TaxTMI 
TaxTMI 
2023 (1) TMI 202
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....whether the authorities below were justified in declining the treaty protection, under article 13(4) of the India Mauritius Double Taxation Avoidance Agreement [(1984) 146 ITR Stat 214; Indo Mauritius tax treaty, in short], to the assessee in respect of the long term capital gains of Rs 904,98,16,345 arising from transfer of shares of CMS Info Systems Ltd, and that is the issue that we are require to adjudicate on in these appeals. We will, therefore, take up this issue first. 3. To adjudicate on this issue, only a few material facts need to be taken note of. The assessee before us is a company incorporated in, and fiscally domiciled in, the Republic of Mauritius. It was incorporated on 8th June 2006 and it holds a global business licence (GBL) issued by the Financial Services Commission, Mauritius. The assessee is also registered as a foreign venture capital investor (FVCI) with the Securities and Exchange Board of India. The assessee has also been issued a "tax residency certificate‟ by the Mauritian Revenue Authority. During the relevant previous year, the assssee has sold 8,31,67,132 equity shares of CMS Info Systems Ltd for a consideration of US $ 15,95,02,497 to Sion I....
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....d based entities, inasmuch as source of investment in the shares in question is remittance from the entities owning the assessee company which are based in Cayman Islands, inasmuch as the trail of transactions of sale and purchase lead to dominant involvement of these Cayman Island based entities, and inasmuch as the directions to carry out the transactions in question were issued by the Cayman Island based entities owning the assessee company. The Assessing Officer also held that "in view of assessee's own admission of the ownership of the Blackstone Group of Cayman Island, in the application form for Category 1 Global Business Licence submitted to Finance Service Commission Mauritius, prima facie itself establishes that the investment in shares was not made by the assessee company but by the entities of Blackstone of Cayman Island, and, accordingly, it is a perfect case for lifting the corporate veil". The Assessing Officer then elaborately discussed the law laid down by Hon‟ble Supreme Court in the case of McDowell & Co Ltd Vs CTO [(1985) 154 ITR 148 (SC)] and referred to certain other decisions, namely- Jiyajeerao Cotton Mills Ltd Vs CIT (34 ITR 888), by Hon‟ble Bom....
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.... the fact that the learned Assessing Officer had finally concluded as follows: 15.6 Thus, by applying the above principles, it is apparent that the assessee company is claiming to be a wholly owned subsidiary of Blackstone FP Capital (Mauritius) VA Ltd Cayman Islands, had no independent existence. Its entire activity was controlled and directed as per the directions of its affiliates. The entire scheme of purchase and sale of shares was designed for the benefit of the entities in Cayman Islands of Blackstone Group, in the veil of carrying out transactions through them. Therefore, considering totality of facts, I hold that the assessee is not entitled for the benefit of DTAA with Mauritius. [Emphasis, by underlining, supplied by us] 7. Clearly, therefore, the Assessing Officer proceeded on the basis that since beneficial owner of the capital gains in question is an entity based outside Mauritius, the assessee is not entitled to the treaty protection in respect of capital gains in question. The elaborate discussions in the assessment order, which run into almost one hundred pages, is in support of this proposition, but then what this proposition, in our considered view, presup....
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....l ownership and it was noted this could include whether or not the concept of beneficial ownership could apply with respect to other articles of Model Convention, such as Article 13 and 21". This subcommittee in turn requested Prof Philip Baker for a consulting paper on this issue, which, inter alia, noted the irrelevance of the domestic law meaning of "beneficial ownership‟, justifying its "international fiscal meaning‟ to adopted, and the fact that there is only limited judicial precedents available elaborating upon that concept (only six at that point of time), and observed that "the inclusion of a beneficial ownership limitation in the capital gains article of specific bilateral conventions is not part of the current tax treaty practice of any State". It concluded that "there was ultimately only limited support for inserting beneficial ownership in article 13". It would thus seem possible that reading a beneficial ownership test, when such a test is not embedded in the treaty provision itself, is rather than a permissible interpretation of the treaty provisions, a rewriting the treaty provision itself. The approach of the authorities below thus seems to be fundament....
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....ded in Article 13, is sine qua non before proceeding on the basis. 9. In all fairness, we must take note of the judgment of Hon‟ble jurisdictional High Court in the case of Aditya Birla Nuvo Ltd (supra) which does indeed refer to the beneficial ownership in the context of article 13 of the Indo Mauritius tax treaty. As a careful look at the text of the said judgment would show that it was a case in which the assessee had claimed that "AT&T Mauritius qualifies as a beneficial owner of the shares in the ICL" (see para 26 f) and it was thus not even the case of the assessee that the assessee is not required to be a beneficial owner to claim the treaty protection. It was in this backdrop that the matter was proceeded with. In our considered view, therefore, this judgment cannot be an authority for the proposition that the requirements of "beneficial ownership‟ can be read into the provisions of Article 13. This decision, therefore, will have no bearing on the said question. As regards the decision of Hon‟ble Authority for Advance Ruling in the case of AB Mauritius In Re (supra), it was noted therein that "it is the subsequent conduct of the company that casts a shado....