TMI Blog2020 (6) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... he way of Authority for entertaining the application for advance ruling was reaffirmed by this Authority in the case of CTCI [ 2012 (8) TMI 744 - AUTHORITY FOR ADVANCE RULINGS] as well. The provisions of the Act do not provide a bar that an applicant can't approach this Authority after the matter has been examined in the proceeding u/s 195 or u/s 197 of the Act. The bar is only in respect of pending proceeding and as already discussed earlier there was no pending proceeding on the date of filing of present applications. We don't find any merit in the objection of the Revenue to reject the applications under clause(i) of proviso to section 245R(2) of the Act and the objection raised is found to be unsustainable. Whether determination of Fair Market Value (FMV) involved?- The exercise of valuation of shares (if at all necessary) and the computation of capital gains has to be undertaken by the assessing officer only when the issue of taxability of capital gain on sale of shares is decided in the favour of the revenue. We do not find any involvement of determination of Fair Market Value of any property (shares) in the question raised in the application. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f earning long term capital appreciation and investment income. The applicants are regulated by the Financial Services Commission in Mauritius and have been granted a Category 1 Global Business License under section 72(6) of the Financial Services Act, 2007 and are tax resident of Mauritius under the laws of Mauritius and under the provisions of the Agreement between India and Mauritius for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Foreign Countries. The applicants held shares of Flipkart Private Limited, a private company limited by shares incorporated under the laws of Singapore (for short Singapore. Co ). The total number of shares of Singapore Co acquired by the applicants was as per table below: S.No. Applicant Number of shares acquired Period / date of acquisition 1. Tiger Global International II Holdings, Mauritius 23,670,710 October, 2011 to April, 2015 2. Tiger Global International III Holdings, Mauritius 2,282,825 23rd June 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate dated 17.08.2018 mentioning the rate of income tax @ 6.05% Tiger Global International III Holdings, Mauritius Certificate dated 17.08.2018 mentioning the rate of income tax @ 6.92% Tiger Global International IV Holdings, Mauritius Certificate dated 17.08.2018 mentioning the rate of income tax @ 8.47% 4. The applicants, thereafter, filed the present application on 19-2-2019 for an advance ruling under section 245Q(1) of the Act on the following common question: 1. Whether, on the facts and in the circumstances of the case, gains arising to the Applicants (a private company incorporated in Mauritius) from the sale of shares held by the Applicants in Flipkart Private Limited (a private company incorporated in Singapore) to Fit Holdings S.A.RL. (a company incorporated in Luxembourg) would be chargeable to tax in India under the Income-tax Act, 1961 read with the Double Taxation Avoidance Agreement between India and Mauritius? As the question raised by the three applicants is common and issue as well as the facts of the case is identical, the matter is being decided by common ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AS, France wherein it was held that conclusion of proceedings under section 197 of the Act was a reasonable ground for rejecting the application. According to Revenue the applicants had a choice to either go for revision before the Commissioner of Income-tax or file a writ application before the High Court and that the AAR was not an appellate forum, as held in the case of Areva and, therefore, was precluded from filing the present application. 7. As an alternative argument the Department has contended that the certificate issued under section 197 of the Act was valid for the financial year 2018-19 and, therefore, there was a pending proceeding on the date when the present applications were filed on 19th February, 2019. 8. The applicants, on the other hand, have submitted that the bar under clause (i) of the proviso to section 245R(2) of the Act was attracted only if the question raised in the application was already pending before any Income-tax Authority or the Appellate Tribunal. It was submitted that the CIT himself had conceded in his report that as on date there was no proceeding pending against the assessee and, therefore, there was no legal basis to attract the bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i (supra) that a legal proceeding is pending as soon as commenced and until it is concluded. In this case the proceedings under section 197 of the Act were already concluded on 17-8-2018, when the certificates were issued by the TDS Officer. As clarified by the applicants the amount subject to TDS was credited / paid on 17-8-2018 which was prior to the filing of the present applications. The revenue's contention is that the certificate u/s 197 was effective for the period from 2-8-2018 to 31-3-2019 and, therefore, the said proceeding was pending as the certificate could have been modified or varied. Even if the certificate u/s 197 was modified or varied by the TDS officer, it could not