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2019 (10) TMI 1449
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.... Frere Felix de Valois Street, Port Louis, Mauritius and are engaged in investment holding activities. 2. Capex Communication (Mauritius) Ltd. (CC(M)L) holds 100 per cent. stake in Capex Communications Ltd. (CCLM). CCLM holds 100 per cent. stake in CCOM. All the three companies are companies incorporated and resident in Mauritius. 3. CCOM held 25,651,389 equity shares in Vortex Capex Limited (herein-after referred as VCL), an Indian company, constituting 6.19 per cent. of the ordinary share capital and CCLM held 65,634,887 equity shares in VCL constituting 15.85 per cent. of the ordinary share capital of VCL. 4. CCOM and CCLM are non-residents and do not have any tax presence or permanent establishment in India. CCOM and CCLM holds category 1 global business licence issued by the Financial Services Commission of Mauritius. Further CCOM and CCLM have been consistently holding tax residency certificates issued by the Mauritius Revenue Authority and continue to hold valid tax residency certificates. 5. On July 1, 2011 the CCOM sold 25,651,389 equity shares in VCL to Aura Atlantic Sec. Ltd. hereinafter referred as AAS (a company nominated by Vortex which is a non-resident c....
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....om payment of the sale price made to the applicant ? (ii) Whether on the facts and circumstances of the case, the applicant could be subjected to tax under the provisions of section 115JB of the Act ? Background of case 12. The Capex group was participating in the telecom business in India along with the Marsh group of Hong Kong through various regional telecom companies. Subsequently, under the Unified Licensing Schemes of Government of India, (1999-2003) there was consolidation of holdings among various shareholders managing the telecom business. In 2004 in a letter addressed by Marsh Max Telecom Pvt. Ltd., to the Foreign Investment Promotion Board requesting consolidation of Marsh Capex Telecom Ltd., Marsh Telecom East Ltd., Pascal Ltd., and Marsh Capex South Ltd., etc., it is observed that through this consolidation there has been acquisition of the entire shareholding of the operating companies by Marsh Max Telecom Pvt. Ltd. (MMTL), as a consideration of which MMTL has issued its own equity shares to the shareholders of the erstwhile operating companies based on their respective shareholdings in the operating companies. As a consequence of this consolidati....
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....USD 400.61 million in CTIL in various tranches. Majority of the funding for the investment by CCLM in CTIL was from share application money received from CC(M)L. CC(M)L had obtained a loan of USD 1.1 billion from Standard Chartered Bank (London), which was subsequently refinanced and upsized to USD 3.59 billion in August 2007 from a consortium of overseas banks. 16. In the loan agreement for USD 3.59 billion, there was a stipulation by the lenders wherein, it was required that "CCLM must" appoint a liquidator to liquidate CTIL forthwith and complete the liquidation latest within 18 months of the execution of the agreement. Therefore, it became necessary for CCLM to liquidate CTIL and for CCLM to become the direct owner of 15.85 per cent. shares of VCL and thus, CTIL went into voluntary liquidation in July 2008. Accordingly, CCLM being 100 per cent. share-holder of CTIL, received 65.63 million shares (representing 15.85 per cent. stake) in VCL. 17. CCLM had infused USD 400.61 million in CTIL as per below details : -USD 330.15 million was received by CCLM as share application money from CC(M)L, which was in turn sourced out of a loan taken by CC(M)L from Standard Chart....
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....9;), an Indian company, by Capex Com Limited ('CCOM') and Capex Commutations Limited ('CCLM'), both tax residents of Mauritius, to the applicant, is chargeable to tax in India, having regard to the Double Taxation Avoidance Agreement between India and Mauritius ? (ii) If the answer to question (i) is in the negative (i. e., not chargeable to tax in India), whether the applicant is required to with hold tax under section 195 of the Income-tax Act ('Act') from such payment ? (iii) If it is held that the applicant is required to withhold tax on payments proposed to be made to CCLM and CCOM, whether the applicant is required to withhold tax at source at the rate prescribed in clause 2(b)(vii) of Part II of Schedule I to the Finance Act, 2010 only on the net capital gains arising in the hands of CCLM and CCOM, computed by deducting the declared cost of acquisition of the shares transferred from the full value of the sale consideration ? Issue notice to the parties for hearing on April 5, 2011." 21. Vide letter and application dated May 17, 2011, CCLM, CCOM and CC(M)L applied to this Authority to join the proceedings as in....
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....tion regarding such information furnished by the intervenors is needed, it could only be supplied by the intervenors. In that situation, the principles of natural justice make it imperative that the intervenors are also heard before a ruling is rendered. 3. In view of this, the application for intervention is allowed." 22. There were hearings on the merits on May 24, 2011 and May 26, 2011 wherein the above mentioned three companies were present and duly represented. 23. On May 27, 2011, AASL the applicant in that case moved an application for adjournment for one month and accordingly the hearing was adjourned to July 1, 011. 24. On July 1, 2011, the AASL filed an application dated July 1, 2011 for withdrawal. The companies, namely, CCLM, CCOM and CC(M)L were present for proceedings also made submissions as represented by their authorised representatives. 25. The application was accordingly "dismissed as withdrawn" vide order to this effect on the same date. After hearing all the sides in the withdrawal application, i. e., the applicant, the intervenors and the special counsel for the Department this Authority passed the order dated July 1, 2011 which reads as f....
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....iled an application whether as a purchaser it was liable to make the deduction on the sale consideration to the applicant-company. This application was filed on August 24, 2010, seeking advance ruling on the question whether the transfer of shares to Vortex VCL an Indian company by Capex Com Limited, Mauritius and Capex Communication Limited, Mauritius is chargeable to tax in India having regard to the Double Taxation Avoidance Agreement (DTAA). The case of AASL was that it was not required to withhold any tax under section 195 of the Act, since it was covered by the provisions of India-Mauritius Double Taxation Avoidance Agreement. 4. Very strangely, the present two companies, i. e., Capex Com Ltd. and Capex Communication Ltd. filed applications in those proceedings for interventions. This intervention application dated May 17, 2011 was allowed by this authority on May 24, 2011. 5. These intervention applications were not opposed by the Revenue. The tenor of the intervention application suggests that the applicants have claimed that they would be vitally interested in the issue raised by AASL in the application. 6. Eventually, the said Authority for Adva....
