TaxTMI 
TaxTMI 
2023 (3) TMI 563
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....y) Limited, South Africa the ultimate holding company being the Bidvest Group Limited in South Africa ("Bidvest"). The Petitioner is holder of Category-I Global Business Licence issued by the Finance Services Commission, Mauritius as well as a valid Tax Residency Certificate ("TRC") issued by the Mauritius Revenue Authority certifying that the Petitioner is a tax resident of Mauritius and is entitled to avail the benefits of the Mauritius DTAA. The Petitioner files its corporate tax returns in Mauritius and is a non-resident under the provisions of the Income Tax Act, 1961. The Petitioner does not have any permanent establishment/fixed place of business nor any business connection/operations in India. 3. Pursuant to the Government's approval of restructuring and modernisation of the Delhi and Mumbai airports, the AAI issued an invitation to Register Expression of Interest ("ITREOI") on 17th February, 2004 which set out the requirements to be satisfied by the interested parties in order to participate in the international competitive bidding process. 4. In response, the GVK-SA Consortium consisting of GVK Industries Ltd. and SA Airport Operators (SA Airport Operators is a join....
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.... by the Petitioner as follows:- Date of Allotment No. of shares Face value for share (INR) 19 April 2006 103,850 10 19 May 2006 53,863,150 10 14 March 2009 54,000,000 10 15 December 2009 54,000,000 10 14 October 2010 54,000,000 10 Total 216,000,000 6. The balance equity shares in MIAL are subscribed to by GAHPL (37%), AGL (10%) and AAI (26%) respectively. 7. The Board of Directors of the Petitioner vide board meetings held on 20th February, 2011 and 28th February, 2011 in Mauritius decided to transfer the shares to GAHPL. 8. On 1st March, 2011, the Petitioner entered into a Share Purchase Agreement ("SPA") alongwith subsequent addendums with GAHPL and GVK Industries Limited, both of which are companies incorporated under the Companies Act, 1956, whereby the Petitioner agreed to sell and transfer to GAHPL and GAHPL agreed to purchase and acquire from the Petitioner the shares constituting 13.5% of the total paid up share capital, comprising of 108,000,000 shares of MIAL for the purchase price of USD 287,222,000. The shareholding post divestment of stake in MIAL by the Petitioner would be as under:- Sr.....
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....e application filed by the Petitioner before Respondent No.1, inter alia on the following grounds: a) It was alleged that at the time of bidding for the purposes of the modernisation and development of Mumbai airport, the parent company, of the Petitioner i.e. Bidvest was a part of the Consortium and not the Petitioner. It was also submitted that the technical and financial bid filed by the Consortium had taken into account the technical expertise and competence of the constituents of the Consortium including that of the South African parent company of the Petitioner. b) It was also submitted that the Petitioner was not inexistence when the EOI was filed by the Consortium in July, 2004 and it came in existence only in August, 2005. It was further submitted that only after the successful bid was given in favour of the Consortium that the Petitioner was brought into the Consortium in place of their parent company, Bidvest. It was therefore submitted that there was no economic/commercial purpose for making investment in the name of the Mauritian Group Entity, i.e. the Petitioner except for avoidance of tax in India as the Petitioner wanted to take the benefit o....
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....ruary, 2006. b. In respect of investing through the Petitioner allegedly for the purposes of avoiding tax, it was submitted as follows; -Bidvest is engaged into various business lines and has over 300 subsidiaries (direct plus indirect) spanning over 5 continents. -It is a general commercial practice on the part of any ultimate holding company of a group of companies to bid for projects in its own name so as to highlight the financial and technical competency of the group as a whole. However, while routing its investments in various projects, separate companies are formed which in commercial parlance is termed as Special Purpose Vehicles (SPVs). -SPVs are formed for commercial reasons as such for hedging business, political and economic risk of a country, mobility of investments, ability to raise loans from diverse investments, valuation from growth perspective and tapping global funds for listing purposes, facilitate specialisation and undivided attention on the project in hand. Hence, ease of doing business and supportive business environment is an important criterion in determining the jurisdiction of setting up of such SPVs. c. In re....
