From The Judiciary

Whether an investment holding company incorporated in a tax-treaty signed country, with long-term commercial investments, group-level operational support, and compliance with expenditure thresholds, can still be treated as a shell or conduit and denied treaty benefits under LOB and PPT provisions?

Fullerton Financial Holdings Pte. Ltd [TS-1458-ITAT-2025(Mum)]

Facts

Fullerton Financial Holdings Pte. Ltd. (Assessee) is a Singapore-incorporated investment holding company, wholly owned by Temasek Holdings Private Limited which is a body corporate fully owned by the Government of Singapore. Temasek is a global investment company headquartered in Asia, and the Assessee’s income and expenses are consolidated within Temasek’s accounts, forming part of the Singapore Government’s annual budget.

Assessee and its wholly owned subsidiary, Angelica Investments Pte. Ltd. (AIPL), had invested in Fullerton India Credit Co. Ltd. (FICCL), an Indian NBFC in 2008-09. Assessee availed management and operational services from its affiliate Fullerton Financial Holdings (International) Pte. Ltd. (FFHI). In FY 2021-22, assessee sold its entire stake in FICCL and earned long-term capital gains of INR 6,810 million which was claimed as exempt under Article 13(4A) of the Tax Treaty.

AO’s argument

• Assessee lacked commercial substance in Singapore as no employees, no premises, no independent business activity, functioning only as a holding entity.
• All personnel belonged to affiliate FFHI; insufficient evidence was produced to substantiate the services claimed.
• Director-related expenses and group-level insurance lacked supporting documents and benchmarking.
• The Assessee was treated as a shell/conduit entity under Article 24A (LOB clause), thus ineligible for capital-gains exemption under Article 13(4A).

Assessee’s Arguments

• Assessee submitted that Operations were bona fide with genuine commercial purpose; long-term holding (over 10 years) and commercial intent negate any inference of treaty abuse.
• No treaty shopping since the ultimate owner is Temasek, a Singapore Government entity eligible independently for treaty benefits.
• Article 24A was incorrectly applied without satisfying the Purpose Test and anti-abuse objectives.
• It provided certificates from IRAS and KPMG confirming annual expenditure in Singapore exceeded SGD 200,000 meeting the expenditure test.

Held

The Tribunal held in favor of the Assessee based on the following reasons:

• The Assessee operated as an active investment and operating platform for Temasek’s financial services portfolio in Asia, with investments across several jurisdictions. Its Board of Directors, comprising professionals from banking, finance, and public administration, undertook all strategic and management decisions in Singapore, establishing effective control and substance there.
• Tribunal observed that the Assessee was incorporated for bona fide commercial reasons and had held its investment in FICCL since FY 2008-09 as a long-term strategic investment and not a shell entity incorporated to channel gains through a low tax jurisdiction.
• It found that the Assessee had genuine substance in Singapore—through board meetings and strategic management and that its incorporation and operations were commercially driven, with no principal purpose of obtaining treaty benefits.
• The Tribunal noted that IRAS had confirmed the assessee met the Article 24A (3) expenditure threshold of SGD 200,000. FFHI employed staff providing management and operational support, and the Board exercised strategic oversight. Management fees, director remuneration, and other costs—such as D&O insurance were accepted as arm’s-length and legitimate business expenses, evidencing active operations in Singapore.

The Tribunal held that the Assessee is not a shell or conduit entity, as it has independent management, economic substance, and operational control, consistent with its role as a policy-driven investment platform of the Singapore sovereign group. The investment structure and share transfer were based on legitimate business considerations and not tax avoidance purpose.

Our Comments

Case highlights that tax authorities should not automatically apply anti-abuse rules just because an investment comes from a low-tax country, especially when there is SPV structure and has operational support from group entities.

Whether recurring IT Support and Non-IT Support Services rendered by a UK company to its Indian AE be treated as FTS/FIS under the India–UK DTAA?

