TMI Blog2016 (1) TMI 791X X X X Extracts X X X X X X X X Extracts X X X X ..... is no material before us to hold that the applicant has any PE in India. In that view even if the gains that the applicant makes from the proposed transfer are treated as business income, even then there will be no question of taxation on those gains. Application of Section 115JB - Held that:- With effect from 1.4.2015, the provisions of section 115JB would not be applicable to foreign company if the foreign company is a resident of a country having DTAA with India and such foreign company does not have a PE within the definition of the term in relevant DTAA or to the foreign company which is a resident of a country which does not have a DTAA with India and such foreign company is not required to seek registration under section 592 of the Companies Act, 1956 or section 380 of the Companies Act, 1956. It is clear that the present applicant is clearly covered as it is a company in Mauritius, which country has DTAA or as the case may be DTAC with India. Again we have already given a finding that the applicant does not have a PE in India. As such we answer this question in favour of the applicant holding that there will be no applicability of section 115JB to the applicant. Appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n manufacturing and trading of pesticides and insecticides. 3. The Applicant had acquired 61,836,990 shares of ₹ 10 each in DAS India for an amount of IRN 618,369,900 as under: Sr No Date of acquisition Cost of acquisition 1 6 September 1995 15,000,000 2 3 March 1997 134,999,100 3 October 1997 6,124,500 4 18 May 2001 312,247,200 5 27 January 2005 149,999,100 TOTAL 618,369,900 The balance 200 shares of ₹ 10 each have been acquired by DAS Agricultural Investment Holding Company Ltd. for an amount of INR 2,000. 4. It is further, pleaded that the applicant proposes to transfer these shares in favour of a Dow Group Entity Singapore and thus the Group entity Singapore hereinafter called SDA Singapore would be a transferee company. 5. This transfer is pleaded with an objective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100% subsidiary of DAS Singapore. iii) In view of above, the Applicant proposes to transfer the shareholding (i.e. 61,836,990 shares) of DAS India to DAS Singapore by way of contribution. iv) The value of DAS Singapore s shares recorded in the books of DAS Mauritius would be considered as the sales consideration for transfer of shares of DAS India. v). The cost at which DAS Mauritius has obtained the shares of DAS India would be the cost of acquisition. vi). The Applicant also wishes to state that it does not have an office, or employee or agents in India and hence no permanent establishment in India as per Article 5 of the India Mauritius Double Taxation Avoidance Agreement. 7. It is reiterated by the applicant that it is not required to maintain any books of accounts in India as prescribed in Section 211 of the Companies Act, 1956 and further it is not required to comply with the propositions of Section 594 of the Companies Act, 1956 relating to companies incorporated outside India provisions and establishing of places of business in India. On this background following 6 questions are proposed by the applicant:- (1) Whether on the facts and circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the certificates issued by the Mauritian authorities that the applicant is neither an Indian Company nor the control and management of its affairs is situated in India and as such its status is that of a non-resident for the purposes of the Income-tax Act, 1961. 9. The application contains the stand of the applicant on each question. As regards the first question, the applicant pleads that its investment in Dow Agrosciences India i.e. DAS India as a capital asset. In support of this proposition, the applicant relies on Instruction No. 181-1-89-IT (AI)dated 31.8.1989 or Instruction No.1827 and Supplementary Circular No.4/2007 dated 15.6.2007 issued by Central Board of Direct Taxes (CBDT). It is reiterated that considering the accounting test and intention test as also quantum test and further relying on G.Venkata Swami Naidu and Company vs. CIT [1959] (35 ITR 594)(SC) as also Raja Bahadur Kamakhya Narain Singh vs. CIT [1970] (77 ITR 253) (SC) as also the Ruling of this Authority in Praxair Pacific Ltd. AAR 855 of 2009. The equity shares held by it in DAS India should be considered as capital asset and not stock in trade. 10. As regards the 2nd question it is sugges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Order passed by this Authority on 5th August, 2015. Some details have been supplied by the Revenue in para 5 of this reply dated 23.8.2015 wherein the factor of longevity of the applicant appears to be an admitted position. Reliance has been placed on the earlier decision of this Authority in M/s. WCT Mauritius, which decision is reported to be in challenge before the High Court. Be that as it may, we are not at all convinced that this company which has been operating for more than 10 years in Mauritius can be said to be a shell company. 15. It is then contended by the Revenue that nothing has been brought on record to suggest in support of the applicant s plea that it does not have a PE in India. It is contended that some information was sought from the applicant vide letter dated 31.8.2015. This is obviously a mistake as the report is dated 23.8.2015. 16. The Revenue then pleads about there has been a scheme to avoid the payment of income-tax in India. A reference then is made to the observations of the Hon ble Supreme Court in Azadi Bachao Andolan case and Vodafone International Holdings BV case. It is again reiterated that the whole scheme of the transfer of shares in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant has a PE in India in the absence of any inputs which could have been provided by the Revenue. 19. In this behalf we accept the reiteration by the applicant that the applicant does not have an office or employees or agents in India and has also made declaration to this effect. The applicant has also reiterated that unless it has a PE in India, profits arising to applicant from the sale of equity shares of DAS India would not be liable to tax in India particularly because of DTAA between India and Mauritius. It is further reiterated by the applicant that DAS LLC is assessed in India and the fact that DAS LLC does not have a PE in India, is accepted by the department for last several years. According to the applicant the last assessment of DAS LLC was for assessment year 2011-12 and no issue about its being a PE in India was raised during the assessment proceedings. 