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2016 (9) TMI 347

Head Note:
Chargeability to capital gains tax in India - Applicant, a tax resident of Mauritius - DTAA between India and Mauritius - transfer of 9,870,912 shares of an Indian Company - Held that:- We perused the minutes of proceedings of the Board meetings held in Mauritius relating to buyback of shares, final closing for sale of shares held in TML, appointment of KPMG India Private Limited as tax advisor, approval of financial statements, dividend declaration and distribution etc. We also noted that the Board of Directors included representatives of BT Holdings Limited, a UK company, holdings 43% of shares. These Board meetings and the nature of decisions taken in such meetings clearly indicate that control and management of affairs of the company, particularly all financial affairs were situated only in Mauritius.

Hon’ble Supreme Court held in the case of CIT V. Nandlal Gandalal (1960 (4) TMI 3 - SUPREME Court ) that the expression ‘control and management’ means de facto control and management and not merely the right or power to control and manage. The word ‘affairs’ means the affairs of a HUF which are capable of being controlled and managed by the family as such. In the case of VVRNM Subbayya Chethiyar also the apex court held that the word ‘affairs’ must mean affairs which are relevant for the purpose of the Income-tax Act and which have some relation to income. On the basis of facts mentioned above, it cannot be said that the control and management of the affairs of the applicant company were wholly situated in India. The Department of Revenue has not given any substantial evidence to show that any important affairs of the company relevant for the purpose of the Income-tax Act were being controlled from India. The only argument of the Department seems to be that the real transaction was between TML and AT&T and, therefore, the control and management of the applicant should be treated as in India. There is no force in this argument as there is nothing wrong in the applicant holding the shares and transferring the same at a later stage as per the options agreement and on fulfillment of conditions by AT & T as per the agreement. Therefore, we are unable to agree with the objections raised by the Department of Revenue and hold that the applicant is not chargeable to tax in India under Article 13(4) of India-Mauritius Treaty.


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