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....whether it amounts to suppression of the material facts so as to cause any prejudice to the Department. The learned counsel is at pains to point out that merely because the facts of intervention applications have not been stated that did not put the Revenue in any disadvantageous position and as such it could not be said that there was a prejudice caused to the Revenue. After considering the overall contentions, we feel that at this stage it will not be proper to refuse the admission. 10. In order to test the other contentions raised by the Revenue regarding the determination of fair market value which is also a scheme to avoid payment of tax. It would be better to admit the mat ter. However, with a rider that the question regarding the failure on the part of the applicant to state in the present applications about the intervention applications and its effect would be kept open at the time of final hearing. We also find that the other question regarding the applicability of section 115JB is pending before the hon'ble Supreme Court and has to come for arguments shortly that would also be one of the reasons for admitting these applications. The applications are admitted.....
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....aightforward case of tax exemption under Indo-Mauritius treaty. The applicants hold valid tax residency certificates ("TRC") issued by the Mauritius Revenue Authority ("MRA") and category 1 global business licence issued by the Financial Services Commission, Mauritius. They are non-residents and do not have any tax presence or permanent establishment in India. All the members of the board of directors of the applicants during the financial year ("FY") 2011-12 were Mauritius tax residents or other non-residents except a few. The applicant are controlled and managed by its board of directors. All the meetings of the board of directors of the applicant during the financial year 2011-12 were held in Mauritius. All decisions concerning the affairs of the applicants including those relating to the present transaction, have been taken by the board of directors through board meetings convened, chaired and conducted in Mauritius. The board of the applicant comprised of people with significant qualification and experience. All the decisions concerning the affairs of the applicant have been taken by the board of directors outside India. All statutory books of account and records of board meet....
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....lding companies are entitled to the benefits of article 13(4) of the India-Mauritius tax treaty and the impugned capital gains are not chargeable to tax in India. 40. Learned senior advocate impresses that the Government of India has itself issued a press release on March 1, 2013, reiterating that Circular No. 789 continues to be in force. It further stated that a tax residency certificate produced by a resident of a treaty country will be accepted as evidence that he is a resident of that country and the Department will not go behind the tax residency certificate and question his residential status. Learned senior advocate fairly submits that while the India-Mauritius tax treaty has subsequently been amended to withdraw the capital gains exemption for the assessment year 2018-19 onwards (not applicable to the year under consideration) on shares acquired on or after April 1, 2017, shares acquired prior to April 1, 2017 (which covers the case of the applicants) have clearly been grandfathered. 41. Learned senior advocate emphasizes that the above developments (issuance of clarification as well as grandfathering of shares acquired prior to April 1, 2017) unambiguously reflect t....
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.... and what it does not say . . . If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as nonest based upon some hypothetical assessment of the 'real motive' of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'-the-wisp . . . We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents." 43. Thereafter learned senior advocate referred selectively to Supreme Court in the case of Vodafone International Holdings B. V. v. Union of India [2012] 341 ITR 1 (SC) where it is held (page 36 of 341 ITR) : "When it comes to taxation of a holding structure, at the threshold, the burden is on the Revenue to allege and establish abuse, in....
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....e corporate business purpose of a transaction is evidence of the fact that the impugned transaction is not undertaken as a colourable or artificial device. The stronger the evidence of a device, the stronger the corporate business purpose must exist to overcome the evidence of a device . . . At the outset, we need to reiterate that in this case we are concerned with the sale of shares and not with the sale of assets, item-wise. The facts of this case show sale of the entire investment made by HTIL, through a top company, viz., CGP, in the Hutchison Structure. In this case we need to apply the 'look at' test. In the impugned judgment, the High Court has rightly observed that the arguments advanced on behalf of the Department vacillated. The reason for such vacillation was adoption of 'dissecting approach' by the Department in the course of its arguments. Ramsay (supra) enunciated the look at test. According to that test, the task of the Revenue is to ascertain the legal nature of the transaction and, while doing so, it has to look at the entire transaction holistically and not to adopt a dissecting approach. One more aspect needs to be reiterated. There is a....
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....of a colourable device as the applicants are genuine Mauritian corporations holding valid tax residency certificates and were formed for genuine investment business. 45. It is explained that there is no round tripping of funds in the present case and that the entire sale proceeds were utilized for repayment of borrowings to the consortium of international lenders -which indeed was driven entirely by commercial/business considerations. Accordingly, it needs to be appreciated that the transaction of sale of VCL shares was undertaken purely for commercial purposes inter alia to repay the loans to the third party overseas lenders. It is repeatedly stressed that despite more than 3,500 pages of factual documents having been filed by the applicants in numerous hearings since 2011, no colourable device has been found and hence the consistent view of the authority granting treaty benefits should be followed. 46. According to learned senior advocate this issue is no longer res integra and cites some of the important decisions in this regard, which are listed as under : -Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) ; -Serco BPO Private Limit....
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....withdrew its application on July 1, 2011 in their presence. This fact is evident from the order dated July 1, 2011 of the hon'ble authority dismissing the application of AASL as withdrawn." 49. The Revenue pleaded for ouster of the two applicants in the present applications at the threshold itself, for the reason that they had already been considered and participated as "Co-applicants" in Application No. 982 of 2010, by virtue of the admission of their intervention application. It was expressed that the two intervenors joined the then applicant, AASL in Application No. 982 of 2010 on an admitted plea that they were vitally concerned, interested and affected in the principal issue on which ruling was being sought for by AASL and on being asked during the course of admission proceedings for the intervention application, they unequivocally stated that rule 5 and rule 28 of the Authority for Advance Rulings (Procedure) Rules, 1996 enables the two intervenors to join the application filed by AASL. Mr. Girish Dave, learned special counsel for the Revenue, took this Bench through the provisions of Chapter XIX-B of the Income-tax Act, the Authority for Advance Rulings (Procedure) Ru....
