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2016 (9) TMI 162 - AUTHORITY FOR ADVANCE RULINGS NEW DELHI

2016 (9) TMI 162 - AUTHORITY FOR ADVANCE RULINGS NEW DELHI - TMI - Capital gain on transfer of shares - Tax liability in India - India-Mauritius DTAA - Held that:- This is a matter of fact and can be examined from share purchase agreement and other documents filed by the applicant. Sinshei Bank is a party to, the share purchase agreement because it is the sponsor and settler of the mutual fund in India and as required under the mutual funds regulations, Sinshei Bank Ltd. executed a trust deed da .....

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ased from its obligation and responsibilities. This is the reason that the SPA contains such provisions. - The applicant has given para wise reply to the Department's contentions and the essence of the reply is that Sinshei Bank Ltd. in its capacity as sponsor of the mutual fund is party to SPA and has borne certain responsibility to the regulations, investors of the individual sponsor. The matters regarding place of arbitration, sharing of responsibility to obtain the tax withholding order .....

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India and obtained the shares in the name of AT&T Mauritius as a 'permitted transferee'. Here the facts are very clear that the applicant had paid for shares. Once it is established that the applicant has made investment on its own and Sinshei Bank Ltd. was party to SPA only in its capacity as sponsor and in order to comply with mutual funds regulations, there is no bar on application of Article 13(4) of the India-Mauritius DTAA in this case. The applicant is a resident of Mauritius and a valid .....

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AND R.S. SHUKLA, JJ. For The Appellant : Kanchan Kaushal, Dhanesh Bafana, Arpit Bhatnagar and Ravi Sharma For The respondent : Ms. Nausheen J. Ansari, S.S. Negi and Sabir Tekriwal RULING A.K. Tewary, Revenue - The applicant is a company incorporated in Mauritius. The applicant holds a valid Tax Residency Certificate (TRC) issued by the Mauritian Revenue authorities and does not have a permanent establishment in India. The applicant is a wholly owned subsidiary of Shinsei Bank Limited, Japan ( .....

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or and settler of Shinsei Mutual Fund, which was established as a trust vide trust deed dated 16 July 2008 executed between Shinsei Bank and Shinsei Trustee Company. Shinsei Asset, Shinsei Trustee and Shinsei Mutual Fund are all registered with the Securities and Exchange Board of India [SEBI] in terms of the SEBI (Mutual Funds) Regulations, 1996 [MF Regulations]. On 19 March 2010, a Share Purchase Agreement (SPA) was entered into between the applicant, Shinsei Investment II Limited, Shinsei Ban .....

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spect of the transfer of 7,227,000 equity shares of AMC and 399,996 equity shares of Trustee Company under the India-Mauritius tax treaty? 2. Based on the facts and circumstances of the case and in law, whether Daiwa and its affiliates would be required to withhold tax as per section 195 of the ITA from payments made to the Applicant? 3. Based on the facts and circumstances of the case and in law, if the applicant's capital gains are not taxable in India, then whether the applicant would be .....

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is located in India is of no consequence. Under section 90 of the Act the taxpayer is entitled in law to seek the benefits under the OTAA if the provision therein is more beneficial than the corresponding provision in the domestic law. Thus, in the case of residents of Mauritius, capital gains arising on the sale of shares of Indian companies are taxable only in Mauritius and are not taxable in India. The applicant has relied on Circular No.682 dated 30th March, 1994 and Circular No. 789 dated 1 .....

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nue has submitted the following comments:- (i) Shinsei Bank Ltd., Japan does not have any share-holding in the Indian concerns (AMC and the Trustee Company) whose shares are under transfer. This being the case and if it is a case of share sale simpliciter by the applicant Shinsei Investment I Limited, Mauritius, the reasons or relevance for presence of Shinsei Bank Ltd., Japan (the parent holding company of the Applicant) as Party No.1 in the Share Purchase Agreement are not clear. The applicant .....

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hts/responsibility in respect of share sale and raises suspicion about the legal, actual and beneficial capacity of the applicant in the scheme of transaction. (iii) Shinsei Bank Ltd. Japan has the sole responsibility for the conduct of the transaction and the Mauritius entities are mere nominee shareholders. (iv) The place of arbitration has primarily and implicitly been limited to Japan and/or India only and not the place of incorporation of the Applicant, i.e. Mauritius. (v) Section 3.2 of th .....

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Section 9.2 (f) requires the provision of all reasonable information to Shinsei Bank Ltd., Japan, for investigation of tax claim in timely manner. Further, Section 9(3) stipulates that Shinsei Bank Ltd., Japan is required to take over conduct of all proceedings and negotiations in connection with tax claim upon receipt of notice from the purchaser. (viii) Shinsei Bank Ltd., Japan is the sole party as regards to tax claim liability and the applicant i.e. Shinsei Investment I Ltd., does not figur .....

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Bombay High Court in the case of Aditya Birla Nuvo Ltd 342 ITR 308. The Department has further submitted that circular No.682 and 689 issued by CBDT and the decision of the Apex Court in the case of Azadi Bachao Andolan has no relevance to the facts of the present case as the circulars were issued in the context of extending the benefits of the Tax Treaty to the investments made in India by Mauritian Entities. However, these circulars would not apply where the investments are made in India by no .....

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Accordingly, all rights in respect of the said equity shares absolutely vested in AT&T USA. In the present case, subscription to shares of Shinsei AMC and Shinsei Trustee Company has been made wholly by the applicant in its own name and account and not on behalf or for the benefit of Shinsei Bank. Accordingly, the applicant was not the permitted transferee of the shares. b. In the case of Aditya Birla, as per the terms of the JVA the owner of the equity capital of the Indian entity would be .....

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the parties and the JV would remain only until the telecom licenses remain. This shows that the investments were routed through the AT&T Mauritius to avail the benefit of the tax treaty. 7. We have considered the submissions of the applicant and the Revenue and have carefully gone through the case laws relied upon by them. The main allegation of the Department is that the applicant has been introduced in this case as a 'permitted transferee'. This is a matter of fact and can be exam .....

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t of the SPA for transfer of the sponsorship to the new sponsor i.e. Daiwa Asset Management Company Ltd. It is also noticed that in terms of mutual fund regulation the trustee Sinshei Bank Ltd. is subject to certain requirements and responsibilities and on sale of shares it is required to be released from its obligation and responsibilities. This is the reason that the SPA contains such provisions. The applicant has given para wise reply to the Department's contentions and the essence of the .....

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