TaxTMI 
TaxTMI 
2025 (5) TMI 1084
X X X X Extracts X X X X
X X X X Extracts X X X X
....s under:- "5. Without prejudice to the above, on the facts and circumstances of the case & in law, the Ld. AO and the Ld. DRP grossly erred in denying the benefit under Article 13 of the India-Cyprus Double Taxation Avoidance Agreement (Tax Treaty') read with Ad. Article 13 of the Protocol to the Tax Treaty on long term capital gains earned on sale of shares of a third-party company and assessing the same under the provisions of the Act. 6. On the facts and circumstances of the case & in law, the Ld. AO and Ld. DRP grossly erred in denying the benefit of Article 10 of the Tax Treaty on dividend income earned on the shares of a third-party company and in assessing the same under the provisions of the Act. 7. On the facts and circumstances of the case & in law, the Ld. AO grossly erred in charging interest under sections 234A of the Act of INR 5,36,12,750. 8. On the facts and circumstances of the case & in law, the Ld. AO grossly erred in charging interest under sections 234B of the Act of INR 39,67,34,350. 9. On the facts and circumstances of the case & in law, after having framed the impugned erroneous assessment, the Ld. AO grossly ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of equity shares of NSEIL and claimed benefit under Article 13 of India-Cyprus DTAA. The assessee had also earned dividend income from NSEIL and offered the same to tax at the rate of 10% in accordance with India-Cyprus DTAA. The Assessing Officer (AO) while passing Draft Assessment Order u/s. 144C(1) of the Act, after examining the ownership structure of the assessee, list of Directors of the company, beneficiary of the transactions of sale of shares came to the conclusion that the ultimate beneficiary of the transaction of sale of shares on NSEIL is General Atlantic Company based in USA. The entire profits i.e. Long Term Capital Gain on sale of shares is routed through the assessee based in Cyprus to its controlling company General Atlantic Company. To reach such a conclusion, the AO examined the management pattern of the assessee company. According to AO, the Directors of General Atlantic Company USA are the Directors of the assessee based in Cyprus. The decision making process for the assessee is primarily carried out by the Directors of General Atlantic Company. Even the authorized signatory for operating bank accounts is not based in Cyprus. One Mr. Albert Lawrence Brehmer J....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gnized Stock Exchange) Regulations, 2006, whereby SEBI keeps check over the shareholding pattern of stock exchange by each group directly or indirectly. 5.1. The ld. Counsel asserted that even at the time of transfer of shares by GA Global to the assessee, again the entire process of scrutiny was carried out and after examining the transaction and antecedents of the assessee, RBI granted approval on 30.03.2014 (at page 719 of the paper book) and by the FIPB Unit, Department of Economic Affairs, Ministry of Finance, Govt. of India on 02.04.2013 at page 80 of the paper book. The ld. Counsel submitted that every year the assessee has to seek fitness from NSEIL under Regulation 20 of Securities Contracts Regulation (Stock Exchange in Clearing Corporations) Regulations 2012. The communication seeking fitness from Financial Year 2015-16 onwards is at pages 779 to 792 part II of the paper book. 5.2. The ld. Counsel for the assessee referring to the observations of the AO in Draft Assessment Order submits that the findings of the AO are not based on correct facts. He refuted the observations of the Assessing Officer that General Atlantic Company based in USA is managing the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvices to the assessee both find mention in the infamous Panama leaks. The names of all companies appearing in Panama papers were shell companies. This gives impetus to the finding of AO that there is no physical presence of assessee in Cyprus. The ld. DR thus, vehemently placing reliance on the assessment order and findings of the DRP prayed for dismissing appeal of the assessee. 7. Rebutting submissions made by ld. DR, the ld. Counsel for the assessee asserted that the fund referred to by the DR are not based in US. There are based in different jurisdiction viz. Bermuda (91.15%), Germany (8.65%) and Delaware (0.20%). He further pointed that only two regular Directors are from USA, the third director from USA is an alternate director. All other Directors are from Cyprus only. Referring to the gist of Board Minutes at page 195 to 197 of the paper book, he pointed that during Financial Year 2020-21, USA director did not attened Board meetings except once. The entire decision making process was carried out by the Board comprising of Directors based in Cyprus. Therefore, by no stretch of imagination it can be said that management of the assessee company is based in USA. In respect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ma leaks. ABACUS Cyprus Ltd. and ABACUS Ltd. are two different companies. In fact there are several companies in Panama leaks whose name start with ABACUS. The assessee has nothing to do with ABACUS Cyprus Ltd. The assessee had engaged ABACUS Ltd a professional service provider based in Cyprus for providing professional secretarial services. The ld. Counsel pointed that the AO in schematic picture at page 22 of the assessment order has referred to ABACUS Cyprus Ltd., whereas, professional engaged by the assessee is ABACUS Ltd. which the AO has also mentioned in text on the same page. The AO has failed to take note of the fact that ABACUS Ltd. and ABACUS Cyprus Ltd. are two different entities. He thus, finally submitted that the assessment order is based on wrong appreciation of facts. 