ESSAR COMMUNICATIONS LIMITED,MAURITIUS vs. ACIT, CIRCLE-1 (2)(2), NEW DELHI

10. October 2019 passed by the Authority of Advance Rulings which was non- binding in nature: 14. erred in rejecting the without prejudice argument of the Appellant that if it is alleged that Essar Communications (Mauritius) Ltd (ECML') was the decision maker and the beneficial owner of the VEL shares, the consequence would be that the capital gains on sale of VEL shares would belong to ECML and further erred in holding that whether it is the Appellant who is liable for taxation on capital gains was not an issue to be decided in the appeal before the learned CIT(A). Others 15. erred in drawing adverse inferences/ reaching conclusions without any evidence or material and only based on suspicion, conjecture and irrelevant, factually incorrect considerations and without appreciating the correct nature of various events, transactions, facts on records, the context thereof, including non-tax commercial aspects involved therein even though the same were explained and demonstrated to the learned CIT(A) in detail by the Appellant (for the sake of brevity a few instances are illustratively summarised hereunder):  the Mauritian directors of the Appellant were for name sake only and the directors had no control over its affairs;  the affairs of the Appellant and all the decisions were taken by the senior executives of Essar Group in India;  agreements and financial statements show that the Ruia family had a significant role to play in the affairs of the Appellant,  business of the Appellant is run by way of written resolutions without any discussion or deliberations; there are discrepancies in board minutes; the board minutes submitted by the Appellant for Financial Years 2010-11 and 2011-12 are of doubtful authenticity:  analysis of financial statements of the Appellant clearly shows that the Appellant was only a paper company without any substance as it was not involved in any significant business activities and its income/ expenditure was minimal in quantum and also as per the terms of the loan agreement and put option agreement the Appellant was restristed from carrying on any business activity;  all the benefits on account of the loan facility and also on account of sale of VEL shares have immediately gone for the repayment of loan taken for the benefit of the group companies  the Appellant has not exercised/ discharged any shareholder functions with respect to VEL shares,  frequent changes in holding structure of upstream and downstream companies / internal restructuring of ownership of VEL shares & 340/Del/2022 were to finally shift the situs of shares to Mauritius which show that it was a colorable device for the purpose of availing exemption under Article 13(4) of the tax treaty:  VEL shares have been transferred before the expiry of lock in period as specified in Unified Access Service (UAS) license requlations which substantiates that the Appellant did not have a distinct identity and has been used by the Essar Group in India for availing of exemption under Article 13(4) of the tax treaty: 16. erred in failing to consider explanations / submissions made by the Appellant from time to time before the learned CIT(A) that ought to have been considered (for the sake of brevity a few instances are illustratively summarised hereunder):  Essar has its presence in Mauritius since 1992 and that Essar group sector holding companies majorly operate from Mauritius and accordingly, the Appellant was not incorporated in Mauritius to avail treaty benefits on sale of VEL shares;  the directors of the Appellant always comprised of people with significant qualifications and experience (as reflected by their profiles submitted), who were non-residents of India, except the nominee director appointed by lenders;  the board minutes of the Appellant for FYs 2010-11 and 2011-12 had been contemporaneously maintained and shared with BLC Chambers and the report of BLC Chambers which was provided to the Mauritius Revenue Authority:  the investment in VEL was made through the Appellant for legitimate commercial / business reasons;  Liquidation cannot be a device to avoid taxation in India since, if taxability was the motive, ECML could have sold shares in the Appellant without undertaking liquidation of Essar Telecom Investments Ltd (ETIL) or the Appellant could have sold shares in ETIL and the benefits of the tax treaty inter alia would have been available and consequently the capital gains would not have been taxable in India on such sale of shares:  the explanation as to how the Appellant's case satisfies the tests/parameters laid down by the Hon'ble Supreme Court in Vodafone International Holdings BV v UOI (341 ITR 1) (SC) for investment participation in India. 17. erred in incorrectly stating that the Appellant has made general submissions and that the Appellant has not disputed the facts brought on record and erred in incorrectly stating that the Appellant has failed to rebut various specific findings made by the AO; 18. erred in holding that the Appellant has not filed certain information and erred in drawing an inference that the Appellant had something to & 340/Del/2022 hide which is inconvenient to its claim for seeking exemption of capital gains from taxation, without appreciating all the details and submissions filed before the CIT(A) during the course of the appellate proceedings; Taxing worldwide income 19. erred in upholding the taxability of interest income earned by the Appellant during the subject AY. Each of the above grounds is independent and without prejudice to one another.” I. Brief Facts of the case:

4. The Assessee is a company which was incorporated in Mauritius on 13 October 2005. The principal activity of the Assessee is to make and hold investments. The Assessee holds valid Tax Residency Certificates (‘TRC’) issued by the Mauritius Revenue Authority (‘MRA’) and Category 1 Global Business License (‘GBL’) issued by the Financial Services Commission, Mauritius since inception of the Assessee.

5. Essar Telecom Investments Limited (‘ETIL’), an Indian company, held a total of 6,56,34,887 equity shares in Vodafone Essar Ltd (‘VEL’)(Initially known as Hutchison Max Telecom Private Limited (‘HMTL’) subsequently known as Hutchison Essar Limited (‘HEL’) and now VEL), an Indian company, constituting 15.85% of the ordinary share capital of VEL. Pursuant to the approval obtained by ETIL on 11 December 2006 from Foreign Investment Promotion Board (‘FIPB’), the Assessee infused USD 400.61 million into ETIL in various tranches during January 2007 and February 2007.

6. Majority of the funding for the investment by the Assessee in ETIL was from funds infused in the Assessee by Essar Communications (Mauritius) Limited (‘ECML’ Holding Company). The source of the aforesaid funds was a loan taken by ECML of USD 1.1 billion from the Standard & 340/Del/2022 Chartered Bank (‘SCB’), UK, in January 2007, which was subsequently refinanced and upsized to USD 1.4 bn in June 2007 and then to USD 3.59 billion in August 2007 from a consortium of banks led by SCB, UK. For the aforesaid loans, VEL shares held by the Assessee and Essar Com Limited (‘ECom’) were effectively pledged as security.

7. The lenders, in order to have greater enforceability over security of VEL shares, wanted direct pledge on the VEL shares. Accordingly, an application for direct pledge of VEL shares was made in February 2007, to the Reserve Bank of India (‘RBI'), by ETIL, pursuant to the USD 1.1 bn loan agreement. Since no approval from the RBI was forthcoming for such pledge, the consortium of lenders of the USD 3.59 bn loan required liquidation of ETIL in order to migrate shares to the Assessee, so that the VEL shares can be directly pledged with the lenders. The RBI vide letter dated 4 October 2007 rejected the application made by ETIL to pledge VEL shares [refer RBI letter on page 1682 of the ITAT Paper book]. Thereafter, ETIL was liquidated in July 2008 pursuant to the lenders’ stipulation in the USD 3.59 bn loan agreement. Pursuant to such liquidation, the VEL shares were distributed to the Assessee and it became a direct owner of VEL shares. Subsequently, an application for pledge of VEL shares was filed by the Assessee with the RBI, in line with the loan agreement. The same was approved by the RBI vide letter dated 14 November 2008 [refer page 1697 of the ITAT Paperbook].

8. Under an Offshore Underwritten Put Option Agreement dated 24 August 2007 (as amended and restated on 22 September 2009) between Vodafone and Essar, ECML had a put option to sell shares of the Assessee, thereby effectively transferring the VEL shares or procure sale of VEL shares by ECom and the Assessee. Pursuant to negotiations with Vodafone, the put option agreement was amended by deed of amendment & 340/Del/2022 dated 1 July 2011, wherein revised consideration for VEL shares was agreed by the Assessee.

9. Accordingly, the Assessee sold all the shares it held in VEL to Euro Pacific Securities Limited (‘EPSL’) (a non-resident company nominated by Vodafone International Holdings B.V) for total consideration of USD 3,02,05,21,511. The gross consideration was received by the Assessee after deduction of tax at source @ 21.012% i.e., INR 28,21,21,70,693. a. The Assessee, in the return of income itclaimed that the capital gain arising on the sale of aforesaid shares was not chargeable to tax in India by virtue of Article 13(4) of the India – Mauritius Double Taxation Avoidance Agreement (“DTAA”). Consequently, a refund of the tax deducted at source of INR 28,21,21,70,693 was claimed by the Assessee in the return of income filed for the year under consideration. The learned AO and CIT(A) have denied the benefit under Article 13(4) of the India-Mauritius DTAA by holding the Assessee is a resident of India under section 6(3) of the Act as the control and management of its affairs is wholly situated in India and the Assessee has no substance and is a sham entity incorporated only to take benefit of India-Mauritius DTAA.

At the time of hearing, ShreePardiwala representing the assessee submitted as under:

I. The Essar Group has been in Mauritius since the year 1992:

10. It is submitted that first investment by the Essar Group from Mauritius was made way back in the year 1992 when Essar Energy Holdings Ltd (earlier known as Prime Finance Co. Ltd) and Essar Steel Holdings Ltd & 340/Del/2022 (earlier known as Prime Holding Ltd) were incorporated. By the year 2012, Essar Group has invested, through Mauritius, approx. USD 6 bn in India and USD 2.5 bn in various business carried out in countries other than India. The sector holding companies of steel business, oil business, power business as well as the telecom business were based in Mauritius. The President of Mauritius, in a speech given on 17 August 2010, has recognized the fact that the Essar Group has made significant investments through Mauritius in various businesses internationally which has helped in the development of its economy. In fact, Essar Energy PLC, a UK company which was listed on the London Stock Exchange is headquartered in Mauritius. The group owns an office building in Mauritius from which the Assessee has been operating its business subsequently.

11. Therefore, the contention of the lower authorities that the Assessee is a sham entity and the investment in Mauritius was made only for the purpose of claiming benefits of India-Mauritius DTAA is baseless and without any substance.

II. TRC issued by the MRA is conclusive proof of beneficial ownership of the shares sold by the Assessee consequently, the benefit of India-Mauritius DTAA cannot be denied:

12. The Assessee submits that the MRA has issued TRCs to the Assessee from the inception of the Assessee and even for the years subsequent to the sale of the shares by the Assessee, certifying that the Assessee is a tax resident of Mauritius since its inception including for the year under consideration. The MRA vide their letter dated 29 May 2012 has further clarified that the TRC was issued to the Assessee not only on the basis of the incorporation of the company in Mauritius but also on the basis of the & 340/Del/2022 control and management of the Assesseebeing in Mauritius (refer page 186 of the ITAT Paperbook). In this regard, the Assessee refers to Circular No. 789 dated 13 April 2000 issued by the Central Board of Direct Taxes (‘CBDT’) clarifying that wherever a certificate of residence is issued by the MRA such certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the provisions of DTAA. Accordingly, the capital gain arising on sale of shares by a resident in Mauritius would not be taxable in India.

13. It is further submitted that in the case of UOI vs. Azadi Bachao Andolan (263 ITR 706) (SC) wherein the validity of Circular No. 789 dated 13 April 2000 was in question, the Supreme Court has held that the CBDT was justified in issuing the aforesaid circular, since the action of the tax authorities bringing to tax the capital gains earned by Mauritian residents was contrary to the provisions of Article 13(4) of India-Mauritius DTAA. Therefore, the Supreme Court held that the CBDT was correct in issuing the aforesaid circular directing the Assessing Officers that wherever the TRC is issued by the MRA, the benefit of India-Mauritius DTAA is available to the taxpayer.

14. The validity of Circular No. 789 dated 13 April 2000 arose once again before the Supreme Court in the case of Vodafone International Holdings B.V. vs UOI (341 ITR 1) wherein the Supreme Court held that the presence of Circular No. 789 and TRC (which proves the residency and beneficial ownership of the person) is adequate/ sufficient for grant of benefits under the India-Mauritius DTAA to a taxpayer. It was further held that the tax department cannot at the time of sale/disinvestment/exit from such investments deny benefits of the DTAA to such Mauritius companies inter alia where such Mauritius company is not a fly by night operator.

& 340/Del/2022 15. The Assessee further submits that the Finance Bill 2013 had proposed an amendment to section 90 of the Act which provided that a TRC issued by a competent authority of another country is not sufficient to claim benefits of a DTAA notified under section 90 of the Act. The aforesaid amendment would have diluted the benefit available under Circular No. 789 which provides that the TRC issued by MRA is sufficient proof of residency and beneficial ownership for the purpose of Article 13(4) of the DTAA. However, the amendment proposed by the Finance Bill, 2013 was never implemented and on the contrary, a clarification was issued by the CBDT on 1 March 2013 stating that the TRC produced by a resident of a Contracting State will be accepted as evidence that it is a resident of a Contracting State and that tax authorities will not go behind the TRC and question the residential status. In the case of Mauritius, Circular No. 789 dated 13 April 2000 continues to be in force. The finding given by the lower authorities is contrary to a circular issued by the CBDT which is binding on them and such a course of action on his part cannot be countenanced.

17. Further, the Delhi Tribunal in the case of MIH India (Mauritius) Ltd. [ITA No.1023/Del/2022] and in the case of Reverse Age Health & 340/Del/2022 Services Pte. Ltd. [ITA No. 1867/Del/2022] has reiterated the legal position that as per Circular No. 789, where a TRC is issued by the foreign tax authorities, it will constitute sufficient evidence for accepting the status of residence as well as the beneficial ownership for the purpose of claiming treaty benefits.

18. In view of the above, the Assessee submits that denial of benefit of Article 13(4) by the lower authorities ignoring the TRC issued by the MRA and the clarification issued by the MRA vide letter dated 29 May 2012 to the Assessee, is incorrect and bad in law.

III. In the absence of Limitation of Benefit (“LOB”) clause, the benefit of India-Mauritius DTAA cannot be denied:

19. The Assessee submits that the DTAA between India and Mauritius as it was in force for the year under consideration did not contain any LOB clause which restricted the benefit available under Article 13(4) of the DTAA nor provided for any condition to be fulfilled for claiming the benefit of Article 13(4) of the DTAA.

20. It is important to note that under the India-USA DTAA (executed in 1989), Article 24 specifically provides that a company can claim the benefit of the India-USA DTAA only when 50% shares of that company is held by individuals who are residents of either India or USA. Similarly, Article 24 of the India-Singapore DTAA (executed in 1994) provided that the exemption or lower rate of tax provided under the DTAA for income arising in a Contracting State will be restricted to the amount considered for taxation on receipt or remittance basis in the other Contracting State. The protocol executed between India and Singapore on 1 August 2005 further provides that the benefits provided under the DTAA shall not be available if the affairs of a resident were arranged with the primary & 340/Del/2022 purpose of claiming benefit of the DTAA and further, the company will be treated as a shell/conduit company if the annual expenditure incurred on the operations is less than SD 2,00,000.

21. Similarly, Article 29 of the India – UAE DTAA (executed in 2007) and Article 29 of the India – Luxemburg DTAA (executed in 2008) provide that the benefit of the DTAA will not be available to the residents of a Contracting State if the main purpose or one of the main purposes of incorporating a company was to obtain benefits of the DTAA.

22. However, the India-Mauritius DTAA did not have any of the clauses incorporated by India in the DTAA executed with other countries and, therefore, in the absence of any restriction placed in the India-Mauritius DTAA, the treaty benefits cannot be denied by the tax authorities invoking the conditions which are not part of the DTAA. In this regard, the Assessee places reliance on the judgment in the case of Vodafone International Holding B.V. (supra) wherein the Supreme Court held that in the absence of a LOB clause in the India- Mauritius DTAA, there is no justification in prohibiting the incorporation of companies in Mauritius for deriving benefits of the DTAA. The absence of LOB clause makes the scope of the DTAA positive from the perspective of a special purpose vehicle (‘SPV’) created specifically to route investments into India and, the tax authorities cannot at the time sale/disinvestment deny benefit on the ground that the investment was only routed through Mauritius.

23. The Assessee further submits that similar argument was raised by the Revenue before the Supreme Court in the case of Azadi Bachao Andolan (supra) wherein it was contended that the companies incorporated in Mauritius are shell companies as they don’t carry on any business and are incorporated in Mauritius with the motive of treaty & 340/Del/2022 shopping. The Supreme Court rejected the argument of the Revenue and held that if the intention was to preclude a person from the third state from claiming benefits of the DTAA, then a suitable term of limitation to that effect should have been incorporated therein, and that in the absence of a limitation clause, such as the one contained in Article 24 of the India- USA DTAA, there are no disabling or disentitling conditions under the India-Mauritius DTAA prohibiting the benefits thereunder. The Supreme Court further held that the motives with which the companies have been incorporated in Mauritius is wholly irrelevant and cannot in any way affect the legality of the transaction. And, that there being nothing like equity in a fiscal statute, which applies proprio vigore or it does not.

24. The Assessee further submits that the LOB clause was inserted as Article 27A in the India-Mauritius DTAA only w.e.f. 1 April 2017 which provided for restriction on the benefits available under Article 13 of the DTAA that a company shall not be entitled to the benefits of Article 13 if the primary purpose was to take advantage of the DTAA and the company is a shell company incurring expenditure on operations of less than Mauritian Rs. 1.5 mn in Mauritius. The CBDT press releases dated 10 May 2016 and 29 August 2016 further clarify that the amendments made to the India-Mauritius DTAA will be applicable only from A.Y. 2018-19 that too on capital gains arising on the securities purchased after 1 April 2017.

25. Without prejudice to the fact that the said Article 27A does not apply to A.Y. 2012-13 i.e., the year under adjudication for entitlement of DTAA benefits to the Assessee, even if the principle laid down in the LOB clause found in the India-Mauritius DTAA is applied for the earlier year, the threshold of a minimum spend in Mauritius is easily met by the Assessee as the Assessee has incurred expenses in excess of Mauritian & 340/Del/2022 Rs.1.5 mn for the year under consideration. The workings and the extract of profit and loss account for the financial year ended 31 March 2012 (which has comparative figures for 2011) are at page 1683 to 1684 of the ITAT Paperbook.

26. In view of the above, the Assessee submits that the orders passed by the lower authorities denying the benefit of Article 13(4) of India-Mauritius DTAA for the A.Y. 2012-13 are unsustainable and bad in law.

IV. The capital gain arising on the securities purchased before 1 April 2017 has been grandfathered and cannot be brought to tax in India

27. The Assessee submits that with effect from 1 April 2017 amendments have been made to Article 13 of the India-Mauritius DTAA whereby Article 13(3A) has been inserted which provides that capital gain arising on transfer of shares, acquired on or after 1 April 2017, will be taxable in the country in which the company whose shares are sold is resident. Article 13(3B) further provides that the capital gain arising, on shares acquired on or after 1 April 2017, during the period 1 April 2017 and 31 March 2019 will be chargeable to tax @50% of the rate it is ordinarily taxed in the residence country of the company whose shares are being alienated.

28. Article 13(4) has been substituted and provides that any capital gain arising from alienation of any property other than Article 13(1) (Capital gain on immovable property), 13(2) (Capital gain on movable property of Permanent Establishment), 13(3) (Capital gain on ships and aircrafts), 13(3A) (Capital gain on shares acquired after 1 April 2017), 13(3B) (Capital gain on shares between 1 April 2017 to 31 March 2019), will be taxable only in the country in which alienator is a resident. Therefore, the & 340/Del/2022 amended Article 13(4) effectively provides that the capital gain arising on alienation of shares acquired before 1 April 2017 cannot be brought to tax in India in any situation. Hence, the jurisdiction to tax capital gain in India is vested only w.e.f. 1 April 2017, that too only for the capital gain arising on alienation of shares acquired on or after 1 April 2017.

29. In these circumstances, it is not open to the Revenue to deny the benefit of the DTAA for an assessment year prior to A.Y. 2017-18. In order to test the correctness of the Revenue’s stand let us visualise a situation where the sale under consideration has been affected post 1 April 2017. In such a case, the capital gain arising from the shares purchased before 1 April 2017 would not be chargeable to tax in India and the provisions of Article 13(4) would continue to protect the assessee. Therefore, the Assessee submits that the denial of benefit of Article 13(4) to the Assessee is without jurisdiction and bad in law.

30. The aforesaid position has been clarified by the CBDT vide press release dated 29 August 2016 wherein it has been provided that the amendment made to India-Mauritius DTAA which provides for capital gains arising on transfer of shares on or after 1 April 2017 will be restricted to the shares purchased on or after 1 April 2017 and the capital gain arising on transfer of shares which were acquired before 1 April 2017 have been grandfathered and will not be subject to capital gain taxation in India.

31. In view of the above, the Assessee submits that the orders passed by the lower authorities taxing the capital gains on the shares which were acquired in 2008 and sold in 2011, which is much before 1 April 2017, is unsustainable and bad in law.

V. The Assessee is not a resident of India as its control & management is not situated wholly in India: a. Residential status of an assessee is required to be determined every year

32. The Assessee submits that under section 6(3)(ii) of the Act (as applicable for the year under consideration), a company which is not incorporated in India is considered to be a resident of India only if, during the previous year, the control and management of its affairs is wholly situated in India. The relevant portion of the section 6(3) is reproduced as under:

6. For the purposes of this Act, — ….. (3) A company is said to be resident in India in any previous year, if— (i) it is an Indian company; or (ii) during that year, the control and management of its affairs is situated wholly in India.

33. The words “previous year” and “during that year” employed in the provision clearly bring out that the residential status of an assessee company is to be ascertained each year considering the control and management of the company during the previous year. However, the lower authorities have determined the residential status of the Assessee based on events and documents pertaining to earlier years which is wholly incorrect and contrary to the express provisions of section 6(3)(ii) of the Act which require that the residential status is to be ascertained basis the events pertaining to the previous year.

34. In this regard, reference is made to the judgments of Wallace Brothers & Co. Ltd v CIT (1945) 13 ITR 39 (FC), Sri Raja K.V. Narsimha Rao Bahadur v CIT (1950) 18 ITR 181 (Madras), GirdharlalGhelabhai v CIT (1964) (53 ITR 23) (Gujrat) wherein the courts have consistently & 340/Del/2022 taken a view that the residential status under provisions analogous to section 6(3) of the Act is to be determined for the relevant previous year in which the income arises and it is the control and management during such year alone that is relevant to determine the residential status under the Act.

35. Without prejudice to the above, the Assessee submits that even if the earlier years’ events and/or documents are to be considered for the purpose of determining the residential status of the Assessee for the year under consideration, as sought to be done by the lower authorities, it would still qualify as a non-resident, since atleast a part of the control and management of the Assessee was situated in Mauritius, which is evident from the fact that the board meetings have taken place in Mauritius. A brief summary of decisions taken in relation to acquisition, sale and important decisions in relation to VEL is attached herewith as Annexure 1 and of other decisions taken in earlier years is attached herewith as Annexure 2.

36. In view of the above, the Assessee submits that the contention of the lower authorities that to decide the residential status, the events and documents relating to earlier years are required to be considered is unsustainable and bad in law. b. A company incorporated outside India is a resident of India only if the control and management is “wholly” situated in India:

37. The Assessee submits that under the provisions of section 6(3)(ii) of the Act, a company incorporated outside India can be considered as a resident of India only when the control and management is “wholly” situated in India. Therefore, if any part of the control and management is situated outside India, the company cannot be considered a resident of India.

& 340/Del/2022 38. In this regard, reliance is placed on Narottam Pereira Ltd. vs. CIT (1953) 23 ITR 454 (Bom), CIT vs. Nandlal Gandalal (1960) 40 ITR 1 (SC), Radha Rani Holdings (P.) Ltd. vs. ADIT (2007) (110 TTJ 920)(Delhi ITAT) wherein the courts/tribunals have held that a company incorporated outside India will not be considered as a resident of India if any part of the control and management is situated outside India.

39. This is further amplified by the Explanatory memorandum to the Finance Bill, 2015 which reaffirms the aforesaid legal position. The relevant part of the memorandum is reproduced as under: “The existing provisions of Section 6 of the Act provides for the conditions under which a person can be said to be resident in India for a previous year. In respect of a person being a company the conditions are contained in clause (3) of Section 6 of the Act. Under the said clause, a company is said to be resident in India in any previous year, if- (i) it is an Indian company; or (ii) during that year, the control and management of its affairs is situated wholly in India. Due to the requirement that whole of control and management should be situated in India and that too for whole of the year, the condition has been rendered to be practically inapplicable. A company can easily avoid becoming a resident by simply holding a board meeting outside India.”

40. In the instant case, the Assessee is controlled and managed by its board of directors. All decisions concerning the affairs of the Assessee are taken by the board of directors in meetings held at the registered office of the Assessee in Mauritius. During the previous year relevant to the A.Y. 2012-13, the board of directors held all 11 meetings at the registered office of the Assessee in Mauritius in which various decisions, including in respect of sale of VEL shares, were taken which conclusively proves & 340/Del/2022 that the control and management of the Assessee was situated in Mauritius. It is also important to note that the Assessee had nine directors during the year and all of them, except Ms. Dina Wadia, who was a nominee director appointed by the lenders, were residents of Mauritius/non-residents of India. Therefore, it is submitted that the Assessee is not a resident of India as the control and management of the Assessee was not situated wholly in India and, on the contrary, the same was wholly in Mauritius. A brief profile of the directors is attached herewith as Annexure 3 and a summary of the 11 board meetings which took place in F.Y. 2011-12 is attached herewith as Annexure 4.

41. The Assessee further relies on the judgment of the Calcutta High Court in the case of CIT vs Bank of China (1985) (154 ITR 617), wherein it was held that the control and management of a company is situated at a place where meetings are held by the board of directors. In the instant case, all the decisions relating to the affairs of the company have been taken by the board of directors in the meeting held at its registered office in Mauritius and the tax authorities have not brought any material on record which shows that persons other than the directors have taken any decision, let alone any person based in India.

49. The lower authorities, to come to the conclusion that the control and management was not with the board of directors of the Assessee, have relied on clauses of various loan agreements by stating that the change of control clauses in various loan agreements bring out that control on VEL shares is of Shashikant, Ravikant and Prashant Ruia because as per the said clause, change of control will occur if these persons together with persons and entities controlled by them (directly or indirectly) and who are promoters of the borrower cease to have control over the VEL shares.

50. The lower authorities have failed to appreciate that there exists difference between management control and shareholder control. For the purpose of & 340/Del/2022 section 6(3) of the Act, what is required to be seen is de facto control, i.e., where the control and management is actually exercised. In the instant case, it is very clear that the control and management was exercised by the board of directors in Mauritius since all the 11 meeting during the previous year relevant to A.Y. 2012-13 were held in Mauritius. The lower authorities have not produced a single document which in any manner shows that members of the Ruia family have taken any decision with regard to the Assessee in any capacity other than as director of the Assessee. Therefore, it is submitted that the control and management of the Assessee is with the board of directors in Mauritius and the allegation made by the lower authorities is baseless and contrary to evidence on record.

VI. Significant presence of Essar Group in Mauritius:

51. The lower authorities have denied treaty benefits to the Assessee on the basis that the investment has been made through Mauritius with a singular motive of claiming the benefits of not being liable to pay tax in India on the capital gains and having regard to the provisions, as they then stood, of the capital gain tax under India-Mauritius DTAA.

52. The lower authorities have failed to appreciate that the Essar Group is a multinational group with more than 200 companies which had a net worth in excess of USD 10 bn and had a presence in more than 25 countries across the 5 continents (in 2011-12). It operates in several sectors such as shipping, oil & gas, power, steel, exploration and production of oil and gas, ports etc. It had raised a debt of over USD 5 billion from reputed overseas lenders and the shares of some of the entities in the group were listed on stock exchange India and the UK (including on the FTSE 100).

& 340/Del/2022 53. The Essar Group has its presence in Mauritius since 1992, i.e., even before mobile telephony started in India. Further, the Assessee was incorporated in Mauritius in 2005 which also supports the fact that the Assessee was not set up in Mauritius only for availing the treaty benefits on sale of shares, which it acquired only in 2008. By 2012, the group as a whole had made investments of approx. USD 6 bn in India and USD 2.5 bn in various businesses internationally.

VII. Legitimate investment business activity undertaken by the Assessee:

55. The lower authorities have denied treaty benefits to the Assessee on the basis that the Assessee was nothing but a shell company which had been used as a conduit with the sole objective of avoidance of tax on capital gain that arose on sale of VEL shares.

56. The lower authorities have failed to appreciate that the principal purpose test of incorporating the company in Mauritius for capital gain exemption & 340/Del/2022 purpose was brought in for the first time by the insertion of the LOB clause w.e.f. 1 April 2017 and, therefore, the capital gain exemption claimed by the Assessee cannot be denied on this ground. On the contrary, the judgment of the Supreme Court in Vodafone International Holding B.V. (supra) supports the Assessee, wherein it has been held that claiming of treaty benefit is one of the relevant factors of making investment through the Mauritius route. The relevant portion of the judgment is extracted as under:

97. We are, therefore, of the view that in the absence of LOB clause and the presence of Circular No. 789 of 2000 and TRC certificate, on the residence and beneficial interest/ownership, Tax Department cannot at the time of sale/disinvestment/exit from such FDI, deny benefits to such Mauritius companies of the treaty by stating that FDI was only routed through a Mauritius company, by a company/principal resident in a third country; or the Mauritius company had received all its funds from a foreign principal/company; or the Mauritius subsidiary is controlled/managed by the foreign principal; or the Mauritius company had no assets or business other than holding the investment/shares in the Indian company; or the foreign principal/100 per cent shareholder of Mauritius company had played a dominant role in deciding the time and price of the disinvestment/sale/transfer; or the sale proceeds received by the Mauritius company had ultimately been paid over by it to the foreign principal/its 100 per cent shareholder either by way of special dividend or by way of repayment of loans received; or the real owner/beneficial owner of the shares was the foreign principal company. Setting up of a WOS Mauritius subsidiary/SPV by principals/genuine substantial long term FDI in India from/through Mauritius, pursuant to the DTAA and Circular No. 789 can never be considered to be set up for tax evasion.

57. Without prejudice to the above, the lower authorities have failed to appreciate that the Assessee is an investment holding company and its principal activity was investing in the telecom sector in India. It is akin to & 340/Del/2022 other sector holding company structures within the group. There is no aberration in the Assessee being an investment holding company in Mauritius.

58. The only way an investment holding company can monetize its investments is either to sell them or pending sale, raise funds based on such investments to further promote the group interests. Based on this rationale, ECML monetized the indirect investments it held in VEL by raising loans on the strength of the shares. The loan agreements prohibited the Assessee from doing any other business, other than being in the business of holding VEL shares so as to ensure that the security provider (i.e., the Assessee) did not undertake any activity that dilutes the lender’s security.

59. SPVs/ investment companies are very common in holding structures and have been accepted as a legitimate business practice in various judicial precedents. Reliance is placed on:

 Vodafone International Holdings B.V. (supra)

79. When a business gets big enough, it does two things. First, it reconfigures itself into a corporate group by dividing itself into a multitude of commonly owned subsidiaries. Second, it causes various entities in the said group to guarantee each other's debts. A typical large business corporation consists of sub-incorporates. Such division is legal. It is recognized by company law, laws of taxation, takeover codes etc. On top is a parent or a holding company. The parent is the public face of the business. The parent is the only group member that normally discloses financial results. Below the parent company are the subsidiaries which hold operational assets of the business and which often have their own subordinate entities that can extend layers. If large firms are not divided into subsidiaries, creditors would have to monitor the enterprise in its entirety. Subsidiaries reduce the amount of information that creditors need to gather. Subsidiaries also promote the benefits of specialization. Subsidiaries permit & 340/Del/2022 creditors to lend against only specified divisions of the firm. These are the efficiencies inbuilt in a holding structure. Subsidiaries are often created for tax or regulatory reasons. They at times come into existence from mergers and acquisitions. As group members, subsidiaries work together to make the same or complementary goods and services and hence they are subject to the same market supply and demand conditions. They are financially inter-linked. One such linkage is the intra-group loans and guarantees…. … 136. Corporate structure created for genuine business purposes are those which are generally created or acquired: at the time when investment is being made; or further investments are being made; or the time when the Group is undergoing financial or other overall restructuring; or when operations, such as consolidation, are carried out, to clean-defused or over-diversified. Sound commercial reasons like hedging business risk, hedging political risk, mobility of investment, ability to raise loans from diverse investments, often underlie creation of such structures. In transnational investments, the use of a tax neutral and investor- friendly countries to establish SPV is motivated by the need to create a tax efficient structure to eliminate double taxation wherever possible and also plan their activities attracting no or lesser tax so as to give maximum benefit to the investors. Certain countries are exempted from capital gain, certain countries are partially exempted and, in certain countries, there is nil tax on capital gains. Such factors may go in creating a corporate structure and also restructuring.

 Sanofi Pasteur Holdings SA (2013) 354 ITR 316 (AP). “(18) … No curial or academic authority is placed before us to hazard a conclusion that a corporate entity must necessarily involve itself either in manufacture or marketing/trading in/of goods or services to qualify for the ascription of being in business or commerce. Creation of wholly owned subsidiaries or joint ventures either for domestic or overseas investment is a well established business/commercial organizational protocol; and investment is of & 340/Del/2022 itself a legitimate, established and globally well recognized business/ commercial avocation. ShanH is a special purpose joint venture investment vehicle, established initially by MA and co-adopted in due course by GIMD and eventually by Mr. Georges Hibon, to facilitate investment by way of participation in the shareholding of SBL. That is a ShanH business and its commercial purpose.”

60. The Courts have recognised the use of tax efficient SPVs and that corporate structures are created for genuine business purposes generally at the time when investment is being made. Multinational companies develop corporate structures, joint ventures for operational efficiency, tax planning, risk, mitigation etc. such that better returns can be offered to their shareholders. The burden is entirely on the Revenue to demonstrate that such incorporation has been affected to achieve a fraudulent, dishonest purpose to defeat the law. In this regard, reliance is placed on Bid Services Division (Mauritius) (supra), wherein the Bombay High Court has followed the judgment in Vodafone International Holding B.V. (supra).

61. Given the above, the Assessee submits that there is nothing unusual in the fact that the investment in VEL shares is itself the legitimate business of the Assessee. Accordingly, it cannot be said that the Assessee is a conduit and has not undertaken any business activity or that there was lack of commercial/ business substance in the present case.

VIII. Utilisation of loan proceeds and sale consideration:

62. The lower authorities have also denied the treaty benefits on the basis that no benefit of the loans taken on the strength of the VEL shares was & 340/Del/2022 obtained by the Assessee and further the sale consideration from the VEL shares was not utilised by the Assessee.

65. The investments in VEL by the Assessee yielded significant gains/ value to the Assessee and the Assessee was able to support/assist its overseas group entities to make other investments. It may also be noted that various group entities have supported/ assisted the Assessee. Illustratively, when the Assessee required funds for acquiring ETIL shares, the Assessee obtained funds in the form of interest-free and temporary loans from Essar Infrastructure Holdings Limited (‘EIHL’), Mauritius (the shareholder of the Assessee) and Essar Global Fund Limited (‘EGFL’), Cayman Islands (the then indirect shareholder of the Assessee). Further, group entities also provided non-monetary support to the Assessee such as assistance/ guidance/ support of different personnel with relevant expertise in various fields. The group entities co-operated with each other for reciprocal/ mutual benefit and interest.

IX. Liquidation of ETIL was pursuant to lenders requirement and rejection of pledge of VEL shares by the RBI:

70. The lower authorities have also failed to appreciate that there was no intention to liquidate ETIL in the first place as is evident from the application dated 12 February 2007 made by ETIL for pledge of VEL shares to the RBI. Accordingly, the option of liquidation of ETIL provided under the USD 1.1 bn loan agreement was not preferred by the Assessee.

73. The Assessee further submits that the liquidation of ETIL was not carried out with a view to claim the benefit of India-Mauritius DTAA, because, & 340/Del/2022 even in the absence of liquidation, the benefit of India-Mauritius DTAA was available to the Assessee as the Assessee had the option of selling the shares of ETIL, the gains arising whereof would have been exempt from tax under Article 13(4) of the India-Mauritius DTAA. In fact, even if ECML had sold shares of the Assessee, there would have been no tax liability in India under the Act itself and further, ECML would have been entitled to the benefits of the India - Mauritius DTAA as well. Please see the alternative scenarios attached at page 635 to 637 of the ITAT Paperbook.

 it is a Mauritius incorporated company and a tax resident of Mauritius;  its control and management is situated outside India, i.e., in Mauritius since inception;  it is a non-resident of India as per the provisions of the Act;  it held valid TRCs since inception issued by the MRA;  the transactions undertaken by it were based on commercial expediency and cannot be termed as colourable device/ design to avoid taxes by any stretch of imagination.

In light of the explanations and documentary evidences submitted time and again, the Assessee is eligible for the benefits of exemption from & 340/Del/2022 capital gains tax as provided under Article 13(4) of the India-Mauritius DTAA. Accordingly, the capital gains that have arisen to it on the sale of shares of VEL are not liable to tax in India.

76. At the time of hearing, ld. ASG, Shri N. Venkatraman Sr. Advocate submitted that the issue involved in both the appeals, viz., Essar Communications Limited and Essar Com Limited are inter-connected and intertwine and the facts have to be appreciated together. He submitted his arguments in detail and it was submitted in 5 paras as under :- PART A - Background and the proceedings before the AAR and other Income Tax Authorities This part comprises of - Background of the case; The AAR Ruling; Order of the Assessing Officer; Order of the CIT(A); Present proceedings before the Hon'ble ITAT 1.

1. Background of the case: Facts in brief are that the assessees, Essar Communications Ltd ("ECL" in short) and Essar Com Limited ("ECOM" in short), companies of Essar Group, claimed that these were the companies incorporated in Mauritius; that they were non-residents in India; and that they did not have a permanent establishment in India. The incorporation background is that the assessee, ECOM was initially incorporated in Mauritius on 09.03.2001 in the name of Clickforsteel Holdings Limited. The name was changed to Essar Telecom India Holdings Limited on 25.05.2004 and later to Essar Com Limited on 08.11.2005. The ECOM held a Global Business Licence (GBL 1) issued by Financial Services Commission (FSC) of Mauritius and it was stated to be engaged in investment holding activities. Similarly, ECL was initially incorporated in Mauritius on 13.10.2005 in the name of Essar Power India Holdings Ltd. The name was changed to Essar Communications Limited on 12.12.2005. The EeL too held a Global Business Licence (GBL 1)

& 340/Del/2022 issued by Financial Services Commission (FSC) of Mauritius and it was stated to be engaged in investment holding activities. Both the assessee companies have undergone numerous ownership changes within the group and on the date of transfer of VEL shares to EPSL of Vodafone group, ECL happened to be hundred percent owner of the shareholding of Ecom. Vodafone Essar Limited (VEL) was a joint venture of Vodafone Group and Essar Group.Before the entry of Vodafone, it was a joint venture between Hutchison Group and Essar Group and was known as Hutchison Essar Limited (HEL). Ecom, a Mauritius incorporated Essar Group Company held 2,56,51,389 nos, of equity shares (6.19% of total equity share of the Essar group) in Vodafone Essar Ltd (VEL), an Indian company engaged in mobile telephone business in India. Similarly, Essar Communications Limited, Mauritius (ECL, in short) which is 100% holding company of ECOM, held equityshares (15.85% of total equity of the Essar Group) in VEL. Both the companies are together known as assessees. Thus, together ECL and ECOM held 22.04% in VEL and another group company, resident of India held balance of the 11 % holding of the Essar Group in EL. The retention of around 11 % of ownership in the hands of the Indian resident company of the Essar Group, arose out of the agreement between the two groups when the Indian FDI regulations relaxed the FDI norms in the Telecom sector, to enhance foreign holding limit to 74%. Thus. on the date of transfer of the impugned shares, foreign shareholding of the Essar group was around 22% and Indian shareholding was around 11 %. The Indian company, transferred its shareholding in the VEL to another Indian company (of Piramal group) nominated by the Vodafone Group in F. Y. 2011-12, as part of the deal between the Vodafone and the Essar Group. Thus, the FDI regulatory requirements were satisfied by the group. On 0l.06.2011 and 01.07.2011, the two assessees sold all the shares they held in VEL to Euro Pacific Securities Limited (EPSL) (a non-resident company of Vodafone Group, nominated by Vodafone International Holdings B.Y) for a total consideration of USD 1,18,04,78,489 and USD 3,02,05,21,511 andrealised capital & 340/Del/2022 gains thereon. The gross consideration (including interest) was received by the assessee after deduction of tax at source at 21.012%. The shares under the impugned transactions were sold upon exercise of put option by another group company ECML, Mauritius. Consideration was received on 01.07.2011 in the bank account of the assessees companies in Mauritius. Prior to the sale of the VEL shares by the assessees, EPSL made an application before the Hon'ble Authority for Advance Rulings ('AAR) seeking a ruling on its withholding tax liability on the proposed payment of sale consideration to the assessee for the transfer of shares in VEL. Capital gains made on proposed sale of shares to EPSL were claimed exempt under the DTAC before the AAR. On their miscellaneous application filed before the AAR, the assessees were admitted as interveners in the matter. After various round of hearings before the AAR, between March 2011 to June 2011 for which both Vodafone Group and the Essar Group were parties- Vodafone Group as the deductors and the assessees as interveners, application for withdrawal of case was filed before the AAR. This application for withdrawal was made after an agreement dated 01.07.2011 between the two groups- Vodafone and Essar was entered into. This agreement inter alia included clause for enhancement of consideration payable by the Vodafone group to the Essar group on account of taxes payable on the transaction. As per terms of the settlement through this agreement. Vodafone agreed to increase the total consideration of VEL shares of ECL and ECOM to' 4.20 I Bn USD from earlier 3.8 Bn USD. The tax deduction component was agreed to be USD 882.7 Mn. Thus, Essar parties received increased consideration, the increase being about 400 Mn USD. The tax component was thus nearly shared equally by the Vodafone and Essar parties. The relevant recitals from the deed of amendment dated 1.7.2011 referring to the terms of settlement of dispute are as under:

& 340/Del/2022 " ... 2.1 The parties agree that the offshore agreement is hereby amended so that: (A) the put option price, as defined in clause 2.18 of the offshore agreement, is amended and is now US$ 4,201,000,000 (being c.US$46.02 per share) of which US$ 3,020,521,511 is the price payable for the 65,634,887 put option shares owned or formerly owned by ECL and US$ 1,180,478,489 is the price payable for the 25,651,389 put option shares owned by ECom; (B) notwithstanding any provision to the contrary in the Offshore agreement (including, but not limited to, clauses 4. J and 4.4 of the offshore agreement) and notwithstanding the provision of the Double Tax Avoidance Agreement between India and Mauritius, Vodafone or Vodafone s nominee or VG Pic as Guarantor can deduct from the payment of the put option price (as amended by the terms of Clause 2.1 (A) above) an amount upto a maximum of US$ 882,714,120 (plus any amount withheld from any interest paid on the put option price) towards tax deducted at source in respect of capital gains tax on the sale and transfer of the put option shares provided that such withheld amount is deposited with the relevant tax authorities in accordance with the terms agreed between the parties. "(Emphasis supplied) From this deed of settlement, it is observed that the two groups i.e. Vodafone and Essar have settled the amount of sale consideration and tax on the capital gains at taxable rate charged as per Indian law and have expressed the same to be attributed towards the withholding tax liable to be deducted at source, notwithstanding any provisions of DTAA. The AAR allowed the said application for withdrawal vide order dated 01.07.2011 dismissing the application as “dismissed as withdrawn without prejudice to the rights of the applicant (i.e. EPSL), the Revenue and the intervener to put forward whatever contentions they have at appropriate stage in other proceedings, in accordance with law.

& 340/Del/2022 Thereafter TDS was deposited by EPSL. i.e. the deductor. This TDS was claimed to be paid under protest on the ground that capital gains arising from" sale of these shares were exempt from income-tax in India under Article 13(4) of the India-Mauritius Tax Treaty ('tax treaty). Subsequently, on 26.09.2012, again applications were filed by ECL and ECOM before the same forum, i.e. the AAR. These applications were for the same transaction and on the identical question which was the subject matter of earlier proceedings, i.e. whether the assessees were chargeable to tax in India on the capital gains arising from transfer of shares in VEL. Capital gains made on sale of shares to EPSL viz 1.079 Bn USD (INR 4772 Crore) by Ecom and 2.647 Bn USD (Rs. 11,772/- Crore] by ECL were claimed exempt by the assessees under the DTAC in this application before the AAR. This second round of application was made after a gap of about one year and 3 months and after the constitution of the AAR had changed upon the retirement of Hon'ble justice Balasubramanyam. After multiple hearings, the AAR analyzed the issues like forum shopping, "other proceedings" dismissed both the applications on 10.10.2019 as non-maintainable. In addition, in the order, the Hon'ble AAR also held that it was prima-facie a case of tax avoidance. The AAR further enlisted the series of events submitted by the Revenue as evidences for tax avoidance and specifically expressed that the aspect of tax avoidance was to be examined by the authorities at the time of proceedings related to assessment. This order of the AAR was challenged by the assessees before the Hon'ble Delhi High Court by way of a writ petition. The Hon'ble Delhi High Court disposed off the writ petition vide its order dated 19.12.2019. The order of the High Court also directed the AO to expedite the assessment proceedings and to pass the assessment order preferably on or before 30.06.2020 (later extended to 15.03.2021). The return of incomes which were filed by Ecom on 29.09.2012 declaring nil income and claiming refund of & 340/Del/2022 Rs.1097,18,51,195/- being TDS deducted by EPSL was kept in abeyance on account of AAR proceedings in the second round. In this return it was claimed that the capital gains arising from transfer of shares in VEL was not chargeable to tax in India as per Article 13 (4) of the tax treaty. The case was taken up for scrutiny. Similarly, the return of income which was filed by ECL on 29.09.2012 declaring nil income and claiming refund of Rs. 2821,21,70,693/- being TDS deducted by EPSL was also kept in abeyance. In this return, it was claimed that the capital gains arising from transfer of shares in VEL was not chargeable to tax in India as per Article 13(4) of the tax treaty. The assessment proceedings in both the cases were taken up subsequent to the decision of the AAR. As facts of both ECL and ECOM are similar and intertwined, frequent reference to both the assessees have been made in the preceding orders of the authorities and also in earlier as well as the present submission.

2. The AAR Ruling: i. On the issue of maintainability of the applications filed before the same forum, i.e. the AAR, after withdrawal of the same and having been dismissed as withdrawn, the AAR held the applications to be non-maintainable. ii. On the plea of the taxpayer, that the revenue should limit itself to the activities and affairs of the relevant financial year in which the share were transferred, i.e. F. Y. 2011-12 only, the AAR held that all the functions related to the affairs of the companies needed to be examine, which in the instant cases involved acquisition, application, maintenance and disposal. The relevant portion of the decision is reproduced: "186. At the outset it is mentioned that we are not in agreement with the plea of the applicant that for considering the issue of prima-facie tax avoidance or exemption under treaty, we have to limit ourselves to the activities and affairs of the relevant financial year i.e., if the (sale) pertains to & 340/Del/2022 financial year 2011-12, we have to examine whether there was a scheme of tax avoidance during that year. This is not acceptable interpretation. Imagine a share sale transaction happening on 1st April, 2011, there is nothing to even look for any documents or papers for the relevant financial year. A scheme of tax avoidance presupposes a series of events and actions which might have been planned for few years and thereafter the desired event occurs leading to the intended tax benefit.The key determinants inter-alia as pointed out by Hon 'ble Supreme Court in Vodafone case are whether the entity exists for commercial purpose, whether it is entering into transaction ofsay asset purchase, asset sale, loans, strategic investment, etc., for its own benefit, or if is merely a conduit for someone else to park the funds or carry out activities as mere puppet at the behest of actual beneficiary who decides, strategies, executes its plan through the puppet entity. We do appreciate that there is very thin line between influence by parent company in affairs of executes its plan through the puppet entity. We do appreciate that there is very thin line between influence by parent company in affairs of subsidiary and abdication of responsibility by subsidiary company in favour of parent. But for prima-facie tax avoidance what is to be ascertained is whether there is a scheme which is apparent from the documents on hand or ascertainable from the chain of events. Prima-facie means what appears to be true even though it may be proved false later. iii. On the issue of the transaction was prima facie a case of tax avoidance, gave a finding that the transaction was prima facie for the purpose of section 245R(2)(iii) and hence non maintainable. The relevant observations are: "187. We are in agreement with revenue that in the instant case certain events inter-alia do serve as pointer towards prima-facie tax avoidance. These are: • Investment for acquisition of VEL share not made by applicants but funds were routed through them and on Lop & 340/Del/2022 of that they bound themselves in restrictive covenants of loan agreements. • Further loans were raised by pledging these shares for benefit of Essar group. • When shares were sold consideration immediately moved out from accounts of applicant to lenders on the directions of executives of Essar group • Shares were bought, pledged, sold by Essar group and the entities • Funds were routed through them and on Lop of that they bound themselves in restrictive covenants of loan agreements • Further loans were raised by pledging these shares for benefit of Essar group • When shares were sold consideration immediately moved out from accounts of applicant to lenders on the directions of executives of Essar group • Shares were bought, pledged, sold by Essar group and the entities merely lent their name to see treaty benefits. • The shares in HEL/VEL have been acquired by ECL by voluntary liquidation of ETIL. The sale purpose, it seems is to transfer the situs of ownership of 15.85% ofHEL/VEL shares owned by Essar group, to Mauritius to avoid capital gains tax in India.

188. In view of foregoing, we hold that the present applications are barred under clause (iii) of proviso to section 245R(2).” iv. The AAR flagging the issues to the assessing and appellate authorities for examining the transaction to be one for tax avoidance:

189. We have held earlier that applications are not maintainable and liable to be dismissed and that applicants can pursue their cases in other proceeding in forum other than AAR, it would be in fitness of things that concerned authorities would also consider this aspect of tax avoidance in detail at the time of merit proceedings.

3. Order of the Assessing Officer: After multiple hearings and analysis of facts, legal provisions and judicial decisions, the AO finalized the assessment in detailed orders dated 13.04.2021. The AO denied benefits under Article 13(4) of the tax treaty to the assessees by concluding inter alia that the assessees were nothing but a shell company which had been used as a conduit with the sole objective of avoidance of tax on capital gain arisen on sale of VEL shares. The AO held that the control and management of the assessee company always lay in India since the board of directors were for namesake only and all the decisions in respect of the assessee were taken by Ruia family and executed through the key persons of Essar group in India. The AO concluded that the assessees were tax residents of India and were not entitled to the benefit claimed under the tax treaty. Accordingly, long term capital gains were charged to tax. The draft assessment orders were issued and served on the assessees on 15.03.2021 u/s 144C of the Act. Vide letter dated 17.03.2021, the assessees informed the AO that they were not willing to approach the Dispute Resolution Panel and reserved the right to appeal before CIT(A) against the final assessment orders. Accordingly, final assessment orders were passed. Aggrieved by the assessment order, the assessees filed appeals before the CIT(A) The A0, arrived at conclusion of the transactions leading to the capital gains being taxable in India, based on the following reasons:  ECL and ECom were always controlled by the trusts controlled and managed by Ruia family members; & 340/Del/2022  Investment for acquisition of VEL shares were not made by ECOM/ECL but funds were routed through them and on top of that they bound themselves in restrictive covenants of loan agreements;  Further loans were raised by pledging these shares for benefit of Essar group;  When shares were sold consideration immediately moved out from accounts of applicant to lenders on the directions of executives of Essar group:  Shares were bought, pledged, sold by Essar group and the entities merely lent their name to seek treaty benefits.  The shares in HEL/VEL have been acquired by ECL by voluntary liquidation of ETIL. The sole purpose, was to transfer the situs of ownership of 15.85% of HEL/VEL shares owned by Essar group, to Mauritius to avoid capital gains tax in India.  Board of directors of the companies were for namesake only and all the decisions in respect of the companies were taken by Ruia family and It executed through the key persons of Essar group in India, and thus, the board was controlled and managed by the Essar group from India and the respective boards of ECOM/ECL were mere puppets;  Analysis of financial statements of ECL/ECOM showed that they were only paper companies without any substance as they were not involved in any significant business activities and their income/expenditure was minimal in quantum;  It is not the holding of board meetings or complying to certain regulations but it is the Act of the Central Management and Control applied through brain in factual matrix of course of business. Hon'ble Supreme Court applied the CMC test (Central Management and Control test) which determines from which place the real business is carried on. In the facts of the case, the Central Management and Control i.e. the "Brain" of the assessee company was being exercised in India and thus the company was a resident of India under the provisions of section 6(3) of the Act:  Assessee company acted merely as a puppet and agreed to show the ownership in its own name as a mere name lender and without any knowledge, authority and decision- making & 340/Del/2022 power into what was being done for the use of the shares owned in its name by the beneficial owners based in India;  ECOM/ECL are nothing but shell companies which have been used as a conduit with the sole objective of avoidance of tax on capital gain arisen on sale of VEL shares:  ECL/ECOM are tax resident of India and are not entitled to the benefit claimed under the tax treaty.

