₹22,257 Crore Offshore Gain | ITAT Reaffirms Treaty Protection Over Indirect Transfer Rules

ITAT’s Landmark Ruling in the eBay Singapore–Flipkart Case

At the heart of the dispute was whether India can tax ₹22,257 crore of capital gains merely because the underlying business relates to India, even when the shares sold belong to a foreign company.

The Mumbai ITAT has given a clear and confident answer: No.

Facts:

eBay Singapore Services Pvt. Ltd., a company incorporated and tax-resident in Singapore, sold its entire shareholding in Flipkart Singapore (a Singapore Co.) for a sale consideration of over Rs. 7,440 cr. The sale resulted in an STCG of Rs. 22,257 cr. 

Why did India step in?

However, despite the shares sold were of a Singapore company, the underlying business and value were substantially connected to Indian assets.

Indian tax authorities therefore invoked “indirect transfer” rules, to tax the gains in India.

What the Taxpayer said:

The assessee’s defense was straightforward and legally grounded:

1. It was a genuine Singapore resident, backed by valid Tax Residency Certificates (TRCs).
2. The transaction involved shares of a Singapore company, not an Indian company.
3. Under the India–Singapore tax treaty, such gains fall under Article 13(5), meaning only Singapore can tax them.
4. The company had real substance in Singapore:
   • Board decisions taken there
   • Local directors and employees
   • Actual offices and independent operations
5. The Income-tax Act expressly provides that where a tax treaty is more beneficial, it prevails over Indian domestic law, as mandated under Section 90(2).

What the Tax Department Argued:

The Revenue took a broader view:

1. Flipkart’s real business value was located in India, the resulting gains should be taxable in India.
2. The Revenue further asserted that the ultimate parent in the U.S. effectively controlled the company, not Singapore, and therefore the company was not entitled to treaty protection.
3. Accordingly, the indirect transfer provisions should apply notwithstanding the offshore nature of the transaction.

The ITAT’s Verdict (Mumbai Bench):

1. Treaty Protection Prevails Over Domestic Law–
   When a genuine treaty resident sells shares of a foreign company, only the country of residence can tax the capital gains. India’s indirect transfer rules cannot override the India–Singapore DTAA in the absence of a specific “look-through” clause.

2. Substance, Not Suspicion, Determines Taxability– Real management, control, and operational presence in Singapore were decisive. The Revenue failed to prove that the structure was a sham, reaffirming that treaty benefits cannot be denied based on assumptions or mere linkage to Indian business value.

Key Takeaways:

The ITAT’s decision in eBay Singapore Services Pvt. Ltd. firmly reinforces the primacy of tax treaties over domestic law. Importantly, the ruling clarifies that offshore share sale gains cannot be taxed in India merely because the underlying business has Indian connections, where genuine treaty residence and real substance exist. The ruling brings welcome certainty for cross-border investors and reaffirms the legal strength of bona fide offshore structures.

To Download the full judgment visit- Judgment

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