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Facts
The assessee, Tiger Global Eight Holdings, a Mauritius-resident company, sold shares of 'Policybazaar' and claimed exemption for long-term capital gains on a portion of these shares under Article 13(4) of the India-Mauritius DTAA. The Assessing Officer and DRP denied this benefit, deeming the transaction as treaty shopping due to alleged lack of commercial rationale and substance in Mauritius.
Held
The Tribunal ruled that the tax authorities failed to dislodge the statutory evidence of the Tax Residency Certificate (TRC) provided by the assessee. It found that the assessee had a valid physical presence, employees, and qualified directors in Mauritius, who independently made investment decisions, thereby demonstrating sufficient substance and rebutting the allegations of being a mere conduit for treaty shopping.
Key Issues
Whether the assessee, a Mauritius resident, is entitled to treaty benefits for capital gains under Article 13(4) of the India-Mauritius DTAA, or if it is merely a conduit for treaty shopping lacking genuine commercial substance.
Sections Cited
144C(13), 143(3), 112, Article 13(4) of India-Mauritius DTAA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES : D : NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & SHRI ANUBHAV SHARMA
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D : NEW DELHI BEFORE SHRI G.S. PANNU, HON’BLE VICE PRESIDENT AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER Assessment Year: 2020-21 Tiger Global Eight Holdings, Vs DCIT, C/o 202 Rajnigandha International Taxation, Apartment, Circle 3(1)(1), Prof. V.S. Agashe Path, New Delhi. Dadar (West), Mumbai 400 028, Maharashtra. PAN: AAFCT0276M (Appellant) (Respondent) Assessee by : Shri Porus Kaka, Sr. Advocate; Shri Manish Kant, Advocate; and Ms Amrita Shenoy & Hetal Jakharia, CAs Revenue by : Shri Vizay B. Vasanta, CIT-DR Date of Hearing : 25.07.2024 Date of Pronouncement : 26.07.2024 ORDER PER ANUBHAV SHARMA, JM:
This appeal is preferred by the Assessee against the final order dated 30.06.2023 passed u/s 144C(13) r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), by the DCIT, Circle- 3(1)(1), International Taxation, New Delhi (hereinafter referred to as the Ld. AO).
Assessee held shares in Etechaces Marketing and Consulting Pvt. Ltd., which is a company incorporated under the laws of India and has brand of ‘Policybazar’. During the year under consideration, out of the total shares of ‘Policbazar’ assessee sold 1581 shares which were acquired on 13/10/2017 and offered same to tax @ 10 %. It has paid tax of approximately Rs. 40.427 crores on these shares purchased after 1 April 2017. However, the long term capital gain from sale of 9013 shares was not offered to tax and was claimed exempt under Article 13(4) of India-Mauritius DTAA. To which the AO had denied the treaty benefit. The DRP had sustained same and accordingly final assessment order was passed, which is under challenge by raising following grounds;
We find that in DRP order all the relevant aspects as discussed by AO have been duly narrated as follows;
“……… The assessee’s submissions were considered but assessee could not justify its commercial rationale of establishment in Mauritius except just for exploiting India Mauritius Treaty benefits. It has submitted a Tax Residency Certificate of Mauritius for the year under consideration. It has been analysed that lease agreement is signed between SANNE Mauritius and 9 group companies of the assessee including assessee itself. Tiger Global private Investment Partners VIII, L.P (Cayman) holds 99.8% shareholding in assessee company and the rest is held by Tiger Global Side Fund LLC(Delaware). Tiger Global private Investment Partners VIII, L.P is a Caymans Island exempted limited partnership.
The assessee holds investments in various jurisdictions either directly or indirectly through other investment holding companies floated in various jurisdictions like Singapore and Mauritius. The Company has further stated that it has nine unique Portfolio Investments (the “Portfolio Investments”). Assessee was also asked to furnish tax residency certificate of its directors, which assessee has completely failed to furnish despite giving many opportunities. it was observed that all the correspondence are made with Steven Boyd and none of the other two directors are involved in any of the discussion regarding strategic sale of investment and valuation negotiations. Al the e-mails are addressed to Mr. Steven Boyd, who was present in USA during the whole time and finalized the sale of shares from there only (some sample e-mails are attached as 'Annexure A') One of the directors, Dilshad Rajabalee has been Senior Manager and Associate director at Sanne Group from April 2003 till present. Sanne Group is a provider of asset management services. It was listed on the London Stock Exchange and was a constituent of the FTSE 250 Index until it was acquired by Apex Group in August 2022. It is the same entity from which the assessee company has taken office space on lease. There is no evidence whether any remuneration was paid to Dilshad Rajabalee as Director or not. Assesssee was specifically asked to provide details regarding director remuneration which it completely failed to provide. Mr. Moussa Taujoo has also been director in various other companies. He has been director in Samara Capital fund and also IDG Ventures India. Careful analysis of the financial statements of the assessee reveals that it has been incurring nominal expenditure on account of salary and other expenses in its 3 books of accounts and earning income mainly in the form of dividend and interest income. Dividend income being exempt in Mauritius, assessee has not paid any taxes in Mauritius. Tiger Global private Investment Partners VIII, L.P (Cayman) being the 99.8% shareholder. Assesses has no funds of its own. Secondly, when the investments were sold, the proceeds from the same were remitted to its shareholders in Cayman Island and USA in the form of repayment of capital contributions or dividend payouts and assessee was left with only meager funds. The same can be evidenced from the cash flow statements which are duly audited. It is pertinent to note that Mauritius has no withholding tax on such payments. Under the current laws of the Cayman Islands, there are no income, estate, transfer, sale or other taxes applicable to the Company. The Company obtains benefits under the double taxation treaty between Mauritius and China. Under the current treaty, subject to certain conditions, an entity which is a tax resident in Mauritius, but has no branch or permanent establishment in China, may not be subject to capital gains tax in China on the sale of securities provided that the assets of the Chinese company do not principally consist of, directly or indirectly, immovable properties located in China. Under the treaty between Mauritius and India, subject to certain conditions, an entity which is a tax resident in Mauritius, but has no branch or permanent establishment in India, should not be subject to capital gains tax in India on the sale of securities. On May 10, 2018, India and Mauritius signed a protocol to amend their tax treaty with the objective of providing India with the taxing right of the capital gains. As per the protocol, while gains derived from the direct sale of shares in Indian tax resident companies acquired on or after April 1, 2017 will be subject to tax at domestic rates.