CPPGROUP Services Limited [TS-1477-ITAT-2025(DEL)]

Facts

The assessee is engaged in providing a range of intra-group services, including IT services, human resources, business development, and marketing, to various group entities worldwide. During the relevant assessment year, the assessee rendered certain services to its Indian associated enterprise (AE), CPP Assistance Services Private Limited (CPP India). The services rendered and the corresponding receipts were as follows:

• IT Support Services – INR 208.1 million Non-IT Support Services – INR 8.9 million. IT Development Services involving development of a new IT platform for CPP India, which would enable CPP India to have an independent and appropriate IT infrastructure for its local business – INR 53.2 million

The assessee offered to tax only the income relating to the IT development as taxable in India, however, it did not offer the receipts from IT support services and non-IT support services for taxation in India. The AO held that by rendering IT development services, the assessee had “made available” technical knowledge, skill, and experience to its Indian AE. On this basis, the AO concluded that all three categories of services, including IT support and non-IT support services, constituted FTS/ FIS under the Income-tax Act as well as Article 13 of the India-UK DTAA, and therefore taxable in India.

Held

• ITAT Delhi held IT & Non-IT support services did not satisfy the “make available” condition under Article 13 of the India-UK DTAA.
• With regard to IT Support Services, the ITAT Delhi held that the IT Support Services and IT Development Services rendered by the assessee were not similar in nature, a factual finding already recorded by the DRP and not rebutted by the Revenue. Therefore, the Revenue’s reliance on this distinction to tax IT support services as FTS/FIS was rejected.
• The Tribunal held that the AO failed to provide any evidence showing that CPP India was enabled to perform IT services independently due to the services provided by the assessee. Since the agreement was perpetual and services were recurring, it was clear that no technical knowledge or skill was “made available.” If such knowledge had been transferred, CPP India would not need ongoing support from CPP UK.
• Relying on its own decisions in the assessee’s group cases for AY 2017-18, 2018-19 and 2020-21, the Tribunal held that the “make available” condition under Article 13 of the India–UK DTAA was not satisfied for the IT Support Services.
• Similarly, for the Non-IT Support Services, the ITAT found that the AO had again failed to produce evidence to contradict the DRP’s finding that no technical knowledge, experience, skill, know-how, or process had been transferred to CPP India. Therefore, the “make available” requirement was not met in respect of these services also. Following earlier years’ precedents,
• Thus, both additions made by the AO towards alleged FTS/FIS were deleted in full.

Our Comments

The ITAT’s ruling highlights that taxability under FTS/FIS requires demonstrable evidence of knowledge transfer, not broad interpretations by the Revenue. The Tribunal recognized that perpetual and recurring service arrangements inherently negate the idea of a “made available” technical capability. By upholding treaty principles and consistency with earlier years, the judgment ensures predictability and fairness in cross-border service taxation. It asserts that treaty protections cannot be overridden by speculative reasoning.

Delhi ITAT - Valuation of unlisted shares under Rule 11UA – whether by NAV or DCF — cannot be second-guessed by AO in absence of defects

Manish Vij [TS-1516-ITAT-2025 (DEL)]

Facts

The assessee invested in a start-up company, Cash Grail Pvt. Ltd. (CGPL), holding unlisted shares. During the FY 2021-22, shares of CGPL were sold by the assessee in two tranches- 1) 801 shares sold on 22 April 2021 at a price of INR 54,960 per share based on Valuation Report as per NAV method; 2) 595 shares sold on 15 February 2022, at a substantially higher price of INR 729,938 per share based on a merchant banker’s valuation which was done by following Discounted Cash Flow (DCF) method under Rule 11UA.

The dramatic increase in valuation between April 2021 and February 2022 was explained by the assessee because of substantial fresh funding raised by CGPL from venture-capital and foreign investors in the interim — which significantly improved the company’s financial prospects. The assessee supported this with valuation reports, details of investment rounds, and supporting media/funding-round data.

The AO, however, disregarded the NAV-based valuation for the first tranche and instead adopted the DCF-based value (from the later sale) as FMV, thereby making a massive addition — approximately INR520 million — under Section 50CA of the Income-tax Act

On appeal, the CIT(A) accepted the assessee’s explanation, noting that both valuation reports were valid and that the choice of method rests with the assessee. Since the AO had neither conducted independent enquiry nor produced evidence of excess consideration, the addition was deleted.