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.... the Petitioner before Respondent No. 1 deserved to be admitted." 15. That Petitioner attended the hearing on 25th February, 2015, wherein the Petitioner once again reiterated the above submissions and once again prayed that the application be admitted by Respondent No.1. The matter was adjourned to a further date on the request of the office of the Respondent No.4. 16. By letter dated 27th March 2015 addressed through their authorised representatives to Respondent no.1, the Petitioner submitted that the contention of the department with regard to substitution of Bidvest by the Petitioner was incorrect and they once again filed a letter dated 25th February 2015 along with the annexures reiterating the correct facts in respect thereof. They also submitted that they had repeatedly, during the course of various hearings before Respondent no.1, submitted that the additional details sought for by the office of the Respondent no.4 were not relevant for the purpose of determining whether the application filed by the Petitioner should be admitted in terms of Section 245R(2) of the Act. They further submitted that most of the details sought for by the Respondent no.4 were already ther....
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....een the best alternatives but not some third tax jurisdiction like Mauritius. The only advantage the jurisdiction of BSDM, a Mauritian entity, in the Consortium lacked commercial substance and bonafide business purpose but was a clear design to avoid paying legitimate tax to the Indian Government, as it is a tax avoidance scheme. The Mauritius entity needs to be overlooked and the Indian-South Africa DTAA brought in, thereby making the capital gains taxable in India. (iv) As per the provisions Section 93 of the Act, the capital gains arising out of the same of 13.5% equity stake in MIAL by BSDM to GAHPL is deemed to be the income in the hands of the ultimate holding company of BSDM i.e. Bidvest. As per the provisions of the Indian Income Tax Act, 1961 and as per the provisions of Article 13(4) of the DTAA between India and South Africa, this income is chargeable to tax in India." 20. The matter was finally heard on 22nd August 2019 before Respondent no.1, whereat, the Petitioner reiterated the submissions made by the Petitioner regarding the non-taxability of the gain arising from the transaction of sale of the shares, effected pursuant to the SPA dated 1st March 2011 h....
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....arned Senior Counsel has further placed reliance upon Circular No.789 dated 13th April 2000 issued by the CBDT which clarifies that companies which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on the sale of shares as per Article 13(4) of the Mauritius DTAA. He further submits that the said circular also clarifies that wherever a certificate of residence is issued by the Mauritian authorities such certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the double taxation avoidance convention. Learned Senior Counsel has also relied upon Press Release dated 1st March, 2013 with respect to the TRC. Learned Senior Counsel relies upon the decision of Union of India & Anr. v. Azadi Bachao Andolan and Anr. [2003] 263 ITR 706 (SC) in support of his contentions. Learned Senior Counsel also refer to the decision in the case of Vodafone International Holding B.V. v. Union of India [2012] 341 ITR 1 (SC) relied upon by the Revenue as well as the Authority and would submit that the decision of Vodafone International Holding B.V. v. Union of India (supra) would in f....
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.... Article 13(4) of the Mauritius DTAA. 27. Aggrieved by the aforesaid Ruling, Petitioner has filed this Petition for the following principal reliefs: (a) That this Hon'ble Court may please to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other appropriate writ, order or direction, calling for the records of the Petitioner's case and after going into the legality and propriety thereof, to quash and set aside the impugned ruling dated 10th February 2020; (b) That this Hon'ble Court may please to issue a Writ of Mandamus or a writ in the nature of Mandamus or any other appropriate writ, order or direction, directing the Respondent no.1 to rule that the gain arising on the sale of shares of MIAL to GAHPL would not be chargeable to tax in India having regard to the provisions of Article 13(4) of the Mauritius DTAA. 28. Mr. Suresh Kumar, learned standing Counsel for the Respondents supports the impugned Ruling and submits that the transaction by the Petitioner is sham and bogus. He would submit that entire structure of incorporation of Petitioner and Petitioner's introduction is a device to avoid taxation. Learned Counsel refers to the Aff....
