TaxTMI 
TaxTMI 
2026 (1) TMI 890
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Leave granted. The present appeals arise from a final judgment and common order dated 28.08.2024 passed by the High Court of Delhi at New Delhi ["the High Court"] in W.P. (C) Nos. 6764, 6765 and 6766 of 2020 and are, therefore, disposed of by this common judgment. 3. For the sake of clarity and systematic analysis, this judgment is divided into the following heads: S.NO. HEADINGS PAGE NO. I INTRODUCTION 3 II BRIEF FACTS 6 III FINDINGS OF THE AAR AND THE HIGH COURT A AAR 11 B HIGH COURT 20 IV CONTENTIONS OF THE PARTIES A ON BEHALF OF THE APPELLANTS 29 B ON BEHALF OF THE RESPONDENTS 40 V ANALYSIS 50 A ISSUES FOR CONSIDERATION 51 B LEGAL BACKGROUND 52 C DISCUSSION AND FINDINGS 104 VI CONCLUSION 132 VII RESULT 133 I. INTRODUCTION 4. The power of an independent Republic to levy and collect tax forms part of its inherent sovereign functions, and such power is circumscribed only by the requirement of being within the author....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... would shift away from a residence-based system for the taxation of capital gains to a source-based system, to restore balance and prevent abuse. However, as global investment structures grow increasingly complex, with multi-country reach, interpretational issues continue to surface. 4.3. These issues have once again come before this Court in the present matter, arising out of the taxation of capital gains from the sale of shares of a Singapore-based entity deriving substantial value from its Indian operations. The transactional involvement of the relevant investment entities based in Mauritius raises significant questions as to the reach of treaty protections, the relationship between treaty provisions and domestic tax law, and the principles that must guide the grant or denial of treaty benefits. It is in this legal, economic, and policy backdrop that the dispute relating to Tiger Global needs to be considered. II. BRIEF FACTS 5. The respondents - assessees viz., Tiger Global International II Holdings, Tiger Global International III Holdings, and Tiger Global International IV Holdings, are private companies limited by shares, incorporated under the laws of Mauritius. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rivate company limited by shares, incorporated under the laws of Singapore. The total number of shares of Singapore Co. acquired by the assessees is tabulated below: Sl.No. Applicant Number of shares Acquired Period / date of acquisition 1. Tiger Global International II Holdings, Mauritius 23,670,710 October, 2011 to April, 2015 2. Tiger Global International III Holdings, Mauritius 2,282,825 23^rd June 2014 3. Tiger Global International IV Holdings, Mauritius 105,928 24^th April, 2012 5.5. Thereafter, Singapore Co. invested in multiple companies in India, and the value of its shares was derived substantially from assets located in India. The assessees transferred shares of Singapore Co. ("Sale Shares") held by them to Fit Holdings S.A.R.L ("Buyer"), a company incorporated under the laws of Luxembourg. These transfers were undertaken as part of a broader transaction involving the majority acquisition of Singapore Co. by Walmart Inc., a company incorporated in the United States of America, from several shareholders, including the assessees. The details of shares transferred by the assessees and the gross consideration received are as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....transaction or issue which is prima facie designed for the avoidance of income tax and therefore, rejected the same as being hit by the threshold jurisdictional bar to maintainability, as enshrined in proviso (iii) to Section 245R(2). 5.9. Challenging the order dated 26.03.2020 passed by the AAR, the assessees filed W.P.(C) Nos. 6764, 6765 and 6766 of 2020 before the High Court. 5.10. The High Court, vide the final judgment and common order dated 28.08.2024, allowed the writ petitions and quashed the AAR's order dated 26.03.2020, after holding that the assessees were entitled to treaty benefits and that their income would not be chargeable to tax in India. Aggrieved by the same, the Revenue has preferred the instant appeals. III. FINDINGS OF THE AAR AND THE HIGH COURT 6. Before turning to the rival submissions, it would be appropriate to outline the findings of the AAR and the High Court, which culminated in orders favourable to the Revenue and the respondents / assessees respectively. (A) AAR 6.1. After noting the organisational structure of the Respondents, the AAR held that they were part of Tiger Global Management LLC, USA, and were held through its affiliates....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sident in India. Furthermore, the AAR held that there was no foreign direct investment made by the respondent companies in India and, therefore, no question of participation in investment arose. As there was neither any business operation in India nor any taxable revenue generated, the AAR concluded that the transaction was a preordained arrangement created for the purpose of tax avoidance. It was therefore held that the transaction was prima facie designed for avoidance of tax and qualified as an "arrangement" under the law. Accordingly, the bar under clause (iii) of the proviso to Section 245R(2) of the Act was found to be applicable. 6.3. The AAR found that though the assessees contended that the transaction involved in the present case was a sale of shares simpliciter undertaken between two unrelated independent parties, which could not be considered as being designed for avoidance of tax, the same was too simplistic to be accepted. The precise question raised in the applications was the chargeability of capital gains on the sale of shares under the Act read with the DTAA between India and Mauritius. Capital gain is not dependent on the mere sale of shares. As per the mechan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t or sale were taken by the Boards of Directors of the assessees, the real control over decisions involving any transaction over USD 2,50,000 was exercised only by Mr. Charles P. Coleman. He was thus controlling the decisions of the Boards of Directors of the assessees through the non-resident Director, Mr. Steven Boyd, who was accountable to him. Therefore, the AAR concluded that the head and brain of the companies and, consequently, their control and management were situated not in Mauritius but outside, particularly in the USA. 6.5. Though the assessees contended that the holding structure of the applicants has no relevance in determining whether the transaction was prima facie designed for avoidance of tax, the AAR held that it was not the holding structure alone that was relevant; rather, the holding structure coupled with the prima facie management and control of the holding structure, including the management and control of the applicants, were relevant factors for determining the design for avoidance of tax. Further, the real management and control of the assessees were not with their respective Boards of Directors, but with Mr. Charles P. Coleman, the beneficial owner o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax residency in Mauritius was established only to take advantage of the DTAA. They submitted that Mauritius' comprehensive tax treaty network with various countries, and not just India, facilitated efficient asset management and competitive returns for their investors. According to them, the mere fact of obtaining a TRC to avail treaty benefits does not render the transaction a colourable device for tax avoidance. It had been held by this Court in Vodafone International Holdings BV v. Union of India (2012) 6 SCC 613 (3 Judge Bench) that the DTAA and Circular No. 789 dated 13.04.2000 would not preclude the Income Tax Department from denying treaty benefits in suitable cases. It was further held that the Department is entitled to examine the entire transaction as a whole, and if it is established that the Mauritian company was interposed as a device, it would be open to the Department to discard the device and subject the real transaction to tax. 6.8. The AAR further found that though tax residency was claimed to have been established to take advantage of Mauritius' treaty network with various countries and not just India, in effect, the entire investment made by the assessees wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the benefits of the DTAA between India and Mauritius in respect of the sale of shares of Flipkart, a private company incorporated under the laws of Singapore, or on the taxability of capital gains arising therefrom. The assessees had sought to derive benefit from Article 13(3A) of the DTAA, contending that acquisitions of shares prior to 01.04.2017 stood grandfathered and that gains arising therefrom were exempt from taxation. As the shares of Flipkart, Singapore, had been admittedly acquired prior to 01.04.2017, the assessees claimed exemption from capital gains tax. The AAR rejected the claim, holding that the assessees were mere conduit companies, lacking commercial substance, and were disentitled to claim DTAA benefits. 6.10. In conclusion, the AAR held that the entire arrangement entered into by the assessees was intended to claim benefits under the DTAA in a manner not contemplated by the lawmakers and constituted an arrangement for avoidance of tax in India. Consequently, the bar under clause (iii) of the proviso to Section 245R(2) of the Act was held to be squarely applicable, and the applications filed by the assessees were rejected. (B) HIGH COURT 6.11. On the....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The strategy of pooling investments through the respondents was found to be a prudent commercial decision, as it allowed efficient capital deployment rather than requiring each investor to act individually. The High Court concluded that the period of investment in the Flipkart Singapore holding entity exceeded a decade and when viewed in conjunction with the expenditure incurred in Mauritius, these factors collectively dispelled any notion that the respondents lacked economic substance. 6.13. On the question of control and decision-making, the High Court observed that while a parent or holding company may exercise supervisory functions over its subsidiaries, including by appointing directors or authorising key decisions, such influence does not render the subsidiary a mere puppet unless there is evidence of fraud, sham, or complete lack of independence. The mere presence of Directors connected with the TG Group, such as Mr. Charles P. Coleman and Mr. Steven Boyd, did not justify an inference of subservience or loss of independent agency. After taking note of the Board resolutions in detail, the High Court found that they reflected decisions taken collectively by the full Board....