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TMI Blog2017 (8) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be entitled to the benefits of the Agreement between the Government of Mauritius and the Government of the Republic of India for the avoidance of double taxation and prevention of fiscal evasion (the 'India Mauritius tax treaty') with respect to taxes on income and capital gains ? Question 2 : If the answer to Question 1 is in the affirmative, whether on the facts and circumstances of the case, the gains arising to the Applicant from transfer of shares in Tata Industries Limited ('TIL') to Tata Sons Limited ('TSL') would not be liable to tax in India having regard to the provisions of Article 13 of the India Mauritius tax treaty ? Question 3 : Whether on the facts and circumstances of the case, if answer to Question 2 is in affirmative, the Applicant, being a foreign company and in absence of a Permanent Establishment ('PE') in India, would not be subject to tax under the provisions of Section 115JB of the Act ?" 2 The Authority for Advance Rulings (Income-Tax), New Delhi answered the aforesaid three questions in favour of the Respondent. Aggrieved thereby, the Commissioner of Income-Tax (International Taxation)3 has filed present Writ Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts is required to be considered. (g) The learned counsel submits that after the Judgment of the Apex Court in the case of Vodafone International Holdings v. Union of India reported in 2012 (341) IRT 1, the legislature has amended Section 9(1) of the Income Tax Act, 1961. Since Explanation 5 and similar explanation have been added "for removal of doubts", all such transactions, as in the present case, are covered in regular assessment retrospectively with effect from 1962. The AAR has committed a gross error in not considering this vital change in the legal position. The explanatory memorandum clearly provides that amendment of Section 9(1)(i) was to reiterate the legislative intent in respect of taxability of gains having economic nexus with India irrespective of the mode of realisation of such gains. The amendment sought to clarify the source rule of taxation in respect of income arising from indirect transfer of assets situated in India as explicitly mentioned in the memorandum. Explanation 5 would be applicable in relation to deeming any income arising outside India from any transaction in respect of any share or interest in a foreign company which has the effect of the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Mauritius and it is renewed from time to time. The Respondent has filed its advance return in Mauritius offering its income to tax and also paid taxes in Mauritius. It is a resident under Article 4(1) of IndiaMauritius Double Taxation Avoidance Agreement (hereinafter referred to as "DTAA" for the sake of brevity) and is eligible to claim the benefits under the Treaty. (d) The learned Senior Advocate further states that the Respondent had made investment in shares of TIL in June 1996 after obtaining Government approval including approval in May 1996 from Department of Industrial Policy & Promotion. (e) The Investment in shares of TIL was made with an intention of long term investment. The shares were held for a period of 13 years and were transferred only in June 2009. Posttransfer of shares of TIL, the entire sale proceeds have been reinvested by the Respondent in another Tatagroup Company (Tata Power Limited) in July 2009. (f) The learned Senior Advocate submits that the Respondent is resident under Article 4(1) of the DTAA, hence eligible to claim benefit of the Article 13(4) of the DTAA. As per provisions of Article 13(4) of the said DTAA, the long term capital gain arisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(R)(4) of the Act. The said Order is not challenged by the Petitioner and it has become final. Now they cannot turn around and raise the said issue. Moreover, the AAR has concluded that the Respondent is not a Shell or Fly By Night Company and has not indulged in tax avoidance. 5 We have considered the submissions canvassed by the learned counsel for the respective parties. 6 This Court in exercise of its writ jurisdiction under Article 226 of the Constitution of India would not sit as an Appellate Authority over the finding of the AAR. This Court would exercise its writ jurisdiction if the appreciation of facts and finding arrived at by the AAR is perverse or if the provisions of law are not properly construed. 7 The factual matrix that the Respondent is incorporated in Mauritius, holds a Category 1 Global Business License issued by Financial Services Authority of Mauritius and is incorporated on 04/04/1996, is not disputed. It is also not disputed that the Certificate is issued by the Mauritius Revenue Authority to the Respondent evidencing that it is a tax resident in Mauritius during the relevant period. The Respondent had acquired shares of Tata Industries Limited (TIL) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAC is to ensure that the provisions thereunder are available even if they are inconsistent with the provisions of Indian Income Tax Act. The further observation is made by the Apex Court that the principle of piercing the veil of incorporation can hardly apply to a situation as the one before it. The Apex Court further made the following observations : "If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non est based upon some hypothetical assessment of the "real motive" of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a willo' thewisp." "We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents." 10 In the present matter, it would be relevant to not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation for ruling under Section 245(R) (4) of the Act. The said Order was never assailed by the Petitioner. The Petitioner thereafter submitted to the jurisdiction of the AAR and contested the matter on merits. The Ruling is given by the AAR. The AAR on considering the application and the documents and the facts on record had conclusively held that the transaction is not designed for avoidance of Income-Tax. Once such conclusive finding is given, it would not be open for the Petitioner to fall back on Section 245(R)(2)(iii). 12 The reliance placed on Section 9(1)(i) and Explanation 5 thereto by the learned counsel for the Petitioner would not be of any avail to the Petitioner. In the present case, the Respondent has placed reliance on the Double Taxation Avoidance Agreement between India and Mauritius. It is clear from the said Agreement that the capital gains from alienation of the shares situated in India could only be taxed in Mauritius and not in India. The Apex Court in a case of Azadi Bachao Andolan & Anr.(supra) has clearly observed that the terms and provisions of the Agreement i.e. DTAA shall operate even if they are inconsistent with the provisions of the Income Tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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