TaxTMI 
TaxTMI 
2016 (1) TMI 791
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.... Applicant has been enclosed as Attachment 1 and Attachment 2 respectively. 2. Dow Agrosciences India Private Limited (hereinafter referred to as 'DAS India'), a company incorporated in India having its registered office at Unit No.1, Corporate Park, V N Purav Marg, Chembur, Mumbai-400071, is a part of Dow Group and is engaged in manufacturing and trading of pesticides and insecticides. 3. The Applicant had acquired 61,836,990 shares of Rs. 10 each in DAS India for an amount of IRN 618,369,900 as under: Sr No Date of acquisition Cost of acquisition 1 6 September 1995 15,000,000 2 3 March 1997 134,999,100 3 October 1997 6,124,500 4 18 May 2001 312,247,200 5 27 January 2005 149,999,100 TOTAL 618,369,900 The balance 200 shares of Rs. 10 each have been acquired by DAS Agricultural Investment Holding Company Ltd. for an amount of INR 2,000. 4. It is further, pleaded that the applicant proposes to transfer these shares in favour of a Dow Group Entity Singapore and thus the Group entity Singapore hereinafter called SDA Singapore would be a transferee company. 5. This transfer is pleaded with an objective of the group re-organization. It is pleaded:....
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....above, the Applicant proposes to transfer the shareholding (i.e. 61,836,990 shares) of DAS India to DAS Singapore by way of contribution. iv) The value of DAS Singapore's shares recorded in the books of DAS Mauritius would be considered as the sales consideration for transfer of shares of DAS India. v). The cost at which DAS Mauritius has obtained the shares of DAS India would be the cost of acquisition. vi). The Applicant also wishes to state that it does not have an office, or employee or agents in India and hence no permanent establishment in India as per Article 5 of the India Mauritius Double Taxation Avoidance Agreement. 7. It is reiterated by the applicant that it is not required to maintain any books of accounts in India as prescribed in Section 211 of the Companies Act, 1956 and further it is not required to comply with the propositions of Section 594 of the Companies Act, 1956 relating to companies incorporated outside India provisions and establishing of places of business in India. On this background following 6 questions are proposed by the applicant:- (1) Whether on the facts and circumstances of the case, the investment held by the Applicant in equity shares....
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....t is neither an Indian Company nor the control and management of its affairs is situated in India and as such its status is that of a non-resident for the purposes of the Income-tax Act, 1961. 9. The application contains the stand of the applicant on each question. As regards the first question, the applicant pleads that its investment in Dow Agrosciences India i.e. DAS India as a capital asset. In support of this proposition, the applicant relies on Instruction No. 181-1-89-IT (AI)dated 31.8.1989 or Instruction No.1827 and Supplementary Circular No.4/2007 dated 15.6.2007 issued by Central Board of Direct Taxes (CBDT). It is reiterated that considering the accounting test and intention test as also quantum test and further relying on G.Venkata Swami Naidu and Company vs. CIT [1959] (35 ITR 594)(SC) as also Raja Bahadur Kamakhya Narain Singh vs. CIT [1970] (77 ITR 253) (SC) as also the Ruling of this Authority in Praxair Pacific Ltd. AAR 855 of 2009. The equity shares held by it in DAS India should be considered as capital asset and not stock in trade. 10. As regards the 2nd question it is suggested that capital gains earned by the applicant would not be liable to tax in India by ....
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....nue in para 5 of this reply dated 23.8.2015 wherein the factor of longevity of the applicant appears to be an admitted position. Reliance has been placed on the earlier decision of this Authority in M/s. WCT Mauritius, which decision is reported to be in challenge before the High Court. Be that as it may, we are not at all convinced that this company which has been operating for more than 10 years in Mauritius can be said to be a shell company. 15. It is then contended by the Revenue that nothing has been brought on record to suggest in support of the applicant's plea that it does not have a PE in India. It is contended that some information was sought from the applicant vide letter dated 31.8.2015. This is obviously a mistake as the report is dated 23.8.2015. 16. The Revenue then pleads about there has been a scheme to avoid the payment of income-tax in India. A reference then is made to the observations of the Hon'ble Supreme Court in Azadi Bachao Andolan case and Vodafone International Holdings BV case. It is again reiterated that the whole scheme of the transfer of shares in favour of Singapore, amounted to a scheme to avoid payment of taxes. We are not in agreement with the ....
