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2012 (4) TMI 153 - AAR - Income TaxDTAC between India & Mauritius - Buy back of shares proposed by A Ltd Co – major shareholders are 'A'(Mauritius company) - 25.06% shareholding, ‘A’(USA) - 48.87% shareholding and ‘A’ (Singapore) - 27.37% - offer accepted by only 'A'(M) both in year 2008 and 2010 – Revenue contended that tax is sought to be evaded in guise of buy back of shares – Held that:- It is significant that offer of buy-back was accepted only by ‘A’ (M) and not by 'A'(USA) or 'A' (Singapore) since only under the India-Mauritius DTAC, capital gains is totally not taxable in India. Had dividend being declared, company would have been obliged to pay tax on distribution of profits to shareholders. Instead, it allowed the reserves to grow and through proposed buy-back, considerable sums would be repatriated to ‘A (M) in Mauritius without the tax on the distributed profits being paid. Hence, we are satisfied that scheme of buy back of shares is a colorable device for avoiding tax on distributed profits as contemplated in Section 115-O. On our finding that the proposed buy-back is colourable, the distribution in question will satisfy the definition of dividend under the Act, Article 10 of the DTAC between India and Mauritius and consequently taxable as such. Also, applicant is required to withhold tax on the proposed remittance of the proceeds to ‘A’ (M).
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