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2020 (6) TMI 159 - AAR - Income TaxIncome accrued in India - 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) - DTAA between India and Mauritius - identify the beneficial owner of the shares sold - tax liability cannot be decided in the proceeding under section 197 - HELD THAT - There was no abuse of process of law or dubious ingenuity on the part of the applicant to circumvent any provision of law, if it had approached the AAR after passing of order under section 197 of the Act. This Authority in the case of SEPCO III 2011 (8) TMI 213 - AUTHORITY FOR ADVANCE RULINGS had held that mere pendency of the proceedings under section 195 or section 197 of the Act or even a final order thereon does not stand in the way of an application of advance rulings being entertained. The finding that the order under section 195 of section 197 of the Act does not stand in the 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 of Worldwide Wickets 2018 (2) TMI 1428 - AUTHORITY FOR ADVANCE RULINGS, MUMBAI has held that the computation of capital gains is embedded in the concept of valuation of shares and merely for this reason the question of capital gains arising in application cannot be held to be barred by clause (ii) of the proviso to section 245 R (2) of the Act. Considering the precise question raised by the applicants on the taxability of capital gains and the decision of the Authority on the issue, the objection raised by the revenue on the issue of involvement of determination of fair market value of the property is rejected. Whether transaction / issue designed prima facie for avoidance of tax? - HELD THAT - The objective of India-Mauritius DTAA was to allow exemption of capital gains on transfer of shares of Indian company only and any such exemption on transfer of shares of the company not resident in India, was never intended by the legislator. Further, as discussed earlier the actual control and management of the applicants was not in Mauritius but in USA with Mr. Charles P. Coleman, the beneficial owner of the entire group structure. Therefore, we have no hesitation to conclude that the entire arrangement made by the applicants was with an intention to claim benefit under India - Mauritius DTAA, which was not intended by the lawmakers, and such an arrangement was nothing but an arrangement for avoidance of tax in India. Therefore, the bar under clause (iii) to proviso to section 245R(2) of the Act is found to be squarely applicable to the present cases. Accordingly, the applications are rejected.
Issues Involved:
1. Pendency of proceedings before any Income-tax Authority or the Appellate Tribunal. 2. Determination of Fair Market Value (FMV). 3. Transaction designed prima facie for avoidance of tax. Issue-wise Detailed Analysis: 1. Pendency of Proceedings: The Revenue raised objections regarding the pendency of proceedings under section 197 of the Income-tax Act, 1961, arguing that the issue of chargeability of capital gains had already been examined. The applicants contended that no proceedings were pending as of the application date. The Authority found that no proceedings were pending on the date of filing the applications, as the section 197 proceedings had concluded on 17-8-2018. The Authority referenced various judicial precedents, including the Supreme Court’s ruling in Asgarali Nazarali Singaporawalla v. State of Bombay, to support that the proceedings were concluded and no legal basis existed to attract the bar under clause (i) of the proviso to section 245R(2). Thus, the objection raised by the Revenue was found unsustainable. 2. Determination of Fair Market Value (FMV): The Revenue argued that the transfer of shares involved the determination of FMV, making the application inadmissible under clause (ii) of the proviso to section 245R(2). The applicants countered that their question focused solely on the chargeability of tax and did not require valuation of shares or computation of capital gains. The Authority agreed with the applicants, stating that the issue of FMV determination was not involved in the question raised. The Authority referenced the ruling in Worldwide Wickets, concluding that the computation of capital gains embedded in the concept of valuation of shares did not bar the application under clause (ii). Hence, the objection regarding FMV determination was rejected. 3. Transaction Designed Prima Facie for Avoidance of Tax: The Revenue contended that the transaction was designed to avoid tax, citing ownership structure, control, financial control, and beneficial ownership as evidence. They argued that the applicants were not independent but acted as conduits for the real beneficial owners in the USA. The applicants argued that the transaction was a legitimate sale of shares between independent parties and not designed for tax avoidance. The Authority examined the control and management of the applicants, finding that the real control was with Mr. Charles P. Coleman in the USA, not in Mauritius. The Authority noted that the applicants’ structure and control indicated a design for tax avoidance, referencing the Supreme Court’s decision in Vodafone International Holding BV. The Authority concluded that the transaction was designed prima facie for tax avoidance and that the applicants were not entitled to the benefits of the India-Mauritius DTAA for the sale of shares of a Singapore company. Thus, the bar under clause (iii) to proviso to section 245R(2) was applicable, leading to the rejection of the applications.
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