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....of technical and financial bid which was a requirement as per para 6.4 of RFP and para 6.1 of ITREOI. The evaluated entities at pre-qualified bidding stage were GVK-ACSA and Bidvest. GVK is a major business group of India and Bidvest is an international investment holding company based in South Africa with investment in food service, trading, distribution, etc. Both these groups have financial muscle and management capabilities to undertake such project. ACSA has necessary technical expertise and experience in the field of operation and maintenance of airport. The two business groups and ACSA complete the competences required to bid for the project. The consortium was declared as successful bidders by AAI on 04-02-2006 based on financial and management capabilities and experience in air force management of the evaluated entities. 57. GVK group is based in India. The bid services group is based in South Africa. The ACSA (in which government of South Africa has stake) is the only technical expert in the consortium in the field of airport and maintenance is also based in South Africa. GVK, ACSA and Bidvest were the evaluated entities as prequalifying bidding stage. 5....
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.... Africa DTAA, the capital gain on share sale is taxable in India. If applicant was not interposed the Bidvest group would have to pay capital gain tax in India on the share sale transaction. By incorporating Mauritian entity benefit of Indo-Mauritius DTAA is sought under Article 13(4) under which capital gain is not taxable in India. Further, there is no capital gain tax in Mauritius. The entire value creation activities were happening in India which was also the basis for steep rise in share valuations subsequently. 61. Let us examine, what is the real role of applicant in the JV. It served as conduit for routing funds for South African based holding companies. The shares of joint venture were bought in the name of applicant though the beneficial owners were the holding companies in South Africa. The applicant kept on noting and endorsing decisions of the holding company in the Board meetings without any contribution or discussion about the decision making process. In short, the applicant is not in a position to create any value for the joint venture. 62. One can claim that holding company will always be predominantly controlling all vital decisions of subsidiary....
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....risk of abuse by facilitating the use of artificial legal constructions aimed at securing the benefits of both the tax advantages available under certain domestic laws and the reliefs from tax provided for in double taxation conventions. 9. This would be the case, for example, if a person(whether or not a resident of a Contracting State), acts through a legal entity created in a State essentially to obtain treaty benefits that would not be available directly. Another case would be an individual who has in a Contracting State both his permanent home and all his economic interests, including a substantial, shareholding in a company of the State, and who, essentially in order to sell the shares and escape taxation in that State on the capital gains from the alienation (by virtue of paragraph 5 of Article 13), transfers his permanent home to the other Contracting State, where such gains are subject to little or no tax. 9.5 It is important to note, however, that it should not be lightly assumed that a taxpayer is entering into the type of abusive transactions referred to above. A guiding principle is that the benefits of a double taxation convention should not be avail....
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....le Apex Court referred to in the interposing of entity just before sale of shares, the pith and substance of the statement by Apex court is that merely holding of TRC cannot prevent an enquiry if it can be established that the interposed entity was a device to avoid tax. 67. It is a text book case, where an interposed entity satisfies to a 'T', the tests laid down by the Hon'ble apex court in Vodafone International Holding BV case (17 taxmann.com 202) to ascertain whether a structure or device is created for tax avoidance. In the instant case, the applicant was incorporated few days before the JV was formed and has no independent sources of funds or sources of income nor has any fiscal independence. All the funds are with the holding companies. The applicant has no tangible assets, business activities except for owning the shares of the JV. Subjecting the facts to various tests i.e. Fiscal nullity Text, Commercial/business substance Test, "Look at" Principle Text, Investment Participation Test, Time duration Test, Business operations Period in India Test, Generation of taxable revenues in India Test, Scheme and dominant purpose test etc., the applicant fails the tests bein....