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue, and any attempt to pierce the corporate veil must be grounded in compelling evidence of tax fraud, sham transactions, or complete absence of economic substance. It is only when the Revenue is able to meet such a threshold that it can disregard the presumption of validity that arises the moment a TRC is produced and the Limitation of Benefits conditions are fulfilled. 6.16. The High Court further noted that both Azadi Bachao Andolan and Vodafone were decided before a statutory framework on tax residency had been formally enacted. Circular No. 789 of 2000 had clarified that a TRC issued by Mauritius would suffice for determining both fiscal residence and beneficial ownership, including for capital gains. Noting that a subsequent attempt to dilute this position via the Finance Bill, 2013, by proposing that a TRC would not be sufficient to claim treaty benefits, was abandoned, and that a press release dated 01.03.2013 reaffirmed that tax authorities were not to go behind the TRC, the High Court held that this reiterated the legal sufficiency of the TRC. 6.17. As far as the Limitation of Benefits ["LOB"] clause introduced in the DTAA is concerned, the High Court held that such....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s sold derived substantial value from underlying Indian assets, thereby satisfying the test for indirect transfers. Accepting the AAR's view would nullify the treaty protections and defeat the purpose of the grandfathering clause, especially since the acquisition occurred prior to the critical date. The High Court thus concluded that the respondents' transactions were grandfathered under the DTAA, and the Revenue could not circumvent these provisions through domestic law or administrative reinterpretation. In effect, the High Court held that the transaction was not designed for avoidance of tax and stood grandfathered by virtue of Article 13(3A) of the DTAA. Accordingly, the High Court allowed the Writ Petitions filed by the respondents and quashed the AAR's Order. 6.20. The High Court also found that investments emanating from Mauritius are not a recent phenomenon. The first DTAA was signed at Port Louis on 24.08.1982 and came into effect from 01.04.1983 and 01.07.1983 in the two countries, respectively. The last Protocol for amending the provisions of that treaty was signed on 10.05.2016, as could be seen from the data available on the portal of the Department for Promotion of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the assessees' contention that the transaction was not designed for avoidance of tax, thereby entitling them to all consequential reliefs. IV. CONTENTIONS OF THE PARTIES (A) ON BEHALF OF THE APPELLANTS 7. Mr. N. Venkataraman, learned Additional Solicitor General appearing on behalf of the appellants - Revenue, submitted that both the TDS Officer and the AAR had expressed only a prima facie view of the matter. The order dated 17.08.2018 passed under Section 197 of the Act merely prescribed a tentative and provisional rate of deduction of tax at source and did not amount to a conclusive determination of tax liability. Likewise, the AAR while observing that the transaction appeared prima facie to involve tax avoidance, expressly refrained from rendering any final determination. Despite this, the High Court proceeded to adjudicate the issue on merits, which was impermissible. 7.1. The learned Additional Solicitor General further submitted that under Article 4(1) of the DTAA, Indian tax authorities are entitled to examine whether the assessee is a resident of the other Contracting state, namely, Mauritius, by applying the domestic law of that State. As the source State ves....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement per se, but an independent anti-abuse safeguard. Reference was made to Sections 73(2)(b) and 73A of the Mauritius Income Tax Act, which recognise control, management, and the Place of Effective Management ["POEM"] as determinative of residence, even prior to October 2018. 7.7. The learned Additional Solicitor General pointed out that the Mauritian statutory regime mandates control and management within Mauritius, which is pari materia with Section 6(3) of the Indian Income Tax Act. Section 71 of the Financial Services Act, 2007 also requires a Global Business Licence holder to be managed and controlled from Mauritius, with the criteria being non-exhaustive. 7.8. Further, it was contended by the learned Additional Solicitor General that issuance of a TRC does not foreclose inquiry into actual control and management or application of "substance over form". Treaty benefits may be denied where capital gains arise in India but escape taxation elsewhere due to absence of capital gains tax. Reliance was placed on Vodafone, particularly its recognition of Judicial Anti-Avoidance Rules and the distinction between "influencing power" and "persuasive power". 7.9. The learned Ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the LOB clause introduced with effect from 01.04.2017, operates in a narrow and specific field. The LOB clause denies the benefit of Article 13(3B) to shell or conduit companies by prescribing objective criteria for such determination. It constitutes a Specific Anti Abuse Rule (SAAR) incorporated within the Treaty itself to counter treaty abuse. However, it was urged that the said provision has no application to the present case, as it applies only to direct transfers, whereas the transaction in question involves an indirect transfer. Consequently, neither Article 27A nor Articles 13(3A) or 13(3B) are attracted. Upon the 2017 amendment, direct transfers are governed by Article 13(3A), while indirect transfers fall exclusively within Article 13(4). As Article 13(4) is not subject to any LOB provision, it was contended that once treaty abuse is established in respect of such transaction, the DTAA ceases to govern the transaction and the matter must necessarily be tested under the Income Tax Act, 1961. 7.16. Proceeding on the premise that treaty benefits may be denied in cases of treaty abuse, the learned Additional Solicitor General next addressed the independent applicability of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mercial substance. Section 97 enumerates arrangements that are deemed to lack substance. Acceptance of the Respondents' interpretation would enable abuse structures put in place before 01.04.2017 to escape scrutiny by the simple expedient of labelling themselves as "investments"- a result expressly cautioned against by the Shome Committee. 7.19. It was therefore, submitted by the learned Additional Solicitor General that once GAAR came into effect with effect from 01.04.2017, any income-earning transaction forming part of an arrangement must undergo scrutiny under Chapter X-A, regardless of whether the underlying investment or structure originated prior to that date. Rule 10U is intended to give legislative expression to this position. While Rule 10U(1) enumerates four categories of exclusions from GAAR, Rule 10U(2) specifies the circumstances in which GAAR would apply even to arrangements linked to pre-2017 investments. Thus, where a transaction is found to be an impermissible avoidance arrangement, Rule 10U(2) operates to attract GAAR notwithstanding the vintage of the initial investment. Conversely, if the assessee successfully rebuts the statutory presumptions under Sections....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd reaffirm treaty commitments. It was emphasised that these measures were directed exclusively at portfolio investments by SEBI-registered FIIs and mutual funds operating in Indian capital markets. At the time, large-scale indirect transfers of shares constituting business reorganisations were neither prevalent nor contemplated. Consequently, Circular No. 789 cannot be extended by implication to such transactions. 7.24. Turning to Vodafone, it was submitted by the learned Additional Solicitor General that while the case involved an indirect transfer of shares constituting a business investment, it neither concerned the DTAA nor Circular No. 789. Nevertheless, the judgment affirmed that doctrines such as substance over form, piercing the corporate veil, lack of commercial substance, and the concept of sham or conduit entities are part of Indian tax jurisprudence and capable of legislative codification as GAAR. Emphasis was placed on the recognition that a TRC is not conclusive and that the tax authorities may examine the real nature of the transaction notwithstanding formal documentation. 7.25. It was further submitted by the learned Additional Solicitor General that paragrap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of residency, and that such State alone is competent to determine whether a person is "liable to tax" within its jurisdiction. The term "person" must therefore be understood as referring to an entity treated as a taxable unit under the domestic law of the Contracting State. 8.1. It was submitted by the learned Senior Counsel that the DTAA further recognises the right of a Contracting State to impose tax liability "by reason of his domicile, residence, place of management or any other criterion of similar nature". Accordingly, a State may adopt one or more criteria for creating tax liability. By way of illustration, it was submitted that a company incorporated in India - even if wholly owned by foreign shareholders and managed and controlled outside India - is nonetheless "liable to tax" in India in respect of its global income by virtue of Section 6 of the Act. Likewise, India cannot refuse to treat as a resident of Mauritius a company which is "liable to taxation" in Mauritius under Mauritian law. The only situation in which residence determination by both States arises is where a person is simultaneously a resident of both Contracting States. 8.2. The learned Senior Counsel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted by the learned Senior Counsel that domestic law doctrines such as "lifting the corporate veil" or "substance over form" cannot be invoked to deny treaty benefits in the absence of express treaty language to that effect. Treaty provisions operate as a self-contained code; unilateral domestic doctrines cannot override them. 8.7. The learned Senior Counsel submitted that treaty abuse concerns were comprehensively addressed through the 2016 Protocol to the DTAA, which came into effect from 01.04.2017. The amended provisions operate prospectively and do not affect gains arising from investments made prior thereto. This demonstrates that exclusive taxing rights over capital gains vested in Mauritius prior to 01.04.2017. 8.8. It was argued by the learned Senior Counsel that the Treaty constitutes a complete code, and unless the Treaty expressly incorporates domestic law, changes in domestic law cannot alter Treaty interpretation. Accordingly, the principles governing residence and allocation of taxing rights must be ascertained strictly within the Treaty framework. On this basis, learned Senior Counsel outlined the following sequence for determining tax residence under the DTAA:....