Tribunal Findings and Conclusion

The ITAT emphasized that Rule 11UA explicitly permits the use of either NAV method or DCF method to determine FMV of unlisted shares and that assessee is free to choose which method to apply for each transaction / sale date. The AO has not pointed out any defect or error in the NAV based valuation, hence, the addition made under Section 50CA was deleted.

Our Comments

The judgment is positive for taxpayers as it confirms flexibility to use either NAV or DCF for each transaction date and prevents Revenue from applying hindsight valuations. It strengthens certainty in multi-tranche exits, especially in start-up share transfers. However, it may encourage aggressive method-shopping if not supported by genuine valuation logic. The ruling also puts greater responsibility on AOs to identify concrete defects before challenging valuations, which could increase the burden on assessment proceedings. Robust documentation remains critical to avoid future litigation.

Telangana High Court: Transfer of going concern with no individual asset values assigned considered as capital receipts

Spectra Shares and Scrips Limited [TS-1440-HC-2025(TEL)]

Facts

Spectra Shares and Scrips Ltd. sold its entire bottling and marketing business to Bharat Coca Cola Bottling South East Pvt. Ltd. on 19 September 1997 for a lump-sum consideration of about INR 562.3 million (INR 403.1 million). The sale was of the business as a going concern, covering all operating assets, distribution network, goodwill, trademark-related rights, and non-compete obligations. The Assessing Officer treated the consideration as attributable to individual assets and sought to tax different portions under separate heads, including business income under Section 28(ii). The assessee contended it was a slump sale, and the entire receipt was a capital receipt.

Tribunal’s & High Court’s Findings

CIT(A) and ITAT held that the transaction was a composite sale of a complete undertaking and not a sale of itemized assets. The agreement did not assign separate values, and the commercial substance was transfer of the entire profit-generating apparatus. The Telangana High Court affirmed this view, holding that the Revenue cannot artificially bifurcate lump-sum consideration for taxation purposes. It also held that Sections 2(42C) and 50B (slump sale provisions) introduced from 1 April 2000 were not applicable to AY 1998–99. Further, Section 28(ii), which taxes compensation for termination of agency/distribution rights, was held inapplicable since the assessee operated on a principal-to-principal basis and did not function as Coca-Cola’s distributor/agent. Hence, the entire amount was a capital receipt arising from transfer of a business undertaking.

Our Comments

The decision reinforces that genuine going-concern transfers cannot be disaggregated by tax authorities for piecemeal taxation. It provides clarity on pre-50B slump sales and restricts the scope of Section 28(ii) to true agency/distributor arrangements. The ruling strengthens taxpayer protection where commercial intent clearly reflects transfer of an entire business and not isolated assets.

Whether royalty and license fee paid by Xiaomi India to IPR holders viz. Xiaomi China and Qualcomm Inc. were includible in the assessable value of parts and components imported by Indian contract manufacturers for manufacturing Xiaomi branded mobile phones?

Xiaomi Technology India Pvt Ltd vs. Principal Commissioner of Customs [TS-733-CESTAT-2025-CUST]

Facts

• DRI led investigation into Xiaomi India’s valuation practices and its arrangements with several contract manufacturers revealed that Xiaomi India had entered into various technology and license agreements with Qualcomm Inc. and Xiaomi China, under which it paid substantial royalties linked directly to the technologies used in the mobile phones.
• It was also found that Xiaomi India had failed to disclose these payments before the Special Valuation Branch (SVB).
• Consequently, the assessable value of parts and components imported by contract manufacturers as well as that of mobile phones imported by Xiaomi India was redetermined and differential duty liability was confirmed in accordance with Section 14 of Customs Act, r/w Rule 10 of Customs Valuation Rules.
• The goods were also found liable to confiscation and penalties were imposed.
• Xiaomi India contested the liability before the Chennai CESTAT primarily on the ground that the parts and components were imported by the contract manufacturers on their own account and that it could not be treated as ‘beneficial owner’.

Ruling

• Interpreting the clauses of various contracts such as Product Purchase Agreement (between contract manufacturers and Xiaomi China) and Goods Sales Agreement (between contract manufacturers and Xiaomi India), the Tribunal observed that Xiaomi India exercised complete control over the design, manufacturing, supply chain, licensing, pricing, and intellectual property, thus making it the “beneficial owner” in terms of Section 2(26) r/w Section 2(3A) of the Customs Act.
• As per the Tribunal, the concept of ‘Electronic Contract Manufacturing’ (ECM) company is akin to that of a job worker, which did not make the contract manufacturers the owners of the goods while they manufactured phones for original equipment manufacturers (OEMs) like Xiaomi.