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....ing considered the facts in totality and discussed in preceding paragraphs, we do not see any commercial or economic rationale or ease of doing business in incorporating the applicant in Mauritius and interposing it in the JV. 72. The other plea of the learned AR is that AAI has approved the bid being duly aware that BSDM was prime member of the JV entry. The plea is not germane to issue at hand as AAI is not concerned with the interpretation of treaty and interposing of any entity for tax avoidance and therefore acceptance of bid by AAI is not an endorsement or justification for granting treaty benefit to the applicant. 73. The alternate plea of the learned AR is that even if it is assumed without admitting that the acquisition of shares in MIAL was done by applicant, solely with a view to take advantage of the beneficial provisions of Indo-Mauritius DTAA, the benefit cannot be denied as there is no limitation of benefit provision (LOB) in the DTAA. The plea is not tenable for the reason that the facts point towards a tax avoidance device and the Hon'ble Apex Court in the case of Vodafone has clearly mentioned that though LOB and look through provisions cannot be....
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....lved as member of the Consortium and not the Petitioner. That, it is only at Stage 2 of the bidding process that the Petitioner was substituted in place of Bidvest. That, no prior approval of AAI was obtained by the Consortium at any stage before filing of technical and financial bid which was the requirement as per paragraph 6.4 of the RFP and paragraph 6.1 of ITREOI. The evaluated entities at prequalified bidding stage were GVK, ACSA and Bidvest. That, it is GVK as well as Bidvest holding company and not Petitioner who have the financial muscle and management capabilities to undertake the project and ACSA had the necessary technical expertise and experience in the field of operation and maintenance of the airport. That, the two business groups and ACSA had the complete competency required to bid for the project. On the basis of their financial and management capabilities and experience in airport management and on the basis that they were the evaluated entities, the Consortium was declared as successful bidder by the AAI on 4th February 2006. However, just ten days prior to filing of technical and financial bid, the Petitioner was brought into the Consortium. That the Mumbai Inte....
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....learned Senior Counsel had relied upon Article 13 of the Mauritius DTAA to submit that in view of Circular 789 income from capital gains arising in India on sale of shares would not be taxable in India in view of Article 13(4) of the Mauritius DTAA. For ease of reference the said Article 13 is quoted as under : " 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 thisarticle, gains from the alienation of ....
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....hall be taxable only in Mauritius according to Mauritius Tax Law. Therefore, any resident of Mauritius deriving income from alienation of shares of Indian Companies will be liable to capital gains tax only in Mauritius as per Mauritius tax law and will not have any capital gains tax liability in India. 4. Paragraph 5 defines 'alienation' to mean the sale, exchange, transfer or relinquishment of the property or the extinguishment of any rights in it or its compulsory acquisition under any law in force in India or in Mauritius. Circular : No.682, dated "30-3-1994" 37. It is clear from the aforesaid that capital gains derived by a resident of Mauritius by alienation of shares of companies shall be taxable in Mauritius only and will not have any capital gains tax liability in India. 38. Further, reliance was placed upon another Circular No.789 dated 13th April 2000 issued by the CBDT which clarified that companies which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph 4 of Article 13 of Mauritius DTAA. An extract of Circular No.789 is reproduced below: "734. Clarific....
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....d to be in force between India and Mauritius at the relevant time. 40. A press release dated 1st March 2013 from the Finance Ministry which is quoted as under also unequivocally declares that the TRC produced by resident of a contracting State will be accepted as evidence that he is a resident of that contracting State and the Income Tax Authorities will not go behind the TRC and question his residence status. "FINANCE MINISTRY'S CLARIFICATION ON TAX RESIDENCY CERTIFICATE (TRC) PRESS RELEASE, DATED 1-3-2013 Concern has been expressed regarding the clause in the Finance Bill that amends Section 90 of the Income-tax Act that deals with Double Taxation Avoidance Agreements. Sub-section (4) of section 90 was introduced last year by Finance Act, 2012. That subsection requires an assessee to produce a Tax Residency Certificate (TRC) in order to claim the benefit under DTAA. DTAAs recognize different kinds of income. The DTAAs stipulate that a resident of a contracting state will be entitled to the benefits of the DTAA. In the explanatory memorandum to the Finance Act, 2012, it was stated that the Tax Residency Certificate containing prescribed part....