X X X X Extracts X X X X
X X X X Extracts X X X X
....treat TRC as "necessary but not sufficient" was consciously abandoned. 8.11. On the appellants' submission that observations in Azadi Bachao Andolan and Vodafone were obiter, it was argued by the learned Senior Counsel that this is untenable. In Vodafone, the principal contention of the Revenue was that the offshore structure was created solely to avoid capital gains tax on the sale of shares of the Indian operating companies. The assessees countered that the structure afforded treaty protection under the DTAA; thus, the correctness of Azadi Bachao Andolan directly arose. The Court reaffirmed Azadi Bachao Andolan and clarified the limited scope of McDowell & Company Ltd v. Commercial Tax Officer (1985) 3 SCC 230, holding that corporate structures may be disregarded only when used as artificial or colourable devices. No such allegation exists in the present case. Vodafone also reaffirmed the "look at" principle, requiring the Court to view the transaction holistically rather than through a dissecting lens. The respondents' investment structure was long-standing, commercially rational, and had generated taxable revenues; thus, characterising it as a preordained tax avoidance schem....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appellants' interpretation would render Rule 10U(1)(d) redundant - an interpretation contrary to settled principles. 8.16. Reliance was placed on the Shome Committee Report, the Finance Minister's 2015 Budget Speech, the 2016 Protocol, CBDT Circulars, and FAQs to emphasise that GAAR applies only prospectively to investments made on or after 01.04.2017. Pre-2017 investments are fully grandfathered. 8.17. The learned Senior Counsel submitted that the appellant's contention that Circular No. 789 applies only to FIIs or NRIs and not to GBL holders is liable to be rejected as being contrary to the language of the Circular, which extends to "other investment funds, etc." Paragraph 2 refers broadly to "investors from Mauritius", and no artificial distinction between classes of Mauritian residents can be introduced. 8.18. It was further pointed out by the learned Senior Counsel that the judgment in Azadi Bachao Andolan dealt with "Overseas Business Corporations", and the Court rejected the argument that such entities were not residents of Mauritius merely because they lacked business operations there. GBLs have existed since 2001, and the Indian legislature has never drawn any di....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the High Court of Delhi. 2. Today Mr. Harish Salve, the learned senior counsel mentioned the matter, pointing out that no sooner this Court stayed the operation of the judgment of the High Court the assessment proceedings have started. 3. He would submit that they have succeeded before the High Court and having succeeded before the High Court till the final disposal of the main matter they should not be subjected the further assessment proceedings. 4. On the other hand Mr. N Venkataraman, the learned ASG submitted that if the operation of the impugned judgment is not stayed then most of the notices may get time barred. 5. With a view to balance the situation, we direct let the main matter come up for final hearing on 18.03.2025. 6. With a view to protect the interest of the revenue and obviate the difficulty of the notices getting time barred the further proceedings of the assessment shall remain stayed till 18.03.2025." Thereafter, the appeals were taken up and proceeded with for final hearing. (A) ISSUES FOR CONSIDERATION 11. Evidently, in the present case, the AAR had prima facie found the claim to be an arrangement to av....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ey stood originally are reproduced as hereunder: "ARTICLE 4 - Residents - 1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of similar nature. The terms "resident of India" and "resident of Mauritius" shall be construed accordingly. 2. Where by reason of the provisions of paragraph (1), an individual is a resident of both Contracting States, then his residential status for the purposes of the Convention shall be determined in accordance with the following rules: (a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (hereinafter referred to as his "centre of vital interests"); (b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he does not have a permanent ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....." 12.2. Thus, pursuant to Article 13(4), capital gains from the alienation of shares were taxable only in the resident jurisdiction, if the case did not fall under any of the preceding clauses. In the context of Mauritius-based investments in India, the capital gains were treated as taxable only in Mauritius. However, as Mauritius' domestic tax law exempted capital gains from share transfers, such gains were effectively not taxed in either India or Mauritius. This created a significant tax arbitrage opportunity. 12.3. Notably, it was only from 1992 onwards that a substantial increase in foreign investment through Mauritius was observed, leading to the emergence of the Mauritius Route as the dominant investment structure for foreign capital inflows into India. This shift was primarily driven by the Mauritius Offshore Business Activities Act, 1992, which established the Mauritius Offshore Business Authority (MOBA) in 1993, thereby creating a favourable regulatory framework for offshore investments. This development coincided with India's economic liberalization policy of 1991-1992, further accelerating foreign capital inflows through Mauritius. CBDT Circular No. 682 dated 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) on the ground that their beneficial ownership was outside both India and Mauritius. This resulted in capital outflows from India, diplomatic friction with Mauritius, and concerns over the stability of foreign investments. Mauritius argued that these entities were legitimately incorporated under its offshore regulatory regime and, therefore, qualified as residents of Mauritius for tax purposes. 12.8. To clarify India's position, the Indian Finance Minister issued a press note on 04.03.2000, stating that the actions of certain tax officers were case-specific assessments and did not reflect the Government's policy regarding the taxation of FIIs. Subsequently, the CBDT issued Circular No. 789 reaffirming that FIIs and investment funds operating from Mauritius were liable to tax in Mauritius. It further clarified that once such entities obtained a TRC from the Mauritian authorities, this would constitute sufficient proof of: (i) beneficial ownership and residence for claiming the concessional rate on dividend income under Article 10; and (ii) residence for capital gains taxation under Article 13(4). The relevant portion reads as under: "CBDT Circular No. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Mauritius. In order to remove all doubts on the subject, it is hereby clarified that where an assessee is a resident of both the contracting States, in accordance with para 1 of article 4 of Indo-Mauritius DTAC, then, his residence is to be determined in accordance with para 3 of the said article, which reads as under :- "3. Where, by reason of the provisions of paragraph 1, a person other than an individual is resident of both the Contracting States, then it shall be deemed to be a resident of the Contracting State in which the place of effective management is situated." In view of the above, where an Assessing Officer finds and is satisfied that a company or an entity is resident of both India and Mauritius, he would be free to proceed to determine the residential status under para 3 of article 4 of DTAC. Where it is found as a fact that the company has its place of effective management in India, then notwithstanding its being incorporated in Mauritius, it would be taxed under the DTAC in India." Union of India v. Azadi Bachao Andolan 12.10. While so, Circular No. 789 was challenged by way of a Public Interest Litigation in Azadi Bachao Andolan. This Cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted in India. It also distinguished legitimate tax planning from tax evasion, aligned with Azadi Bachao Andolan, and upheld Vodafone's transaction. This Court reiterated that TRCs cannot be pierced except in cases involving fraud, sham transactions, etc., and reaffirmed the validity of the Mauritius Route and its inextricable link with foreign investment. The relevant paragraphs of the judgment are extracted below, for ease of reference: "Our analysis 61. Before coming to Indo-Mauritius Double Taxation Avoidance Agreement (DTAA), we need to clear the doubts raised on behalf of the Revenue regarding the correctness of Azadi Bachao [(2004) 10 SCC 1] for the simple reason that certain tests laid down in the judgments of the English Courts subsequent to IRC v. Duke of Westminster [IRC v. Duke of Westminster, 1936 AC 1 : 1935 All ER Rep 259 (HL)] and Ramsay (W.T.) Ltd. v. IRC [1982 AC 300 : (1981) 2 WLR 449 : (1981) 1 All ER 865 (HL)] help us to understand the scope of Indo-Mauritius DTAA. 62. It needs to be clarified that McDowell [(1985) 3 SCC 230 : 1985 SCC (Tax) 391] dealt with two aspects. First, regarding validity of the circular(s) issued by CBDT concer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e provided it is within the framework of law." In the latter part of para 45, it held that: (SCC pp. 254-55) "45. ... Colourable devices cannot be [a] part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods." It is the obligation of every citizen to pay the taxes without resorting to subterfuges. The above observations should be read with para 46 where the majority holds: (McDowell case [(1985) 3 SCC 230 : 1985 SCC (Tax) 391], SCC p. 255) "46. On this aspect one of us, Chinnappa Reddy, J., has proposed a separate ... opinion with which we agree." The words "this aspect" express the majority's agreement with the judgment of Reddy, J. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus, it cannot be said that all tax planning is illegal/illegitimate/impermissible. Moreover, Reddy, J. himself says that he agrees with the majority. 69. In the judgment of Reddy, J. in McDowell [(1985) 3 SCC 230 : 1985 SCC (Tax) 391] there are repeated references to schemes and devices in co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esides. Further, if a company is a parent company, that company's executive director(s) should lead the group and the company's shareholder's influence will generally be employed to that end. This obviously implies a restriction on the autonomy of the subsidiary's executive Directors. Such a restriction, which is the inevitable consequence of any group structure, is generally accepted, both in corporate and tax laws. XXXX XXXX XXXX 76. It is a common practice in international law, which is the basis of international taxation, for foreign investors to invest in Indian companies through an interposed foreign holding or operating company, such as a Cayman Islands or Mauritius-based company for both tax and business purposes. In doing so, foreign investors are able to avoid the lengthy approval and registration processes required for a direct transfer (i.e. without a foreign holding or operating company) of an equity interest in a foreign invested Indian company. However, taxation of such holding structures very often gives rise to issues such as double taxation, tax deferrals and tax avoidance. 