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TMI Blog2012 (8) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... RL Mauritius acquired 100 per cent of the shares in Copal Market Research Limited, Mauritius (CMRL Mauritius). 2. CMRL Mauritius in turn acquired 100 per cent of the shares in Exevo Inc. US, a company governed by the laws of the United States of America. Exevo Inc. US had acquired 100 per cent of the shares in Exevo India Pvt. Limited. 3. The Rulings are sought for, on two transactions. The first is on a sale by CRL Mauritius of its 100 per cent shares in CRIL Pvt. Limited, to Moody's Cyprus, being a sale by a Mauritian company of the shares held by it in an Indian company, to a Cyprus company. The other is on the sale by CMRL Mauritius of the 100 per cent shares it holds in Exevo Inc. US, a US company, to another US company, Moody's USA, being the sale of shares of a US Company by a Mauritian company to another US company. No doubt the US Company, the shares of which are being transferred, holds 100 per cent shares in Exevo India, a company incorporated in India. 4. Learned counsel for the applicant submitted that the two sellers being Mauritian companies, are entitled to claim the benefit of the India-Mauritius Double Taxation Avoidance Convention and going by section 90(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds reaffirmed by the insertion of clause (iv) of section 245N(a) of the Act defining 'advance ruling' though its coming into force has been postponed to 1.4.2013. He also strenuously contended that the management and control of the two seller Mauritius companies did not lay in Mauritius, but elsewhere, as can be seen from the transactions themselves and hence the applicability of the India-Mauritius DTACs cannot be claimed by these applicants. 7. On behalf of the applicants, it is submitted that the transactions are legally permissible ones between legal entities and that there is not even a case of round-tripping suggested. Taking advantage of a DTAC, even if it is such a case, is not taboo or objectionable as held in Azadi Bachao Andolan. Here, the transactions were sale of shares of an Indian company by a Mauritian company to a Cyprus company and the sale of shares of a US Company by a Mauritius company to another US Company. However one way stretch it, it cannot be said that a scheme for avoidance of tax has been devised. The fact that under the laws of Mauritius, capital gain is not actually taxed cannot be a reason for holding that every sale of shares by a Mauritian compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly demanded by the Revenue, have also been furnished. Nothing was held back. There was no need for going beyond Copal Jersey and set out as to who held shares directly or indirectly in that company and so on. Those facts are not really relevant. The shares have been held for a considerable length of time and they were being transferred. Rishi Khosla with whom there was a Business Advisory Agreement, was only taking care of the details of the transactions as authorized by the Board of Directors of the company and his role did not in any way amount to control and management of the company. The management and control of Copal was vested with the Board of Directors who were in Mauritius. The business advisory agreement entered into with Rishi Khosla was also made available. 10. It is true that certain other facts could also have been set out by the applicants in their applications. But, it cannot be said that the facts relating to the relevant transactions of sale have not been set out fully or correctly. The Revenue had sought various items of information and had been able to get most of it. The Revenue also had conducted a transfer pricing study. I find it not possible to agree in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Rishi Khosla and not with the Board of Directors of these companies. 13. There may be some substance in the argument of the learned counsel that this Authority has to consider only the negative, namely that the control of the companies is not in Mauritius and it is not necessary for this Authority to find positively that the control and management is with Rishi Khosla, before coming to a conclusion that the applicants are not entitled to claim the benefit of the India-Mauritius DTAC. But on the available facts, the presumption that the control and management of the companies rest with the Board of Directors cannot be said to have been rebutted by sufficient or cogent material. I overrule the arguments in this behalf. 14. The argument that the source of funds for investment by the Mauritian companies is not properly explained, is sought to be rebutted by the applicants. In its submission by CRL, it is stated that the two shareholders of CRIPL were Rishi Khosla and Milan Khosla, two UK residents. The share capital of CRL was only GBP 552 which was pending receipt from its shareholders. The investment made by CRL in CRIPL was in August 2004 amounting to Rs. 11,44,250 (GBP 13,75 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for the grant of relief in respect of "income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be" or income-tax chargeable under the Act and the corresponding law in force in that country, (emphasis supplied) 18. The conventions between India and other states entered into in terms of section 90(2) of the Act are described as "Double Taxation Avoidance Convention". It shows that the purpose of entering into it is to avoid double taxation. When does double taxation occur? It appears to me that it occurs when tax is actually imposed on an income twice, or in this case, in two countries. Can one say that the existence of a power to tax in one of the contracting states alone or by itself will lead to double taxation? The practical view and a purposive interpretation would be to say that there must be actual taxation before the operation of DTAC can be said to be attracted. 19. I find that in Cyril Eugene Pereira, In re, [239 ITR 650] this view was taken by this Authority, but the same was disapproved by the Supreme Court in Union of India v. Azadi Bacho Andolan. Therefore, the argument in this behalf cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am, therefore, proceeding as if there is no dispute between the parties on this question and giving a ruling on this question on that basis. 23. In view of this, I am also not discussing the aspects involved in questions 3 to 6. 24. Now the questions posed can be ruled on. 25. In AAR No. 1186 of 2011 filed by Moody Analytics Inc. USA, the purchaser of the shares of Exevo Inc. US from CMRL Mauritius, the following questions are admitted for Rulings. (1) Whether on facts and in law, the applicant is justified in its view that capital gains arising on the sale of shares of Exevo Inc., US ('Exevo lnc') by Copal Market Research Ltd. ("CMRL") to the applicant would not be chargeable to tax in India in the hands of CMRL? (2) Whether on facts and in law, the Applicant is justified in its view that the full value of consideration receivable by CMRL for the sale of shares of Exevo Inc. to the applicant shall be the total consideration including the 'earn-out' consideration for the purposes of computing 'Capital Gains'? (3) If the 'earn-out' consideration is to be treated as business profits, whether such profits would be taxable in India under the Act in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares of Exevo Inc. USA to the American Company Moody's, the questions framed for rulings are the same as above. The rulings on them are also the same as above. 28. In AAR No. 1188 of 2011 filed by Copal Research Limited Mauritius, the seller of the shares of CRIPL, the Indian company, the following questions are raised for Rulings. (1) Whether on facts and in law, the applicant is justified in its view that capital gains, if any, arising on the sale of shares of Copal Research India Private Limited ('CRIPL) by the applicant to Moody's Group Cyprus Ltd. (Moody's) will not be chargeable to tax in India in the hands of the applicant, as per the provisions of paragraph 4 of Article 13 of the Double Taxation Avoidance Agreement entered into between India and Mauritius ('the DTAA'/'the Treaty')? (2) Whether on facts and in law, the Applicant is justified in its view that the full value of consideration receivable by the Applicant for the sale of shares of CRIPL to Moody's shall be the total consideration including the 'Earn-Out' consideration for the purposes of computing 'Capital Gains'? (3) If the 'Earn-Out' consideration is to be treated as business profi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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