The recent ruling of the Delhi ITAT in Hareon Solar Singapore, read alongside the Supreme Court’s decision in Tiger Global, marks an important shift in how treaty entitlement is now being examined in India. The Tribunal looked beyond form to focus on commercial substance, control, funding sources, and the economic rationale for routing investments through Singapore. On facts, it treated the Singapore entity as a conduit and denied capital gains relief under the India–Singapore DTAA by invoking the Limitation of Benefits clause.
Notably, the ruling also highlights that while treaty grandfathering was specifically negotiated for equity shares, gains from instruments such as compulsorily convertible debentures fall under the residual capital gains framework, where treaty protection is inherently more sensitive to substance and purpose.
This approach does not emerge in isolation. It draws strength from Tiger Global, where treaty protection was denied despite a valid Tax Residency Certificate because effective control and real decision-making lay elsewhere. Together, these decisions signal a clear movement away from treaty access as a documentation exercise toward a substance-driven inquiry.
At the same time, it is useful to recall the policy context in which India’s earlier treaty framework evolved. These regimes were negotiated when foreign exchange reserves were limited and capital formation was a priority. Circular 789 and the Azadi Bachao Andolan ruling reflected a strategic objective of certainty and credibility for foreign investors.
As India’s economy matured, this framework was consciously recalibrated. The 2017 amendment introducing source-based taxation was targeted, negotiated, and notably confined to equity shares. Where instruments such as CCDs are effectively deployed as equity in the post-2017 landscape, deeper substance scrutiny is both logical and expected. That distinction matters. Extending source-based or conduit analysis across all non-equity instruments and derivatives, without corresponding treaty or legislative change, raises questions that go beyond the facts of any single case.
Indian jurisprudence has previously recognised that economic policy cannot always be viewed through a narrow technical prism. The Tata–Docomo decision (permissibility of put option under FEMA where it was otherwise prohibited earlier) remains a reminder that investor confidence, systemic stability, and national interest are also relevant considerations.
The challenge ahead is balance. Protecting the tax base is legitimate. Preserving policy coherence and investor certainty is equally critical. India’s capital market framework has historically worked best when legal interpretation, treaty policy, and economic strategy moved in alignment. That balance will matter more in the next phase of India’s engagement with global capital.