9911796707
TMI Blog2016 (9) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... tings are conducted in and chaired from Mauritius. The applicant had acquired 9,931,638 shares (representing about 8.12% - holding) in Tech Mahindra Limited, India ("TML") which is listed on Bombay stock exchange and National Stock Exchange in India. These shares were acquired in two tranches, in financial years 2005-06 and 2006-07, through a preferential allotment at a price of INR 67 per share. AT&T International, Inc. ("AT&T"), earlier known as SBC International Inc., TML, Mahindra & Mahindra Limited ("M&M"), British Telecommunications plc ("BT") and the applicant entered into an Option Agreement dated 10 May 2005. Pursuant to the Option Agreement, AT&T was given an option to purchase up to 9,931,638 equity shares of TML held by the applicant on achieving certain milestones stipulated in the Option Agreement. AT&T achieved the milestones and decided to exercise the options. The applicant consequently transferred 98,70,912 shares of TML to AT&T at USD 3,5022 per share on 22 March 2010 and realized long-term capital gain of INR 900,127,390.52. This gave rise to the issue of taxability of gains because the applicant has transferred shares to AT&T. The chronology of events is as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) to sell those shares to be allotted, for a consideration of USD 1,000. Thus the obligation of Tech Mahindra was shifted to the applicant and the result reached by providing for the applicant to part with the shares to whom Tech Mahindra had an outstanding obligation to issue shares which would have stood in the way of a public issue. The matter went before the Bombay High Court which took note of a communication dated 7th May, 2013 from SEBI to the Director of Income-tax and noted that the agreement entered into in 2004 between TML and AT&T was not acted upon due to commercial reasons and that the draft prospectus filed with SEBI in 2006 had disclosed the agreement entered into by it with AT&T. The High Court noted that in this case SEBI had concluded that there had been no breach of SEBI guidelines and SEBI had not issued any show cause notice or adjudication order for contravention of its guidelines, The High Court restored the questions to this authority for a ruling. 4. The applicant has mentioned that it is a tax resident of Mauritius, holding a tax residency certificate issued by the Mauritian tax authorities and the control and management of its affairs is situated in Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l purpose and there is nothing in law that prohibits incorporating a company for a special purpose. It has been further clarified that the arguments of the Revenue that the incorporation and existence of the applicant was for the sole purpose of transferring shares of TML to AT & T is factually incorrect as the applicant even today continues to hold 2,42,904 shares of TML without any obligation to transfer them to AT & T or anyone else. The applicant has further submitted that: a) The Applicant has been managed independently by its Board of Directors constituted in Mauritius. b) A majority of the directors of the Applicant have been resident outside India. Even during the relevant year, out of the 5(five) directors constituting the board of the Applicant, only 1 (one) was resident in India and the remaining 4 (four) directors were non-residents of India (one of them being a resident of the UK); c) All meetings of the Board of Directors have been conducted from Mauritius and have been chaired by a Mauritius resident director; d) Statutory books of account and records have been maintained and kept at the registered office of the Applicant in Mauritius; e) The statutory auditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f doing business with the central control and management of that business. It observed that mere doing of business in one jurisdiction cannot constitute having controlling and directing power in that jurisdiction. Further, the Hon'ble Bombay HC observed that as a rule, the direction, management and control, 'the head and seat and directing power' of a company's affairs is situated at a place where the directors' meetings are held and, consequently, a company would be resident in India only if the meetings of directors who manage and control the business are held in India. According to the applicant even if it is considered to be a special purpose vehicle, this will not make it a company wholly controlled and managed from India. The applicant has, however, mentioned that it has earned income by way of dividends on the shares held and interest income on the deposits kept with the bank. 9. We have considered the arguments of the applicant and the Department. At the outset we may observe that the Revenue's emphasis on the fact that the applicant was not set up for a commercial purpose and was holding shares only for ultimately transferring the same to AT & T is misplaced. The facts sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end declaration and distribution etc. We also noted that the Board of Directors included representatives of BT Holdings Limited, a UK company, holdings 43% of shares. These Board meetings and the nature of decisions taken in such meetings clearly indicate that control and management of affairs of the company, particularly all financial affairs were situated only in Mauritius. We have also gone through the cases cited by the applicant and have noticed that decision of the apex court in Erin Estate (supra) and VVRNM Subbayya Chethiyar (supra) support the applicant's case. We further note that the Hon'ble Supreme Court held in the case of CIT V. Nandlal Gandalal 40 ITR 1 (SC) that the expression 'control and management' means de facto control and management and not merely the right or power to control and 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 sai ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
