ITAT Rejects Binny Bansal's NRI Tax Claim: Flipkart Co-founder Denied DTAA Benefits

The Income Tax Appellate Tribunal (ITAT) Bengaluru bench has delivered a significant ruling against Flipkart co-founder Binny Bansal, rejecting his claim for non-resident status and denying him tax benefits under the India-Singapore Double Taxation Avoidance Agreement (DTAA). The decision affects Bansal's tax liability on substantial share sale transactions conducted during the financial year 2019-20.

ITAT's Key Ruling

In its comprehensive 189-page order, the tribunal determined that Bansal spent more than 60 days in India, thereby satisfying the residential test under section 6(1)(c) of the Income Tax Act. The ITAT stated: "We hold that the assessee (Bansal) has been in India for more than 60 days and satisfied the residential test of provisions not section 6(1) c of the (Income Tax) Act and is not entitled to the relaxation in the period of stay...undisputedly, assessee is an Indian national."

Share Sale Transactions Under Scrutiny

Bansal sold equity shares of Indian companies and Flipkart Private Limited, incorporated in Singapore, during the financial year 2019-20. The transactions included approximately 600,000 shares sold to Tiger Global and other investors in 2019. Bansal argued that his Singapore residency exempted him from paying taxes in India under the India-Singapore DTAA provisions.

The tax department rejected this claim, stating that relaxations under the Income Tax Act relative to Bansal's claimed residential status can only apply to individuals who are already non-residents, not to those who were residents in the immediately preceding year.

Understanding NRI Status Requirements

The Income Tax Act of 1961 determines NRI status based on specific residency conditions. An individual is considered a non-resident if they do not fulfill either of the basic residency conditions in a financial year:

• Staying in India for 182 days or more in the relevant financial year
• Staying for 60 days or more in the current financial year plus 365 days or more in the four preceding years

Double Taxation Avoidance Agreement Benefits

The DTAA between India and Singapore aims to prevent individuals and businesses from being taxed twice on the same income. The agreement provides relief through three methods:

• Deduction: Taxpayers can claim taxes paid to foreign governments
• Exemption: Tax reduction can be claimed in either country
• Tax credit: Relief claimed in the country of residence

However, the ITAT emphasized that DTAA benefits are only available to legitimate non-residents who meet the prescribed conditions.

Implications and Next Steps

The tribunal has directed the assessing officer to examine and reissue Bansal's pending refund of over ₹5.80 crore if it has not already been credited. The ITAT warned that accepting Bansal's interpretation would set a problematic precedent, noting: "If the stand of the assessee is accepted that for this assessment year [AY 2020-21] also the assessee should get a benefit of extended time period of 182 days instead of 60 days as per the second limb of section 6 (1) (c) of the Act, than every person who visits India will get such an extension of period every year."

This ruling reinforces the importance of strict compliance with residency requirements for claiming NRI status and DTAA benefits, particularly for high-net-worth individuals with substantial cross-border transactions.

Source: https://www.cnbctv18.com/business/startup/binny-bansal-nri-tax-claim-rejected-what-went-wrong-and-how-to-correctly-claim-nri-status-ws-l-19818898.htm