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.... clarification, the assessing officers chose to ignore the guidelines and spent their time, talent and energy on inconsequential matters, we think that the CBDT was justified in issuing 'appropriate' directions vide circular no.789, under its powers under section 119, to set things on course by eliminating avoidable wastage of time, talent and energy of the assessing officers discharging the onerous public duty of collection of revenue. The circular no.789 does not in any way crib, cabin or confine the powers of the assessing officer with regard to any particular assessment. It merely formulates broad guidelines to be applied in the matter of assessment of assessees covered by the provisions of the DTAC. 50. We do not think the circular in any way takes away or curtails the jurisdiction of the assessing officer to assess the income of the assessee before him. In our view, therefore, it is erroneous to say that the impugned circular No.789 dated 13.4.2000 is ultra vires the provisions of section 119 of the Act. In our judgment, the powers conferred upon the CBDT by sub-sections (1) and (2) of section 119 are wide enough to accommodate such a circular." 43. Paragr....
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....ar No. 789 and the Treaty is entitled to look at the entire transaction of sale as a whole and if it is established that the Mauritian company has been interposed as a device, it is open to the Tax Department to discard the device and take into consideration the real transaction between the parties, and the transaction may be subjected to tax. In other words, TRC does not prevent enquiry into a tax fraud, for example, where an OCB is used by an Indian resident for round- tripping or any other illegal activities, nothing prevents the Revenue from looking into special agreements, contracts or arrangements made or effected by Indian resident or the role of the OCB in the entire transaction." 44. Although paragraph 98 of the Vodafone International Holding B.V. v. Union of India (supra) has been quoted in the impugned ruling, however, paragraph 97 which is also relevant, appears to have been missed out by the authority. 45. No doubt mere holding of a TRC cannot prevent an enquiry if it can be established that the interposed entity was a device to avoid tax. However, the decisions of the Apex Court cited above have clearly upheld the conclusivity of the TRC absent fraud or illegal ....
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....racting State as the case may be, in the immediately preceding period of 12 months from the date the gains arise. 4. A resident of a Contracting State is deemed not to be a shell/conduit company if: (a) it is listed on a recognized stock exchange of the Contracting State; or (b) its expenditure on operations in that Contracting State is equal to or more than Mauritian Rs.1,500,000 or Indian Rs.2,700,000 in the respective Contracting State as the case may be, in the immediately preceding period of 12 months from the date the gains arise. Explanation : The cases of legal entities not having bona fide business activities shall be covered by Article 27A(1) of the Convention. 48. It is observed that this Article disentitles benefits of Article 13(3B) if the affairs were arranged for the primary purpose to take advantage of the benefits of Article 13(3B). The Article has been inserted with effect from 1st April 2017. According to this Article, with effect from 1st April 2017, a shell or a conduit company that claims to be a resident of a contracting State shall not be entitled to benefits of Article 13(3B). 49. The Petitioner has also made refere....
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.... to withholding tax in India at the rate of 7.5% in respect of debt claims or loans made after 31st March, 2017. However, interest income of Mauritian resident banks in respect of debt-claims existing on or before 31st March, 2017 shall be exempt from tax in India as per existing provisions in the Convention. The Protocol also provides for updating of the Exchange of Information Article as per the international standard, provision for assistance in collection of taxes, source-based taxation of other income, amongst other changes. The Protocol will tackle treaty abuse and round tripping of funds attributed to the India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between the two Contracting Parties. It will improve transparency in tax matters and will help curb tax evasion and tax avoidance. (Meenakshi J Goswami) Commissioner of Income Tax (Media and Technical Policy) Official Spokesperson, CBDT." 50. The said press release expressly provides for grandfathering of capital gains exemption provided under the erstwhile Mauriti....
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....nt abusive transactions by amending the bilateral conventions, however, as noted above, the amendments to the Mauritius DTAA for plugging such transactions have been made effective from 1st April 2017, unless there is a fraud or any illegal activity involved. Infact, as noted above, the investments prior to 1st April 2017 have been grandfathered and are not subject to capital gains taxation in India. The Press Release dated 29th August 2016 quoted above also takes care of the transition period from 1st April 2017 to 31st March 2019 where the tax rate has been limited to 50% of domestic tax rate in India. That taxation in India at full domestic rate is stated to take place from financial year 2019-20 onwards, subject to other conditions. 55. Although the observations of the Authority in paragraph 62 with respect to the claim of treaty shopping of as well as the doctrine of substance over formed in paragraph 63 cannot be faulted with, however, it needs to be emphasized that the LOB clause has been made effective for investments only from 1st April 2017. As noted above, even the press release dated 29th August 2016 confirms that investments made before 1st April 2017 will not be su....
