer on both grounds. The Court first determined that the taxpayer complied with the limitation on benefits clause under the treaty, and that this compliance is not disputed by the revenue authorities. With respect to the validity of a certificate of residence, the High Court ruled that in line with earlier circulars issued by the revenue authorities and, most importantly the Supreme Court 2003 precedent in the Azadi Bachao Andolan case, a valid certificate of residence issued by the treaty partner State is sufficient evidence to claim residential status, legal ownership and, consequently, treaty benefits. Finally, the High Court rejected the beneficial ownership argument advanced by the revenue authorities as irrelevant in the circumstances. The Court held that, in contrast to the treaty interest, dividend and royalty articles which expressly refer to beneficial ownership as one of the conditions for claiming treaty benefits, the capital gains article does not contain such condition, and such condition may not be implicitly read in the article.