• The manufacture of finished mobile phones by the contract manufacturers was subject to conditions, restrictions and obligations, including testing by Xiaomi India, which did not allow the contract manufacturers an effective control over the imported parts and components.
• Therefore, as the beneficial owner, Xiaomi India was fully accountable for proper disclosure of all royalty-linked payments.
• The Customs Act in special circumstances allows the Proper Officer to examine the actual person who is the importer and serve notice under Section 28(4). “No principle has been laid out that the duty can only be demanded from the person who files the Bill of Entry”, remarked the Tribunal.
• As regards the royalty payments, Tribunal found that the imported mobile phone components were unusable without the licensed technology, making the royalty payments an unavoidable condition for manufacturing and selling phones in India. The royalty agreements constituted a whole-portfolio device licence, and the intellectual property was inseparable from the functioning of the imported goods.
• Accordingly, such payments were includable in the assessable value of imported goods in terms of Rule 10(1)(c) of Customs Valuation Rules.
• Tribunal also upheld Revenue’s stand that Xiaomi India and its partners had engaged in deliberate suppression thereby justifying the invocation of extended limitation period and rendering the goods liable for confiscation. However, since the goods were not physically available or covered by a bond, no redemption fine could be imposed.
• However, it agreed with Xiaomi India that no interest, penalty or redemption fine could be imposed insofar as it related purely to the demand for differential IGST for the period prior to 16 August 2024, i.e. before amendment to Section 3(12) of Customs Tariff Act.

Our Comments

In a significant ruling, the CESTAT has underscored the importance of piercing the corporate veil to ascertain the ‘beneficial owner’ of imported goods, particularly in contract-manufacturing arrangements. The decision is likely to have significant impact on such structures, as it focuses on who actually controls the goods and bears the economic burden.

While the matter is likely to attain finality only at the Supreme Court level, it is recommended that businesses following the contract manufacturing model should revisit their contractual terms, control arrangements and royalty structures to mitigate any potential exposure.

Directs assessee to substantiate FAR similarity qua AE & non-AE segments, remits interest on receivables

WEG Industries (India) Pvt. Ltd [TS-644-ITAT-2025(Bang)-TP]

Facts

The assessee, WEG Industries (India) Pvt. Ltd., is a wholly owned subsidiary of WEG Equipamentos Electricos SA and is engaged in the manufacture of various electrical motors and generators. It undertakes manufacturing as per customer specifications as well as standard products.

The assessee filed its return of income on 10. March 2022 at nil. The return was picked up for scrutiny by issue of notice u/s. 143(2) of the Act by the National Faceless Assessment Centre, Delhi specifying the reason that there are high risk international transaction/entity reported in CbCR data along with other reasons. As the case of the assessee is also selected for scrutiny on the TP risk parameter, reference was made to the ld. TPO through ITBA portal for determination of the arm’s length price [ALP] of the international transaction.

For AY 2021-22, the assessee reported international transactions totaling INR 835.1 million, including sale of products, purchase of raw material, marketing support services, technical services, commissions, and reimbursements. It maintained segmental accounts for AE and non-AE transactions, reporting an operating margin of 9.89% for AE transactions and a loss of 4.18% for non-AE transactions.

The assessee benchmarked its international transactions using internal TNMM, considering itself as the tested party and using OP/OC as the PLI. It also carried out an alternative external TNMM analysis, selecting 10 comparable companies. The TPO rejected the assessee’s internal TNMM, stating that the segmental data was not reliable, lacked audit verification, and that the assessee used data only for two years instead of weighted-average three-year data.

The TPO accepted the comparable companies chosen by the assessee but recomputed the margins using three-year weighted averages, determining a median margin of 8.60%. Accordingly, the TPO proposed a TP adjustment of INR 299.9 million. Additionally, overdue receivables and unbilled revenue have been considered as separate international transactions and computed notional interest of INR 3.186 million and INR 68,206 respectively using SBI PLR. The DRP upheld the TPO’s rejection of internal TNMM, holding that the assessee failed to prove functional similarity (FAR) between AE and non-AE transactions, and also upheld the adjustments on interest. Aggrieved by the same, the assessee appealed before the ITAT.