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....014 of the Supreme Court of India (pages 4-5 Revenue PB volume 3) wherein it has specifically been mentioned that the term "respondent" includes "intervenors" and by virtue of the same, the Revenue emphasized that there is no doubt that the intervenors enjoyed the same status as that of the applicants. "Supreme Court of India Notification New Delhi, the 27th May, 2014 G. S. R 367(E) 1. (1) These rules may be cited as the Supreme Court Rules, 2013. 2.(1) In these rules, unless the context otherwise requires,- (o) 'Respondent' includes Intervenors." 53. The Revenue further drew our attention to the contents of the withdrawal order dated July 1, 2011, which stated that the application was "dismissed as withdrawn". The Revenue emphatically canvassed that as per the provisions of section 245S read with section 245R, the Advance Ruling pronounced by the authority is binding on the applicants and as, the applicants of the present application CCLM and CCOM stepped into the shoes of the "applicant" by joining the proceedings through intervention application, the dismissal order will be binding on CCLM and CCOM. The Revenue fur....
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.... set of facts and withdrawal of Authority for Advance Rulings application as part of commercial arrangement. 59. The Revenue thereafter, mentions that these authority rules are unique and exceptional in the sense that in no other Chapter of the entire Income-tax Act, 1961, such provisions exist and that an analogy of these provisions can be found in rule 8A, rule 10(2) and rule 1 of Order 1 of the Civil Procedure Code of 1908 ("the CPC", in short). It is averred that even the withdrawal of an application of this nature filed in the course of consideration of an application by an applicant under section 245Q(1) of the Act would require to be dealt with in the manner provided under rules 3 and 5 of Order 23 of the Civil Procedure Code. It is commented that the uniqueness of the provisions of the aforesaid Rules could not come up for consideration by hon'ble authority except in the case of General Electric Pension Trust, In re reported in [2007] 289 ITR 335 (AAR) ; [2007] 159 Taxman 213 (AAR) where it was held (page 339 of 289 ITR) : "A perusal of rule 5 discloses that the power conferred on the Authority is couched in very wide terms. It speaks of determination of the....
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....f 2010 filed by AASL requires to be read, appreciated and interpreted keeping in view the relevant provisions contained in Order 1, rule 1, rule 8A, rule 10(2), and Order XXXIII, rule 1, rule 3 and rule 5 of the Civil Procedure Code, 1908 (CPC, in short). As regards the joinder of parties and withdrawal thereof in terms of rules 3 and 5 of Order XXIII of Civil Procedure Code case law interpreting analogous provisions of Civil Procedure Code were relied upon and referred to, in the order to canvass that : (i) the intervenors, that is, the two present applicants require to be treated as co-applicants ; (ii) the two present applicants cannot re-enter as applicants in fresh applications once the application by AASL is dismissed as withdrawn and liberty is granted only in "other" proceedings ; and (iii) the withdrawal by AASL cannot be unilateral for AASL alone once the two present applicants joined the application of AASL as intervenors and were heard at the time of withdrawal by AASL and the two present applicants acquiesced in the withdrawal, particularly when analogous provisions of rule 3 and rule 5 of Order XXIII of Civil Procedure Code are read with the....
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....hinks fit, grant the plaintiff permission to withdraw from such suit or part of the claim with liberty to institute a fresh suit in respect of the subject-matter of such suit or such part of the claim. Order 23, rule 5 -Nothing in this rule shall be deemed to authorise the Court to permit one of several plaintiffs to abandon a suit or part of a claim under sub-rule (1), or to withdraw, under sub-rule (3), any suit or part of a claim, without the consent of the other plaintiffs." 65. It is asserted by the Revenue that in view of the above, the two applications now filed by CCOM and CCLM require to be rejected outright even at this stage in the course of proceedings under section 245R(4) of the Act. The Revenue has further argued that the following demonstrates that CCLM/CCOM is to be treated as a co-applicant- -For filing of the intervention application, CCLM/CCOM had paid fees of INR 2,500, which was the prescribed fee to be paid by an applicant for obtaining a ruling from the hon'ble Authority. -The affidavit attached to the intervention application contained a declaration made by CCLM's/CCOM's director that "I also understand that the que....
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....arned special counsel also urged that the hon'ble Authority has no power to allow withdrawal beyond a period of 30 days from the date of the application and in the absence of any provisions that deal with such withdrawal, the provisions of Code of Civil Procedure, 1908 ("CPC") are applicable and the withdrawal order dated July 1, 2011 having been passed by the hon'ble Authority in the case of AASL after admission of Application No. 982 of 2010, it was a ruling under section 245R(4) of the Act and is binding upon AASL by virtue of the provisions of section 245S(1)(b) of the Act and the applicants are other side of same transaction, they are also barred from pursuing the matter. 69. The Revenue then relied upon various judicial pronouncements in support of its claim of "ouster" of the present applicants from the Authority for Advance Rulings in view of the intervention applications : (i) Judgment of the hon'ble apex court in the case of Sarguja Trans port Service v. State Transport Appellate Tribunal, AIR 1987 SC 88. (ii) Judgment in Jonnala Syra Reddy v. Tityayahura Srinivasa Reddy [2003] SCC Online AP 631. (iii) Judgment in Satish Khosla v.....