77. In this case, we are concerned with the conc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ic tax planning has not been abandoned by any decision of the English Courts till date]. 81. Applying the above tests, we are of the view that every strategic foreign direct investment coming to India, as an investment destination, should be seen in a holistic manner. While doing so, the Revenue/courts should keep in mind the following factors: the concept of participation in investment, the duration of time during which the holding structure exists; the period of business operations in India; the generation of taxable revenues in India; the timing of the exit; the continuity of business on such exit. 82. In short, the onus will be on the Revenue to identify the scheme and its dominant purpose. The 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. XXXX XXXX XXXX 96. 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, itemwise. The facts of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tinguishment took place because of the transfer of the CGP share and not by virtue of various clauses of SPA. In a case like the present one, where the structure has existed for a considerable length of time generating taxable revenues right from 1994 and where the court is satisfied that the transaction satisfies all the parameters of "participation in investment" then in such a case the court need not go into the questions such as de facto control versus legal control, legal rights versus practical rights, etc. 100. Be that as it may, did HTIL possess a legal right to appoint Directors onto the board of HEL and as such had some "property right" in HEL? If not, the question of such a right getting "extinguished" will not arise. A legal right is an enforceable right. Enforceable by a legal process. 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 com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t obliterate the decision-making power or authority of its (subsidiary's) Directors. They cannot be reduced to be puppets. The decisive criterion is whether the parent company's management has such steering interference with the subsidiary's core activities that the subsidiary can no longer be regarded to perform those activities on the authority of its own executive Directors. XXXX XXXX XXXX 130. Subsidiaries are often created for tax or regulatory reasons. They at times come into existence from mergers and acquisitions. As group members, subsidiaries work together to make the same or complementary goods and services and hence they are subject to the same market supply and demand conditions. They are financially interlinked. One such linkage is the intra-group loans and guarantees. Parent entities own equity stakes in their subsidiaries. Consequently, on many occasions, the parent suffers a loss whenever the rest of the group experiences a downturn. Such grouping is based on the principle of internal correlation. The courts have evolved doctrines like piercing the corporate veil, substance over form, etc. enabling taxation of underlying assets in case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arisen to the Mauritius companies, who are not liable to pay capital gains tax under the Indo-Mauritius DTAA. That, nothing prevented the Mauritius companies from declaring dividend on gains made on the sale of shares. There is no tax on dividends in Mauritius. Thus, the Mauritius route was available but it was not opted for because that route would not have brought in the control over GSPL. 135. Secondly, if the Mauritius companies had sold the shares of HEL, then the Mauritius companies would have continued to be the subsidiaries of HTIL, their accounts would have been consolidated in the hands of HTIL and HTIL would have accounted for the gains in exactly the same way as it has accounted for the gains in the hands of HTIHL (CI) which was the nominated payee. Thus, in our view, two routes were available, namely, the CGP route and the Mauritius route. It was open to the parties to opt for any one of the two routes. XXXX XXXX XXXX Summary of findings 179. Applying the look at test in order to ascertain the true nature and character of the transaction, we hold, that the offshore transaction herein is a bona fide structured FDI investment into Indi....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 253. The Direct Taxes Code Bill (DTC), 2010, proposed in India, envisages creation of an economically efficient, effective direct tax system, proposing GAAR. GAAR intends to prevent tax avoidance, what is inequitable and undesirable. Clause 5(4)(g) provides that the income from transfer outside India of a share in a foreign company shall be deemed to arise in if the FMV of assets India owned by the foreign company is at least 50% of its total assets. Necessity to take effective legislative measures has been felt in this country, but we always lag behind because our priorities are different. Lack of proper regulatory laws leads to uncertainty and passing inconsistent orders by courts, tribunals and other forums, putting the Revenue and taxpayers at bay. XXXX XXXX XXXX A. Lifting the veil - Tax laws 277. Lifting the corporate veil doctrine is readily applied in the cases coming within the company law, law of contract, law of taxation. Once the transaction is shown to be fraudulent, sham, circuitous or a device designed to defeat the interests of the shareholders, investors, parties to the contract and also for tax evasion, the court can always li....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Westminster had made an arrangement that he would pay his gardener an annuity, in which case, a tax deduction could be claimed. Wages of household services were not deductible expenses in computing the taxable income, therefore, the Duke of Westminster was advised by the tax experts that if such an agreement was employed, the Duke would get tax exemption. Under the tax legislation then in force, if it was shown as gardener's wages, then the wages paid would not be deductible. The Inland Revenue contended that the form of the transaction was not acceptable to it and the Duke was taxed on the substance of the transaction, which was that payment of annuity was treated as a payment of salary or wages. The Crown's claim of substance doctrine was, however, rejected by the House of Lords. 283. Lord Tomlin's celebrated words are quoted below: (Duke of Westminster case [IRC v. Duke of Westminster, 1936 AC 1 : 1935 All ER Rep 259 (HL)], AC pp. 19-20) "... Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Westminster [IRC v. Duke of Westminster, 1936 AC 1 : 1935 All ER Rep 259 (HL)] has been exorcised in England is too tall a statement and not seen accepted even in England. The House of Lords in McGuckian [(1997) 1 WLR 991 : (1997) 3 All ER 817 : 1997 BTC 346 (HL)] and MacNiven [(2003) 1 AC 311 : (2001) 2 WLR 377 : (2001) 1 All ER 865 (HL)], it may be noted, has emphasised that the Ramsay [1982 AC 300 : (1981) 2 WLR 449 : (1981) 1 All ER 865 (HL)] approach is a principle of statutory interpretation rather than an overarching anti-avoidance doctrine imposed upon tax laws. The Ramsay [1982 AC 300 : (1981) 2 WLR 449 : (1981) 1 All ER 865 (HL)] approach is ultimately concerned with the statutory interpretation of a tax avoidance scheme and the principles laid down in Duke of Westminster [IRC v. Duke of Westminster, 1936 AC 1 : 1935 All ER Rep 259 (HL)], it cannot be said, have been given a complete go-by in Ramsay [1982 AC 300 : (1981) 2 WLR 449 : (1981) 1 All ER 865 (HL)], Dawson [1984 AC 474 : (1984) 2 WLR 226 : (1984) 1 All ER 530 (HL)] or other judgments of the House of Lords. XXXX XXXX XXXX Limitation of benefit clause (LOB) 309. The Indo-Mauritius Trea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eholders/principal, there is no other reason for this quantum of funds to be invested from/through Mauritius. 311. We are, therefore, of the view that in the absence of an LOB clause and the presence of Circular No. 789 of 2000 and the TRC certificate, on the residence and beneficial interest/ownership, the Tax Department cannot at the time of sale/disinvestment/exit from such FDI, deny benefits to such Mauritius companies of the Treaty by stating that FDI was only routed through a Mauritius company, by a company/principal resident in a third country; or the Mauritius company had received all its funds from a foreign principal/company; or the Mauritius subsidiary is controlled/managed by the foreign principal; or the Mauritius company had no assets or business other than holding the investment/shares in the Indian company; or the foreign principal/100% shareholder of Mauritius company had played a dominant role in deciding the time and price of the disinvestment/sale/transfer; or the sale proceeds received by the Mauritius company had ultimately been paid over by it to the foreign principal/its 100% shareholder either by way of special dividend or by way of repayment of lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., out of which Rs 70,000 crores is from Mauritius. The facts, therefore, clearly show that almost the entire FDI and FII made in India from Mauritius under DTAA does not originate from that country, but has been made by Mauritius companies/SPV, which are owned by companies/individuals of third countries providing funds for making FDI by such companies/individuals not from Mauritius, but from third countries. 315. Mauritius, and India, it is known, have also signed a memorandum of understanding (MoU) laying down the rules for information exchange between the two countries which provides for the two signatory authorities to assist each other in the detection of fraudulent market practices, including insider dealing and market manipulation in the areas of securities transactions and derivative dealings. The object and purpose of the MoU is to track down transactions tainted by fraud and financial crime, not to target the bona fide legitimate transactions. Mauritius has also enacted stringent "Know Your Clients" (KYC) regulations and anti-money laundering laws which seek to avoid abusive use of treaty. 316. Viewed in the above perspective, we also find no reason to im....
