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2020 (2) TMI 1183 - AAR - Income TaxIncome accrued in India - Capital gains derived by a 'resident' of a contracting state from the alienation of property other - Indo-Mauritius DTAA in regard to gains arising from the transaction of sale of shares - HELD THAT:- In the instant case the applicant was incorporated few days before the JV was formed and has no independent sources of funds or sources of income nor has any fiscal independence. All the funds are with the holding companies. The applicant has no tangible assets, business activities except for owning the shares of the JV. Subjecting the facts to various tests i.e., Fiscal nullity Test, Commercial/business substance Test, "Look at" Principle Test, Investment Participation Test, Time duration Test, Business operations Period in India Test, Generation of taxable revenues in India Test, Scheme and Dominant Purpose Test etc., the applicant fails the tests being a tax avoidance device, the dominant purpose of its interposing is to avoid taxes in India. As emphasized before us by the Ld. AR that introduction of BSDM helped in doing business and providing supportive business environment. BSDM is an entity created two weeks before the filing of bid, it has no financial background, past experience or other unique skills to facilitate the instant business venture. The applicant could not provide any rationale or commercial basis for interposing of entity at fag end of the bidding process. The learned AR also could not provide any evidence as to how BSDM helped in doing business or providing support for the project. The points in its favor of applicant seem to be that it is tax resident of Mauritius holding a valid T RC and legal owner of shares which it disposed subsequently. We are unable to agree with the logic that the entity was brought in for ease of doing business or for operational reasons and to provide supportive business environment. The reason proffered by Ld. AR lacks substance and merit. First objection of the Revenue was admission of new entity at later stage was not ordained by EOI - AR has indicated that in the EOI filed by the consortium, it was stated that the final share holdings by three SA airport operators will be finalised once the requirement Of RFP are known and that GVK and the SA airport operators submitted the names of the respective entities in the legally binding technical and financial bid which was accepted by AAI. We are in agreement with the Revenue that no-where in the EOI it was mentioned that a new member would be brought in at a later stage. The uncertainty was only limited to the shares of three SA airport operators i.e., ACSA, Old Mutual and Bidvest and not to the composition of the consortium per se. Revenue was the interposing of the applicant was without any commercial reason - AR has argued that that it is a general practice on the part of MNCs to highlight the financial and technical competency of the group as a whole and while investing separate SPVs are formed for commercial reason, ease of doing business and supported business environment in determining the jurisdiction of SPV. Having considered the facts in totality and discussed in preceding paras, we do not see any commercial or economic rationale or ease of doing business in incorporating the applicant in Mauritius and interposing it in the JV. Other plea of the Ld. AR is that AAI has approved the bid being fully aware that BSDM was prime member of the JV entity. The plea is not germane to issue at hand as AAI is not concerned with the interpretation of treaty and interposing of any entity for tax avoidance and therefore acceptance of bid by AAI is not an endorsement or justification for granting treaty benefit to the applicant. Alternate plea of the Ld. AR is that even if it is assumed without admitting that the accusation of shares in MIAL was done by applicant, solely with a view to take advantage of the beneficial provisions of Indo-Mauritius DTAA, the benefit cannot be denied as there is no limitation of benefit provision (LOB) in the DTAA. The plea is not tenable for the reason that the facts point towards a tax avoidance device and the Hon'ble Apex court in the case of Vodafone [2012 (1) TMI 52 - SUPREME COURT] has clearly mentioned that though LOB and Look through provisions cannot be read into a tax treaty but if it is established that the Mauritian company is interposed as a device, it is open to the tax Department to discard the device and take into consideration the real transaction between the parties and the transaction would be subjected to tax. We are of the considered opinion that the applicant is not entitled to benefit under Article 13(4) of Indo-Mauritius DTAA in regard to gains arising from the transaction of sale of shares.
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