8. Both sides heard, orders of the authorities below examined. In so far as fact of sale of shares of NSEIL by the assessee and the valuation thereof, there is no dispute. The solitary dispute that has emerged for our consideration is limited to the extent that; Whether in facts of the case, the assessee is entitled to benefit under India Cyprus DTAA? The contention of the Revenue is that since cit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1)No person shall, directly or indirectly, acquire or hold equity shares of a recognised stock exchange or recognised clearing corporation unless he is a fit and proper person. (2) Any person who, directly or indirectly, either individually or together with persons acting in concert, acquire equity shares such that his shareholding exceeds two per cent of the paid up equity share capital of a recognised stock exchange or recognised clearing corporation shall seek approval of the Board within fifteen days of the acquisition. (3) A person eligible to acquire or hold more than five per cent. of the paid up equity share capital under sub-regulation (2) of regulation 17 and sub-regulation (2) of regulation 18 may acquire or hold more than five per cent. of the paid up equity share capital of a recognised stock exchange or a recognised clearing corporation only if he has obtained prior approval of the Board. (4) Any person holding more than two per cent. of the paid up equity share capital of the recognised stock exchange or the clearing corporation on the date of commencement of these regulations, shall ensure compliance with this regulation within a period of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....question arises as to whether a person is a fit and proper person, the Board's decision on such question shall be final." 10. Further, under Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognized Stock Exchange) Regulations, 2006 SEBI has restricted the shareholding in Stock Exchange. The relevant provision in this regard reads as under:- "9. Eligibility criteria for persons acquiring or holding more than five per cent. equity shares in a recognised stock exchange.-[(1) No person shall, directly or indirectly, either individually or together with persons acting in concert with him, acquire and/or hold more than five per cent. of the paid up equity capital of a recognised stock exchange after commencement of these regulations, unless he is a fit and proper person and has taken prior approval of the Board for doing so.] (2) For the purpose of sub-regulation (1), a person shall be deemed to be a fit and proper person if - (i) such person has a general reputation and record of fairness and integrity, including but not limited to - (a) financial integrity; (b) good reputation and character....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ities. It is common knowledge that this kind of paperwork by government agencies world over is actually routine paperwork involving minimal verification, scrutiny and intervention on part of the Governments." We do not concur with the aforesaid observations made by DRP. SEBI, RBI and FIPB are reputed agencies performing various regulatory functions. The approvals granted by the said agencies cannot be undermined and procedure of granting approval by said agencies cannot be termed as mere paper work. The DRP has erred in giving no weightage to the approvals granted by these agencies and has accepted observations by the AO as sacrosanct. As has been observed by us in preceding paragraphs above, SEBI before granting approval for investment in Stock Exchanges conduct fitness test of the person/institution on various parameters. It is not merely a paper work. Similarly RBI examine investments from various dimensions including violations under FEMA, etc. The approach of the DRP in our view is superfluous. The approvals by regulators like SEBI, RBI, etc. are granted after intense scrutiny and therefore cannot be overlooked. 12. Dehors, the approvals granted by Indian regulatory agen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is having TRC issued by Revenue Authority at Cyprus, and is not merely a pass through entity, the allegation of Revenue that it is merely a pass through entity has no feet to stand. 15. In the case of Saif II-Se Investments Mauritius Ltd. vs. ACIT (supra), the coordinate Bench of the Tribunal in somewhat similar case where holding company i.e. Saif II Mauritius Company Ltd. had made investment in the shares of NSEIL and had subsequently transferred the shares to its one of the subsidiary based in Mauritius. Later on, the subsidiary (Saif II-Se Investments Mauritius Ltd.) sold share in NSEIL. The Mauritius Company did not offer Long Term Capital Gain on sale of such shares to tax under the shelter of Article 13(4) of India Mauritius Tax Treaty. The AO rejected assessee's claim of exemption and taxed Long Term Capital Gain on sale of shares of NSEIL. When the issue travelled to the Tribunal, the Tribunal accepted assessee's claim observing as under:- "17. Assessee's parent company subsequently transferred the shares of NSE to the assessee in the year 2009. At the time of transfer of shares from SAIF II to the assessee, the regulatory authorities again carried out due ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arch, 1994 and 789, dated 14th April, 2000 clarifying that TRC issued by Mauritius Tax Authorities proves the residential status of a resident of Mauritius and no other evidence is required. In case of Azadi Bachao Andolan (supra), the Hon'ble Supreme Court has not only upheld the validity of the aforesaid CBDT Circulars, but has also held that "liable to taxation" as used in Article 4 of India-Mauritius DTAA does not mean that merely because tax exemption under certain specified head of income including capital gain from sale of shares has been granted under the domestic tax laws of Mauritius, it can lead to the conclusion that the entities availing such exemption are not liable to taxation. The Hon'ble Supreme Court categorically rejected Revenue's contention that avoidance of double taxation can arise only when tax is actually paid in one of the contracting States. Hon'ble Court held that 'liable to taxation' and 'actual payment of tax' are two different aspects. The Hon'ble Supreme Court has further observed that for economic development, initially, many developing countries allowed some amount of treaty shopping to attract FDI. 20. ....