X X X X Extracts X X X X
X X X X Extracts X X X X
....being a WOS of CGP, CGP may appoint or remove any of its Directors, if it wishes by a resolution in the general body of the subsidiary, but CGP, Array and all Mauritian entities are separate legal entities and have decentralised management and each of the Mauritian subsidiaries has its own management personnel. 356. Vodafone on purchase of the CGP share got controlling interest in the Mauritian companies and the incident of transfer of the CGP share cannot be considered to be two distinct and separate transactions, one shifting of the share and another shifting of the controlling interest. Transfer of the CGP share automatically results in host of consequences including transfer of controlling interest and that controlling interest as such cannot be dissected from the CGP share without legislative intervention. Controlling interest of CGP over Array is an incident of holding majority shares and the control of company vests in the voting power of its shareholders. 357. Mauritian entities being a WOS of Array, Array as a holding company can influence the shareholders of various Mauritian companies. Holding companies like CGP, Array, may exercise control over the sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ol premium paid, not over and above the CGP share, but is the integral part of the price of the share. On transfer of the CGP share situated in the Cayman Islands, the entire rights, which accompany stood transferred not in India, but offshore and the facts reveal that the offshore holdings and arrangements made by HTIL and Vodafone were for sound commercial and legitimate tax planning, not with the motive of evading tax. XXXX XXXX XXXX 408. Section 9 has no "look through provision" and such a provision cannot be brought in through construction or interpretation of a word "through" in Section 9. In any view, "look through provision" will not shift the situs of an asset from one country to another. Shifting of situs can be done only by express legislation. Federal Commr. of Taxation v. Lamesa Holdings BV [(1998) 157 ALR 290 (Aust)] gives an insight as to how "look through" provisions are enacted. Section 9, in our view, has no inbuilt "look through mechanism". Capital gains are chargeable under Section 45 and their computation is to be in accordance with the provisions that follow Section 45 and there is no notion of indirect transfer in Section 45. Section 9(1)(i)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly, its value substantially from the assets located in India. ........ (v) Amend section 195(1) to clarify that obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident has:- (a) a residence or place of business or business connection in India; or (b) any other presence in any manner whatsoever in India." 12.14. Pursuant to the above, Explanations 4 and 5 were inserted in Section 9(1)(i) as under: "Explanation 4.-For the removal of doubts, it is hereby clarified that the expression "through" shall mean and include and shall be deemed to have always meant and included "by means of", "in consequence of" or "by reason of". Explanation 5.-For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt as they are applicable to the arrangement. Section 96. Impermissible avoidance arrangement.- (1) An impermissible avoidance arrangement means an arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and it - (a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm's length; (b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act; (c) lacks commercial substance or is deemed to lack commercial substance under section 97, in whole or in part; or (d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes. (2) An arrangement shall be presumed to have been entered into, or carried out, for the main purpose of obtaining a tax benefit, if the main purpose of a step in, or a part of, the arrangement is to obtain a tax benefit, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit. Section 97. Arrangement to lack commercial substance.- (1) An arrangement shall be deemed to lack commercial substance....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., under the arrangement; (iii) the fact that an exit route (including transfer of any activity or business or operations) is provided by the arrangement. Section 98. Consequence of impermissible arrangement.- (1) If an arrangement is declared to be an impermissible avoidance arrangement, then the consequences, in relation to tax, of the arrangement, including denial of tax benefit or a benefit under a tax treaty, shall be determined, in such manner as is deemed appropriate, in the circumstances of the case, including by way of but not limited to the following, namely: - (a) disregarding, combining or recharacterising any. step in, or a part or whole of, the impermissible avoidance arrangement; (b) treating the impermissible avoidance arrangement as if it had not been entered into or carried out; (c) disregarding any accommodating party or treating any accommodating party and any other party as one and the same person; (d) deeming persons who are connected persons in relation to each other to be one and the same person for the purposes of determining tax treatment of any amount; (e) reallocating amongst the parties to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... if the person is a company; (c) any partner or member of a firm or association of persons or body of individuals or any relative of such partner or member if the person is a firm or association of persons or body of individuals; (d) any member of the Hindu undivided family or any relative of such member, if the person is a Hindu undivided family; (e) any individual who has a substantial interest in the business of the person or any relative of such individual; (f) a company, firm or an association of persons or a body of individuals, whether incorporated or not, or a Hindu undivided family having a substantial interest in the business of die person or any director, partner, or member of the company, firm or association of persons or body of individuals or family, or any relative of such director, partner or member; (g) a company, firm or association of persons or body of individuals, whether incorporated or not, or a Hindu undivided family, whose director, partner, or member have a substantial interest in the business of the person, or family or any relative of such director, partner or member; (h) any other person who carries ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he relevant previous year or any other previous year; (12) "tax treaty" means an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A." 12.18. The above provisions sought to introduce a comprehensive mechanism to deter tax evasion under the guise of FII investments by companies misusing the DTAA with the Mauritius Government. However, given the wide discretion and authority conferred upon the tax administration, concerns were raised regarding the potential for uncertainty and misuse. Consequently, it was deemed necessary to constitute an expert committee (the Shome Committee) to review and analyse the provisions before their implementation. This resulted in the postponement of the GAAR provisions to the assessment year 2013-14, which was again deferred to 2015 and eventually, implemented from 01.04.2017. 12.19. In this regard, the relevant portions of the Finance Minister's speech during the discussion on the Finance Bill 2012 are extracted below: "....In addition, certain provisions relating to General Anti-Avoidance Rules (GAAR) have also been proposed in the Finance Bill, 2012. After examining the recommendations of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s where the transaction has been routed through low tax or no tax countries with whom India does not have a Double Taxation Avoidance Agreement. The retrospective clarificatory amendments which are now under consideration of Parliament will not be used to reopen any cases where assessment orders have already been finalized. I have asked the Central Board of Direct Taxes to issue a policy circular to clearly state this position after the passage of the Finance Bill. Currently, long term capital gain arising from sale of unlisted securities in the case of Foreign Institutional Investors is taxed at the rate of 10 per cent while other non-resident investors, including Private Equity Investors are taxed at the rate of 20 per cent. In order to provide parity to such investors, I propose to reduce the rate in their case from 20 per cent to 10 per cent on the same lines as applicable to Foreign Institutional Investors....." (iii) Amendment to Section 90 - GAAR override and TRC requirements 12.20. Section 90 of the Income Tax Act empowers the Central Government to enter into agreements with foreign countries or specified territories for the purpose of granting relie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould have to read as such documents that establish that the transaction of the assessee is not precluded under Chapter XA or Rule 10U. Moreover, Section 90(2A) was amended, with its applicability deferred to 01.04.2016. This amendment aligned the implementation timeline of Section 90(2A) with the broader framework governing treaty benefits and GAAR. The Finance Minister clarified in the Budget Speech that GAAR would apply prospectively to investments made on or after 01.04.2017. The term "investment" was mentioned and not "arrangement". The relevant portion reads as follows: "109. Implementation of the General Anti Avoidance Rule (GAAR) has been a matter of public debate. The investment sentiment in the country has now turned positive and we need to accelerate this momentum. There are also certain contentious issues relating to GAAR which need to be resolved. It has therefore been decided to defer the applicability of GAAR by two years. Further, it has also been decided that when implemented, GAAR would apply prospectively to investments made on or after 01.04.2017." Moreover, GAAR was deferred for another two years. The relevant portion of the Finance Bill, 2015 reads ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntroduced, making the submission of a TRC necessary. These amendments took effect from 01.04.2013, applying to Assessment Year 2013-14 onwards. Section 90(5) mandated that the assessee shall also provide such other documents and information, implying that the existence of a TRC alone need not be treated as sufficient to avoid taxation under the domestic law. This led to ambiguity among investors as to whether a TRC alone was sufficient to establish tax residency. Further, Section 90(3) also empowered the Central Government to assign a meaning, by notification, to any term used in a DTAA that was not defined in either the Act or the Treaty. The Finance Act, 2012 amendment also clarified, by inserting Explanation 3 to Section 90, that such a notification would have retrospective effect from the date the agreement came into force. It took effect retrospectively