4. Order of the CIT(A): i. The CIT (A) framed the following questions for deciding the two appeals: "6. The issues that arise for determination in this case are as follows: Regarding taxation of capital gains on transfer of shares of VEL a) Whether the assessee was a tax resident of India and whether its control and management lay wholly in India during the relevant financial year, b) Whether the assessee was entitled to the benefits of Article 13 (4) of India- Mauritius Double Taxation Avoidance Convention (DTAC); c) Whether the assessee was a conduit company set up for availing tax treaty benefit and for avoidance of tax. Regarding application of surcharge Whether the assessee was liable to surcharge at the rate applicable to that on a foreign company or a domestic company. Regarding taxing the interest income and balances written back & 340/Del/2022 Whether the interest income and balances written back are to be added to the total income. Regarding taxing interest received from EPSL Whether the interest received from EPSL is to be taxed twice both as part of sale consideration as well as 'income from other sources'. Regarding indexed cost of acquisition Whether the indexed cost of acquisition of the VEL shares was correctly computed in the hands of the Assessee. " ii. Summary of the findings of the CIT(A): The CIT(A) has summarized his findings in para 170 of his order as follows: "170. The summary offindings against the assessee are as under: The assessee was tax resident of India and that its control and management was wholly in India; The assessee was not entitled to the benefits of Article 13(4) of India-Mauritius DTAC; The capital gains earned by the assessee on the sale of VEL shares were related to assets located in India in telecommunication sector which derived its value based on the economic activity and value creation in India; The assessee was a conduit company set up for availing tax treaty benefit and for avoidance of tax; The assessee had contrived to devise a scheme to show that the of claim of exemption from capital gains taxation in India under Article 13(4) of the tax treaty on the transfer of shares in an Indian company; The assessee lacked commercial substance and was a colourabledevice. 170.1 Accordingly, the action of the AO in charging the capital gains to tax is confirmed. Grounds No.2 to 4 are dismissed. "

5. Present proceedings before the Hon'ble ITAT: Against the decision of the CIT(A), the two assessees preferred appeals. During the course of the proceedings, based on comprehensive factual evidences, extensive oral submissions have been made before your honours on behalf of the department. The submissions of the revenue drew extensive support from the written submissions filed before the AAR, the ruling of the AAR, the order of the assessing officer and the order of the CIT(A). PART B - Annotation of significant issues considered by the CIT(A) for the decision The Ld CIT(A) has considered the issues in all comprehensiveness while referring extensively to the ruling of the AAR as also to the submissions filed before the AAR. Therefore, it is considered apt to flag his analysis including the relevant factual, legal and judicial analysis for his decision. These annotations are tabulated for clarity and intelligibility.

SI Issue Relevant paragraph of the CIT(A) No.

1. Facts in brief and the background proceedings Para 3-4 (page 14-17) ECL Para 3-4 (page 12-16) ECOM 2. Issues framed by the CIT(A) Para 6 (page 17-18) ECL Para 6 (page 16) ECOM 3. Analysis of the results of the background Para 7 (page 18-20) ECL Para 7 proceedings leading to capital gains taxation (page 16-19) ECOM 4. Summarising the analysis of the AO Para 8 (page 20-22) ECL Para 8 (page 19-21) ECOM 5. Summarising the analysis of the AAR Para 9 (page 22-24) ECL Para 9 (page 21-23) ECOM 6. Facts and circumstances leading to the conclusion of capital gains taxation by the AO & 340/Del/2022 6.1 Broad view of Essar Group Company forming part of Para 11 (page 24-27) ECL the existing arrangement Para 11 (page 23-25) ECOM 6.2 Moving of holding Essar Group in Indian Telecom Para 12 (page 27-33) ECL Business from Onshore to offshore Para 12 (page 26-31) ECOM 6.3 Acquisition of VEL shares by ECL through voluntary Para 13 (page 33-52) ECL Liquidation of ETIL and the evidences that voluntary Para 13 (page 31-51) ECOM liquidation was a colourable device 6.4 Analysis of evidences that Ruia family was the Para 14 (page 52-57) ECL ultimate beneficiary of ECL/Ecom Para 14 (page 51-55) ECOM 6.5 Infographics showing Ruia family members to be Para 14.1, 14.2 & 14.10 ultimate beneficiaries of ECL/Ecom through maze of (page 52, 53, 54 & 57) ECL companies and trusts in Mauritius, Cayman Island Para 14.1, 14.2, & 14.10 and British Virgin Island (page 51, 52 & 55) ECOM 6.6 Questionable independence of directors and the Para 15 & 16 (page 58-61) issues relating to secrecy and non-transparency ECL through analysis of GBL 1 Company in Mauritius Para 15 & 16 (page 56 - 59 and the profile of Mauritian directors ECOM 6.7 Use of colourable device in acquisition of shares, Para 17 & 18 (page 61-72) raising of loans, movement of funds for the benefit ECL of Ruia family etc Para 17 & 18 (page 59-70) ECOM 6.8 Analysis of Joint Assignment Agreement dated Para 19 (page 72-76) ECL 31.01.2007 as a colourable device and the Para 19 (page 70-74) ECOM infographic representation of the same 6.9 Analysis of loan agreements taken on the strength of Para 20 -28 (page 76-83) the impugned shares for the benefit of Ruia family ECL and the group companies and the Essar Group Para 20-28 (page 74-80) companies ECOM 6.10 Analysis of Advantages of USD 2.2 bn given to Ruia Para 26 (page 80) ECL Para family through Essar Global Ltd. Cayman Island 26 (page 77) ECOM 6.11 Infographic of the benefit of fund flow of loan of Para 27.1 (page 82) ECL USD 1.4 Billion on the strength of India based Para 27.1 (page 79) ECOM impugned shares 6.12 Over arching role of Essar Global Ltd., Cayman Para 29 (page 83-86) ECL Island and practically no role of ECL/ Ecom in Para 29 (page 80-82) ECOM deciding the application of the impugned shares 6.13 Infographics of Frequent changes in holding Para 30 (page 86-88) ECL structure devoid of commercial substance Para 30 (page 82-85) ECOM 6.14 Settlement of tax dispute before the AAR on Para 31 (page 89-90) ECL 01.07.2011 through deed of amendment and Para 31 (page 86-87) ECOM enhancement of consideration 6.15 Analysis of financial statements of ECL/ Ecom Para 32 (page 90-96) ECL evidencing practically no discharge of functions by Para 32 (page 87-93) ECOM ECL/Ecom 6.16 Entire affairs of ECL/Ecom and also of the Para 33 (page 96-142) ECL transactions relating to the impugned shares carried Para 33 (page 93-139)

& 340/Del/2022 out by key Essar Group executives ECOM 6.17 ECL/Ecom not taking vital decisions even during Para 34-37 (page 142-158) F.Y. 2010-11 & F.Y. 2011-12 and also many of the ECL earlier years Para 34-37 (page 140-155) ECOM 6.18 Residential status profile of the key management Para 35 & 36 (page 147- personnel substantially demonstrating decision 150) ECL making in India Para 35 & 36 (page 144- 147) ECOM 6.19 Letter of Mauritius Revenue Authority stating Para 38 (page 158 & 159) Central Management Control in Mauritius, based on ECL specific criteria mentioned by the assesses Para 38 (page 155-156) ECOM 6.20 Non-production of TRC during the assessment Para 39 (page 159-160) ECL proceedings for F.Y. 2004-05 to F.Y. 2009-10 Para 139 (page 156-157) ECOM 7. Central management and control in India by the Para 40 & 41 (page 160- Essar Group to which the ECL/Ecom having 164) ECL absolutely no role Para 40 & 41 (page 157- 161) ECOM 8. Written submissions of the ECL/Ecom and analysis Para 43 (page 164-177) ECL and rejection of arguments by the CIT(A) Para 43 (page 161-173) ECOM 9. Non-applicability of paragraph 4 of Article 13 under Para 44-47 (page 177-179) India Mauritius Treaty- Application of Section 6(3) ECL of the Indian Income Tax Act, Article 4(3) of India Para 44-47 (page 173-175) Mauritius Treaty, place of effective management, ECOM circular 1 of 2023 clarifying that in the case of findings of facts by the assessing officer establishing dual residence, place of effective management to be the governing criteria for residence 10. Hon’ble Supreme court in Azadi bachao- clarifying Para 48 (page 179-180) ECL power of the authorities to give finding of fact for Para 48 (page 175-176) determination of residential status in case of dual ECOM residence under Article 4(3) of the treaty 11. Conclusion by the CIT(A) that circular 1 of 2023 and Para 49 (page 180-181) ECL Homble Supreme Court on Azadi Bachao andolan Para 49 (page 176-177) mandate that the residential status deciding the ECOM taxability governed by findings of facts 12. Testing of residential status by the CIT(A) through Para 50-59 (page 181 - 185) examination of the concept of control and ECL management of affairs under the factual matrix of the Para 50-59 (page 177-181) cases- acquisition, use and disposal of the impugned ECOM shares 13. Analysis of the cases of V.V.R.N.M. Subbayya Para 60-73 (page 185-195) Chettiar; English case of DeBeers Howe; English ECL & 340/Del/2022 case of Laerstate BV Vs HMRC; English case of Para 60-73 (page 181-191) Development Securities Vs HMRC (2019); Erin ECOM Estate Vs CIT(1958) (SC); CIT Vs. Nandlal Gandalal (1960)(SC); CIT Vs Chitra Palayakat (1985) (Madras HC); CIT Vs. Bank of China (Calcutta HC); Universal Cargo Carriers Inc.; Meenu Sahi Mamik (AAR) 14. Conclusion of the C1T(A) based on the application Para 74-89 (page 195-205) of judicial rulings, treaty definition of Article 4(3), ECL circular 1 of 2023, the concept of place of effective Para 74-89 (page 191-201) management as defined by the OECD to factual ECOM matrix holding control and management of affairs wholly in India 15. CIT(A) finding that the factual matrix prove Para 90-92 (page 205-213) complete lack of commercial substance and is a clear ECL case of treaty abuse Para 90-92 (page 201-209) ECOM 16. CIT(A) testing the factual matrix in terms of the Para 93-100 (page 213-216) guidance laid down by Hon’ble SC in Vodafone, ECL Azadi Bachao (SC), Banyan and Berry(Gujarat), Para 93-100 (page 209-214) Consolidated Finvest& Holdings Ltd. (Delhi Tribe), ECOM Wipro Ltd.(Kar), Copal Research Ltd.(Delhi), Gosalia Shipping (R) Ltd (SC), Panipat Woollen & General Mills Co. Ltd. (SC), Redington (India) Ltd (Madras HC), McDowell & Co. Ltd. (SC) case 17. CIT(A) tabulating and discussing guidelines of Para 101-139 (page 217- Hon’ble Supreme Court in Vodafone’s case and 281) ECL fitting the same to the factual matrix of the present Para 101-139 (page 213- case for consideration and rebuttal of the assessee’s 277) ECOM submissions 18. CIT(A) discussing the assessee’s plea that the affairs Para 140 (page 281-284) of the company should be viewed within the ECL Para 140 (page 177- restrictive parameter of RY. 2011-12 and rejecting 280) ECOM the assessee’s plea based on his factual and legal analysis, analysis and findings of the AAR in the present cases, ruling of the AAR in the case of Capex Com Ltd (2021) 19. CIT(A) rendering the finding that the transaction in Para 141-142 (page 284) question was a case of colourable device and sham ECL Para 141-142 (page transaction 280) ECOM 20. CIT(A) discussing the decision cited by the assessees Para 143-146 (page 284- and holding that such cases are distinguishable on 289) ECL findings of facts while further relying on various Para 143-146 (page 280- decisions of the AAR and the High Courts 285) ECOM 21. Analysis and the findings of the CIT(A) that the Para 147-167 (page 289- impugned capital assets was located in India 302) ECL & 340/Del/2022 Para 147-167 (page 285- 298) ECOM 22. Findings of the CIT(A) that no relief granted to the Para 168 (page 302) ECL taxpayers in earlier proceedings i.e. two rounds of Para 168 (page 298) ECOM proceedings before the AAR - in the first round after hearing the case on behalf of the revenue, the application was withdrawn from the AAR and full payment of tax was made. In the second round before the AAR, application was filed after almost two years of withdrawing the applications before the same forum under curious circumstances. Ruling was rendered by the AAR that the taxpayer cannot contest before the same forum after having withdrawn the application. Ruling was also given to the effect that the application been tenable because the case was prima facie for the purpose of tax avoidance. The AAR expressed for the authorities passing/ examining the assessment orders to examine the issues brought on record by the department and flagged by the AAR pointing at tax avoidance.

23. Final conclusion and the summary of findings Para 169-170 (page 302- holding taxability of the gains from the impugned 304) ECL transactions to be taxable as capital gains in India. Para 169-170 (page 298- 300) ECOM 24. Inference drawn by the CIT(A) with regard to non- Para 171 (page 304-305) production of the documents mentioned at pages 252- ECL Para 171 (page 300- 253 of the assessment order, before the AO 301) ECOM PART C -Annotation of written submission dated 23.09.2019 made by the revenue before the Hon'ble Authority for Advanced Rulings Written submissions dated 23.09.2019 were filed before the Hon'ble AAR which covers the submissions made for and on behalf of the Revenue as well as the rebuttal to the contentions canvassed by and on behalf of the taxpayer companies. These submissions were given in two parts, Part-A and Part-B. Part-A of the submissions cover issues relating to bar contained in item (i) of the proviso to Section 245R (2), suppression of fact of intervention in the Application No. 982 of 20 10 filed by Euro Pacific Securities Ltd ("EPSL", in short) in the second round of applications filed by the Essar Group before the AAR and the effect of the said & 340/Del/2022 Intervention Application on the maintainability of second round of applications. Part-B of such submissions deal with the contention of the revenue with regard to the bar contained under item (iii) of the proviso to section 245R(2) of the Act and thus submission made praying to disregard the claim of exemption from capital gains taxation made by the two applicants, seeking benefit of Paragraph (4) of Article 13 of the Double Taxation Avoidance Agreement between India and Mauritius. This part of the submission made before the AAR dated 23.09.2019, contains seven (7) sub-parts B-1 to B-VII. The factual legal and judicial analysis made in this part was accepted by the AAR while holding the applications to be barred under clause (iii) of the proviso to section 245R(2) and decision in favour of revenue was granted by the AAR. This submission was also considered relevant by the Ld. AO and the Ld. CIT(A). Accordingly, it is submitted that this written submission is equally relevant for the current proceedings before this very Hon'ble Tribunal. Therefore, annotation of Part B of the submissions filed before the AAR is tabulated below for the assistance of the Hon'ble ITAT.

S. Issue Relevant pages No. of the written submissions dated 23.09.2019 PART-B PART-BI - Main Propositions 2 Issues relating bar contained in item (iii) of the proviso to section 26-32 245R (2) of the Act and claim of exemption made by the two applicants in their returns of income seeking benefit of Paragraph (4) of Article 13 of the Indo-Mauritius DTAA PART-B11- Facts of the case including colourable devices 3 (I) Consolidation of holding of Essar Group In Indian Telecom 33-35 Business V 4 (II) Acquisition of shares in the name of ECOM, Mauritius in 36-51 HEL/VEL, India & 340/Del/2022 5 (III) Voluntary liquidation of ETIL- Colourable device for tax 52-76 avoidance Shifting of situs to Mauritius of ownership of VEL shares held by ETHL India by first transferring such shares to ETIL India and thereafter its voluntary liquidation 6 (IV) Another colourable device-Joint Assignment Agreement dated 77-80 31.1.07 Loan taken on pledge of impugned shares changes colour and lands as income in another group company 7 (V) Loan availed by Group based on the security of ownership of 81-87 ECL/ECOM in HEL/VEL - Facts showing that Applicant Companies have no decision making power 8 (VI) Various Put and Call Option Agreements with Vodafone 88-93 Group -showing lack of separate identity of the Applicant Companies 9 (VII) Ultimate beneficiary Factual Matrix 94-102 - Ruia Family to be the ultimate beneficiary and controlling and managing the affairs of the Applicant Companies 10 (VIII) Another colourable device - Frequent Changes in Holding 103-104 Structure: Arrangement lacking commercial substance 11 (IX) Settlement of tax disputes between Vodafone & Essar Groups 105-114 by way of tax sharing through deed of amendment dated 1.7.2011 - Against all norms of propriety 11 (X) Financial Statements of the Applicants Companies -- showing 115-119 that these are empty boxes based in Mauritius only for tax benefit. Part B-III -Analysis of Board minutes and various tables 13 (I) ECL- Mauritius; persons authorised as per Board minutes along 120-125 with purpose of authorisation; 14 (II) ECOM- Mauritius; persons authorised as per Board minutes 126-133 along with purpose of authorisation 15 (III) ECML- Mauritius; persons authorised as per Board minutes 134-136 along with purpose of authorisation 16 (IV) ETIL, India -Persons authorised as per Board minutes 137-138 17 (V) Chart showing Various agreements-their signatories—-and the 139-152 authorized persons as per Board minutes 18 (VI) Date -wise chart of Board meetings and written resolutions - 153-154 how the companies are run through written resolutions largely 19 (VII) Serious discrepancies in board minutes of ECL and ECOM 155-162 upto the period 16.8.2007 20 (VIII) Serious discrepancies in minutes of ECL & ECOM for FY 163-174 2010- 11 &FY 2011-12 21 (IX) Board minutes of FY 2010-12 and FY 2011-12 are of doubtful 175-179 authenticity [submissions on without prejudice basis] 22 (X) ITD Profile of residential status of key management personnel 180-181 & 340/Del/2022 and various Essar Group Executives 23 (XI) Control and management in India during FY 2011-12 - based 182-195 on Board minutes provided for FY 2010-11 and FY 2011-12 [submissions on without prejudice basis] Part B-IV - Legal submissions on Tax avoidance in view of the facts of the case 24 Legal submissions on Tax avoidance read with facts of the case 201-208 Part B-V - Legal submissions on Control and management in view of the facts of the case 25 (I) Prima Case of Tax Avoidance as the control and management of 209-222 affairs of the Applicants vests wholly in India-Article 4( 1) of the Indo Mauritius Treaty read with Section 6(3) of the IT Act India read with Article 4(3) of the Treaty 26 (II) Judicial Dicta on tests for “control and management of affairs 223-239 situated wholly in India” 27 (III) Case of Dual Residence under the Treaty-Applicability of 235-239 Article 4(3) of Indo Mauritius DTAA Part-B-VI - Rebuttal of objections of Applicants 28 (I) Revenue rebuttal on Applicant’s submissions on (8) allegations 240-267 of Revenue 29 (II) Revenue rebuttal of separate objections of the Applicants on 268-274 nine (9) legal and factual issues. Part-B-VII - Final Conclusion on facts of the case. 30 (I) Case of prima-facie tax avoidance - use of colourable device 275-284 under judicial anti-avoidance rules 31 (II) Applicants taxable in India under Treaty as the control and 285-292 management of affairs of the Applicants vests wholly in India- Article 4(1) of the Indo Mauritius Treaty read with Section 6(3) of the IT Act India read with Article 4(3) of the Treaty Miscellaneous - Few relevant charts 32 Charts and diagrams 293-312 PART D - Legal arguments and the judicial dicta further impinging on the issues involved in the present proceeding

1. The Legal submissions are in sections I, II and III which had been argued in detail and have now been captured as Written Submissions.

2. Before Respondents proceed to place on record the legal submissions, two aspects are first on record. This case is essentially and principally a case revolving around the test of Control and Management. And more importantly, the & 340/Del/2022 Control and Management test is between India and Mauritius.

3. On facts. the Respondents had demonstrated that there is no Control and Management in Mauritius and it is wholly in India. The expression "wholly" both under the erstwhile Section 4 of the Income Tax Act, 1922 and the present Section 6(3) of the Income Tax Act, 1961 both prior and subsequent to 2016 have been interpreted by the Hon'ble Supreme Court in the case of Mansarovar Commercial Pvt. Ltd. v. Commissioner of Income Tax, Delhi {2023} 8 S.C.R.

452. The Judgement dealt in detail in the latter half relying on all the earlier preceding Judgments, interpreting the expression "wholly" as the head and brain test. The erstwhile Section 4, Section 6(3) up to 2016 and Section 6(3) post 2016 and Section 73(1)(b) of the Mauritius Income Tax Act are parimateria. A detailed discussion on the same is brought on record in the later portion of the submissions.

4. As regards the India-Mauritius DTAA, according to the Respondents, the case would squarely fall under Article 4(1) and the residency test stands proved as India. Even applying the Tie breaker test, it would be self-evident that the Control and Management test both on facts and in law would only be in India.

5. With this background, the Respondents now proceed to place on record the submissions in law along with case law analysis. Section I - Judgement of the Hon'ble Supreme Court rendered in Azadi and Vodafone and Observations on Circular No. 789, dated 13.04.2000 - Are they Ratio or Obiter? 1. The cases of the present two Assessees, namely ECL and ECOM, pertain to direct transfer of shares involving two sovereign jurisdictions-India and Mauritius-and, beyond them, a complex web of upstream entities situated in Mauritius and ultimately the Cayman Islands. While the India-Mauritius Double Taxation Avoidance Agreement & 340/Del/2022 (DTAA), originally entered into in 1983, has been amended and extended from time to time-the latest amendment being in 2017- 2. The two earlier landmark decisions of The Hon 'ble Supreme Court-Azadi Bachao Andolanand Vodafone International Holdings B. V-did not involve an examination of a typical transaction under the India-Mauritius DTAA. Decision in Azadi Bachao Andolan 3. In Azadi Bachao Andolan, the issue arose in the context of Public Interest Litigation (PIL) whereby legal validity of CBDT Circular No. 789 dated 13.04.2000 was challenged before Delhi High Court by way of 2 Writ petitions. These petitions also sought a declaration that exemption granted to Foreign Institutional Investors (FIIs) and various investment funds from income tax in India under the India Mauritius DTAA is void. Against these Writ petitions, the Delhi High Court in its judgment rendered on 16.03.01 declared the aforesaid Circular as illegal and void. Against such judgment of Hon'ble Delhi High Court, SLPs were filed before The Hon'ble Supreme Court by Union of India. The Hon'ble Supreme Court vide its order dated 07.10.03 set aside the order dated 16.03.01 passed by the Delhi High Court and upheld the legal validity of CBDT Circular No 789.

4. The legal framework applicable to Foreign Institutional Investors (FIIs), Mutual funds, and similar entities under the Income Tax Act, 1961 as well as the context of Circular No.789 is markedly different from that governing the sale of a business investment, whether by way of direct or indirect transfer. Accordingly, The Hon'ble Supreme Court in Azadi Bachao Andolan never had the occasion to examine the tax implications of a direct or indirect transfer of shares or the applicability of Circular No. 789 in such a context. The Respondents respectfully submit that this distinction will be further elaborated upon in the subsequent sections of these submissions.

& 340/Del/2022 5. In Azadi Bachao Andolan, both the Delhi High Court and The Hon’ble Supreme Court had an occasion to deal only with investments made by Foreign Institutional Investors (FIIs), mutual funds, and other such entities. The judgment of The Hon'ble Supreme Court in Azadi Bachao Andolanwas delivered at a time when India had yet to encounter cross- border transactions involving the direct or indirect transfer of shares constituting business investment. It is equally pertinent to note that, even under Mauritian law, the Financial Services Act came into force only in the year 200 I-subsequent to the issuance of CBDT Circular o. 789 dated t 3.04.2000. Thus, Azadi Bachao Andolandealt only with the prior legal regime then prevailing in Mauritius, namely the Mauritius Offshore Business Activities Act, 1992 (MOBA Act), which did not deal with the type of transactions currently under examination before The Hon'ble Supreme Court-a position that has been accepted by both parties in the present case.

6. To substantiate this distinction, the Respondents referred to the judgment dated 07.10.03 rendered by The Hon 'ble Supreme Court in Azadi Bachao Andolan, which is discussed below: a. Paragraph 9 of the judgment records that, in the year 2000, certain Income Tax Authorities issued show cause notices to various Foreign Institutional Investors (FIIs) operating in India, questioning why they should not be taxed on the profits and dividends accruing to them from their Indian investments. The basis on which the showcause notices were issued was that the recipient of the showcause notices were shell companies incorporated in Mauritius, with the sole or primary purposeof routing investments into India through Mauritius so as to avail the benefits under India-Mauritius DTAA. These actions created significant panic in the financial markets, leading to a hasty withdrawal of funds by FIls. In response, the then Finance Minister issued a press note dated 04.04.2000, clarifying that such show cause notices did not represent or reflect the policy of the Government of India and reaffirming the commitment of & 340/Del/2022 Government of India to honour the treaty-based tax exemptions applicable to FIls investing through Mauritius. b. Therefore, the facts as set out in paragraph 9 of the Azadi Bachao Andolan judgment clearly pertain to the denial of tax benefits to Foreign Institutional Investors (FIIs), and not to any transaction involving the direct or indirect transfer of shares constituting a business investment. It was in this context that Circular No. 789 dated 13.04.2000 was issued by CBDT. Paragraph 10 of the judgment reproduces the entire text of the aforesaid Circular as under: "10. Thereafter, to further clarify the situation, CBDT issued Circular No.789 dated 13-4-2000. Since this is the crucial circular, it would be worthwhile reproducing its full text. The circular reads as under: "Circular No. 789 F. No. 500/60/2000-FTD GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES New Delhi 13-4-2000 To, All the Chief Commissioners/Directors General of Income Tax Sub: Clarification regarding taxation of income from dividends and capital gains under the Indo-Mauritius Double Taxation Avoidance Convention (DTAC) - Reg. The provisions of the Indo-Mauritius DTAC of 1983 apply to 'residents' of both India and Mauritius. Article 4 of DTAC defines a resident of one State to mean any person who, under the laws of that State is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. Foreign institutional investors and other investment funds etc. which are operating from Mauritius are invariably incorporated in that country. These entities are' 'liable to tax' under the Mauritian tax law and are therefore to be considered as residents of Mauritius in accordance with DTAC & 340/Del/2022 Prior to 1-6-1997, dividends distributed by domestic companies were taxable in the hands of the shareholder and tax was deductible at source under the Income Tax Act, 1961. Under DTAC, tax was deductible at source on the gross dividend paid out at the rate 0/5% or 15% depending upon the extent of shareholding 0/ the Mauritian resident. Under the Income Tax Act, 1961, tax was deductible at source at the rates specified under Section 115-A etc. Doubts have been raised regarding the taxation of dividends in the hands of investors from Mauritius. It is hereby clarified that wherever a certificate of residence is issued by the Mauritian authorities, such certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying DTA C accordingly. The test of residence mentioned above would also apply in respect of income from capital gains on sale of shares. Accordingly, FIls etc. which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph (4) of Article 13. The aforesaid clarification shall apply to all proceedings which are pending at various levels. " The above Circular pertains solely to Foreign Institutional Investors (FIIs) and other investment funds such as mutual funds and similar entities. It is crucial to underscore that both FIls and investment funds are governed by the regulatory framework prescribed by the Securities and Exchange Board of India (SEBI). Consequently, entities incorporated in Mauritius and registered with SEBI either as FIls or as investment funds, which invested capital in Indian stock markets and derived income by way of dividends or capital gains on the sale of shares were extended the benefit of the India-Mauritius DTAA under the said Circular. c. The Public Interest Litigation (PIL) filed before the Hon'ble Delhi High Court in the form of two Writ petitions challenged the validity of CBDT Circular No. 789 on the grounds of unconstitutionality and violation of Article 14 of the Constitution of India. It was contended that the Circular discriminated against similarly situated investors within India who were subjected to tax on dividends and capital gains arising from the sale of shares, whereas foreign investments routed through Mauritius via SEBI registered & 340/Del/2022 FIIs and investment funds were granted exemption under the India-Mauritius DTAA and thus did not bear a similar tax burden. This differential treatment, it was argued, amounted to unequal treatment before the law. d. Paragraph 11 of the judgment records the specific prayers sought in the PIL filed before Delhi High Court, which included a direction to the Union of India to revise, modify, or terminate the India-Mauritius Double Taxation Avoidance Agreement (DT AA), with a view to preventing Foreign Institutional Investors (FIIs) and on-Resident Indians (NRls) from allegedly 'marauding' the financial resources of the State. Additionally, the petitioners sought the quashing of CBDT Circular No. 789 dated 13.04.2000, contending that it was illegal and unconstitutional. e. Paragraph 12 of the judgment records the reliefs granted by the Delhi High Court in allowing the PIL. The key findings and directions issued by the High Court were as follows: i. Circular No. 89. dated 13.04.2000 was held to be ultra vires the Income Tax Act. 1961 and beyond the powers of the CBDT. ii. The Income Tax Officer, being a quasi-judicial authority, was held to be entitled to lift the corporate veil to examine the residential status of the investing entity. iii. TRC issued by a foreign tax jurisdictionwas held not to be conclusive evidence of tax residency iv. Treaty shopping by entities from a third country through the India- Mauritius DTAA was declared impermissible and illegal. In addition to the above, the Delhi High Court also granted several other reliefs besides declaring such Mauritius based entities as mere shell companies.

& 340/Del/2022 f. Setting aside various relief granted by Delhi High Court, The Hon'ble Supreme Court in its judgment held/affirmed as under: i. Paragraph 29 of the judgment affirms that Circular 0 789 is a Circular issued within the meaning of Section 90 of the Income Tax Act, 1961 and therefore it must have the legal consequences contemplated by Section 90(2) i.e. the Circular shall prevail even if inconsistent with the provisions of Income Tax Act'1961 insofar as assessee covered by the provisions of DT AA are concerned. ii. Paragraph 51 of the judgment observes that Article 13 of India Mauritius DT AA lays down detailed rules with regard to taxation of capital gains. It further observes that Clause (3) of Article 4 provides that if, after application of the detailed rules provided in Article 4, it is found that a person other than an individual is a resident of both the contracting States, then it shall be deemed to be a resident of the contracting State in which its place of effective management is situated. The DTAA requires the test of 'place or effective management' to be applied only for the purposes of the tie-breaker clause in Article 4(3) which could be applied only when it is found that a person other than an individual is a resident both of India and Mauritius. This test cannot be applied in any other situation. iii. Even though Circular No. 789 dated 13.04.2000 was held to be legally valid and within the parameters of the powers exercisable by the CBDT under Section 119 of the Act, the Paragraph 53 makes it clear that the Circular does not in any way crib, cabin or confine the powers of an Assessing officer with regard to any particular assessment. Paragraph 54 reiterates that Circular No. 789, dated 13.04.2000 does not take away or curtail the jurisdiction of the Assessing Officer to assess the income before it. iv. The judgment rejected the contentions raised in Paragraph 68 that the FIIs incorporated and registered under the provisions of the law in Mauritius are carrying on nobusiness there; they are, in fact, prevented from earning any income there; they are not liable to income tax on capital gains under the Mauritius Income-tax Act. They are liable to pay income-tax under Indian Income-tax Act, 1961, since they do not pay any income-tax on capital gains in Mauritius, hence, they are not entitled to the benefit of avoidance of double taxation under the DT AA v. Paragraphs 84 to 110carefully examines the legal framework under the Mauritius Offshore Business Activities Act, 1992 (MOBA), which prohibits offshore entities from earning income in Mauritius. Paragraph 91 clarifies that merely because such entities are not liable to taxation in Mauritius, it does not follow that they cannot be regarded as residents of Mauritius under the DTAA. Paragraph 104 further rejects the contention that the avoidance of double taxation can arise only when tax is actually paid in at least one of the contracting States. vi. Paragraphs 111 to 118 address the issue of treaty shopping and concludes that the mere fact that investments are routed through Mauritius does not render them illegal or abusive. Motives behind incorporation of entities are not by themselves sufficient to invalidate their eligibility for treaty benefits. Consequently, the paragraph 115 of the judgment records that the principle of 'piercing the corporate veil' cannot be applied to the situation as the one before The Hon'ble Supreme Court in that case. Paragraph 124 rejects the recommendations of the WorkingGroup on on-Resident Taxation as the same being about what the law ought to be and which per se does not render an attempt by resident of a third party to take advantage of the existing DT AA illegal.

& 340/Del/2022 Paragraphs 133 to 136 of the judgment bring on record the various facets of treaty shopping and conclude that such considerations fall squarely within the domain of policy-making vii. Paragraph 137 -168 di cusses the judgment of Constitutional Bench of The Hon'ble Supreme Court in the case of Macdowell& Co Ltd vs CTO. In this context, the paragraph 146 of the judgment observes that Duke of Westminster's doctrine is very much alive and kicking in the country of its birth (UK). Paragraph 148 furtherupholds the view of the Gujarat High Court in Banyan and Berry v. CfT, which after referring to Macdowellheld that tax planning is not bad unless the same fall under the category of colourable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. Paragraph 154 again holds that Duke of Westminster's doctrine had acquired judicial benediction of the Constitutional Bench in India (Mathuram Aggarwal case) notwithstanding the temporary turbulence created in the wake of Macdowell. viii. Paragraph 161 and 164 clarifies what would be a sham or a device as under: "164. If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non est based upon some hypothetical assessment of the "real motive" of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'-the-wisp." Comments of the Respondents onAzadi Bachao Andolan & 340/Del/2022 7. A bare perusal of the judgment of The Hon'ble Supreme Court in the case of Azadi Bachao Andolan, thusmakes the following key aspects abundantly clear: a. The Judgement does not even remotely deal with the present subject matter under consideration, namely direct transfer of shares constituting business investment. The judgment was rendered in a wholly distinct factual and legal matrix involving investments by FIls and investment funds in the nature of Mutual Funds registered with SEBI in India and operating in Indian stock market. b. The judgment dealt with the legal regime prevailing under the Mauritius Offshore Business Activities Act. 1992 (MOBA, 1992) and not under the Finance Services Act, 2001 as amended by the 2005 Act. c. At the time the Circular no. 789 dated 13.04.2000 was issued, large-scale direct or indirect transfers of shares constituting business investments had not yet emerged. Therefore, the circular, being specifically framed for FIls and mutual funds registered with SEBI in India, cannot be extended by implication to encompass transactions of the nature involved in the present dispute. d. There is neither any discussion, nor any ratio, nor even an obiter dictum in the Azadi Bachao Andolan judgment that touches upon the issue of direct transfers of shares constituting business investments. e. The show cause notices issued to FIIs, the subsequent Press Note dated 04.04.2000, the issuance of Circular No. 789, the PIL filed before the Delhi High Court, and the reliefs granted - all exclusively pertained to investments made by FIIs and Investment Funds registered with SEBI and did not refer or deal with direct or indirect transfer of shares constituting business investment.

& 340/Del/2022 8. At this juncture, reliance is placed on the decision of the 11 - Judge Bench in the case of Madhav Rao Jivaji Rao Scindia v. Union of India, (1971) 1 SCC 85 "229. In State of Orissa v. Sudhansu Sekhar Misra [AIR 1968 SC 647: (1968) 2 SCR 154 : (1968) 2 SCJ 263 J dealing with the question as to the importance to be attached to the observations found in the judgments of this Court, this is what this Court observed: "A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it. On this topic this is what Earl of Halsbury, L.C said in Quinn v. Leathem, (1901) AC 495: 'Now before discussing the case of Allen v. Flood, (1898) ACI and what was decided therein, there are two observations of a general character which 1 wish to make, and one is to repeat what I have very often said before, that every judgment must be read as applicable to the particular facts proved or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may deem to follow logically from it. Such a mode of reasoning assume that [he law is necessarily a logical code, whereas every lawyer must acknowledge that the law is not always logical at all.’ It is not a profitable ta k to extract a sentence here and there from a judgment and to build upon it. "

9. In the light of the above, it is respectfully submitted that no reliance can be placed by the Assessees either on Azadi BacliaoAndolanor Circular No. 789 dated 13.04.2000 to its support.

Decision in Vodafone International Holdings B. V.

135. Secondly, if the Mauritius companies had sold the shares of HEL, then the Mauritius companies would have continued to be the subsidiaries of HTIL, their accounts would have been consolidated in the hands of HTIL and HTIL would have accounted for the gains in exactly the same way as it has accounted for the gains in the hands of HTIHL. (CI) which was the nominated payee. Thus, in our view, two routes were available, namely, the CGP route and the Mauritius route. It was open to the parties to opt for anyone of the two routes. "

& 340/Del/2022 However, as a matter of fact, HTIL chose to structure the transaction at the Cayman Island level, thereby facilitating a complete exit from the Indian business and effectuating a lock, stock, and barrel transfer in favour of Vodafone. Consequently, the actual transaction occurred at the Cayman Island level and not through the Mauritius entities. As a result, The Hon'ble Supreme Court had no occasion to examine the India-Mauritius DTAA from a transactional standpoint so as to lay down any binding ratio in relation to direct transfer arising under the India-Mauritius DT AA in the current Essar cases. Thus, the ratio in Vodafone cannot be construed as laying down any legal proposition concerning the India-Mauritius treaty on this aspect. The judgment in Vodafone deals with several important legal facets. notably the issue of control and management, (which bears direct relevance to the present set of Essar cases) and also about Circular o. 789, dated 13.04.2000 holding that TRC cannot be construedas a conclusive proof for residence.

21. In the context of understanding a judgment, it is well settled that the words used in a judgment are not to be interpreted as those of a statute. This is because the words used in a judgment should be rendered and understood contextually and are not intended to be taken literally. Further, a decision is not an authority for what can be read into it by implication or by assigning an assumed intention of the judges and inferring from it a proposition of law which the judges have not specifically or expressly laid down in the pronouncement. in other words, the decision is an authority for what it specifically decides and not what can logically be deduced therefrom.

It is therefore respectfully prayed that The Hon'ble Tribunal while dealing with Vodafone may kindly note this aspect of distinction while appreciating. the aforesaid judgment.

& 340/Del/2022 ii. However, if the competences of executive directors of the subsidiary are transferred or decision making has become fully subordinate to the holding company such that they are mere puppets, that may be a good ground in identifying the place of residence as that of the holding entity. iii. Likewise, if the actual controlling non-resident enterprise makes an indirect transfer through abuse of organisation form/legal form and without reasonable business purpose, Revenue is entitled to disregard that form of arrangement and recharacterize the transaction based on its actual economic substance. iv. When the transaction is used principally as a colourable device for the distribution of earnings, profits and gains, the doctrine of lifting the corporate veil or the doctrine of substance over form or the concept of beneficial owner ship or alter ego arises and there may be several other circumstances which can influence in holding totally or partially that the transaction is a device or a conduit in the pejorative sense. d. Paragraph 76-77 notes that it is not uncommon for structures to be incorporated or registered to avoid lengthy approval and registration process required for a direct transfer, but the same should not be for tax deferrals or tax avoidance. e. Paragraph 77 makes a clear distinction between Treaty shopping (dealt in Azadi Bachao Andolani from the General Anti Avoidance Rule (GAAR) and proceeded to hold that GAAR is not new to India since India already has a JAAR (Judicial Anti Avoidance Rule) such as substance over form, piercing the Corporate Veil, sham or conduit etc. f. Paragraph 79 places the burden on the Revenue to allege and establish abuse and permits the revenue to invoke JAAR in the form of substance over form or piercing the corporate veil and similar such tests to prove that a transaction is sham or for tax avoidance. g. After referring to certain illustrative transaction such as circular trading, round tripping or payment of bribes, the judgment also affirmed that when the structure under question has no commercial/business substance and has been interposed only to avoid tax, then in such cases, applying the test of fiscal nullity, Revenue is entitled to ignore that entity. h. The Hon'ble Supreme Court in the judgment also held that this has to be done at the threshold, meaning at the very beginning and this would arise under the Indian context only when the direct or indirect transfer of share happens and not at an anterior stage since mere investments are not considered to be income earning transactions for income tax purposes. It is only when the investments are sold and profits earned out of it, the same would give rise to a capital gains tax and at not point prior to it. i. Paragraph 80 applies "look at" test which would mandate looking at the entire transaction as a whole and not to adopt a dissecting approach and genuine tax planning should not be brought within its rigours. j. Paragraph 81-82 lists out the factors which can influence genuineness. Paragraph 82 reiterates that the corporate business purpose of a transaction is evidence of the fact that the impugned transaction is not undertaken as a colourable or artificial device. The stronger the evidence of a device, the stronger the corporate business purpose must exist to overcome the evidence of a device.

& 340/Del/2022 k. Paragraph 103 reiterates that shareholder's influence on its subsidiaries cannot obliterate the decision making power or authority of its subsidiaries and such influence does not render the subsidiary a mere puppet of the parent. l. Paragraph 105 brings out the distinction between having the power and having the persuasive position and held that each subsidiary has to protect its own separate commercial interest. m. Paragraph 106-107 holds that on facts the Control and Management test in this case is only persuasive in nature since the group holding was only 42% plus 10% pro rata and therefore could only persuade and not prevail. n. Paragraph 160 reiterates a very important principle on Control and Management: "160. The right of a shareholder may assume the character of a controlling interest where the extent of the share holding enables the shareholder to control the management. Shares, and the rights which emanate from them, flow together and cannot be dissected. in the felicitous phrase of Lord MacMillan in IRC v. Crossman [1937 AC 26 : (1936) JAIL ER 762 (HL)],shares in a company consist of a "congeries of rights and liabilities" which are a creature of the Companies Acts and the memorandum and articles of association of the company. Thus, control and management is a facet of the holding of shares.”

& 340/Del/2022 h. As regards observations vide paragraph 311, being a concurring Judgement and not a differing Judgement, these observations had to be aligned and read in conjunction and harmony to the findings rendered by the leading Judgement of the other two learned Judges. i. It is most respectfully prayed that an interpretation that para 311 is in the nature of dissent or overarching the decision of the leading Judgement should be avoided. Being a concurring Judgement, it has to be aligned in a harmonious way. j. Even more importantly, it is respectfully submitted that the observations by para 311 on Circular No. 789, dated 13.04.2000 or on control and management test is only an Obiter and not Ratio and therefore not binding, in light of the well settled position of law and reiterated recently by the 9- judge bench in Property Owners Assn. referred supra.

Section II - Legislative History and Evolution of Section 90, Relevant Provisionsof Mauritius Income Tax Act 17. In Part II, the Respondents have placed on record how Circular No. 789, dated 13.04.2000 and Azadi Bachao Andolandoes not deal with direct or indirect transfer of shares constituting business investment. Vodafone also dealt with only indirect transfer and there is no underlying transaction involving India-Mauritius DT AA or Circular No.789, dated 13.04.2000.

18. It is respectfully submitted that there are no other decisions of The Hon'ble Supreme Court specifically addressing the India-Mauritius DTAA or the interpretation of Circular No. 789 dated 13.04.2000. It has becomes imperative for the Respondents to place on record before this Hon'ble Tribunal all relevant aspects and legal features under the Income Tax Act, 1961, the DT AA, the aforementioned Circular, and the legislative amendments introduced through the Finance Acts of 20 12,2013, and 2017, as well as the amendments to the & 340/Del/2022 DT AA and the governing laws in Mauritius as argued by both sides, namely the Mauritian Income Tax Act and the Financial Services Act, 2005.

19. The entire chronology commencing from the initial India- Mauritius DTAA dated 01.04.1983, which came into effect on 16.12.1983, along with the significant milestones concerning its application, clarifications, and subsequent legislative amendments, is now being placed on record in a sequential and comprehensive manner. This is intended to assist The Hon'ble Tribunal in the interpretation of a matter of considerable importance in the realm of international taxation. The Respondents would alsobe placing references to authoritative commentaries by internationally renowned authors, as well as the OECD Commentary.

20. Before proceeding further, it is necessary to briefly summarize the interplay between the Income Tax Act, 1961 and a Double Taxation Avoidance Agreement COT AA) notified under Section 90 of the Act. The significance, scope, and relevance of this interplay have been elaborately discussed by The Hon'ble Supreme Court in paragraphs 14 to 32 of the judgment in Azadi Bachao Andolan, which are extracted below for ready reference: "Purpose and consequence of Double Taxation A voidance Convention 14. To appreciate the contentions urged, it would be necessary to understand the purpose and necessity of a Double Taxation Treaty, Convention or Agreement, as diversely called. The Income Tax Act, 1961, contains a special Chapter IX which is subject of "double taxation relief".

15. Section 90, with which we are primarily concerned, provides as under:

& 340/Del/2022 "90. Agreement with foreign countries.-(1) The Central Government may enter into an agreement with the Government of any country outside India- (a) for the granting of relief in respect of income on which have been paid both income tax under this Act and income tax in that country, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, or (c) for exchange of information for the prevention of evasion or avoidance of income tax chargeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or (d) for recovery of income tax under this Act and under the corresponding law in force in that country, and may, by notification in the Official Gazelle, make provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies. the provisions of this A ct shall apply to the extent they are more beneficial to that assessee. " (Explanation omitted as not relevant.) 16. Section 4 provides for charge of income tax. Section 5 provides that the total income of a resident includes all income which: (a) is received, deemed to be received in India, or (b) accrues. arises or is deemed to accrue or arise in India, or (c) accrues or arises outside India, during the previous year. In the case of a non-resident, the total income includes "all income from whatever source derived" which & 340/Del/2022 (a) is received or is deemed to be received or, (b) accrues or is deemed to accrue in India, during such year. A person "resident" in India would be liable to income tax on the basis of his global income unless he is a person who is "not ordinarily" a resident within the meaning of Section 6(b). The concept of residence in India is indicated in Section 6. Speaking broadly, and with reference to a company, which is of concern here, a company is said to be a "resident" in India in any previous year, if it is an Indian company or [f during that year the control and management of its affairs is situated wholly in India.

22. The Andhra Pradesh High Court in CITv. Visakhapatnam Port Trust [(1983) 144 ITR 146 (AP)] held that provisions of Sections 4 and 5 of the Income Tax Act are expressly made "subject to the provisions of the Act" which means that they are subject to the provisions of Section 90. By necessary implication, they are subject to the terms of the Double Taxation Avoidance Agreement, if any, entered into by the Government of India. Therefore, the total income specified in Sections 4 and 5 chargeable to income tax is also subject to the provisions of the agreement to the contrary, if any.

23. In CITv. Davy Ashmore India Ltd. [(1991) 190 ITR 626 (Cal)] while dealing with the correctness of Circular No. 333 dated 2-4-1982, it was held that the conclusion is inescapable that in case of inconsistency between the terms of the Agreement and the taxation statute, the Agreement alone would prevail. The Calcutta High Court expressly approved the correctness ofCBDT Circular No. 333 dated 2- 4-1982 on the question as to what the assessing officers would have to do when they found that the provision of the double taxation was not in conformity with the Income Tax Act, 1961. The said circular provided as follows (quoted at ITR p. 632): "The correct legal position is that where a specific provision is made in the Double Taxation Avoidance Agreement, that provision will prevail over the general provisions contained in the Income Tax Act, 1961. 1n fact the Double Taxation Avoidance Agreements which have been entered into by the Central Governmentunder Section 90 of the Income Tax Act, 1961, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the Agreement.

& 340/Del/2022 Thus, where a Double Taxation Avoidance Agreement provided for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income Tax Act. Where there is no specific provision in the Agreement, it is the basic law i.e. the Income Tax Act, that will govern the taxation of income.”

24. The Calcutta High Court held that the circular reflected the correct legal position inasmuch as the convention or agreement is arrived at by the two contracting States "in deviation from the general principles of taxation applicable to the contracting States". Otherwise, the Double Taxation Avoidance Agreement will have no meaning at all. [See also in this connection Leonhardt Andra Und Partner, GmbH v. CIT, (2001) 249 ITR 418 (Cal)] 25. In CIT v. R.M. Muthaiah [(1993) 202 ITR 508 (Kant)] the Karnataka High Court was concerned with DTAT between the Government of India and the Government of Malaysia. The High Court held that under the terms. of the Agreement, if there was a recognition of the power of taxation with the Malaysian Government, by implication it takes away the corresponding power of the Indian Government. The Agreement wasthus held to operate as a bar on the power of the Indian Government to tax and that the bar would operate on Sections 4 and 5 of the Income Tax Act, 1961, and take away the power of the Indian Government to levy tax on the income in respect of certain categories as referred to in certain articles of the Agreement. The High Court summed up the situation by observing (ITR atpp. 512-13): "The effect of an 'agreement' entered into by virtue of Section 90 of the Act would be: (i) if no tax liability is imposed under this Act, the question of resorting to the agreement would not arise. No provision of the agreement can possibly fasten a tax liability where the liability is not imposed by this Act: (ii) if a tax liability is imposed by this Act, the agreement may be & 340/Del/2022 resorted to for negativing or reducing it; (iii) in case of difference between the provisions of the Act and of the agreement, the provisions of the agreement prevail over the provisions of this Act and can be enforced by the Appellate Authorities and the court."

26. It also approved of the correctness of Circular No. 333 dated 2.4.1982 issued by the Central Board of Direct Taxes on the subject.

30. Though a number of interconnected and diffused arguments were addressed, broadly, the argument of the Assessees appears to be as follows: by reason of Article 265 of the Constitution, no tax can be levied or collected except by authority of law. The authority to levy tax or grant exemption therefrom vests absolutely in Parliament and no other body, howsoever high, can exercise such power. Once Parliament hasenacted the Income Tax Act, taxes must be levied and collected in accordance therewith and no person has the power to grant any exemption therefrom. The treaty- making power under Article 73 is confined only to such matters as would not fall within the province ofArticle 265. With respect to fiscal treaties, the contention is that they cannot be enforced in contravention of the provisions of the income Tax Act, unless Parliament has made an enabling law in support. The Assessees highlighted the provisions of the OECD Models with regard to tax treaties and how tax treaties were enunciated, signed and implemented in America, Britain and other countries.Placing reliance on the & 340/Del/2022 observations of Kier and Lawson [ D.L. Kier and FH. Lawson: Cases in Constitutional Law, pp. 53-54, 159-63 (ELBS & Oxford University Press, 5th Edn.).] it was contended that in England it has been recognised that "there are, however, two limits to its capacity; it cannot legislate and it cannot tax without the concurrence of Parliament". It is urged that the situation is the same in India; that unless there is a specific exemption granted by Parliament, it is not open for the Central Government to grant any exemption from the tax payable under the IncomeTax Act.

& 340/Del/2022 Whether the Indo-Mauritius DTAC ought to have been enunciated in the present form, or in any other particular form, is none of our concern. Whether Section 90 ought to have been placed on the statute-book, is also not our concern. Section 90, which delegates powers to the Central Government, has not been challenged before us, and, therefore, we must proceed on the footing that the section is constitutionally valid. The challenge being only to the exercise of the power emanating from the section, we are of the view that Section 90 enables the Central Government to enter into a DTAC with a foreign Government. When the requisite notification has been issued thereunder, the provisions of sub-section (2) of Section 90 spring into operation and an assessee who is covered by the provisions of DTAC is entitled to seek benefits thereunder, even if the provisions of DTAC are inconsistent with the provisions of the Income Tax Act, 1961. Stare Decisis 33. The learned Attorney General justifiably relied on the observations of this Court in Mishri Lal v. Dhirendra Nath [(1999) -I SCC 11, paras 14 to 22] in which this Court referred to its earlier decision in Maktul v. Manbhari [AIR 1958 SC 918: 1959 SCR 1099} on the scope of the doctrine of stare decisis with reference to Halsbury's Laws of England and Corpus Juris Secundum, pointing out that a decision which has been followed for a long period of time, and has been acted upon by persons in the formation of contracts or in the disposition of their property, or in the general conduct of affairs, or in legal procedure or in other ways, will generally be followed by courts of higher authority other than the court establishing the rule, even though the court before whom the matter arises afterwards might be of a different view. The learned Attorney General contended that the interpretation given to Section 90 of the Income Tax Act, a Central Act, by several High Courts without dissent has been uniformly followed; several transactions have been entered into based upon the said exposition of the law; that several tax treaties have been & 340/Del/2022 entered into with different foreign Governments based upon this law, hence, the doctrine of stare decisis should apply or else it will result in chaos and open up a Pandora's box of uncertainty.

