Tax Hotline: No ‘Look-Through’: Mumbai Tribunal Shields eBay’s Indirect Transfer Gains Under India-Singapore DTAA

No ‘Look-Through’: Mumbai Tribunal Shields eBay’s Indirect Transfer Gains Under India-Singapore DTAA

• Gains derived by a Singapore-resident seller from the sale of shares of a Singapore-resident company are taxable only in Singapore, even if the shares derive substantial value from Indian assets.
• Article 13(4B), which allocates primary taxing rights to the country in which the company, whose shares are sold, is resident, does not confer on India any right to tax gains arising from the sale of shares of a Singapore-resident company. India would acquire a taxing right only where the gains arise from the sale of shares of a company resident in India.
• Such gains fall under Article 13(5) of the India-Singapore tax treaty, which grants exclusive taxing rights to the seller’s country of residence (in this case, Singapore).

A Mumbai bench of the Income Tax Appellate Tribunal (“Tribunal”) has recently held¹ that capital gains earned by a Singapore-resident company from the sale of shares of another Singapore-resident company is not taxable in India under Article 13(5) of the India-Singapore tax treaty (“Singapore Treaty”). The case involved the sale of shares of Flipkart Singapore by eBay Singapore Services Private Limited (“Taxpayer“) to Walmart as part of Walmart’s 2018 acquisition of the Indian e-commerce platform.

This ruling reaffirms the principle that notwithstanding the 2012 amendments to the Indian Income tax Act, 1961 (“ITA”) in the aftermath of the landmark Supreme Court decision in Vodafone International Holdings B.V. v. Union of India², the Singapore Treaty (and, by extension, and unless otherwise provided therein, a majority of India’s tax treaties) do not generally permit source-based taxation of indirect transfers of Indian assets.

Background

The Taxpayer, a Singapore-incorporated and resident company, serves as eBay’s Asia-Pacific investment holding company.³ It provides various e-commerce-related services to its group companies and is licensed to operate an online e-commerce platform.

As part of eBay’s global acquisition of Baazee in 2005, the Taxpayer acquired Baazee India, which was subsequently rebranded as eBay India. In April 2017, the Taxpayer transferred its shareholding in eBay India to Flipkart Singapore in exchange for a minority equity interest in Flipkart Singapore and made a follow-on investment in the company later that year.

In August 2018, as part of Walmart’s acquisition of Flipkart, the Taxpayer sold its shareholding in Flipkart Singapore to a Walmart affiliate for approximately INR 74.41 billion, realizing a short-term capital gains of approximately INR 22.58 billion. The taxpayer retained 30% of the sale proceeds for working capital and further investment purposes and distributed the balance to its shareholder, eBay International AG by way of a dividend.

The Taxpayer filed its return of income declaring no taxable income, claiming the gains as exempt under Article 13(5) of the Singapore Treaty.⁴ The Taxpayer’s return was selected for scrutiny. Alleging that the Taxpayer was managed and controlled by its ultimate parent company, eBay Inc., in the United States,⁵ the Assessing Officer (“AO“) issued a draft assessment order denying the claim of Taxpayer’s treaty protection claim on the basis that it was the India-US tax treaty (“US Treaty”), not the Singapore treaty, that applied.⁶ The Dispute Resolution Panel upheld the AO’s position, and a final assessment order was passed. The taxpayer appealed.

Before the Tribunal, relying on a decision⁷ of the now-disbanded Authority for Advance Rulings (“AAR”), which was later overturned by the Delhi High Court⁸, the Revenue made the additional argument that, even if the Singapore Treaty were to apply, Article 13(4B) should prevail over Article 13(5), which, in its estimation, gave India the right to tax the gains.

Tribunal’s ruling

The Tribunal allowed the Taxpayer’s appeal.