have been given effect after the transaction was closed on 17-8-2018 and such variation would have no impact. Therefore, the proceeding u/s 197 of the Act had for all practical purpose concluded on 17-8-2018 when the transaction was closed. The contention of the Revenue that the proceeding under section 197 of the Act was pending on the date of filing of the present application in February, 2019 is, therefore, not correct and can't be accepted. Once the transaction was closed there could be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the material facts both before the TDS officer and before the Authority. The facts of the present case are, however, found to be totally different. In this case the applicants had filed an application under section 197 of the Act which was already decided, before filing the present applications before the AAR. There is no co-relation of facts of the present case with the facts of Areva (supra) as there is no concurrent proceeding pending in this case. Therefore, the ratio of the decision of the Areva (supra) cannot be applied to the facts of the present case. 13. The Department has contended that it had already decided the chargeability of capital gains on the sale of shares in the proceedings under section 197 of the Act and that the present applications should be rejected. The Hon'ble Gujarat High Court has held in the case of OPJ Trading Pvt. Ltd. (supra) that the deduction of tax at source and depositing it with the Government revenue by the payee does not decide the final tax liability of the recipient of income which would be subject matter of assessment of return. An identical view was taken by Hon'ble Madras High Court in the case of Anasaldo Energia SPA v. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra)as well. 16. The provisions of the Act do not provide a bar that an applicant can't approach this Authority after the matter has been examined in the proceeding u/s 195 or u/s 197 of the Act. The bar is only in respect of pending proceeding and as already discussed earlier there was no pending proceeding on the date of filing of present applications. 17. In view of the above facts and the judicial precedence's, we don't find any merit in the objection of the Revenue to reject the applications under clause(i) of proviso to section 245R(2) of the Act and the objection raised is found to be unsustainable. Whether determination of Fair Market Value (FMV) involved? 18. The Revenue has submitted that the transfer of shares necessarily involves valuation of shares mutually acceptable to both the parties. The working of the capital gains involved correct working of total sales consideration which in turn depended on the value assigned to each share of Flipkart. According to the Revenue, the question raised by the applicants involved determination of Fair Market Value of the shares held by the applicants in Flipkart and, therefore, the bar under clause(ii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case were examined in detail and it was found that the entire scheme was designed to avoid payment of tax on capital gains. The applicants had transferred shares of Singapore Company which owned a company based in India and, therefore, the Singapore based company derived its value from assets located in India. As per the provisions of the Act direct or indirect transfer of assets located in India was liable to tax and, therefore, capital gains was exigible on transfer of shares of Singapore Company. However, the applicants, which are tax resident of Mauritius, have claimed benefit of beneficial provision of DTAA between India and Mauritius. The Revenue submitted that the following facts discovered during the course of 197 proceedings indicated that the scheme was designed prima facie for avoidance of tax. 22. (a) Ownership Structure Control: The applicant's companies were set up in Mauritius ostensibly for making investment in India and other markets. According to Revenue, they were not acting independently but only as a conduit for the real beneficial owners based out of USA. The Revenue has submitted that as per Notes to the Financial Statement of the year ending 31.12.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the Revenue as under: Date of meeting Particulars Present In attendance Reference (Paper book) 21.05.2014 Investment in Flipkart Series E Preference Shares Mr. Steven Boyd (By telephone) Justin Horan (By telephone) Representing Tiger Global Management LLC Annexure C Page 18 30.07.2014 Tiger Global Management LLC appointed as Investment Manager of the assessee Mr. Steven Boyd (By telephone) Annexure D Page 21 03.11.2014 Update Authorised Bank Signatories Mr. Justin Horan, Alternating for Mr. Steven Boyd Annexure G page 31 10.10.2017 Discussion accepting Flipkart's proposal to buyback shares Mr. Steven Boyd (By telephone) Annexure U Page 82 04.05.2018 Disposal of shares of Series E Preference Shares held in Flipkart Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and are infact key personnel of Tiget Global Management, LLC (Mr. Anil Castro being Chief Operating Officer of Tiger Global Management LLC). Any transactions above USD 250000 required either 2 signatories from Group A or one each from Group A and Group B. That is to say, the person listed in Group A had the ultimate control over the funds of the applicants company. There