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....s. SA Airport Operators is a joint venture of Airports Company South Africa Limited (ACSA). Old Mutual Life Assurance Company South Africa Limited and the Bidvest Group Limited (BidVest). It is not in dispute that the GVK-SA Consortium filed the expression of interest on 20th July, 2004 in response to the AAI's ITREOI dated 17th February, 2004 clearly disclosing the ownership structure of the JV company. Clause 1.6 of the ITROI is relevant and is quoted as under : "1.6 Ownership Structure (ITREOI para 5.2.5) a) The proposed ownership structure of the JV Company will be 74% GVK-SA and 26% held by Government of India. GVK-SA is a Consortium equally held by GVK Industries Limited and SA Airport Operators. SA Airport Operators in turn, is held by ACSA, Old Mutual and Bidvest. The final holdings by the three SA Airport Operators' members will be finalised once the requirement of the RFP are issued but in any event ACSA's interest in the JV Company will not be less than 10%. b) The foreign ownership will take the form of the SA Airport Operator's Investment in GVK-SA representing 37% in the JV Company. c) It is not proposed that there will be any airli....
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....ed by PQB in their respective EOIs and any new member or withdrawal of an existing member will be assessed in terms of the impact on the quality and capability of the PQB." 63. The RFP itself contemplates change of a prime member and an evaluating member. Clause 6.12 on page 185 which refers to other rights of AAI is also pertinent to quote : "6.12 Other AAI Rights AAI / GOI reserves the right, in its absolute discretion without liability and at any stage during the transaction process, to: • Add to, or remove parties from, any shortlist of PQBs or bidders; • Require additional information from any PQB or Bidders; • Vary its tender requirements; • Terminate further participation in the transaction process for any PQB or Bidder; • Change the structure and timing of the transaction process; • Accept or reject any offer at any time for any reason; • Not provide PQBs or Bidders any reasons for any actions or decisions it may take including in respect of the exercise by AAI of any or all of the above mentioned rights; and • Take such other action as it considers, ....
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....initial capitalization has been kept at a lower rupee value to avoid a higher issuance of shares value Rs.2 crores, each, at the stage of bid and locking up of funds. Immediately on the GVK-SA Consortium being declared successful, the above companies propose to file for the status of a non-banking financial company as per the rules and regulations prescribed by the Reserve Bank of India. ACSA and Bidvest ACSA and Bidvest have obtained the initial approvals from South African Reserve Bank for issuance of the necessary bid bonds, debt and equity commitment letters and equity investment. On the Consortium being declared the successful bidder, ACSA and Bidvest shall obtain specific approval of the South African Reserve Bank for each transfer of funds to India for the purpose of investment in the JVC. The approvals are expected within four weeks of seeking each such approval. All necessary approvals have been obtained for the Mauritian subsidiaries (ACSA Global Limited and Bid Services Division (Mauritius) Limited)." 67. The offer also contained various resolutions of the share holders including Petitioner. Also on pages 278 to 280 of the Petition, the proposed owne....
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....K-SA Consortium was declared a successful bidder but Petitioner has invested in the JV viz. in MIAL but the AAI has also entered into the OMDA with the Consortium for the purposes of the project of modernization of the Mumbai Airport. 70. At their meetings on 20th February 2011 and 28th February 2011 the Board of Directors of the Petitioner authorized the transfer of 13.5% of the paid up capital out of 27% held by it to GAHPL for a consideration of US$ 287,222,000. The Share Purchase Agreement dated 1st March 2011 was entered into in this regard. On 18th April 2011 Petitioner made an application under Section 197 of the Income Tax Act to obtain a NIL withholding tax certificate on the basis that the gain would not be chargeable to tax in India. On 20th May 2011 an order under Section 197 was passed whereby GAHPL was authorized to pay full sale consideration to Petitioner without any deduction of tax at source. Thereafter, on 3rd October 2011 a Addendum to the Share Purchase Agreement was entered into as a consequence of which the consideration was reduced to US$ 231,000,000. This was intimated to Respondent no.2 Assistant Commissioner of Income Tax (International Taxation) by th....