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....d by the Central Board of Direct Taxes under normal circumstances. However in the instant cases the applications have been admitted by their Authority, leaving the question of tax avoidance in terms of clause (iii) of the proviso to section 245R(2) open for being decided at the time of hearing of the issue on the merits of the case. 72. Then in a very elaborate and exhaustive exposition, Ms. Kavita Pandey, the Commissioner of Income-tax took us through the facts of the case right from incorporation of applicant companies, their acquisition and transfer of shares through maze of transactions, raising of loans, meetings of boards, discrepancies in minutes, involvement of key personnel of Capex group based in transactions of applicants, covenants in various share purchase and loan agreements, liquidation of company, etc. 73. The import of her arguments were that this is a case of tax avoidance and the facts show that the VCL shares were acquired, disposed, controlled and managed by Seth Group with the aid of Senior Capex Group personnel based in India and abroad and as such, the transfers of these shares are definitely required to be taxed in India. The facts relied upon by the ....
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....e executives of the Capex group. 13. The scheme and dominant purpose of the assessee is tax avoidance and this scheme is supported by frequent changes in holding structure and layering of beneficial ownership through maze of companies in Mauritius, Cayman Island, BVI and India. 14. There are several defects in the minutes books and they cannot be relied upon. 74. It is stated that even the hon'ble Supreme Court in the Vodafone case envisaged the possibility of a situation of genuine tax avoidance and gave a rider to its general conclusion, at page 55 of the judgment (page 42 of 341 ITR) : "The question is what is the nature of the 'control' that a parent company has over its subsidiary. It is not suggested that a parent company never has control over the subsidiary. For example, in a proper case of 'lifting of corporate veil', it would be proper to say that the parent company and the subsidiary form one entity. But barring such cases, the legal position of any company incorporated abroad is that its powers, functions and responsibilities are governed by the law of its incorporation. . . . In none of the authorities, have the assets ....
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.... Substantial fund already used as income principle by Capex Group companies (USD 2.2 Bn. as dividend income by goes to CGL Cayman) by design of structure out of loan taken on the pledge of impugned shares and subsequently loan returned out of the sale consideration of impugned transactions. * USD 532 Mn. goes as income to CIHL (in the form of sale consideration) out of the loan taken on the pledge of impugned shares and subsequently loan returned out of the sale consideration of impugned transactions. * Rest of the loan fund given to various group companies in the form of share capital-CTHL India getting the substantial portion and subsequently loan returned out of the sale consideration of impugned transactions. * The liabilities adjusted by book entry among group companies in the form of convertible debentures with no timeline for repayment, conversion, interest or dividend. Investment participation test * Whether, strategic investment made in India * No strategic investment made in India (i) The investment by CCOM was made out of loan executed by Capex Group on the strength of Seth Family, (ii) In the case of CCLM the situs of shares already owned by CTHL India....
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....he applicants squarely fails the test, being a colourable device to avoid taxes in India. 76. Based on all the above facts it is contended by the Revenue that the case of the applicants is squarely covered under specified tests to be termed as colourable device to avoid taxes in India. 77. As regards the decisions relied upon by the applicants, it is submitted that such decisions were rendered in the light of the Central Board of Direct Taxes Circular No. 789, read with Azadi Bachao Andolan and Vodafone but the said decisions do not contain the peculiar facts as exist in this case and the applicants and the entities therein were therefore allowed the benefits of the Indo-Mauritius treaty, unlike the present case which falls under the exception carved out in the Vodafone (supra) decision. 78. Reliance is placed on the judgment delivered by this authority, AAR No. P of 2010-dated March 22, 2012 (A Systems, In re [2012] 345 ITR 479 (AAR) where it was held that the benefit of Indo-Mauritius DTAC will not be allowed, if it is established that the transaction under consideration is a sham transaction affected through a colourable device. Reliance is also placed by the Revenue on....
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....ibed pro forma does not amount to suppression/concealment as held in Prolite Engineering Co. v. Union of India [1995] 75 ELT 257 (Guj) . For example, Form No. 28 for SLP contains a specific declaration. However, no such disclosure/ declaration were required to be made in Form No. 34C. 84. The learned senior advocate Shri Datar, submits that the rights of the intervenors have been clearly delineated by the Supreme Court in Saraswati Industrial Syndicate Ltd. v. CIT [1999] 237 ITR 1 (SC). The Supreme Court held that intervenors to a petition are not entitled, as a matter of right, to the same order as passed by the court for the petitioner. In para 12 of the said judgment, the Supreme Court held as follows (page 5 of 237 ITR) : "The learned counsel for the intervenors submits that he is entitled to the same order as we have just passed. We cannot pass such an order in an intervention application. The only purpose of granting an intervention application is to entitle the intervener to address arguments in support of one or the other side. Having heard the arguments, we have decided in the assessee's favour. The intervenors may take advantage of that order." 85. It i....
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....pecified in the application". -The power of the Authority for Advance Rulings to reject an application under section 245R(2) of the Act is not confined to the situations mentioned in the proviso thereto as held in Microsoft Operations P. Ltd., In re [2009] 310 ITR 408 (AAR) ; [2009] 178 Taxman 328 (AAR). 89. The applicants suggest that a determination in relation to a transaction should mean adjudication of the questions raised before the Authority for Advance Rulings by effective expression of an opinion/conclusion after due application of mind. Mere end to an infructuous application (since with-holding taxes were already deducted) on account of grant of permission to withdraw it should not be construed as a "determination" in relation to the transaction of sale of shares as there is no adjudication on the merits of the case. Hence, there is no question of the order dated July 1, 2011 passed in AAR No. 982 of 2010 being an "advance ruling". Accordingly, the order dated July 1, 2011 should not be binding on CCLM/CCOM for the reason too that section 245S of the Act makes only an "advance ruling" pronounced under section 245R binding. In any case, what should be the effec....