were no changes to Group A signatories subsequently till transfer of shares of Flipkart by the applicants company. The above facts establish beyond doubt that the control of fund lies outside Mauritius in the hands of Tiger Global personnel based out of USA. On perusal of the minutes of the meetings, it is also found that Mr. Charles P. Coleman is also the authorised signatory for the immediate parent companies of the applicants being Tiger Global Five Parent Holdings (Annexure-3) and Tiger Global Six Parent Holdings, Mauritius (Annexure-4). He was also the sole director of ultimate holding company being Tiger Global PIP Management V Ltd. and Tiger Global PIP Management VI Ltd. till July 2019 (Annexure-5). Hence, the funds were controlled by Mr. Charles P. Coleman and under his overall control by other s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as wholly unsubstantiated. It was submitted that the transaction involved in the present application was sale of shares simpliciter undertaken between two unrelated independent parties which cannot be considered as being designed for the avoidance of tax. The applicants emphasized that the argument of the Revenue that the entity undertaking the transaction should not be entitled to treaty benefits was different from saying that the transaction was entered into with a view to avoid income-tax. The submission of the application is this regard is reproduced below: The requirement under law is therefore to prove that transaction is designed prima facie for the avoidance of income-tax and not that there is a prima facie case of the transaction being designed for the avoidance of income-tax The CIT has arrived at a prima facie finding that there is a design for the avoidance of tax, which is not the requirement under law since the law prescribes establishment of a design after consideration of all facts and materials that suggests the prima facie avoidance of tax. Therefore, it is submitted that the CIT's conclusion is bad in law since the conditions and tests prescribed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s submission that the funds invested by the applicants as well as the sale proceeds received by the applicants from the transaction were legally and beneficially owned by the applicants in its sole, independent and exclusive capacity. (ix). At paragraph 7 of the Revenue WS, the CIT, relying on certain corporate disclosures made in Mauritius, has alleged that the 'beneficial owner ' of the applicants is Mr. Charles P. Coleman. It is submitted that the CIT has failed to adduce even a single fact or lead any evidence whatsoever in support of this allegation. The mere fact that certain disclosures were made and maintained for Mauritius corporate law purposes does not ipso facto mean that the legal owner does not enjoy the benefits of the shares in his independent capacity for income tax purposes, unless clear facts are brought on record to demonstrate otherwise. No such facts have been brought on record in the present case. In fact, applying the logic adopted by the Revenue would result in an absurd and legally unintended situation whereby no Indian company with foreign shareholders would ever be able to claim treaty benefits in India. Moreover, the allegation also go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit which may appear to be correct but was not intended by the lawmakers. 33. It has to be further kept into consideration that at the stage of admission the requirement is not to conclusively establish that there was tax avoidance rather it has to be demonstrated that prime facie the transaction or the issue was designed for avoidance of tax. Therefore, the probability of avoidance of tax has to be decided on the basis of evidences and materials brought on record before us and by drawing inferences therefrom. The issue of tax avoidance was dealt by the Hon'ble Calcutta High Court in the case of Hela Holdings Pvt. Ltd. v. Commissioner of Income-tax and Another 263 ITR 124 and the Hon'ble Court had summarized on the issue as under: (1) The distinction between tax evasion and tax avoidance is still prevalent. (2) Generally speaking tax evasion is the result of such things as illegality, suppression, misrepresentation and fraud. (3) Tax avoidance is the result of actions taken by the assessee, none of which is illegal or forbidden by the law in itself and no combination of which is similarly forbidden or prohibited. (4) The permissibility of a tax avoidance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is found from the Notes to Financial Statement that the principal objective of the applicant companies was to act as an investment holding company for a portfolio investment domiciled outside Mauritius. The investment made by the applicants in the Singapore Company, with Indian subsidiary, was with a prime objective to obtain benefits under the double taxation treaty between Mauritius and India and between Mauritius and Singapore. The organization structure of the applicants, as described in the Notes to Financial Statement, has been depicted by the Revenue in the form of chart reproduced earlier, which is not denied by the applicants. The applicants are part of Tiger Global Management LLC USA and have been held through its affiliates through web of entities based in Cayman Islands and Mauritius. Though the