34. We think that this submission is sound and needs to be accepted. It is not possible for us to say that the judgments of the different High Courts noticed have been wrongly decided by reason of the arguments presented by the Assessees. As observed in Mishri Lal (1999) 4 SCC 11, paras 14 to 22] even if the High Courts have consistently taken an erroneous view (though we do not say that the view is erroneous), it would be worthwhile to let the matter rest, since large number of parties have modulated their legal relationship based on this settled position of law."

21. India and Mauritius entered into a DTAA on 01.04.1983 and the same was notified on 16.12.1983. The same was renewed in 1993 and thereafter the last amendment was carried out in 2017.

2. Article 13 of the convention deals with taxation of capital gains and it has five paragraphs. The .first paragraph gives the right of taxation of capital gains on the alienation of immovable property to the country in which the property & 340/Del/2022 is situated. The second and third paragraphs deal with right to taxation of capital gains on the alienation of movable property linked with business or professional enterprises and ships and aircrafts.

3. Paragraph 4 deals with taxation of capital gains arising from the alienation of any property otherthan those mentioned in the preceding paragraphs and gives the right of taxation of capital gains only to that stateofwhichthepersonderivingthecapitalgainsisa resident. In terms of paragraph 4,capital gains derived by a resident of Mauritius by alienation of shares of companies shall be taxable only in Mauritius according to Mauritius tax law. Therefore, any resident of Mauritius deriving income from alienation of shares of Indian companies will be liable to capital gains tax only in Mauritius as per Mauritius tax law and will not have any capital gains tax liability in India.

4. Paragraph 5 defines 'alienation' to mean the sale, exchange, transfer or relinquishment of the property or the extinguishment of any rights in it or its compulsory acquisition under any law inforce in India or in Mauritius. Circular:No.682,dated 30-3-1994.

23. Following the issuance of show cause notices to FIIs, as recorded in paragraph 9 of the Azadi Bachao Andolan, the Central Board of Direct Taxes (CBDT) issued another Circular being Circular o. 789, dated 13.04.2000. The text of the Circular is extracted below for reference: "Circular No. 789 F. No. 500/60/2000-FTD GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES New Delhi 13-4-2000 & 340/Del/2022 To, All the Chief Commissioners/Directors General of 1ncome Tax Sub: Clarification regarding taxation of income from dividends and capital gains under the Indo-Mauritius Double Taxation Avoidance Convention (DTAC) - Reg. The provisions of the Indo-Mauritius DTAC of 1983 apply to 'residents' of both India and Mauritius. Article", of DTAC defines a resident of one State to mean any person who, under the laws of that State is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. Foreign institutional investors and other investment funds etc. which are operating from Mauritius are invariably incorporated in that country. These entities are 'liable to tax' under the Mauritian tax law and are therefore to be considered as residents of Mauritius in accordance with DTAC. Prior to 1-6-1997, dividends distributed by domestic companies were taxable in the hands of the shareholder and tax was deductible at source under the Income Tax Act, 1961. Under DTA C, tax was deductible at source on the gross dividend paid out at the rate of 5% or 15% depending upon the extent of shareholding of the Mauritian resident. Under the 1ncome Tax Act, 1961, tax was deductible at source at the rates specified under Section 115-A etc. Doubts have been raised regarding the taxation of dividends in the hands of investors from Mauritius. It is hereby clarified that wherever a certificate of residence is issued by the Mauritian authorities, such certificate will constitute sufficient evidence for accepting the status of residence as well a beneficial ownership for applying DTAC accordingly. The test of residence mentioned above would also apply in respect of income from capital gains on sale of shares. Accordingly, FIIs etc. which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph (4) of Article 13. The aforesaid clarification shall apply to all proceedings which are pending at various levels."

& 340/Del/2022 In the explanatory memorandum to the Finance Act, 2012, it was slated that the Tax Residency Certificatecontaining prescribed particulars is a necessary but not sufficient condition for availing benefits of the DTAA. The same words are proposed to be introduced in the Income-tax Act as sub-section (5) of seclion90. Hence, it will be clear that nothing new has been done this year which was not there already last year. However, if has been pointed out that the language of the proposed sub-section (5) of section 90 could meanthat the Tax Residency Certificate produced by a resident of a contracting state could be questioned by the Income Tax Authorities in India. The government wishes to make it clear that that is not the intention of theproposed subsection (5) of section 90. The Tax Residency Certificate produced by a resident ofacontracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status. In the case of Mauritius, circular no. 789, dated 13-4- 2000 continues to be in force, pending ongoingdiscussions between India and Mauritius. However, since a concern has been expressed about the language of sub-section (5) of section 90, thisconcern will be addressed suitably when the Finance Bill is taken up/or consideration. The Mauritius Income Tax Act, 1995 27. The provisions of Section 73 and 73A of Mauritius Income Tax Act, 1995are extracted below: 73. Definition of residence & 340/Del/2022 (1) For the purposes of this Act, "resident", in respect of an income year, when applied to - (a) an individual, means a person who - (i) has his domicile in Mauritius unless his permanentplace of abode is outside Mauritius; (ii) has been present in Mauritius in that income year, for a period of or an aggregate period of 183 days or more,' or (iii) has been present inMauritius in that income year andthe 2 preceding income years, for an aggregate period 01270 days or more,' (b) a company, means a company which - (i) is incorporated in Mauritius: or (ii) has its central management and control in Mauritius; (c) a societe - (i) means a societe which has its seat or siege in Mauritius;and (ii) includes a societe which has at least one associate orssocie or gerantresidentin Mauritius: (d) a trust, means a trust - (i) where the trust is administered in Mauritius and amajority of the trustees areresident in Mauritius; or (ii) where the settlor of the trust was resident in Mauritiusat the lime the instrument creating the trust wasexecuted:

(da) a Foundation, means a Foundation which (i) is registered in Mauritius; or (ii) has its central management and control in Mauritius; (e) any other association or body of persons. means an associationor body of personswhich is managed or administered in Mauritius. (2) Where a person wishes to be certified as a resident in Mauritius inrespect of an income year, he should apply to the Director-General fora Tax Residence Certificate. (3) The Tax Residence Certificate under subsection (2) shall be issuedwithin a period of 7 days from the date of the application, providedthat the person has submitted the return required to be submittedunder section 112 or 116, as the case may be, and paid such servicefee as may be prescribed. 73A. Companies treated as non-resident in Mauritius (1) Notwithstanding section 73, a company incorporated in Mauritiusshall be treated as non-resident if it is centrally managed andcontrolled outside Mauritius. (2) A company referred to in subsection (1) shall submit a return ofincome as required under section 116. Section 73 refers to footnote 441 and Section 73A refers to footnote 446 as found in Appendix 1 of the said Act. Both the footnotes are extracted below: 441 FA 2006 - Existing provision numbered (1) w.e.f.07.08.06.

& 340/Del/2022 446 FA 2019 - Section 73A amended, subsection (1) repealed and replaced, shall be deemed to have comeinto operation on 1 July 2019. Previously: (1) Notwithstanding section 73, a company which is incorporated in Mauritius shall be treated asnon- resident if its place of effective management is situated outside Mauritius. FA 2018 - Section 73A repealed and replaced - shall come into operation on 1 October 2018. Section III - Issues and Propositions 28. During the course of hearing before The Hon'ble Tribunal, the Assessees made following submissions. a. In terms of Article I of India Mauritius DTAA, this convention shall apply to the persons who are residents of one or both of the Contracting States b. As per Article 4, the term "resident of a Contracting .State" means any person who, under the laws of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of similar nature. c. The Assessees were incorporated in Mauritius and thus are tax residents of Mauritius as per Section 73(1 )(b) of Mauritius Income Tax Act by virtue of incorporation.

73. Definition of residence (1) For the purposes of this Act, "resident", in respect of an income year, when applied to - b) a company, means a company which - (i) is incorporated in Mauritius,' or (ii) has its central management and control in Mauritius, d. The Assessees are holding valid TRC issued by Mauritius Authority confirming tax residency. The Indian Tax Authorities have no jurisdiction to go beyond TRC and determine the Tax residency of these entities under the Mauritius Income Tax Act, which can only and only be done by Mauritius Tax Authorities. e. Since the Assessees are holding valid TRC, the control and management test cannot be invoked as well. f. In terms of Article 4, the Place of Effective Management test is relevant specifically in cases falling under Article 4(3), which provides the tie-breaker rule to resolve situations where an entity is considered a resident of both contracting states-such as India and Mauritius. However, this test cannot be invoked to determine whether Place of Effective Management existed in Mauritius or in a third jurisdiction. It is applicable only when the issue is between the two contracting states under the DTAA. g. Once a Tax Residency Certificate (TRC) is issued, it constitutes conclusive proof of residency for the purposes of availing treaty benefits, as per CBDT Circular No. 789, dated 13.04.2000. h. What was earlier laid down through a CBDT Circular was subsequently given statutory backing by the Finance Act, 2013, through the insertion of Section 90(4) of the Income Tax Act which reads as under: (4) An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside & 340/Del/2022 India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory. i. The amendment proposed in the Finance Bill, 2013 to introduce Section 90(5) which read as under. was withdrawn. "The certificate of being a resident in a country outside India or specified territory outside India as the case may be referred to in sub-Section 4 shall be necessary but not sufficient condition for claiming any relief under the agreement referred to therein. " A revised version of Section 90(5), which read under, was subsequently enacted. (5) The assessee referred to in sub-section (4) shall also provide such other documents and information, as may be prescribed. j. Press note dated 01.03.13 i sued by the Ministry again supports this aspect that TRC once issued becomes conclusive in determining the residential status under Article 4(1) ofDTAA.

& 340/Del/2022 28.177, 35 Dr. Fisc. Com., (1983) cone!.Bissara: Germany s DTC with France; of Hahn. H., 29, R1W 623 (1983). Generally, it will be incumbent upon the taxpayer to supply facts from which a residence in the other contracting State might arise. The Indian tax authorities thus can determine if the person is a resident of the other contracting State for purposes of the treaty by applying the Mauritius domestic law. Whether control and Management Test Applicable in the present case? 31. It is now a well-settled and undisputed principle that the test of control and management constitutes a key component in applying the doctrine of "substance over form" while determining the bonafide/malafide of an underlying transaction. The doctrine of substance over form, recognized under common law and widely applied across jurisdictions, is used to assess whether a transaction or structure is genuinely commercial in nature or is a mere subterfuge-such as a shell, conduit, or interposed entity- established solely for the purpose of tax avoidance 32. Courts have consistently applied this time-honoured test to distinguish between legitimate tax planning and tax avoidance. Where it is found that a transaction falls into the latter category, the interposed structure may be declared a nullity, disregarded, or pierced in order to identify the true beneficial owner.

42. This is a case which falls squarely under Article 4(3) since the Control and Management test is between India and Mauritius and not even Mauritius and yet another State which again would be governed under Article 4. Article 4(3) reads as under. This Article is defined and understood as the tie breaker rule and the deciding factor is Place of Effective Management or in other words, the Control and Management test. This is a test as contracted by the parties to the Treaty and therefore bound and governed by it. The Control and Management test in law is therefore inevitable to be applied and once applied, it is self-evident on facts that the entire Control and Management was only in India and not in Mauritius. The detailed finding by the CIT (Appeals) upholding the AO Order that every critical limb of the commercial transaction had happened only in India, thus evidencing the fact that the Control and Management is only in India.

& 340/Del/2022 43. The Hon'ble Supreme Court, in the Vodafone judgment, unequivocally upheld the application of the "substance over form" doctrine and extensively analyzed the Control and Management test in that context. The Court drew a clear distinction between influencing power and persuasive power. It held that influencing power-which enables a holding entity to exercise actual control-could indicate that the subsidiary is merely a conduit or sham. In contrast, persuasive power, stemming from mere shareholding influence without effective control, would not vitiate the integrity of the subsidiary's independent legal status. Upon a thorough analysis of the facts, the Court concluded that going by the percentage of shareholding the control exercised in the Vodafone case was persuasive and not influencing, thereby recognizing the bonafide nature of the holding- subsidiary structure and allowing it to survive the substance test.

44. While applying the substance over form test, The Hon'ble Supreme Court in paragraph 77 of the Vodafone judgment reaffirmed the relevance of the JAAR (Judicial Ant- Avoidance Rule) as an integral part of Indian jurisprudence.

45. In the light of the above, the authorities below are right in invoking the Control and Management test.

46. Control and Management test otherwise called as the Head and Brain test has been dealtvery recently and in detail by The Hon'ble Supreme Court in Mansarovar Commercial Pvt. Ltd. v. Commissioner of Income Tax, Delhi [2023j 8 S.C.R.

& 340/Del/2022 75.1. In Subbayya Chettiar [Subbayya Chettiar v. CIT, 1950 SCC 971 : AIR 1951 SC 101 : 1950 SCR 961] , it is observed in para 10 as under: (SCC pp. 974-75) "10. The principles which are now well established in England and which will be found to have been very clearly enunciated in Swedish Central Railway Co. Ltd. v. Thompson [Swedish Central Railway Co. Ltd. v. Thompson, 1925 AC -195 (HL) : 9 TC 373 (HL)] , which is one of the leading cases on the subject, are: (1) That the conception of residence in the case of a fictitious "person", such as a company, is as artificial as the company itself, and the locality of the residence can only be determined by analogy, by asking where is the head and seat and directing power of the affairs of the company. What these words mean have been explained [Ed. : C1T v. Subbayya Chettiar, 1947 SCC OnLine Mad 194] by Patanjali Sastri, J. with very great clarity in the following passage where he deals with the meaning of Section 4-A(b) of the Income Tax Act: '4-A. (b) 'Control and management' signifies, in the present context, the controlling and directive power, "the head and brain" as it is sometimes called, and "situated" implies the functioning of such power at a particular place withsome degree of permanence, while "wholly" would seem to recognise the possibility of the seat of such power being divided between two distinct and separated places. ' As a general rule, the control and management of a business remains in the hand of a person or a group of persons, and the question to be asked is wherefrom the person or group of persons controls or directs the business. (2) Mere activity by the company in a place does not create residence, with the result that a company & 340/Del/2022 may be "residing" in one place and doing a great deal of business in another. (3) The central management and control of a company may be divided, and it may keep house and do business in more than one place, and, if so, it may have more than one residence. (4) In case of dual residence, it is necessary to show that the company performs some of the vital organic functions incidental to its existence as such in both the places, so that in fact there are two centres of management. " 75.2. Thereafter, in Erin Estate [Erin Estate v. CIT, 1958 SCC Onl.ine SC 108 : 1959 SCR 573 : AIR 1958 SC 779] , it is observed in paras 6 and 9 as under: (SCC Online SC) "6. There is no doubt that the question raisedfor our decision is a question of law. Whether or not the Respondent is a resident firm under Section -I-A(b) would depend upon the legal effect of the facts proved in the case. The status of the Respondent which has tobe determined by reference to the relevant section of the Act is a mixed question of fact and law and in determining this question the principles of law deducible from the provisions of the said section will have to be applied. This position has not been disputed before us in the present proceedings. Section 4-A(b) provides inter alia that 'for the purpose of the Act, a firm is resident in the taxable territories unless the control and management of its affairs is situated wholly without the taxable territories '. This provision shows / hat, where / he partners of a firm are residents of this country, the normal presumption would be that the firm is resident in the taxable territories. This presumption is rebuttable and & 340/Del/2022 it can be effectively rebutted by the assessee showing that the control and management of the affairs of the firm is situated wholly without the taxable territories. The onus to rebut the initial presumption is on the assessee, The control and management contemplated by the section evidently refers to the controlling and directing power. Often enough, this power has been described in judicial decisions as the "head and brain"; the affairs of the firm which are subject to the said control and management refer to the affairs which are relevant for the purpose of taxation and so they must have some relation to the income of the firm.When the section refers to the control and management being situated wholly without the taxable territories it implies that the control and management can be situated in more places than one. Where the control and management are situated wholly outside India the initial presumption arising under the section is effectively rebutted. It is true that the control and management which must be shown to be situated at least partially in India is not the merely theoretical control and power, not a de jure control and power but the de facto control and power actually exercisedin the course of the conduct and management of the affairs of the firm. Theoretically, if the partners reside in India they would naturally have the legal right to control the affairs of thefirm which carries on its operations outside India. The presence of this theoretical de jure right to control and manage the affairs of the firm which inevitably vests in allthe partners would not by itself show that the requisite control and management is situated in India. It must be shown by evidence that control and management in the affairs of the firm is exercised, may be to a small extent, in India before it can be held that the control and management is not situated wholly without the taxable territories. (Vide Bhimji R. aik v. CIT [Bhimji R. aik v. CIT, 1944 SCC Online Bom 64 : (19-15) 13 ITR 12-1) .Bhimji .aik v. CIT [Bhimji Naik v. CIT, 19-16 SCC OnLine Bom 82: (1946) 14 ITR 334]) The & 340/Del/2022 effect and scope of the provisions of Section 4-A(b) has been considered by this Court in Subbayya Chettiar v. CfT [Subbayya Chettiar v. CIT, 1950 SCC 971 : AIR 1951 SC 101 : 1950 SCR 961} . After examining the relevant decisions on this point, Fazl Ali, J, who delivered the judgment of the Court, has observed: (Subbayya Chettiar case [Subbayya Chettiar v. CfT, 1950 SCC 971 : AIR 1951 SC 101 : 1950 SCR 961} , SCC p. 975, para 10) '10 .... (1) That the conception of residence in the case of a fictitious "person", such as a company, is as artificial as the company itself, and the locality of the residence can only be determined by analogy, by asking where is the head and seat and directing power of the affairs of the company. *** (2) Mere activity by the company in a place does not create residence, with the result that the company may be "residing" in one place and doing a great deal of business in another. (3) The central management and control of a company may be divided, and it may keep house and do business in more than one place, and, if so, it may have more than one residence. (4) In case of dual re id. 11 e. it i necessary to show that the company performs someof the vital organic function incidental to its existence as such in both the places, so that in fact there are two centres of management. ' It is in the light of these principles that Section -I-A (b) has to be construed. Thus, the only question which remains to be considered is whether the High Court of Madras was right in holding that the Respondent was resident in India under Section 4-A(b). *** & 340/Del/2022 9. Mr Kolah then raised a further point which had not been urged before the High Court. He contended that the control and management mentioned in Section -I-A (b) must be control and management valid and effective in law. Under Section 12 of the Partnership Act; it is only the majority of partners who could have given effective directions to the superintendent and since there is no evidence that the alleged control and management has been exercised by the majority of partners acting in concert it would not be possible to hold that any control and management of the firm's affairs resided in India. We do not think there is any substance in this argument. Under Section 12(a), evelY partner has a right to take part in the conduct of the business and it is only where difference arises as to ordinary matters connected with the business of the firm that the same has to be decided by majority of partners under sub-section (c) of the said section. It has no/ been suggested or shown that there was any difference between the partners in regard to the mailers covered by the individual partner's letters of instruction to the superintendent. Indeed the course of conduct evidenced by these letters shows that Andiappa Pillai who holds the maximum number of individual shares has purported to act for the partnership and usually gave instructions in regard to the conduct and management of the firm's affairs. On the record we see no trace of any protest against, or disagreement with, this conduct of Andiappa Pillai. Besides, it was never suggested during the course of the enquiry before the Income Tax Officers that the directions given by Andiappa Pillai were not valid or effective and had not been agreed upon by the remaining partners. That is why we think this technical point raised by Mr Kolah must fail." 75.3. That thereafter the Bombay High Court in Narottam & Pereira [Narottam & Pereira Ltd. v. CIT, (1953) 23 ITR 454 .' 1953 SCC Onl.ine Bom 142J through Me. Chagla, J. as his & 340/Del/2022 Lordship then was, observed and held in paras 3 and 4 as under : (SCC OnLine Bom) "3. It is also necessary that the control and management of the affairs of the company should be situated wholly in the taxable territories. Therefore, if any part of the control and management is outside the taxable territories then the company would not be resident. In this connection it is perhaps necessary to look at the converse definition for a Hindu undivided family, firm or other association of persons. In their case they are resident unless the control and management of its affairs is situated wholly without the association of persons any measure of control and management within the taxable territories would make them resident, in the case of a company any measure of control and management of its affairs outside the taxable territories would make it non-resident. In construing the expression "control and management" it is necessary to bear In mind the distinction between doing of business and the control and management of business. Business and the whole of it may be done outside India and yet the control and management of that business maybe wholly within India. In this particular case considerable emphasis is placed upon the fact that the whole of the business of the company is done in Ceylon and the whole of the income which is liable to tax has been earned in Ceylon. But that is not a factor which the Legislature has emphasised, It is entirely irrelevant where the business is done and where the income has been earned. What is relevant and material is from which place has that business been controlled and managed. "Control and management" referred /0 in Section -I-A (c) is, as we shall presently point out on the authorities, central control and management. The control and management contemplated by this sub-section is not the carrying on of day to day business by servants, & 340/Del/2022 employees or agents. The real test to be applied is, where is the controlling and directing power, or rather, where does the controlling and directing power function or to put it in a different language there is always a seat of power or the head and brain, and what has got to be ascertained is, where is this seat of power, or the head and brain. A company or for the matter of that a firm or an undivided Hindu family has got to work through servants and agents, but it is not the servants and agents that constitute the seat of power or the controlling and directing power. It is that authority to which the servants, employees and agents are subject, it is that authority which controls and manages them, which is the central authority, and it is at the place where the central authority functions that the company resides. It' may be in some cases that like an individual a company may have residence in more than one place. It may exercise control and management not only from one fixed abode, but it may have different places. That would again be a question dependent upon the circumstances of each case. But the contention which Mr Kolah has most strongly pressed before us is entirely unacceptable that a company controls or manages at a particular place because its affairs are carried on at a particular place and they are carried on by people living there appointed by the company with large powers of management. A company may have a dozen local branches at different places outsideIndia, it may send out agents fully armed with authority to deal with and carryon business at these branches, and yet it may retain the central management and control in Bombay and manage and control all the affairs of these branches from Bombay and at Bombay. It would be impossible to contend that because there are authorised agents doing the business of the company at six different places outside India, therefore the company is resident not only in Bombay but at all these six different places.

& 340/Del/2022 4 .... It is perfectly true that these two managers do all the business of the company in Ceylon and in doing that business naturally a large amount of discretion is given to them and a considerable amount of authority. But the mere doing of business does not constitute these managers the controlling and directing power. Their power-of-attorney can be cancelled at any moment, they must carry out any orders given to them from Bombay, they must submit to Bombay an explanation of what they have been doing, and throughout the time that they are working in Ceylon a vigilant eye is kept over their work from the Directors' board room in Bombay. The correspondence which has also been relied upon between the company here and its office in Colombo also goes to show and emphasises the same state of affairs. Mr Kolah is right again when he puts emphasis upon the fact that what we have to consider in this case is not the power or the capacity to manage and control, but the actual control and management, or, in other words, not the de jure control and management but the de facto control and management, and in order to hold that the company is resident during the years of account it must be established that the company de facto controlled and managed its affairs in Bombay. Mr Kolah says that the two powers of attorney go to show that whatever legal or juridical control and management the company might have had, in fact the actual management was exercised bythe two managers in Ceylon. In our opinion this is not a case where the company did nothing with regard to the actual management and control of its affairs and left it to some other agency. As we said before, the two managers were the employees of the company acting throughout the relevant period under the control and management ofthe company, and therefore in the case we are considering therewas not only a de jure control and management, but also a de Jacto control and management. "

& 340/Del/2022 That thereafter, Kania, J as his Lordship then was, after referring to the decision in Bhimji R. Naik v. CIT [Bhimji R. Naik v. CIT, 1944 SCC OnLine Bom 64 : (1945) 13 ITR 124] has observed and held that the expression "control and management" means where the central control and management actually abides. 75.4. The Calcutta High Court in Bank oj China [CIT v. Bank of China, 1985 SCC OnLine Cal 24] has specifically held that a company may be simultaneously resident in more than one place, but the control and management is where the head and brain is situated. While holding so, in paras 7 to 9, it is observed and held as under: (SCC pp. 287-89) "7. Under Section 6(3), a non-Indian company is said to be resident in India in any previous year if during that year the control and management of its affairs is situated wholly in India. The determination as to at what place or places the control and management of a particular company is situated is essentially a question of 'fact to be determined on the facts and circumstances of the particular case. A company can be simultaneously resident in more than one place but the question is whether the control and management is situated wholly in India during the relevant previous year. The expression "control and management" signifies the controlling and directive power, "the head and brain ", as it is sometimes called, and "situated" implies the functioning of such power at a particular place with some degree of permanence. The word "wholly" as used in Section 6(3) would indicate that the seat of such power may be divided between two distinct and separate places. The expression "control and management" means de facto control and management and not merely the right or power to control and manage. In order to hold that a non-Indian company is resident in India during any previous year, it must be established that such company de facto controls and manages its affairs in 1ndia. The principles are by now well settled.

8. Lord Loreburn L. C. in De Beers Consolidated Mines Ltd. v. Howe [De Beers Consolidated Mines Ltd. v. Howe, 1906 A C 455 (HL) : (1906) 5 TC 198 (HL)] at p. 212, observed as follows : (AC p. 458) 'Mr Cohen propounded a test which had the merits of simplicity and certitude. He maintained that a company resides where it is registered, and nowhere else .... I cannot adopt Mr Cohen's contention. In applying the conception of residence to a company, we ought, I think, to proceed as nearly as we can upon the analogy of an individual. A company cannot eat or sleep, but it can keep house and do business. We ought, therefore, to see where it really keeps house and does business. An individual may be of foreign nationality, and yet reside in the United Kingdom. So may a company. Otherwise it l11i~ht have its chief seat of management and its centre of trading in England under the protection of English law, and yet escape the appropriate taxation by the simple expedient of being registered abroad and distributing its dividends abroad. The decision of Kelly C. B. and Huddleston B. in Cesena Sulphur Co. Ltd. v. Henry Nicholson [Cesena Sulphur Co. LId. v. Henry Nicholson, (1876) LR / Ex D 428 : (1876) / TC 83J ' now thirty years ago, involved the principle that a company resides for purposes of income tax where its real business is carried on. Those decisions have been acted upon ever since. I regard that as the true rule, and the real business is carried on where the central management and control actually abides.

48. When this is the background and a scenario of direct or indirect transfer of share was nowhere in the radar and not even remotely referred to in Circular No.

& 340/Del/2022 c) As regards the applicability of Circular No. 789, dated 13.04.2000, it is crucial to note that the said Circular did not contemplate or address scenarios involving direct or indirect transfer of shares.

54. In the light of the above, the submission of the Assessees both on the Control and Management test and conclusivity of TRC needs to be rejected.

66. Thus, it is well recognised principle that colourable devises can not be allowed as a tool of tax evasion. Also, the decision about the genuineness of a structure and it being a colourable device will depend upon the facts and circumstances of the case. In this context, the most crucial fact is the nature of the assessee company and the activities carried out the assessee. Thefacts and & 340/Del/2022 circumstances surrounding the transaction are required to be seen. The facts and circumstances of the case are as follows: a) Shares are owned by the assessee company, as a result of voluntary liquidation of ETIL, India which is a colourable devise The issue under consideration is the taxability of capital gains on the sale of shares of Vodafone Essar Ltd (an Indian company) by the assessee company. The assessing Officer as well as the CIT(A) in their orders have clearly established that the shares reached the assessee company as a result of voluntary liquidation of ETIL, India after several complicated restructuring of the Indian companies of the group. The AO has clearly established that voluntary liquidation of ETIL, India is a colourable devise at page 44-63 of his order. Thus, the entire structure has been created from the very beginning as a colourable device for the sole object of evading the income tax liability in India. b) Colourable holding structure of Essar group being highlighted in paradise paper leak The assessee company is a group company of Ruia family. Ruia family holds 100% stake in the assessee company through a chain of holding passing through Mauritius, Cayman Islands, etc. Thus, despite the Ruia family continue to control the colourable device created in Mauritius in the form of assessee company. It is quite evident why this complicated structure has been created by the Ruia family. Why would any person who is willing to pay the taxes due in India would like to control the holding in Indian company through Triton Trust and Virgo Trusts. The names of these two trusts appear in Paradise Papers leak, and can also be found in public domain at the following links:

& 340/Del/2022 https:llindianexpress.com/article/indialparadise- papers-shashi-ravi-ruia-essar-khaitan- appleby-black- money-49274191 The AO has mentioned the enquiries into the affairs of Ruia family and offshore trusts by the DRI at page 222-224 of his order. c) No operations of assessee company in Mauritius The assessee company is a colourable device formed just to hold the investment of Ruia family in Mauritius and has no operations in Mauritius. It has no substance other than the shares of VEL. d) Assesssee company is only a paper company to hold investments and has no real operations and management other than decisions to purchase and sell shares that are taken by Ruia family through its key executives: The concept of control and management for a fully operational company that has full fledged operations and a company like assessee company that is formed as a colourable device just to hold shares of an India company of the Ruia family can't be the same. In case of assessee company, there are only two critical decisions: when and how to purchase the shares and when and how to sell the shares and both these decisions can not be taken by anybody other than the Ruia family. e) No role of the Board over the decisions related to borrowings: Even the shares of VEL were acquired by the assessee company out of the proceeds of the borrowed funds, which were borrowed on the security of shares of VEL as elaborated by the AO in his order page no 85- 87. The AO on page 91 of the order has mentioned & 340/Del/2022 that even the board meetings do not discuss the purpose, and cost benefit analysis etc of the loan facility. If the control and management of the assessee company is in Mauritius, how can such a significant decision be taken without Board of Directors not contemplating on such a crucial matter? f) An analysis of the financial statements of the assessee company confirms that it is a colourable device An analysis of the financial statements of the assessee company has been carried out by the AO at page 107- 110 of his order, The assessee company has no operative income or operative expenses. The sole activity of the assessee company from FY 05-06 to FY 11-12 is to hold the shares of VEL. There is no operational expenses and the sole expenses being in the nature of professional fees, audit fees, etc. g) Key executives of the Essar group performed all crucial activities and not the directors of assessee company: Moreover, even to carry out the transactions of sale of shares, and also bank transactions, the key executives of Essar Group are authorised by the assessee company, as elaborated by the AO at page 116-129 of his order. The key executives of the Essar group are parties to all major agreements signed by the assessee company as tabulated by the AO in his order at page 130-142 of his order. h) Discrepancies in Board minutes clearly establishing that it was a colourable device: There are serious discrepancies in the Board minutes, clearly establishing that the assessee company is a colourable device. These discrepancies have been elaborated by the AO at page 144-163 of his order.

& 340/Del/2022 That shows that minutes of the Board meetings have been casted to hide the reality. Directors have signed despite not being present in the meeting. The entire emphasis of the assessee is that the "control and management" of. its affairs is in Mauritius, while discrepancies the minutes of the Board meetings establish it beyond doubt that these are just paper works and the real "control and management" lies in India. The AO has established at page 177 of his order that the Board Minutes are of doubtful authenticity due to many factual contradictions. i) Puppet directors The Directors of the assessee company are acting just as a puppet of the Ruia family in India. As pointed out by the AO in para 5(1)(4) of his Order, as per the minutes of the Board meetings, Mr Uday Kumar Gujadhur and Mr Yuvraj Kumar Juwaheer are the Mauritian directors of the assessee company. Both these persons hold multiple directorships. A search was carried out on the website of Mauritius registrar of companies where around 83 companies of Essar group were found and the details of directors in all these companies are tabulated below. Mr GUJADHUR UDAY KUMAR is director in more than 50 companies of the group. The other names in the director list are also common and just a perusal of the list would reveal that all these people have been there on the Board just for "name lending". j) Assessee company is a classic case of being colourable device on all the parameters The assessee company is a perfect example of colourable device on all the tests laid down by the Hon'ble Supreme Court in various decisions. The same has been established by the AO in the following extracts from page 210-212 of the AO's order:

Test Facts/Parameters How applicable to assessee No economic It is apparent that the Fiscal nullity Test • • independence Assessee Company have been No independent source interposed only to avoid paying • of funds, taxes in India. It has not carried No facts regarding any out any business activity other • Fiscal independence or than holding the shares independence existence transferred to it by parent company All the funds are based on • the foundation of control and management by/arranged by the ultimate beneficiaries, i.e. the Ruia family No Income during the • entire period of Holding • Incurred losses on account of interest. The benefits going to Essar Group • Commercial/business No specific business, There is no • • substance Test No business income, commercial/business substance • No independent in the assessee company with no • functions income generating activity, no infrastructure As per financials of both • the companies, they have no significant assets no income has been offered to tax during the entire period of holdings. Income earned upon the • transfer of shares has gone immediately to ECML(M) for repayment of Loan taken for Group benefit. Shareholding in VEL not • used for the purpose own business No significant employees • “Look at” Principle • Structures created to defeat • Substantial funds already used the purpose of law as income by Essar Group companies (USD 2.2 Bn as dividend income by goes to EGL Cayman) by design of structure out of loan taken on the pledge & 340/Del/2022 of impugned shares and subsequently loan returned out of the sale consideration of impugned transactions. USD 532 Mn goes as income to EIHL in the form of sale consideration out of the loan taken on the pledge of impugned shares and subsequently loan returned out of the sale consideration of impugned transactions. Rest of the loan fund given to various group companies in the form of share capital ETHL India getting the substantial portion and subsequently loan returned out of the sale consideration of impugned transactions. The liabilities adjusted by book entry among group companies in the form of convertible debentures with no timeline for repayment, conversion, interest or dividend. Investment • Whether, strategic • No strategic investment made Participation Test investment made in India in India (i) The investment by Ecom was made out of loan executed by Essar Group on the strength of Ruia Family, (ii) In the case of ECL the situs of shares already owned by ETHL India has been shifted to Mauritius by voluntary liquidation of ETIL India Time duration Test Formation and existence of Acquisition in the hands • the Subsidiary in question of Ecom Mauritius made after Supreme Court decision in the case of Azadi Bachao ETHL India shareholding • & 340/Del/2022 in VEL transferred to Mauritius after FDI Policy relaxed to 74% from 49% The Holding structure of • the Applicant Companies keeps changing for USD 1 in most of the cases ECL(M) has acquired • VEL shares upon voluntary liquidation of ETIL in July 2008. Thus, the transfer of impugned shares made within 3 years. Business operations Business operations The Applicants have not • Period in India Test undertaken by the entity participated in shareholders under examination functions of VEL operating in India The shareholders function • of VEL is being participated by Indian key manage3ment personnel-Shri Ravinkant Ruia and other Essar Group executives • Generation of taxable Whether the entity under The only taxable Revenue • revenues in India Test examination has earned any in India is out of transfer of taxable revenues in India or impugned shares anywhere else. No tax paid under section • 46(2) upon the assets ‘transferred in 2008 on voluntary liquidation of ETIL claiming the benefit of India Mauritius Treaty.

Timing of the Exit When and how the timing of The timing of exit decided in exit of the entity u under India and not by the Assessee examination has been Company decided. Continuity of business Whether the entity under Since the Essar Group has on Exit examination has continued completely exited VEL after the its business after the exit impugned transfer and subsequent trigger of call option, transfer of balance of 10.97% shares made by Indian & 340/Del/2022 Company, this test does not apply. Scheme and Dominant The rationale of the The scheme and dominant Purpose Test transaction entered into purpose of the assessee is tax involving the entity under avoidance by claiming benefit of examination Mauritius DTAA this scheme is supported by frequent changes in holding structure and layering of beneficial ownership through maze of compani9es in Mauritius, Cayman Island, BVI and India Colourable or Whether entity Based on the all the above facts Artificial Device Test underexamination is just the Assessee Company squarely acolourable device. fails the test, being a colourable device to avoid taxes in India.

PART E - Summing up of the prayers Summing up 1. The CIT(A) has held the taxability of capital gains in India in twofold manner:

A. Taxability in India under the Statutory provisions taking into consideration the provisions of the I. T. Act ofIndia and those of DTAC between India and Mauritius.

The CIT(A) gave findings of facts that the Essar Group and the Assessees engineered colourable devises, created for seeking benefit of Article l3( 4) ofIndia Mauritius DTAC. He held that the Central Management control of the Assesseesare in India as per the provisions of Section 6(3) of the IT Act and thus the Assessees are residents of India. Since, the assessees claim to be residents of Mauritius, at the most it is the case of dual residence. Accordingly, the CIT(A) invoked the provisions of Article 4(3) of the Treaty read with Article 4(1) of the Treaty and relying upon OECD and UN Model Convention and also the judicial dicta on the subject, expressed that where the Central Management control abides, Place of effective management also abides. For this purpose, the ClT(A) drew support from the commentary of Claus Vogel as well. The CIT(A) finally confirmed the order of the AO holding the taxability of the capital gains truncation in India as the Central Management and Control abide in India. B. Taxability in India under the Judicial Anti Avoidance Rule, a Distinguishing Feature of Common Law The AO and the CIT(A) have demonstrated completely and conclusively that the Assessee's were created by way of active engagement involving creation of shell companies, layering of shell companies through the maze of conduit companies and passing of the benefits through such layering to Essar Group Companies controlled and managed in India as also to the Members of the 'Ruia Family' resident in India. The CIT(A) held the capital gains taxable in India under Judicial anti avoidance rules through the tabular representation and application of peculiar facts of the case to the tests laid down by the Hon'ble Supreme Court in the case of Vodafone. The CIT(A) made it unambiguously clear that the incorporation, the application of the HELIVEL shares, the transfer of the impugned shares and finally the application of sale proceeds of such shares for repayment of Bank loans a complete round tripping through loan and share monetization, were nothing but colourable devices with the sole purpose to seek exemption under Article 13(4) of the India Mauritius DTAA. The observations of Hon'ble Gujarat High Court in order dated 31.01.1977 are relevant:

If the party seeks the assistance of the Court to reduce its tax liability, the Court should be the last instrument to grant such assistance or judicial process to defeat a tax liability ... here the tax cannot be avoided unless the Court lends its assistance, namely, by sanctioning the scheme of amalgamation. In other words, the judicial process is used or polluted to defeat the tax by forming an appropriate device or subterfuge. Such a situation can never be said to be in the public interest and on this ground the Court would not sanction the scheme of amalgamation.

3. Lastly, it is submitted before this Hon'ble Tribunal that this case presses into application the entire treatise on tax avoidance under the Common and Civil Law, starting from the ruling of Substance over Form way back in 1935 by US Supreme Court in Gregory v. Helvering, case, the commercial or industrial purposes test laid down in W. T. Ramsay Ltd. v. Inland Revenue Commissioners to the Indian Supreme Court's decision propounding Colourable device doctrine in Mc Dowell and Azadi Bachaao and finally the Fiscal nullity Test, commercial/business substance Test, Round Tripping Test, Dominant Purpose Test and Colourable or Artificial Device Test laid down in Vodafone's case.

4. The final prayers before Your Honours draw support from the words of Hon'ble Supreme Court of US in the case of Higgins v. Smith, U.S. 473 (1940) propounding the doctrine of Economic Substance: "Transactions, which do not vary, control or change the flow of economic benefits,are to be dismissedfrom consideration" Accordingly, it is prayed that the capital gains arising from the transfer of shares of VEL in the hands of Ecom and ECL be held to be taxable in India, confirming the orders of Ld. CIT(A) and of the assessing officer on two-fold grounds: A. That the assessees are taxable in India as Indian resident companies under erstwhile section 6(3) of the Indian Income & 340/Del/2022 Tax Act read with Article 4(1) and 4(3) of India Mauritius DTAC. B. The colourable devices adopted by the Ruia family and the Essar Group of India may be disregarded to hold the assessee companies taxable in India.

A. Acquisition of Page 5 a) It is submitted that at the relevant point of time ETHL was 26.82% stake in a listed company and therefore, it is incorrect to contend Hutchison Essar that it was beneficially owned by 1 member of Ruia Limited (HEL)/ VEL family. In any case, it submitted that the ownership of by Essar Teleholdings ETHL is not relevant to decide the issue arising for Limited (‘ETHL’), consideration in the present appeal. India B. Several internal Page 5 a) It is submitted that in the present appeal, the Tribunal is restructuring leading not concerned with the sale of onshore stake of 10.97%. to transfer of 10.97% Accordingly, the Assessee is not required to give any [out of 26.82%] stake submissions since the same is not relevant to the present ONSHORE appeal. [45425328 shares] C. Several internal Page 5 a) It is submitted that while the factual assertions made are restructuring leading not disputed but the inference sought to be drawn is to transfer of 15.85% incorrect and the Assessee further wishes to clarify that the [out of 26.82%] stake internal restructuring was undertaken for commercial OFFSHORE reasons as submitted before lower authorities. [65634887 shares] D. 6.19% offshore stake a) These facts pertain to the appeal of Essar Com Limited Page 5 in VEL (‘ECom’) and therefore they are not relevant to decide the issue arising in the appeal of ECL before the Tribunal. a) These are factual and there are no allegations by the Page 1-5 Revenue (except the above points). Hence, these do not merit any reply. a) These are factual and there are no allegations by the Page 6 to 8 Revenue (except the above points). Hence, these do not merit any reply.

& 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission (II) Share transaction details between ETHL and Essar Telecom Investments Limited (‘ETIL’) 1. ETIL issued Page 9 a) ETHL was holding 26.82% shares in VEL, however, it was debentures heavily leveraged and there were defaults made by ETHL 2. ETHL transferred in complying with the listing agreements with various its shares to ETIL stock exchanges. In November 2005, 1.95% of VEL shares 3. ETIL entity has no were monetized for Rs. 200 crores from Infrastructure resources and is a Development Finance Company Ltd. (‘IDFC’). Similarly paper entity in December 2005, 3.85% of VEL shares were monetized 4. Value of this for Rs 395 crores from Telecom Opportunities Trust acquisition is Rs. (‘TOT’). However, due to overly leveraged balance sheet 2077.7 cr (USD and listing defaults on the part of ETHL, it was finding 400.61 million) and difficult to monetize the value of VEL shares on ETIL did not have favourable terms from the lenders. Further, the existing anything to pay for regulatory framework [Reserve Bank of India (‘RBI’) & this acquisition The Foreign Exchange Management Act, 1999 (‘FEMA’) 5. Essar regulations], was making it difficult to monetize the value Communications of VEL shares. (Para 123, Page 82 and Point B, Page 1707 (Mauritius) Limited of ECL ITAT PB, also refer response to Sr. (II).7(e)(ii) of (‘ECML’) provided the Revenue submission). funds to purchase b) It is also submitted that FDI in telecom sector was relaxed 6. The source of funds in November 2005 up to 74% foreign shareholding from explained by 49% earlier. Hutch and ETHL were in discussions for applicants for utilization of this excess foreign shareholding percentage acquisition of (74% - 49% = 25%) wherein it was agreed that ETHL will 15.85% shares in continue to hold 10.97% VEL stake in India, which would VEL by ETIL, India be counted towards the FDI sectoral cap. Further, under the is stated to be as FDI regulation, the resident Indian promoter was required under: to hold at least 10% shareholding. Also, under the shareholders agreement with Hutch, ETHL was required to have a minimum 10% shareholding in order to enjoy certain rights. Essar group was keen to monetize its VEL stake by raising funds in and outside India funds on favourable terms. c) Given the above reasons, ETHL transferred 10.05% of VEL shares to a new entity namely, ETIL so that it could monetize the value of VEL shares in a new company having a clean balance sheet. The shares were transferred to ETIL for a value of Rs. 1,032 crores and debentures of & 340/Del/2022 & 340/Del/2022 Sr Allegations made by Reference Reference Rebuttals of the Assessee No the Revenue to Revenue Revenue submission submission the same value were issued to ETHL (Point A, Page 1706 the same value were issued to ETHL (Point A, Page 1706 of ECL ITAT PB) which helped ETHL in deleveraging its of ECL ITAT PB) which helped ETHL in deleveraging its balance sheet (redemption of debentures as explained balance sheet (redemption of debentures as explained below). ETIL also, acquired the aforementioned stakes in low). ETIL also, acquired the aforementioned stakes in VEL (1.95% from IDFC and 3.85% from TOT) VEL (1.95% from IDFC and 3.85% from TOT) d) Thereafter, ETIL was able to monetise the value of VEL Thereafter, ETIL was able to monetise the value of VEL shares, since it was a clean company and raised Rs. 545 shares, since it was a clean company and raised Rs. 545 crores as a loan from Standard Chartered Investme crores as a loan from Standard Chartered Investments and Loans (India) Limited (‘SCILL’). From the loan proceeds, Loans (India) Limited (‘SCILL’). From the loan proceeds, ETIL redeemed part of the debentures that had been issued ETIL redeemed part of the debentures that had been issued to ETHL. (Point B, Page 1707 of ECL ITAT PB). to ETHL. (Point B, Page 1707 of ECL ITAT PB). e) While funds were raised to some extent from the Indian While funds were raised to some extent from the Indian NBFC as explained above, the re NBFC as explained above, the regulatory restrictions constrained the ability to unlock the entire value of the constrained the ability to unlock the entire value of the VEL shares by raising of loans on favourable terms. With VEL shares by raising of loans on favourable terms. With the opening of FDI cap as explained above, it was thus the opening of FDI cap as explained above, it was thus contemplated to bring eligible VEL holding (in accordance contemplated to bring eligible VEL holding (in accordance with the proportion of foreign holding agreed with Hutch) he proportion of foreign holding agreed with Hutch) under Essar group’s normal investment pattern (i.e. under Essar group’s normal investment pattern (i.e. holding through Mauritius). It is submitted that holding of holding through Mauritius). It is submitted that holding of the VEL shares in a foreign-owned vertical would enhance owned vertical would enhance the value of the shares since a for the value of the shares since a foreign telecom holding is more marketable than an Indian telecom holding. This is more marketable than an Indian telecom holding. This is because the foreign holding being held in compliance with because the foreign holding being held in compliance with FDI norms could be sold either to a foreigner or to an FDI norms could be sold either to a foreigner or to an Indian party whereas Indian holding could be sold to a Indian party whereas Indian holding could be sold to a foreigner only if such transfer would not breach FDI caps. r only if such transfer would not breach FDI caps. Further, the ability to raise finance would also be increased Further, the ability to raise finance would also be increased through a foreign-owned vertical since overseas debt owned vertical since overseas debt markets had far greater depth than Indian markets, markets had far greater depth than Indian markets, borrowing rates were lower overseas and borrowing rates were lower overseas and raising loans overseas against security of foreign overseas against security of foreign-owned Indian shares wasn’t wasn’t constrained constrained with with regulatory regulatory restrictions. restrictions. Accordingly, Accordingly, ETIL ETIL approached approached Foreign Foreign Investment Investment Promotion Board (FIPB) for seeking permission to receive Promotion Board (FIPB) for seeking permission to receive foreign funding from ECL. f) Once FIPB approved and the investment was made by e FIPB approved and the investment was made by ECL, ECML [earlier known as Essar Communications ECL, ECML [earlier known as Essar Communications & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission (India) Ltd. (‘ECIL’)] obtained a loan of USD 1.1 billion (on the strength of VEL shares inter alia held by ETIL) which could be used by the group for expansion of other businesses. Out of the aforesaid loan, ~USD 330 million and USD 70 million (worth of intra group loans), ECL infused USD 400.61 million in ETIL as share capital. (Point B, Page 1707 and Point B, Page 1726 of ECL ITAT PB). The correctRupee equivalent of the USD 400.61 million was Rs. 1,767.88 crores as mentioned in Annexure C to the submission dated 15 March 2016 filed by the Assessee to the AO. g) The aforesaid USD 400.61 million was utilised by ETIL (Point A, Page 1706 of ECL ITAT PB):  to repay loan of SCILL which was utilized to purchase the stake of 1.95% of VEL from IDFC and to redeem part of debentures issued to ETHL amounting to Rs. 275.24 crores  to pay off the balance debentures which were issued to ETHL and  to acquire the stake of 3.85% of VEL from TOT for Rs. 421.27 crores (Page 101 of ECL ITAT PB) h) FDI in ETIL enabled monetization of the VEL shares resulting in raising of loan of USD 1.1 billion from overseas lender.

In nutshell, all the above-mentioned transactions have been undertaken for commercial/ business reasons, and it is incorrect for the Revenue to allege that ETIL was a paper entity with no resources and had nothing to pay for the acquisition of VEL shares or to draw any negative inference from the transactions that were undertaken.

7. Money infused by Page 10 a) The correct Rupee equivalent of the USD 400.61 million ECL Mauritius via was Rs. 1,767.88 crores as mentioned in Annexure C to the assistance 400.61 submission dated 15 March 2016 filed by the Assessee to million USD to the AO. ETIL which is Rs. 2077.7 cr:

& 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission  Rs. Page 12 a) This is factual and there is no allegation by the Revenue. 200 Cr. to Hence, it does not merit any reply. ETHL, Chennai for redeeming debentures issued by ETHL. - Money flowing to ETHL, Chennai: ETHL floated 2 Cr fully convertible debenture of Rs 100 each around 15.01.2007. ETIL subscribed to the same and paid part of the share capital infused by ECL(M) (pp 294- 295, Vol 5, ETIL minutes)

 20 Cr. to Girishan a) While the factual assertion made regarding the amount and Page 12 recipient of buyback proceeds is not disputed, it is Investment Private submitted that negative inference sought to be made by the Ltd. (‘Girishan’) for Revenue therefrom is not correct / appropriate and has no buy back of shares basis. The buyback by ETIL from Girishan was undertaken from Girishan by at Rs. 100 per share after obtaining requisite FIPB ETIL approval. In any case, the Revenue’s argument has no Money flowing to bearing on the availability of the India-Mauritius DTAA to the Assessee.(Para 127, Page 84 of ECL ITAT PB) Girishan, company which is 100% controlled by Manju Ruia. The payment was by way of buyback of 20 lakh shares invested by Girishan in the share capital of ETIL.

& 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission Even while the shares were subscribed at Rs 10 per share the same was bought back at a value of Rs 100, that is at a premium of Rs 90. Thus, against share capital investment of Rs 2 Cr Girishan was paid Rs 20 Cr.

 180 Cr as issued Page 12 a) This is factual and there is no allegation by the Revenue. Share capital to ECL Hence, it does not merit any reply Share Capital increased from 2 Cr to 180 Cr in January 2007 The whole money Page 12 a) ETHL is only one of the Essar entities in the group which amounting to Rs 2077.7 held investments in VEL. The Assessee further submits Crores has gone to the that the Revenue’s reference to ETHL as the flagship flagship companies of company is incorrect. It should be noted that ETHL has Essar. actually transferred 10.05% stake in VEL to ETIL and only the agreed amount has been utilized by ETIL in settling consideration for the same. This is a genuine transaction that has been explained by the Assessee above and accordingly, no adverse inference should be drawn in the facts of the present case. (Para 126, Page 84 of ECL ITAT PB)

USD 400.61 million Page 12 a) It is submitted that the allegation of the Revenue that loan provided by ECL, 15.85% shares of VEL were pledged to obtain the loan of Mauritius from and out USD 1.1 billion is incorrect. It is submitted that the of a loan of USD 1.1 Assessee had made an application to RBI for pledge of billion taken from VEL shares pursuant to loan of USD 1.1 billion vide letter Standard Chartered dated 12 February 2007, however, the approval for pledge & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission Bank (‘SCB’) on 31 was never received and eventually the application for January 2007 pledging pledge of VEL shares was rejected by RBI vide letter the very shares of VEL, dated 4 October 2007. Therefore, the which includes 15.85% contention/allegation of Revenue is factually incorrect and shares of ETHL. contrary to evidence on record. b) It is further submitted that statement that 15.85% VEL shares are owned by ETHL is also incorrect. It is submitted that 15.85% of shares were not owned by ETHL and at the time of availing the loan of USD 1.1 billion, the VEL shares were owned by ETIL and not ETHL. c) Without prejudice to the above, it is normal for the lenders to expect that the asset being acquired is itself pledged as security for the loan being availed. It is not uncommon to use the jewel in the group for financing/ expansion of the group. Accordingly, it is submitted that it is a common business practice to obtain loans for group companies by pledging their securities i.e. it is not unusual for entities to guarantee debts of other group entities. Refer Vodafone International Holdings B.V. (2012) 341 ITR 1 (SC) – Para 79 (Para 177, Page 111 and Page 1717 of ECL ITAT PB) a) The allegation of the Revenue that the shares of VEL were d) This is a simple case Page 13 of shares of VEL being pledged to avail the loan of USD 1.1 billion and the same pledged, money was given to ETIL to acquire the shares of VEL is borrowed and given to factually incorrect. As submitted above, the shares of were ETIL to acquire the very not pledged since there was no approval from RBI for shares which are pledge of VEL shares therefore, the conclusion of the pledged, perfect case of Revenue that the very shares of VEL were pledged to round tripping and borrow money and the same money was given to ETIL to nothing else acquire the shares of VEL is totally incorrect and contrary to facts on record. b) Without prejudice to the above, it is submitted that the aforesaid contention of “round tripping” has been raised by the Revenue for the first time and the same has never been raised by the AO or CIT(A). Under the provisions of the Act, the Revenue is not permitted to raise fresh grounds without rectifying or revising the assessment order.

