Information cannot be disclosed u/A 28 of DTAA in absence of strong connection between requested information & India’s tax laws
The Indian tax authority seized documents from an Indian national which were believed to indicate the existence of undeclared income deposited in a company’s bank accounts in Singapore. Pursuant to Article 28 (1) of the India-Singapore DTAA, the Indian tax authority sent a request for information to its Singapore counterpart (the Comptroller of Income-tax). In support of the request, the Indian tax authority relied on unsigned transfer instructions allegedly issued by the Indian national as evidence that the Indian national remitted monies to the Singapore Company’s bank accounts. The Comptroller filed an application in the High Court u/s 105J of the Singapore Income-tax Act for an order requiring the bank to produce the company’s bank records. HELD dismissing the application:
(i) Article 28(1) of the DTAA provides that “the Contracting States shall exchange such information as is forseeeably relevant for carrying out the provisions of the DTAA or to the administration or enforcement of the domestic laws concerning taxes… imposed on behalf of the Contracting States …” S. 105J(3) of the ITA imposes two other conditions, namely that, (a) the making of the order is justified in the circumstances of the case; and (b) it is not contrary to the public interest for a copy of the document to be produced or that access to the information be given. These three conditions must be satisfied before the High Court will grant an order u/s 105J(2) of the ITA for access to the information requested or for a copy of the document containing the information requested to be given.
(ii) The first requirement of “foreseeable relevance” requires the Comptroller (on behalf of the requesting state) to show some clear and specific evidence that there is a connection between the information requested and the enforcement of the requesting state’s tax laws. Clear and specific evidence is necessary to prevent unwarranted disclosure of information that could not otherwise be sought from any party including the requested state. Spurious or frivolous requests for information are not acceded to and nor are “fishing expeditions” allowed. These procedures are not meant to frustrate or delay the information exchange process but are intended to provide a fair and independent assessment of the validity of requests.
(iii) On facts, the Indian tax authorities had relied on an unsigned transfer instruction as evidence that the Indian national remitted monies to the Singapore bank account and claimed that this was evidence of the connection between the Singapore company and the Indian national for the purposes of the investigations. The transfer instruction was a letter to Bank S to transfer monies to an account purportedly held by the Singapore Company with a bank in Dubai. There was no evidence that monies had been transferred to or from the account. There was also no evidence of any transaction between the Singapore Company and the Indian national. Accordingly, the Request and the supporting was not sufficiently clear and specific to say that the information requested would be foreseeably relevant to the enforcement of India’s tax laws and the ongoing investigations on the Indian national. Even if a tenuous connection between the Indian national and the Singapore Company could have been shown such that the requirement of foreseeable relevance was satisfied, consideration as to whether the application was justified is a process that envisages more evidence than presently adduced. This should include evidence of the use of the accounts for the purposes complained of in India.