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....vance ruling was sought from the hon'ble Authority. Further, the intervention application was not made in Form No. 34C (i. e., the form statutorily prescribed to be filled by a non-resident seeking a ruling from the hon'ble authority under section 245Q(1) of the Act). In fact, there is no concept of a "co-applicant" in the context of proceedings before the hon'ble Authority. Hence, the intervention application cannot be considered an application under section 245Q(1) of the Act and CCLM/CCOM cannot be considered a co-applicants. 94. Further, rule 2(d) includes all applications, petitions and representations of the nature referred to in rule 5 within the definition of "application" where the context permits. It is submitted that the context of rules 5 and 28 can never permit such inclusion as is apparent from the language of these rules itself. The fact that rule 28 states that the provisions in the rules for hearing and disposal of applications under section 245Q(1) of the Act shall apply to hearing and disposal of all other applications, petitions and representations itself indicates that the latter applications, petitions and rep-resentations cannot be applications....
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.... A. A. R. No. 982 of 2010 and not impleaders. Further, even the MA filed by CCLM and CCOM on May 17, 2011 was to "be permitted to be present at the hearing of the aforementioned application (A. A. R. No. 982 of 2010) and to make its submissions on the issues on which the ruling is sought". Thus, CCLM/CCOM can be called only intervenors as their objective was only to address the Authority for Advance Rulings in the hearings of A. A. R. No. 982 of 2010 99. It is highlighted that the questions raised in the present applications and in AASL's application are not same due to the following reasons : -the present applications does not have question on withholding of taxes (which was relevant to AASL alone) and it concerns CCLM's/ CCOM's own taxability ; -the present applications raised a question on applicability of section 115JB of the Act (though it subsequently became otiose in view of amendment in the said section) ; -the present applications pertains to different terms (i. e., CCLM's/ CCOM's application pertains to the put option agreement as amended on July 1, 2011 while AASL's application pertained to the agreement prior to such....
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....avoid the risk of potential litigation, Vortex wished to deduct tax. Hence, it was agreed that AASL would deduct the tax at source and remit it to the Revenue. Further, the consideration was also increased from USD 3.8 billion to USD 4.201 billion (combined consideration for VCL shares held by CCLM of USD 3.02 billion and CCOM of USD 1.18 billion). As AASL had deducted tax, it decided to withdraw the Authority for Advance Rulings application since the questions on which ruling was sought by AASL became infructuous and the same was permitted by the hon'ble Authority vide order dated July 1, 2011. -that it was AASL's decision to withdraw the application filed by it since the taxes were deducted and deposited even though it was of the belief that the same is not taxable in India. It was AASL which had made an application to the Authority for Advance Rulings seeking withdrawal of its application for advance ruling, the intervenors had not. Further, as an intervenors, CCLM/CCOM did not have any right to prevent AASL from withdrawing AASL's application. 102. Without prejudice, it is stated, the High Court rulings have held that withdrawal of a suit by a plaintiff ....
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.... (A.A.R. No. 982 of 2010) do not operate as res judicata. 107. The learned senior advocate disputes the plea of the Revenue that the hon'ble Authority has no power to allow withdrawal beyond a period of 30 days from the date of the application and in the absence of any provisions that deal with such withdrawal, the provisions of Code of Civil Procedure, 1908 ("CPC") are applicable and the withdrawal order dated July 1, 2011 having been passed by the hon'ble Authority in the case of AASL after admission of Application No. 982 of 2010, it was a ruling under section 245R(4) of the Act and is binding upon AASL by virtue of the provisions of section 245S(1)(b) of the Act. It is contended that as per section 245Q(3) of the Act "An applicant may withdraw an application within thirty days from the date of the application". This provision permits unilateral withdrawal by an applicant but there is no bar on the Authority for Advance Rulings to not allow withdrawal beyond a period of 30 days at its own discretion. 108. Based on this rule, the Authority for Advance Rulings has the authority to effectively dispose of applications by permitting withdrawal beyond 30 days, in cases s....
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....5 kept the issue open as to whether the question involved determination of fair market value, it is an admitted position that the questions involved in the applicants' cases do not in any way involve the determination of fair market value. 112. The learned senior advocate also raised without prejudice a plea stating that, the order of admission dated July 20, 2015 makes clear that the applications are admitted, subject to the riders specified and no new and fresh contentions can be raised by the Revenue at this stage. 113. Coming to the issue of prima facie tax avoidance it is submitted that, it would be pertinent to understand the meaning of the term "prima facie". In this regard, dictionary meanings were provided below : As per P. Ramanatha Aiyar's Law Lexicon (1997). "prima facie means, 'at first sight, on the first appearance, on the face of it ; so far as can be judged from the first disclosure, presumably; a fact presumed to be true unless disproved by some evidence to the contrary, arising at first sight, based on the first impression." As per Black's Law Dictionary (Sixth Edition). "At first sight ; on the first appe....
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....ce investment to participate in India. In order to find out whether a given transaction evidence a preordained transaction in the sense indicated above or investment to participate, one has to take into account the factors enumerated hereinabove, namely, duration of time during which the holding structure existed, the period of business operations in India, generation of taxable revenue in India during the period of business operations in India, the timing of the exit, the continuity of business on such exit, etc. Applying these tests to the facts of the present case, we find that the Hutchison structure has been in place since 1994. It operated during the period 1994 to February 11, 2007. It has paid Income-tax ranging from Rs. 3 crores to Rs. 250 crores per annum during the periods 2002-03 to 2006-07. Even after February 11, 2007, taxes are being paid by VIH ranging from Rs. 394 crores to Rs. 962 crores per annum during the period 2007-08 to 2010-11 (these figures are apart from indirect taxes which also run in crores). Moreover, the SPA indicates 'continuity' of the telecom business on the exit of its predecessor, namely, HTIL. Thus, it cannot be said that the structure ....
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....angement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgment of the Privy Council in IRC v. Challenge Corporation Ltd. [1987] 2 WLR 24, and did not have the benefit of the House of Lords' pronouncement in Craven's case [1988] 3 All ER 495 (HL) ; [1990] 183 ITR 216 (HL), the view taken by the Madras High Court appears to be correct and we are inclined to agree with it. We may also refer to the judgment of the Gujarat High Court in Banyan and Berry v. CIT [1996] 222 ITR 831 at 850 where referring to McDowell's case [1985] 154 ITR 148 (SC), the court observed : 'The court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act ; an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in McDowell's cas....