& 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission Therefore, the reasons given by the lower authorities for denying the DTAA benefits cannot be revised by the learned ASG before the Hon’ble Tribunal. c) Without prejudice to the above, the Assessee submits that pledging the asset with bank which a person wants to buy with borrowed money is the most normal transaction that takes place on day-to-day basis in the commercial world. For example, an individual buys a house with borrowed money by pledging the same house (which he is buying) with a bank. Therefore, it is completely incorrect for the Revenue to even suggest that the same is in the nature of “round tripping”. d) The Assessee submits that borrowing money outside India based on the value of shares of an Indian company and thereafter utilising the borrowed money for purchasing the shares cannot be at all termed as “round tripping”. e) It is further submitted that “round tripping” means the funds/ income which originate in India are sent out of India and the same money coming back to India in the form of investment for claiming DTAA benefits. In this regard, the Assessee relies on the judgment of Vodafone International (supra) which has explained the meaning of “round tripping” (circular movement of capital) as under: (i) Round Tripping can take many formats like under- invoicing and over-invoicing of exports and imports. (ii) Round Tripping involves getting the black money or capital that is hidden out of India, say Mauritius, and then come to India like FDI or FII. f) Reference in this regard is also made to Para 8.84 of the Report by the ‘Joint Committee on stock market scam and matters relating thereto’ dated December 2002 which again raised concerns regarding the round tripping of funds from India to claim the benefits of India-Mauritius DTAA for avoidance of taxes. g) In view of the above, it is submitted that “round tripping” involves funds which originate in India, sent outside India clandestinely and are reinvested in India. In the instant case, there is not even an allegation/suggestion by the & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission lower authorities that the Assessee is claiming benefits of DTAA by virtue of round tripping of funds.

In any case, the Assessee submits that the money was borrowed from outside India from SCB, UK and the same was used for investment purpose in India and outside India. Therefore, there is no case of round tripping in the facts of the present case as alleged by the Revenue for the first time. e) This is a simple case Page 13 a) It is submitted that the contention that the Assessee ought of monies being to have borrowed funds in India is being raised for the first borrowed by ETHL, time and has not been raised by the lower authorities in the which needs to be orders passed by them. As submitted above, the Revenue is squared off. This could not permitted to raise fresh grounds for denying the have been done within benefits of India-Mauritius DTAA, accordingly, the fresh India, instead of doing contention raised should not be taken cognisance of. that, a convoluted route b) It is further submitted that the Revenue cannot step into the was structure with two shoes of an assessee and then direct as to how the business purposes contrary to is to be conducted by the assessee (SA Builders vs. CIT law- (288 ITR 1)). The money was borrowed outside as the i) The borrowing was terms of borrowings were more favourable and suitable to made by upstream the group entities. Accordingly, it is submitted that the Mauritius companies Revenue cannot insist that the Assessee ought to have which had no borrowed money in India and therefore, the contention is commercial substance contrary to the settled principles of law. as the borrowing was c) Without prejudice to the above, the Assessee submits that not for their use. Not the money could not be borrowed in India on the strength a single dollar of this of VEL shares since the existing Reserve Bank of India borrowing was (‘RBI’) regulatory framework did not allow banks to lend utilised by Mauritian money against the pledge of shares above the limit Companies. The specified under the regulations and made it difficult to borrowing happened raise money based on the value of VEL shares. Further, on the strength of under the FEMA regulations, a company could not borrow pledging Indian money under the External Commercial Borrowings shares, which could (‘ECB’) route to pay off its existing rupee loans. (Para 123, have been done by Page 82 of ECL ITAT PB) d) In fact, in view of the aforesaid restrictions, ETHL Indian entities. attempted to monetize the value of VEL shares from non- & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission ii) The whole exercise of banking financial companies (NBFCs) (that also had a call acquisition is totally option) i.e. with IDFC for 1.95% and TOT for 3.85%, farcical and loan however, ETHL was unable to borrow money on arrangement, a favourable terms from these NBFCs as the value of camouflage, as ETIL borrowing, interest rates etc. were not attractive. In was a company addition to the above, ETHL was highly debt laden and in created on paper default of the listing agreement (Point B, Page 1707 of without any substance ECL ITAT PB). and has had a very e) In view of the above, ETHL was unable to borrow money short existence before due to various regulatory restrictions and because of overly this transaction. leveraged balance sheet. Therefore, the argument of the Revenue that the money ought to have been borrowed in India on the strength of VEL shares is baseless and contrary to the evidence on record. f) The Assessee further submits that since the money could not be borrowed in India on favourable terms, the only other option was to borrow money at the level of holding company in Mauritius since that would allow full utilization of value of VEL shares for the purpose of borrowing which were held by ECom & ETIL at one go. As submitted above, the increase in FDI cap to 74% allowed the borrowing of funds outside India. It is further incorrect to say that the money borrowed was not utilized by the entities in Mauritius. As submitted on multiple occasions, out of USD 1.1 billion loan, ~USD 525 million was infused by ECML in ECL (Point B, Page 1707 of ECL ITAT PB) of which ~USD 145 million was infused in ECom and ~USD 330 million was infused in ETIL (as also USD 50 million by ECL to repay EIHL for short term loan taken by ECL for investing in ETIL). Therefore, the argument of the Revenue that the borrowed money was not utilised by the companies in Mauritius is without any basis and is contrary to the evidence on record. (Para 174-177, Page 111 of ECL ITAT PB) g) As mentioned in this note and earlier submissions as well, incorporation of ETIL, transfer of VEL shares to ETIL from ETHL, loan borrowings by Mauritius entity, liquidation of ETIL etc. were all transactions undertaken & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission for commercial/ business reasons and it is incorrect on the part of the Revenue to allege that the entire arrangement was farcical and loan arrangement was a camouflage, which is contrary to the evidence on record. (Para 123-128, Page 82 and Para 129-134, Page 85 of ECL ITAT PB) iii) Secondly, a vehicular a) It is submitted that the contention that monies were again Page 13 movement has been for the benefit of the Ruia family is being raised for the structured by first time and has not been raised by the lower authorities migrating the ETHL in the orders passed by them. As submitted above, the shares out of India contention of the Revenue ought not to be taken through ETIL to ECL, cognisance of and the same is liable to be rejected. Mauritius. It is b) Without prejudice to the above, it is submitted that the important to highlight transition of shares from ETIL to ECL was by virtue of the that besides settling loan agreement with SCB. The lenders wanted a direct the loan, balance pledge on the shares of VEL which were held by ETIL. An monies were again for application was made to RBI for pledge of the VEL shares the benefit of the Ruia for loan taken by ECML from SCB however, the approval family of RBI was not forthcoming and eventually the application made by ETIL was rejected by the RBI. In view of the rejection by the RBI, there was no option left but to liquidate ETIL as in the absence of pledge of VEL shares the loan agreement could be cancelled by the lenders. The Assessee submits the fact that an application was made to the RBI for a pledge demonstrates that the first intention of the Assessee was not to transfer the ownership to a Mauritius entity by way of liquidation and the liquidation was driven by circumstances beyond its control. Hence, the argument of the Revenue that vehicular movement has been structured for migrating the shares outside India for tax avoidance reasons is baseless and contrary to the evidence on record. (Para 136-137, Page 89and Point C, Page 1708 of ECL ITAT PB)

(III) Loan transactions and loans and borrowings conducted through various trusts to Ruia family Diagrammatic Page 14 a) The chart referred clearly demonstrates that the loan representation of use of borrowed of USD 1.4 billion was utilised for the purpose & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission USD 1.4 billion Loan of business and not a single rupee has gone to the Ruia dated 29.6.2007 family members and the Revenue has not brought any evidence on record to prove that such monies have actually gone to the Ruia family members. b) The use of the funds raised vide the loans was explained to the AO as referred to on page 231 of the assessment order Loan of USD 3.59 Page 14 a) It is submitted that the contention that monies were given billion taken by the to 8 family members of the Ruia family is being raised for ECIL(M) on the pledge the first time and has not been raised by the lower of HEL/VEL shares authorities in the orders passed by them. As submitted owned by the Group above, the contention of the Revenue ought not to be taken (onshore & offshore: no cognisance of and the same is liable to be rejected. distinction) b) Without prejudice to the above, it is submitted that out of the USD 3.59 billion loan taken by ECML, USD 1.4 billion was used to repay the loan of USD 1.4 billion to SCB, UK (USD 1.1 billion loan was refinanced to USD 1.4 billion). Copies of loan agreements for USD 1.1 billion, USD 1.4 billion and USD 3.59 billion are attached at Page 642 to 962 of ECL ITAT PB. c) The balance funds of ~ USD 2.18 billion were lent by ECML to Telecom Holdings (Cayman) Limited, Cayman Island (‘THCL’) to acquire shares of ECML (and consequently indirectly shares of ECom and the Assessee) from ECHL in line with the requirement of the lenders to have a separate standalone structure which could be efficient from a security enforceability standpoint such as there being no other liabilities, better conditions for invocation of pledge, etc. The money ultimately went to EGFL, Cayman Islands as dividend declared by its subsidiary ECHL. (Para 180, Page 113 and Page 1719 of ECL ITAT PB) d) The loan agreement further provided that the money received by EGL as a dividend would be used for general investment and corporate purpose (Clause 3 Page at Page 878 of ECL ITAT PB). The same is also evident from the cash flow statement of EGFL for Financial Year (‘F.Y.’) 2007-08 which shows that the money has been used for & 340/Del/2022 & 340/Del/2022 Sr Allegations made by Reference Reference Rebuttals of the Assessee No the Revenue to Revenue Revenue submission submission investment in subsidiaries and group companies and investment in subsidiaries and group companies and corporate purposes (refer cash flow statement of EGFL at corporate purposes (refer cash flow statement of EGFL at Page 1597 of ECL ITAT PB). (Para 180, Page 113 of ECL Page 1597 of ECL ITAT PB). (Para 180, Page 113 of ECL ITAT PB)

Therefore, the argument of the Revenue that the amount of Therefore, the argument of the Revenue that the amount of dividend given to EGFL has benefitted Ruia family members ven to EGFL has benefitted Ruia family members is factually incorrect and contrary to the evidence on record. is factually incorrect and contrary to the evidence on record. The Assessee further submits this contention has been raised further submits this contention has been raised for the first time before the Tribunal without any basis and the for the first time before the Tribunal without any basis and the same was not raised by any of the authorities below. by any of the authorities below.

Page 15 Page 15 a) As stated above, the allegation round tripping has not been As stated above, the allegation round tripping has not been raised by the lower authorities and has been raised for the raised by the lower authorities and has been raised for the first time before the Tribunal. Since this allegation was not first time before the Tribunal. Since this allegation was not made by the lower authorities, the Revenue is not authorities, the Revenue is not permitted to raise the same before the Tribunal for the first permitted to raise the same before the Tribunal for the first time. b) Without prejudice to the above, there is no round tripping Without prejudice to the above, there is no round tripping of funds (i.e. circular movement of funds originating from of funds (i.e. circular movement of funds originating from India, movement abroad and inflow of s India, movement abroad and inflow of such funds back into India to claim treaty benefits/ tax avoidance scheme) into India to claim treaty benefits/ tax avoidance scheme) involved in the facts of the present case. All transactions involved in the facts of the present case. All transactions i.e. borrowings in India and outside India, pledge of VEL i.e. borrowings in India and outside India, pledge of VEL shares, liquidation of ETIL, sale of VEL shares and shares, liquidation of ETIL, sale of VEL shares and application of such funds for repayment of borrowings, of such funds for repayment of borrowings, have been undertaken for commercial/ business reasons i.e. have been undertaken for commercial/ business reasons i.e. monetizing the value of VEL shares and utilizing the same monetizing the value of VEL shares and utilizing the same to fund expansion of the business (as explained above). to fund expansion of the business (as explained above). Accordingly, the allegation of the Reven Accordingly, the allegation of the Revenue as stated in the diagram is entirely misplaced and is overlooking the diagram is entirely misplaced and is overlooking the business/ commercial realties. business/ commercial realties.

5. This is again a perfect a) At the time of execution of loan agreement, ECML was Page 16 Page 16 e time of execution of loan agreement, ECML was case of round tripping. held by Essar Communications Holdings Limited, held by Essar Communications Holdings Limited, What is taken as a Mauritius (ECHL) (parent) and EGL (grand parent). ECHL Mauritius (ECHL) (parent) and EGL (grand parent). ECHL loan by ECIL(M) was was the the holding holding company company for for passive passive telecom telecom converts into an infrastructure business and, EGL was the holding company infrastructure business and, EGL was the holding company income in the hands for all the businesses of the group and further had huge ll the businesses of the group and further had huge & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission of Telecom Holding borrowings and other obligations as a flagship company of Caymen Island when the group. Therefore, the lenders under the loan agreement ECHL(M) the parent required that the VEL shares basis which the loan was entity has sold the being taken, to be held under a separate structure and not shares of the under the umbrella of EGL from security enforceability subsidiary which is stand point. Accordingly, various steps were undertaken in the borrowing entity, line with the loan agreement, to separate the holding of and as a result, it now VEL shares and house it under an independent structure. becomes an income of Therefore, the argument of the Revenue that the same is USD 2.20 billion in round tripping is perverse and without any basis in law the hands of Telecom since the steps were undertaken with commercial substance Holding Caymen and to meet the requirement of the lenders. (Page 1719, Island. 1737 and 1739 of ECL ITAT PB) b) It is further submitted that there is no “round tripping” as explained by Supreme Court in case of Vodafone International (supra) and JPC Report and the allegation has been made by the Revenue without any material in support of the same.

6. Telecom Holding Page 16 a) This allegation is factually incorrect as dividend of USD Cayman Island 2.18 billion was distributed by ECHL to EGL and not by conveys this USD THCL.It is further submitted that the dividend of USD 2.20 billion as 2.18 billion was not at all passed on to the eight Ruia dividend to Essar family members and as explained above the same was used Global Caymen Island by EGL for investment and corporate purpose in India and through various outside India. It is further submitted that no dividend has beneficiaries entities been actually declared by EGL. The Revenue apart from situated in BVI and making a bald allegation has not adduced any material they in turn pass on which suggests that the loan amount was passed on to the the entire USD 2.20 Ruia family members. billion to the eight b) Without prejudice to the above, it is submitted that the Ruia family members. issue before the Tribunal is regarding taxability of shares under Article – 13 of India-Mauritius DTAA and the above allegation has no bearing on the issue which arises for consideration of the Tribunal.

b. It mutates into Page 16 a) This allegation is factually incorrect as submitted above, dividend through a the amount of USD 2.18 billion was used by EGL for very complex various business purposes and not a single penny has gone structure with a sole to the Ruia family members or repayment of loans across idea to benefit the 8 entities where Ruia family members have direct interest. Ruia family As submitted above, the loan agreement provided that the members and amount of USD 2.18 billion was to be used for general ultimately the investment and corporate purpose and as evident from the consideration arising cash flow statement of EGL for the relevant year, the out of the sale of amount has been used for the same purpose. Further, the shares of these two Revenue has not produced any evidence to support their Assessees before this allegation and in fact, the allegation is contrary to the Hon’ble Tribunal is evidence on record and is therefore liable to be rejected. again used to (Page 878 and 1597 of ECL ITAT PB) b) It is also submitted that the amount received on sale of payback all the pending loan across VEL shares was utilised to pay back the loan of USD 3.59 the Essar Group billion taken by ECML since the Assessee was a guarantor entities where Ruia to the loan. However, the same does not bar the Assessee family has a direct from claiming the benefit of Article – 13 of India- interest Mauritius DTAA. (Para 248, Page 149 and Page 1717 of ECL ITAT PB) c. Most importantly, a a) This allegation is factually incorrect as submitted above, commercial loan the amount of USD 2.18 billion was used by EGL for secured for business investment and business purposes and the same was not at purposes ends up as all distributed as dividend to the Ruia family members. family dividend for Neither any material is produced, nor any details are given & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission the Ruia family and by the Revenue for making this allegation. Therefore, in the shares held the absence of any material in support the aforesaid through substance allegation, the same is liable to be rejected. less entities namely b) It is further submitted that the Assessee cannot be termed the two Assessees as a “substance less” entity since it is an investment are sold to payback holding company and have been undertaking requisite the loans. investment holding activities in Mauritius (Page 1711 of ECL ITAT PB). Further, there are qualified people on the Board of directors (the Board) who have taken decisions concerning the affairs of the Assessees, in Mauritius (Page 280-283 of ECL ITAT PB). The entities have also facilitated raising of substantial loans (from third party lenders). The directors are required to discharge obligations and undertake various duties under the Mauritian laws. Accordingly, the existence of these entities should be respected by the Revenue. Without prejudice to the above, if the Revenue alleges that the Assessee is substance less then the income (for taxability of income from sale of VEL shares) ought not to have been taxed in its hands. Reliance in this regard is placed on Vodafone International (supra) [Para 98], Sri Meenakshi Mills Ltd. [1967] 63 ITR 609 (SC), Aditya Birla Nuvo Ltd. (342 ITR 308) (Bom) and Alibaba.Com Singapore E-Commerce (P.) Ltd. [2023] 459 ITR 508 (Bombay). Accordingly, the capital gain charged by the AO in the hands of the Assessee is incorrect and bad in law. d. The net effect of the Page 17 a) As submitted above, the loan was taken by ECML with a whole transaction view to monetize the value of VEL shares and use the can be reduced to a funds for expansion of business [Refer response to Sr. (II). one liner – Essar 1 to 6 of Revenue submission and response to Sr. (III).7(b) Group entities have of Revenue submission]. Therefore, the conclusion of the loans to be Revenue that loans to be discharged by various entities was discharged in discharged by selling shares of Essar is factually incorrect. various group b) It is further submitted that the conclusion of the Revenue companies. These that the shares belong to an Indian entity and entities were loans ultimately got created in Mauritius to migrate and monetize the shares discharged by selling without paying taxes is factually incorrect and contrary to & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission the Essar shares held the evidence on record. As explained above,due to various by the Ruia family. regulatory restrictions, the money was borrowed outside The shares belong to India as the terms and conditions of the loan were far more an Indian entity. favourable and, the shares held by ETIL were transferred Ruia family are to ECL on liquidation due to a requirement under the loan residents of India. agreement regarding direct pledge of shares which was Whereas, illusionary rejected by the RBI. Therefore, the argument of the super imposing Revenue ignores the compelling circumstances which led entities where to migration of shares to Mauritius. [Refer response to Sr. created in Mauritius (II). 1 to 6 of Revenue submission]. Without prejudice to to migrate and the above, the benefit of India-Mauritius DTAA was monetize the share, available even without the migration of VEL shares to the sale and its Mauritius as the Assessee could have sold the shares of consideration ETIL or ECML could have sold the shares of ECL. (Para without paying taxes 123-128, Page 82 and Para 129-134, Page 85 of ECL ITAT PB) c) It is further submitted that the conclusion of the Revenue that all the family members of Ruia family are residents in India is again factually incorrect as Mr. Ravikant Ruia (A.Y. 2010-11 onwards) and Mr. Rewant Ruia (A.Y. 2011- 12 onwards) were not residents in India for the year under consideration therefore, assuming without admitting, even then the whole of control and management of the company is not in India. Consequently, the Assessee cannot be considered as a resident in India under section 6(3) of the Act. e. Most importantly, it Page 17 a) The Assessee submits that this allegation is factually needs to be incorrect. ECL had infused USD 400.61 million in ETIL highlighted that (Point A, Page 1706 of ECL ITAT PB) which was partly there is no foreign from the borrowings of USD 1.1 billion and partly from investment or any the borrowings from overseas group companies. (Page 5 of other investment ECL ITAT PB) coming into India. b) The Assessee has already explained the rationale behind This is a reverse migration of VEL shares from ETIL to ECL (Please refer transaction. Indian response to Sr. (III).7(d) of the Revenue submission) c) Therefore, the contention of the Revenue that the there is shares worth USD 3.2 billion is no FDI coming into India and this is reverse transaction of & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission migrated and shares being migrated through sham transactions and monetised outside colourabledevices is without any basis and bad in law. India through sham transactions and colourable devices. f. Loan taken on the a) As explained above, the funds received as dividends were Page 17 pledge of shares used by EGL, Cayman Islands for investment and business owned by ECom(M) purposes and the same was not passed on to the Ruia and ECL(M)/ ETIL family members. [refer response to Sr. (III).7(b) of the (India)/ ETHL Revenue submission] (India) has gone as b) It is submitted that the entities above EGL, Cayman Islands dividend income in have no role to play and are not relevant for the transaction the hands of key under consideration in the present appeal as no transactions holding company of have taken place with those entities by the Assessee. In any the entire Ruia case, the Assessee further submits that the rationale behind Group i.e., Essar the aforesaid structure was explained to the lower Global Limited authorities during the course of proceedings. (Page 1735- Cayman Islands. 1740 of ECL ITAT PB). This company is c) For completeness, it is further submitted that EGL, held by eight of Ruia Cayman Island is not held by the members of Ruia Family family members as but the shareholders are the private companies which in beneficiaries of turn are held by discretionary trusts (some of the various trusts created beneficiaries are private companies of which Ruia family in B.V. Island. members are shareholders) incorporated under Star laws of Cayman Island and not British Virgin Islands as contended by the Revenue. (Para 27, Page 24 of ECL ITAT PB) d) Without prejudice to the above, it is submitted that the aforesaid allegation made by the Revenue has no bearing on the question that arises for consideration of the Tribunal in the present appeal i.e. taxability of capital gains in the hands of the Assessee under Article – 13 of India- Mauritius DTAA. g. If this amount of Page 17 a) Out of the USD 3.59 billion loan taken by ECML, USD 1.4 USD 2.20 billion billion was used to repay the loan of USD 1.4 billion to had gone directly as SCB. Balance funds of ~ USD 2.18 billion were lent by loan from ECML(M) ECML to THCL to acquire shares of ECML from ECHL in & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission to ECHL(M), it line with the requirement of the lenders to have a separate could not have paid standalone structure which could be efficient from a the same to EGL security enforceability standpoint. (refer response above to Cayman Island as diagram (III), Page 14 of the Revenue submission) dividend income b) In order to effectuate this separation, the lenders had because the dividend required that THCL acquire from ECHL the aforesaid income is only paid vertical and hence they required the USD 2.18 billion to be out of income or paid for as sale consideration for ECML shares (to transfer reserves on account the vertical). c) The transactions were undertaken for commercial reasons of income. and it is not open to the Revenue to rewrite/compare the transactions consummated with a hypothetical one such as a loan from ECML to ECHL. d) Without prejudice to the above, whether the dividend was given out of income or reserves or not has no bearing on the issue arising for consideration in the present appeal i.e. eligibility of the Assessee to claim benefits of India- Mauritius DTAA. h. It is self-evident Page 17 a) It is incorrect to say that the money borrowed was not from the above that utilized by the entities in Mauritius. As submitted above, not a single the loan 3.59 was used to pay the loan of USD 1.1 billion USD/Rupee out loan of which ~USD 525 million was infused by ECML in USD 3.59 billion has ECL of which ~USD 145 million was infused in ECom not been utilised by and ~USD 330 million was infused in ETIL (as also USD ECL/ECom/ETIL 50 million by ECL to repay Essar Infrastructure Holdings nor ECML/ECIL. Limited, Mauritius (EIHL or EGL, Mauritius)for short term loan taken by ECL for investing in ETIL). Therefore, the argument of the Revenue that the borrowed money was not utilised by the companies in Mauritius is without any basis and is contrary to the evidence on record. (Point B, Page 1707 of ECL ITAT PB) i. These have been Page 17 a) As submitted above at response in point (a) to allegation at used as mere Sr. 5, Page 16 of the Revenue submission, the Assessee or conduits in any of the group companies cannot be termed as conduits transferring the since all the transactions have been carried out with monies from one commercial substance and as explained above, the money & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission entity to another and was transferred from one group company to another with a ultimately serving to business purpose. (Page 1735-1740 of ECL ITAT PB) b) It cannot be said that the entities involved in the the benefit of the various other Essar transactions were conduits for the reason also that their groups. genuineness was recognized by the providers of the loan. The lenders would not have required for the transactions to have been undertaken between the parties (and treated such transactions as the purpose of the use of funds in clause 3 of the facility agreement) unless the transactions were real, had commercial purpose and legal consequences. c) The Revenue has made bald allegation without bringing any material on record to controvert the commercial reasons for carrying out various transactions. Therefore, it is submitted that in the absence of any material in support of its allegation, the bald allegation made by the Revenue ought to be rejected. j. Two things are Page 18 a) While there is no dispute that the VEL shares were pledged critical- asset and their situs was in India, it is factually incorrect to say pledged remains to that the borrowings were not used by the entities referred be VEL shares with to by the Revenue, as the Assessee too received and situs in India and invested from the loan proceeds as explained above. (Para secondly, the entire 174-176, Page 111 of ECL ITAT PB) borrowings have not been of any use to any of the entities referred above.

(IV) Voluntary Liquidation of ETIL 1. ETIL was Page 19 a) From a greater security enforceability standpoint, the incorporated in lender (SCB, UK) had kept the route of liquidation of November 2004. ETIL as a possible option to the pledge of VEL shares by 2. ETIL was liquidated ETIL. on 28.07.2008. b) ETIL made an application for pledge of VEL shares to 3. The intent of so- RBI on 12 February 2007 (under the USD 1.1 billion loan called voluntary agreement) which shows that ECL did not want to liquidation of ETIL liquidate ETIL straightaway without exploring the option & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission was clear from a loan of pledging of shares. As no approval was forthcoming agreement dated from the RBI even 6 months after the application was 31.01.2007 to which made, in the USD 3.59 billion loan agreement (which was ETIL was not even a more than 3 times the USD 1.1 billion loan), the party and was rather consortium of lenders required liquidation of ETIL in happily talking about order to migrate VEL shares to ECL so that the same its business expansion could be pledged with the lenders with RBI’s approval which was possible if the shares were held by a non- resident. Hence, the intent was to perfect the security for the lenders. In fact, the concerns of the lenders came true when the RBI vide letter dated 4 October 2007 finally and officially rejected the application made by ETIL to pledge VEL shares. Therefore, the only way to secure lenders interest was to liquidate ETIL and provide pledge of the shares. (refer Page 1708 of ECL ITAT PB) c) It is important to note that in July 2008 ETIL was liquidated and the share were distributed to ECL by the liquidator after receiving the approval from the Income- tax Department vide letter dated 14 July 2008 [refer Page 284 of ECL ITAT PB]. After which an application was made again to the RBI for pledging of shares and it was only after the shares were transferred to ECL pursuant to liquidation, the RBI granted permission to pledge VEL shares in favour of the lender, vide approval dated 14 November 2008, in view of liquidation of ETIL. (Page 1708 of ECL ITAT PB)

& 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission 4. None of the Page 19 a) It is submitted that ECL was a party to the loan agreement companies - to the USD 3.59 billion loan agreement as a guarantor and ECL/ETIL were party had given Non-disposable Undertakings to the lenders for to loan borrowed on USD 1.1 billion, USD 1.4 billion for ETIL shares and the strength of the pledge of ECom and VEL shares to the lenders for USD assets owned by them 3.59 billion. In view of the above, it is incorrect to say 5. They were not aware that ECL was not aware of the pledging of shares owned about pledging of by them and was not a party to the aforesaid agreements. shares owned by them (Page 1711 of ECL ITAT PB) b) ECL agreed to pledge the ETIL and ECom shares and the pledge agreements were tabled in the meeting of the Board of ECL held on 24 January 2007, 8 June 2007 and 16 August 2007 and were approved by the Board for further execution [Page 117 (Sr. 8) and Page 118 (Sr. 12,15) of AO order and Annexure L of submission dated 20 June 2016 filed with the AO]. (Para 183, Page 114 of ECL ITAT PB) c) ETIL agreed to pledge the VEL shares and the pledge agreements were tabled in the meeting of the Board of ETIL held on 15 January 2007, 8 June 2007 and 16 August 2007 [Page 128 (Sr. 19), 129 (Sr. 24 and 28) of the AO order and Annexure A of submission dated 20 June 2016 filed with the AO].

The aforesaid events clearly show that ECL/ ETIL have considered the relevant loan and security documents in their Board meetings and approved/ actioned obligations under such agreements. Therefore, it is incorrect to say that ECL/ETIL were not aware of the pledging of shares and were not parties to loan agreements is factually incorrect. Key Inferences being drawn from the Voluntary Liquidation of ETIL: A) No control over one’s Page 19 a) As mentioned above, in the USD 3.59 billion loan own creation or agreement, the liquidation of ETIL was mandated by the dissolution lenders (third party) in order to have a direct holding of the VEL shares as it provided an enhanced enforceability of & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission security to the lender. Further, the failure to liquidate ETIL as per the loan agreement was, inter alia, would have resulted into default with loan agreement and cancellation of loan leading to amount becoming immediately payable to the lenders (Page 914 of ECL ITAT PB). Therefore, the liquidation of ETIL was driven by commercial considerations as seen from the aforesaid sequence of events. The said liquidation was in the interest of these parties, who in the absence of such liquidation would have been regarded as defaulters. Given this, ETIL noted in its resolution that the same is inter alia in the best interest of the shareholders. (Para 139, Page 90 of ECL ITAT PB) b) It should also be noted that liquidation of a company is a shareholder’s function and there is no provision under the Companies Act, 1956 which empowers a company to restrict its shareholders from voluntarily dissolving a company. Therefore, the argument of Revenue that ETIL did not have control over its own liquidation is without any basis and bad in law. Further, it is submitted that after the Assessee in a meeting of its Board passed a resolution for liquidating ETIL, the same was subsequently discussed in the Board meeting of ETIL and further proceeded with the liquidation. (Para 140, Page 90 of ECL ITAT PB)

Given the above, the Assessee would like to submit that the liquidation was driven by commercial considerations accordingly, no adverse inferences can be drawn against the Assessee.

B) No control over Page 19 Refer response to Sr (IV).5 of the Revenue submission pledging one’s own shares and in what manner & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission C) The owners of the Page 19 a) As submitted above, ECL/ETIL have discussed in the shares had been denied Board meeting the loan agreements and security the rightful claim and agreements that were required to be executed in order to use of the money borrow money under the various loan agreements. borrowed based on one’s Therefore, it is incorrect for the Revenue to contend that own pledged shares ECL/ETIL have been denied the rightful claim and use of the money borrowed basis the pledged shares and did not have control over decision to sell shares and its proceeds since the aforesaid are the consequences of agreeing to D) Owners did not have Page 19 such arrangements. (refer response to Sr. (IV). 4-5 of the control over decision to Revenue submission) b) It is further submitted that in fact ECL has benefitted out sell share, and how to of the loans taken by ECML because out of the loan of sell the shares and its USD 1.1 billion taken in January 2007 from SCB UK, proceeds USD 526 million was paid by ECML to ECL as share application money on behalf of ECML. ECL in turn used the funds so received to infuse capital in ETIL and in ECom (which was effectively used by ETIL to acquire E) More importantly, Page 19 VEL shares and repay its existing debts taken to acquire owners did not have VEL shares and by ECom to repay its existing debts taken right to utilize the sale to acquire VEL shares) (Page111 and 112 of ECL ITAT proceeds, which has PB). been used by various c) In large multinationals, it is normal for companies to other companies of this support one another to maximize overall benefit to all in group the group. Further, it would be appreciated that it is natural for a subsidiary company to act for the benefit of its holding company. Maximizing shareholders’ wealth is the ultimate objective of any company (Page 112 of ECL ITAT PB). d) The investments in VEL by ECL yielded significant gains/ value to ECL and ECL was able to support/assist its overseas group entities to make other investments. It may also be noted that various group entities have supported/ assisted ECL. Illustratively, when ECL required funds for acquiring ETIL shares, ECL obtained funds in the form of interest-free and temporary loans from EIHL, Mauritius (the then shareholder of ECL) and EGFL, Cayman Islands (the then indirect shareholder of & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission ECL). Further, group entities also provided non-monetary support to ECL such as assistance/ support of different personnel with relevant expertise in various fields. The group entities co-operated with each other for reciprocal/ mutual benefit and interest (Page 112 of ECL ITAT PB). e) The sale of the shares held in VEL has been discussed by the Board of directors of the Assessee. Kindly refer Sr C of positive case sheet attached as Exhibit A on Page 1727 of ECL ITAT PB. f) As regards utilisation of sale proceeds, it may be noted that the Assessee was a guarantor to the 3.59 billion loan granted to ECML by a consortium of lenders led by SCB, UK in August 2007 (Page 1711 of ECL ITAT PB). As the loan was to be repaid and ECML (the borrower) did not have the funds to repay, the Assessees sold its VEL shares in order to meet its obligations under the loan agreement towards repayment of the facility (Para 184, Page 115 of ECL ITAT PB). The tax authorities cannot deny treaty benefits to Mauritius companies by stating that the sale proceeds received by the Mauritius company had ultimately been paid over by it to the shareholder - Vodafone International (SC) (supra) (Para 97 of Radhakrishnan), Becton Dickinson (Mauritius) Ltd (434 ITR 180) (AAR) and E*Trade Mauritius Limited (2010) 324 ITR 1 (AAR) (Para 188-189, Page 116 and Page 1717 of ECL ITAT PB) g) The transactions were undertaken for commercial reasons and it is not open to the tax authorities to step into the shoes of the Board of directors and question the business purpose of a transaction. The Assessees had also benefited from the various loans that were raised on the basis of ETIL/VEL shares and therefore, it is incorrect for the Revenue to argue the aforesaid as it is contrary to the facts on record. (Para 184-187, Page 116 of ECL ITAT PB) F) Decision making and authority does not lie with ECL/ECom & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission a) Cerebral Control in Page 19 a) The Revenue has failed to appreciate that: i) India: All the All the directors on the Board for A.Y. 2012-13 were vital/cerebral residents of Mauritius except Ms. Dina Wadia (Para functions of ECL 16, Page 21 of ECL ITAT PB) who was appointed and ECom being by the lenders. centrally controlled ii) None of the directors on the Board for A.Y. 2007-08 and managed from to A.Y. 2012-13 were residents of India except Ms. India by Essar Group Dina Wadia (Page 1626 of ECL ITAT PB) who was executives based in lender’s nominee director on the Board. iii) The Board of directors have taken relevant decisions India at the instance of Ruias. in the meeting and thereafter have passed resolutions authorising various personnels of group companies for execution of agreements and security documents. This fact has also been accepted by the AO and CIT(A) that the group personnels were authorised by the Assessee. [Page 92-95 of ECL CIT(A) order and Page 116-118 of ECL Assessment Order] (Page 1712 of ECL ITAT PB) iv) The agreements and security documents have been signed and executed outside India. (Para 34-39, Page 28 and Page 1712 of ECL ITAT PB) v) There is no evidence or material which shows that any decision was taken by personnel of group companies or much less that the decisions were taken in India at the instance of Ruia family members. (Para 34-39, Page 28 and Page 1712 of ECL ITAT PB) vi) Typically, the relevant boards of the respective entities authorise the directors along with experienced personnel of the group with relevant expertise, for executing the documents under delegated authority for administrative convenience. This is not at all uncommon amongst large business houses/ groups and helps optimise cost and bring efficiencies. b) The only basis of Revenue’s conclusion that the control and management of the Assessee is in India is that the agreements and security documents have been signed by & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission the personnel of group companies who were residents in India. c) The Assessee submits that the argument of the Revenue is incorrect and unsustainable in law for the following reasons: i) According to the Revenue the person signing and executing the documents is same as the Board of directors who have authorised him to do so. This is directly in contradiction with the law laid down by Bombay High Court in case of Narottam Pereira Ltd (1953) (23 ITR 454) which has held that the control and management is with the Board of directors and not with the persons who have been delegated certain functions. ii) In any case, the Revenue has not brought any material on record to even suggest that the decisions have actually been taken or emanated from India and much less at the instance of Ruia family members. On the contrary, all the meeting for A.Y. 2012-13 and for earlier years have taken place in Mauritius.

Therefore, the argument of the Revenue that the cerebral control is in India is perverse, baseless and contrary to the evidence on record. b) Unified Central Page 19 a) The Assessee submits that the argument of the Revenue Command is obvious that there is a unified Central command when viewed when viewed holistically is also unsustainable and without any holistically: Entire evidence in support. As explained above, the evidence on process i.e. creation record shows that the control and management of the of various entities, Assessee rests with the Board of directors in Mauritius. consolidation of Further, the Revenue has not found any evidence or shares (of material to support its conclusion that the decisions have VEL/HEL) in been taken by Unified Central command and not by the various entities – Board of Directors. The argument of the Revenue is with varying based on following allegations/ inferences: i) percentages of Creation of various entities: onshore and Entities have been incorporated for business and & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission offshore, borrowings commercial reasons as explained before the AO and for the benefit of CIT(A) (Para 152-153, Page 94 and Page 1735-1740 Essar Group and to of ECL ITAT PB) fund share ii) Consolidation of shares in various entities with acquisition by varying percentage onshore and offshore: pledging the very This allegation is factually incorrect and there is no shares of VEL, consolidation of VEL shares onshore and offshore. passing on benefit of The shares of VEL held by ETIL were migrated on rights issue to a liquidation due to various regulatory and commercial subsidiary without reasons as explained above. iii) Borrowing for the benefit of Essar group: consideration, creation and The borrowing based on the VEL shares was for the dissolution of ETIL benefit of the Assesseeand also the group. The same to make onshore is permissible in law and does not show lack of shares as offshore, control and management as held by Vodafone the impugned International (supra) (Para 79) transactions of iv) Funding of VEL shares by pledging the shares of transfer/sale of VEL: shares in 2011 and The same is a normal transaction which takes on day use of sale proceeds to day basis in the commercial world. For example, to repay the loans an individual buys a house with borrowed money by and for the benefit of pledging the same house (which he is buying) with a Essar Group is a bank. unified exercise v) Passing on benefit of rights issue to subsidiary controlled and without consideration: managed centrally in These facts pertain to the appeal of ECom and India by the Essar therefore they are not relevant to decide the issue Group and not arising in the appeal of ECL before the Tribunal. isolated independent vi) Creation and dissolution of ETIL to make onshore decisions taken by shares as offshore: the entities The Assessee submits that the very transfer of shares concerned. to ETIL and application to RBI for pledging of VEL shares by ETIL shows that the Assessee did not want to transfer the VEL shares outside India and the same was done only after the rejection by RBI of the pledge application. (Para 136-137, Page 89and Point C, Page 1708 of ECL ITAT PB) vii) Use of sale proceeds to repay the loans and for the & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission benefit of Essar group: The loan was taken for the benefit of the Assessee and for the expansion of the group. Therefore, the repayment of the same from the sale of shares does not in any manner show that the Assessee is not in control of the affairs of the company. Supreme Court in case of Vodafone International (supra) has specifically held that the same is permissible and there is nothing incorrect about it in law. (Para 248- 251, Page 149 of ECL ITAT PB) c) No role in decision Page 20 a) It is incorrect on the part of the Revenue to allege that making: mere there is ratification and acquiescence to the directions ratification, issued by executives of Essar group from India. As acquiescence to the explained above, the Revenue has not produced any direction given by material/ evidence to show that directions have been executives of Essar issued by executives of Essar group and such directions Group from India by have been issued from India. As already submitted, the the Board of decisions have been taken by the Board of directors in the Mauritian meeting held in Mauritius as evident from various Companies. material/ evidence on record. Therefore, the contention/ allegation of the Revenue is without any basis and is liable to be rejected in law. (Para 99, Page 65 and Page 1712 of ECL ITAT PB) d) Three a) These facts pertain to the appeal of ECom and therefore Agreements Page 20 for acquisition of they are not relevant to decide the issue arising in the HEL/VEL shares in appeal of ECL before the Tribunal. the name of ECom by the Essar Group. (i) Share Purchase Agreement dated 03.07.2004between Distacom India Co. Limited and ECom (formerly Essar Telecom India Holdings Limited)

& 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission and Essar Global Limited Mauritius (now EIHL). The agreement with Distacom has been signed by Neeraj Gupta, an India based employee of Essar Group. This person has no employment relationship (as evident from the meagre expenditure on this account in the Financial Statement) or contractual relationship (as evident from the Board minutes).

(ii) The a) These facts pertain to the appeal of ECom and therefore (Share Page 20 Purchase they are not relevant to decide the issue arising in the Agreement dated appeal of ECL before the Tribunal. 03.07.2004 between Distacom India Co. Limited and ECom) agreement has Essar Global Ltd. Mauritius as co- contracting party and requires Essar Global Mauritius to ensure that ECom fulfils all the conditionalities of the agreement. The & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission role of Essar Global limited, Mauritius being pivotal to the affairs of ECom(M) and ECL(M), the Board minutes of ECom(M) were examined to understand the role assigned to this company. However, there is no mention, discussion, agreement or understanding with regard to Essar Global Ltd., Mauritius assuming such role in acquisition of shares from Distacom.

(iii) Various decisions Page 21 a) These facts pertain to the appeal of ECom and therefore for complying to they are not relevant to decide the issue arising in the Clause 2 of the appeal of ECL before the Tribunal. agreement has not been taken by the Board of ECom(M). It is not known as to who has taken this vital decision in respect of acquisition of shares of Hutchison Max Telecom Pvt. Ltd. India (HMTL), & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission even though the same is claimed by the Applicants to be acquired by ECom(M).

(iv) Share a) These facts pertain to the appeal of ECom and therefore Purchase Page 21 Agreement dated 16 they are not relevant to decide the issue arising in the July 2004 between appeal of ECL before the Tribunal. ECom (formerly Essar telecom India Holdings Limited) and Hutchison Telecommunication (India) Limited (HTIL-BVI). The acquisition of 19.60% shares of HMTL, as sequel to the Agreement with Distacom by ECom is for a consideration of promissory note issued by HTIL (BVI) in favour of Essar for an amount of USD 76,633,333.

(v) The agreement has Page 21 a) These facts pertain to the appeal of ECom and therefore been signed by they are not relevant to decide the issue arising in the Vikash Saraf, Sr. appeal of ECL before the Tribunal. Executive of Essar Group in India. This person has no employment relationship (as evident from the & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission meager expenditure on this account in the Financial Statement) or contractual relationship (as evident from the Board minutes).

(vi) Share Purchase Page 21 a) These facts pertain to the appeal of ECom and therefore Agreement dated they are not relevant to decide the issue arising in the July… 2004 (date appeal of ECL before the Tribunal. not provided) between ECom and HTIL (BVI) Holdings Limited. (This agreement has not been provided by the Assessees).

(vii) As regards the Page 22 a) These facts pertain to the appeal of ECom and therefore acquisitions of they are not relevant to decide the issue arising in the 2,12,54,008 of appeal of ECL before the Tribunal. HMTL from Distacom by ECom in 2004, the source of acquisition is submitted to be loan from Amaranth LLC and ADRC Limited vide their agreement dated 20 July 2004 with Essar Global Ltd, Mauritius & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission (presently EIHL) as the guarantor and ECom(M) as the borrower. In this agreement, Essar Global Limited, Mauritius has entered into agreement jointly with ECom, even while it has been designated as guarantor. The responsibilities of Essar Global Limited Mauritius is absolute towards the performance of the Agreement required to be done by Essar Group which could be understood from para 15 of the agreement. However, there is no deliberation with regard to such overarching role of Essar Global Ltd Mauritius in the relevant Bord minutes of ECom.

(viii) Some of the Page 22 a) These facts pertain to the appeal of ECom and therefore noteworthy they are not relevant to decide the issue arising in the definitions as appeal of ECL before the Tribunal. defined in para 1.1 & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission of the agreement and applied to the stipulations in the agreement are as under: o “Essar Group means the groups of companies affiliated with the Ruia family”. o Control means the power to direct the management and the policies of an entity whether through the ownership of voting capital, by contract or otherwise. o Clause 7.2 of the agreement stipulates that upon change of control of the Ruia family, the loan facility for acquisition of shares from Distacomceases to have effect (ix) The agreement has a) Page 23 These facts pertain to the appeal of ECom and therefore been signed by they are not relevant to decide the issue arising in the Neeraj Gupta, an appeal of ECL before the Tribunal. Essar Group Senior Executive based in India on behalf of both ECom Mauritius and Essar Global Mauritius.

& 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission (x) From the contents Page 23 a) These facts pertain to the appeal of ECom and therefore of the agreementit they are not relevant to decide the issue arising in the is clear that all appeal of ECL before the Tribunal. decision and actions have been taken by Senior Executives of Essar Group in India and the loan is based on the foundation of control, management and affiliation by ‘Ruia family’ (xi) Subsequent Page 23 a) These facts pertain to the appeal of ECom and therefore acquisition of they are not relevant to decide the issue arising in the 4,397,381 shares appeal of ECL before the Tribunal. of HEL on account of right issue of HEL- HEL has issued Right issue for subscription of 6/29 shares by its shareholders. ECom Mauritius by virtue its ownership of 6.19% share in HEL is eligible to avail of Right issue. However, even while its newly acquired subsidiary ECHL(M) has not made any payment & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission towards this rights issue, the share acquired through the right issue have been transferred in its favour. The Board has not deliberated upon commercial substance of this transfer. e) Rights shares having Page 23 a) These facts pertain to the appeal of ECom and therefore been transferred to they are not relevant to decide the issue arising in the the wholly owned appeal of ECL before the Tribunal. subsidiary, without payment of any consideration and without the Board discussing and deciding to this effect, leads to the inference that the various corporate entities among the group companies lack their separate corporate identity. f) Another striking Page 23 a) These facts pertain to the appeal of ECom and therefore feature observed they are not relevant to decide the issue arising in the from the Board appeal of ECL before the Tribunal. minutes corresponding to the loan facility dated 20.07.2004 is that While the minutes suggest the possible & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission source of subscription to the right issue as loan from Essar Infrastructure Holding Ltd., in actual practice the right issues has been subscribed out of short-term loan from American Express Bank.

V. Role of key Page 24 a) The Assessee submits that the allegations made by the AO executives starts from in the assessment order which have been repeated by the CIT(A) in its order were rebutted in detail before the para 33 (internal Page 87 of CIT(A) order up CIT(A) by way of written submission filed by the to Page 134) (None of Assessee and were referred to at the time of hearing before which was disputed the Tribunal. Therefore, the contention of the Revenue that before the Hon’ble relevant aspects have not been disputed by the Assessee is Tribunal) incorrect and contrary to the evidence on record.

1. Para 33 - 33.3 of Page 24 a) Here the CIT(A) has provided profiles of persons CIT(A) order deals authorised by the board of ECL. The profiles themselves broadly on the above show that the persons appointed are qualified people aspect including the having relevant expertise. references of key persons individually 2. Page 92 of CIT(A) a) The learned AO/CIT(A) have also accepted the fact that Page 24 order contains a table various people have been authorized by the Board of the of personsauthorised directors of the Assessee. [Page 92-95 of ECL CIT(A) as per Board minutes order and Page 116-118 of ECL assessment order]. for ECL(M). Further, it is submitted that there is a significant difference 3. Page 92 – 95 of between taking decisions (which are taken by the Board) Page 24 CIT(A) order refers and execution of documents (done by authorised to the person signatories under delegated authority by the Board). It is a authorised as per legally accepted that a decision maker may be an executor Board minutes along of the said decision, however, the executor of a decision & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission with purpose of may not be the same person/ individual who has the authorisation in the authority to take a decision. Therefore, the facts on record case of Essar Power show that the decision have been taken by the Board of India Holdings directors, and they have authorised relevant persons for Limited which later execution of transactions. (Para 37, Page 29 and Page 1712 became ECom. of ECL ITAT PB) b) Name of Essar Power India Holdings Ltd was subsequently changed to Essar Communications Limited (on 12 December 2005)

4. Page 96 of CIT(A) Page 24 a) These facts pertain to the appeal of ECom and therefore order refers to the they are not relevant to decide the issue arising in the same in the case of appeal of ECL before the Tribunal. ECom.

5. Page 104 of CIT(A) Page 24 a) These facts do not pertain to the appeal of ECL and order refers to ECML therefore they are not relevant to decide the issue arising in Mauritius. the appeal of ECL before the Tribunal.

6. Page 105-107 of Page 24 CIT(A) order refers to ECIL.

7. Page 107 – 119 of Page 24 a) As submitted above, the migration of shares by ETIL to CIT(A) order refers ECL was due to reasons beyond the control of the to ETIL which Assessee and was necessitated as a consequence of the transferred its failure to obtain pledge approval from RBI, in order to onshore holding in achieve the commercial purpose of monetising the value of VEL to ECL and VEL shares by raising offshore loans. migrating it into offshore

8. Page 120 and 121 of Page 24 a) The Mauritius Company law allows the Board to conduct CIT(A) order - Date the business of the companies through written resolutions. wise chart of Board As per Section 158 read with Eighth Schedule of the minutes / written Companies Act, 2001, in Mauritius a written resolution is resolutions of ECL, as valid and effective as if it had been passed at a meeting ECom, ECML and of the Board duly convened and held. Further, as per the & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission ETIL settled judicial position on the subject, it is only the control and management of the year in which the income is earned that is relevant for determining the residential status of that year. In the present case, the Assessee held 11 Board meetings discussing various affairs of the company in detail and taking decisions key to its affairs, during the year under consideration i.e. F.Y. 2011-12 (and no written resolutions were issued during that year. (Para 65, Page 46 of ECL ITAT PB)

9. Page 121 – 124 of Page 24 a) It is submitted that there are no discrepancies in the Board CIT(A) order - minutes but only clerical/ administrative errors that have Serious discrepancies been pointed out by the lower authorities and the same in Board minutes of have been explained by the Assessee before the lower ECL Mauritius up to authorities. (Responses to the errors pointed by CIT(A) 16.08.2007 – Page 121-124 of ECL CIT(A) order - refer Sr. No. 1-19 of Incidents casting Exhibit B on Page 1729 of ECL ITAT PB) doubt over CMC in b) These minutes do not relate to the year under consideration Mauritius. and have no bearing on availability of India – Mauritius DTAA benefits for determining taxability of capital gains arising from sale of the VEL shares in the hands of the Assessee. However, the Assessees in any case have provided clarification before the lower authorities. (Page 1712 and 1725 of ECL ITAT PB)

10. Page 124 – 126 - a) These facts pertain to the appeal of ECom and therefore Page 24 Serious discrepancies they are not relevant to decide the issue arising in the in Board minutes of appeal of ECL before the Tribunal. ECom Mauritius up to 16.08.2007 – Incidents casting doubt over CMC in Mauritius.

11. Page 127 – 133 - Page 24 a) For responses to the errors pointed by CIT(A) Page 127- Board minutes of 138 of ECL CIT(A) order - refer Sr. No. 20-27 of Exhibit ECL and ECom for B on Page 1731 of ECL ITAT PB b) In response to Revenue’s allegation in para 34.2 of the the F.Y. 2010-11 and & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission 2011-12 CIT(A) order [Page 134 of ECL CIT(A) order], it is (observations/ submitted that it is evident from the due diligence report instances casting from BLC Chambers, the Board minutes of ECL for F.Ys serious doubt over 2010-11 and 2011-12 had been contemporaneously shared the genuineness of with BLC Chambers and the report of BLC Chambers was the meetings and the contemporaneously provided to the MRA vide the recording of minutes) application dated 26 April 2012. The report also summarizes the said minutes (refer Page 1649 of ECL 12. Page 134 to 138 Page 24 ITAT PB). It is also relevant to note that extracts of brings out again the various Board meetings including for the relevant year minutes for the F.Y. have been contemporaneously shared with BLC Chambers, third party lenders, Vodafone and Assessees auditor. 2010-11 and F.Y. Hence to allege that the Board minutes of F.Y. 2010-11 2011-12 for doubtful and 2011-12 are of doubtful authenticity, is completely authenticity. misplaced and should be rejected. (Para 234, Page 144 and Page 1714 of ECL ITAT PB) 13. Page 141 of CIT(A) Page 25 a) Kindly refer to response at Page 172-175 and Page 1724 of order - CIT(A) ECL ITAT PB reiterates the findings of the AO as to the list of documents which were not submitted by the Assessees for F.Y. 2010-11 and 2011-12 even during the hearing on 6 April 2017 before the AAR.