• Control and Management in Singapore. The Tribunal rejected the Revenue’s argument that, as the Taxpayer was managed and controlled from the USA, it was the US Treaty, not the Singapore Treaty, that should be applied. The Tribunal noted that the Taxpayer had provided substantial evidence to establish that its control and management was in Singapore⁹ and that the Revenue had failed to lead any evidence to the contrary. The Tribunal held that the Singapore Treaty controlled the transaction.
• Interpretation of Article 13 of the Singapore Treaty. The Tribunal undertook a detailed examination of Article 13 of the Singapore Treaty to determine how taxing rights were intended to be allocated between the two countries. It concluded that :
  • The paragraphs 1, 2, and 3 of Article 13 were inapplicable as the transaction did not involve immovable property, a permanent establishment in India, or ships/aircraft.
  • Paragraph 4A, a grandfathering provision, did not apply as the shares of Flipkart Singapore were acquired after 1 April 2017.
  • Paragraph 4B, which allows source country taxation for shares acquired after 1 April 2017, applies only when the seller and the company whose shares are sold are residents of different contracting states. In the Taxpayer’s case, both it and the company whose shares were sold, i.e., Flipkart Singapore, were residents of Singapore. Therefore, Paragraph 4B, and by extension, Paragraph 4C, did not apply.
  • And since none of paragraphs 1 through 4C applied, the residuary paragraph, 5, applied.

Article 13(5) provides that gains from the alienation of any other property (which in this case would include the shares of Flipkart Singapore) shall be taxable only in the contracting state where the seller is a resident. Since the taxpayer was a resident of Singapore, the Tribunal concluded that the exclusive right to tax the capital gains rested with Singapore, not India.

• No treaty override. The Tribunal reaffirmed the established legal principle that Section 90(2) of the Income Tax Act entitles a non-resident taxpayer to be governed by the more beneficial provisions of the domestic law or the applicable tax treaty. It held that while India’s domestic law (i.e., Section 9(1)(i) of the ITA) deems gain arising from the transfer of shares of a foreign entity deriving substantial value from assets situated in India to be India-source income, domestic law cannot override the clear allocation of taxing rights under Article 13(5) of the DTAA.

Analysis

Treaty interpretation and the limits of domestic source taxation

The eBay Singapore ruling represents an important and welcome reaffirmation that India’s tax treaties must be applied as written, and that taxpayers may rely on the plain text of a tax treaty without fear that domestic deeming fictions (like the indirect transfer tax rules) will be read in. In our view, the Tribunal’s reasoning reflects a disciplined approach to treaty interpretation, making clear that India’s taxing rights cannot unilaterally be extended beyond what the treaty permits.

The decision serves as a check on the Revenue’s growing tendency to read the 2012 indirect transfer amendments into treaties that were never renegotiated to include a so-called “look-through” clause.¹⁰ The Tribunal’s reading of Article 13(4B) – limiting it to cases where the seller and the company whose shares are sold are residents of different contracting states – is consistent with the broader design of the OECD Model under which taxing rights over cross-border share transfers arise only when two jurisdictions are actually implicated. Recognising that both the Taxpayer and Flipkart Singapore were Singapore residents, the Tribunal avoided an interpretation that would have allowed India to tax purely foreign-to-foreign transactions simply because the underlying company derived value from Indian assets.

This is not the first time that an Indian court has reached a similar conclusion. In Sanofi Pasteur Holding SA v. Department of Revenue¹¹ the Andhra Pradesh High Court held that India could not tax gains arising to a French resident from the transfer of shares of a French company that held shares of an Indian subsidiary, since the transaction involved a foreign-to-foreign transfer and the relevant India–France treaty did not contain a look-through provision.¹² Likewise, in Tiger Global International II Holdings v. Authority for Advance Rulings¹³, the Delhi High Court rejected the Revenue’s attempt to invoke India’s indirect transfer provisions where the India–Mauritius treaty did not confer such taxing rights. ¹⁴

It is becoming increasingly apparent that the Revenue’s attempts to creatively interpret the capital gains shares clause of India’s tax treaties – which allocate taxing rights to the state in which the company whose shares are disposed of is resident (typically drafted along the lines of Article 13(5) of the UN Model Convention, though generally without the reference to partnership interests, the 365-day holding period, or the minimum shareholding threshold) – will be met with scepticism from the courts. The word “may” should no sooner be read as granting a contracting state a residual right to tax gains that arise from a transfer of shares of a company resident in the other state by a resident of the other state, than should the word “alienation” be stretched to include indirect transfers of shares.

