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TMI Blog2024 (1) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... Indo Mauritius Double Taxation Avoidance Agreement. That particular note also says that the protocol would be applicable only if the shares are acquired after 1st April, 2017. Thus, it is not the case of the Revenue that the shares of the Indian entity were acquired by the assessee after 1st April, 2017. Against this, the annual accounts of the assessee clearly states that such shares were acquired in F.Y. 2007-08. It is not the case of the CIT that the tax residency certificate is as a result of fraud or illegal activities. Therefore, The learned CIT also does not doubt that assessee is holding tax residency certificate. It is also not the case of the CIT that tax residency certificate of the assessee is not valid in view of the same other information. The amendment to the Double Taxation Avoidance Agreement limiting the benefit of profit or gains on sale of shares in the hands of the Mauritius entity as per Article 13 (3B) and 27(A) would apply with effect from 1st April, 2017. The press release of Central Board of Direct Taxes dated 29th August, 2016, has expressly provided for grandfathering of investment prior to 1st April, 2017. It specifically says that the protocol provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has raised following grounds of appeal:- The following grounds of appeal are without prejudice to one another 1. The learned Commissioner of Income Tax, International Tax, Mumbai 2 erred in passing order u/s 263 setting aside assessment order passed u/s 143(3) on 01.03.2021 to make fresh assessment. 2. The learned Commissioner of Income Tax, International Tax, Mumbai 2 failed to appreciate that the order u/s 263 is without jurisdiction and bad in law. 3. The learned Commissioner of Income Tax, International Tax, Mumbai 2 failed to appreciate that the assessment order passed u/s 143(3) on 01.03.2021 was neither erroneous nor prejudicial to the interest of the revenue. 4. The learned Commissioner of Income Tax, International Tax, Mumbai 2 failed to appreciate that the learned Assessing Officer had made enquiries which should have been made before passing the assessment order. 5. The learned Commissioner of Income Tax, International Tax, Mumbai 2 erred in assuming jurisdiction without giving finding as to which or what inquiries or verification which should have been made were not made by the Assessing Officer before passing the assessment order. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... III PTE Limited [ A company incorporated under the laws of Singapore] claimed as exempt as per Article 13 of Double Taxation Avoidance Agreement between India and Mauritius. The CIT perused [1] the questionnaire issued by the learned Assessing Officer and the submissions filed by the assessee, [2] return of income, computation of total income and the assessment records. Based on this examination, a show cause notice was issued under Section 263 of the Act on 25th January, 2023, holding that the learned Assessing Officer has not conducted any enquiry to ascertain whether the capital gain on sale of share claimed as exempt as per Article 13 was allowable or not in pursuance to note no.4 of the financial statements of the assessee company wherein it is mentioned that capital gain arising on disposal of shares by the Mauritius Company acquired on or after 1st April, 2017 and disposed off before 1st April, 2019, would be taxed in India at the rate of 50% of the applicable rate if the affairs of the Mauritian Company are not arranged with the primary purpose of taking benefits of the lower tax rate. Further, the Mauritius Company should pass main purpose test and a bonafide business test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al cost of ₹20.39 million US Dollar during 2007. Out of the above 2,14,81,521 equity shares were bought back by Comstar India in December, 2007 itself. Accordingly, the assessee was left with 6,44,41,564 equity shares. These shares were sold to Singapore VII Topco III Pte. Ltd. and another non-resident company based out of Singapore. This sale took place in A.Y. 2018-19, consideration was partly payable in the year of sale and balance was payable in A.Y. 2021-22. The share purchase agreement was furnished during the course of assessment proceedings, as well as before the learned Commissioner of Income Tax. It was further stated that the funds to make the investment in India were obtained from Visteon International Holdings and Visteon Asia Holdings Inc., for which the assessee has issued 17,48,908 equity shares to these companies. Thus, it was claimed that assessee made investment in 2007, sold it in 2017, therefore, it was not a fly by night investment but it is an investment with a business motive to invest in India. It was further claimed that capital gain arising to the assessee is not chargeable to tax in India according to Article 13 of the Double taxation Avoidance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee on long-term capital gain according to Article 13 is neither erroneous nor prejudicial to the interest of the Revenue. 011. The learned CIT after considering the explanation of the assessee held that a. the learned Assessing Officer has not conducted any enquiry and has merely stated in Para no.4 that the assessee is entitled to exemption. b. learned Assessing Officer accepted the submission of the assessee without conducting any enquiry on its own whether assessee is entitled to the benefit of Double Taxation Avoidance Agreement between India and Mauritius. c. Ld AO has neither asked for any holding structure of the assessee nor the details of ultimate beneficial owners, was enquired into. d. Further, the learned Assessing Officer has not looked into the fact that audited financial statements of the assessee does not show any routine expenditure with respect to the rent, electricity, water, etc. e. The learned Assessing Officer also do not make any enquiry regarding the source of investment or application of funds received on sale of shares or substantial dividend payment made by the assessee company. f. Ld AO has simply accepted whatever is sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of sale of shares to a Singapore entity along with share purchase agreement. The assessee also categorically submitted that it does not have any permanent establishment in India. With regard to Indo-Mauritius Double Taxation Avoidance Agreement, it was stated that tax residency certificate issued is valid from 28th May, 2017 to 28th May, 2018. The assessee also produced the working of the capital gain and also explained that Article 13 exempt such gain as the shares were acquired on or before 1st April, 2017. The assessee also explained that the articles were amended with effect from 1st April, 2017 by the protocol dated 10th August, 2016 and applies to capital gain on sale of shares acquired after 1st April, 2017. The assessee also relied on the circular no.682 dated 30th March, 1994, Circular no.789 dated 13th April, 2000 as well as several judicial precedents stated that the capital gain is not chargeable to tax in India. However, it did not submit the annual accounts of the buyer stating that is part of Black Stone Group. It provided the valuation report of the company whose shares are transacted. Further, the tax residency certificate was shown wherein from 28th May, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egorically held that the capital gain arising on the sale of shares is not chargeable to tax in India according to Article 13 and therefore, the order is neither erroneous nor prejudicial to the interest of the Revenue. 014. Even otherwise, he submitted that the order under Section 263 of the Act passed by the learned CIT does not says that in the given circumstances what are those relevant enquiries that the learned Assessing Officer should have made but has failed to made. He therefore submitted that the revisionary order passed by the learned CIT (A) is not sustainable. 015. He further referred to the decision of the Hon'ble Bombay HC in MOIL India Ltd. v. CIT (2017) vs. CIT (2017) 396 ITR 244 (Bom.) and specifically referred to Para no.5 to support his case. He submitted that in the present case, the explanation of the assessee was so elaborate and detailed that the learned Assessing Officer is not expected to raise further queries as he satisfied about the exemption based on the material and information supplied. Thus, the order of the learned Assessing Officer is not erroneous. He therefore submitted that that the order of the learned CIT revising the order of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritius Limited. The assessee was holding category 1 Global Business License pursuant to Section 72(6) of the Financial Services act, with effect from 8th February, 2007. The assessee was also issued tax residency certificate from 28th May, 2016 to 27th May, 2017 by certificate dated 29th August, 2016 and further from 28th May, 2017 to 27th May, 2018 by certificate dated 22nd May, 2017. 020. During the financial year 2007-08, the assessee has acquired 8,59,22,085/- equity shares of ₹10 each for consideration of US $ 2,03,98,342/- representing 99.9% stake in a Indian company namely Comstar Automative Technology Pvt. Ltd. During the same year Indian company has bought back 2,14,80,521/- equity shares of ₹ 10 each at a price of ₹20 per share at a total consideration of US $ 1,08,59,702/- resulting into gain of US $ 57,60,117/- on such buy back. Thus, Assessee company was left with 6,44,41,564 equity shares representing 99.9% stake in the Indian entity, which has the object of manufacture and sale of automotive components. These shares were sold by the assessee by entering into share purchase agreement dated 1st January, 2018, to Singapore VII TOPCO (III) Pte Ltd. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on the decision of UOI v. Azadi Bachao Andolan (2003) 263 ITR 706 and also relied up on several other judicial precedence. Regarding copy of the balance sheet and profit and loss account of the buyer of the shares assessee gave the brief background of the buyer that it is part of the Black stone group. The assessee also submitted the valuation report of Comstar Automotive Technologies Private Limited, the value of equity shares of ₹ 10 each was determined at ₹152.76 per share. The assessee also submitted on 1st March, 2021, the details of the shareholding of the company, brief description of business activities carried out by the assessee company, details of the directors of the company and details of bank account of the assessee company. Based on this, the learned Assessing Officer passed the order accepting the claim of exemption of long term capital gain as per Article 13 of the Double Taxation Avoidance Agreement. However, the order passed by the learned Assessing Officer was cryptic and small but it is not the claim of the Revenue that all these details were not asked for and examined. It is beyond the control of the assessee that how an assessment order should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of the Mauritius entity as per Article 13 (3B) and 27(A) would apply with effect from 1st April, 2017. The press release of Central Board of Direct Taxes dated 29th August, 2016, has expressly provided for grandfathering of investment prior to 1st April, 2017. It specifically says that the protocol provides for source based taxation of capital gain arising from alternation of shares acquired on or after 1st April, 2017 in a company resident in India with effect from F.Y. 2017-18. It further says that simultaneously investment made before 1st April, 2017, have been grandfathered and will not be subject to capital gain tax in India. Thus, claim of exemption granted by the learned Assessing Officer based on the above information is clearly in accordance with the press release dated 29th August, 2016 issued by the CBDT. The learned CIT has nowhere stated that the assessment order passed by the learned Assessing Officer is not in consonance with the above, Therefore We hold that the assessment order passed by the learned Assessing Officer granting benefit of Article 13 to the assessee on shares acquired prior to 1st April 2017, is after making due enquires and further same is also m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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