[Opinion] Treaty Shopping Through Singapore SPV | When A Tax Residency Certificate Cannot Save You

CA Paras K Savla – [2026] 184 taxmann.com 214 (Article)

1. Abstract

The Delhi Income Tax Appellate Tribunal, in a landmark ruling dated January 30, 2026, denied India-Singapore DTAA treaty benefits to Hareon Solar Singapore Pvt. Ltd.—a wholly-owned subsidiary of a Chinese parent—on capital gains of Rs. 17.67 crore arising from the sale of equity shares and compulsorily convertible debentures in an Indian solar energy company. The Tribunal applied a rigorous substance-over-form analysis, invoking the Limitation of Benefits (LOB) clause under Article 24A of the India-Singapore DTAA, and held the entity to be a conduit shell company established primarily to obtain treaty benefits. The ruling reaffirms that a Tax Residency Certificate, while necessary, is not sufficient to claim treaty protection when the surrounding facts demonstrate treaty abuse. This analysis examines the Tribunal’s reasoning, the key factual indicators relied upon, and the broader implications for inbound foreign investment structures involving intermediate holding companies.

2. Introduction

The India-Singapore Double Taxation Avoidance Agreement (DTAA), long regarded as a gateway for tax-efficient foreign investment into India, has been a subject of sustained scrutiny by Indian tax authorities on account of its susceptibility to abuse through conduit holding structures. The third-country investor—invariably resident in a jurisdiction with no or minimal tax on capital gains—would interpose a Singapore Special Purpose Vehicle (SPV) to access India’s treaty network, thereby avoiding capital gains taxation in India.

Although both contracting States amended the treaty significantly with effect from April 1, 2017—introducing source-based taxation of capital gains on shares acquired on or after that date—grandfathering protection was accorded to investments made before that threshold date. This grandfathering, however, was never intended to be a blank cheque for conduit structures. The LOB clause under Article 24A, pre-existing the 2017 amendment, stood as a sentinel against structured treaty abuse.

The Delhi ITAT’s order in Hareon Solar Singapore Pvt. Ltd. v. Dy. CIT [2026] 183 taxmann.com 125 (Delhi – Trib.) represents a rigorous application of that sentinel provision. The Tribunal examined—and rejected—the treaty claim of a Singapore entity that was 100% owned by a Hong Kong company, which in turn was 100% owned by a Chinese parent, where the Singapore entity had no employees, no dedicated office, and no directors resident in Singapore. Capital gains of Rs. 17.67 crore on pre-2017 investments were held taxable in India, notwithstanding a valid Tax Residency Certificate issued by Singapore’s Inland Revenue Authority.

This article critically examines the Tribunal’s reasoning across three principal dimensions:

(i) the LOB clause analysis,

(ii) the legal status of the TRC in treaty benefit claims, and

(iii) the broader implications for multinational groups using intermediate holding companies to channel investments into India.

3. Background Facts and Corporate Structure

2.1 The Assessee and Its Corporate Lineage

Hareon Solar Singapore Pvt. Ltd. was incorporated in Singapore on April 24, 2015—just three months before the investment in question. The entity was a wholly-owned subsidiary of Hareon Solar Co. Ltd. (Hong Kong), which was itself wholly-owned by Hareon Solar Technology Co. Ltd. (China), the ultimate parent and a globally active photovoltaic module manufacturer.

2.2 The Investment and Divestment

In July 2015, barely three months after its incorporation, the assessee made its investment in Renew Solar Energy (Karnataka) Pvt. Ltd. (the “Indian Company”), subscribing to 40,92,941 equity shares and 14,89,180 Compulsorily Convertible Debentures (CCDs). The Indian Company was developing a 60MW(AC) solar power project—the very project for which the ultimate Chinese parent, Hareon Solar Technology, had simultaneously entered into a supply contract to provide photovoltaic modules.

In June 2019, the assessee divested its entire holding in the Indian Company to Renew Solar Power Pvt. Ltd. for an aggregate consideration of Rs. 76.47 crore (equity shares – Rs. 56.07 crore; CCDs – Rs. 20.40 crore), yielding long-term capital gains of Rs. 17.67 crore. The assessee claimed exemption under Article 13(4A)/13(5) of the India-Singapore DTAA on the ground that the shares were acquired before April 1, 2017 (grandfathering provision).

3. Legal Issues Before the Tribunal

The Tribunal was called upon to determine the following principal questions:

• Whether the assessee was entitled to the benefit of the India-Singapore DTAA, particularly the grandfathered exemption from capital gains taxation under Article 13(4A)/13(5);
• Whether the assessee satisfied the Limitation of Benefits conditions under Article 24A of the DTAA;
• Whether the assessee was a ‘shell’ or ‘conduit’ company within the meaning of the LOB clause;
• Whether the Tax Residency Certificate issued by IRAS was conclusive proof of Singapore tax residency and treaty eligibility;
• Whether the Revenue was estopped from denying treaty benefits on capital gains when it had previously allowed treaty benefits on interest income from CCDs in the same and prior assessment years.

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