While India is fully entitled, as a matter of tax sovereignty, to define its own domestic source rules, the extension of those rules into India’s treaty network must be achieved through good-faith negotiations with treaty partners and by incorporating explicit language allocating taxing rights over indirect transfers. India’s treaty with Chile has done precisely that, granting the source state the right to tax gains arising from both direct and indirect transfers of shares. Seeking to retrofit domestic policy choices into unamended treaties through post-facto interpretations of treaty provisions risks breaching India’s obligations under customary international law to perform and interpret its treaties in good faith. Such an approach also undermines investor confidence – particularly when the Revenue’s interpretative stance diverges from the Government’s own understanding of the treaty terms, articulated in its press releases and official statements.¹⁵

Substance, Anti-Avoidance, and the Burden of Proof

The eBay Singapore decision also serves as an important reminder that substance remains the cornerstone of treaty entitlement. Two of the Revenue’s preferred approaches to denying treaty benefits in indirect transfer cases have been:

• Disregarding the existence of the intermediary company as a mere façade, arguing that its transfer should be treated as a direct sale of the Indian subsidiary’s shares; and
• Asserting that the selling entity lacks commercial substance, functioning merely as a conduit for its ultimate parent – often located in a jurisdiction whose treaty with India either permits source-based taxation of capital gains or does not exist at all.

While such arguments may be justified where evidence points to a sham or circular arrangement, their indiscriminate use, unsupported by credible evidence, only erodes investor confidence and increases uncertainty.

The Tribunal’s decision reiterates that the burden of proof lies squarely with the Revenue. Allegations of layering, conduit arrangements, or artificial avoidance must be substantiated with clear and cogent evidence, not conjecture or presumption. In eBay Singapore, the Tribunal relied on a range of factors to conclude that the Taxpayer’s control and management were situated in Singapore – including board-level decision-making in Singapore, the presence of resident directors, maintenance of local offices and employees, and credible evidence of business and investment activity. While the taxpayer happened to have operational revenues, the ruling does not necessarily suggest that “active business operations” are a precondition for treaty residence or substance.¹⁶ As the Supreme Court emphasized in Vodafone International Holdings B.V. v. Union of India,¹⁷ the use of holding or special purpose vehicles in cross-border structures is a legitimate commercial practice, and their mere existence does not imply avoidance. The test of substance, the Supreme Court held, turns on whether the entity performs a genuine investment or management function, exercises independent judgment, and has been established for bona fide commercial reasons. The Revenue may disregard such a structure only after discharging its burden to show, through evidence, that the arrangement is a sham or lacks commercial purpose.

The ruling is a timely reminder of the importance of maintaining demonstrable substance and governance discipline: board minutes evidencing deliberation and approval of key decisions, contemporaneous documentation of commercial rationale, and a clear delineation of functions between parent and subsidiary entities. This has become even more critical in a post-BEPS environment, where India’s General Anti-Avoidance Rule (GAAR) and the Principal Purpose Test (PPT) under the Multilateral Instrument empower the tax authorities to deny treaty benefits even in the absence of sham arrangements, if tax avoidance is found to be a principal or main purpose.

Conclusion

The eBay Singapore ruling reinforces two bedrock principles of India’s international tax law. First, it confirms that India’s taxing rights under a treaty extend only so far as the treaty’s text permits. In the absence of an explicit “look-through” or indirect-transfer clause, India cannot rely on its domestic deeming provisions to tax offshore transactions between non-residents, even if the underlying assets are Indian.

Second, the decision is a reminder that substance and treaty protection go hand in hand. As Vodafone recognized, holding companies and special-purpose vehicles are valid tools of international commerce; what matters is whether they perform real investment or management functions and are not mere conduits. Where such substance is demonstrated, treaty benefits cannot be denied on speculation.

The ruling is especially noteworthy given the pendency of the Revenue’s appeal against the judgement of the Delhi High Court in Tiger Global case in the Supreme Court. The Tribunal distinguished the AAR’s judgement in Tiger Global on facts, observing that the AAR arrived at the conclusion in the context of alleged avoidance, whereas in eBay Singapore the Revenue had led no evidence of any tax-avoidant motive or layered structuring. In any case, AAR’s decision in Tiger Global is not controlling. Although the Supreme Court has stayed the Delhi High Court’s judgment overturning the AAR ruling, the stay does not, in itself, revive the AAR’s reasoning or confer upon it any binding authority. AAR rulings, by their nature, have no precedential value; at best, they are persuasive on questions of law and limited to the applicant before them.