holding-subsidiary structure might not be a conclusive proof for tax avoidance, the purpose for which the subsidiaries were set up does indicate the real intention behind the structure. From the materials brought on record, the fact that the applicants were set up for making investment in order to derive benefit under the DTAA between Mauritius and India is an inescapable conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board of Directors as signatory of cheques above a particular limit. Apparently, the argument of the applicants may seem logical. However, as the principal bank account of the applicants was maintained in Mauritius, it would have made sense if a local person based in Mauritius was appointed to sign the cheques on behalf of the Directors. The applicants have not explained as to why Mr. Charles P. Coleman, who was not based in Mauritius was appointed to sign the cheques of Mauritius bank account. In this regard it is relevant to consider that Mr. Charles P. Coleman was the beneficial owner as disclosed by the applicants in the application form for Category I Global Business Licence filed with Mauritius Financial Services Commission. Mr. Coleman was also the authorized signatory for the immediate parent company of the applicants viz. Tiger Global Five Percent Holdings and Tiger Global Six Percent Holdings and was also the sole Director of ultimate holding company Tiger Global PIP Management V Limited and Tiger Global PIP Management VI Limited. In view of these facts the appointment of Mr. Charles P. Coleman as authorized signatory of bank cheques above a limit can't be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; claim for exemption of capital gains was in accordance with the provisions of Article-13 of India-Mauritius treaty. It was contended that under the circumstances, it cannot be said that the question raised in the application related to a transaction or issue designed prima facie for avoidance of income-tax. It is a settled principle that a treaty is to be interpreted in good faith. The context and purpose of the treaty must be determined on the basis of preamble and annexure including agreement, subsequent agreement regarding interpretation of terms of the treaties, relevant international rules applicable to the agreement etc. The Circular No. 682 dated 30-3-1994 issued by the CBDT had clarified that any resident of Mauritius deriving income from alienation of shares of Indian companies will be liable to capital gains tax only in Mauritius as per the Mauritius tax law and will not have any capital gains tax liability in India. It was imperative from this Circular that what was exempted for a resident of Mauritius was the capital gains derived on alienation of shares of Indian company. In the present case capital gains has not been derived by alienation of shares of any Indian c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residency is stated to be established to take benefit of Mauritius tax treaty network with various countries and not just India, in effect the entire investment made by the applicants was with Singapore company only, in respect of which the benefit of India-Mauritius DTAA is being claimed. As is evident from their financial statements filed with the application, all the three applicants had not made any other investment other than in the shares of Flipkart. Thus, the real intention of the applicants was to avail the benefit of India-Mauritius treaty, whatever be the stated objective. 43. The applicants have relied upon the decision of the High Court of Gujarat in the case of Commissioner of Income-tax v. Sakarlal Balabhai [1986] 69 ITR 186 (Guj) wherein it was held that avoidance postulates that the assessee is in receipt of amount which was in reality and truth his income liable to tax on which it avoids payment of tax by some artifice or device. It was submitted that there was no artifice or device employed and, therefore, there was no question of any tax avoidance. It is found that this observation of the Hon'ble Court was in the context of gift of shares which was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oting from the said judgement. The Court had held in that case that the Revenue should apply 'look at' test to ascertain its true legal nature in order to distinguish between pre-ordained transaction created for tax avoidance and a transaction which evidenced investment participation in India. The relevant observation of the Court is reproduced below: 73. ...There is a conceptual difference between preordained transaction which is created for tax avoidance purposes, on the one hand, and a transaction which evidences investment to participate in India. In order to find out whether a given transaction evidences a preordained transaction in the sense indicated above or investment to participate, one has to take into account the factors enumerated hereinabove, namely, duration of time during which the holding structure existed, the period of business operations in India, generation of taxable revenue in India during the period of business operations in India, the timing of the exit, the continuity of business on such exit, etc... 47. The applicants fail miserably if we apply the yardsticks as laid down by the Hon'ble Supreme Court in the case of Vodafone (supra). Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
