In a recent ruling in the case of Ardex Investments Mauritius Ltd.1 (‘the . the case of Azadi Bachao Andolan (above), no further enquiry on the. Reliance was placed on the Supreme Court rulings in the cases of Azadi Bachao. Andolan and Vodafone6. • The majority of the judges in the. The HC has followed the ruling of the Apex Court in the landmark case of Union of India v. Azadi Bachao Andolan [ Taxman
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JSH Mauritius Limited Taxpayeris a company incorporated in Mauritius engaged in the business of investment and financing activities, having no permanent establishment or business presence in India. The Taxpayer had approached the AAR to ascertain whether it was entitled to beneficial azaid namely, Article 13 4 of the Treaty in relation to sale of TIL shares in order to be exempt from paying any capital gains tax in India.
International Tax Avoidance Issues: An Analysis of the Indian Law and Policy
The AAR ruled in favour of the Taxpayer and observed that it was not a ‘shell company’ and held that the transaction was not designed to avoid tax. Importantly, the Revenue filed the writ petition after a delay of 8 eight months from the date of the AAR’s order.
The Revenue put forth the following key contentions to argue that the Taxpayer should be taxed in India in relation to capital gains arising from the sale of TIL shares:. Dismissing the Revenue’s writ petition, the HC decided in favour of azai Taxpayer. The HC held that it would not act as an appellate authority unless the AAR’s appreciation of facts and findings were perverse or if the provisions of law were incorrectly construed.
The HC concluded that the AAR had considered all relevant aspects of the matter in arriving at a just conclusion and that the Treaty had also been rightly interpreted.
The HC noted that the long period azdai holding TIL shares and reinvesting the proceeds in another Indian company suggested the bona fide of the Taxpayer. It further held azqdi since the AAR did not rule that the Taxpayer is a ‘fly-by-night’ company, alleging prima facie tax avoidance at a later stage was unwarranted.
Interestingly, the HC did not rule on the delay of 8 months bahao the Revenue’s part, in filing the writ petition challenging the AAR ruling, albeitthe Revenue had argued that ” some time was lost due to administrative exigency.
From a structuring perspective, it would be useful to evaluate such factual details to ensure that both from a commercial and tax perspective, the eligibility to Treaty benefits is not undermined in any way.
Your LinkedIn Connections at Firm. Facts JSH Mauritius Limited Taxpayeris a company incorporated in Mauritius engaged in the business of investment and financing activities, having no permanent establishment or business presence in India. Revenue’s Case before HC The Revenue put forth the following key contentions to argue that the Taxpayer should be taxed in India in relation to capital gains arising from the sale of TIL shares: The Taxpayer is a ‘ shell company ‘ and ‘fly-by-night’ Company: Contending that the Taxpayer had been incorporated only to take advantage of the Treaty, the Revenue pointed to the original proposal made to the Indian regulator at the time of investment which depicted the name of one Jardine Matheson Bermuda as the investor.
Only later was the proposal amended to route the investment through Mauritius. The Revenue argued that the Taxpayer had never incurred expenses of wages, salaries of staff, electricity, other charges etc.
The mere fact that the Taxpayer had held shares of TIL for 13 thirteen years was irrelevant according to the Revenue while assessing the Taxpayer’s eligibility to avail Treaty benefits. Beneficial owner of TIL shares: Csse verdict on ‘shell company’: Arguing that the transaction was a clear case of Treaty abuse, the Revenue stated that the AAR is not empowered to decide cases of tax avoidance.
According to the Revenue, the AAR was erroneous in not discussing the basis for concluding that the Taxpayer was not a ‘shell company’.
Maintainability of Taxpayer’s application before the AAR: The Taxpayer submitted that the Revenue had failed to challenge the initial order of the AAR wherein it had reserved the right to examine the issue of tax avoidance at the final hearing stage as against at the admission stage. Consequently, the ruling had attained finality and maintainability of the Taxpayer’s application could not be challenged at this stage before the HC.
Bona fide and Residence of the Taxpayer: It argued azadii it was a Mauritian ‘resident’ for the purposes of the Treaty and therefore squarely entitled to Treaty benefits. The Taxpayer further substantiated its claim to avail Treaty benefits by placing reliance on the Azadi case supra and circulars binding on the Revenue issued by the Central Board of Direct Taxes. The circulars unequivocally provide that taxation of capital gains arising to a resident of Mauritius would be taxable in Mauritius; and that a TRC would constitute sufficient evidence of residence, respectively.
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Azadi Saves The Day! Court Rules In Favour Of Mauritian Resident Company – Tax – India
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