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TMI Blog2024 (7) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... icularly in regard to companies for which alleged gains has been attributed the companies were joint ventures or real estate. The investment in four companies allegedly giving rise to the capital gains were made in A.Y. 2007-08 to 2011-12. There is no allegation of the AO on the basis of any evidence that any investment flowing from India was received for creating the present appellant company. It is coming up that the investments are held for over five years before they are transferred and as observed earlier, appellant was earlier also making investment and divestments and still holds investment in various other companies. Certainly the assessee was holding the investment in its own name beneficially and legally. It cannot be called as a fly by night operator created merely for tax avoidance purposes. To question the genuineness of the activities of assessee on the basis of the fact that Directors were not residents of Mauritius or absence of operational expenditures and Directors remunerations, when analyzed in the light of aforesaid facts as to how the assessee company had come into existence as a subsidiary company of IPM-I, the assessee company has validly discharged its burd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sh. Divyanshu Aggarwal, Adv. For the Department : Sh. Vizay B. Vassanta, CIT(DR), Sh. Vivek Vardhan, Sr. DR ORDER PER ANUBHAV SHARMA, JM: The assessee has come up in appeal assailing the assessment order dated 10.02.2023 passed under Section 143(3) read with Section 144C(13) of the income-tax Act, 1961(hereinafter referred as the Act ), passed by the Assistant Commissioner of Income-tax, Circle Int. Tax. 2(1)(1), New Delhi (hereinafter referred in short as Ld. AO ) pertaining to the assessment year 2018-19, in pursuance to directions dated 19.01.2023 of learned Dispute Resolution Panel-1, New Delhi (DRP). 2. The facts are that the Appellant is a company incorporated in Mauritius and is engaged in the business of investment activities. The assessee company claimed to be holding valid tax residency certificate ( TRC ) and Global Business License-I ( GBL- I License ) issued by the Financial Services Commission, Mauritius. During the year under consideration, the Appellant transferred shares of Indian Companies and thereby earned long term capital gains amounting to INR 1,52,61,71,940 on such transfers. In view of the provisions of section 90(2) of the Act, the Appellant claimed the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was also done through other JP MORGAN group companies during the financial year of 2007-08 to financial year of 2010-11. These transactions have been discussed In detail at page 7-12 of the DAO, During the assessment proceedings assessee has also not furnished the KYC documents of the banks through which the above transactions took place, Die assessee company has not incurred any expenses on employee's wage or salary, it has no physical assets like land and building nor pays any rent Further, though assessee have 7 directors, none of them were remunerated during the relevant financial year out of 7 directors, 4 directors are non-residents and 2 directors, namely Jean-Christophe Ehlinger, Colin James Whittington are executive directors of JP MORGAN Asset Management and the board meetings was being . attended by Ms, Adria. Savarese by teleconference who herself also was an executive director at JP MORGAN asset management corporation. In the DAO at page 31 it is mentioned that 3,23 Vide questionnaire dated 14.02.2022, the assessee was asked to provide the details of investment manager of the company and copy of agreement with the investment manager. 3.24 In reply, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, in such a situation, notwithstanding the fact that the Mauritian company is required to. be treated as a beneficial owner of the shares under Circular No 789 and the Treaty is entitled, to look at the entire transaction of sale as a whole and if it is established that the Mauritian company has been interposed as a device, it is open to the Income Tax Department to discard the device and take into consideration the real transaction between the parties, and the transaction maybe subjected to tax, In other words, TRC does not prevent enquiry into a tax fraud, for example, where an OCB is used by an Indian resident for roundtripping or any other illegal activities , nothing prevents the Revenue from looking into special agreements, contracts or arrangements made or effected by Indian resident or the role of the OCB in the entire transaction. The above principles have been reiterated in various case laws, judicial precedents and rulings like TIGER GLOBAL INTERNATIONAL HOLDINGS AB MAURITIUS (2018) 402 ITR 311 (AAR). Further in the Apex Court decision in the GVK Industries case (332) ITR 13 it was held that the income of recipient is chargeable in the country where the source of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) and judgment of the Hon ble Delhi High Court in the case of Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. v. ACIT (2023) 146 taxmann.com 569 (Del.); and of the Delhi Tribunal in MIH India (Mauritius) Ltd. Vs. ACIT [ITA no. 1023/Del/2022] , to submit that the tax residency certificate (TRC) was sufficient evidence for the purpose of claiming Treaty benefits and the Revenue is under obligation to accept the status of residence as well as the beneficial ownership for the treaty benefits. He, therefore, submitted that the capital gains earned during the year by the appellant company were not taxable in India in accordance with beneficial provisions of Article 13(4) of IM Treaty. 