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....ith reference to any specific factual argument/document. It has merely stated that there is a prima facie scheme for avoidance of tax. Thus, its allegations are without merit and should be wholly rejected. 120. Further, reliance placed by the Revenue on AB Mauritius, In re [2018] 402 ITR 311 (AAR), Aditya Birla Nuvo Ltd. v. DDIT (International Taxation) [2012] 342 ITR 308 (Bom) and Indostar Capital v. Asst. CIT (International Taxation) [2019] 415 ITR 513 (Bom) ; [2019] 105 taxmann.com 96 (Bom) wherein India-Mauritius treaty benefits are denied cannot be relied upon since these cases are distinguishable from the present case. 121. Reliance is also placed upon- -Star Television Entertainment Ltd., In re [2010] 321 ITR 1 (AAR). -Bhoruka Engineering Inds. Ltd. v. Dy. CIT [2013] 356 ITR 25 (Karn) ; [2013] 36 taxmann.com 82 (Karn). -CIT v. Shiv Raj Gupta [2015] 372 ITR 337 (Delhi) ; 2014] 52 tax mann.com 425 (Delhi). -M. V. Valliappan v. ITO [1988] 170 ITR 238 (Mad). 122. In view of the above, it is submitted that the approach to be adopted is to "look at" and not "look through" an arrangement/transaction to determine whether or not a colourab....
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....applicant-companies have absolutely no role. It has also been vehemently argued that the real affairs of the applicant were managed by Capex group and their executives in India and routine matters such as holding meetings without any important matters were left to the applicants so as to take treaty benefits. 124.2. It further, invoked clarification 1 of 2003 issued by the Central Board of Direct Taxes and also the observation made in the decision of the hon'ble Supreme Court in the case of Azadi Bachao (supra) that Circular No. 789 does not curtail the duties and powers of the Assessing Officer. The Revenue further submitted that by the "wholly" mentioned in section 6(3) it should not be treated as if that every insignificant affair of the applicants should be considered for the purpose of deciding control and management in India for the purpose of section 6(3) of the Income-tax Act. It relied upon the legal exposition that central theme of the term "control and management of affairs wholly" needs to be interpreted to be where "the brain" of the affairs abides, as exposited by the House of Lords in the case of De Beers Consolidated Mines Ltd. v. Howe (Surveyor of Taxes) [19....
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....t the Revenue has not made any allegations based on facts and the board minutes for the relevant year under consideration, i. e., the financial year 2011-12. As stated earlier, the control and management of the applicants is in Mauritius in the financial year 2011-12 and there is no evidence whatsoever provided by the Revenue to prove that it is wholly in India. -That Capex is a multinational and it had raised debt of over USD 5 billion from reputed overseas lenders and also had listed entities in India and the UK (including on the FTSE 100). Apart from the undisputed fact that multiple members of the Seth family are non-residents (including Mr. Ravi Seth who was also on the boards of the applicants for the relevant year), it is entirely misplaced to even assume that the control and management of the entities within Capex (including the applicants) would vest with these few individuals and that too wholly in India. Not only has the Revenue failed to demonstrate that few individuals of the Seth family are controlling and managing the affairs of the applicants (and that too wholly from India), but also considering the size, scale and complexity of the operations of a multina....
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....e board of the applicant comprised of people with significant qualification and experience. All the decisions concerning the affairs of the applicant have been taken by the board of directors outside India. 126. It is explained that the applicant earned capital gains on sale of VCL shares. The Central Board of Direct Taxes Circular No. 682 dated March 30, 1994 clarifies that capital gains arising to a resident of Mauritius from the alienation of shares of Indian companies will be liable to capital gains tax only in Mauritius. The Central Board of Direct Taxes has also issued Circular No. 789 dated April 13, 2000, which clarifies that whenever a tax residency certificate is issued by the Mauritian tax authorities, such tax residency certificate would constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applicability of the India-Mauritius tax treaty. 127. In view of the above, it is submitted that the applicant, being an investment holding company which is a resident of Mauritius, is entitled to the benefits of article 13(4) of the India-Mauritius tax treaty and the impugned capital gains are not chargeable to tax in India. ....
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.... that earlier application was withdrawn by the applicant in that case and after hearing all the parties the authority passed an order "dismissed as withdrawn" without prejudice to the rights of the applicant the Revenue and the intervenors to put forward whatever contentions they have at appropriate stage in other proceedings in accordance with law. Hence, it is impressed that the dismissal of the earlier application 982 of 2010 is material fact and it was suppressed in the present applications. Hence the applications are liable to be dismissed on the ground of suppression of material facts in the application. 130. Learned senior advocate on the other hand inter alia submitted that there is no prejudice caused to the Revenue on account of inadvertent non-mentioning of the intervention proceedings. The Supreme Court has observed that the word "suppression" is used in the company of such strong words as fraud, collusion or wilful default, and has to be construed very strictly. Mere omission to disclose the correct information is not suppression of facts unless it was deliberate to escape the payment of duty. 131. Relying on the decision in the case of Pushpam Pharmaceuticals Co....
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....und that in fact this is nothing but a repetition of the earlier application A. A. R. No. 982 of 2010. The representative of the Revenue points out that the applications are nothing but a second attempt to get the issue resolved. He also points out that in the present application the fact of the intervention applications and the decision thereon have not been mentioned and this applicant has suppressed the material information from this authority in the present application. The learned representative also suggests that entertaining this application will create a bad precedent inasmuch as the applicants will make repeated application one after the other and it will cause inconvenience to the Department. 8. We have given our deep consideration to the controversy herein, Mr. Pardiwala, the learned counsel for the applicant, however, says that the applicants are perfectly within their rights to seek advance rulings and merely because the applicants had filed intervention applications, they cannot be put on the higher pedestal of an applicant along with the AASL. He points out that in fact these applications are perfectly within the framework of law and subsequent filing of the....