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....ate to GAPHL who is the purchaser of the 13.5% shares from Petitioner to make payment / remittance of the purchase consideration to Petitioner for transfer of shares without TDS under Section 195 of the Act. Therefore, for the authority to hold that Petitioner's involvement at the stage of bidding process was without the approval of the authorities appears to be without substance. 72. In this regard, paragraphs 43 to 46 of the decision rendered by Justice K.S. Radhakrishnan in the Vodafone International Holding B.V. v. Union of India (supra) are also usefully quoted as under : "43. Corporate structure is primarily created for business and commercial purposes and multi-national companies who make offshore investments always aim at better returns to the shareholders and the progress of their companies. Corporation created for such purposes are legal entities distinct from its members and are capable of enjoying rights and of being subject to duties which are not the same as those enjoyed or borne by its members. Multinational companies, for corporate governance, may develop corporate structures, affiliate subsidiaries, joint ventures for operational efficiency, tax avoida....
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....enerally foreign to judicial review. 46. Revenue/Courts can always examine whether those corporate structures are genuine and set up legally for a sound and veritable commercial purpose. Burden is entirely on the Revenue to show that the incorporation, consolidation, restructuring etc. has been effected to achieve a fraudulent, dishonest purpose, so as to defeat the law." 73. Paragraph 65, 66, 67 and 68 of the Vodafone International Holding B.V. v. Union of India (supra) relied upon by Counsel for the Respondents are also usefully quoted as under : "65. In the thirteenth century, Pope Innocent IV espoused the theory of the legal fiction by saying that corporate bodies could not be ex-communicated because they only exist in abstract. This enunciation is the foundation of the separate entity principle. 66. The approach of both the corporate and tax laws, particularly in the matter of corporate taxation, generally is founded on the abovementioned separate entity principle, i.e., treat a company as a separate person. The Indian Income Tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies and other ....
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....e may disregard the form of the arrangement or the impugned action through use of Non-Resident Holding Company, re-characterize the equity transfer according to its economic substance and impose the tax on the actual controlling Non-Resident Enterprise. Thus, whether a transaction is used principally as a colourable device for the distribution of earnings, profits and gains, is determined by a review of all the facts and circumstances surrounding the transaction. It is in the above cases that the principle of lifting the corporate veil or the doctrine of substance over form or the concept of beneficial ownership or the concept of alter ego arises. There are many circumstances, apart from the one given above, where separate existence of different companies, that are part of the same group, will be totally or partly ignored as a device or a conduit (in the pejorative sense). 68. The common law jurisdictions do invariably impose taxation against a corporation based on the legal principle that the corporation is "a person" that is separate from its members. It is the decision of the House of Lords in Salomon v. Salomon (1897) A.C. 22 that opened the door to the formation of a ....
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....n entity which has no commercial/business substance has been interposed only to avoid tax then in such cases applying the test of fiscal nullity it would be open to the Revenue to discard such inter-positioning of that entity. However, this has to be done at the threshold. In this connection, we may reiterate the "look at" principle enunciated in Ramsay (supra) in which it was held that the Revenue or the Court must look at a document or a transaction in a context to which it properly belongs to. It is the task of the Revenue/Court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not to adopt a dissecting approach. The Revenue cannot start with the question as to whether the impugned transaction is a tax deferment/saving device but that it should apply the "look at" test to ascertain its true legal nature [See Craven (Inspector of Taxes) (supra) which further observed that genuine strategic tax planning has not been abandoned by any decision of the English Courts till date]. Applying the above tests, we are of the view that every strategic foreign direct investment coming to India, as an investment ....