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TMI Blog2016 (9) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... manage. The word ‘affairs’ means the affairs of a HUF which are capable of being controlled and managed by the family as such. In the case of VVRNM Subbayya Chethiyar also the apex court held that the word ‘affairs’ must mean affairs which are relevant for the purpose of the Income-tax Act and which have some relation to income. On the basis of facts mentioned above, it cannot be said that the control and management of the affairs of the applicant company were wholly situated in India. The Department of Revenue has not given any substantial evidence to show that any important affairs of the company relevant for the purpose of the Income-tax Act were being controlled from India. The only argument of the Department seems to be that the real transaction was between TML and AT&T and, therefore, the control and management of the applicant should be treated as in India. There is no force in this argument as there is nothing wrong in the applicant holding the shares and transferring the same at a later stage as per the options agreement and on fulfillment of conditions by AT & T as per the agreement. Therefore, we are unable to agree with the objections raised by the Department of Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahindra Ltd.(M M) an Indian co. and British Telecommunication PLC (BT) a British Company incorporated in England to form Mahindra British Telecom Ltd. (now known as Tech Mahindra Ltd. (TML). M M and BT held 57% and 43% shares respectively in TML. (ii) 28th December 2004 A Commercial agreement signed between TML and SBC Services (now AT T). (iii) 9th May 2005 MBTM, the applicant, incorporated in Mauritius. (iv) 10th of May 2005 MBTM, AT T, M M, BT TML, enter into an option agreement which provided that AT T will be granted options over the shares representing 8.12% of enlarged fully diluted shares of TML on achieving certain specified milestones. (v) 23rd of June 2005 Shares subscription agreement entered between MBTM and TML. As per the said agreement, MBTM agreed to subscribe and to invest in TML on partly paid basis, MBTM agreed to subscribe 99,31,638 equity shares at a price of Indian rupees 67 per share. (vi) 09.07.2005 First payment of US $ 22.09m made by MBTM as allotment money for purchase of shares of TML. (vii) 23 May 2006 Second payment of US $ 124.36m made by MBTM for purchase of share being final call money. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to the provisions of the India-Mauritius DTAA which provided exemptions on capital gains realized by Mauritius residents in India. It has also referred to Circular No.682 dated 30th March, 1994 and Circular No.789 dated 13th April, 2000 clarifying that whenever a TRC is issued by the Mauritian Tax Authorities, that will constitute sufficient evidence for accepting the status of residence of the Mauritian Entity and accordingly the India Mauritius DTAA will be applied. It has also mentioned that the Hon ble Supreme Court in the case of UOI v/s Azadi Bachao Andolan (2003) 263 ITR 706 has upheld the validity of Circular No.789. 5 . The gist of objections of the Department of Revenue is as under:- (i) The applicant MBTM is a nominee of the founder companies M M and BT and its only activity is acquisition of shares of TML and holding the same for transferring to AT T as per the Option Agreement. (ii) The Incorporation of MBTM was without any economic substance with sole purpose to hold the shares to facilitate a tax neutral transfer of shares as mandated in clause 14.4 of the Option Agreement. (iii) The shareholders agreement dated 25.6.2005 confirms the above mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory auditors appointed by the Applicant have been resident in Mauritius; f) The company Secretary has been appointed in Mauritius and has been a resident of and is functioning from Mauritius; g) The Applicant has had its bank account in Mauritius and all the Applicant s banking transactions have been conducted through that bank account. h) The Applicant has regularly made its statutory filings and returns as required by the Companies Act, 2001 in Mauritius with Mauritian Registrar of Companies; i) The Applicant has filed its tax returns in Mauritius as required under the Mauritius domestic law; and j) All Annual Meetings of the shareholders of the Applicant have been held in Mauritius. 8. In its rejoinder relating to control and management of affairs of the applicant situated wholly in India the applicant has submitted that neither its control and management nor its affairs were wholly, or even partly, situated in India during the relevant year. The applicant has pointed out that all decisions of financial matters, approval of financial budgets and statements, decisions on declaration of dividends, decisions on buy-back of shares decisions in respect of shares in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T is misplaced. The facts show that it was in order to motivate AT T to give business to TML, it was agreed commercially between TML and AT T that the latter would be offered an opportunity to become a shareholder of TML only when AT T had given a certain level of business to TML for which certain milestones were set. It was only after such milestones were achieved that the option was exercised. There is nothing unusual or abnormal about such conditions in the Option Agreement. During the course of hearing the arguments mainly centered around the place of control and management of the affairs of the applicant company in view of reliance of the Department on Article 4(3) of the DTAA which provides that a resident of both the contracting states shall be deemed to be the resident of the contracting state in which its place of effective management is situated. As regards section 6(3) of the Income-tax Act we note that a foreign company can be a resident in India only if during the year, control and management of its affairs is situated wholly in India. Therefore, the main issue to be examined is whether control and management of its affairs is situated wholly in India. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of facts mentioned above, it cannot be said that the control and management of the affairs of the applicant company were wholly situated in India. The Department of Revenue has not given any substantial evidence to show that any important affairs of the company relevant for the purpose of the Income-tax Act were being controlled from India. The only argument of the Department seems to be that the real transaction was between TML and AT T and, therefore, the control and management of the applicant should be treated as in India. There is no force in this argument as there is nothing wrong in the applicant holding the shares and transferring the same at a later stage as per the options agreement and on fulfillment of conditions by AT T as per the agreement. Therefore, we are unable to agree with the objections raised by the Department of Revenue and hold that the applicant is not chargeable to tax in India under Article 13(4) of India-Mauritius Treaty. In view of this the following ruling is pronounced:- Q.1 The applicant is not chargeable to capital gains tax in India under Article 13 (4) of India-Mauritius Treaty? Q.2 In view of answer to Q.No.1, this question does no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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