2019 (9) TMI 1549 - AAR - Income Tax

Tax residency ruling favors Becton Dickinson in India-Mauritius case

In Re : Becton Dickinson (Mauritius) Ltd.

In Re : Becton Dickinson (Mauritius) Ltd. - [2021] 434 ITR 180 (AAR) Issues Involved:1. Tax Residency and Beneficial Ownership2. Taxability of Capital Gains under India-Mauritius Tax Treaty3. Allegations of Tax Avoidance and Treaty Shopping4. Submission of Relevant Information5. Application of Judicial PrecedentsIssue-wise Detailed Analysis:1. Tax Residency and Beneficial Ownership:The applicant, Becton Dickinson (Mauritius) Ltd., is a tax resident of Mauritius, holding a valid tax residency certificate (TRC) issued by the Mauritius Revenue Authority. The applicant is part of BD Group, which is involved in the development, manufacture, and sale of medical devices. The applicant holds 100% equity share capital of Becton Dickinson India Private Limited (BD India). The applicant contended that as per article 4 of the India-Mauritius Tax Treaty, it qualifies as a resident of Mauritius and hence, the capital gains derived from the alienation of shares should be taxable only in Mauritius.2. Taxability of Capital Gains under India-Mauritius Tax Treaty:The applicant proposed to sell its entire stake in BD India to Becton Dickinson Holdings Pte. Ltd., Singapore (BD Singapore). The transaction was to be executed at fair market value, and the consideration was to be discharged in the form of shares of BD Singapore. The applicant argued that under article 13 of the India-Mauritius Tax Treaty, capital gains derived by a resident of Mauritius from the alienation of any movable property, including shares, are taxable only in Mauritius. The applicant further submitted that it did not have a permanent establishment in India, and hence, the capital gains should not be chargeable to Income-tax in India.3. Allegations of Tax Avoidance and Treaty Shopping:The Revenue contended that the transaction was designed for tax avoidance, citing discrepancies in financial statements, the decision-making process being controlled by the US-based holding company, and the transfer of profits to the holding company in the form of a low-interest loan. The Revenue argued that the applicant was not the beneficial owner of the shares and that the transaction lacked commercial substance. The Revenue relied on various judicial pronouncements to support its contention that the corporate veil should be pierced to expose the tax avoidance scheme.4. Submission of Relevant Information:The Revenue argued that the applicant had not provided complete information as required, and hence, the ruling should be declined. The applicant, however, clarified that it had provided all relevant information necessary for deciding the question before the authority. The authority found that the applicant had furnished the necessary information and that the ruling could not be declined for non-furnishing of certain information as contended by the Revenue.5. Application of Judicial Precedents:The applicant relied on the decision of the Supreme Court in Union of India v. Azadi Bachao Andolan, which upheld the validity of Circular No. 789, ensuring the applicability of the India-Mauritius Tax Treaty to entities having a valid TRC issued in Mauritius. The authority also referred to the decision in Dow Agrosciences Agricultural Products Ltd., In re, where it was held that a long-standing investment could not be treated as a scheme to avoid payment of taxes. The authority found that the facts of the present case were identical to those in Dow Agro and ruled that the transaction was not designed for tax avoidance.Conclusion:The authority ruled that the capital gains on the sale of shares of BD India by the applicant to BD Singapore would not be chargeable to Income-tax in India, having regard to the provisions of article 13 of the India-Mauritius Tax Treaty. The applicant was found to be a legitimate tax resident of Mauritius, and the transaction was not designed for tax avoidance. The ruling was pronounced on September 11, 2019.