from 01.10.2009. Shome Committee Report dated 30.09.2012 12.25. The Expert Committee's recommendations included suggestions for legislative amendments, formulation of rules, and prescribing guidelines for the implementation of GAAR. It also gave observations and recommendations regarding grandfathering of investments and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was sought by stakeholders whether the Circular would be withdrawn after commencement of GAAR or, if not withdrawn, whether it would still be applicable to avail treaty benefit. In view of the above, the Committee recommends that, where Circular No. 789 of 2000 with respect to Mauritius is applicable, GAAR provisions shall not apply to examine the genuineness of the residency of an entity set up in Mauritius. As needed, the Mauritius treaty itself should be revisited if policy so dictates, rather than challenged indirectly through the use of the GAAR instrument." (emphasis supplied) However, it is pertinent to point out that no guidance was issued to this effect thereafter, and the amendments that took away the supremacy of the DTAA were brought into effect. Clarification issued by the Finance Ministry on TRC dated 01.03.2013 12.26. As already mentioned, upon concerns being raised regarding Section 90(4), which mandated the production of a TRC as a prerequisite for availing benefits under a DTAA, the contents of Section 90(5) and the corresponding Explanatory Memorandum, which stated that while a TRC containing prescribed particulars was a necess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icable from the assessment year 2016-17 onwards. Further, Section 96 was amended to provide that an arrangement would be considered an impermissible avoidance arrangement if the main purpose of such arrangement was to obtain a tax benefit, thereby removing the earlier criterion that included arrangements where obtaining a tax benefit was merely one of the main purposes. Section 96 (2) also laid down that even if the main purpose of the arrangement was not to obtain a tax benefit, it would be presumed to be so if the main purpose of any step in, or part thereof, is to obtain a tax benefit, implying that a tax benefit cannot, either by direct arrangement or indirect arrangement or implication, be the object or purpose of the whole arrangement, part of the arrangement, or a benefit of any action carried out in furtherance of such arrangement. Section 97 was inserted to determine the arrangements which lack commercial substance. The provisions stated the transactions which would be deemed to lack commercial substance, including transactions involving or including round-trip financing, an accommodating party, offsetting or cancelling transactions, transactions conducted through one or m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed securities, or unlisted securities, with the prior permission of the competent authority, in accordance with the Securities and Exchange Board of India (Foreign Institutional Investor) Regulations, 1995 and such other regulations as may be applicable, in relation to such investments; (c) a person, being a non-resident, in relation to investment made by him by way of offshore derivative instruments or otherwise, directly or indirectly, in a Foreign Institutional Investor; (d) any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of investments made before the 1st day of April 2017 by such person. (2) Without prejudice to the provisions of clause (d) of sub-rule (1), the provisions of Chapter X-A shall apply to any arrangement, irrespective of the date on which it has been entered into, in respect of the tax benefit obtained from the arrangement on or after the 1st day of April, 2017. (3) For the purposes of this rule, - (i) "Foreign Institutional Investor" shall have the same meaning as assigned to it in the Explanation to section 115AD; (ii) "off ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....17. The use of the word "any arrangement" is exhaustive enough to include any benefit arising out of the sale of shares. DTAA Amendment 12.31. To address long-pending issues of Treaty abuse and round-tripping of funds associated with the DTAA, and to curb revenue loss, prevent double non-taxation, streamline investment flows, and enhance the exchange of information between the countries, the DTAA was amended through a Protocol signed on 10.05.2016. The amendments, which came into effect from 01.04.2017, introduced significant changes to Article 13. More particularly, two new paragraphs were inserted, effectively vesting the right to tax capital gains arising from "transfer of investments" acquired on or after 01.04.2017, with the source jurisdiction. Needless to mention that the sale of shares is a transfer of investment. Further, capital gains on such shares, if derived between 01.04.2017 and 31.03.2019, would be eligible for a concessional tax rate, 50% of the prevailing rate in the source State, subject to the fulfilment of conditions specified in the LOB clause under the newly introduced Article 27A. At the same time, it was clarified that existing investments, i.e., thos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er income. amongst other changes. Major impact: The Protocol will tackle the long pending issues of treaty abuse and round tripping of funds investment and India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the flow of stimulate the flow of exchange of information between India and Mauritius, It will improve transparency investments, i.e. in tax matters and will help curb tax evasion and tax avoidance. At the same time, existing investments, i.e. investments made before 1.4.2017 have been grand-fathered and will not be subject to capital gains taxation in India." 12.33. It is also to be pointed out that the following provisions were inserted in Article 13 and they are: "3A. Gains from the alienation of shares acquired on or after 1st April 2017 in a company which is resident of a Contracting State may be taxed in that State. 3B. However, the tax rate on the gains referred to in paragraph 3A of this Article and arising during the period beginning on 1st April, 2017 and ending on 31st March, 2019 shall not exceed 50% of the tax rate applicable on such gains in the State of residence of the company whose shares are being al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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." Clarification dated 27.01.2017 on implementation of GAAR provisions 12.35. Finally, GAAR was to be implemented from AY 2018-19 onwards. The Ministry of Finance issued a Clarification dated 27.01.2017 regarding "arrangement" and the "grandfathering" provisions. The relevant portions are extracted as under: "......Stakeholders and industry associations had requested for clarifications on implementation of GAAR provisions and a Working Group was constituted by CBDT to examine the issues raised. Accordingly, CBDT has issued the clarifications on implement....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of GAAR and conditions under which it shall not apply, have been enumerated in Rules 10U to 10UC of the Income-tax Rules, 1962. Question no. 1: Will GAAR be invoked if SAAR applies? Answer: It is internationally accepted that specific anti avoidance provisions may not address all situations of abuse and there is need for general anti-abuse provisions in the domestic legislation. The provisions of GAAR and SAAR can coexist and are applicable, as may be necessary, in the facts and circumstances of the case. Question 2: Will GAAR be applied to deny treaty eligibility in a case where there is compliance with LOB test of the treaty? Answer: Adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same are required to be tackled through domestic anti-avoidance rules, If a case of avoidance is sufficiently addressed by LOB in the treaty, there shall not be an occasion to invoke GAAR. Question 5: Will GAAR provisions apply to (i) any securities issued by way of bonus issuances so long as the original securities are acquired prior to 01 April, 2017 (ii) shares issued post 31 March, 201....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ines the term "person" to include an individual, a company, and any other entity, corporate or non-corporate, which is treated as a taxable unit under the taxation laws in force in the respective Contracting States. Further, the Ministry of Finance (Department of Revenue) of the Central Government, in the case of India, and the Commissioner of Income Tax, in the case of Mauritius, are designated as the "competent authority". As already stated, the applicability of the DTAA is determined by Article 4, which at the cost of repetition, is extracted below: "Article 4 - Residents: 1. For the purposes of the Convention, the term "resident of a Contracting State" means any person who under the laws of that State, is liable to taxation therein by reason of his domicile, residence, place or management or any other criterion of similar nature. The terms "resident of India" and "resident of Mauritius" shall be construed accordingly. 2. Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his residential status for the purposes of this Convention shall be determined in accordance with the following rules: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndent personal services, may be taxed in the State in which such permanent establishment or fixed base is situated. Gains from the alienation of ships and aircraft operated in international traffic, and movable property pertaining thereto, are taxable only in the Contracting State in which the place of effective management is situated. With respect to capital gains derived by a resident of a Contracting State from the alienation of any other property, taxation is confined to the State in which such person is a resident. 16. Notably, a careful reading of Article 13(2) illustrates that it covers cases where the gain arises from the sale of movable property forming part of a permanent establishment or fixed base of a Mauritian-resident company in the other Contracting State. The expression used is "in the other Contracting State" and not "owned by an establishment in another State", thereby implying that it applies only where the sale relates to movable property of a permanent establishment directly owned by the Mauritian company in the other State. Transactions such as the present one would not fall within its sweep. 17. Further, Article 13 (3A), which was inserted in 2016, app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident. The complaint must be lodged within three years of receipt of the notice giving rise to such taxation. If the objection appears to be justified, the competent authority shall endeavour to resolve the matter by mutual agreement with the competent authority of the other Contracting State so as to avoid taxation inconsistent with the Convention. Article 25 also provides for continuous communication between the competent authorities to resolve doubts regarding interpretation or application of the Convention. 