Board of Directors of the Group Companies Abdicating Responsibility related to the Affairs A. As is evident, from the Page 25 a) The contention of the Revenue is factually incorrect as the minutes of the Board, decision regarding liquidation of ETIL was taken by ECL discussed supra, and also in its Board meeting held on 10 September 2007 (Page 633 the Board minutes of of ECL ITAT PB) and was further noted by the Board of ECL(M), that the directors of ETIL on 12 October 2007. Therefore, it is decision for voluntary incorrect to say that the decision regarding liquidation of liquidation has not taken ETIL was not taken by ECL or ETIL. (Para 129, Page 85 & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission place in Board minutes and Point B, Page 1726 of ECL ITAT PB) b) In fact, the Revenue has not produced any evidence which of any of the relevant Companies, that is ECL demonstrates that the decision regarding liquidation of and ETIL. The entire ETIL was taken by any other person than the directors of decision has been taken ECL and ETIL. Therefore, the argument of the Revenue centrally by the Essar that the decision has been taken centrally by the Essar Group and executed by group is perverse and contrary to the evidence on record. and through the employees of the Essar Group in India B. Acquisition of shares of Page 25 a) The contention of the Revenue is incorrect because the ETIL is an important application made by ETIL was pending for approval of event so far as the affairs FIPB which was received only on 11 December 2006 and of ECL is concerned. immediately thereafter, the Board of directors have However, in the minutes discussed the matter of receipt of FIPB and investment to Book of the ECL, there be made in ETIL on 5 January 2007. Therefore, the is no mention with argument of the Revenue that an important event relating regard to this affair as on to investment in ETIL is not found in minutes is incorrect the date of the FIPB and bad in law. (Para 72, Page 49 and Page 1709 of ECL Application. In fact, on 5 ITAT PB) January 2007 that is almost after 6 months of the submission of FIPB Application for investment by ECL(M) into ETIL(India) shareholding, there is mention for the first time in the Board meetings:

C. In the Board minutes of Page 25 a) From the extract of the minutes for the meeting on 5 ECL(M), the recording January 2007, it is clear that the stake of VEL then held by of fact with regard to ETIL was not considered by the Board of ECL as 15.85% ETIL holding 15.85 % but that ETIL wished to increase the stake to 15.85%. The shares of HEL and VEL relevant extract is below: on relevant date is “He suggested that with respect to the above, it would wrong. In fact, on 5 be good idea to consider investment in the Indian & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission January 2007, only group company Essar Telecom Investment Limited 49,706,826 shares were (ETIL) which currently holds equity stake in Vodafone with ETIL and not 15.85 Essar Limited and wishes to increase the holding upto % as recorded. Thus, the 15.85%” directors are completely unaware of the correct b) The allegation by the Revenue is entirely misplaced. set of facts. The Board of ECL(M) had no idea (Para 49, Page 37 of ECL ITAT PB) with regard to its proposed investment in ETIL while letter had already been issued to FIPB on behalf of the applicant company D. While ETIL has allotted Page 26 a) On 5 January 2007 the Board of ECL had authorisedany shares to ECL on 02 director to explore and make investments in ETIL. February 2007 and 26 Subsequently, investments into ETIL were made on the February 2007 totalling authorisation of director of the Assessee on 8 January 154625210 in numbers, 2007. The Assessee would like to respectfully submit that the Board of ECL has once the decision to make investment into ETIL was got to know about this already made by the Board, no further deliberations was vide minutes dated 7 required by the Assessee’s Board for any future allotment March 2007 other than taking the allotment of ETIL’s shares on record. It would be appreciated that allotment is a process that is undertaken by the investee company and hence the same was merely noted by the Assessee as a shareholder of ETIL in its subsequent Board meetings. b) The written resolution of the directors dated 7 March 2007 of the Assessee only records the fact of allotment of equity shares by ETIL, the last of which allotment was on 26 February 2007. Based on this written resolution of 7 March 2007, it cannot be said that the Board of directors of ECL came to know about the investment in ETIL only on 7 March 2007. (Para 103, Page 66 and Point G, Page 1710 of ECL ITAT PB)

& 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission Hence, it cannot be said that the Assessee’s Board was unaware of allotment of shares by ETIL and accordingly, no adverse inference could be drawn from the aforementioned allegation.

E. The next most important Page 26 a) On 3 August 2006, the Assessee had authorised any event of ECL(M) is - director to seek shareholder support and to fund ECom at investment into the its request. The Board of directors of ECL discussed that Share Application ECom had borrowed funds from parties leading to high money of ECom(M) borrowing costs and that ECom wished to raise funds by amounting to USD way of equity to repay its existing borrowings and to fund 153.177 million on 3 operations. Accordingly, this shows that ECL was well March 2007. There is no aware about repayment requirement of the loan of ECom. mention about these Hence, the allegation of the department is baseless, since important affairs in the they have ignored the authorisation of 3 August 2006. Board minutes for the (Para 68, Page 48 and Page 1732 of ECL ITAT PB) whole of F.Y. ending 31 March 2007 even while the amount has been received and utilized inter alia for repayment of loan facility for USD 140 million along with interest. a) In the Board meeting of ECL held on 5 January 2007, it F. After the close of the Page 26 F.Y., that is on 27 April was resolved to estimate the requirement of funds for 2007, the matter with investment in ETIL and authorise any one director of ECL regard to receipt of share to discuss with shareholder regarding requirement of application money of funding by way of equity. USD 558.786 has been b) Therefore, the Board of directors of the Assessee was well ratified by the Board. aware of the investments into ECom and ETIL and the This implies that the written resolution dated 27 April 2007 merely ratifies the Board of ECL(M) was investment into ECom and of investment of ECML into neither aware of (i) ECL which was already decided. Investment into the c) Hence, the argument of the Revenue that the Assessee was share application money not aware of the investment in ECom and investment by of ECom(M) nor aware ECML in the Assessee is factually incorrect and bad in & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission of (ii) Investment by law. ECML(M) into the (Para 68, Page 48 of ECL ITAT PB) Share Application money of the applicant.

G. Similarly, the Board Page 26 a) In this regard, it is respectfully submitted that these minutes of ECML(M), allegations made by the Revenue are not applicable in the ratifies the investments present case. The observations of the Revenue do not into ECL on 27 April pertain to the Assessee. (Para 119, Page 78 of ECL ITAT 2007, i.e. a date PB) subsequent to the b) In any case, on 29 January 2007, the Board of directors of investment of such huge ECML held meetings and discussed to make investment in amount out of the loan ECL wherein it was informed to the Board that the proceeds facilitated on subsidiary of the company i.e. ECL had approached the the basis of pledge of company for finance in the form of equity shares in order HEL/VEL shares owned to enable ECL to make downstream investments and its by ETIL India and business operations. Hence, the Board of directors of ECom(M). ECML was aware about investment into ECL.

H. Even, the Board minutes Page 26 a) These facts pertain to the appeal of ECom and therefore of ECom(M), ratifies the they are not relevant to decide the issue arising in the investments received appeal of ECL before the Tribunal. from ECL on 27 April 2007, i.e. a date subsequent to the investment of such huge amount out of the loan proceeds facilitated on the basis of pledge of HEL/VEL shares owned by ETIL India and ECom(M). I. It is noteworthy to Page 26 Refer response at Sr. No. (IV). F.(d)(iii) of the Revenue know, that various submission decisions for complying to Clause 2 of the agreement has not been taken by the Board of & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission ECom(M). It is not known as to who has taken this vital decision in respect of acquisition of shares of HMTL, even though the same is claimed by the Applicants to be acquired by ECom(M).

J Point J on Page 27 of the Page 27 Refer response to Page 31 of the Revenue submission submission VI – Core aspects relevant to a) The Assessee submits that the allegation made by the AO the case brought out in the in the assessment order which have been repeated by the order of the CIT(A) CIT(A) in its order were rebutted in detail before the approving the order of the CIT(A) by way of written submission filed by the Assessee AO (None of which was and were referred to at the time of hearing before the disputed before the Hon’ble Tribunal. Therefore, the contention of the Revenue that Tribunal) relevant aspects have not been disputed by the Assessee is incorrect and contrary to the evidence on record.

2. No decision making Page 29 a) The allegation is factually incorrect as in the financial for valuation for statements the Assessee has valued the put option transfer (Page143) agreement under which VEL shares were to be sold and, in the Board minutes, the valuation aspect that has been & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission discussed is regarding the 3G spectrum bidding. Therefore, the two points are completely different and distinct. b) The fair valuation of options reflected in the financial statements is a requirement under the applicable accounting framework which have been confirmed by the auditors and subsequently approved by the board of directors in its meeting. (Para 41, Page 30 and Page 1715 of ECL ITAT PB) c) The allegation about no discussion in the Board minutes about Market Value put option is factually incorrect. The fair market value put option amendment agreement protected the rights of the Assessee and provided that any excess bidding by Vodafone for 3G spectrum leading to fall in value of VEL shares would be compensated to the Assessee. The aforesaid aspect of excess bidding for 3G spectrum was specifically discussed by the Board of Directors in the Board meetings held on 10 September 2009, 2 March 2010, 28 July 2010 and it was decided that the Assessee would be protesting against the excess bidding by Vodafone and will also request Vodafone to compensate for the fall in value of VEL shares. Therefore, it is incorrect to allege that the aforesaid aspect is not found in the Board minutes. (Page 1727 of ECL ITAT PB) d) It is further submitted that the minutes of ECML discuss the agreement in detail and the same brings out that the concern of the Assessees were taken care of in the Fair Market Value Put Option amendment agreement therefore, the allegation that there is no discussion in the minutes of ECom, ECL and ECML is factually incorrect and bad in law.

3. No participation in Page 29 a) The contention that there was no participation by the spectrum auction Assessee in 3G spectrum auction is factually incorrect. As (Pg.144) the aspect of 3G spectrum bidding was discussed by the Board in the following Board minutes:

 On 10 September 2009 – Mr. Uday Gujadhur was authorised to obtain 3G valuation in consultation with & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission ECHL India  On 2 March 2010 meeting 3G valuation report tabled before the Board  On 28 July 2010 the Board approved the compensation of Rs. 3404 million on account of 3G impact (Page 1715 and 1727 of ECL ITAT PB).

5. Non-evaluation of Page 29 a) The allegation that the Board of directors were not aware tax payments by the of the application filed before the AAR by Vodafone is Assessees and done incorrect as the Board minutes of the Assessee for the by other entities meetings on 28 July 2010, 23 November 2010 and 30 (Pg.145). March 2011 clearly show that the Board of ECL were aware of the application unilaterally filed by Vodafone to the AAR. b) The other allegation that the Assessee was not aware of the nominee of Vodafone group till 15 May 2011 is also incorrect as the option to sell the shares was exercised by the Assessee only on 30 March 2011 and thereafter the Board of directors were informed about the nomination of Euro Pacific Securities Limited (‘EPSL’) as noted in the minutes dated 15 May 2011. c) The Assessee further submits that as evident from the above mentioned Board minutes, the Board of directors have discussed the issue of tax dispute with Vodafone and were aware that an application is pending with AAR therefore, immediately after exercise of option, the & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission Assessee filed an application for intervention before the AAR which was signed by one of the Directors Mr. Sushil Kumar Baid and was also discussed in the Board minutes dated 15 May 2011. (Para 57-58, Page 42 and Page 1716 of ECL ITAT PB)

6. No a) The contention of the Revenue that the Board minutes of role for the Page 29 Assessees in giving the Assessee do not speak of the manner in which various effect to the transfer responsibilities as stipulated in shareholder term sheet are (Page 145 and 146) to be carried out is incorrect and contrary to the evidence on record. It should be noted that the Board in their meeting dated 24 June 2011 has considered the settlement that was proposed by Vodafone and authorized, inter alia, Sushil Baid and Uday Gujadhur (both directors to the Assessee) to execute various agreements in connection with such settlement which included the agreement to settle and terminate the shareholder term sheet. b) Further, post the exit of the Assessee from VEL it is but natural that the members nominated would resign from the Board of VEL and the same does not require any discussion in the Board meetings of the Assessees. (Para 59, Page 43 of ECL ITAT PB) c) It should also be appreciated that ECL has nominated representatives to attend various meetings, and the Board has taken important decisions in relation to VEL (refer Exhibit E to submission before CIT(A) dated 9 November 2021) including sale. (Page 1716 of ECL ITAT PB) d) Given the above, it is incorrect on the part of the Revenue to allege that Assessee has no role to play in giving effect to the transfer and is in fact contrary to the evidence on record.

7. Assessees a) The Revenue has erred in alleging that the Assessee has neither Page 29 received neither received consideration nor applied the same for its consideration nor use. applied the same for b) It is an admitted fact that the sale consideration has been its use (Pg.146). received by the Assessee in its bank account. Thereafter, the proceeds were utilized towards discharge of USD 3.59 & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission billion loan taken by ECML in respect of which the Assessee was a guarantor and the payment so made was reflected as receivable in its books of accounts, which was later converted into preference shares. c) As regards utilisation of sale proceeds, it may be noted that the Assessee was a guarantor to the USD 3.59 billion loan granted to ECML by a consortium of lenders led by SCB, UK in August 2007 (Page 1711 of ECL ITAT PB). As the loan was to be repaid and ECML (the borrower) did not have the funds to repay, the Assessees sold its VEL shares in order to meet its obligations under the loan agreement towards repayment of the facility (Para 184, Page 115 of ECL ITAT PB). The same has been discussed by the Assessee’s Board in its Board meetings dated 3 March 2011 (Page 572 of ECL ITAT PB), 25 May 2011 (Page 208 of ECL ITAT PB) and 24 June 2011 (Page 214 of ECL ITAT PB). d) In any case, the Assessee was a party to the USD 3.59 billion loan agreement that has been approved by the Board, wherein the Assessee acted as a guarantor to such loan. (Para 184, Page 115 and Page 1711 of ECL ITAT PB) e) The tax authorities cannot deny treaty benefits to Mauritius companies by stating that the sale proceeds received by the Mauritius company had ultimately been paid over by it to the shareholder - Vodafone International (SC) (supra) (Para 97 of Radhakrishnan), Becton Dickinson (Mauritius) Ltd (434 ITR 180) (AAR). The transactions were undertaken for commercial reasons and that is the legitimate objective of an SPV like the Assessee i.e. to maximise benefit to the shareholder. (Page 1717 of ECL ITAT PB)

Accordingly, it is incorrect on the part of the Revenue to make such a bald allegation.

9. Even compliance to Page 29 a) The Revenue has erred in alleging that exit by the Government Assessee from the telecom business of VEL required Regulations were not approval from FIPB, RBI etc handled by the b) It should be noted that the sale of VEL stake was by one Assessees (Pg. 148) non-resident company i.e. the Assessee to another foreign company (EPSL) and it did not require approvals from FIPB/ RBI etc on the part of the sellers. Hence there was no need for any deliberation on any FIPB/ RBI related approvals by the board of ECL. (Para 60, Page 44 of ECL ITAT PB) c) This is another example of the bald allegation that is being raised by the Revenue, which is not sustainable in the facts of the present case.

10. Breach of the lock in Page 29 a) The Revenue has erred in alleging that there is a breach of period on sale of the lock in period under Unified Access Service (‘UAS’) equity of promoters license conditions. of Assessees’ shares b) It is respectfully submitted that the Revenue cannot judge (Pg. 148). the legality of transfer when the Department of Telecom has not raised any objection. c) In any case, there is a specific exclusion from the lock-in condition in cases where the holder of license holds license & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission for multiple circles which VEL did and hence this condition is not applicable in the facts of the present case. (Page 1694 of ECL ITAT PB) d) The Assessee would also like to mention that this issue is not germane to the issue of taxability of income on sale of VEL shares in the hands of the Assessee by virtue of Article 13(4) of the India Mauritius DTAA and is liable to be rejected.

(Point E, Page 1709 of ECL ITAT PB)

VII – Tax Residency a) As submitted above, the contention of the Revenue is Certificate (‘TRC’) (None of incorrect and contrary to the facts on record, the allegation which was disputed before and contentions of the lower authorities have been the Hon’ble Tribunal) specifically rebutted by the Assessee.

1. Vide para 39 (Page Page 30 a) It is submitted that during the course of the assessment 150 and 151) of the proceedings, the AO had called for the TRC for the year CIT(A) order, the under consideration vide notice dated 7 May 2014 which authority had TRCs the Assessee furnished vide letter dated 4 June 2014 concluded that and further informed the AO that the Assessee has been a TRCs for F.Y. resident of Mauritius since inception however, the AO did 2004-05 to 2009-10 not call upon the Assessee to produce the TRC for the were not produced earlier years thereafter (Page 1611 and Page 1718 of ECL during the ITAT PB). b) It was for the first time in the assessment order that the AO assessment proceedings and no stated that the Assessee had not submitted the TRC for the application was earlier years, in response to that allegation the TRC for the filed under Rule earlier years were produced by the Assessee before the 46A for admission CIT(A). Therefore, the contention of the Revenue that the of any fresh TRCs for the earlier years were not produced before the evidence even after AO and no application was filed under Rule 46A is an adverse view was incorrect. c) In any case, the TRCs for the earlier years are not relevant drawn by the AO on this issue. since the resident status for each year has to be decided Therefore, the issue separately and TRCs of earlier years have no bearing on of TRC is actually a the year under consideration. (Page 1713 of ECL ITAT non-issue and could PB) not have been raised

2. Vide Para 40-41, Page 30 a) The Assessee submits that the allegation made by the AO Page 151 – 154, the in the assessment order which have been repeated by the CIT(A) concurring CIT(A) in its order were rebutted in detail before the with the AO CIT(A) by way of written submission filed by the Assessee catalogues the list of and were referred to at the time of hearing before the factual conclusions Tribunal. Therefore, the contention of the Revenue that none of which were relevant aspects have not been disputed by the Assessee is disputed during the incorrect and contrary to the evidence on record. hearing.

(VIII) Joint Assignment Agreement (JAA) dated 31stJanuary 2007 between Essar Group Companies : Conducting of loan proceeds taken on the basis of pledge of impugned shares, as income in favour of Group Company 1. The assignment Page 31 a) It is submitted that the transaction referred to by the agreement is based Revenue does not concern the Assessee nor in any way is on the premise that connected with the sale of VEL shares on which benefit EIHL(M) has an under India-Mauritius DTAA has been claimed by the income of USD 532 Assessee. Therefore, the allegation made by the Revenue million receivable basis this transaction is wholly unsustainable and bad in from ECML(M) law. b) Without prejudice to the above, it is submitted that the towards the sale consideration of transfer of ECL shares by ECHL to EIHL was a reversal of ECL(M) shares a transfer of ECL shares by EIHL to ECHL three months acquired by it 6 days prior and accordingly was undertaken at the same price as back for USD 1 the earlier transaction that is USD 1 from another Group c) In this regard, it is submitted that Hybrid had taken a loan Company of USD 413 million from SCB UK and had provided a ECHL(M). No loan of USD 398 million to Essar Oil & Gas Limited valuation exercise is (‘EOGL’). Further, ECML had payable of USD 532 seen to be carried million to EIHL for purchase of the Assessee’s shares. out as per the Board d) Net payable / receivable positions were as below: minutes of ECL(M) i) SCB had receivable of USD 413 million from and ECML(M) for Hybrid & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission this astronomical ii) Hybrid had receivable of USD 398 million from enhancement. It is EOGL iii) EIHL had receivable of USD 532 million from also seen that as a general practice the ECML Group is engaged in e) SCB agreed to provide a loan of USD 1.1 billion to ECML transferring the on the basis that Hybrid loan is repaid in full to reduce its ownership of these overall exposure to Essar. If ECML had lent USD 398 offshore companies million directly to Hybrid, the receivables/ payables would for USD 1 have been: i) Hybrid would continue to have a receivable of irrespective of the value of assets of USD 398 million from EOGL such companies ii) Hybrid would have a payable of USD 398 Thus, the transfer of million to ECML ownership of iii) EIHL would continue to have a receivable of ECL(M) is a USD 398 million (out of the USD 532 million) colorable device to from ECML transfer USD 532.7 f) In order to simplify the receivables / payables among the Million as income to group entities, the JAA was entered into under which EIHL(M) which following steps were undertaken: through a maze of i) Step 1: SCB granted a loan of USD 1.1 billion assignment to ECML against security of shares of the transactions without Assessee and ECom commercial ii) Step 2: ECML paid EIHL USD 398 million substance among against outstanding payable Essar iii) Step 3: EIHL provided loan of USD 199 million Communication(Ind each to KRHL & CCHL ia) Ltd Mauritius, iv) Step 4: KRHL and CCHL infused USD 199 Essar Infrastructure million each into their EGL as equity in 50:50 Holding Limited proportion (EIHL) Mauritius, v) Step 5: EGL infused USD 398 million into its Copper Canyon 100% subsidiary EEHL as equity Holding Ltd. vi) Step 6: EEHL infused USD 398 million into its Cayman Island 100% subsidiary EOGL as equity vii) Step 7: EOGL repaid USD 398 million to (‘CCHL’), Kettle River Holding Ltd. Hybrid against outstanding payable to Hybrid Cayman Islands viii) Step 8: Hybrid repaid loan of SCB (KRHL), Essar g) Net payable/receivable position was as below: Global Ltd. Grand i) SCB loan was repaid by Hybrid & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission Cayman, Essar ii) Hybrid loan was repaid by EOGL iii) EIHL receivable settled by ECML Energy Holding Ltd. h) Accordingly, the JAA was fully explained to the learned Mauritius, Vadinar Oil Mauritius, AO/CIT(A), the purpose of the transactions and how the Hybrid Capital Pte commercial objective of cleaner inter-company balances Ltd. British Virgin between various Essar entities was achieved. This is Islands (‘Hybrid’) is diagrammatically explained by way of chart attached at applied for Page 1596 of ECL ITAT PB. The slides explaining the repayment of loan transactions and the objective have been also reproduced amounting to USD by the learned AO and the CIT(A) in their orders. i) Further, reliance is placed on the case of Aditya Birla 413 million taken by Hybrid. Telecom Ltd. [2019] 105 taxmann.com 206 (Bombay High Court) (SLP dismissed - [2021] 125 taxmann.com 85), 2. Joint Assignment wherein, it was held that merely because several corporate Agreement dated 31 structures were either created or came into play in routing January 2007 the investment in the assessee through a specially between Essar constituted Mauritius based company would not be Communication sufficient to brand the transaction as invalid. j) It is quite natural for group entities to streamline inter- (India) Ltd Mauritius, Essar company balances by eliminating them to the extent Infrastructure possible. The Revenue has also failed to appreciate that the Holding Limited transactions were all amongst non-Indian entities, with no (EIHL) Mauritius, Indian tax / regulatory implications, including an Copper Canyon independent reputed foreign bank. Holding Ltd. Cayman Island, (Para 168 to 171, Page 107 of ECL ITAT PB) Kettle River Holding Ltd. Cayman Islands, Essar Global Ltd. Grand Cayman, Essar Energy Holding Ltd. Mauritius, Vadinar Oil Mauritius, Hybrid.is applied for repayment of loan amounting to

3. Even while the Page 32 a) It is submitted that the transaction referred to by the value of USD 1 is Revenue does not concern the Assessee nor in any way is mentioned as the connected with the sale of VEL shares on which benefit transactionvalueinth under India-Mauritius DTAA has been claimed by the eBoardminutesofEC Assessee. Therefore, the allegation made by the Revenue ML(M)on23 January basis this transaction is wholly unsustainable and bad in 2007, the same has law. been recorded in the b) Without prejudice to the above, it is submitted that the minutes dated 30 consideration for transfer of the Assessee was USD 532 March 2007 as USD million and not USD 1. This is evident from the financial 532.7 statements of ECML for F.Y. ended on 31 March 2007 million.However, (refer Page 581 of ECL ITAT PB) for relevant extract) and the register of Board minutes of ECML dated 30 March 2007. Due to an shareholders printed inadvertenterror in ECML resolution dated 23 January on 5 June 2007 2007, consideration was erroneously mentioned as USD 1 which is a statutory (i.e. the same as the face value). Consequently, document placed on consideration in stock transfer form and the shareholder (Page 399, Vol-5) register was also mentioned as USD 1. c) In August 2006, SCB, UK had given a loan of USD 413 shows the consideration for million to Hybrid. In January 2007, after acquiring the such transfer taken Assessee, ECML was looking to raise further funds against place for USD 1. the underlying value of its assets. The purpose of the loan taken by ECML from SCB, UK included use of the proceeds of the loan by ECML to pay EIHL towards payment of purchase consideration due from ECML to EIHL for the acquisition of the above referred ECL shares, which sum would be used by EIHL to provide funds to Hybrid, which in turn would use the proceeds to repay in full its loan from SCB, UK. d) The above explanation also evidences that the purchase consideration payable by ECML to EIHL could not have been USD 1. The amount that was paid was indeed USD 532 million and has been accounted for accordingly by ECML and EIHL. The reference to USD 1 in the register of members is to the face value of the shares transferred & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission and not the value at which they were transferred. This inadvertent error was rectified by an agreement and the same was filed with the Registrar General of Mauritius and Registrar of Companies, Mauritius. e) In any case, the Assessee was not a party to the said arrangement and hence the same is not relevant for determining the taxability on sale of VEL shares in its hands for the relevant year (i.e. F.Y. 2011-12).

(Para 104 to 108, Page 67,68 of ECL ITAT PB)

IX - Intragroup Arrangements and Agreements demonstrating melting of corporate veil 1. The Assessees ECL, Page 34 a) As per the agreement, the put options were available in Mauritius or its two forms – direct and alternative (which was indirect). precursor Avatar, as The alternative underwritten put option was for sale of well as ECom, shares of holding companies instead of VEL shares Mauritius were not directly. Such an option could be exercisable only by an party to the Put indirect holding company, such as ECML. (Page 1714 of option agreements ECL ITAT PB) dated 24 August b) Kindly see structure chart to explain business logic 2007 (before deed (commercial rationale) (refer Exhibit D at Page 1735 to of amendment dated 1740 of ECL ITAT PB) 1 July 2011) c) It is usual for multinational companies to not have multiple companies in the group run negotiations with third parties for achieving the same objective. The subsidiary companies could agree to the outcome as their objectives were being met. Hence, the subsidiaries which were VEL shareholders were not required as parties to the agreement. Accordingly, ECL was not a party to such agreement. (Para 192, Page 119 of ECL ITAT PB) d) The direct sale of VEL shares was thoroughly evaluated by ECL which has been explained in positive case sheet (refer Page 1714 and Sr. C of Exhibit A at Page 1727 of ECL ITAT PB). e) Upon exercise of the direct put option, ECL became a party to the put-option agreement vide Board resolution on 24 June 2011 (Page 214 of ECL ITAT PB) and then executed the deed of amendment on 1 July 2011 (Page 343 & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission of ECL ITAT PB), pursuant to which the sale of VEL shares have taken place. (Page 1716 of ECL ITAT PB) f) It may be noted that the Revenue has conducted assessment proceedings and sought to assess the capital gains to tax in the hands of the Assessees. Thus, the Revenue itself has thereby recognized the Assessees as the legal and beneficial owners of the VEL shares. Hence, the contention that the Assessees are sham/dummy entities and that the corporate veil should be lifted cannot be made by the Revenue. Reliance in this regard is placed on Vodafone International (supra) [Para 67], Sri Meenakshi Mills Ltd. [1967] 63 ITR 609 (SC), Aditya Birla Nuvo Ltd. (342 ITR 308) (Bom) and Alibaba.Com Singapore E-Commerce (P.) Ltd. [2023] 459 ITR 508 (Bombay) g) In any case, ECML had taken loans of USD 1.1/1.4/3.59 billion and was a party to Put option agreements. Without prejudice, it is also submitted that ECML is also a tax resident of Mauritius since its inception (holding valid TRCs issued by the MRA since inception) and would be eligible for the benefits of Article 13(4) of the India- Mauritius DTAA as such. (Para 56, Page 41 of ECL ITAT PB)

3. Both the Assessee Page 35 a) It is submitted that the transaction referred to by the companies have Revenue does not concern the Assessee nor in any way is assigned the benefit connected with the sale of VEL shares on which benefit arising to the Essar under India-Mauritius DTAA has been claimed by the Group on Settlement Assessee. Therefore, the allegation made by the Revenue & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission with Hutchison basis this transaction is wholly unsustainable and bad in Group to ECIL(M), law. amounting to US$ b) It is further submitted that the amount referred to herein 373.5 million for no has already been brought to tax by the Revenue in the consideration. The hands of ETHL. facts relating to the c) Without prejudice to the above, it is submitted that objection before Hutchison was in discussions with various other parties to FIPB, its sell its equity stake in HEL representing 67% of equity withdrawalhas not shareholding. been discussed in d) ETHL, ECom and ETIL while being vitally concerned as the Board of the to who the acquirer may be but they did not have the Assessee capacity to raise or borrow requisite funds independently Companies. The in India or from abroad Board of Applicant e) Also, any such bid would have entailed very significant have not deliberated risks. In order to protect their mutual interest and to enable upon abdication of a friendly bidder, EGL, to make a credible bid for this Authority in Hutchison’s stake in HEL, the Essar shareholders (ETHL, favour of ETHL. ETIL and ECom) decided to enter into arrangement with EGL to make a bid, which had a strong balance sheet at that time and could try and raise the necessary funds required for acquisition of Hutchison’s 67% stake in VEL. f) EGL was entitled to the benefits on account of the following: i) EGL, being the only entity with a net-worth of circa USD 6 billion (in F.Y. 2006-07), had presence in several countries around the world. It was able to get a commitment to raise finance to the tune of USD 14 billion from Citi Group and based on their commitment letter, could make a binding offer for acquisition of VEL shares. ii) Essar shareholders benefitted by leveraging EGL’s ability to raise finance and the assurance that the alliance would maximize the long-term value of its holdings in VEL. Further, the arrangement clearly contemplated that all the risks (and therefore benefits) of financing were to EGL’s account. EGL at a huge cost and risks arranged the necessary funding for the acquisition of the Hutch’s stake and & 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission for all related legal and other costs. It also took full responsibility of protecting Essar shareholders against any downside to their investment in VEL and provided full cost indemnification and protection of minority rights. iii) EGL’s involvement helped Essar shareholders to negotiate a fresh shareholder agreement dated 15 March 2007 with Vodafone which protected rights of Essar shareholders including the Assesseeand also benefited them to obtain put option with an attractive floor price from Vodafone. Also, ECL/ ECom/ ETHL became parties to shareholders terms sheet and got minority protection as well. iv) These benefits were reaped by them without incurring any cost or risks. All the cost was incurred and risks taken by EGL. v) Accordingly, following negotiations between Hutchison, Essar Shareholders together with ECML, entered into a Settlement Agreement with Hutchison under which a consideration of USD 415 million was paid to EGL for its efforts and for the risks undertaken. g) It is submitted that the draft settlement agreement was tabled in the meeting of board of directors and cognizance of the same was taken by the board.

The tax amount was to Page 36 a) Under the Put option agreement, it was the Assessees’ be shared between EPSL position that the consideration for transfer of VEL shares and ECL/ECom was to be received without any deduction of taxes. There (Para 31, 31.1 – Page 80 was a dispute between the parties on withholding of Indian CIT(A) - ECL) taxes which was settled by the Assessees vide agreement dated 1 July 2011, wherein the Assessees agreed for deduction of taxes as against increase of consideration for transfer of VEL shares from USD 3.8 billion to USD 4.201 billion. b) It is submitted that the said allegation of the Revenue is misplaced and is not relevant in deciding the issues arising in the present appeal before the Tribunal.

& 340/Del/2022 Sr Allegations made by Reference Rebuttals of the Assessee No the Revenue to Revenue submission c) Without prejudice to the above, it is respectfully submitted that there was a clear understanding in the agreement with Vodafone that the refund of the taxes would belong to ECL and ECom. d) In any case, under the income-tax law, refund of any taxes withheld by the buyer shall belong and be claimed by the seller and further, it is ECL and ECom that have claimed the refund in their respective tax returns and recorded the refund recoverable as an asset in their financial statements. e) In view of the above, the allegation of Revenue is liable to be rejected. (Para 112, Page 70 and Page 1716 of ECL ITAT PB)

Note: Many of the above do not relate to the year under consideration and/or do not relate to the Assessee and have no bearing on availability of India – Mauritius tax treaty benefits for determining taxability of capital gains arising from sale of the VEL shares in the hands of the Assessee. However, the information/responses have been provided on a without prejudice basis in order108 to allay the learned CIT(A) and Assessing officer’s concerns and/ or address their various allegations, to the extent details are available with the Assessee.

& 340/Del/2022 A.Acquisition of Page 5 a) It is submitted that at a) ETHL was one of the 26.82% stake the relevant point of flagship companies of the in Hutchison time ETHL was a Essar group and held Essar Limited listed company and substantial stake in (HEL)/ VEL therefore, it is HEL/VEL on part of the by Essar incorrect to contend group. The AO’s order at Teleholdings that it was page 45 mentions that the Limited beneficially owned holding structure for ETHL (‘ETHL’), by 1 member of Ruia and the chart demonstrates India family. In any case, it that the ultimate owner of submitted that the the company is Mrs. Manju ownership of ETHL Ruia w/o Shashikant Ruia. is not relevant to It is also mentioned that decide the issue ETIL was incorporated in arising for November, 2004 with consideration in the ETHL as its 99% present appeal. shareholder. ETIL consolidated 15.85% stake in VEL(page 46-47 of AO order). b) The VEL shares acquired by ETIL from ETHL, Chennai were in lieu of debentures issued. The consideration for debentures has been paid from the loan taken on strength of these shares only. These are circular intra-group transactions. The security for all loans remains VEL shares. c) The Essar group created the ingenious structure of shifting holding from ETHL to ETIL and further liquidating ETIL in favour of ECL, thereby placing a structure in place whereby they could claim capital gain exemption later in Mauritius jurisdiction.

& 340/Del/2022 Thus, the ownership of ETHL was relevant in the context of the above mentioned group re- structuring and transfer of shares of VEL and subsequent liquidation of ETIL. It is the common ownership/ beneficiaries and managerial persons that made it possible to authorize and execute the above decisions B.Several Page 5 a) It is submitted that internal in the present appeal, the Tribunal restructuring is not concerned leading to with the sale of transfer of onshore stake of 10.97% [out 10.97%. of 26.82%] Accordingly, the stake Assessee is not ONSHORE required to give any [45425328 submissions since shares] the same is not relevant to the present appeal. C.Several internal Page 5 a) It is submitted that a) It is submitted that the AO restructuring while the factual in his order has amply leading to assertions made are demonstrated how there transfer of not disputed but the was no commercial 15.85% [out of inferences ought to substance in the internal 26.82%] stake be drawn is restructuring undertaken OFFSHORE incorrect and the by the Essar Group at [65634887 Assessee further various instances in the shares] wishes to clarify order. Further, a that the internal consolidated chart restructuring was regarding the frequent undertaken for changes in holding commercial reasons structure of the Essar as submitted before group companies is lower authorities. presented at pg. 100-101 of the AO’s order.

& 340/Del/2022 D. 6.19% Page 5 a)These facts pertain to offshores take in the appeal of Essar VEL Com Limited (‘Ecom’) and therefore they are not relevant to decide the issue arising in the appeal of ECL before the Tribunal. Page 1-5 a)These are factual and there are no allegations by the Revenue (except the above points). Hence, these donot merit any reply. Page 6 to 8 a) These are factual and there are no allegations by the Revenue (except the above points). Hence, these donot merit any reply. (II) Share transaction details between ETHL and Essar Telecom Investments Limited (‘ETIL’)

& 340/Del/2022 1. ETIL issued Page 9 a) ETHL was holding a) From pages 48 to 62 of the debentures 26.82% shares in AO’s order, detailed 2. ETHL VEL, however, it was arguments have been given transferred its heavily leveraged and in respect of how the shares to ETIL there were defaults liquidation of ETIL was a ETIL entity 3. made by ETHL in colourable device. The AO has no complying with the has given logical arguments resources and listing agreements to show that the liquidation is a paper with various stock of ETIL was preordained. entity exchanges. In Value of 4. b) The Notes to Financial November 2005, thisacquisitio 1.95% of VEL shares Statements for ECL for FY nis Rs. were monetized for 2007-08 mentions at note 2077.7 Rs. 200 crores from number 17 titled cr(USD Infrastructure “Subsequent Events” that 400.61 Development Finance subsequent to receipt of million) and Company RBI approval, the ETIL did not Ltd.(‘IDFC’). liquidation of ETIL was have Similarly in completed (pg. 421 of anything to December 2005, assessee’s paper book filed pay for this 3.85% of VEL shares with ITAT). acquisition were monetized for Essar 5. Rs395 crores from Communicati Telecom ons Opportunities Trust (Mauritius) (‘TOT’). However, Limited due to overly (‘ECML’) leveraged balance provided sheet and listing funds to defaults on the part of purchase ETHL, it was finding 6. Thesourceoff difficult to monetize undsexplaine the value of VEL dbyapplicants shares on favourable for terms from the acquisition of lenders. Further, the 15.85% existing regulatory shares in framework [Reserve VEL by Bank of India (‘RBI’) ETIL, India & The Foreign is stated to be Exchange as under: Management Act, & 340/Del/2022 1999 (‘FEMA’) regulations], was making it difficult to monetizethe value of VEL shares. (Para123, Page82 and Point B, Page1707 of ECL ITAT PB, also refer response to Sr. (II).7I(ii) of the Revenue submission). b) It is also submitted that FDI in telecom sector was relaxed in November 2005 upto 74% foreign shareholding from 49% earlier. Hutchand ETHL were in discussions for utilization of this excess foreign shareholding percentage (74% - 49% = 25%) wherein it was agreed that ETHL will continue to hold 10.97% VEL stake in India, which would be counted towards the FDI sectoral cap. Further, under the FDI regulation, the resident Indian promoter was required to hold at least 10% shareholding. Also, under the shareholders agreement with & 340/Del/2022 Hutch, ETHL was required to have a minimum 10% shareholding in order to enjoy certain rights. Essar group was keen to monetize its VEL stake by raising funds in and outside India funds on favourable terms. c) Given the above reasons, ETHL transferred 10.05% of VEL shares to a new entity namely, ETIL so that it could monetize the value of VEL shares in a new company having a clean balance sheet. The shares were transferred to ETIL for a value of Rs.1,032 crores and debentures of the same value were issued to ETHL (PointA, Page 1706 of ECL ITAT PB) which helped ETHL in deleveraging its balance sheet (redemption of debentures as explained below). ETIL also, acquired the aforementioned stakes in VEL (1.95% from IDFC and 3.85% from TOT)

& 340/Del/2022 d) Thereafter, ETIL was able to monetise the value of VEL shares, since it was a clean company and raised Rs.545 crores as a loan from Standard Chartered Investments and Loans (India) Limited (‘SCILL’). From the loan proceeds, ETIL redeemed part of the debentures that had been issued to ETHL. (Point B, Page 1707 of ECL ITAT PB). e) While funds were raised to some extent fromthe Indian NBFC as explained above, the regulatory restrictions constrained the ability to unlock the entire value of the VEL shares by raising ofloans on favourable terms. Withtheopeningof FDI cap asexplained above, it was thus contemplated to bring eligible VEL holding (in accordance with the proportion of foreign holding agreed with Hutch) under Essar group’s normal investment pattern (i.e. holding through Mauritius). It & 340/Del/2022 is submitted that holding of the VEL shares in a foreign- owned vertical would enhance the value of the shares since a foreign telecom holding is more marketable than an Indian telecom holding. This is because the foreign holding being held in compliance with FDI norms could be sold either to a foreigner or to an Indian party whereas Indian holding could be sold to a foreigner only if such transfer would not breach FDI caps. Further, the ability to raise finance would also be increased through a foreign- owned verticals in overseas debt markets had far greater depth than Indian markets, borrowing rates were lower overseas and raising loans overseas against security of foreign-owned Indian shares wasn’t constrained with regulatory restrictions. Accordingly, ETIL approached Foreign Investment & 340/Del/2022 Promotion Board (FIPB) for seeking permission to receive foreign funding from ECL. f) Once FIPB approved and the investment was made by ECL, ECML [earlier known as Essar Communications (India) Ltd. (‘ECIL’)] obtained a loan of USD 1.1 billion (on the strength of VEL shares inter alia held by ETIL) which could be used by the group for expansion of other businesses. Out of the aforesaid loan, USD 330 million and USD 70 million (worth of intragroup loans), ECL infused USD 400.61 million in ETIL as share capital. (Point B, Page 1707 and Point B, Page 1726 of ECL ITAT PB). The correct Rupee equivalent of the USD 400.61 million was Rs. 1,767.88 crores as mentioned in Annexure C to the submission dated 15 March 2016 filed by the Assessee to the AO. g) The aforesaid USD & 340/Del/2022 400.61 million was authorize by ETIL (Point A, Page 1706 of ECL ITAT PB):  To repay loan of SCILL which was utilized to purchase the stake of 1.95% of VEL from IDFC and to redeem part of debentures issued to ETHL amounting to Rs.275.24 crores  To pay off the balance debentures which were issued to ETHLand  To acquire the stake of 3.85% of VEL from TOT for Rs.421.27 crores (Page 101 of ECL ITAT PB) h) FDI in ETIL enabled monetization of the VEL shares resulting in raising of loan of USD 1.1 billion from overseas lender. In nutshell, all the above- mentioned transactions have been undertaken for commercial/ business reasons, and it is incorrect for the Revenue to allege that ETIL was a paper entity with no resources and had nothing to pay for the acquisition ofVEL shares or to draw any

7. Money infused Page 10 a) The correct Rupee by ECL Mauritius equivalent of the via assistance 400.61 USD 400.61 million million USD to ETIL was Rs. 1,767.88 which is Rs.2077.7 crores as mentioned cr: in Annexure C to the submission dated 15 March 2016 filed by the Assessee to the AO.  Rs.200 Cr. To Page 12 a) This is factual and there is no allegation by ETHL, Chennai the Revenue. Hence, it for redeeming does not merit any reply. debentures issued by ETHL. -Money flowing to ETHL,Chennai: ETHL floated 2 Cr fully convertible debenture of Rs 100 each around 15.01.2007. ETIL subscribed to the same and paid part of thesharecapital infused by ECL(M) (pp294-295,  20 Cr. To Page 12 a)While the factual Girishan assertion made Investment regarding the amount Private Ltd. and recipient of (‘Girishan’) for buyback proceeds is buy back of not disputed, it is shares from submitted that Girishan by negative inference ETIL sought to bemade by Money flowing the Revenue to Girishan therefrom is not company which correct / appropriate is 100% and has no basis. The controlled by buyback by ETIL Manju Ruia. The from Girishan was payment was by undertaken at Rs. 100 way of buyback per share after of 20 lakh shares obtaining requisite invested by FIPB approval. In Girishan in the any case, the share capital of Revenue’s argument ETIL. Even has no bearing on the while the shares availability of the were subscribed India-Mauritius at Rs 10 per DTAA to the share the same Assessee. (Para127, was bought back Page84 of ECL ITAT at a value of PB) Rs100, that is at a premium of Rs 90. Thus, against share capital investment of Rs 2 Cr Girishan  180 Cr as issued Page 12 a) This is factual and there is no allegation by Share capital to the Revenue. Hence, it ECL Share does not merit any reply. Capital increased from 2 Cr to 180 Cr in January 2007 a) ETHL is only one The whole money Page 12 amounting to of the Essar entities Rs2077.7 Crores has in the group which gone to the flagship held investments in companies of Essar. VEL. The Assessee further submits that the Revenue’s reference to ETHL as the flagship company is incorrect. It should be noted that ETHL has actually transferred 10.05% stake in VEL to ETIL and only the agreed amount has been utilized By ETIL in settling consideration for the same. This is a genuine transaction that has been explained by the & 340/Del/2022 Assessee above and accordingly, no adverse inference should be drawn in the facts of the present case. (Para 126, Page 84 of ECL ITAT PB) USD 400.61 Page 12 It is submittedthat a) million loan the allegation of the provided by ECL, Revenue that 15.85% shares of Mauritius fromand VEL were pledged out of aloanofUSD to obtain theloanof 1.1 billion taken USD 1.1 billion is from Standard incorrect. It is Chartered Bank submitted that the (‘SCB’) on 31 Assessee had made January 2007 an application to pledging the very RBI for pledge of shares of VEL, VEL shares pursuant which includes to loan of USD 1.1 15.85% shares of billion vide letter ETHL. dated 12 February 2007, however, the approval for pledge was never received and eventually the application for pledge of VEL shares was rejected by RBI vide letter dated 4 October 2007. Therefore, the contention/allegation of Revenue is factually incorrect and contrary to evidence on record. It is further b) submitted that statement that 15.85% VEL shares & 340/Del/2022 are owned by ETHL is also incorrect. It is submitted that 15.85% of shares were not owned by ETHL and at the time of availing the loan of USD 1.1 billion, the VEL shares were owned by ETIL and not ETHL. c) Without prejudice to the above, it is normal for the lenders to expect that the asset being acquired is itself pledged as security for the loan being availed. It is not uncommon to use the jewel in the group for financing/ expansion of the group. Accordingly, it is submitted that it is acommon business practice to obtain loans for group companies by pledging their securities i.e. it is not unusual for entities to guarantee debts of other group entities. Refer Vodafone International Holdings B.V. (2012) 341 ITR 1 (SC) –Para79 (Para & 340/Del/2022 177, Page 111 and Page 1717 of ECL ITAT PB) d) This is a simple Page 13 a) The allegation of the a) Discussion at Para VI case of shares of Revenue that the onwards at pages 228-234 VEL being pledged, shares of VELwere of the AO’s order wherein money borrowed pledged to avail the the conclusion drawn is and given to ETIL loan of USD 1.1 that the Assessee was to acquire the very billion and the same evasive in its replies in shares which are was given to ETIL to respect of utilization of pledged, perfect acquire the shares of loans taken. In its replies case of round VEL is factually the assessee does not seem tripping and incorrect. As to have taken this stand nothing else submitted above, the earlier as the AO’s order shares of were not mentions this fact (That pledged since there shares of VEL were was no approval from pledged to avail loan of RBI for pledge of USD 1.1 billion) at VEL shares therefore, multiple instances. the conclusion of the b) At pages 228-234 the AO Revenue that the very discusses the utilization of shares of VEL were the loans taken. The AO pledged to borrow observed that loan money and the same facilities have been money was given to availed by different ETIL to acquire the companies of Essar group shares of VEL is on the strength of totally incorrect and HEL/VEL shares owned contrary to facts on by the ECL and Ecom record. which were pledged with b) Without prejudice to the lenders as security. the above,it is However, out of loan submitted that the raised not a single penny aforesaid contention was utilized by the of “round tripping” assessee for its own has been raised by the business. In fact this was Revenuefor the first provided in the loan timeand the same has agreement itself that the never been raised by assessee will not the AO or CIT(A). undertake any business or Under the provisions commercial activity. As of the Act, the such, after sanction instead & 340/Del/2022 Revenue is not of crediting the loan into permitted to raise assessee’s accounts, it was fresh grounds without disbursed directly to the rectifying or revising other companies of Essar the assessment order. group utilizing these Therefore, the funds. That is why reasons given by the assessee was required to lower authorities for explain the ultimate denyingthe DTAA utilization of loan funds. benefits cannot be The assessee however did revised bythe learned not come forward with the ASG before the targeted information Hon’ble Tribunal. requisitioned by the c) Without prejudice to Assessing Officer and the above, the furnished general replies. Assessee submits that c) Repayment of old loans is pledging the asset not a utilization of new with bank which a loan unless the utilization of old loan is explained person wants to buy properly. with borrowed money d) The money ultimately is the most normal went to whom did not transaction that takes explain the kind of place on day-to-day investment made, by basis in the which entity and in which commercial world. business and thus who is For example, an the ultimate beneficiary of individual buys a these balance funds. The house with borrowed replies furnished by the money by pledging assessee are thus the same house apparently evasive in (which he is buying) nature preventing the with a bank. Assessing Officer to reach Therefore, it is logical conclusions. completely incorrect for the Revenue to even suggest that the sameis in the nature of “round tripping”. d) The Assessee submits that borrowing money outside India based on the value of & 340/Del/2022 shares of an Indian company and thereafter 225 uthoriza the borrowed money for purchasing the shares cannot be at all termed as “round tripping”. e) It is further submitted that “round tripping” means the funds/income which originate in India are sent out of India and the same money coming back to India in the form of investment for claiming DTAA benefits. In this regard, the Assessee relies on the judgment of Vodafone International (supra) which has explained the meaning of “round tripping” (circular movement of capital) as under: (i) Round Tripping can take many formats like under- invoicing and over- invoicing of exports and imports. (ii) Round Tripping involves getting the blackmoney or capital that is hidden out of India, say & 340/Del/2022 Mauritius, and then come to India like FDI or FII. f) Reference in this regard is also made to Para 8.84 of the Report by the ‘Joint Committee on stock market scam and matters relating thereto dated December 2002 which again raised concerns regarding the roundtripping of funds from India to claim the benefits of India-Mauritius DTAA for avoidance of taxes. g) In view of the above, it is submitted that “round tripping” involves funds which originate in India, sent outside India clandestinely and are reinvested in India. In the instant case, there is not even an allegation/suggestion bythe lower authorities that the Assesseeis claiming benefits of DTAA by virtue of round tripping of funds. In any case, the Assessee submits that the money was borrowed from outside India from SCB, & 340/Del/2022 UK and the same was used for investment purpose in India and outside India. Therefore, there is no case of round tripping in the facts of the present case as alleged by the Revenue for the first time.

c) This is a simple Page 13 a) It is submitted that case of monies the contention that being borrowed the Assessee ought to by ETHL, which have borrowed funds needs to be in India is being squared off. This raised for the first could have been time and has not been done with in raised by the lower India, instead of Authorities in the doing that, a orders passed by convoluted route them. As submitted was structure above, the Revenue is with two not permitted to raise purposes fresh grounds for contrary to law- denying the benefits of India-Mauritius DTAA, accordingly, the fresh contention raised should not be & 340/Del/2022 taken authorisation of. i) The borrowing b) It is further submitted was made by that the Revenue upstream cannot step into the Mauritius shoes of an assessee companies which and then direct as to had no how the business is to commercial be conducted by the substanceas the assessee (SA Builders borrowing was vs.CIT (288ITR 1)). not for their use. The money was Not a single borrowed outside as dollar of this the terms of borrowing was borrowings were authorized by more favourable and Mauritian suitable to the group Companies. The entities. Accordingly, borrowing it is submitted that happened on the the Revenue cannot strength of insist that the pledging Indian Assessee ought to shares, which have borrowed could have been money in India and done by Indian therefore, the entities. contention is contrary to the settled ii) The whole principles of law. exercise of c) Without prejudice to acquisition is the above, the totally farcical Assessee submits that and loan the money could not arrangement, a be borrowed in India camouflage, as on the strength of ETIL was a VEL shares since the company created existing ReserveBank on paper without of India (‘RBI’) any substance regulatory framework and has had a did not allow banks very short to lend money against existence before the pledge of shares & 340/Del/2022 this transaction. above the limit specified under the regulations andmade it difficult to raise money based on the value of VEL shares. Further, under the FEMA regulations, a company could not borrow money under the External Commercial Borrowings (‘ECB’) route to pay off its existing rupee loans. (Para 123, Page 82 of ECL ITAT PB) d) In fact, in view of the aforesaid restrictions, ETHL attempted to monetize the value of VEL shares from non-banking financial companies (NBFCs) (that also had a call option) i.e. with IDFC for1.95% and TOT for 3.85%, however, ETHL was unable to borrow money on favourable terms from these NBFCs as the valueof borrowing, interest rates etc. were not attractive. In addition to the above, ETHL was highly debt laden andin default of the listing agreement (Point B,Page1707 of ECL ITAT PB).