For investors, eBay Singapore offers renewed certainty that India’s tax treaties will be applied as written, and that genuine commercial structures will be respected. For the Revenue, it underscores that the power to tax or to disregard form must rest on proof, not presumption, and that lasting credibility in India’s treaty network will come from negotiation, not reinterpretation.

Authors

NDA Team

You can direct your queries or comments to the relevant member.

¹eBay Singapore v Dep. Comm’r of Income Tax, I.T.A. No. 2378/Mum/2022

²(2012) 341 ITR 1

³In addition to its investment in Flipkart Singapore, the Taxpayer has held (or continues to hold) various investments, including in Snapdeal (an Indian e-commerce website), PayTM (an Indian digital payments and financial services company), and eBay India.

⁴The Taxpayer held a valid Singapore tax residency certificate (“TRC”) for calendar years 2018 and 2019.

⁵The AO appears to have premised these allegations on (a) the mistaken belief that one of the Taxpayer’s directors (who held that post between 2014 and 2017) was an employee of eBay Inc., and (b) the fact that the Taxpayer’s board authorized delegated signing authority over its bank account to members of eBay’s global treasury team.

⁶Article 13 of US Treaty allows each contracting state to tax capital gains in accordance with its domestic law.

⁷Tiger Global International II Holdings, In re., [2020] 116 taxmann.com 878 (AAR – New Delhi)

⁸Tiger Global International III Holdings v. Authority for Advance Rulings, [2024] 165 taxmann.com 850 (Delhi). The Delhi High Court decision has since been stayed by the Supreme Court.

⁹The evidence appears to have included: possession of a valid Singapore TRC; proof that all of the Taxpayer’s directors were non-residents of India, two of whom (constituting a majority) were always resident in Singapore, and one of whom, at the time of the sale, was resident in Hong Kong; proof that the Taxpayer’s board was actively involved in key decision-making, with such decisions, including the approval of the Flipkart Singapore sale, typically being taken at board meetings conducted in Singapore; the absence of any eBay Inc. nominees or secondees on the Taxpayer’s board; employment of senior-level personnel and significant operating revenue and expenses in Singapore; satisfaction of the Limitation on Benefits (LOB) clause of the Singapore Treaty; and proof that all banking transactions executed by eBay’s global treasury team required the Taxpayer’s board’s prior approval.

¹⁰See, for example, India’s treaties with Israel (1996), South Africa (1996), Namibia (1999), and Chile (2023), each of which may reasonably be interpreted as giving the contract states the power to tax direct and indirect transfers of shares of companies resident in their respective jurisdictions.

¹¹[2013] 30 taxmann.com 222 (Andhra Pradesh)

¹²In Sanofi, the Andhra Pradesh High Court rejected the argument that Article 14(5) of the India-France tax treaty conferred on India the right to tax gains arising from the transfer, by a French resident, of a French resident company that derived substantial value from an Indian company. It held that such gains were covered by Article 14(6), which gave France the exclusive taxing right.

¹³[2024] 165 taxmann.com 850 (Delhi)

¹⁴Both decisions have been appealed by the Revenue. The Sanofi matter is pending before the Supreme Court, and in Tiger Global, the Supreme Court has stayed operation of the Delhi High Court’s judgment. Accordingly, while these rulings remain persuasive, their precedential value is qualified pending final adjudication.

¹⁵See, for example, the press release accompanying the 2016 Protocol to the India-Mauritius tax treaty which expressly stated that the amendment was intended to grant India source-based taxing rights over capital gains arising from the alienation of shares of an Indian company acquired on or after April 1, 2017. The 2017 Protocol to the Singapore Treaty introduced parallel language, arguably intended to reflect the same policy intent – namely, to extend India’s taxing rights to direct transfers of shares of Indian companies. Notably, the press release announcing the 2017 protocol makes no reference to any intention to tax indirect transfers through the sale of shares of non-Indian companies, underscoring that such transactions were not within the contemplation of the contracting states.

¹⁶The LOB clause of the Singapore Treaty is relevant only in the context of Article 13(4A) and 4(B), not Article 13(5).

¹⁷[2012] 341 ITR 1 (SC)

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