21. At this stage, it is relevant to recall the purpose of a Double Taxation Treaty or Convention and importantly, to note that such treaties are entered into pursuant to the enabling provisions of Chapter IX of the Income Tax Act and must be read harmoniously with other provisions of the Act. Section 4 provides for the charge of income-tax. Section 5 stipulates the scope of total income. The total income of a resident includes income received or accrued in India or outside India. In the case of a non-resident, the total income includes all in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct to the agreement or treaty, because of the power of judicial review vested in constitutional courts to protect the fundamental and constitutional rights guaranteed under the Constitution. 24. In cases of fiscal treaties dealing with double taxation avoidance, different countries have varying procedures. In the United States, such a treaty becomes a part of municipal law upon ratification by the Senate. In the United Kingdom, such a treaty would have to be endorsed by an order made by the Queen in Council. In India, since such a treaty has to be approved by an Act of Parliament, a special procedure was evolved by enacting Section 90 of the Act. The purpose of Section 90 becomes clear by reference to its legislative history. Section 49A of the Income-tax Act, 1922 enabled the Central Government to enter into an agreement with the Government of any country outside India for the granting of relief in respect of income on which both income-tax (including super-tax) under the Act and income-tax in that country, under the corresponding law in force therein, had been paid. The Central Government could make such provisions as necessary for implementing the agreement by notification in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e also clearly in the nature of contemporanea exposition, furnishing legitimate aid to the construction of the Act. The rule of contemporanea expositio is that administrative construction i.e., contemporaneous construction placed by administrative or executive officers, should generally not be overturned unless it is clearly wrong; such a construction, though non-controlling, is nevertheless entitled to considerable weight and is highly persuasive. It was further held that the circulars issued by the CBDT in exercise of its power under Section 119 are legally binding on the Revenue. Such binding force attaches to these circulars even where they are found not to be in strict accordance with the correct interpretation of sub-section (2) or where they depart from the proper statutory construction. 26. In Commissioner of Income-Tax v. Anjum M.H. Ghaswala and Others 2001 INSC 519, it was pointed out that the circulars issued by the CBDT under Section 119 of the Act have statutory force and are binding on every income-tax authority, although such may not be the case with regard to press releases issued by the CBDT for the information of the public. 27. No doubt, the provisions of S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 43. In State of Tamil Nadu v. Arooran Sugars Ltd. MANU/SC/0426/1997 : (1997) 1 SCC 326, this Court after setting out what was held in Shri Prithvi Cotton Mills (supra) stated: 16...The same view was reiterated in the cases of West Ramnad Electric Distribution Co. Ltd. v. State of Madras MANU/SC/0060/1962 : [(1963) 2 SCR 747 : AIR 1962 SC 1753]; Udai Ram Sharma v. Union of India [MANU/SC/0154/1968 : (1968) 3 SCR 41 : AIR 1968 SC 1138]; Tirath Ram Rajindra Nath v. State of U.P. [MANU/SC/0555/1972 : (1973) 3 SCC 585: 1973 SCC (Tax) 300]; Krishna Chandra Gangopadhyaya v. Union of India [MANU/SC/0143/1975 : (1975) 2 SCC 302]; Hindustan Gum & Chemicals Ltd. v. State of Haryana [MANU/SC/0254/1985 : (1985) 4 SCC 124]; Utkal Contractors and Joinery (P) Ltd. v. State of Orissa [MANU/SC/0125/1987 : 1987 Supp SCC 751]; D. Cawasji & Co. v. State of Mysore [MANU/SC/0254/1984 : 1984 Supp SCC 490: 1985 SCC (Tax) 63] and Bhubaneshwar Singh v. Union of India [MANU/SC/0844/1994 : (1994) 6 SCC 77]. It is open to the legislature to remove the defect pointed out by the court or to amend the definition or any other provision of the Act in question retrospectively. In this process it cann....
X X X X Extracts X X X X
X X X X Extracts X X X X
....avail the benefits under the DTAA, and reliance upon earlier judgments dealing with circulars issued in the pre-amendment regime cannot ipso facto come to the aid of the respondents. Rather, the facts will have to be independently analysed to decide on the applicability of Chapter XA. 28. Thus, the first step is to examine whether the transaction falls within the scope of Section 9(1)(i) of the Act, which deems income arising from the transfer of a capital asset situated in India to accrue in India. Explanation 5 to the said provision extends this deeming fiction to cover shares in a foreign company if such shares derive, directly or indirectly, their value substantially from assets located in India. Once domestic taxability is established, the second limb of the analysis considers whether such taxability is curtailed or overridden by the DTAA. This enquiry centres on: (a) whether the taxpayer is a "resident" of Mauritius within the meaning of Article 4(1) of the DTAA; (b) whether the transaction falls within the scope of Article 13(3A) and 13(3B), introduced via the 2016 Protocol, or Article 13(4), a residuary rule; and (c) whether the limitation of b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....may also recall the observations of Viscount Simon in Latilla v. I.R.C. (1943) 25 T C 107: Of recent years much ingenuity has been expended in certain quarters in attempting to devise methods of disposition of income by which those who were prepared to adopt them might enjoy the benefits of residence in this country while receiving the equivalent of such income, without sharing in the appropriate burden of British taxation. Judicial dicta may be cited which point out that, however elaborate and artificial such methods may be, those who adopt them are "entitled" to do so. There is, of course, no doubt that they are within their legal rights, but that is no reason why their efforts, or those of the professional gentlemen who assist them in the matter, should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship. On the contrary one result of such methods, if they succeed, is of course to increase pro tanto the load of tax on the shoulders of the great body of good citizens who do not desire, or do not know how, to adopt these maneuvers. Another consequence is that the Legislature has made amendments to our Income Tax Code whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that it stands on no less moral plane than honest payment of taxation. In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be found in the judgment of Desai, J. in Wood Polymer Ltd. and Bengal Hotels Limited, In re [47 Com Cas 597 (Guj HC)] where the learned Judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax. 47. It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the Court to take stock to determine the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e sale of shares was not that of an Indian company, may be an enquiry in the wrong direction. The validity of such rejection must be examined in the light of the statutory threshold prescribed under Section 245R(2). 34. At the outset, it can be seen that the language employed in Section 245R(2) is clear. It uses the word "prima facie". The use of the term "prima facie" implies that it is sufficient if the AAR, on an initial examination of the documents, is satisfied that the transaction is for avoidance of income tax and can reject the application. The provision is couched in such a way that the burden lies on the person claiming a particular fact, and such prima facie opinion is sufficient to reject the application. The level of satisfaction required to arrive at a prima facie conclusion is much less when compared to a case where a fact has to be proved. This Court, in the judgment in Balvir Singh v. State of Uttarkhand MANU/SC/1092/2023: AIR 2023 SC 5551, held as under: "47. The Latin expression prima facie means "at first sight", "at first view", or "based on first impression". According, to Webster's Third International Dictionary (1961 Edn.), "prima facie case"....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the case. The High Court, in our view, was not right in observing that since the appellants have been in existence from 2011 onwards, such a presumption cannot be made by relying upon the judgments of this Court which were rendered prior to the amendment of the provisions, wherein, by necessary amendment, the mere existence of a TRC is now held to be insufficient to establish the resident status of the applicant in the other State. 37. Section 90(4) of the Act only speaks of the TRC as an "eligibility condition". It does not state that a TRC is "sufficient" evidence of residency, which is a slightly higher threshold. The TRC is not binding on any statutory authority or Court unless the authority or Court enquires into it and comes to its own independent conclusion. The TRC relied upon by the applicant is non-decisive, ambiguous and ambulatory, merely recording futuristic assertions without any independent verification. Thus, the TRC lacks the qualities of a binding order issued by an authority. 38. It is a fundamental rule of international taxation that every nation has a sovereign right to impose tax on the global income of its residents and on income that accrues or arise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ongful access to tax advantages under the treaty through evasive practices such as treaty shopping, establishment of conduit structures, round-tripping, hybrid structures, shell companies, etc. The taxation of capital gains from the sale of shares of Indian companies by Mauritian residents has set aside the indiscriminate tax exemption granted to Mauritian residents on all incomes arising in India under Article 13 of the DTAA. This was done against the hostile backdrop of many international corporations, including Indian nationals, having routed their investment in India through Mauritius. This phenomenon, technically termed "round tripping", had become a favoured tax-dodging business tactic of Indians to exploit the twin benefit of residence-based tax exemption under the DTAA and the tax haven regime offered by Mauritius. 41. According to the above amendments, the grandfathering clause under GAAR will be applied to capital gains from transfers made on or before 01.04.2017, provided the applicant satisfies the test of "resident" as defined under its State law, particularly under Section 73 of the Mauritius Income Tax Act and the provisions of the Income-tax Act. Capital gains on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....since been superseded by statutory amendments, will not come to the aid of the respondents. 