6.1 As with regard to the allegation of AO that appellant company has no commercial rationale for set up in Mauritius other than to take advantage of IM Treaty and that the appellant is a mere conduit entity without any economic substance, learned Sr. Counsel submitted that assessee company was incorporated in the year 2006 and is an Investment Fund, held 100% by India Property Mauritius Company I, (IPM-I) which was formerly known as JP Morgan Indian Property Mauritius Company I. He point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isinvestments were taken by Board of Directors holding meetings held in Mauritius. 6.4 Learned Sr. Counsel submitted that learned AO has given too much stress on the fact that there were no operational expenditure including non-payment of Director s remuneration. Learned Sr. Counsel submitted that limitation of benefit clause (LOB) under Article 27A of the IM Treaty, which, inter alia, prescribes expenditure threshold for the purpose of claiming IM Treaty benefits are applicable only with respect to capital gains derived from sale of investment acquired after 1st April 2017 and are not applicable on grandfathered investments made before 1st April 2017. He has stressed on the fact that as per the Financial Services Act, 2007 (Mauritius), corporations holding a GBL-I License are required to be administered at all the times by a management company holding Global Business License-II ( GBL-II License ). Accordingly, the Appellant had appointed an administrator for various administrative services, for which professional fees was paid by the Appellant. Further, considering that the Appellant is an investment holding company, where decisions with respect to investment/ divestment are taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Authorities below. 8. In relation to interest levied u/s 234A and 234B of the Act, it was submitted that the same is consequential in nature. At the same time it was submitted that amounts received by appellant company in respect of transfer of shares were subject to TDS @ 0.1% u/s 195 of the Act, in accordance with the lower tax deduction certificates (LDC) obtained from Indian Tax Authorities. Therefore, no advance tax was payable. It was submitted that otherwise interest u/s 234B is applicable in case of short payment of advance tax. However, in the case of non-resident, the entire amount of tax applicable on a particular transaction is deductible u/s 195 of the Act. He relied on the judgment of Hon ble Supreme Court in the case of Director of Income Tax Vs. Mitsubishi Corporation [2021] 130 taxmann.com 276 (SC); and the Tribunal s decision in the case of Hitachi High Technologies Singapore Pte Ltd. v. DCIT [2020] 113 taxmann.com 327 (Delhi-Trib), to support aforsaid submissions. 9. Learned AR also submitted that, without prejudice and in addition to the above, the appellant has a case that the embargo created vide proviso to section 209(1)(d) is not applicable in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments were made prior to FY 2017-18 on which no such capital gain was alleged by the Revenue and the assessee had a holding on 31.12.2022. It will be appropriate to reproduce herein below the details as provided on page 1 of the Paper book. Details of investment held as on 31 December 2022 Particulars Investee Company Date of Acquisition Cost of shares acquired (USD) Investment held as on 31 Dec. 2022 Suadela Constructions Private Limited (Hiranandani/Shoden) 12-Nov-08 3,66,84,082 Core Hotels Ventures Private Limited (Oberoi) 31. Oct-08 2,47,22,069 Viceroy Bangalore Hotels Private Limited (Renaissance) 19-Jul-11 3,44,73,003 Amrapali Zodiac Developers Private Limited 24-Sep-10 47,77,798 Total 10,06,56,952 11.1 The learned AO seems to have proceeded to question the TRC of the assessee on the basis of Hon ble Bombay High Court judgment in the case of Vodafone BV, as he has relied on para 99 of the said judgment on page 48 and para 8.2 of his order and the same is reproduced herein below for further convenient reference in the discussion. 99. It is to be noted that LOB and look through provisions cannot be read into a tax treaty but the question may arise as to whether the TRC is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital gains were made in A.Y. 2007-08 to 2011-12. There is no allegation of the AO on the basis of any evidence that any investment flowing from India was received for creating the present appellant company. It is coming up that the investments are held for over five years before they are transferred and as observed earlier, appellant was earlier also making investment and divestments and still holds investment in various other companies. Certainly the assessee was holding the investment in its own name beneficially and legally. It cannot be called as a fly by night operator created merely for tax avoidance purposes. 11.3 To question the genuineness of the activities of assessee on the basis of the fact that Directors were not residents of Mauritius or absence of operational expenditures and Directors remunerations, when analyzed in the light of aforesaid facts as to how the assessee company had come into existence as a subsidiary company of IPM-I, the assessee company has validly discharged its burden by establishing that the external service provider has been outsourced, the day to day administrative activities of assessee company as per the law of land and payments were be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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