& 340/Del/2022 e) In view of the above, ETHL was unable to borrow money due to various regulatory restrictions and because of overly leveraged balance sheet. Therefore, the argument of the Revenue that the money ought to have been borrowed in India on thestrength of VEL shares is baseless and contrary to the evidence on record. f) TheAssessee further submits that since the moneycouldnotbe borrowed in India on favourable terms, the only other option was to borrow money at the level of holding company in Mauritius since that would allow full utilization of value of VEL shares for the purpose of borrowing which were held by Ecom & ETIL at one go. As submitted above, the increase in FDI cap to 74% allowed the borrowing of funds outside India. It is further incorrect to say that the money borrowed was not utilized by the & 340/Del/2022 entities in Mauritius. As submitted on multiple occasions, out of USD 1.1 billion loan, ~USD 525 million was infused by ECML in ECL (Point B, Page1707 of ECL ITAT PB) of which USD 145 million was infused in Ecom and USD 330 million was infused in ETIL (as also USD 50 million by ECL to repay EIHL for short term loan taken by ECL for investing in ETIL). Therefore, the argument of the Revenue that the borrowed money was not authorised by the companies in Mauritius is without any basis and is contrary to the evidence on record. (Para 174-177, Page 111 of ECL ITAT PB) g) As mentioned in this note and earlier submissions as well, incorporation of ETIL, transfer of VEL shares to ETIL from ETHL, loan borrowings by Mauritius entity, liquidation of ETIL & 340/Del/2022 etc. were all transactions undertaken for commercial/ business reasons and it is incorrect on the part of the Revenue to allege that the entire arrangement was farcical and loan arrangement was a camouflage, which is contrary to the evidence on record. (Para 123-128, Page 82 and Para129-134, Page 85 of ECL ITAT PB) iii) Secondly, a Page 13 a) It is submitted that vehicular the contention that movement has monies were again been structured for the benefit of the by migrating the Ruia family is being ETHL shares out raised for the first of India through time and has not been ETIL to ECL, raised by the lower Mauritius. It is authorities in the important to orders passed by highlight that them. As submitted besides settling above, the contention the loan, balance of the Revenue ought monies were not to be taken again for the authorisation of and benefit of the the same is liable to Ruia family be rejected. b) Without prejudice to the above, it is submitted that the transition of shares from ETIL to ECL was by virtue of the loan agreement with & 340/Del/2022 SCB. The lenders wanted a direct pledge on the shares of VEL which were held by ETIL. An application was made to RBI for pledge of the VEL shares for loan taken by ECML from SCB however, the approval of RBI was not forth coming and eventually the application made by ETIL was rejected by the RBI. In view of the rejection by the RBI, there was no option left but to liquidate ETIL as in the absence of pledge of VEL shares the loan agreement could be cancelled by the lenders. The Assessee submits the fact that an application was made to the RBI for a pledge demonstrates that the first intention of the Assessee was not to transfer the ownership to a Mauritius entity byway of liquidation and the liquidation was driven by circumstances beyond its control. Hence, the argument of the Revenue that & 340/Del/2022 vehicular movement has been structured for migrating the shares outside India for tax avoidance reasons is baseless and contrary to the evidence on record. (Para 136-137, Page 89 and Point C, Page 1708 of ECL ITAT PB)

(III) Loan transactions and loans and borrowings conducted through various trusts to Ruia family Diagrammaticre Page 14 a) The chart referred a) The chart at page 15 of presentation of use of clearly demonstrates the Revenue’s submissions dated 11th USD 1.4 billion Loan that the loan borrowed dated 29.6.2007 of USD 1.4 billion was March, 2025 is merely 234 uthoriz for the a pictorial/ purpose of business and diagrammatic not a single rupee has representation of the gone to the Ruia family assessee’s submission members and the that is mentioned by Revenue has not brought the AO on page 231 of any evidence on record the AO’s order. to prove that such monies have actually gone to the Ruia family members. b) The use of the funds raised vide the loans was explained to the AO as referred to on page 231 of the assessment order & 340/Del/2022 Loan of USD 3.59 Page 14 a) It is submitted that the billion taken by the contention that monies ECIL(M) on the were given to 8 family pledge members of theRuia ofHEL/VELshares family is being raised owned bythe Group for the first time and has (onshore & offshore: not been raised by the no distinction) lowerauthoritiesinthe orders passed by them. As submitted above, the contention of the Revenue ought not to be taken authorised and the same is liable to be rejected. b) Without prejudice to the above, it is submitted that out of the USD 3.59 billion loan taken by ECML, USD 1.4 billion was used to repay the loan of USD 1.4 billion to SCB, UK (USD 1.1 billion loan was refinanced to USD 1.4 billion). Copies ofloan agreements for USD 1.1 billion, USD 1.4 billion and USD 3.59 billion are attached at Page 642 to 962 of ECL ITAT PB. c) The balance fundsof USD 2.18 billion were lent by ECML to Telecom Holdings (Cayman) Limited, Cayman Island (‘THCL’) to acquire shares of ECML (and consequently indirectly shares of Ecom and the & 340/Del/2022 Assessee) from ECHL in line with the requirement of the lenders to have a separate standalone structure which could be efficient from a security enforceability standpoint such as there being no other liabilities, better conditions for invocation of pledge, etc. The money ultimatelywent to EGFL, Cayman Islands as dividend declared by its subsidiary ECHL. (Para 180, Page 113 and Page 1719 of ECL ITATPB) d) The loan agreement further provided that the money received by EGL as a dividend would be used for general investment and corporate purpose (Clause 3 Page at Page 878 of ECL ITAT PB). The same is also evident from the cash flow statement of EGFL for Financial Year (‘F.Y.’) 2007-08 which shows that the money has been used for investment in subsidiaries and group companies and corporate purposes (refer cash flow statement of EGFL atPage 1597of ECL & 340/Del/2022 ITAT PB). (Para 180, Page 113 of ECL ITAT PB) Therefore, the argument of the Revenue that the amount of dividend given to EGFL has benefitted Ruia family members is factually incorrect and contrary to the evidence on record. The Assessee further submits this contention has been raised for the first time before the Tribunal without any basis and the same was not raised by any of the authorities below. Page 15 a) As stated above, the allegation round tripping has not been raised by the lower authorities and has been raised for the first time before the Tribunal. Since this allegation was not made by thelower authorities, the Revenue is not permitted to raise the same before the Tribunal for the first time. b) Without prejudice to the above, there is no round tripping of funds (i.e. circular movement of funds originating from India, movement abroad and inflow of such funds back into India to claim treaty benefits/ tax avoidance scheme)

& 340/Del/2022 involved in the facts of the present case. All transactions i.e. borrowings in India and outside India, pledge of VEL shares, liquidation of ETIL, sale of VEL shares and application of such funds for repayment of borrowings, have been undertaken for commercial/ business reasons i.e. monetizing the value of VEL shares and utilizing the same to fund expansion of the business (as explained above). Accordingly, the allegation of the Revenue as stated in the diagram is entirely misplaced and is overlooking the business/ commercial realties.

5. This is again a Page 16 a) At the time of execution The issue has been perfect case of of loan agreement, discussed in above paras, round tripping. ECML was held by hence, no comment is What is taken as a Essar Communications required. loan by ECIL (M) Holdings Limited, converts into an Mauritius (ECHL) income in the (parent) and EGL (grand hands of Telecom parent). ECHL was the Holding Caymen holding company for Island when ECHL passive telecom (M)the parent infrastructure business entity has sold the and, EGL was the shares of the holding company for all subsidiary which is the businesses of the the borrowing group and further had entity, and as a huge borrowings and & 340/Del/2022 result, it now other obligations as a becomes an income flagship company of the of USD 2.20 group. Therefore, the billion in the hands lenders under the loan of Telecom agreement required that Holding Caymen the VEL shares basis Island. which the loan was being taken, to be held under a separate structure and not under the umbrella of EGL from security enforceability stand point. Accordingly, various steps were undertaken in line with the loan agreement, to separate the holding of VELshares and house it under an independent structure. Therefore, the argument of the Revenue that the sameisroundtripping is perverse and without any basis in law since the steps were undertaken with commercial substance and to meet the requirement of the lenders. (Page 1719, 1737 and 1739 of ECL ITAT PB) b) It is further submitted that there is no “round tripping” as explained by Supreme Court in case of Vodafone International (supra) and JPC Report and the allegation has been

6. Telecom Holding Page 16 a) This allegation is The issue has been discussed Cayman Island factually incorrect as in above paras, hence, no conveys this USD dividend of USD 2.18 comment is required. 2.20 billion as billion was distributed dividend to Essar by ECHLto EGL andnot Global Caymen by THCL. It is further Island through submitted that the various dividend of USD 2.18 beneficiaries billion was not at all entities situated in passed on to the eight BVI and they in Ruia family members turn pass on the and as explained above entire USD 2.20 the same was used by billion to the eight EGL for investment and Ruia family corporate purpose in members. India and outside India. It is further submitted that no dividend has been actually declared by EGL. The Revenue apart from making a bald allegation has not adduced any material which suggests that the loan amount was passed on to the Ruia family members. b) Without prejudice to the above, it is submitted that the issue before the Tribunal is regarding taxability of shares under Article – 13 of & 340/Del/2022 India-Mauritius DTAA and the above allegation has no bearing on the issue which arises for consideration of the Tribunal. e) The whole The issue has been discussed in financials above paras, hence, no transaction comment is required. undergoes the following mutations: a. It initially partakes Page 16 a) The explanation for the commercial purpose of the the colour and loan by ECML to THCL has character as a been provided in response to loan. It becomes Sr (III).5 of the Revenue an income in the submission above second stage without any underlying commercial purpose. Page 16 b.It mutates into a) This allegation is The issue has been dividend through factually incorrect as discussed in above paras, a very submitted above, the hence, no comment is complexstructure amount of USD 2.18 required. withasoleideatobe billion was used by EGL nefit the 8 Ruia for various business family members purposes and not a and ultimately the single penny has gone to consideration the Ruia family arising out of the members or repayment sale of shares of of loans across entities these two where Ruia family Assessees before members have direct this Hon’ble interest. As submitted Tribunal is again above, the loan used to payback agreement provided that all the pending the amount of USD 2.18 loan across the billion was to be used Essar Group for general investment entities where and corporate purpose & 340/Del/2022 Ruia family has a and as evident from the direct interest cashflow statement of EGL for the relevant year, the amount has been used for thesame purpose. Further, theRevenue has not produced any evidence to support their allegation and in fact, the allegation is contrary to the evidence on record and is therefore liable to be rejected. (Page 878 and 1597 of ECL ITAT PB) b) It is also submittedthat the amount received on sale of VELshares was 242 uthoriz to payback the loan of USD 3.59 billion taken by ECML since the Assessee was a guarantor to the loan. However, the same does not bar the Assessee from claiming the benefit of Article–13 of India-Mauritius DTAA. (Para 248, Page 149 and Page 1717 of ECL ITAT PB)

& 340/Del/2022 c. Most importantly,a a) This allegation is The issue has been commercial loan factually incorrect as discussed in above paras, secured for submitted above, the hence, no comment is business purposes amount of USD 2.18 required. ends up as family billion was used by EGL dividend forthe for investment and Ruia family and business purposes and the shares held the same was not at all through substance distributed as dividend less entities to the Ruia family namely the two members. Neither any Assessees are sold material is produced, to payback the nor any details are given loans. by the Revenue for making this allegation. Therefore, in the absence of any material in support the aforesaid allegation, the same is liable to be rejected. b) It is further submitted that the Assessee cannot be termed as a “substance less” entity since it is an investment holding company and have been undertaking requisite investment holding activities in Mauritius (Page1711 of ECL ITATPB). Further, there are qualified people on the Board of directors (the Board) who have taken decisions concerning the affairs of the Assessees, in Mauritius (Page 280- 283 of ECL ITAT PB). The entities have also facilitated raising of substantial loans (from & 340/Del/2022 third party lenders). The directors are required to discharge obligations and undertake various duties under the Mauritian laws. Accordingly, the existence of these entities should be respected by the Revenue.Without prejudice to the above, if the Revenue alleges that the Assessee is substance less then the income (for taxability of income from sale of VEL shares) ought not to have been taxed in its hands. Reliance in this regard is placed on Vodafone International (supra) [Para 98], Sri Meenakshi Mills Ltd. [1967] 63 ITR 609 (SC), Aditya Birla Nuvo Ltd. (342 ITR 308)(Bom) and Alibaba.Com Singapore E-Commerce (P.) Ltd. [2023]459 ITR 508 (Bombay). Accordingly, the capital gain charged by the AO in the hands of the Assessee is incorrect and bad in law. d.The net effect of the Page 17 a) As submitted above, the The issue has been whole transaction loan was taken by discussed in above paras, can be reduced to a ECML with a view to hence, no comment is one liner – Essar monetize the value of required. Group entities VEL shares and use the have loans to be funds for expansion of & 340/Del/2022 discharged in business [Refer response various group to Sr. (II). 1 to 6 of companies. These Revenue submission and loans ultimately response toSr. (III).7(b) got discharged by of Revenue submission]. selling the Essar Therefore, the shares held by the conclusion of the Ruia family. The Revenue that loansto be shares belong to an discharged by various Indian entity. Ruia entities was discharged family are by selling shares of residents of India. Essar is factually Whereas, incorrect. illusionary b) It is further submitted superimposing that the conclusion of entities where the Revenue that the created in shares belong to an Mauritius to Indian entity and entities migrate and were created in monetize the share, Mauritius to migrate and the sale and its monetize the shares consideration without paying taxes is without paying factually incorrect and taxes contrary to the evidence on record. As explained above, due to various regulatory restrictions, the money was borrowed outside India as the terms and conditions of the loan were far more favourable and, the shares held by ETILwere transferred to ECL onliquidation due to a requirement under the loan agreement regarding direct pledge of shares which was rejected by the RBI. Therefore, the argument & 340/Del/2022 of the Revenue ignores the compelling circumstances which led to migration of shares to Mauritius. [Refer response to Sr.(II).1 to 6 of Revenue submission]. Without prejudice to the above, the benefit of India-Mauritius DTAA was available even without the migration of VEL shares to Mauritius as the Assessee could have sold the shares of ETIL or ECML could have sold the shares of ECL. (Para 123-128, Page 82 and Para 129- 134, Page 85 of ECL ITAT PB) c) It is further submitted that the conclusion of the Revenue that all the family members of Ruia family are residents in India is again factually incorrect as Mr .Ravikant Ruia (A.Y. 2010-11 onwards) and Mr. Rewant Ruia (A.Y. 2011-12 onwards) were not residents in India for the year under consideration therefore, assuming without admitting, even then the whole of control and management of the company is not in India. Consequently, the Assessee cannot be e. Most importantly, Page 17 a) The Assessee submits The issue has been it needs to be that this allegation is discussed in above paras, highlighted that factually incorrect. ECL hence, no comment is there is no foreign had infused USD 400.61 required. investment or any million in ETIL (Point other investment A, Page 1706 of ECL coming into India. ITAT PB) which was This is a reverse partly from the transaction. borrowings of USD 1.1 Indian shares billion and partly from worth USD 3.2 the borrowings from billion is migrated overseas group and authorisation companies. (Page 5 of outside India ECL ITAT PB) through sham b) The Assessee has transactions and already explained the colourable rationale behind devices. migration of VEL shares from ETIL to ECL (Please refer response to Sr.(III).7(d) of the Revenue submission) c) Therefore,the contention of the Revenue that the there is no FDI coming into India and this is reverse transaction of shares being migrated through sham transactions and colourable devices is without any basis and bad in law.

& 340/Del/2022 f. Loan taken on the Page 17 a) As explained above, the The issue has been pledge of shares funds received as discussed in above paras, owned by Ecom dividends wereused by hence, no comment is (M) and ECL(M)/ EGL, Cayman Islands required. ETIL (India)/ for investment and ETHL (India) has business purposes and gone as dividend the same was not passed income in the on to the Ruia family hands of key members. [refer holding company response to Sr. (III).7(b) of the entire Ruia of the Revenue Groupi.e., Essar submission] Global Limited b) It is submitted that the Cayman Islands. entities above EGL, This company is Cayman Islands have no held by eight of role to play andare not Ruia family relevant for the members as transaction under beneficiaries of consideration in the various trusts present appeal as no created in transactions havetaken B.V.Island. place with those entities by the Assessee. In any case, the Assessee further submits that the rationale behind the aforesaid structure was explained to the lower authorities during the course of proceedings. (Page 1735-1740 of ECL ITAT PB). c) For completeness, it is further submitted that EGL, Cayman Island is not held by the members of Ruia Family but the shareholders are the private companies which in turn are held by discretionary trusts (some of the & 340/Del/2022 beneficiaries are private companies of which Ruia family members are shareholders) incorporated under Star laws of Cayman Island and not British Virgin Islands as contended by the Revenue. (Para 27, Page 24 of ECL ITAT PB) d) Without prejudice to the above, it is submitted that the aforesaid allegation made by the Revenue has no bearing on the question that arises for consideration of the Tribunal in the present appeal i.e. taxability of capital gains in the hands of the Assessee under Article – 13 of India-Mauritius DTAA. g. If this amount of Page 17 a) Out of the USD 3.59 The issue has been USD 2.20 billion billion loan taken by discussed in above paras, had gone directly ECML, USD 1.4 billion hence, no comment is as loan from was used to repay the required. ECML (M) to loan of USD 1.4 billion ECHL (M), it to SCB. Balance funds could not have of USD 2.18 billion paid the same to were lent by ECML to EGL Cayman THCL to acquire shares Island as dividend of ECML from ECHL in income because line with the the dividend requirement of the income is only lenders to have a paid out of income separate standalone or reserves on structure which could be account of income. efficient from a security enforceability & 340/Del/2022 standpoint. (refer response above to diagram (III), Page 14 of the Revenue submission) b) In order to effectuate this separation, the lenders hadrequired that THCL acquire from ECHLthe aforesaid vertical and hence they required the USD 2.18 billion to be paid for as sale consideration for ECML shares (to transfer the vertical). c) The transactions were undertaken for commercial reasons and it is not open to the Revenue to rewrite/ compare the transactions consummated with a hypothetical one such as a loan from ECML to ECHL. d) Without prejudice to the above, whether the dividend was given out of income or reserves or not has no bearing on the issue arising for consideration in the present appeal i.e. eligibility of the Assessee to claim benefits of India- Mauritius DTAA.

& 340/Del/2022 h. It is self-evident Page 17 a) It is incorrect to saythat The issue has been discussed from the above the money borrowed in above paras, hence, no that not a single was not utilized by the comment is required. USD/ Rupee out entities in Mauritius. As USD 3.59 billion submitted above, the has not been loan 3.59 was used to 251 uthoriz by pay theloan of USD1.1 ECL/Ecom/ETIL billion loan of which nor ECML/ECIL. USD 525 million was infused by ECML in ECL of which USD 145 million was infused in Ecom and USD 330 million was infused in ETIL (as also USD 50million by ECL to repay Essar Infrastructure Holdings Limited, Mauritius (EIHL or EGL, Mauritius) for short term loantaken by ECL for investing in ETIL). Therefore, the argument of the Revenue that the borrowed money was not 251 uthoriz by the companies in Mauritius is without any basis and is contrary to the evidence on record. (Point B, Page 1707 of ECL ITAT PB) i. These have been Page 17 a) As submitted above at The issue has been used as mere response in point (a) to discussed in above paras, conduits in allegation at Sr.5, hence, no comment is transferring the Page16 of the Revenue required. monies from one submission, the entity to another Assessee or any of the and ultimately group companies cannot serving to the be termed as conduits benefit of the since all the transactions & 340/Del/2022 various other Essar have been carried out groups. with commercial substance and as explained above, the money was transferred from one group company to another with a business purpose. (Page 1735-1740 of ECL ITAT PB) b) It cannot be said that the entities involved in the transactions were conduits for the reason also that their genuineness was recognized by the providersof the loan. The lenders would not have required for the transactions to have been undertaken between the parties (and treated such transactions as the purpose of the use of funds in clause 3 of the facility agreement) unless the transactions were real, had commercial purpose and legal consequences. c) The Revenue has made bald allegation without bringing any material on record to controvert the commercial reasons for carrying out various transactions. Therefore, it is submitted that in the absence of any material in support of its allegation, the bald & 340/Del/2022 allegation made bythe Revenue ought to be rejected. j. Two things are Page 18 a) While there is no dispute The issue has been discussed critical- asset that the VEL shares in above paras, hence, no pledged remains to were pledged and their comment is required. be VEL shares situs was in India, it is with situs in India factually incorrect to say and secondly, the that the borrowings were entire borrowings not used by the entities have not been of referred to by the any use to any of Revenue, as the the entities referred Assessee too received above. and invested from the loan proceeds as explained above. (Para 174-176, Page111 of ECL ITAT PB)

(IV) Voluntary Liquidation of ETIL 1. ETIL was Page 19 From a greater security a) The voluntary a) incorporated in enforceability stand Liquidation is discussed November 2004. point, the lender (SCB, from Page 44- 63 of 2. ETIL was UK) had kept the route assessment order of ECL, liquidated on of liquidation of ETIL however , there is no 28.07.2008. as a possible option to mention of assesee filing 3. The intent of so- the pledge of VEL any document with called voluntary shares by ETIL. respect to the RBI liquidation of ETIL made an approval or the supposed b) ETIL was clear application for pledge business intent of from a loan of VEL shares to RBI Liquidation. Likewise, agreement dated on 12 February 2007 the CIT(A) order 31.01.2007 to (under the USD 1.1 discusses Voluntary which ETIL was billion loan agreement) Liquidation from Page not even a party which shows that ECL 30-43, wherein there is and was rather did not want to no mention of assessee happily talking liquidate ETIL straight furnishing any RBI about its away without exploring document. business the option of pledging b) On the contrary, the expansion of shares. As no intent to liquidate ETIL approval was first appears in Loan & 340/Del/2022 forthcoming from the agreement dated RBI even 6 months 31.1.2007 of ECIL(M) after the application with Standard Chartered was made, in the USD Bank wherein Permitted 3.59 billion loan Dissolution is agreement (which was discussed.(Page 51 of more than 3 times the ECL assessment order, USD 1.1 billion loan), Page 31 of CIT(A) the consortium of order). This is prior to the lenders required supposed application of liquidation of ETIL in the assessee to RBI dated order to migrate VEL 12.2.2007, as claimed by shares to ECL so that the assessee, which it has the same could be not furnished. Hence, the pledged with the intent to Voluntarily lenders with RBI’s Liquidate ETIL was approval which was already there ,whichwas possible if the shares subsequently acted upon. were held by a non- c) Further, the board of resident. Hence, the ETIL was unaware of intent was to perfect such stipulation as is the security for the evident from the Minutes lenders. Infact, the dated 15.01.2007 of concerns of the lenders ETIL(Page 32 and 36 of came true when the CIT(A) order). RBI vide letter dated 4 d) The assessee has referred October 2007 finally to clause 18.20 of Pg 725 and officially rejected of its paperbook on Page the application made by 1708.It needs to be noted ETIL to pledge VEL that Clause 18.20 has shares. Therefore, the been discussed in detail only way to secure in assessment order Page lenders interest was to 52-53 and CIT(A) order liquidate ETIL and Page32-34, wherein it has provide pledge of the been held that this shares. (refer Page voluntary dissolution of 1708 of ECL ITAT PB) ETIL is a colourable It is important to note c) device. that in July 2008 ETIL e) Therefore, there was no was liquidated and the commercial intent in share were distributed liquidation of ETIL. It to ECL by the was merely a colourable & 340/Del/2022 liquidator after device created to transfer receiving the approval the VEL shares from from the Income- tax onshore to offshore. Department vide letter dated 14 July 2008 [refer Page 284 of ECL ITAT PB]. After which an application was made again to the RBI for pledging of shares and it was only after the shares were transferred to ECL pursuant to liquidation, the RBI granted permission to pledge VEL shares in favour of the lender, vide approval dated 14 November 2008, in view of liquidation of ETIL. (Page 1708 of ECL ITATPB) 4. None of the Page 19 It is submitted that a) ETIL held the shares of a) companies–ECL/ ECL was aparty to the VEL till its dissolution in ETIL were party to loan agreement to the 28.07.2008, and ETIL was not USD 3.59 billion loan party to the Loan agreements, loan borrowed on agreement as a on whose asset’s strength the strength of the guarantor and had these loan were taken. assets owned by given Non-disposable b) All these 3 Loan them Undertakings to the agreements have Voluntary 5. They were not lenders for USD 1.1 Liquidation condition of aware about billion, USD 1.4 billion ETIL(AO page 87-91). pledging of shares for ETIL shares and c)The AO Page 139- owned by them pledge of Ecom and 141,clearly state that only one VEL shares to the agreement of USD 1.4bn was lenders for USD 3.59 signed by Sh. Amit Gupta, on billion. In view of the behalf of assessee’s and he above, it is incorrect to was Indian Resident (AO page say that ECL was not -113). Further, the loan aware of the pledging agreement of USD 3.59bn is of shares owned by unsigned by the assesses.

& 340/Del/2022 them and was not a Hence, clearly the assessee party to the aforesaid was not privy to loan agreements. (Page1711 agreements and pledging of of ECL ITAT PB) their shares. b) ECL agreed to pledge D)The discrepancies in Board minutes have been discussed the ETIL and Ecom shares and the pledge by the AO in its order from agreements were tabled Page 144 to 163, hence, they are not reliable in the meeting of the evidence.(CIT(A)- Page 92- Board of ECL held on 138). 24 January 2007, 8 June 2007 and 16 August 2007 and were approved by the Board for further execution [Page 117 (Sr. 8) and Page 118 (Sr. 12,15) of AO order and Annexure L of submission dated 20 June 2016 filed with the AO]. (Para 183, Page 114 of ECL ITAT PB) ETIL agreed to pledge c) the VEL shares and the pledge agreements were tabled in the meeting of the Boardof ETIL held on 15 January 2007, 8 June 2007 and 16 August 2007 [Page 128 (Sr. 19), 129 (Sr. 24 and 28) of the AO order and Annexure A of submission dated 20 June 2016 filed with the AO]. The aforesaid events clearly show that ECL/ETIL have & 340/Del/2022 considered the relevant loan and security documents in their Board meetings and approved/auctioned obligations under such agreements.Therefore, it is incorrect to say that ECL/ETIL were not aware of the pledging of shares and were not parties to loan agreements is factually incorrect. Key Inferences being drawn from the Voluntary Liquidation of ETIL: A) No control over Page 19 a) As mentioned above, in a) The intent to one’s own creation or the USD 3.59 billion liquidate ETIL first dissolution loan agreement, the appears in Loan liquidation of ETIL was agreement dated mandated by the lenders 31.1.2007 of (third party) in order to ECIL(M) with have a direct holding of Standard Chartered the VEL shares as it Bank wherein provided an enhanced Permitted enforceability of Dissolution is security to the lender. discussed. (Page 51 Further, the failure to of ECL assessment liquidate ETIL as per order, Page 31 of the loan agreement was, CIT(A) order). inter alia, would have However, the resulted into default minutes of the board with loan agreement and of ETIL dated cancellation of loan 15.1.2007, do not leading to amount be discuss the same. coming immediately b) The Board minutes payable to the lenders are silent of (Page 914 of ECL ITAT dissolution before PB). Therefore, the the loan agreement liquidation of ETIL was dated 29.06.2007 of driven by commercial USD 1.4 bn (Page 51 considerations as seen of Assessment order)

& 340/Del/2022 from the aforesaid c) The Board minutes sequence of events. The were drawing long said liquidation was in term growth strategy the interest of these vide minutes dated parties, whoin the 16.8.2007, despite absence of such voluntary dissolution liquidation would have clause . The been regarded as Voluntray defaulters. Given this, dissolution is ETIL noted in its discussed first time resolution that the same in board meeting is inter alia in the best dated 12.10.2207 interest of the (Page 53 and 55 of shareholders. (Para 139, Assessment order, Page 90 of ECL ITAT Page 36 of CIT (A)) PB) b) It should also be noted that liquidation of a company is a shareholder’s function and there is no provision under the Companies Act, 1956 which empowers a company to restrict its shareholders from voluntarily dissolving a company. Therefore, the argument of Revenue that ETIL did not have control over its own liquidation is without any basis andbadin law. Further, it is submittedthat after the Assesseeinameeting of its Board passed aresolution for liquidating ETIL, the same was subsequently discussed in the Board meeting of ETIL and further proceeded with & 340/Del/2022 the liquidation. (Para 140, Page 90 of ECL ITAT PB) Given the above, the Assessee would like to submit that the liquidation was driven by commercial considerations accordingly, no adverse inferences can be drawn against the Assessee. B)No control over Page 19 Refer response to Sr(IV).5 of the Revenue submission pledging one’s own shares and in what manner C) The owners of the Page 19 a) As submitted above, a) The discrepancies in shares had been ECL/ETIL have Board minutes have denied the rightful discussed in the Board been discussed by claim and use of the meeting the loan the AO in its order agreements and from Page 144 to money borrowed security agreements 163, hence, they are based on one’s own that were required to be not reliable pledged shares executed in order to evidence.(CIT(A)- borrow money under Page 92-138). the various loan b) ECL did not retain agreements. Therefore, the sale proceeds in it is incorrect for the its account for even a Revenue to contend day (Page –13-14 of that ECL/ETIL have assessment order, been denied the rightful Page – 10-11 of claim and use of the CIT(A)), hence, money borrowed basis clearly, the assessee the pledged shares and did not avail any did not have control benefit from the over decision to sell transaction. shares and its proceeds c) The Loan was taken since the aforesaid on strength of VEL arethe consequences of shares which was not agreeing to such used by assessee, and arrangements. (refer similarly the loan response to Sr. (IV). 4- liability was paid of 5 of the Revenue by the assessee.

& 340/Del/2022 submission) d) The application of b) It is further submitted loan facility is that in fact ECL has discussed on AO benefitted out of the page 92-95 and loans taken by ECML CIT(A) page 67-74, because out of the loan which clearly of USD 1.1 billion highlights that taken in January 2007 assessee was not from SCB UK, USD beneficiary of these 526 million was paid loans. by ECML to ECL as share application D)Owners did not Page 19 money on behalf of have control over decision to sell share, ECML. ECL in turn and how to sell the used the funds so shares and its proceeds received to infuse capital in ETIL and in Ecom (which was effectively used by ETIL to acquire VEL shares and repay its existing debts taken to acquire VEL shares and by Ecom to repay its existing debts taken to acquire VEL shares) (Page111 and 112 of ECL ITAT PB). c) In large multinationals, it is normal for companies to support one another to maximize overall benefit to all in the group. Further, it would be appreciated that it is natural for a subsidiary companyto act for the benefitof its holding company. Maximizing shareholders’ wealth is & 340/Del/2022 the ultimate objective of any company (Page 112 of ECL ITAT PB). d) The investments in VEL by ECL yielded significant gains/value to ECL and ECL was able to support/assist its overseas group entities to make other investments. It may also be noted that various group entities have supported/ assisted ECL. Illustratively, when ECL required funds for acquiring ETIL shares, ECL obtained funds in the form of interest- free and temporary loans from EIHL, Mauritius (the then shareholder of ECL) and EGFL, Cayman Islands (the then indirect shareholder of ECL). Further, group entities also provided non-monetary support to ECL such asassistance/support of different personnel with relevant expertise in various fields. The group entities co- operated with each other for reciprocal/ mutual benefit and interest (Page 112 of ECL ITATPB). e) The sale of the shares & 340/Del/2022 held in VEL has been discussed by the Board of directors of the Assessee. Kindly refer Sr C of positive case sheet attached as Exhibit A on Page 1727 of ECL ITAT PB. E) More importantly, Page 19 f) As regards a) It needs to be noted owners did not have authorisation of sale that the USD 3.59 bn right to utilize the proceeds, it may be loan agreement is sale proceeds, which noted that the Assessee unsigned by ECL(Pg has been used by was a guarantor to the 142 of Assessment various other 3.59 billion loan order, Pg 95 of companies of this granted to ECML by a CIT(A) ). b) ECL did not retain group consortium of lenders led by SCB, UK in the sale proceeds in August 2007 (Page its account for even a 1711 of ECL ITAT day (Page –13-14 of PB). As the loan was assessment order, to be repaid and ECML Page – 10-11 of (the borrower) did not CIT(A)), hence, have the funds to clearly, the assessee repay, the Assessees did not avail any sold its VEL shares in benefit from the order to meet its transaction. obligations under the loan agreement towards repayment of the facility (Para 184, Page 115 of ECL ITATPB). The tax authorities cannot deny treaty benefits to Mauritius companies by stating that the sale proceeds received by the Mauritius company had ultimately been paid over by it to the shareholder – Vodafone International & 340/Del/2022 (SC) (supra) (Para 97 of Radhakrishnan), Becton Dickinson (Mauritius) Ltd (434 ITR 180) (AAR) and E*Trade Mauritius Limited (2010) 324 ITR 1 (AAR) (Para 188-189, Page 116 and Page 1717 of ECL ITAT PB) g) The transactions were undertaken for commercial reasons and it is not open to the tax authorities to step into the shoes of the Board of directors and question the business purpose of a transaction. The Assessees had also benefited from the various loans that were raised on the basis of ETIL/VEL shares and therefore, it is incorrect for the Revenue to argue the aforesaid as it is contrary to the facts on record. (Para 184-187, Page 116 of ECL ITAT PB) F) Decision making and authority does not lie with ECL/Ecom & 340/Del/2022 a) Cerebral Control in Page 19 a) The Revenue has failed a) The Revenue has taken to appreciate that: cognizance and India: All the i) All the directors rebutted the following vital/cerebral – on the Board functions of ECL i. The Directors forA.Y.2012-13 and Ecom being had nominated were residents of centrally employees of Mauritius except controlled and Essar in India Ms. Dina Wadia managed from to take all the (Para16, Page 21 India by Essar decisions on of ECL ITAT PB) Group executives behalf of them who was based in India at (Assessment appointed by the the instance of order page - lenders. Ruias. 130- ii) None of the 142,CIT(A)- 89-107). directors on the ii. The discussion Board for A.Y. on key 2007-08 to A.Y. management 2012-13 were executives residents of India who took except Ms. Dina decisions were Wadia (Page 1626 based out of of ECL ITAT PB) India.(CIT(A)- who was lender’s 139-140). nominee director iii. The key decisions were on the Board. taken by Essar iii) The Board of executives directors have based in India taken relevant , hence, the decisions in the control and meeting and management thereafter have was in India. passed resolutions iv. The authorised agreements various personnels were signed of group by the key Essar companies for executives in execution of India.(Assess agreements and ment order security page -130- documents. This 142,CIT(A)- fact has alsobeen 89-107). accepted by the b) Hence, all the control & 340/Del/2022 AO and CIT(A) and management is executed from India. that the group personnels were authorised by the Assessee. [Page 92-95 of ECL CIT(A) order and Page 116-118 of ECL Assessment Order] (Page 1712 of ECL ITAT PB) iv) The agreements and security documents have been signed and executed outside India. (Para34-39, Page 28 and Page 1712 of ECL ITAT PB) v) There is no evidence or material which shows that any decision was taken by personnel of group companies or much less that the decisions were taken in India at the instance of Ruia family members. (Para 34-39, Page 28 and Page 1712 of ECL ITAT PB) vi) Typically, the relevant boards of the respective entities authorised the directors along with experienced & 340/Del/2022 personnel of the group with relevant expertise, for executing the documents under delegated authority for administrative convenience. This is not at all uncommon amongst large business houses/ groups and helps authorisation cost and bring efficiencies. b) The only basis of Revenue’s conclusion that the control and management of the Assessee is in India is that the agreements and security documents have been signed by the personnel of group companies who were residents in India. The Assessee submits c) that the argument of the Revenue is incorrect and unsustainable in law for the following reasons: i) According to the Revenue the person signing and executing the documents is same as the Board of directors who have authorised to do & 340/Del/2022 so.This is directly in contradiction with the law laid down by Bombay High Court in case of Narottam Pereira Ltd (1953) (23 ITR 454) which has held that the control and management is with the Board of directors and not with the persons who have been delegated certain functions. ii) In any case, the Revenue has not brought any material on record to even suggest that the decisions have actually been taken or emanated from India and much less at the instance of Ruia family members. On the contrary, all the meeting for A.Y.2012-13 and for earlier years have taken place in Mauritius. Therefore, the argument of the Revenue that the cerebral control is in India is perverse, baseless and contrary to the evidence on record.

& 340/Del/2022 f) Unified Central Page 19 The Assessee submits a) There is no a) Command is that the argument of commercial reason obvious when the Revenue that here for establishment viewed is a unified Central and dissolution of holistically: Entire command when the companies. process i.e. viewed holistically is (Assessment order creation of also unsustainable and page -44-63) and various entities, without any evidence CIT(A)- 30-43). consolidation of in support. As b) The application of shares (of explained above, the loan facility is VEL/HEL) in evidence on record discussed on AO various entities – shows that the control page 92-95 and with varying and management of CIT(A) page 67-74, percentages of the Assessee rests with which clearly onshore and the Board of directors highlights that offshore, in Mauritius. Further, assessee was not borrowings for the Revenue has not beneficiary of these the benefit of found any evidence or loans. Essar Group and material to support its c) The assessee has not to fund share conclusion that the disputed that the fact acquisition by decisions have been that it pledged VEL pledging the very taken by Unified shares to raise loans, shares ofV EL, Central command and and ultimately sell it passing on benefit not by the Board of to repay the loans of rights issue to Directors. The taken for the benefit asubsidiary argument of the of Essar group. without Revenue is based on consideration, following allegations/ creation and inferences: dissolution of Creation of various i) entities: ETIL to make Entities have been onshore shares as incorporated for offshore, the business and impugned commercial transactions of reasons as transfer/ sale of explained before shares in 2011 the AO and and use of sale CIT(A)(Para 152- proceeds to repay 153, Page 94 and the loans and for Page 1735-1740 the benefit of of ECL ITAT PB) Essar Group is a ii) Consolidation of & 340/Del/2022 unified exercise shares in various entities with controlled and varying percentage managed centrally onshore and in Indiaby the offshore: Essar Group and not isolated independent decisions taken by the entities concerned. This allegation is d) The intent to factuallyincorrect liquidate ETIL first and there is no appears in Loan consolidation of agreement dated VELshares 31.1.2007 of onshore and ECIL(M) with offshore. The Standard Chartered shares of VEL Bank wherein heldby ETIL were Permitted migrated on Dissolution is liquidation due to discussed.(Page 51 various regulatory of ECL assessment and commercial order, Page 31 of reasons as CIT(A) order). This explained above. is prior to the iii) Borrowing for the supposed application benefit of Essar of the assessee to group: RBI dated 12.2.2007, The borrowing as claimed by the based on the VEL assessee, which it shares was for the has not furnished benefit of the during the Assessee and also assessment the group. The proceedings. Hence, same is the intent to permissible in law Voluntarily and does not show Liquidate ETIL was lack of control and already there ,which management as was subsequently held by Vodafone acted upon. International (supra) (Para 79) iv) Funding of VEL & 340/Del/2022 shares by pledging the shares of VEL: The same is a normal transaction which takes on day to day basis in the commercial world. For example, an individual buys a house with borrowed money by pledging the same house (which he is buying) with a bank. v) Passing on benefit of rights issue to subsidiary without consideration: These facts pertain to the appeal of Ecomand therefore they are not relevant to decide the issue arising in the appeal of ECL before theTribunal. vi) Creation and dissolution of ETIL to make onshore shares as offshore: TheAssessee submits that the very transfer of shares to ETIL and application to RBI for pledging of VEL shares by ETIL shows that the Assessee did not want to transfer the VEL & 340/Del/2022 shares outside India and the same was done only after the rejection by RBIof the pledge application. (Para 136-137, Page 89 and Point C, Page 1708 of ECL ITAT PB) vii) Use of sale proceeds to repay the loans and for the benefit of Essar group: The loan was taken for the benefit of the Assessee and for the expansion of the group. Therefore, the repayment of the same from the sale of shares does not in any manner show that the Assessee is not in control of the affairs of the company. Supreme Court in case of Vodafone International (supra) has specifically held that the same is permissible and there is nothing incorrect about it in law. (Para 248- 251, Page 149 of c) No role in Page 20 a) It is incorrect on the a) The Directors had nominated employees decision part of the Revenue to of Essar in India to making : mere allege that there is take all the decisions ratification, ratification and on behalf of them acquiescence acquiescence to the (Assessment order to the direction directions issued by page -130- given by executives of Essar 142,CIT(A)-89-107). executives of group from India. As Essar Group explained above, the b) The discussion on key from India by Revenue has not management the Board of produced any material/ executives who took Mauritian decisions were based evidence to show that Companies. out of India.(CIT(A)- directions have been 139-140). issued by executives of Essar group and such c) The key decisions directions have been were taken by Essar issued from India. As executives based in already submitted, the India , hence, the decisions have been control and taken by the Board of management was in directors in the India. meeting held in d) The agreements were Mauritius as evident signed by the key from various material/ Essar executives in evidence on record.

& 340/Del/2022 Therefore, the India.(Assessment order page -130- contention/ allegation 142,CIT(A)-89-107). of the Revenue is without any basis andis liable to be rejected in law. (Para 99,Page 65 and Page 1712 of ECL ITAT PB) d) Three Page 20 a) These facts pertain to No comments required. the appeal of Ecom and Agreements for therefore they are not acquisition of relevant to decide the issue HEL/VELsharesin arising in the appeal of ECL thenameofEcomb before the Tribunal. ytheEssar Group. (i) Share Purchase Agreement dated 03.07.2004 between Distacom India Co.Limitedand Ecom(formerly Essar Telecom India Holdings Limited) and Essar Global Limited Mauritius (now EIHL). The agreement with Distacom has been signed by Neeraj Gupta, an India based employee of Essar Group. This person has no authorised relationship (as evident from the meagre Page 20 a) These facts pertain to No comments required. (ii) The (Share the appeal of Ecom and Purchase therefore they are not Agreement relevant to decide the issue dated arising in the appeal of ECL 03.07.2004 before the Tribunal. between Distacom India Co. Limited and Ecom) agreement has Essar Global Ltd. Mauritius as co- contracting party and requires Essar Global Mauritius to ensure that Ecom fulfils all the conditionalities of the agreement. The role of Essar Global limited, & 340/Del/2022 Mauritius being pivotal to the affairs of Ecom(M) and ECL(M), the Board minutes of Ecom(M) were examined to understand the role assigned to this company. However, there is no mention, discussion, agreement or understanding with regard to Essar Global Ltd., Mauritius assuming such role in acquisition of shares from Distacom. (iii) Various Page 21 a)These facts pertain to the No comments required. appeal of Ecom and decisions for therefore they are not complying to relevant to decide the issue Clause2oftheag arising in the appeal of reementhasnot ECL before the Tribunal. been taken by the Board of Ecom(M). It is not known as to who has taken this vital decision in respect of acquisition of shares of Hutchison Max Telecom Pvt.

(iv) Share Purchase Page 21 a)These facts pertain to the No comments required. appeal of Ecom and Agreement therefore they are not dated 16 July relevant to decide the issue 2004 between arising in the appeal of ECL Ecom before the Tribunal. (formerly Essar telecom India Holdings Limited) and Hutchison Tele- communication (India) Limited (HTIL-BVI). The acquisition of 19.60% shares of HMTL, as sequel to the Agreement with Distacom by Ecom is for a consideration of promissory note issued by HTIL (BVI) in favour of Essar for an amount of USD 76,633,333. (v) The agreement Page 21 a)These facts pertain to the No comments required. has been appeal of Ecom and signed by therefore they are not & 340/Del/2022 Vikash Saraf, relevant to decide the issue Sr. Executive arising in the appeal of ECL of Essar Group before the Tribunal. in India. This person has no employment relationship (as evident from the meager expenditure on this account in the Financial Statement) or contractual relationship (as evident from the Board minutes). (vi) Share Purchase Page 21 a)These facts pertain to the No comments required. appeal of Ecom and Agreement therefore they are not dated July… relevant to decide the issue 2004 (date not arising in the appeal of ECL provided) before the Tribunal. between Ecom and HTIL (BVI) HoldingsLimit ed.(This agreement has not been provided by the Assessees).

& 340/Del/2022 (vii) As regards the Page 22 a)These facts pertain to the No comments required. appeal of Ecom and acquisitions of therefore they are not 2,12,54,008 of relevant to decide the issue HMTL from arising in the appeal of ECL Distacom by before the Tribunal. Ecom in 2004, the source of acquisitionissu bmittedtobeloa nfrom Amaranth LLC and ADRC Limited vide their agreement dated 20 July 2004 with Essar Global Ltd, Mauritius (presently EIHL) as the guarantor and Ecom(M) as the borrower. In this agreement, Essar Global Limited, Mauritius has entered into agreement jointly with Ecom, even while it has been designated as guarantor. The responsibilities of Essar Global Limited Mauritius is absolute towards the & 340/Del/2022 performance of the Agreement required to be done by Essar Group which could be understood from para 15 of the agreement. However, there is no deliberation with regard to such overarching role of Essar Global Ltd Mauritius in the relevant Board minutes of Ecom. Page 22 a)These facts pertain to the No comments required. (viii) Some of the appeal of Ecom and noteworthy therefore they are not definitions as relevant to decide the issue defined in para arising in the appeal of 1.1 of the ECL before the Tribunal. agreement and applied to the stipulations in the agreement are as under: o “Essar Group means the groups of companies affiliated with the Ruia family”.

& 340/Del/2022 o Control means the power to direct the management and the policies of an entity whether through the ownership of voting capital, by contract or otherwise. o Clause7.2 of the agreement stipulates that upon change of control of the Ruia family, the loan facility for acquisition of shares from Distacom ceases to have effect (ix) The agreement Page 23 a)These facts pertain to the No comments required. appeal of Ecom and therefore has been they are not relevant to signed by decide the issue arising in the Neeraj Gupta, appeal of ECL before the an Essar Group Tribunal. Senior Executive based in India on behalf of both Ecom Mauritiusand Essar Global Mauritius.

& 340/Del/2022 (x) From the Page 23 a)These facts pertain to the No comments required. appeal of Ecom and therefore contents of the they are not relevant to agreement it is decide the issue arising in the clear that all appeal of ECL before the decision and Tribunal. actions have been taken by Senior Executives of Essar Group in India and the loan is based on the foundation of control, management and affiliation by ‘Ruia family’ (xi) Subsequent Page 23 a)These facts pertain to the No comments required. appeal of Ecom and therefore acquisition of they are not relevant to 4,397,381 decide the issue arising in the shares of HEL appeal of ECL before the on account of Tribunal. right issue of HEL- HEL has issued Right issue for subscription of 6/29 shares by its shareholders. Ecom Mauritius by virtue its ownership of 6.19% share in HEL is eligible to avail of Right issue. However, even while its newly & 340/Del/2022 acquired subsidiary ECHL (M) has not made any payment towards this rights issue, the share acquired through the right issue have been transferred in its favour. The Board has not deliberated upon commercial substance of this transfer. g) Rights shares Page 23 a)These facts pertain to the No comments required. having been appeal of Ecom and transferred to the therefore they are not wholly owned relevant to decide the issue subsidiary, arising in the appeal of ECL without payment before the Tribunal. of any consideration and without the Board discussing and deciding to this effect, leads to the inference that the various corporate entities among the group companies lack their separate corporate identity.

& 340/Del/2022 f) Another striking Page 23 a)These facts pertain to the No comments required. appeal of Ecom and feature observed therefore they are not from the Board relevant to decide the issue minutes arising in the appeal of corresponding to ECL before the Tribunal. the loan facility dated 20.07.2004 is that While the minutes suggest the possible source of subscription to the right issue as loan from Essar Infrastructure Holding Ltd., in actual practice the right issues has been subscribed out of short-term loan from American Express Bank. Page 24 a) TheAssessee submits that a) The AO has rebutted the V. Role of key the allegations made by arguments of the executives starts from the AO in the assessee vide page para 33 (internal assessment order which 111- 142 of the Page 87 of CIT(A) have been repeated by assessment order, order upto Page 134) the CIT(A) in its order establishing that the (None of which was were rebutted in detail key executives of Essar disputed before the beforetheCIT(A)byway who are based in India, Hon’ble Tribunal) of written submission are controlling and filed by the Assessee managing the and were referred to at company.(CIT(A)Page the time of hearing 87-107) before the Tribunal. Therefore, the contention of the Revenue that relevant aspects have not been disputed by the Assessee is incorrect h) Para 33 – 33.3 of Page 24 a) Here the CIT(A) has a)The persons authorized by CIT(A) order deals provided profiles of board of assessee are broadly on the persons authorised by Residents of above aspect the board of ECL. The India.(CIT(A)- 139- including the profiles themselves 140). references of key show that the persons Persons appointed are qualified individually people having relevant expertise. i) Page 92 of CIT(A) Page 24 a) The learned AO/CIT(A) a) The assessment order contains a have also accepted the order (page -111- table of fact that various people 142) and CIT(A) Persons authorised have been authorized by order (page -87-119) as per Board theBoard of the have established the minutes for directors of the fact that the ECL(M). Assessee. [Page 92-95 decisions were taken 3.Page92–95 of Page 24 of ECL CIT(A) order by key executives of CIT(A) order and Page116-118 of Essar Group based in refers to the ECL assessment order]. India, who also person authorised Further, it is submitted executed the as per Board that there is a significant agreements on minutes along difference between behalf of the with purpose of taking decisions (which assessee. authorization in are taken by the Board) the case of Essar and execution of Power India documents (done by Holdings Limited authorised signatories which later under delegated became Ecom. authority by the Board). It is a legally accepted that a decision maker may be an executor of the said decision, however, the executor of a decision may not be the same person/ individual who has the & 340/Del/2022 authority to take a decision. Therefore, the facts on record show that the decision have been taken by the Board of directors, and they have 285 uthorizat relevant persons for execution of transactions. (Para 37, Page 29 and Page 1712 of ECL ITAT PB) b) Name of Essar Power India Holdings Ltd was subsequently changed to Essar Communications Limited (on 12 December 2005) 4. Page 96 of CIT(A) Page 24 a)These facts pertain to the No comments required. appeal of Ecom and therefore order refers to the they are not relevant to same in the case of decide the issue arising in the Ecom. appeal of ECL before the Tribunal.

5. Page 104 of CIT(A) Page 24 a)These facts pertain to the No comments required. appeal of Ecom and therefore order refers to they are not relevant to ECML Mauritius. decide the issue arising in the 6. Page 105-107 of Page 24 appeal of ECL before the CIT(A) order refers Tribunal. to ECIL.

7. Page 107 – 119 of Page 24 a) As submitted above, the a) The Liquidation of CIT(A) order migration of shares by ETIL had no refers to ETIL ETIL to ECL was due to commercial which transferred reasons beyond the prudence but was a its onshore control of the Assessee colourable device holding in VELto and was necessitated as use to transfer shares ECL and a consequence of the from onshore to migrating it into failure to obtain pledge offshore .(Page 44- offshore approval from RBI, in 63 of ECL order to achieve the assessment order, commercial purpose of Page 30-43 of 285 uthorizat the value CIT(A) order).