44. The Revenue has contended that mere production of a TRC is not conclusive in establishing treaty eligibility, particularly post the enactment of Sections 90(4) and 90(5) of the Act and in light of the anti-abuse objectives underlying the LOB clause. It further submits that Circular No. 789 and the decision in Azadi Bachao Andolan dealt with distinct factual scenarios involving FIIs/NRIs debarred from conducting business in Mauritius and cannot be extended to Global Business Licence holders who are entitled to carry on commercial activities. The Revenue also questions the relevance of the Vodafone ruling in the treaty context, submitting that it involved a challenge to a domestic law assessment and not a direct ruling on the scope of Article 13 of the DTAA. 45. Notably, the LOB clause is not applicable as it can be applied only to cases falling under Clause 3B of Article 13. The application of India's anti-avoidance provisions is also relevant to test the applicability of the DTAA. Here, the Revenue invokes both statutory and judicial anti-abuse doctrines. Under the statutory GAAR p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f sub-rule (1)", Chapter XA is made applicable to any arrangement, irrespective of the date on which it was entered into, in respect of a tax benefit obtained from such arrangement on or after 01.04.2017. Therefore, the prescription of the cut-off date of investment under Rule 10U(1)(d) stands diluted by Rule 10U(2), if any tax benefit is obtained based on such arrangement. The duration of the arrangement is irrelevant. 47. In the light of the aforementioned provisions and rules, in the case at hand, though it prima facie appears as if the assessees acquired the capital gains before the cut-off date, i.e., 01.04.2017, it is to be noted that the proposal for transfer of investments commenced only on 09.05.2018. A Share Purchase Agreement was executed between Walmart International Holdings Inc., a Delaware Corporation described as the "purchaser"; the shareholders of Flipkart Singapore identified in Schedule I thereto and collectively described as the "sellers"; and Fortis Advisors LLC, a Delaware limited liability company described as the "sellers' representative". As per the Share Purchase Agreement, the sale of shares held by the assessees was approved by the Board in its m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spondents seek exemption from the Indian Income tax while, at the same time, contending that the transaction is also exempt under Mauritian law, which runs contrary to the spirit of the DTAA and presents a strong case for the Revenue to deny the benefit as such an arrangement is impermissible. Here again, it may be stated that this stand would again strengthen the reasoning that whether the sale is of shares of an Indian company then, will not be germane for consideration because only if the assessee is liable to pay tax in Mauritius, he can derive benefit under the provision under Article 13(c) of the DTAA as amended. Section 96(2) places the onus on the taxpayer to disprove the presumption of tax avoidance. This represents a significant shift in the burden of proof. In the case at hand, there is clear and convincing prima facie evidence to demonstrate that the arrangement was designed with the sole intent of evading tax, and the assessees have failed to furnish sufficient material to rebut this presumption. Though it is permissible in law for an assessee to plan his transaction so as to avoid the levy of tax, the mechanism must be permissible and in conformity with the parameters....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... affairs and transnational affairs or international affairs. 4. Exercising Sovereign functions and powers in the international space is more dependent on the geo-political climate. Sovereign incursions, threats, or attacks or even attempts to weaken it are no longer confined only to territorial sovereignty. Economic sovereignty is gaining importance and in fact occupying centre stage in geo-political affairs. The existence, creation and the influence sought to be generated by several world bodies through a combination of Nations and attempts to dictate a global order on economic and commercial matters through such organisations and bodies is quite rampant. 5. If one looks at the last 7-8 decades, times and periods have indeed changed. The upmanship of developed Nations over the developing or underdeveloped Nations in entering into strategic dealings and negotiations is slowly changing. Smaller Nations, Nations which are heavily import dependent, needing lot of external resources often compromise or cede many of their Sovereign rights and functions just to acquire a relationship or to connect with international trade or to somehow manage to keep their respective Nations as par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....everal filters which would include geo-political strengths and equations, diplomacy, making a Nation attractive for investments and at the same time, not compromising either its sovereignty or its interest and core objectives of its people. 9. Tying up different shades, contrary themes, international compulsions, domestic priority and beyond all these, a Nation's passion and aspiration to grow and surge ahead has to be aligned and therefore tax sovereignty in this space becomes a tightrope walk. Ability to command, remaining composed and yielding to healthy compromises and still finding the space and opportunity to grow without external Nations and entities interfering with the exercise of Sovereign tax powers will be the ideal combination that every Nation like India will look forward to. 10. Unlike domestic affairs where they are aided by the executive, the legislative builds the necessary laws into motion and the role of the Judiciary is only to allow permissible judicial review. Exercise of a tax sovereignty by a Nation and as a Nation requires the roles of all the three Constitutional bodies to play to its significance and within the umbrella of doctrine of separation of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tional level. This is what we call as pooled sovereignty for the mutual benefit of one and all. 14. Surprisingly and on the contrary, such an attempt had not happened or materialised in the direct tax front across the globe and these are being secured invariably through bi-lateral treaties and also by trying to create mirror image positions or provisions of law like the transfer pricing regime but not through a uniform single statutory legislation or a code and therefore divergent views and interpretations continue to baffle international trade and commerce. This stark contrast between the direct and indirect tax regime is compelling and persisting. 15. Of course, even in the indirect tax front, there is no single uniform legislation covering the entire globe or being accepted by all Nations. There are several customs protocols and bi-lateral treaties guarding various interests and priorities. There are apex bodies like the WTO regulating the affairs without interfering into the Sovereign rights of any Nation. It is impossible, and in any view, very premature to expect a uniform global protocol or order to be followed by all Nations which would actually mean convergence of So....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mine, manage, calibrate, align and work cross-border trade and business embedding its own dimensions and aspirations and therefore in the neo era of geo-economic uncertainties, it is better prudence to retain tax Sovereignty to oneself than to yield. It is true that global equations, balances/imbalance arise out of one's negotiating power and terms. Tax Sovereignty should ensure itself to match with the political Sovereignty of the Nation and need not be either separated or leveraged any less. Push or pull should be the Sovereign's choice and should not be dictated, thrusted or compelled and this is doable only when tax sovereignty is retained and not yielded. Not yielding one's tax sovereignty is one form of retention of power. Protecting its sovereignty from external pressures is yet another form. But a meaningful exercise of choices alone reflects strength and character and in the long run, will help to reap the required dividends. 22. When world all over believed that business investments can be managed, regulated and calibrated better only through Business Investments Treaties (BIT), India understood the downsides of it and made a very strong and forceful decision of a unil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o carry the burden or legacy of formative years of treating making and even more when it comes to interpretation of such treaties. Interpretations which are more sound and currently relevant should yield to archaic and behind the scheduled objectives. To assume or perceive every future possible transaction stands visualised and contemplated and need to be ring fenced within a static dimension may not be an apt or a relevant approach. When current trade affairs are so dynamic, a contextual and meaningful interpretation of such instruments would not only make it currently relevant, but also vibrant matching with the progressive global business dynamics. Any attempt to widen the gap and push it backwards when trade dynamics surge ahead should be eschewed. This is yet another dimension on tax sovereignty. 27. When the canvas or bandwidth of tax Sovereignty or spectrum is so wide in its sweep, having no inherent limitations, the endeavour of a Nation is to preserve, nurture and promote its Sovereign powers in the global order to the best extent possible and this is possible only if such a power is retained by a Nation and not compromised. Retention should be the golden rule, and yiel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n powerless in given circumstances tearing apart the social fabric and texture of a Nation and its people. Every anti abuse law must not only appear to be a deterrent but should be implemented to achieve the underlying goal of preventing an abuse by anyone against one's Nation and its people. Any lenience is yet another form of compromising tax sovereignty. 33. When agreements need to be entered into between Nations either through its legislative or executive arm, dispute resolution should also be part of the same arm or process and should not be divorced or outsourced or pushed to mandatory arbitrations. 34. Tax treaties, international agreements, protocols and safeguards should be very engaging, transparent and capable of periodical reviews with the power to renegotiate with strong exit clauses to avoid unfair outcomes safeguarding Nation's strategic and security, prevent erosion of tax base and loss or weakening of democratic control and introduce explicit carve outs safeguarding the Sovereign's right of taxation. 35. What safeguards should be taken while entering into any International Treaties? When entering into international tax treaties, India must take strong s....