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....ion No. 982 of 2010 on May 24, 2011. We request you to kindly take the captioned application on record and grant us the hearing before dis posing of this application. Yours Faithfully For Capex Com Ltd. As Encl : 1. Miscellaneous application (6 sets)." 134. The contents of the intervention application dated May 17, 2011, inter alia, contain : "3. That the aforementioned application seeks a ruling on the principal issue as to whether the sale of shares of VCL by the applicant herein and CCLM to AASL or sale of CCLM shares by CC(M)L to AASL would result in income chargeable to tax under the provisions of the Act so as to attract the provisions of section 195(1) of the Act. 4. That the applicant is thus vitally concerned, interested and affected by any ruling which would be pronounced. Its involvement is further highlighted by the several questions and voluminous information sought from the applicant as noted above. Some of it is already submitted and more information is being gathered and will be submitted by May 18, 2011. A copy of the applicant's letter dated May 2, 2011 is enclosed as annexure 4." 135. This applicatio....
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....ng the material facts could lead to rejection of applications at the threshold. 139. We are of the considered opinion that the above facts are very much relevant and necessary and the material facts to the present applications which were not disclosed by the applicants. The argument of learned senior advocate that it is an inadvertent error and does not cause any prejudice to the Revenue is not acceptable. The applicants were party to the transaction, pleaded earnestly to be included as intervenors in earlier proceedings, were vitally concerned with questions raised by AASL, participated in earlier proceedings, filed documents called for by the Revenue, collaborated, discussed, deliberated with Vortex group on sharing the tax deducted at source amount and very conveniently omitted these facts in form 34C. They falsely mentioned in verification segment that all relevant, correct and complete facts were stated to the best of their belief. This is not credible more so when the applicants are part of big business group of India and enjoy the services of best legal and financial brains. It is not relevant whether the Revenue is affected or not, what is pertinent is conduct of applica....
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.... of Azadi Bachao in both set of applications again corroborate that the provision of law as claimed by the applicants governing the impugned transaction is also the same. 142. Hence, the present two applications are filed for the same relief and the same questions of law are raised in AAR No. 982 of 2010. It is noticed that one more question regarding taxability under section 115JB was added in the current applications but in its written submission dated September 19, 2019 learned authorised representative has mentioned that the second question raised in the applications regarding section 115JB of the Act has become infructuous and is not required to be answered. 143. During the pendency of the above said Application A. A. R. No. 982 of 2010 the present applicants CCOM and CCLM filed intervening application separately but on similar and identical facts which reads as follows : "1. That the applicant is in receipt of letters dated May 10, 2011 and May 11, 2011 issued by the learned Joint and Assistant Directors of Income-tax (International Taxation) in connection with the application No. 982 of 2010 (filed on August 24, 2010 and the revised Application No. 982 of 2010....
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.... contended that the principal issue in the earlier application is whether the income received by way of sale of VCL shares by CCOM and CCLM to AASL is chargeable to tax under the provisions of the Income-tax Act as per section 195(1) of the Act. 145. It is very clear from the above facts and circumstances of the case, that even though the earlier application A. A. R. No. 982 of 2010 was filed by AASL, it is only for the interest and benefit of the CCOM and CCLM, if the Ruling were to be given in favour of the applicant. 146. Hence, we are of the considered view that the final result in the application A. A. R. No. 982 of 2010 shall be binding on CCOM and CCLM for whose benefit previous application was instituted. Hence, the order of dismissal of the earlier application A. A. R. No. 982 of 2010 shall be binding on CCOM and CCLM who filed applications for the same relief. 147. It is also relevant to have a look at section 245S of the Income-tax Act which reads as follows : "(1) The advance ruling pronounced by the Authority under section 245R shall be binding only- (a) on the applicant who had sought it ; (b) in respect of the transaction in ....
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....case of the recipient and before the Authority for Advance Rulings in the case of the payer is the same, namely, whether the income is assessable to tax. Consequently, the bar in section 245R(2) applies and the payer's application is not maintainable. 150. Another aspect of this issue is about seeking liberty to file fresh application. A perusal of withdrawal application, reveals that the applicant, i. e., AASL has not sought for any permission to file a fresh application. Further the applicant CCOM and CCLM also have not sought any permission from the authority to file fresh application on the same subject matter. 151. On the side of the applicant, it is contended that the disposal of the earlier application filed by AASL was dismissed as withdrawn and specifically without prejudice to file fresh application in other proceedings in accordance with law. 152. From a careful perusal of the earlier order dated July 1, 2011 it is clear that no specific permission was granted by this authority to file fresh application on the same subject matter in the order dated July 1, 2011. Since, there is no specific permission granted to file fresh application by this authority on the....
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....t by any of the embargoes laid down in the proviso. On the basis of the facts stated in the application and the other documents forming part of the record as well as on the basis of the comments/objections filed by the Revenue, the authority should first address itself to the question whether any of the three clauses is attracted. Once the conclusion is reached that the application is hit by one or all of the embargoes laid down in the proviso to section 245R(2), the authority has no option but to reject the application in limine. It is not open to the authority to ignore the legal bar created by the proviso notwithstanding the discretion conferred on the authority in apparently wide terms under the main provision, i. e., sub-section (2). However, it does not follow that the application is bound to be admitted and heard on the merits once the factors set out in the provisions do not come in the way of admission. Still, the authority has the discretion to reject the application, of course on ger mane and weighty considerations. That discretion has to be exercised judiciously keeping in view the spirit and purpose of the provisions concerning advance rulings. The discretion may be in....