8. Page 120 and 121 Page 24 a) The Mauritius Company The CIT(A) order page - of CIT(A) order – law allows the Board to 116-127, elucidated the Date wise chart of conduct the business of discrepancies in the Board minutes / the companies through minutes of meeting of the written resolutions written resolutions. As board. This further of ECL, Ecom, per Section 158 read established that the control ECML and ETIL with Eighth Schedule of and management of the the Companies Act, assessee was done from 2001, in Mauritius a India by its key executives. written resolution is as valid and effective as if it had been passed at a meeting of the Board duly convened and held. Further, as per the settled judicial position on the subject, it is only the control and management of the year in which the income is earned that is relevant for determining the residential status of that year. In the present case, the Assessee held 11 Board meetings discussing various affairs of the company in detail and taking decisions key to its affairs, during the year under consideration i.e. F.Y.2011-12 (and no written resolutions were issued during that year. (Para 65, Page 46 of ECL ITAT PB)

& 340/Del/2022 9.Page 121 – 124 of Page 24 a) It is submitted that there a) The CIT(A) order CIT(A) order – are no discrepancies in page -116-127, Serious the Board minutes but elucidated the discrepancies in only clerical/ discrepancies in the Board minutes of administrative errors minutes of meeting ECL Mauritius up that have been pointed of the board. This to 16.08.2007 – out by thelower further established Incidents casting authorities and the same that the control and doubt over CMC have been explained by management of the in Mauritius. the Assessee before the assessee was done lower authorities. from India by its (Responses to the errors key executives. b) The execution of pointed by CIT(A) Page121-124 of ECL this tax evasion CIT(A) order –refer Sr. planning cannot be No. 1-19 of Exhibit B viewed in isolation, on Page 1729 of ECL hence, the ITAT PB) discussion on all b) These minutes do not the years is critical relate to the year under to establish that consideration and have control and no bearing on management of the availability of India – assessee is in India. Mauritius DTAA benefits for determining taxability of capital gains arising from sale of theVEL shares in the hands of theAssessee. However, the Assessees in any case have provided clarification before the lower authorities. (Page 1712 and 1725 of ECL ITAT PB) 10.Page 124–126– Page 24 a)These facts pertain to the No comments required. appeal of Ecom and therefore Serious they are not relevant to discrepancies decide the issue arising in the inBoard minutes appeal of ECL before the of Ecom Mauritius Tribunal. up to 16.08.2007 – & 340/Del/2022 Incidents casting doubt over CMC in Mauritius.

11. Page 127 – 133 – Page 24 a) For responses to the a) The CIT (A) has errors pointed by CIT(A) rebutted the assessee’s Board minutes of Page127-138 of ECL submission vide page ECL and Ecom CIT(A) order–refer 134-138, wherein it is for the F.Y. 2010- Sr.No.20-27 of Exhibit B clearly established that 11 and 2011-12 on Page 1731 of ECL the Minutes of the (observations/ ITAT PB meetings were not instances casting b) In response to reliable and sole serious doubt over purpose was creation of Revenue’s allegation in the genuineness of evidence. para 34.2 of the CIT(A) the meetings and order [Page 134 of ECL the recording of CIT(A) order], it is minutes) submitted that it is 12.Page 134 to 138 Page 24 evident from the due brings out again diligencere port from the minutes for the BLC Chambers, the F.Y. 2010-11 and Board minutes of ECL F.Y. 2011-12 for for F.Ys 2010-11 and doubtful 2011-12 had been authenticity. contemporaneously shared with BLC Chambers and the report of BLC Chambers was contemporaneously provided to the MRA vide the application dated 26 April 2012. The report also summarizes the said minutes (refer Page 1649 of ECL ITAT PB). It is also relevant to note that extracts of various Board meetings including for the relevant year have been contemporaneously shared with BLC Chambers, third party & 340/Del/2022 lenders, Vodafone and Assessees auditor. Hence to allege that the Board minutes of F.Y.2010-11 and 2011- 12 are of doubtful authenticity, is completely misplaced and should be rejected. (Para 234, Page 144 and Page 1714 of ECL ITAT PB) 13. Page 141 of Page 25 a) Kindly refer to response These documents were not at Page172-175 and Page furnished by the assessee CIT(A) order– 1724 of ECL ITAT PB during the assessment CIT(A) reiterates proceedings of during the findings of the CIT(A).(CIT(A) page -141) AO as to the list of documents which were not submitted by the Assessees for F.Y. 2010-11 and 2011-12 even during the hearing on 6 April 2017 before the AAR. Board of Directors of the Group Companies Abdicating Responsibility related to the Affairs A Page 25 a) The ETIL dissolution As is evident, from a) The contention of the . the minutes of the Revenue is factually was decided vide loan Board, discussed incorrect as the decision agreement of USD supra, and also the regarding liquidation of 1.1.bn between Board minutes of ETIL was taken by ECL ECIL(M) and ECL(M), that the in its Board meeting SCB(Assessment order decision for voluntary held on 10 September page 51 , 139). Hence, liquidation has not 2007 (Page 633 of ECL clearly the decision of taken place in Board ITAT PB) and was liquidation of ETIL was minutes of any of the further noted by the not taken by ECL or relevant Companies, Board of directors of ETIL. that is ECL and ETIL. ETIL on 12 October b) The intent to liquidate The entire decision 2007. Therefore, it is ETIL first appears in has been taken incorrect to say that the Loan agreement dated & 340/Del/2022 centrally by the Essar decision regarding 31.1.2007 of ECIL(M) Group and executed liquidation of ETIL was with Standard by and through the not taken by ECL or Chartered Bank employees of the ETIL. (Para 129, Page wherein Permitted Essar Group in India 85 and Point B, Page Dissolution is 1726 of ECL ITAT PB) discussed.(Page 51 of b) In fact, the Revenue has ECL assessment order, not produced any Page 31 of CIT(A) evidence which order).However, the demonstrates that the minutes of the board of decision regarding ETIL dated 15.1.2007, liquidation of ETIL was do not discuss the taken by any other same. person than the directors c) The Board minutes are of ECL and ETIL. silent of dissolution Therefore, the argument before the loan of the Revenue that the agreement dated decision has been taken 29.06.2007 of USD 1.4 centrally by the Essar bn (Page 51 of group is perverse and Assessment order) contrary to the evidence d) The Board minutes on record. were drawing long term growth strategy vide minutes dated 16.8.2007, despite voluntary dissolution clause . The Voluntray dissolution is discussed first time in board meeting dated 12.10.2207 (Page 53 and 55 of Assessment order, Page 36 of CIT (A))

B. Acquisition of shares Page 25 a) The contention of the a)The AO has recorded in of ETIL is an Revenue is incorrect assessment order page important event so far because the application 58-60, which clearly as the affairs of ECL made by ETIL was states that there is no is concerned. pending for approval of mention in minutes of However, in the FIPB which was the board regarding it minutes Book of the received only on 11 on page 59.

& 340/Del/2022 ECL, there is no December 2006 and mention with regard immediately thereafter, to this affair as on the the Board of directors date of the FIPB have discussed the Application. In fact, matter of receipt of on 5 January 2007 FIPB and investment to that is almost after 6 be made in ETIL on 5 months of the January 2007. submission of FIPB Therefore, the argument Application for of the Revenue that an investment by important event relating ECL(M) into to investment in ETIL is ETIL(India) not found in minutes is shareholding, there is incorrect and bad in mention for the first law. (Para 72, Page 49 time in the Board and Page 1709 of ECL meetings: ITAT PB) C. In the Board minutes Page 25 a) From the extract of the A) The AO has of ECL(M), the minutes for the meeting recorded in assessment recording of fact with on 5 January 2007, it is order page 59-60, regard to ETIL clear that the stake of which clearly states holding 15.85 % VEL then held by ETIL that there is no shares of HEL and was not considered by mention in minutes of VELon relevant the Board of ECL as the board regarding dateiswrong.In fact, 15.85% but that ETIL investment in ETIL on 5 January 2007, wished to increase the before 5.1.2007, when only 49,706,826 stake to 15.85%. The the process of shares were with relevant extract is investment by ECL in ETIL and not 15.85 below: ETIL started on % as recorded. Thus, “He suggested that 18.7.2006.Hence, the directors are with respect to the clearly the decisions of completely unaware above, it would be assessee company of the correct set of good idea to consider were being taken in facts. The Board of investment in the India and the board of ECL(M) had no idea Indian group the ECL was informed with regard to its company Essar post facto.(CIT(A)- proposed investment Telecom Investment page 37-40) in ETIL while letter Limited (ETIL) which had already been currently holds equity issued to FIPB on stake in Vodafone behalf of the Essar Limited and applicant company wishes to increase the D. While ETIL has Page 26 a) On 5 January 2007 a) The AO has recorded allotted shares to ECL theBoard of ECL had in assessment order on 02 February 2007 292 uthorizat any page 59-60, which and 26 February 2007 director to explore and clearly states that there totalling 154625210 in make investments in is no mention in numbers, the Board of ETIL. Subsequently, minutes of the board ECL has got to know investments into ETIL regarding investment about this vide minutes were made on the in ETIL before dated 7 March 2007 292 uthorization of 5.1.2007, when the director of the Assessee process of investment on 8 January 2007. The by ECL in ETIL Assessee would like to started on respectfully submit that 18.7.2006.Hence, once the decision to clearly the decisions of make investment into assessee company ETIL was already made were being taken in by the Board, no further India and the board of deliberations was the ECL was informed required by the post facto.(CIT(A)- Assessee’s Board for page 37-40) any future allotment b) The Assessment order other than taking the clearly states on page allotment of ETIL’s 59 that Sh. Vikas Saraf shares on record. It had written letter to would be appreciated FIPB on behalf of that allotmentis a ETIL regarding ECL process that is investment . Hence, undertaken by ECL Board was not theinvesteecompany and aware about hence the same was investment proposal in merely noted by the ETIL. Assessee as a & 340/Del/2022 shareholder of ETIL in its subsequent Board meetings. b) The written resolution of the directors dated 7 March 2007 of the Assessee only records the fact of allotment of equity shares by ETIL, the last of which allotment was on 26 February2007. Based on this written resolution of 7 March 2007, it cannot be said that the Board of directors of ECL came to know about the investment in ETIL only on 7 March 2007. (Para 103, Page 66 and Point G, Page 1710 of ECL ITAT PB) Hence, it cannot be said that the Assessee’s Board was unaware of allotment of shares by ETIL and accordingly, no adverse inference could be drawn from the aforementioned allegation. E. The next most Page 26 a) On 3 August 2006, the a)The AO has important event of Assessee had authorised discussed on page 61- ECL(M) is – any director to seek 63 of the assessment investment into the shareholder support and order discusses how the Share Application to fund Ecom at its Board minutes reflect money of Ecom(M) request.The Board of that the ETIL amounting to USD directors of ECL Liquidation and 153.177 million on 3 discussed that Ecom had transfer of situs of March 2007. There is borrowed funds from 15.85% shares of VEL no mention about parties leading to high was a colorable device & 340/Del/2022 these important borrowing costs and that meant for avoidance of affairs in the Board Ecom wished to raise tax in India.(CIT(A)- minutes for the whole funds by way of equity page 41-43) of F.Y.ending 31 to repay its existing March 2007 even borrowings and to fund while the amount has operations. been received and Accordingly, this shows utilized inter alia for that ECL was well repayment of loan aware about repayment facility for USD140 requirement of the loan million along with of Ecom. Hence, the interest. allegation of the department is baseless, since they have ignored the authorization of 3 August 2006. (Para 68, Page 48 and Page 1732 of ECL ITAT PB) F. After the close ofthe Page 26 a) In the Board meeting of a) The AO has F.Y., thatis on 27 ECL held on 5 January discussed on page 61- April2007, the matter 2007, it was resolved to 63 of the assessment with regard to receipt estimate the requirement order discusses how of share application of funds for investment the Board minutes money of USD in ETIL and reflect that the ETIL 558.786 has been authorization any one Liquidation and ratified by the Board. director of ECL to transfer of situs of This implies that the discuss with shareholder 15.85% shares of VEL Board of ECL(M) regarding requirement was a colorable device was neither aware of of funding by way of meant for avoidance of (i) Investment into the equity. tax in India.(CIT(A)- share application b) Therefore, theBoard of page 41-43) money of ECom(M) directors of the Assessee nor aware of (ii) was well aware of the Investment by ECML investments into Ecom (M) into the Share and ETIL and the Application money of written resolution dated the applicant. 27 April 2007 merely ratifies the investment into Ecom and of investment of ECML into ECL which was already decided.

& 340/Del/2022 c) Hence, the argument of the Revenue that the Assessee was not aware of the investment in Ecom and investment by ECML in the Assessee is factually incorrect and bad in law. (Para 68, Page 48 of ECL ITAT PB) G. Similarly, the Board Page 26 a) In this regard, it is a) The AO has minutes of respectfully submitted discussed on page ECML(M), ratifies that these allegations 61-63 of the made by the Revenue assessment order the investments into are not applicable in discusses how the ECL on 27 April the present case. The Board minutes 2007, i.e. a date observations of the reflect that the ETIL subsequent to the Revenue do not Liquidation and investment of such pertain to the transfer of situs of huge amount out of Assessee. (Para 119, 15.85% shares of the loan proceeds Page 78 of ECL ITAT VEL was a colorable facilitated on the PB) device meant for basis of pledge of b) In any case, on 29 avoidance of tax in HEL/VELshares India.(CIT(A)-page January2007, the owned by ETIL India 41-43) Board of directors of and Ecom(M). ECML held meetings and discussed to make investment in ECL wherein it was informed to the Board that the subsidiary of the company i.e. ECL had approached the company for finance in the formof equity shares in order to enable ECL to make downstream investments and its business operations. Hence, the Board of directors of ECML was aware about H. Even, the Board Page 26 a) a)These facts pertain to No comments required. the appeal of Ecom and minutes of Ecom(M), therefore they are not ratifies the relevant to decide the investments received issue arising in the appeal from ECL on 27 of ECL before the April 2007, Tribunal. i.e. a date subsequent to the investment of such huge amount out of the loan proceeds facilitated on the basis of pledge of HEL/VEL shares owned by ETIL India and Ecom(M). I. It is noteworthy to Page 26 Refer response at Sr.No. No comments required. (IV). F.(d)(iii) of the know, that various Revenue submission decisions for complying to Clause2 of the agreement has not been taken by the Board of Ecom(M). It is not known as to who has taken this vital decision in respect of acquisition of shares of HMTL, even though the same is claimed by the Applicants to be acquired by Ecom(M). J Point J on Page 27 of Page 27 Refer response to Page31 of No comments required. the submission the Revenue submission & 340/Del/2022 VI – Core aspects a) The Assessee submits relevant to the case that the allegation brought out in the order made by the AO in the of the CIT(A) approving assessment order which have been the order of the AO (None of which was repeated by the disputed before the CIT(A) in its order Hon’bleTribunal) were rebutted in detail before the CIT(A) by way of written submission filed by the Assessee and were referred to at the time of hearing before the Tribunal. Therefore, the contention of the Revenue that relevant aspects have not been disputed by the Assessee is incorrect and contrary to the evidence on record. 1.No decision making Page 29 a)The Put option was agreed a) The allegation is that for transfer of shares dated 24 August, 2007. This Ecom and ETIL have (Page142) agreement was amended not raised any and restated on 22nd question regarding September, 2009 between ECML being giventhe Vodafone International put option for the Holdings BV (“Vodafone”) VELshares. The (ii) Vodafone Group Plc, contention of the UK (“Guarantor”) (iii) Essar Revenue is without Communications (India) any substance since Limited, Mauritius the put option (“ECIL”) & (iv) Essar Global Limited, Cayman agreement also Island (“Essar Global”). provided for direct (AO page -96-106, CIT(A) sale of VEL shares by page -74 -81) Ecom and ETIL which was in their interest accordingly, there was no occasion/reason for Ecom and ETIL to & 340/Del/2022 raise any dispute regarding this. The alternative put option under which ECML couldsell the shares of ECL and consequently the entire structure under it, was agreed by the parties in the event the transaction was to be done at the holding company level. b) In fact, it is important to note that when the parties wanted to directly sell theshares of VEL the consent of the lenders for direct sale of VEL shares was not coming through and ECML was compelled to exercise the alternative put option whereby shares of ECL were to be sold to Vodafone (Page 577 of ECL ITAT PB). Therefore, the option of indirect sale of shares by ECML waskept under the agreement to deal with such unforeseen circumstances. (Page 1712 ofECLITATPB)

& 340/Del/2022 c) A put option is merely b) ECL and ECOM were the right to sell, without not party to even the the obligation tosell onshore and offshore and hence there is no put option agreement question of the decision as novated, amended to sell having been and restated on 22 made merely on September, 2009 account of entering into c) The agreement places an option agreement. unreasonable business Commercially, the restrictions upon the exercise of option was target companies viz subjectto various ECOM/ECL/ETIL considerations, inter showing the totally alia, to the value of the sub-servient position shares at the time of of these companies in determining whether to the Essar group exercise the option. If the value of shares at the said time was in excess of the option price, the Board wouldn’t have exercised the option for all shares and could have either sold some ofthe shares under the fair value put option ordecided to refinance the USD 3.59 billion loan after continuing to hold the shares and letting the put option expire. In fact, the fair value in 2011 was belowthe underwritten put option price which was deliberated upon by the Board of ECL and hence they preferred the underwritten put option. (Para 42, Page & 340/Del/2022 32 of ECL ITAT PB) d) In any case, Supreme Court in Vodafone International (supra) has held that group parent company is involved in giving principal guidance to group companies by providing general policy guidelines to group subsidiaries. However, the fact that a parent company exercises shareholder’s influence on its subsidiaries does not imply that the subsidiaries are to be deemed residents of the State in which the parent company resides. Therefore, there is nothing incorrect or unusual in the present case. (Point 3, Page 1715 of ECL ITAT PB) e) The direct sale of VEL shares was thoroughly evaluated by ECL which has been explained in positive case sheet (refer Sr.C of Exhibit A at Page 1727 of ECL ITAT PB).

& 340/Del/2022 2.No decision making Page 29 a) The allegation is a) The Assessment factually incorrect as in order and CIT(A) for valuation for the financial statements order have transfer (Page143) the Assessee has valued discussed in detail the put option the lack of decision agreement under which making in VEL shares were to be Valuation of sold and, in the Board transfer .(CIT(A) minutes, the valuation page -143 – 144, aspect that has been 216 , Para 118.1 of discussed is regarding page 240 the 3G spectrum ,Assessment order bidding. Therefore, the page -page 176- two points are 177,184-191) completely different and b) The details of the distinct. valuation process b) The fair valuation of which was a options reflected in the precondition for financial statements is a exercise of FMV requirement under the Put Option was applicable accounting also not provided framework which have during assessment been confirmed by the proceedings. auditors and subsequently approved by the board of directors in its meeting. (Para 41, Page 30 and Page 1715 of ECL ITAT PB) c) The allegation about no discussion in the Board minutes about Market Value put option is factually incorrect. The fair market value put option amendment agreement protected the rights of the Assessee and provided that any excess bidding by Vodafone for 3G spectrum leading to fall in value of VEL shares & 340/Del/2022 would be compensated to the Assessee. The aforesaid aspect of excess bidding for 3G spectrum was specifically discussed by the Board of Directors in the Board meetings held on 10 September 2009, 2 March 2010, 28 July 2010 and it was decided that the Assessee would be protesting against the excess bidding by Vodafone and will also request Vodafone to compensate for the fall in value of VELshares. Therefore, it is incorrect to allege that the aforesaid aspect is not found in the Board minutes. (Page 1727 of ECL ITAT PB) d) It is further submitted that the minutes of ECML discuss the agreement in detail and the same brings out that the concern of the Assessees were taken care of in the Fair Market Value Put Option amendment agreement therefore, the allegation that there is no discussion in the minutes of Ecom, ECL and ECML is factually incorrect and bad in law.

& 340/Del/2022 3. No participation in Page 29 a) The contention that a) The Assessment spectrum auction there was no order has rebutted (Pg.144) participation by the the assessee’s Assessee in 3G argument in Para spectrum auction is 44 of Page 187, factually incorrect. As wherein it is the aspect of 3G mentioned that the , spectrum bidding was “However the discussed by the Board Assessee Company in the following Board even while minutes: transferring the shares have not  On 10 September participated in this 2009–Mr. Uday aspect as Gujadhur was shareholders except 303uthorizat to obtain for a brief 3G valuation in information in the consultation with Board Minutes. ECHL India The process of  On 2 March 2010 participation in the meeting 3G valuation Spectrum Auction report tabled before is an important, the Board detailed and  On 28 July 2010 the involved affair Board approved the comprising of compensation of voluminous Rs.3404 million on documentation and acoutn of 3G impact complex processes. (Page 1715 and 1727 The Board Minutes of ECL ITAT PB) do not show any such involvement by the Assessee Company. Thus, control and management on this count too does vest in India.”(Para 37.8 of Page 144 of CIT (A)).

4. Mere acquiesce to Page 29 a)The price of USD 3.8 a) The Assessment the consideration billion agreed under the order and CIT(A) without any Put Option Agreement order have discussed in detail participation was in line with the the lack of decision (Pg.144). value at which & 340/Del/2022 Hutchison had sold its making in stake to Vodafone group Valuation of and further, there was transfer.(CIT(A) an option agreed under page -143 – 144, 216 , Para 118.1 of the put option agreement wherein if page 240, Assessment order the fair market value page -page 176- was higher than the 177,184-191) fixed price then the shares would be sold at fair market value. Therefore, there was no occasion for the Assessee to raise any question on the price as the interest of the Assessee was completely protected. In any case, the put option was merely a right to sell and not an obligation to sell the VEL shares.

5. Non-evaluation Page 29 j) The allegation that the a) The AO and CIT(A) of tax payments Boardof directors were have clearly by the Appellants not aware of the established in the and done by other application filed before orders that assessee entities (Pg. 145). the AAR by Vodafone is had not evaluated tax incorrect as theBoard payments in its minutes of the Assessee consideration(AO Pg for the meetings on 28 188-189, CIT(A)- July 2010, 23 November Page 144) 2010 and 30 March 2011 clearly show that the Board of ECL were aware of the application unilaterally filed by Vodafone to the AAR.

& 340/Del/2022 b) The other allegation that the Assessee was not aware of the nominee of Vodafone group till 15 May 2011 is also incorrect as the option to sell the shares was exercised by the Assessee only on 30 March 2011 and thereafter the Board of directors were informed about the nomination of Euro Pacific Securities Limited (‘EPSL’) as noted in the minutes dated 15 May 2011. c) The Assessee further submits that as evident from the above mentioned Board minutes, the Board of directors have discussed the issue of tax dispute with Vodafone and were aware that an application is pending with AAR therefore, immediately after exercise of option, the Assessee filed an application for intervention before the AAR which was signed by one of the Directors Mr. Sushil Kumar Baid and was also discussed in the Board minutes dated 15 May 2011. (Para 57-58, Page 42 and Page 1716 of ECL ITAT PB)

& 340/Del/2022 6.No role for the Page 29 a) The contention of the a) The AO and CIT(A) Assessees in giving Revenue that the Board have clearly effect to the minutes of the Assessee established that there transfer (Page 145 do not speak of the was no role of manner in which assessees in giving and 146) various responsibilities effect to the transfer as stipulated in and the Board shareholder term sheet Minutes do not are to be carried out is speak of the manner incorrect and contrary to in which exit from the evidence on record. various It should be noted that responsibilities as the Board in their stipulated in meeting dated 24 June Shareholder Term 2011 has considered the Sheet are to be settlement that was carried out. The proposed by Vodafone absence of such and authorized, inter important function in alia, Sushil Baid and the Board Minutes Uday Gujadhur (both only goes to prove directors to the that the Board is not Assessee) to execute participative in the various agreements in decision making connection with such process pertaining to settlement which its own affairs. (AO included the agreement Pg 189-190, CIT(A)- to settle and terminate Page 145-146) the shareholder term sheet. b) Further, postthe exit of the Assessee fromVEL it is but natural that the members nominated would resign from the Board of VEL and the same does not require any discussion in the Board meetings of the Assessees. (Para 59, Page 43 of ECL ITAT PB) c) It should also be & 340/Del/2022 appreciated that ECL has nominated representatives to attend various meetings, and the Board has taken important decisions in relation to VEL (refer Exhibit E to submission before CIT(A) dated 9 November 2021) including sale. (Page 1716 of ECL ITAT PB) d) Given the above, it is incorrect on the part of the Revenue to allege that Assessee has no role to play in giving effect to the transfer and is in fact contrary to the evidence on record.

7. Assessees neither Page 29 a) The Revenue has erred in a) The AO and CIT(A) alleging that the have clearly established received Assessee has neither that the assessee has consideration or received consideration neither received applied the same nor applied the same for consideration nor for its use (Pg.146). its use. applied the same of its b) It is an admitted fact use as both the companies i.e. ECL(M) that the sale and Ecom(M) in their consideration has been Financial Statements received by the have shown huge Assessee in its bank interest expenditures in account. Thereafter, the the past on account of proceeds were utilized the loans by virtue of towards discharge of which it has incurred USD 3.59 billion loan losses as there are no taken by ECML in income in any year apart respect of which the from notional income on account of valuation of Assessee was a derivative. The Assessee guarantor and the Company have not even payment so made was retained such reflected as receivable expenditure incurred by in its books of accounts, them in past on account which was later of such loans. Thus, the & 340/Del/2022 converted into entire setup including interest payments has preference shares. been created merely for c) As regards 308uthorizati the benefit of the Group. of sale proceeds, it may (AO Pg 190-191, be noted that the CIT(A)- Page 146) Assessee was a guarantor to the USD3.59 billion loan granted to ECML by a consortium of lenders led by SCB, UK in August 2007 (Page 1711 of ECL ITAT PB). As the loan was to be repaid and ECML (the borrower) did not have the funds to repay, the Assessees sold its VEL shares in order to meet its obligations under the loan agreement towards repayment of the facility (Para184, Page115 of ECL ITAT PB). The same has been discussed by the Assessee’s Board in its Board meetings dated 3 March 2011 (Page 572 of ECL ITAT PB), 25 May 2011 (Page 208 of ECL ITAT PB) and 24 June 2011 (Page 214 of ECL ITAT PB). d) In any case, the Assessee was a party to the USD3.59 billion loan agreement that has been approved by the Board, wherein the Assessee acted as a guarantor to such loan.

& 340/Del/2022 (Para 184, Page 115 and Page 1711 of ECL ITAT PB) e) The tax authorities cannot deny treaty benefits to Mauritius companies by stating that the sale proceeds received by the Mauritius company had ultimately been paid over by it to the shareholder–Vodafone International (SC) (supra) (Para97 of Radhakrishnan), Becton Dickinson (Mauritius) Ltd (434 ITR 180) (AAR). The transactions were undertaken for commercial reasons and thatis the legitimate objective of an SPV like the Assessee i.e. to maximize benefit to the shareholder. (Page 1717 of ECL ITAT PB) Accordingly, it is incorrect on the part of the Revenue to make such a bald allegation. 8.Decisions with Page 29 a) The Board of a) The AO and CIT(A) regards to assets, directors of ECL have clearly established liabilities and had discussed the that the assessee had income and conversion of not taken decisions with expenditure not receivables from regard to assets, taken by the ECML into liabilities and income Assessees preference shares and expenditure as it is (Pg.147-148) and the sameis seen that the entire forming part of the liability has been audited financial converted merely by statements approved book entry into & 340/Del/2022 by the Board of convertible debenture directors. A mere in favour of ECML(M). omission by the It is noteworthy that the secretarial team to Board ECL(M) has not record a discussion even discussed this is being used by the important matter even Revenue to create while the Financial prejudice against the Statements speak of Assessee. (Page such conversion. (AO 1731 of ECL ITAT Pg 191-192, CIT(A)- PB) Page 147-148) b) It is submitted that conversion to preference shares was indeed a non-cash transaction. (Reference by the lower authorities to debentures appears to be an error). Once repatriation of sale proceeds cannot be frowned upon, in view of Vodafone International (supra), a legal mode of such ploughing back cannot be questioned. (Page 1717 of ECL ITAT PB) c) It is further submitted that the allegation pertaining to ECML and THCL is not relevant to the issue arising for consideration of the Tribunal. a) The AO and CIT(A) 9.Even compliance to Page 29 a) The Revenue has erred in alleging that exit by the have that compliance to Government Assessee from the Government Regulations Regulations were telecom business of VEL were not handled by the not handled by the required approval from Assessees (AO Pg 192, Assessees (Pg. FIPB, RBIetc CIT(A)- Page 148) 148) b) It should be noted that & 340/Del/2022 the saleof VEL stake was by one non-resident company i.e. the Assessee to another foreign company (EPSL) and it did not require approvals from FIPB/RBI etc on the part of the sellers. Hence there was no need for any deliberation on any FIPB/RBI related approvals by the board of ECL. (Para 60, Page 44 of ECL ITAT PB) c) This is another example of the bald allegation that is being raised by the Revenue, which is not sustainable in the facts of the present case.

10. Breach of the lock Page 29 a) The Revenue has erred in a) The AO and CIT(A) alleging that there is a have established in period on sale of breach of the lockin breach of the lock in equity of promoters period under Unified period on sale of equity of Assessees’ Access Service (‘UAS’) of promoters of shares (Pg. 148). license conditions. Assessees’ shares (AO b) It is respectfully Pg 192-193, CIT(A)- submitted that the Page 148-149) Revenue cannot judge the legality of transfer when the Department of Telecom has not raised any objection. c) In any case, there is a specific exclusion from the lock-in condition in cases where the holder of license holds license for multiple circles which VELdidand hence this condition is not applicable in the facts of the present case. (Page 1694 of ECL ITAT PB)

& 340/Del/2022 d) The Assessee would also like to mention that this issue is not germane to the issue of taxability of income on sale of VEL shares in the hands of the Assessee by virtue of Article 13(4) of the India Mauritius DTAA and is liable to be rejected. (Point E, Page1709 of ECL ITAT PB) VII–Tax Residency a) As submitted above, the Certificate (‘TRC’) contention of the Revenue is (None of which was incorrect and contrary to the disputed before the facts on record, the allegation Hon’ble Tribunal) and contentions of the lower authorities have been specifically rebutted by the Assessee. Page 30 a) Assessee has not 1. Vide para 39 a) It is submitted that (Page150 and during the course of provided TRC for 151) of the the assessment FY 2004-05 to CIT(A) order, the proceedings, the AO 2009-10 to prove authority had had called for the that it has been a concluded that TRC for the year tax resident since TRCs for F.Y. under consideration its inception as 2004-05 to 2009- vide notice dated 7 claimed by it. 10 were not May 2014 which (Refer to page 257 produced during TRCs the Assessee of Assessment the assessment furnished vide letter order and page 150 proceedings and dated 4 June 2014 & 151 of CIT (A) no application and further informed order) was filed under the AO that the b) The claim of the Rule 46A for Assessee has been a assessee that only admission of any resident of the TRC for year fresh evidence Mauritius since under consideration even after an inception however, is relevant for adverse view was the AO did not call deciding the drawn by the AO upon the Assessee taxability of income & 340/Del/2022 on this issue. to produce the TRC during the year was Therefore, the for the earlier years rebutted in CIT (A) issue of TRC is thereafter (Page order (page 151), actually a non- 1611 and Page 1718 wherein it was held issue and could of ECL ITAT PB). that TRC is not a not have been b) It was for the first time sole and conclusive raised before this in the assessmentorder proof to claim Hon’ble Tribunal that the AO stated that DTAA benefits. for consideration. the Assessee had not Rather more submitted the TRC for credence shall be the earlier years, in given to “Substance response to that over the Form” allegation the TRC for principle. the earlier years were Therefore, TRC is produced by the actually a non- Assessee before the issue. CIT(A). Therefore,the contention of the Revenue that the TRCs forthe earlier years were not produced before the AO and no application was filed under Rule 46A is incorrect. c) In any case, theTRCs for the earlier years are not relevant since the resident status for each year has to be decided separately and TRCs of earlier years have no bearing on the year under consideration. (Page 1713 of ECL ITAT PB) Page 30 2.Vide Para 40-41, a) The Assessee submits a) CIT (A) in its order, Page 151 – 154, that the allegation vide para 39-41, has the CIT(A) made by the AO in the held that credence concurring with assessment order shall be given to the AO which have been substance over form catalogues the list repeated by the rather than just TRC.

& 340/Del/2022 of factual CIT(A) in its order Further CIT(A) has conclusions none were rebutted in detail concluded that of which were before the CIT(A) by Assessee has used a disputed during way of written colorable device to the hearing. submission filed by avoid payment of the Assessee and were taxes. referred to at the time of hearing before the Tribunal. Therefore, the contention of the Revenue that relevant aspects have not been disputed by the Assesseeis incorrect and contrary to the evidence on record. (VIII) Joint Assignment Agreement (JAA) dated 31st January 2007 between Essar Group Companies:Conducting of loan proceeds taken on the basis of pledge of impugned shares, as income in favour of Group Company k) The assignment Page 31 a) It is submitted that a) Assessment order agreement is the transaction (refer to page no based on the referred to by the 82 to 86) and premise that Revenue does not CIT(A) order EIHL(M) has an concern the (refer to para 19 income of USD Assesseen or in any on page 63-67) 532 million way is connected with has discussed how receivable from the sale of VEL the stated ECML(M) shares on which objective of Joint towards the sale benefit under India- Assignment consideration of Mauritius DTAA has Agreement for ECL(M) shares been claimed by the taking the loan of acquired by it 6 Assessee. Therefore, USD 1.1 billion in days back for the allegation made the name of USD 1 from by the Revenue basis ECML(Mauritius) another Group this transaction is was that the Essar Company wholly unsustainable parties had certain ECHL(M). No and bad in law. position of valuation exercise b) Without prejudice to receivables/ is seen to be the above, it is payables from carried out as per submitted that the ECML(M) and the The Board transfer of ECL group as a whole & 340/Del/2022 minutes of shares by ECHL to wanted to simplify ECL(M) and EIHL was a reversal the receivables/ ECML(M) for of a transfer of ECL payables position. b) However, the real this astronomical shares by EIHL to enhancement. It reason is that the ECHL three months is also seen that group wanted prior and as a general further funds for accordingly was practice the its business, i.e. to undertaken at the Group is engaged repay the loans of same price as the in transferring the USD 413 million earlier transaction ownership of taken by Hybrid that is USD 1 these offshore Capital PTE, a c) In this regard, it is companies for British Virgin submitted that Hybrid USD 1 Island Group had taken a loan of USD irrespective of the Company. The 413 million from valueofassetsofsu SCBUK and had loan could have chcompanies provided a loan of USD been easily Thus, the 398 million to Essar Oil obtained on the transferof & Gas Limited strength of VEL ownership of (‘EOGL’). Further, shares held by ECL(M) is a ECML had payable of ECL/ECOM, colorable device USD 532 million to Mauritius. EIHLfor purchase of the to transfer However, there Assessee’s shares. USD532.7 was no d) Net payable/ receivable Million as commercial positions were as below: income to rationale for EIHL(M) which ECL/ECOM as an i) SCB had receivable o through a maze individual fUSD 413 million of assignment company to pledge from Hybrid transactions their shares to ii) Hybrid had receivable without SCB for loan. of USD 398 million commercial c) Further the Essar from EOGL substance among group used various iii) EIHL had receivable Essar intermediary of USD532 million Communication from ECML layers to move e) SCB agreed to provide (India) Ltd funds amongst a loan of USD1.1 Mauritius, Essar various group billion to ECML on the Infrastructure companies to pay basis that Hybridloan is Holding Limited loans of Hybrid repaid in full to reduce (EIHL) Capital. its overall exposure to d) In order to give Mauritius, Essar. If ECML had Copper Canyon this transfer of & 340/Del/2022 Holding Ltd. lent USD 398 million funds a colour of directly to Hybrid, the Cayman Island income, receivables/ payables (‘CCHL’), Kettle ECML(M) would have been: River Holding acquired the Ltd. Cayman i) Hybrid would continue shares of ECL(M) to have a receivable of Islands (KRHL), from EIHL(M) for USD398 million from Essar Global mere USD 1 on EOGL Ltd.GrandCayma 18.01.2007. ii) Hybrid would have a n,EssarEnergy However, on payable of USD 398 Holding Ltd. 24.1.2007, the million to ECML Mauritius,Vadina consideration was iii) EIHL would continue rOil Mauritius, enhanced to USD to have a receivable of Hybrid Capital 532.712 million, USD 398 million (out Pte Ltd. British and EIHL(M) of the USD 532 Virgin Islands million) from ECML transferd the f) In order to simplify the (‘Hybrid’) is ownership of receivables/payables applied for ECL(M) to among the group entities, repayment of ECML(M) for the JAA was entered into loan amounting USD 532.712 under which following to USD413 Million. No steps were undertaken: million taken by valuation exercise i) Step1: SCB granted a Hybrid. was carried out as loan of USD1.1 per the Board billion to ECML 2.Joint Minutes of against security of Assignment shares of the ECL(M) and Agreement dated Assessee and Ecom ECML(M) for this ii) Step2: ECML paid 31 January 2007 astronomical EIHL USD 398 between Essar enhancement. million against Communication e) In this process outstanding payable (India) Ltd even while the iii) Step3: EIHL provided value of USD 1 Mauritius, Essar loan of USD 199 mentioned as the Infrastructure million each to transaction value Holding Limited KRHL & CCHL in the Board (EIHL) Mauritius, iv) Step 4: KRHL and Minutes of Copper Canyon CCHL infused USD ECML(M) on Holding Ltd. 199 million each into 23.01.2007 the Cayman Island, their EGL as equity in same has been 50:50 proportion Kettle River rewritten in the v) Step5: EGL infused Holding Ltd. Minutes dated USD 398 million into Cayman Islands, 30.3.2007 as USD its 100% subsidiary 532.7Million. Essar Global Ltd. EEHL as equity However the Grand Cayman, vi) Step 6: EEHL infused register of & 340/Del/2022 Essar Energy USD 398 million into shareholders printed on 5th June its 100% subsidiary Holding Ltd. EOGL as equity 2007 which is a Mauritius, vii) Step 7: EOGL repaid statutory Vadinar Oil USD 398 million to document placed Mauritius, Hybrid against on shows the Hybrid, is applied outstanding payable consideration for for repayment of to Hybrid such transfer taken loan amounting to viii) Step8: Hybrid place for USD 1. USD 413 million repaid loan of SCB taken by Hybrid. g) Net payable/ receivable f) This, the transfer position was as below: of ownership of i. SCB loan was repaid ECL(M) was a by Hybrid colorable device to ii. Hybrid loan was transfer USD repaid by EOGL 532.7 Million as iii. EIHL receivable income to EIHL settled by ECML which is an h) Accordingly, the JAA umbrella company was fully explained to of the Essar the learned Group. This AO/CIT(A), the income has been purpose of the transported transactions and how through a maze of the commercial transactions for objective of cleaner repayment of loan inter-company balances to SCB amounting between various Essar to USD 413 entities was achieved. million taken by This is Hybrid Capital diagrammatically PTE, a British explained by way of Virgin Island chart attached at Page based Essar Group 1596 of ECL ITAT PB. Company. The slides explaining g) The commercial the transactions and the objective of objective have been cleaner inter- also reproduced by the company balances learned AO and the between various CIT(A) in their orders. Essar entities was Further, reliance is i) therefore a veil to placed on the case of transfer the funds Aditya Birla Telecom to a group entity Ltd. [2019] 105 & 340/Del/2022 taxmann.com 206 through a (Bombay High Court) colourable device. h) Assessee (SLP dismissed – [2021] has 125 taxmann.com 85), contended that wherein, it was held that transaction merely because several referred to by the corporate structures Revenue does not were either created or concern the came into play in Assessee nor in routing the investment any way is in the assessee through a connected with the specially constituted sale of VEL shares Mauritius based on which benefit company would not be under India- sufficient to brand the Mauritius DTAA transaction as invalid. has been claimed j) It is quite natural for by the Assessee. group entities to The contention is not tenable, as the streamline inter- transaction clearly company balances by shows that there eliminating them to the was no extent possible. The independent Revenue has also failed decision making in to appreciate that the the hands of transactions were all Assesseedespite amongst non-Indian the fact that it was entities, with no Indian their shareholding tax / regulatory of VEL which was implications, including pledged to get an independent reputed loans. This proves foreign bank. that the (Para 168 to 171, Page 107 of ECL ITAT PB) management of the assessee was a dummy management and the decision making lied somewhere else i.e. in India, which is a crucial fact to determine the

3. Even while the Page 32 a) It is submitted that value of USD 1is the transaction mentioned as the referred to by the transaction value Revenue does not in the Board concern the Assessee minutes of nor in anyway is ECML(M) on 23 connected with the January 2007, the sale of VEL shares on same has been which benefit under recorded in the India-Mauritius minutes dated 30 DTAA has been March 2007 as claimed by the USD 532.7 Assessee. Therefore, million. the allegation made However, the by the Revenue basis register of this transaction is shareholders wholly unsustainable printed on 5 June and bad in law. 2007 which is a b) Without prejudice to statutory the above, it is document placed submitted that the on (Page 399, consideration for Vol-5) shows the transfer of the consideration for Assessee was USD such transfer 532 million and not taken place for USD 1. This is USD 1. evident from the financial statements of ECML for F.Y. ended on 31 March 2007 (refer Page 581 of ECL ITATPB) for relevant extract) and Boardminutesof ECML dated 30 & 340/Del/2022 March 2007. Due to an inadvertent error in ECML resolution dated 23 January 2007, consideration was erroneously mentioned as USD 1 (i.e. the same as the face value). Consequently, consideration in stock transfer form and the shareholder register was also mentioned as USD 1. c) In August 2006, SCB, UK had given a loan of USD 413 million to Hybrid. In January 2007, after acquiring the Assessee, ECML was looking to raise further funds against the underlying value of its assets. The purpose of the loan taken by ECML from SCB, UK included use of the proceeds of the loan by ECML to pay EIHL towards payment of purchase consideration due from ECML to EIHL for the acquisition of the above referred ECL shares, which sum would be used by EIHL to provide funds to Hybrid, which in turn would use the proceeds to repay in full its loan & 340/Del/2022 from SCB, UK. d) The above explanation also evidences that the purchase consideration payable by ECML to EIHL could not have been USD1. The amount that was paid was Indeed USD 532 million and has been accounted for accordingly by ECML and EIHL. The reference to USD1 in the register of members is to the face value of the shares transferred and not the value at which they were transferred. This inadvertent error was rectified by an agreement and the same was filed with the Registrar General of Mauritius and Registrar of Companies, Mauritius. e) In any case, the Assessee was not a party to the said arrangement and hence the same is not relevant for determining the taxability on sale of VEL shares in its hands for the relevant year (i.e. F.Y. 2011-12). (Para 104 to 108, Page 67, 68 of ECL ITAT PB) IX– Intragroup Arrangements and Agreements demonstrating melting of corporate veil & 340/Del/2022 1.The Assessees Page 34 a) As per the agreement, a) The assessment order the put options were (vide page 96-106) and ECL, Mauritius available in two forms– CIT (A) order (vide para or its precursor direct and alternative 29 on page 74) explains Avatar, as well (which was indirect). how ECOM/ECL has no as Ecom, The alternative role in deciding the Mauritius were underwritten put option future of VEL shares. not party to the was for sale of shares of b) ECL/ECOM, which Put option holding companies claim to be the legal agreements instead of VEL shares owners of VEL shares, dated 24 August directly. Such an option were not even parties to 2007 (before could be exercisable the Put option agreement deed of only by an indirect dated 24.07.2007. The holding company, such amendment agreement placed as ECML. (Page 1714 dated 1 July of ECL ITAT PB) restrictions on the target 2011) b) Kindly see structure companies i.e. chart to explain business ECL/ECOM as they were logic (commercial restricted from rationale) (refer Exhibit commencing any D at Page1735 to 1740 of operations, from ECL ITAT PB) acquiring or disposing c) It is usual for any asset, and from multinational companies incurring any expenditure to not have multiple other than routine companies in the group expenses. run negotiations with c) The put agreement shows third parties for achieving the same that the role played by objective. The the ECOM/ECL was subsidiary companies minimal in deciding sale could agree to the of VEL shares and the outcome as their real control lay with objectives were being Essar group companies. met. Hence, the d) Initiating assessment subsidiaries which were proceedings against the VEL shareholders were assessee and recognizing not required as parties to the assessee to be legal the agreement. and beneficial owners of Accordingly, ECL was the VELshares are not a party to such different things. While it agreement. (Para 192, is true that the VEL Page 119 of ECL ITAT PB) shares are sold by the d) The direct sale of VEL applicant, the control and shares was thoroughly management of applicant & 340/Del/2022 evaluated by ECL remains in India. This which has been means that the treaty explained in positive benefits should be denied case sheet (refer Page to the assesseeas it used a 1714 and Sr.C of colourable device to Exhibit A at Page 1727 avoid paying taxes in of ECL ITAT PB). India. e) Upon exercise of the direct put option, ECL became aparty to theput-option agreement vide Board resolution on 24 June2011 (Page 214 of ECL ITATPB) and then executed the deed of amendment on 1 July 2011 (Page 343 of ECL ITAT PB), pursuant to which the sale of VEL shares have taken place. (Page 1716 of ECL ITAT PB) f) It may be noted that the Revenue has conducted assessment proceedings and sought to assess the capital gains to tax in the hands of the Assessees. Thus, the Revenue itself has thereby recognized the Assessees as the legal and beneficial owners of the VEL shares. Hence, the contention that the Assessees are sham/ dummy entities and that the corporate veil should be lifted cannot be made by the Revenue. Reliance in this regard is placed on Vodafone International (supra) [Para 67], Sri Meenakshi Mills Ltd. [1967] 63 ITR 609 & 340/Del/2022 (SC), Aditya Birla Nuvo Ltd. (342 ITR 308) (Bom) and Alibaba.Com Singapore E-Commerce (P.) Ltd. [2023] 459 ITR 508 (Bombay) g) In any case, ECML had taken loans of USD 1.1/1.4/3.59 billion and was a party to Put option agreements. Without prejudice, it is also submitted that ECML is also a tax resident of Mauritiuss inceits inception (holding valid TRCs issued by the MRA since inception) and would be eligible for the benefits of Article 13(4) of the India-Mauritius DTAA as such. (Para 56, Page 41 of ECL ITAT PB) 2.Shri Vikas Saraf Page 34 a) This allegation is not Vikas Saraf, based out of India, relevant to ECL. signing settlement Agreements has signed the b) The Board of directors on behalf of Essar parties, settlement shows that the effective control of ETIL in their meeting Agreement on and management of the held on 14 March 2007 behalf of all the applicant lay in India. have authorized Vikash Essar Group Saraf to execute the parties. Settlement agreement.Therefore, the decision to enter into the Settlement Agreement was taken by the Board of directors of ETIL on that date and only the action of signing and executing the agreement was carried out by the personnel of the group m) Both the Page 35 a) It is submitted that the a) CIT(A) ECL order, vide Assessee transaction referred to para 13(vii) page 27-29 , by the Revenue does not companies have has demonstrated that concern the Assessee assigned the money invest by the nor in any way is benefit arising to applicant, ECL(M) into connected with the sale other Essar ETIL has ultimately gone of VEL shares on which Group on to the flagship company of benefit under India- Settlement with the Essar Group viz. Mauritius DTAA has Hutchison Group ETHL and GIPL been claimed by the to ECIL(M), (Girishan) Assessee. Therefore, the amounting to b) CIT (A) ECL order, vide allegation made by the para 13 page 37, US$ 373.5 Revenue basis this mentions how the Board million for no transaction is wholly of ECL(M) had no idea consideration. unsustainable and bad in about the investment to The facts relating law. be made in ETIL, while a to the objection b) It is further submitted letter had already been before FIPB, its that the amount referred issued on its behalf to withdrawal has to herein has already FIPB. not been been brought to tax by c) CIT(A) order explains discussed in the the Revenue in the hands that ETIL, vide Board of the of ETHL. agreement dated Assessee c) Without prejudice to the 17/01/2006 entered into Companies. The above, it is submitted with ETHL(India), Board of that Hutchison was in become the owner of Applicant have discussions with various 10.05% shares of VEL. not deliberated other parties to sell its Subsequently, on account upon abdication equity stake in HEL of various internal of this Authority representing 67% of restructurings, ETIL in favour of equity shareholding. became the owner of ETHL. d) ETHL, Ecom and ETIL 15.85% shares of VEL. while being vitally On 18.07.2006, a letter concerned as to who the was addressed to FIPB acquirer may be but by ETIL(India) seeking they did not have the the approval for capacity to raise or investment by ECL (M) borrow requisite funds into the ownership of independently in India ETIL (India). This letter or from abroad & 340/Del/2022 has been signed by Shri Vikas Saraf as Director of ETIL. d) A letter dated 18.07.2006, filed before AAR, was addressed by ECL(M) to FIPB, written on the letterhead of ECL(M) and signed by Mr. Amar Fadia on behalf of ECL (M) with regards to clearance given by ECL(M).

e) Further, on the last page of the application addressed by ETIL, it is also inter alia mentioned that the consent letter from the investor that is, ECL (M) has been enclosed as Exhibit E to the Application) f) However in the minutes of meetings of ECL(M), there is no mention of making an application to the FIPB. The first mention regarding FIPB application was on 05.01.2005, almost 6 months after the application. It showed that Board of ECL(M) had no idea with regard to investment in ETIL, proving that the affairs of the company were controlled from India and not by its Board of directors.

& 340/Del/2022 e) Also, any such bid would have entailed very significant risks. In order to protect their mutual interest and to enable a friendly bidder, EGL, to make a credible bid for Hutchison’s stake in HEL, the Essar shareholders (ETHL, ETIL and Ecom) decided to enter into arrangement with EGL to make a bid, which had a strong balance sheet at that time and could try and raise the necessary funds required for acquisition of Hutchison’s 67% stake in VEL. f) EGL was entitled to the benefits on account of the following: i) EGL, being the only entity with a net-worth of circa USD 6 billion (in F.Y.2006-07), had presence in several countries around the world. It was able to get a commitment to raise finance to the tune of USD 14 billion from Citi Group and based on their commitment letter, could make a binding offer for acquisition of VEL shares. ii) Essar shareholders benefitted by leveraging EGL’s ability to raise finance and the & 340/Del/2022 assurance that the alliance would maximize the long-term value of its holdings in VEL. Further, the arrangement clearly contemplated that all the risks (and therefore benefits) of financing were to EGL’s account. EGL at a huge cost and risks arranged the necessary funding for the acquisition of the Hutch’s stake and for all related legal and other costs. It also took full responsibility of protecting Essar shareholders against any downside to their investment in VEL and provided full cost indemnification and protection of minority rights. iii) EGL’s involvement helped Essar shareholders to negotiate a fresh shareholder agreement dated 15 March 2007 with Vodafone which protected rights of Essar shareholders including the Assesseeand also benefited them to obtain put option with an attractive floor price from Vodafone. Also, ECL/ Ecom/ ETHL became parties to & 340/Del/2022 shareholders terms sheet and got minority protection as well. iv) These benefits were reaped by them without incurring any cost or risks. All the cost was incurred and risks taken by EGL. v) Accordingly, following negotiations between Hutchison, Essar Shareholders together with ECML, entered into a Settlement Agreement with Hutchison under which a consideration of USD 415 million was paid to EGL for its efforts and for the risks undertaken. g) It is submitted that the draft settlement agreement was tabled in the meeting of board of directors and cognizance of the same was taken by the board. a) Under the Put option The tax amount was Page 36 a)CIT(A) order, vide para 31- agreement, it was the to be shared page 80, and Assessment between EPSL and Assessees’ position that Order (refer page 103) has the consideration for ECL/Ecom shown that the Vodafone transfer of VEL shares (Para 31, 31.1–Page and Essar group, vide was to be received 80 CIT(A)– ECL) deed of amendment dated without any deduction 01.07.2011, have tried to of taxes. There was a artificially increase the put dispute between the option price so that the parties on withholding impact of withholding tax of Indian taxes which is nearly equally share was settled by the between Vodafone and Assessees vide Essar parties. agreement dated 1 July b) Further, the amendment 2011, wherein the deed dated 01.07.2011 had Assessees agreed for & 340/Del/2022 deduction of taxes as a confidentiality clause against increase of which raises question that consideration for if the Essar parties were transfer of VEL shares clear about their intentions from USD 3.8 billion to regarding tax obligations. USD 4.201 billion. b) It is submitted that the said allegation of the Revenue is misplaced and is not relevant in deciding the issues arising in the present appeal before the Tribunal. c) Without prejudice to the above, it is respectfully submitted that there was a clear understanding in the agreement with Vodafone that there fund of the taxes would belong to ECL and Ecom. d) In any case, under the income-tax law, refund of any taxes withheld by the buyer shall belong and be claimed by the seller and further, it is ECL and Ecom that have claimed the refund in their respective tax returns and recorded the refund recoverable as an asset in their financial statements. e) In view of the above, the allegation of Revenue is liable to be rejected. (Para 112, Page 70 and Page 1716 of ECL ITAT PB)

& 340/Del/2022 Note: Many of the above do not relate to the year under consideration and/or do not relate to the Assessee and have no bearing on availability of India –Mauritius tax treaty benefits for determining taxability of capital gains arising from sale of the VEL shares in the hands of the Assessee. However, the information/responses have been provided on a without prejudice basis in order to allay the learned CIT(A) and Assessing officer’s concerns and/or address their various allegations, to the extent details are available with the Assessee.