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....to tax in India particularly because of DTAA between India and Mauritius. It is further reiterated by the applicant that DAS LLC is assessed in India and the fact that DAS LLC does not have a PE in India, is accepted by the department for last several years. According to the applicant the last assessment of DAS LLC was for assessment year 2011-12 and no issue about its being a PE in India was raised during the assessment proceedings. 20. We have also taken into consideration the fact that Dow IMEA Group was dismantled in 2010 and that is how the need for realignment of the group arose whereby DAS entity was to be shifted from an entity which falls under Europe region to an entity which would fall in the Asia-Pacific region. This was to be done with a view to achieve better control. Singapore is one of the upcoming countries in Asia-Pacific region in the opinion of the applicant and therefore, the Dow group contemplated to shift the share holding of DAS India from Mauritius to Singapore. All this exercise is also more than 5 years old from the date of the last acquisition of the shares. Thus, it cannot be said that the proposed transfer of shares was amounting to a scheme to avoid ....
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....heir earlier replies to the departmental objections, it was pointed out that the applicant did not have a office or employees or agents in India and therefore, there was no question of there being a PE in India particularly because of the 8 submissions made. We do not see as to how the 8 submissions which we have pointed out above would create a PE of the applicant a Mauritian company. Even if all the 8 points are taken together, there is no scope to hold that the DAS India would amount to PE of the applicant. A strange contention is raised that the capital gain is arising to a USA based DAS USA and not to a Mauritian applicant. We are unable to agree with this contention. It is then submitted by the Revenue that Article 13(2) of the Treaty would come into effect if the applicant is held to have a PE. That may be true but once a finding is given that there could be no PE there would be no question of Article 13(2) of the Treaty been attracted. 23. In their report dated 23.8.2015, the Revenue is again reiterating that this was nothing but a scheme to avoid the payment of tax. We have already held that in the factual circumstances of the investment having been commenced about 20 yea....
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....tity not even restricted one either at the time of investment or during proposed disposal. If the department submits that it is parent company which could be considered owner of the capital asset being the shares or the business unit i.e. B.E. It is, therefore, pleaded that in this situation, capital gain will be computed in the hand of DAS USA. It is the alternate submission that in case it is submitted that DAS Mauritius, the applicant herein earn capital gains by sale of shares then the gain related to accumulated profit should be treated as dividend under the Income-tax Act, 1961 and India-Mauritius DTAA and applicant should be directed to pay the tax under this provision. In our opinion this stand of the department has no basis. There can be no dispute about the fact that the shares by the applicant company remained for good long 10 to 20 years and there was no trading of the shares by the applicant. The applicant has pointed out in the application as well as during the arguments that the equity shares held by the applicant in India are held as investment and therefore, should be classified as capital asset. The applicant has also relied on the instructions issued by CBDT No.1....
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....his the applicant submits that ordinarily the transfer of these shares would be taxable in India as per the provisions of Section 45. However, the applicant pleads and said by way of defence Article 13 of the Indo-Mauritius DTAA which deals with the taxation of capital gains arising to the resident of contracting state. The said Article is as follows:- "ARTICLE 13 - Capital Gains - 1. Gains from the alienation of immovable property, as defined in paragraph (2) of article 6, may be taxed in the Contracting State in which such property is situated. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in that other State. 3. Notwithstanding the provisions of paragraph (2) of this article, gains fr....
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....es of DAS India are held by the applicant and after the proposed transfer they will be held by DAS Singapore in its own capacity and as a representative of DAS LLC. The applicant, therefore, plead that DAS LLC cannot be regarded as a beneficiary of transfer of shares. 31. However, we are of the clear opinion that there is no material before us to hold that the applicant has a PE in India and therefore, the income arising out of the transfer of shares should be treated as business income. We are unable to accept the claim of the Revenue regarding the PE. Once that objection is rejected, then the only relevant clause which remains for our consideration is Article 13(4) which is clear in itself. 32. We must point out here that we have taken a view that such company which is a Mauritian company would be fully entitled to the benefit of Article 13(4) in our Ruling dated 10.10.2015 in AAR No.995 of 2010 in the case of JSH Mauritius Ltd. The factual circumstances were almost extremely similar if not identical. There also it was a Mauritian company which was gaining by the transfer of shares of the Indian company. We have discussed in paragraphs 22 to 24 of that Ruling and we rely on the....
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....pressed in service. In the press release, it was clarified that with effect from 1.4.2015, the provisions of section 115JB would not be applicable to foreign company if the foreign company is a resident of a country having DTAA with India and such foreign company does not have a PE within the definition of the term in relevant DTAA or to the foreign company which is a resident of a country which does not have a DTAA with India and such foreign company is not required to seek registration under section 592 of the Companies Act, 1956 or section 380 of the Companies Act, 1956. It is clear that the present applicant is clearly covered as it is a company in Mauritius, which country has DTAA or as the case may be DTAC with India. Again we have already given a finding that the applicant does not have a PE in India. As such we answer this question in favour of the applicant holding that there will be no applicability of section 115JB to the applicant. 35. Question No.5 is about the applicability of the provisions of Section 92 to 92F which has not been addressed before us. However, it has to be borne in mind that unless the transaction is taxable in India, there would be no application of....