IT/ILT : Gains from cancellation of forex forward contract entered into
by FII for hedging its Indian Investments are capital gains
• The assessee-company was a company incorporated in Singapore and a tax resident of Singapore.
• The assessee FII was not doing any business and was only engaged in the investment activities.
• The dominant purpose for entering into foreign exchange forward contract by the assessee was for clearly to hedge against the depreciation of the foreign currency. It had direct nexus with the investments made by the assessee.
• It was held that the gains which accrued/arose on account of cancellation of foreign exchange forward contract was capital gains having direct nexus with the investment of the assessee.
• Since, as per article 13(4) of DTAA between India-Singapore, the capital gains can be taxed only in the country of residence i.e. Singapore in this case. Therefore, the gains arising on account of cancellation of forex forward contract is not taxable in India.
Related cases
1. Citicorp Investment Bank (Singapore) Ltd. v. Dy. DIT (Intl. Taxation) [IT Appeal Nos. 2877/Mum/2003 & 910/Mum/2009].
2. Apollo Tyres Ltd. v. Asstt. CIT [2004] 89 ITD 235 (Delhi)(SB). - [2012] 24 taxmann.com 66 (Mumbai - Trib.)
• The assessee-company was a company incorporated in Singapore and a tax resident of Singapore.
• The assessee FII was not doing any business and was only engaged in the investment activities.
• The dominant purpose for entering into foreign exchange forward contract by the assessee was for clearly to hedge against the depreciation of the foreign currency. It had direct nexus with the investments made by the assessee.
• It was held that the gains which accrued/arose on account of cancellation of foreign exchange forward contract was capital gains having direct nexus with the investment of the assessee.
• Since, as per article 13(4) of DTAA between India-Singapore, the capital gains can be taxed only in the country of residence i.e. Singapore in this case. Therefore, the gains arising on account of cancellation of forex forward contract is not taxable in India.
Related cases
1. Citicorp Investment Bank (Singapore) Ltd. v. Dy. DIT (Intl. Taxation) [IT Appeal Nos. 2877/Mum/2003 & 910/Mum/2009].
2. Apollo Tyres Ltd. v. Asstt. CIT [2004] 89 ITD 235 (Delhi)(SB). - [2012] 24 taxmann.com 66 (Mumbai - Trib.)
No comments:
Post a Comment