& 340/Del/2022 c. The lower authorities have incorporated in their orders the relevant parts of the submission filed before the AAR and therefore, the validity of the order passed by them is to be decided by the Tribunal based on the reasons and contents of such orders. d. The admission by the Revenue that the lower authorities have relied on the submissions filed before the AAR and the findings vitiates the orders passed by the AO and CIT(A) as the same is contrary to the order of the High Court (para 6 of the High Court order Page 600 of ECom ITAT PB) wherein the authorities were directed to arrive at their own finding upon appreciation of the evidence and materials placed on record. Further, various allegations of the lower authorities have already been dealt with by the Assessee in its written submissions/ rebuttals filed with the Hon'ble Tribunal (including those referred to in the paper books) by the Assessee.

2. Judgment of Supreme Court in Azadi Bachao Andolan (2003) 263 ITR 706 (SC) a. Circular No. 789 does not restrict the applicability thereof only to Foreign Institutional Investors (FII) or investment funds registered with SEBI which is evident from the below: i. Subject line of the circular nowhere refers to FIIs or Investment funds: ii. Para - 2 which states that doubts have been raised regarding taxation of "investors"; iii. The circulars specifically uses the words FII, etc.; iv. There are no exceptions provided or even envisaged by the circular to restrict its applicability only to FIIs or investment funds registered with SEBI. v. The prayer before the High Court specifically uses the words NRIs, FIIs and "such other interlopers".

& 340/Del/2022 b. The principal enunciated in Circular No. 789 is not caveated in any manner whatsoever unlike some other circulars (For Eg. Circular No.4/2024, Circular o. 612016) issued by the Central Board of Direct Taxes (CBDT) which restrict their applicability to cases which are expressly carved out and hence, the same cannot be created/ read into the circular as suggested by the Revenue. c. Circular 682 was issued by CBDT that emphasized that any resident of Mauritius deriving income from alienation of shares of Indian company would be liable to tax only in Mauritius. Such circular is applicable to all residents of Mauritius without any exception. d. It is observed in Azadi Bachao (supra) that in spite of Circular No. 682, tax authorities started issuing show cause notices to FIls in the backdrop of which CBDT issued Circular No. 789 to clarify the position granting benefits of the India-Mauritius Double Taxation Avoidance Agreement (India-Mauritius DTAA) in respect of capital gains even to FIIs as well. e. Similarly, Press Release dated 1 March 2013 does not restrict the applicability of TRC only to FIIs and investment funds. f. Various High Courts (Serco BPO 379 ITR 256 and ISH Mauritius 84 Taxmann. com 37), different benches of the Tribunal (MIH India Reverse Age 147 Taxmann.com 358) and AAR (Castleton 24 Taxmann.com 150, Becton Dickinson 110 Taxmann.com 291 etc) have read the circular as applicable even to investors other than FIIs, granted the treaty benefits to such investors and such orders have been accepted by the Revenue. The circular has also been relied on for deciding beneficial ownership for the purpose of Royalty (Universal International Music B V 31 taxmann.com 223) and Interest (HSBC Bank Mauritius 96 taxmann.com 544). g. The judgment of the Supreme Court clearly records that notices were issued by the Assessing Officer to FIIs alleging that they were shell companies incorporated in Mauritius whose main purpose was investment of funds in India and it was further alleged that these companies were controlled and managed from countries other than & 340/Del/2022 Mauritius and as such they were not residents of Mauritius (similar allegation have been made by the Revenue in the present case). It was in these circumstances that Circular No. 789 was issued by the CBDT clarifying that the Tax Residency Certificate (TRC) is sufficient evidence of status of residence. Therefore, it is incorrect for the Revenue to contend that Circular No. 789 is applicable only to FIIs and investment funds registered with SEBI. h. For the purposes of Article 13 of tile India Mauritius DTAA, there is no difference between the capital gain arising on sale of shares by FII or by any other investor. Therefore, tile distinction created by the Revenue is artificial and without any basis. I. The Revenue has sought to draw an inference that the judgment of Azadi Bachao (supra) dealt with legal regime of Mauritius Offshore Business Act, 1992 (MOBA) and the same did not dealt with the current regime of Financial Services Act. 2007 (FSA) applicable to Mauritius companies, the principles laid down therein is inapplicable in the present case. The Assessee submits that the principles laid down in Azadi Bachao (supra) namely that a person who is a resident of Mauritius (as demonstrated by the TRC issued by the Mauritian Revenue Authority [MRA]) is not liable to tax in India on the capital gains that arises to it on sale of shares of an Indian company is not predicated on tile resident of Mauritius being governed by the MOBA. Therefore, the Assesseesubmits that tile principles laid down by Azadi Bachao (supra) is equally applicable under tile FSA regime as well. In fact, the FSA regime was brought to simplify the regulatory regime with an increased focus on market conduct, anti-money laundering, combating tile financing of terrorism requirements, corporate governance, etc. which should not impact the eligibility to claim benefits of India-Mauritius DTAA for the companies who are in compliant with FSA provisions.

3. Judgment of Supreme Court in Vodafone International Holdings (2012) 341 ITR 1 (SC) : a. The observations of the Supreme Court on India-Mauritius DTAA and Circular No. 789 is not an "obiter dicta":

& 340/Del/2022 i. The point of India Mauritius DTAA was argued by the Revenue and was answered by CJI S.H. Kapadia in his judgment at Para 80 wherein he has held that thee capital gains were not chargeable in view of India-Mauritius DTAA. ii. The judgment of K.S. Radhakrishnan J. has also recorded that the Revenue argued that the benefits ofTRC was restricted only to dividend income and not capital gains (para 41). Accordingly, this argument of TRC was addressed by K.S. Radhakrishnan 1. It is important to note that the Judgment specifically approves of the arguments of Mr. Aspi Chinoy on Circular NO.789 and the consequential benefits flowing under the India-Mauritius DTAA (Para 96 ofJudgment by K.S. Radhakrishnan) iii. A point which has been argued by the Assessees and the Revenue and thereafter decided by the Supreme Court cannot be termed as an "obiter dicta". b. In any case, the Revenue in its submission at Para - 12 and 13 accepts that the obiter dicta of the Supreme Court is binding on all Courts thereby even assuming contrary to what is submitted herein before that the observations of the Supreme Court are obiter, the same would be binding on the Hon'ble Tribunal. c. Further, as highlighted in our earlier submissions, all the transactions have been undertaken by the Assessee for business and commercial reasons which has been time and again reiterated before the lower authorities and before the Honble Tribunal. Accordingly, the references to substance over form doctrine, lifting of corporate veil, colourable device, relying on the judgment of Vodafone (supra) is entirely misplaced and is contrary to the facts and evidence on record. In fact, the judgment of Supreme Court in Vodafone (supra) supports the case of the Assessee which has already been highlighted in various written submissions/ rebuttals filed by it.

4. Legislative History of section 90 and provisions of Mauritius law:

& 340/Del/2022 a. The proposal to amend section 90(5) and withdrawal of the same followed by issue of a Press Release by Ministry of Finance does not leave any doubt regarding the conclusiveness of the TRC. b. The amendments to DTAA in 2017 which grandfathers the investments made prior to the year 2017 clearly proves that no capital gain is chargeable in the hands of a Mauritius company before 2017. Further, Circular No. 112025 dated 21 January 2025 clarifies that the Principal Purpose Test (PPT) will apply prospectively and further states that the grandfathering provisions in India-Mauritius DTAA are outside the purview of PPT. c. The Revenue has referred to amendments made to section 73A of the Mauritius Income Tax Act, 1995 which introduced the test of POEM and CMC in 2018 and 2019 respectively. However, the same are not applicable for the year under consideration. In fact, for the year under consideration section 73A provided that "only GBL 2 companies will be treated as non-residents ..... ". It is reiterated that the Assessee herein is registered with Financial Service Commission of Mauritius as GBL 1 companies. d. The Revenue has referred to section 71 (3) of the FSC Act, 2007 which provide for indicative criteria to determine control and management of a company however, for the year under consideration section 71(4) was applicable which contained the same criteria.

5. Issues and Propositions: a. Determination of Tax Residency under Article - 4(1 ): i. The TRC read with clarification issued by MRA states that the Assessee is treated as resident of Mauritius on the basis that their control and management is in Mauritius. ii. The Assessee has produced the board minutes. books of accounts (FS) agreements, relevant bank statements etc. which arc all maintained in Mauritius iii. The composition of the board of directors of the Assessee reveals that the directors are the persons of credibility and & 340/Del/2022 qualification and except one Ms. Dina Wadia. the other directors are not residents of India (majority being residents of Mauritius). iv. The Assessee is regularly assessed to tax in Mauritius by MRA as residents of Mauritius. v. The Assessee maintains its bank accounts in Mauritius and its financial statements are audited in Mauritius. vi. The Revenue has not brought any material on record to show that the Assessee is not resident of Mauritius. vii. It is incorrect on the part of the Revenue to rely on Klaus Vogel commentaries and foreign judgments to suggest that the Indian authorities can determine the residential status of a company under foreign law. In fact, the commentary of Klaus Vogel cited by the Revenue refers to two different views taken by two different countries. The contention of the Revenue is contrary to Circular No. 682, 789, the judgments of the Supreme Court in Azadi Bachao (supra) and Vodafone (supra). The residential status of the Assessee under Mauritius law can be determined only by MRA and the Revenue is not empowered to administer the same and determine the rights and obligations under foreign law. viii. The Assessee further submits that in view of the various circulars issued by the CBDT and the judgments of Supreme Court in the case of Azadi Bachao supra) and Vodafone (supra), the Assessee should be granted treaty benefits in the capital gains arising to it on sale of VEL shares. This is what India has agreed with Mauritius by exercising its sovereign rights and the same should be respected by the Revenue authorities. An interpretation to the contrary would thereby nullify the agreement reached between two sovereign states that the capital gains arising from transfer of shares acquired prior to 1 April 2017 would not be chargeable to tax in India. ix. It is respectfully submitted that the provisions of Article 4(3) are not applicable in the present case as the Revenue authorities have not been able to prove that the Assessee is also a tax residents of India by virtue of the provisions of Section 6(3) of the Act (refer below point).

x. The Assessee would like to submit that since all the transactions have been undertaken for commercial and business reasons which has been explained in the submissions made before the Tribunal, the contention of the Revenue regarding invocation of Judicial Anti Avoidance Rule is unsustainable and contrary to settled principles of law. xi. The judgment of Supreme Court in Mansarovar Commercial Pvt Ltd. (2021) 8 SCR 452 supports the case of the Assessee that a foreign company is a resident of India under section 6(3) of the Act only when the whole of control and management is situated in India. h. Whether Control and Management Test is applicable: The provisions of section 6(3) of the Act provides that a foreign company is resident of India for a year if its control and management is situated wholly in India during that year. Reference in this regard could be inter alia placed on the following: • Nandlal Gandalal 40 ITR 1 (SC); • Erin Estate v CIT 34 ITR 1 (SC); • Narottam Periera Ltd 23 ITR 454 (Born); • Radha Rani Holdings P. Ltd 110 TTJ 920 (Del IT AT) ; • Memorandum explaining Finance bill 2015 to give background the way pre-amended Section 6 (3)(ii) of the Act was understood by the legislature In the present case, the same has not been satisfied for the reasons mentioned below:

1. 1. The decisions to purchase VEL shares, borrow money for purchase and sale of VEL shares have been taken by the board of directors.

2. The board meetings of the Assessee have been held at its office in Mauritius since inception.

3. The board of directors of the Assessee are residents of Mauritius/non- residents of India except Ms. Dina Wadia who has been appointed by the overseas lenders.

4. The employees of the group companies were authorised by the board of directors to execute the transaction - this fact has been accepted by the AO and CIT(A).

1. 1. The allegation related to Paradise Papers have been made for the first time.

2. By making a reference to Paradise Papers. an inference has been sought to be drawn that the creation of trusts was illegal meant to create an opaque structure. It is submitted that each of the members of the Ruia Family have disclosed in the Return of Income their interest in the companies which are beneficiaries of the trust. The said structure has also been disclosed to the exchange control authorities in India and global regulators as well.

3. The trust structure has been disclosed by the Assessee in the assessment proceeding and the rationale has been explained to the lower authorities (para 129-134, Page 83 of ECom ITAT PB).

4. The Paradise papers have nothing to do with the Assessee and transaction under consideration.

5. No proceeding has been initiated by Indian authorities against the Essar group based on the Paradise Papers.

The Assessee being a foreign company reiterates that: • its control and management are situated outside India, i.e. in Mauritius since inception: • it is a tax resident of Mauritius holding valid TRCs; • the various transactions undertaken by it was based on commercial expediency and cannot be termed as colourable device/ design to avoid taxes by any stretch of imagination. In light of the explanations and documentary evidence on record, the Assessee is eligible for the benefits of Article 13(4) of the India- Mauritius DTAA. Accordingly, the capital gains that have arisen to it on the sale of shares of VEL are not liable to tax in India and the matter is squarely covered, inter alia, by: • Azadi Bachao Andolan (2003) 263 ITR 706 (SC); • Vodafone International Holding B.Y. v VOl (2012) 341 ITR 1 (SC); • Circular Nos 789 and 682 issued by the Central Board of Direct Taxes; • Proposal to amend section 90(5) and withdrawal of the same followed by issue of a Press Release by Ministry of Finance dated 1 March 2013; • Amendments to India-Mauritius DTAA in 2017 which grandfathers the investments made prior to the year 2017; and • Circular No. 112025 dated 21 January 2025 clarifies that the Principal Purpose Test (PPT) will apply prospectively and further states that the grandfathering provisions in India- Mauritius DTAA are outside the purview of PPT. Further, the Assessee would like to respectfully submit that the Revenue has completely erred in making allegations relating to control and management of the Assessee being wholly situated in India lack of decision making by the board, existence of colorable device/ tax avoidance etc. In this regard, the Assessee would like to submit that there must be concrete/sound material on record as evidence to arrive at any such conclusion by the Revenue and the & 340/Del/2022 same cannot be based on suspicion, conjecture and irrelevant, factually incorrect considerations as has been done by the Revenue authorities. It is also submitted that the submissions made by the Revenue dated 5 May 2025 relies heavily on the amendments carried out by the Mauritian authorities under their domestic laws in the year 2018.2019. Further, the submission of the Revenue also relies heavily on the subsequent changes made in the India-Mauritius DTAA in the year 2017. The Assessee would like to submit that the present appeals are concerned with AY 2012-13 and the subsequent changes in Mauritius Income Tax Act. FSA, India- Mauritius DTAA etc are not applicable to the Assessee. In fact, the said subsequent changes support the fact of the Assessee that prior to such amendments, the capital gains arising to the Assessee from the sale of VEL shares could not be chargeable to tax in India. In view of the above and the fact that the Assessee is not a tax resident of India and being a tax resident of Mauritius, it is submitted to your Honour that the Assessee is entitled to the benefits of Article 13(4) of the India-Mauritius DTAA and therefore inter alia the capital gains on sale of VEL shares are not chargeable to tax in India. Note: The Assessee would like to respectfully submit that many of the arguments raised by the Revenue in their submissions dated 5 May 2025 were not raised by the lower authorities and were no/ argued before the Hon 'ble Tribunal. Further, the same has no bearing on availability of India - Mauritius DTAA benefits for determining taxability of capital gains arising from sale of the VEL shares in the hands of the Assessee. However, the information/responses have been provided on a without prejudice basis to address the various allegations raised. Further, this rebuttal is being additionally submitted and should be read in conjunction with all earlier submissions/ rebuttals (including referred to in the paper books) filed by the Assessee.”

& 340/Del/2022 85. It was submitted that in order to have greater enforceability over security of VEL shares, the lenders wanted direct pledge on the VEL shares. Accordingly, an application for direct pledge of VEL shares was made in February 2007, to the Reserve Bank of India (‘RBI’), by ETIL, pursuant to the USD 1.1 bn loan agreement. Since no approval from the RBI was forthcoming for such pledge, the consortium of lenders of the USD 3.59 bn loan required liquidation of ETIL in order to migrate shares to the Assessee, so that the VEL shares can be directly pledged with the lenders. The RBI vide letter dated 4 October 2007 rejected the application made by ETIL to pledge VEL shares (RBI letter on page 1682 of the Paper book). Thereafter, in order to address the Lenders stipulations, ETIL was liquidated in July 2008 against the USD 3.59 bn loan agreement. Pursuant to such liquidation, the VEL shares were distributed to the Assessee and it became a direct owner of VEL shares. Subsequently, an application for pledge of VEL shares was filed by the Assessee with the RBI, in line with the loan agreement. The same was approved by the RBI vide letter dated 14 November 2008 (page 1697 of the Paperbook).

& 340/Del/2022 93. We observe that the AO/CIT(A) and the Department Representatives have heavily based on the findings/ observations on the order dated 10 October 2019 passed by the Ld. AAR despite the Hon’ble High Court directed that the AO and other statutory authorities are to arrive at their own findings for tax avoidance upon appreciation of the evidence and materials placed on record and they should not be bound by the prima facie findings of the AAR in relation to tax avoidance. Copy of the Hon’ble High Court’s order dated 19 December 2019 is placed at Page 391 of the Paper book. Given the specific directions of the Hon’ble High Court as stated above, the AO’s/CIT(A)’s relied on the said observations of the AAR. In any case, the Assessee also vehemently objected to these allegations. In our view, the AO/CIT(A) have only made sweeping allegations without substantiating in any manner that the control and management of the Assessee for the relevant year, i.e. FY 2011-12, was in India, leave aside wholly in India.

From the above, the words “previous year” and “during that year” employed in the provision clearly bring out that the residential status of an assessee company is to be ascertained each year considering the control and management of the company during the previous year. However, the lower authorities have determined the residential status of the Assessee based on events and documents pertaining to earlier years which is wholly incorrect and contrary to the express provisions of section 6(3)(ii) of the Act which require that the residential status is to be ascertained based on the events pertaining to the previous year.In this regard, reference is made to the judgments of Wallace Brothers & Co. Ltd v CIT (1945) 13ITR 39 (FC), Sri Raja K.V. Narsimha Rao Bahadur v CIT (1950) 18ITR 181 (Madras), GirdharlalGhelabhai v CIT (1964) (53 ITR 23) (Gujrat) wherein the courts have taken a view that the residential status under provisions analogous to section 6(3) of the Act is to be determined for the relevant previous year in which the income arises and it is the control and management during such year alone that is relevant to determine the residential status under the Act.In view of the above, the contention of the lower authorities that to decide the residential status, the events and documents relating to earlier years are required to be considered is unsustainable and bad in law.

From the above dictionary meanings of the word “wholly”, when applied in the context of Section 6(3) of the Act denote that the control and management of the company is to be seen in entirety and not in piecemeal or partially.In this regard, reliance is placed on Narottam Pereira Ltd. vs. CIT (1953) 23 ITR 454 (Bom), CIT vs. Nandlal Gandalal (1960) 40 ITR 1 (SC), Radha Rani Holdings (P.) Ltd. vs. ADIT (2007) (110 TTJ 920) (Delhi ITAT) wherein the courts/tribunals have held that a company incorporated outside India will not be considered as a resident of India if any part of the control and management is situated outside India.

& 340/Del/2022 99. We observed that this is further amplified by the Explanatory Memorandum to the Finance Bill, 2015 which reaffirms the aforesaid legal position. The relevant part of the memorandum is reproduced as under: “The existing provisions of Section 6 of the Act provides for the conditions under which a person can be said to be resident in India for a previous year. In respect of a person being a company the conditions are contained in clause (3) of Section 6 of the Act- Under the said clause, a company is said to be resident in India in any previous year, if- (i) it is an Indian company; or (ii) during that year, the control and management of its affairs is situated wholly in India. Due to the requirement that whole of control and management should be situated in India and that too for whole of the year, the condition has been rendered to be practically inapplicable. Acompany can easily avoid becoming a resident bv simply holding a board meeting outside India. However, in the instant case, the Assessee is controlled and managed by its board of directors. All decisions concerning the affairs of the Assessee are taken by the board of directors in meetings held at the registered office of the Assessee in Mauritius. During the previous year relevant to the A.Y. 2012-13, the board of directors held all 11 meetings at the registered office of the Assessee in Mauritius in which various decisions, including in respect of sale of VEL shares, were taken which proves that the control and management of the Assessee was situated in Mauritius. It is relevant to note that the Assessee had nine directors during the year and all of them, except Ms. Dina Wadia, who was a nominee director appointed by the lenders, were residents of Mauritius/non-residents of India. Therefore, the Assessee is not a resident of India as the control and management of the Assessee was not & 340/Del/2022 situated wholly in India and, on the contrary, the same was wholly in Mauritius. In this regard a brief profile of the directors and alsoa summary of the 11 board meetings which took place in F.Y. 2011-12 have been furnished as the part ofsubmission dated April 5, 2023.

& 340/Del/2022 102. We observed, as per the argument of the Revenue that there is a unified Central command when viewed holistically is also unsustainable and without any evidence in support. The evidence on record shows that the control and management of the Assessee rests with the Board of directors in Mauritius. Further, the Revenue has not found any evidence or material to support its conclusion that the decisions have been taken by Unified Central command and not by the Board of Directors. The argument of the Revenue is based on allegations/ inferences and have analysed the same alongwith the relevant allegations below: (i) Creation of various entities: The entities have been incorporated for business and commercial reasons, the Assessee has explained the same before the AO and CIT(A) (Para 152-153, Page 94 and Page 1735-1740 of PB). In our view, it is normal practice in the case of multinational companies to expand their business by creating multi-level operations and in order consolidate their business activities. If it is carried on as per the law of land, there cannot be any issues in creating various entities. (ii) Consolidation of shares in various entities with varying percentage onshore and offshore: We observed that the shares of VEL held by ETIL were migrated on liquidation process due to various regulatory and commercial reasons. (iii) Borrowing for the benefit of Essar group: The borrowing based on the VEL shares was for the benefit of the Assessee and also the group. In our view, the same is permissible in law and does not show lack of control and management as held by Vodafone International Holdings BV vs Union of India (2012)(SC) 341 ITR 1 “79. When a business gets big enough, it does two things. First, it reconfigures itself into a corporate group by dividing itself into a multitude of commonly owned subsidiaries. Second, it causes various entities in the said group to guarantee each other's debts. A typical large business corporation consists of sub-incorporates. Such division is legal. It is recognized by company law, laws of taxation, takeover codes etc. On top is a parent of a holding company. The parent is the public face of the business. The parent is & 340/Del/2022 the only group member that normally discloses financial results. Below the parent company are the subsidiaries which hold operational assets of the business and which often have their own subordinate entities that can extend layers. If large firms are not divided into subsidiaries, creditors would have to monitor the enterprise in its entirety. Subsidiaries reduce the amount of information that creditors need to gather. Subsidiaries also promote the benefits of specialization. Subsidiaries permit creditors to lend against only specified divisions of the firm. These are the efficiencies inbuilt in a holding structure. Subsidiaries are often created for tax or regulatory reasons. They at times come into existence from mergers and acquisitions. As group members, subsidiaries work together to make the same or complementary goods and services and hence they are subject to the same market supply and demand conditions. They are financially inter- linked. One such linkage is the intra-group loans and guarantees. Parent entities own equity stakes in their subsidiaries. Consequently, on many occasions, the parent suffers a loss whenever the rest of the group experiences a downturn. Such grouping is based on the principle of internal correlation. Courts have evolved doctrines like piercing the corporate veil, substance over form etc. enabling taxation of underlying assets in cases of fraud, sham, tax avoidant, etc. However, genuine strategic tax planning is not ruled out.” (iv) Funding of VEL shares by pledging the shares of VEL: In our view, the same is a normal transaction which takes on day to day basis in the commercial world. (v) Passing on benefit of rights issue to subsidiary without consideration: These facts pertain to the appeal of ECom and therefore they are not relevant to decide the issue arising in the appeal of ECL. Since, we are dealing with both the appeals together, it is relevant to explain here. We observe that the AOalleged that the acquisition of rights issue of VEL shares and transfer to group company and immediate transfer back without any consideration by way of internal restructuring has no commercial substance during the assessment proceedings. In this regard, the assessee has responded in detail. The relevant portion of the submission is reproduced below for the brevity from page 87 of the EssarCom Limited paper book:

& 340/Del/2022 140. ….  EIHL was unable to provide funds to the Appellant and accordingly, EIHL arranged funds for the Appellant on 9 January 2006 (short term facility from Amex - directly remitted by Amex to VEL on behalf of the Appellant for subscription to the rights shares).  In this regard, reference is made to the remittance confirmation letter dated 16 March 2010 from SCB (refer Page 131 of the Paperbook) and foreign inward remittance certificate issued by HSBC dated 16 January 2006 confirming the remittance made by Amex directly to VEL towards subscription of rights issue by VEL (refer Page 132 of the Paperbook).  The Appellant transferred the right shares to its subsidiary, ECHL, vide Share Purchase Agreement dated 16 January 2006 with a condition that if ECHL would not be able to complete the financing within 120 days from the effective date being 16 January 2006,  ECHL will promptly sell VEL shares back to the Appellant. A copy of the Share Purchase Agreement between the Appellant and ECHL is attached as Page 133 and 134 of the Paperbook. .  ECHL could not obtain loan from Lehman, i.e. arrange for the funds within 120 days. Accordingly, ECHL retransferred the VEL rights shares back to the Appellant on 15 May 2006. Reference in this regard is also made to the written resolution dated 15 May 2006 wherein acquisition of such VEL shares was approved to be acquired by the Appellant (refer Page 851 of the Paperbook).  EIHL provided funds to the Appellant on 9 February 2006.  Utilizing the funds received from EIHL, ECom repaid short term facility of Amex of USD 24.78 mn on 9 February 2006.  Hence, in nutshell, the ultimate source of funds for the VEL rights issue subscription (USD 24.6 million) was from the loan facility of USD 140 million (as mentioned at para 136 & 340/Del/2022 above) raised by the Appellant from Lehman and DKR Soundshore Oasis Holdings Fund Limited, i.e., overseas lenders.

141. In view of the above detailed explanation, your Honour would appreciate that the source funding for subscription to the right shares and board minute dated 23 November 2005 stand completely explained. It is respectfully submitted that in any case this was a transaction between the Appellant and its then wholly owned subsidiary and accordingly, no adverse inference should be drawn in the facts of the present case.” (vi) Creation and dissolution of ETIL to make onshore shares as offshore: We observed that the very transfer of shares to ETIL and application to RBI for pledging of VEL shares by ETIL shows that the Assessee did not want to transfer the VEL shares outside India and the same was done only after the rejection by RBI of the pledge application. (Para 136-137, Page 89 and Point C, Page 1708 of PB) (vii) Use of sale proceeds to repay the loans and for the benefit of Essar group: We observed that the funds were infused into the assessee company by the holding company and subsequently the loan was taken for the benefit of the Assessee and for the expansion of the group. Therefore, the repayment of the same from the sale of shares does not in any manner show that the Assessee is not in control of the affairs of the company. Supreme Court in case of Vodafone International (supra) has specifically held that the same is permissible and there is nothing incorrect about it in law.”

& 340/Del/2022 104. Further we observed that even if the test of central control and management as contended by the lower authorities is to be applied, the whole of the central control and management of the Assessee company is situated in Mauritius which is evident from board meetings that have taken place at the registered office of the company in Mauritius for the year under consideration and for the earlier years. The lower authorities have not brought any material on record to substantiate that the central control and management of the Assessee is situated in India. As held in the case ofNandlal Gandalal (supra), the Supreme Court in the context of Section 4A(b) of the Indian Income-tax Act, 1922, which considered a partnership firm non-resident in India if the control and management was “situated wholly” outside India. The Supreme Court interpreting the word “situated wholly” held that the control and management being partly inside and partly outside India does not satisfy the requirement of it being “situated wholly” outside India. Similarly, the Bombay High Court in case of Narottam Pereira (supra), after considering the Judgment of House of Lords in De Beers Consolidated Mines Limited (supra) has unequivocally held that if any part of the control and management is situated outside India, the company would not be resident in India. Therefore, the Assessee submitted that the reliance placed by the lower authorities on the judgment of De Beers Consolidated Mines Limited (supra) to hold that the requirements of section 6(3) is complied with even when a part of the control and management is situated outside India is incorrect and bad in law.

& 340/Del/2022 106. We observed that the lower authorities havecome to the conclusion that the control and management of the Assessee is in India, have held that the agreements and the documents have been executed by employees of other Essar Group entities that are based in India and therefore the control and management of the Assessee is wholly situated in India. Consequently, the Assessee becomes a resident of India in terms of section 6(3) of the Act.The lower authorities have failed to appreciate that the making of a decision is different from the execution of the decision. To determine the residential status under section 6(3) of the Act, the Assessing Officer is required to ignore circumstances where action is taken by personnel in India that has been delegated or authorised by the Assessee's board of directors. In the instant case, the Assessing Officer has in fact observed that the personnel in India executed the transaction only after they were duly authorised by the board of directors of the Assessee.

…It is true that the control and management which must be shown to be situated at least partially in India is not the merely theoretical control and power, not a dejure control and power but the de facto control and power actually exercised in the course of the conduct and management of the affairs of the firm

& 340/Del/2022 “79. When a business gets big enough, it does two things. First, it reconfigures itself into a corporate group by dividing itself into a multitude of commonly owned subsidiaries. Second, it causes various entities in the said group to guarantee each other's debts. A typical large business corporation consists of sub-incorporates. Such division is legal. It is recognized by company law, laws of taxation, takeover codes etc. On top is a parent or a holding company. The parent is the public face of the business. The parent is the only group member that normally discloses financial results. Below the parent company are the subsidiaries which hold operational assets of the business and which often have their own subordinate entities that can extend layers. If large firms are not divided into subsidiaries, creditors would have to monitor the enterprise in its entirety. Subsidiaries reduce the amount of information that creditors need to gather. Subsidiaries also promote the benefits of specialization. Subsidiaries permit creditors to lend against only specified divisions of the firm. These are the efficiencies inbuilt in a holding structure. Subsidiaries are often created for tax or regulatory reasons. They at times come into existence from mergers and acquisitions. As group members, subsidiaries work together to make the same or complementai'y goods andservices and hence they are subject to the same market supply and demand conditions. They are financially inter-linked. One such linkage is the intra-group loans and guarantees...” “44. Corporate structure created for genuine business purposes are those which are generally created or acquired: at the time when investment is being made; or further investments are being made; or the time when the Group is undergoing financial or other overall restructuring; or when operations; such as consolidation, are carried out, to clean- defused or over-diversified. Sound commercial reasons like hedging business risk, hedging political risk, mobility of investment, ability to raise loans from diverse investments, often underlie creation of such structures. In transnational investments, the use of a tax neutral and investor-friendly countries to establish SPV is motivated by the need to create & 340/Del/2022 a tax efficient structure to eliminate double taxation wherever possible and also plan their activities attracting no or lesser tax so as to give maximum benefit to the investors. Certain countries are exempted from capital gain, certain countries are partially exempted and, in certain countries, there is nil tax on capital gains. Such factors may go in creating a corporate structure and also restructuring.” Sanofi Pasteur Holdings SA (2013) 354ITR 316 (AP). “No curial or academic authority is placed before us to hazard a conclusion that a corporate entity must necessarily involve itself either in manufacture or marketing/trading in/of goods or services to qualify for the ascription of being in business or commerce. Creation of wholly owned subsidiaries or joint ventures either for domestic or overseas investment is a well established business/commercial organizational protocol; and investment is of itself a legitimate, established and globally well recognized business/ commercial avocation. ShanH is a special purpose joint venture investment vehicle, established initially by MA and co-adopted in due course by GIMD and eventually by Mr. Georges Hibon, to facilitate investment by way of participation in the shareholding of SBL. That is a ShanH business and its commercial purpose.”

& 340/Del/2022 Sale of VEL shares by ETHL to ETIL (a) We observed that ETHL was holding 26.82% shares in VEL, however, it was heavily leveraged and there were defaults made by ETHL in complying with the listing agreements with various stock exchanges. In November 2005, 1.95% of VEL shares were monetized and borrowings of Rs. 200 crores were made from Infrastructure Development Finance Company Ltd. (‘IDFC’). Similarly in December 2005, 3.85% was monetized by taking a loan of Rs 395 crores from Telecom Opportunities Trust (‘TOT’). However, due to overly leveraged balance sheet and listing defaults on the part of ETHL, it was finding it difficult to monetize the value of VEL shares on favourable terms from the lenders. Further, the existing regulatory framework [Reserve Bank of India (‘RBI’) & The Foreign Exchange Management Act, 1999 (‘FEMA’) regulations], was making it difficult to monetize the value of VEL shares. (b) Further,FDI in telecom sector was relaxed in November 2005 up to 74% foreign shareholding from 49% earlier. Hutch and ETHL were in discussions for utilization of this excess foreign shareholding percentage (74% - 49% = 25%) wherein it was agreed that ETHL will continue to hold 10.97% VEL stake in India, which would be counted towards the FDI sectoral cap. Further, under the FDI regulation, the resident Indian promoter was required to hold at least 10% shareholding. Also, under the shareholders agreement with Hutch, ETHL was required to have a minimum 10% shareholding in order to enjoy certain rights. Essar group was keen to monetize its VEL stake by raising funds in and outside India funds on favourable terms.

& 340/Del/2022 (c) Given the above reasons, ETHL transferred 10.05% of VEL shares to a new entity namely, ETIL so that it could monetize the value of VEL shares in a new company having a clean balance sheet. The shares were transferred to ETIL for a value of Rs. 1,032 crores and debentures of the same value were issued to ETHL (Point A, Page 1706 of PB) which helped ETHL in deleveraging its Balance Sheet (redemption of debentures – redeemed out of loan proceeds). ETIL also, acquired the aforementioned stakes in VEL (1.95% from IDFC and 3.85% from TOT) (d) Thereafter, ETIL was able to monetise the value of VEL shares, since it was a clean company and raised Rs. 545 crores as a loan from Standard Chartered Investments and Loans (India) Limited (‘SCILL’). From the loan proceeds, ETIL redeemed part of the debentures that had been issued to ETHL. (Point B, Page 1707 of PB). (e) While funds were raised to some extent from the Indian NBFC as explained above, the regulatory restrictions constrained the ability to unlock the entire value of the VEL shares by raising of loans on favourable terms. With the opening of FDI cap as explained above, it was thus contemplated to bring eligible VEL holding (in accordance with the proportion of foreign holding agreed with Hutch) under Essar group’s normal investment pattern (i.e. holding through Mauritius). It is submitted that holding of the VEL shares in a foreign-owned vertical would enhance the value of the shares since a foreign telecom holding is more marketable than an Indian telecom holding. This is because the foreign holding being held in compliance with FDI norms could be sold either to a foreigner or to an Indian party whereas Indian holding could be sold to a & 340/Del/2022 foreigner only if such transfer would not breach FDI caps. Further, the ability to raise finance would also be increased through a foreign-owned vertical since overseas debt markets had far greater depth than Indian markets, borrowing rates were lower overseas and raising loans overseas against security of foreign-owned Indian shares wasn’t constrained with regulatory restrictions. Accordingly, ETIL approached Foreign Investment Promotion Board (FIPB) for seeking permission to receive foreign funding from ECL. (f) Once FIPB approved and the investment was made by ECL, ECML [earlier known as Essar Communications (India) Ltd. (‘ECIL’)] obtained a loan of USD 1.1 billion (on the strength of VEL shares inter alia held by ETIL) which could be used by the group for expansion of other businesses. Out of the aforesaid loan, ~USD 330 million and USD 70 million (worth of intra group loans), ECL infused USD 400.61 million in ETIL as share capital. (Point B, Page 1707 and Point B, Page 1726 of PB). The correct Rupee equivalent of the USD 400.61 million was Rs. 1,767.88 crores as mentioned in Annexure C to the submission dated 15 March 2016 filed by the Assessee to the AO. (g) The aforesaid USD 400.61 million was utilised by ETIL (Point A, Page 1706 of PB): • to repay loan of SCILL which was utilized to purchase the stake of 1.95% of VEL from IDFC and to redeem part of debentures issued to ETHL amounting to Rs. 275.24 crores • to pay off the balance debentures which were issued to ETHL and & 340/Del/2022 • to acquire the stake of 3.85% of VEL from TOT for Rs. 421.27 crores (Page 101 of PB) (h) FDI in ETIL enabled monetization of the VEL shares resulting in raising of loan of USD 1.1 billion from overseas lender.

& 340/Del/2022 143. The lower authorities failed to appreciate that after execution of the loan agreement dated 17 August 2007 for USD 3.59 bn, the application made to the RBI for pledging of VEL shares by ETIL was rejected vide letter dated 4 October 2007 (in respect of USD 1.1 bn loan). Further, the pledge of the VEL shares was allowed by the RBI only after holding of the shares by the Assessee (post liquidation of ETIL), which is evident from the approval dated 14 November 2008 granted by the RBI subsequent to liquidation of ETIL [refer page 1697 of Paperbook].

& 340/Del/2022 150. As regards the rationale and effect of the Circular issued by CBDT, the Hon’ble Supreme Court made insightful observations, which require advertence, and are to the following effect: “49. … This circular was a clear enunciation of the provisions contained in the [Tax Treaty], which would have an overriding effect over the provisions of Sections 4 and 5 of the Income Tax Act, 1961 by virtue of Section 90(1) of the Act. If, in the teeth of this clarification, the assessing officers chose to ignore the guidelines and spent their time, talent and energy on inconsequential matters, we think that the CBDT was justified in issuing “appropriate” directions vide Circular No. 789, under its powers under Section 119, to set things on course by eliminating avoidable wastage of time, talent and energy of the assessing officers discharging the onerous public duty of collection of revenue. The Circular No. 789 does not in any way crib, cabin or confine the powers of the assessing officer with regard to any particular assessment. It merely formulates broad guidelines to be applied in the matter of assessment of assessees covered by the provisions of the [Tax Treaty]. (emphasis added)”

& 340/Del/2022 155. The submissions dated 5th May 2025 made by the Revenue have also been rebutted by the Assessee vide submissions dated 8th May 2025, which interalia, state as under- Regarding Judgment of Supreme Court in Azadi Bachao Andolan (2003) 263 ITR 706 (SC): (a) Circular No. 789 does not restrict the applicability thereof only to Foreign Institutional Investors (FII) or investment funds registered with SEBI which is evident from the below: (b) The principal enunciated in Circular No. 789 is not caveated in any manner whatsoever unlike some other circulars (For Eg. Circular No.4/2024, Circular No. 6/2016) issued by the Central Board of Direct Taxes (CBDT) which restrict their applicability to cases which are expressly carved out and hence, the same cannot be created/ read into the circular as suggested by the Revenue. (c) Circular 682 was issued by CBDT that emphasized that any resident of Mauritius deriving income from alienation of shares of Indian company would be liable to tax only in Mauritius. Such circular is applicable to all residents of Mauritius without any exception. (d) It is observed in Azadi Bachao (supra) that in spite of Circular No. 682, tax authorities started issuing show cause notices to FIIs in the backdrop of which CBDT issued Circular No. 789 to clarify the position granting benefits of the India-Mauritius Double Taxation Avoidance Agreement (India-Mauritius DTAA) in respect of capital gains even to FIIs as well. (e) Similarly, Press Release dated 1 March 2013 does not restrict the applicability of TRC only to FIIs and investment funds. (f) Various High Courts (Serco BPO 379 ITR 256 and JSH Mauritius 84 taxmann.com 37), different benches of the Tribunal (MIH India Reverse Age 147 taxmann.com 358) and AAR (Castleton 24 taxmann.com 150, Becton Dickinson 110 taxmann.com 291 etc) have held that Circular applies even to investors other than FIIs, granted the treaty benefits to such investors and such orders have been accepted by the Revenue. The same has also been relied on for deciding beneficial ownership for the purpose of Royalty (Universal International Music BV 31 taxmann.com 223) and Interest (HSBC Bank Mauritius 96 taxmann.com 544). (g) The judgment of the Supreme Court clearly records that notices were issued by the Assessing Officer to FIIs alleging that they were shell companies incorporated in Mauritius whose main purpose was investment of funds in India and it was further alleged that these companies were & 340/Del/2022 controlled and managed from countries other than Mauritius and as such they were not residents of Mauritius (similar allegation have been made by the Revenue in the present case). It was in these circumstances that Circular No. 789 was issued by the CBDT clarifying that the Tax Residency Certificate (TRC) is sufficient evidence of status of residence. Therefore, it is incorrect for the Revenue to contend that Circular No. 789 is applicable only to FIIs and investment funds registered with SEBI. (h) For the purposes of Article 13 of the India Mauritius DTAA, there is no difference between the capital gain arising on sale of shares by FII or by any other investor. Therefore, the distinction created by the Revenue is artificial and without any basis. (i) The Revenue has sought to draw an inference that the judgment of Azadi Bachao (supra) dealt with legal regime of Mauritius Offshore Business Act, 1992 (MOBA) and the same did not dealt with the current regime of Financial Services Act, 2007 (FSA), applicable to Mauritius companies, the principles laid down therein is inapplicable in the present case. The Assessee submits that the principles laid down in Azadi Bachao (supra) namely that a person who is a resident of Mauritius (as demonstrated by the TRC issued by the Mauritian Revenue Authority [MRA]) is not liable to tax in India on the capital gains that arises to it on sale of shares of an Indian company is not predicated on the resident of Mauritius being governed by the MOBA. Therefore, the Assessee submits that the principles laid down by Azadi Bachao (supra) is equally applicable under the FSA regime as well. In fact, the FSA regime was brought to simplify the regulatory regime with an increased focus on market conduct, anti- money laundering, combating the financing of terrorism requirements, corporate governance, etc. which should not impact the eligibility to claim benefits of India-Mauritius DTAA for the companies who are in compliant with FSA provisions.

(ii) The judgment of K.S. Radhakrishnan J. has also recorded that the Revenue argued that the benefits of TRC was restricted only to dividend income and not capital gains (Para 41). Accordingly, this argument of TRC was addressed by K.S. Radhakrishnan J. It is important to note that the Judgment specifically approves of the arguments of Mr. Aspi Chinoy on Circular No.789 and the consequential benefits flowing under the India-Mauritius DTAA (Para 96 of Judgment by K.S. Radhakrishnan) A point which has been argued by the Assessees and the Revenue (iii) and thereafter decided by the Supreme Court cannot be termed as an “obiter dicta”. However, the Revenue in its submission dated 5th May 2025 at (b) Para – 12 and 13 accepted that the obiter dicta of the Supreme Court is binding on all Courts thereby even assuming contrary to what is submitted herein before that the observations of the Supreme Court are obiter, the same would be binding on us. (c) Further, all the transactions have been undertaken by the Assessee for business and commercial reasons. Accordingly, the references to substance over form doctrine, lifting of corporate veil, colorable device, relying on the judgment of Vodafone (supra) is entirely misplaced and is contrary to the facts and evidence on record. In fact, the judgment of Supreme Court in Vodafone (supra) supports the case of the Assessee.

& 340/Del/2022 178. In the given case, whether the capital gain arising on the securities purchased before 1 April 2017 has been grandfathered and can be brought to tax in India or not 179. We observed that with effect from 1 April 2017 amendments have been made to Article 13 of the India-Mauritius DTAA whereby Article 13(3A) has been inserted which provides that capital gain arising on transfer of shares, acquired on or after 1 April 2017, will be taxable in the country in which the company whose shares are sold is resident. Article 13(38) further provides that the capital gain arising, on shares acquired on or after 1 April 2017, during the period 1 April 2017 and 31 March 2019 will be chargeable to tax @50% of the rate it is ordinarily taxed in the residence country of the company whose shares are being alienated.

By making a reference to Paradise Papers, an inference has been sought to be drawn that the creation of trusts was illegal meant to create an opaque structure. It is submitted before us that each of the members of the Ruia Family have disclosed in the Return of Income their interest in the companies which are beneficiaries of the trust. The said structure has also been disclosed to the exchange control authorities in India and global regulators as well. ii. Further, as brought to our notice, the trust structure has been disclosed by the Assessee in the assessment proceeding and the rationale has been explained to the lower authorities (Para 161-166 Pg. 105 of PB). iii. As per the records brought onrecord, the Paradise papers have nothing to do with the Assessee and transactions under consideration. Even otherwise no proceeding has been initiated by relevant authorities against the Essar group based on the Paradise Papers. iv. With respect to DRI proceedings, it is submitted that the Principal Commissioner (Adjudication), Mumbai in May 2023 has dropped all the proceedings against all the notices issued to the Essar entities. Further, on the subsequent appeal by the Commissioner of Custom, the CESTAT in the order pronounced on 3 April 2025 has found no merit in the appeal and have decided the issue in favor of the Essar entities. In any case, such proceedings are not against the Assessee and accordingly, no adverse inference can be drawn in order to decide the present appeal under consideration.

(ESSAR COM LIMITED) 194. The assessee has raised the following grounds of appeal :- “On the facts, in law and in circumstances of the case, the learned CIT(A): General 1. erred in holding that the capital gains earned by the Appellant on the sale of Vodafone Essar Limited (VEL') shares by the Appellant to Euro Pacific Securities Limited ((EPSL') are taxable in India; Holding that the Appellant was tax resident of India and that its control and management is situated wholly in India 2. erred in treating the Appellant as tax resident of India under the provisions of section 6(3) of the Act 3. erred in disregarding the settled law with respect to tax residency of a foreign company under the provisions of section 6(3) of the Act as established through various judicial precedents on this aspect as well as provisions of memorandum of Finance Bill, 2015 introducing the provisions of place of effective management; 4. was not justified in ignoring the fact that control and management of the Appellant was with the board of directors of the Appellant, that all the decisions concerning the affairs of the Appellant have been taken by its board of directors outside India and in ignoring the supporting documentary evidence and justifications filed before the learned CIT(A) in this regard including letters from Mauritian government authorities; 5. erred in disregarding the settled principle of law that the test of tax residence is to be applied based on the facts of the relevant year alone, as upheld by various judicial precedents; & 340/Del/2022 Denying the benefits of Article 13(4) of India-Mauritius tax treaty ('tax treaty') to the Appellant 6. erred in holding that the Appellant was not entitled to the benefits of Article 13(4) of the tax treaty on the sale of VEL shares by the Appellant to EPSL; 7. erred in ignoring the facts that the Appellant was incorporated in Mauritius, holds tax residence certificates, global business license etc and that the Appellant was entitled to the benefits of Article 13(4)of the tax treaty: 8. erred in disregarding settled law based on various judicial precedents in this regard; 9. erred in not following the Central Board of Direct Taxes (CBDT)) Circular No 789 which 6 squarely applicable to the Appellant's case and erred in relying upon inapplicable Circular 1 of 2003 issued by the CBDT and on Article 4(3) of the tax treaty to hold that treaty benefits are not available to the Appellant: 10. erred in holding that the capital gains earned by the Appellant on the sale of VEL shares were related to assets located in India in telecommunication sector which derived its value based on the economic activity and value creation in India, without appreciating that this is not a criterion to determine taxability of the gains from the sale of shares under the tax treaty Holding that the Appellant was a conduit company set up for availing tax benefits and for avoidance of tax 11. erred in holding that the Appellant had contrived to devise a scheme to show that the control and management vests in Mauritius with the sole purpose of claim of exemption from capital gains taxation in India under Article 13(4) of the tax treaty on the transfer of shares in VEL 12. erred in relying on findings/ observations in the order dated

10. October 2019 passed by the Authority of Advance Rulings which was non-binding in nature; & 340/Del/2022 13. erred in rejecting the without prejudice argument of the Appellant that if it is alleged that Essar Communications (Mauritius) Ltd (ECML') was the decision maker and the beneficial owner of the VEL shares, the consequence would be that the capital gains on sale of VEL shares would belong to ECML and further erred in holding that whether it is the Appellant who is liable for taxation on capital gains was not an issue to be decided in the appeal before the learned CIT(A). Others 14. erred in drawing adverse inferences/ reaching conclusions without any evidence or material and only based on suspicion, conjecture and irrelevant, factually incorrect considerations and without appreciating the correct nature of various events, transactions, facts on records, the context thereof, including non- tax commercial aspects involved therein even though the same were explained and demonstrated to the learned CIT(A) in detail by the Appellant (for the sake of brevity a few instances are illustratively summarised hereunder):  the Mauritian directors of the Appellant were for name sake only and the directors had no control over its affairs;  the affairs of the Appellant and all the decisions were taken by the senior executives of Essar Group in India;  agreements and financial statements show that the Ruia family /Essar Infrastructure Holdings Ltd had a significant role to play in the affairs of the Appellant:  business of the Appellant is run by way of written resolutions without any discussion or deliberations; there are discrepancies in board minutes: the board minutes Submitted by the Appellant for Financial Years 2010-11 and 2011-12 are of doubtful authenticity  analysis of financial statements of the Appellant clearly shows that the Appellant was only a paper company without any substance as it was not involved in any significant business activities and its income/ expenditure was minimal in quantum and also as per the & 340/Del/2022 terms of the loan agreement and put option agreement the Appellant was restricted from carrying on any business activity:  all the benefits on account of the loan facility and also on account of sale ot VEL Shares have immediately gone for the repayment of loan taken for the benefit of the group companies;  the Appellant has not exercised/ discharged any shareholder functions with respect to VEL shares;  frequent changes in holding structure of upstream and downstream companies internal restructuring of ownership of VEL shares were to finally shift the situs of shares to Mauritius which show that it was a colorable device for the purpose of availing exemption under Article 13(4) of the tax treaty:  acquisition of the right issue shares in VEL and their transfer to the group companies and reacquisition without any consideration by way of internal restructuring have no Commercial substance and the board has not deliberated upon the commercial substance of this transfer. 15. erred in failing to consider explanations l submissions made by the Appellant from time to time before the learned CIT(A) that ought to have been considered (for the sake of brevity a few instances are illustratively summarised hereunder):  Essar has its presence in Mauritius since 1992 and that Essar group sector holding companies majorly operate from Mauritius and accordingly, the Appellant was not incorporated in Mauritius to avail treaty benefits on sale of VEL shares;  the directors of the Appellant always comprised of people with significant qualifications and experience (as reflected by their profiles submitted), who were non-residents of India, except the nominee director appointed by lenders;  the board minutes of the Appellant for FYs 2010-11 and 2011-12 had been contemporaneously maintained and shared with BLC Chambers and the report of BLC Chambers which was provided to the Mauritius Revenue Authority:

 the investment in VEL was made through the Appellant for legitimate commercial / business reasons;  the explanation as to how the Appellant's case satisfies the tests/parameters laid down by the Hon'ble Supreme Court in Vodafone International Holdings BV v UOI (341 ITR 1) (SC) for Investment participation in India. 16. erred in incorrectly stating that the Appellant has made general submissions and that the Appellant has not disputed the facts brought on record and erred in incorrectly stating that the Appellant has failed to rebut various specific findings made by the AO; 17. erred in holding that the Appellant has not filed certain information and erred in drawing an inference that the Appellant had something to hide which is inconvenient to its claim for seeking exemption of capital gains from taxation, without appreciating all the details and submissions filed before the CIT(A) during the course of the appellate proceedings; Taxing worldwide income 18. erred in upholding the taxability of interest income earned by the Appellant during the subject AY. Each of the above grounds is independent and without prejudice to one another.”

& 340/Del/2022 196. During the year under consideration, the assessee was a wholly owned subsidiary of Essar Communications Limited ('ECL'). The board of directors of assessee company for the year under consideration comprised of 6 directors out of which 5 directors were not residents of India (all 5 directors were residents of Mauritius) and 1 director, which was appointed by the overseas lenders, was a resident of India. The board meetings of the assessees have been chaired, convened and conducted in Mauritius. The assessee is regularly filing tax returns in Mauritius, which are assessed by the MRA. All statutory books of accounts and records of board meetings etc. are maintained and kept at the assessee's registered office in Mauritius. The assessee operates from an office premises taken on lease in Mauritius which subsequent to the sale of stake in YEL shares was purchased by the assessee in November 2012.