20. We have also taken into consideration the fact that Dow IMEA Group was dismantled in 2010 and that is how the need for realignment of the group arose whereby DAS entity was to be shifted from an entity which falls under Europe region to an entity which would fall in the Asia-Pacific region. This was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to PE of DAS USA. We are afraid how would this be a PE of the applicant which is a tax resident of Mauritius and has been there for about 20 years. The learned representative of the applicant pointed out that the investment by applicant in DAS India was accepted by the Indian authorities which are clear from the certificate issued in its favour. The learned representative also pointed out that the applicant carried no activity in India. It is also pointed out that in their earlier replies to the departmental objections, it was pointed out that the applicant did not have a office or employees or agents in India and therefore, there was no question of there being a PE in India particularly because of the 8 submissions made. We do not see as to how the 8 submissions which we have pointed out above would create a PE of the applicant a Mauritian company. Even if all the 8 points are taken together, there is no scope to hold that the DAS India would amount to PE of the applicant. A strange contention is raised that the capital gain is arising to a USA based DAS USA and not to a Mauritian applicant. We are unable to agree with this contention. It is then submitted by the Revenue that Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack etc., we are of the clear opinion that there is no scheme for the tax avoidance. We also do not accept the contention of the Revenue that it is a colorable device. 26. In their report dated 23.8.2015, the department have accepted that shares held by the investment company are of the actual holding parent company. The department has however, taken an exception in case of the present application on the ground that the applicant has no substantive real and independent identity not even restricted one either at the time of investment or during proposed disposal. If the department submits that it is parent company which could be considered owner of the capital asset being the shares or the business unit i.e. B.E. It is, therefore, pleaded that in this situation, capital gain will be computed in the hand of DAS USA. It is the alternate submission that in case it is submitted that DAS Mauritius, the applicant herein earn capital gains by sale of shares then the gain related to accumulated profit should be treated as dividend under the Income-tax Act, 1961 and India-Mauritius DTAA and applicant should be directed to pay the tax under this provision. In our opinion this stand of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as a business income. We have given reasons for holding as to why the said shares should be held as capital assets, while answering the question No.1, taking into consideration the 3 tests which we have referred to in the earlier paragraphs. 28. The further contention again raised by the Revenue in the Report dated 24.5.2013 that if these shares are not found to be business assets, then the gains from the sale thereof should be treated as capital gains. In answer to this the applicant submits that ordinarily the transfer of these shares would be taxable in India as per the provisions of Section 45. However, the applicant pleads and said by way of defence Article 13 of the Indo-Mauritius DTAA which deals with the taxation of capital gains arising to the resident of contracting state. The said Article is as follows:- ARTICLE 13 Capital Gains 1. Gains from the alienation of immovable property, as defined in paragraph (2) of article 6, may be taxed in the Contracting State in which such property is situated. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Indo- Mauritius DTAA. We do not think that it is possible for us to accept the broad proposition that the applicant has a PE. The applicant has already pointed out that the applicant company is 100% subsidiary of the parent company and DAS Singapore has been incorporated 100% subsidiary of the appellant and this has been done to achieve the objective of proposed restructuring. The applicant proposes to contribute shares in DAS India as its capital in DAS Singapore. However, the shares of DAS India are held by the applicant and after the proposed transfer they will be held by DAS Singapore in its own capacity and as a representative of DAS LLC. The applicant, therefore, plead that DAS LLC cannot be regarded as a beneficiary of transfer of shares. 31. However, we are of the clear opinion that there is no material before us to hold that the applicant has a PE in India and therefore, the income arising out of the transfer of shares should be treated as business income. We are unable to accept the claim of the Revenue regarding the PE. Once that objection is rejected, then the only relevant clause which remains for our consideration is Article 13(4) which is clear in itself. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not press to apply section 115JB to FII and FPIs for the period prior to 1.4.2015. It was pointed out that a Circular dated 2.9.2015 was issued by Govt. of India and the same was filed before the Hon ble Supreme Court and a statement was made by the Attorney General for India that the said Circular would be followed. The said Circular clearly mentions that the FIIs/FPIs having no PE/place of business in India would not be covered by section 115JB. In fact, a press release dated 24.9.2015 was also pressed in service. In the press release, it was clarified that with effect from 1.4.2015, the provisions of section 115JB would not be applicable to foreign company if the foreign company is a resident of a country having DTAA with India and such foreign company does not have a PE within the definition of the term in relevant DTAA or to the foreign company which is a resident of a country which does not have a DTAA with India and such foreign company is not required to seek registration under section 592 of the Companies Act, 1956 or section 380 of the Companies Act, 1956. It is clear that the present applicant is clearly covered as it is a company in Mauritius, which country has DTAA or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to seek the same and that could be done only during the consideration of his return of income or at least or at best while filing his return. The Authority took the view that the obligation on the applicant to file a return of income under section 139 of the Act cannot simply disappear merely because a person may be entitled to claim the benefit of DTAC. The applicant however, meets this argument by relying on the Rulings of this Authority in FactSet Research Systems Inc. reported in (317 ITR 169) and Vanenburg Group B.V. vs. CIT AAR No.727 of 2006. The applicant relied on the following paragraph in the last mentioned Ruling AAR No.727 of 2006: So far as filing of Income-tax return is concerned, it may be mentioned that the liability to pay tax is founded upon section 4 and 5 of the Act, which are the charging sections. Section 139 and other sections are merely machinery to determine the amount of tax. There would be no occasion to call machinery sections in aid where there is no liability at all. Reference to this connection may be made to Chatturam vs. CIT [1947] 15 ITR 302 (FC). We are, therefore, of the view that the applicant will not be required in this case to furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X
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