ITAT Order

ITAT held that although the AO/DRP were correct in principle that internal TNMM requires similarity of functions, assets, and risks (FAR), the authorities failed to examine the data submitted by the assessee or explain why it was unreliable. The Tribunal observed that internal comparables are generally superior, and since the assessee had provided segmental audited data, the TPO must first evaluate FAR similarity between AE and non-AE segments before rejecting internal TNMM. Accordingly, the Tribunal restored the benchmarking issue (Grounds 3–8) to the AO/TPO for fresh examination.

On interest on overdue receivables, the ITAT held that overdue receivables are a separate international transaction and must be benchmarked. However, it directed that the TPO must first examine working-capital adjustments, and if such adjustment subsumes the interest effect, no separate addition is needed. It further held that since invoices were raised in USD, the use of SBI PLR was incorrect.

Regarding interest on unbilled revenue, the Tribunal restored the matter to the TPO, directing the assessee to demonstrate that no unbilled revenue exists and that invoices were timely issued.

Our Comments

Internal comparability to be considered as valid mechanism for analyzing the arm’s length, if FAR similarity between AE and non-AE segments can be substantiated. Interest on overdue receivables should be recomputed only after determining whether a working-capital adjustment subsumes such impact, and if interest is still required, an appropriate USD-based rate must be used instead of SBI PLR for foreign denominated receivables.

Remits TP-adjustment w.r.t IGS payment, rejects NIL-ALP determination

Sempertrans India Private Limited [TS-680-ITAT-2025(PUN)-TP]

Facts

Sempertrans India Pvt. Ltd., a wholly owned subsidiary of Semperit AG Holding (SAH), is engaged in the manufacturing and export of conveyor belts used in sectors such as paper, sugar, steel, power, fertilizers and chemicals. For AY 2020–21, the assessee reported international transactions including payment of royalty for trademark (INR 13.5 million) and intra-group service (IGS) payments (INR 56.6 million) to its AE. The case was selected for scrutiny due to TP risk parameters, and the matter of ALP determination was referred to the TPO.

The assessee adopted TNMM to benchmark the IGS transactions and submitted a detailed TP study, agreements, cost allocation workings, invoices and email evidence. The TPO, however, held that no services were actually received, allocation keys such as “headcount” or “email accounts” were inappropriate, and there was duplication of services. The TPO therefore treated the ALP of IGS as NIL and proposed an upward adjustment of INR 56.6 million, also treating the royalty transaction at NIL. The DRP upheld the TPO’s conclusion, holding that the assessee failed to prove rendition, receipt, and business nexus of IGS, and additionally directed disallowance under Section 37(1) for lack of evidence of actual service benefit.

Held by ITAT

The ITAT carefully reviewed the documentation submitted by the assessee and found that multiple services were indeed rendered by the AE—covering IT, procurement, operations, HR, quality management, engineering, internal audit, treasury, legal affairs and other business functions integral to daily operations. The Tribunal held that these services were directly linked to business, and, in their absence, the assessee would have required third-party services at a cost. It rejected the TPO’s NIL-ALP determination, noting that the TPO incorrectly concluded “no services received” without applying any prescribed method under Section 92C(1). The ITAT clarified that the TPO cannot disallow expenditure by questioning commercial expediency. Accordingly, the Tribunal restored the matter to the TPO for fresh ALP determination using an appropriate method, after properly examining evidence and functional benefit.

Our Comments

Taxpayers engaging in intra-group service transactions should maintain robust, contemporaneous evidence demonstrating that services were actually rendered, the specific benefit derived, and the business necessity for each service; this includes detailed agreements, cost-allocation workings, activity-wise documentation, emails, reports, and proof that costs are allocated on a scientific and consistent basis across group entities. Further, taxpayer should document clearly that the services are not duplicative, shareholder or stewardship in nature, and proactively address these concerns in their TP file to avoid disallowances or NIL-ALP findings.