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....es implying thereby the consent of the intervenors to withdrawal application by AASL ? 157. It is a fact that there was dispute, discussions, deliberations and subsequently consensus between the two transacting parties, resulting in culmination of withdrawal application dated July 1,2011. This dispute was resolved only after the buyer agreed to pay additional USD 400 million as a consideration for transfer of shares held by Mauritius based companies to the Capex Group. This additional payment was 50 per cent. of the tax payable, as computed by both the groups. 158. It has been argued by learned senior advocate that it was AASL'S decision to withdraw the application filed by it since the taxes were deducted and deposited even though it was of the belief that the same is not taxable in India. It was AASL who had made an application to the Authority for Advance Rulings seeking withdrawal of its application for advance ruling, and not intervener. Further, as an intervener, CCLM/ CCOM did not have any right to prevent AASL from withdrawing AASL's application. 159. Further, it is stated that the hon'ble Authority itself did not consider the withdrawal request to be f....
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....se of granting an intervention application is to entitle the intervener to address arguments in support of one or the other side. 164. That case pertains to the claim of a higher rate of depreciation which was claimed by the assessee. The assessee also drew support from an opinion of an expert. However, the authority below declined to consider the opinion of the expert on the ground that the assessee was unable to produce the expert for cross examination. The matter was confirmed by the IAC but subsequently, the IAC's order was reversed by the Tribunal. The High Court disagreed with the Tribunal. The hon'ble apex court held that neither the Income-tax Officer nor the High Court were entitled to make statement on the technical matter for which no basis has been placed on record either by the Revenue or by the assessee. The hon'ble Supreme Court held that the appropriate course by the High Court would have been to require the Tribunal to take further evidence and draw up a supplemental statement of the case. On account of this reason and also for the reason that a higher rate is allowed to the machinery that comes into contact with corrosive chemicals, the hon'ble ....
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....ideration on account of tax payable and consequently withdrawal of the Authority for Advance Rulings application, the applicants cannot now disregard the entire set of facts to take the plea that it was unilateral act of Vortex Group to withdraw the previous application. Thus, withdrawal of Authority for Advance Rulings application is a part of commercial arrangement between the two transacting parties, which obviously is a bilateral act between them. Issue-(5) Whether "other proceedings" mentioned in the withdrawal order of 2011 implies proceedings other than the Authority for Advance Rulings proceedings or not ? 168. The applicants suggest that the withdrawal order dated July 1, 2011 was only in respect of application filed by AASL and AASL was thus barred but not the present two applicants who were at liberty to file fresh applications before the hon'ble Authority. At the same time, it is contended by the applicants that presuming that Civil Procedure Code is applicable, the fact that the hon'ble Authority for Advance Rulings granted permission to the intervenors "to put forward whatever contentions they have at appropriate stage in other proceedings" tantamount to....
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....e subject matter mentioned in AAR 982 of 2010 and the present applications are filed on the similar set of questions to be answered by the authority treated to be continuation of earlier applications. Hence the applicants are not entitled to file the present applications since the matter was already disposed of by the Authority on July 1, 2011. 173. Further the learned special counsel for the Department vehemently contended that other proceedings means since earlier application is already dismissed by this Authority, other proceedings only refers to the assessment proceedings before the Assessing Officer and appeal in other forums in accordance with law. Hence, these present applications are not maintainable at law and liable to be dismissed in the initial stage itself. 174. The learned special counsel for the Department contended that the Authority in the earlier order at the time of dismissal of the application clearly stated that without prejudice to the rights of the intervenors to put forward whatever their contentions for the other proceedings in accordance with law. It only refers to other proceedings means not before the AAR(IT) but before the other authorities of the....
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....t the matter. However with a rider that the question regarding the failure on the part of the applicant to state in the present applications about the intervention applications and its effect would be kept open at the time of final hearing. We also find that the other question regarding the applicability of section 115JB is pending before the hon'ble Supreme Court and has to come for arguments shortly that would also be one of the reasons for admitting these applications. The applications are admitted." 180. The said order does not refer to revisiting the threshold bar under proviso (i) to section 245R(2). Any how we are in agreement with the learned authorised representative that no question on the taxability of capital gains of VCL shares was raised in the notices under section 133(6) of the Act, there cannot be said to be any "question" arising therefrom. Further, the applications under section 245Q in the case of AASL, came to a closure upon the dismissal on withdrawal order dated July 1, 2011. So, did the proceedings under section 133(6) arising on account of the same. It is an admitted position that no further notice was issued to the two applicants upon the closure of....
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.... payment of tax could be examined at the time of final hearing, it is seen that neither the Department nor the applicant presented any fresh arguments despite opportunities provided in the hearings under clause (ii) of the proviso to section 245R(2). In view thereof, it is presumed that the contention is not pertinent and is set to rest and is not discussed further. Even otherwise, prima facie it looks that the share sale transaction is between two independent entities and at mutually agreed price and thus the capital gain is clearly ascertainable. Hence, we are of the view that there is no bar under clause (ii) of the proviso to section 245R(2). Issue-(8) prima facie tax avoidance-Whether the applications are barred under clause (iii) to proviso to section 245R(2) ? 186. At the outset it is mentioned that we are not in agreement with the plea of the applicant that for considering the issue of prima facie tax avoidance or exemption under treaty, we have to limit ourselves to the activities and affairs of the relevant financial year, i. e., if it pertains to the financial year 2011-12, we have to examine whether there was a scheme of tax avoidance during that year. This is not....
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.... (iii) of the proviso to section 245R(2). 189. We have held earlier that the applications are not maintainable and are liable to be dismissed and that the applicants can pursue their cases in other proceeding in forum other than Authority for Advance Rulings, it would be in fitness of things that the concerned authorities would also consider this aspect of tax avoidance in detail at the time of merit proceedings. 190. We, therefore, decline to comment on merits of the questions posed before us as we have held earlier that the present applications are not maintainable on various counts and the applicants are free to take up the matter before other authorities other than Authority for Advance Rulings. In this connection, we draw support from the decision in the case of ABC International (A. A. R. No. 840 of 2010) wherein it is held that : "This authority has jurisdiction to see whether the transaction is designed prima facie for avoidance of Income-tax. We think that section 245R(2) of the Act must receive a purposive interpretation. We are pronouncing on an activity or a proposed activity as projected by the applicant before us. The proviso to section 245R though plac....