TMI Blog2012 (3) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... d this Authority for Advance Ruling as to whether the capital gains that may arise, is chargeable to tax in India in the context of the Double Taxation Avoidance Convention between India and Mauritius and whether it will have the obligation to withhold tax in terms of Sec 195 of the Indian Income-tax Act. 3. In its comments accompanying the letter dated 31.1.2011, the revenue raised the contention that there was a previous buy-back in the year 2008 and on a return of income filed by XYZ (M) which sold back some of its shares, the question was pending before the assessing officer and hence the entertaining of the application was barred by clause (i) of the proviso to section 245R(2) of the Act. In the letter dated 28.3.2011 it was contended that the whole of the transaction was designed to avoid payment of tax in India. This Authority did not specifically overrule the contention based on clause (i) of the proviso presumably because the transaction of 2008 though similar in nature, was a different transaction and hence that clause was not attracted. As regards the objection based on clause (iii) of the proviso, this Authority overruled the objection then raised based on the ultima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in any event the earlier was a different transaction and hence there was no bar as has been held by this Authority on a number of occasions. 5. We find some force in the contention of counsel for the Revenue that the question pending before the Authority was an identical one. We have in this case already overruled the objection either expressly or impliedly when we allowed the application under section 245R(2) of the Act. Moreover, this Authority has been taking the view that if the transaction is different the bar is not attracted. We do not think it necessary in this case to reconsider the question. Hence, we overrule the objection. 6. Learned Counsel for the Revenue then argued that this was a transaction designed to avoid payment of tax in India. He submitted that after the introduction of Section 115-O of the Act with effect from 1.4.2003, the applicant had not declared or paid any dividend to its shareholders. It had allowed the reserves to grow substantially and was now transferring it to XYZ (M) to take over under the DTAC between the two countries and avoid payment of any tax on the sum transferred out of the country. He pointed out that if dividends had been dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gapore. The ultimate holding company is 'X' Corporation, a company incorporated in the State of Delaware, USA. It is in this context that the Revenue contended that since the control and management of XYZ (M) was with XYZ Corporation USA, the treaty that should govern the present transaction, is the India-USA DTAC. According to it, the place of management of XYZ (M) lies in USA only. 10. Dividend was being distributed by the applicant to its shareholders until 1.4.2003. With effect from 1.4.2003, Section 115-O of the Act in its present from was introduced. This obliged the applicant to pay a tax on distributed profits. The applicant, if it had paid dividends, would have incurred this liability to pay tax. The applicant did not pay any dividend after 1.4.2003. It allowed its reserves to accumulate. The reserve has grown from Rs. (1) crores as in March, 2003 to Rs. (3) crores in March, 2008 and to Rs. (4) crores in March, 2010. In the year 2008, the applicant offered a buy-back of shares. Neither the shareholder XYZ USA nor the shareholder XYZ (S) accepted the offer. In fact, their shareholding remained and remains constant from the year 1998 till the year 2009-2010. The o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not ipso facto label the transaction to be prime facie designed for avoidance of tax. At the same time, we may clarify that the hands of this Authority are not tied to take up the issue, if later on, the transaction is proved to be designed for avoidance of tax. The objection now raised by the Revenue, is not the same as that raised earlier. Moreover, the order makes it clear that if later on adequate material is available to hold that the transaction is designed for avoidance of tax, it could be considered. On the terms of the order, it cannot be said that the consideration of the objection now raised by the Revenue is barred. 14. That apart, a plea that a transaction is colourable or that it is devised as a scheme for avoidance of tax, is a plea that has to be considered while giving a ruling under Section 245R(4) of the Act. According to us, it is a fundamental objection, which if upheld, would disentitle the applicant to a ruling or the ruling he has sought on a set of facts put forward. There is always a duty in this Authority to see whether there has come into existence a devise or scheme for avoidance of tax, before pronouncing on the taxability or otherwise of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would not be taxable as dividend in terms of Section 2(22) of the Act as amended with effect from 1.4.2003. When the proposed transaction is found to be colorable, it is not a transaction in the eye of law and once it is ignored as such, the arrangement can only be treated as a distribution of profits by a company to its shareholders which does not attract Section115-O of the Act. Dividend in terms of the definition includes any distribution by a company of accumulated profits to its shareholders. The exemption is only in respect of a germin buy-back of shares. On our finding that the proposed buy-back is colourable, the distribution in question will satisfy the definition of dividend under the Act and consequently taxable as such. Under Article 10, paragraph 2 of the DTAC, dividend paid by a company which is a resident of India, to a resident of Mauritius, may also be taxed in India, according to the laws of India but subject to the limitation contained therein,. It may also be noticed that the payment in question, would also satisfy the definition of dividend in paragraph 4 of Article 10 of the DTAC between India and Mauritius. We are of the view that the proposed payment would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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