Dividends received from an Indian company were also not taxable in the hands of the recipient till A/Y 2020-21 provided that the Indian company has paid dividend distribution tax ("DDT") in India. Under the current treaty between Mauritius and Singapore, subject to certain conditions, an entity which is a tax resident in Mauritius, but has no branch or permanent establishment in Singapore, is not subject to tax on its Singaporean source dividend, interest income, or royalties (if the Mauritius shareholder is the beneficial owner of such income) and should not be subject to capital gains tax in Singapore on the sale of securities. The assessee company is subject to tax in Mauritius at the rate of 15% on its net income. As per the tax return filed by the assessee company, the assessee has not paid any taxes in Mauritius and no provision for tax expense has been made in the financial statements for the year ended December 31, 2020, as the Company has no tax liability. By making these types of arrangements, assessee has indulged in treaty shopping and tax avoidance practices and did pay any taxes in Mauritius, India, China, Singapore and Cayman Islands. Under a Tax Treaty framework, treaty benefits are extended only to the tax residents of the contracting states. However, treaty abuse may occur when a taxpayer resident of a third country, takes advantage 0f the favourable tax positions of a treaty that would not normally be available to him. This practice is popularly known as treaty shopping. Prior to BEPS initiative, there was no Specific provisions under OECD model or UN model to address treaty shopping in a comprehensive manner. As a result of this report, various examples of provisions dealing with different aspects of treaty shopping were included in the section of Improper use of the conventions in the commentary on Article 1 of the 1992 OECD MC update. Most of the Indian DTAAs were also amended to include the same. Accordingly, it is to be observed by the countries, under which treaty benefits should not be granted, where a main purpose for entering certain transactions or arrangements was to secure a more favourable treatment in these circumstances would be contrary to the object and purpose of the relevant provisions. These provisions set the legal basis of dealing with treaty shopping scenarios. The recent ruling of the AAR in AB Mauritius (2018) 402 ITR 311 and observations made by the Bombay High Court in Indo star Capital v. CTT also held on similar view based on 'substance over the form' principle. The place of incorporation argument is based on the premise that form is required to be recognized for deciding taxation issues. The Azadi Bachao Andolan of the Hon'ble Supreme Court is also based on this argument. However, the primacy of form of the taxpayer in deciding tax liability has not been approved under a tax treaty framework. For instance, under a dual residency situation always the economic substance overrides the form. The "control and management" test for tax residency of companies is basically based on the principle of "substance over form". The Hon'ble AAR in the assessee's own group company's case has dealt with an identical issue as to whether tax treaty benefit would be accorded in such a case. The AAR declined to give a ruling on non-taxability of a Mauritian resident in India in view of the India-Mauritius DTAA on the grounds that the transaction was prima facie designed for avoidance of tax. Doctrine of substance over form: The tax doctrine of "substance over form" is a judicial creation applied in many countries.
DRP had passed following directions; “4.1.4 Panel has carefully considered the rival averments as mentioned above. The panel takes note of the AO's remarks that the assessee failed to discharge its primary onus by not furnishing some documents including the tax residency certificate of its directors and any evidence showing whether any remuneration was paid to Dilshad Rajabalee as Director. Hence, the aspect of claiming the control and management of the company's affairs remains unestablished by the assessee. Further, the Panel remains conscious of the AO's observations that the treaty abuse may occur when a taxpayer resident of a third country takes advantage of the favorable tax positions of a treaty that would not normally be available to him. Considering all the above, the Panel does not find any grounds to disagreeing with the AO's proposal for taxing the capital gains in accordance with section 112 of the IT Act as made at para no. 11 of the draft order. However, the Panel takes note of the assessee's submission dated 23.03.2023 by which the assessee has enclosed a copy of judgment passed in 5 cases, not reproduced here for the sake of brevity. Out of the 5 judgments, the orders mentioned at serial no. 1, 2 and 4, have already been considered by the AO. However, the orders mentioned at serial no. 3 and 5, do not appear to have been examined by the AO during the assessment proceedings. However, the AO is directed to verify the assessee's contention made through the orders mentioned at serial no. 3 and 5 by passing a speaking and reasoned order. All the objections, in this regard, are disposed of accordingly.
On hearing both the sides the facts in brief can be narrated based on the case set up by assessee before the AO or DRP. Assessee is a private limited company incorporated in Mauritius. The Assessee claims to be a resident of Mauritius under the Mauritius Income Tax Act, 1995 and a tax resident of Mauritius as per Article 4 of the tax treaty. It is claimed that the assessee was set up in 2014, with the principal objective of acting as an investment platform for making investments located in countries in a regional grouping that includes Cayman Islands and Asia. During the year of incorporation, the assessee made investments worth approximately USD 66.037 crores (Rs. 4,030.087 crores) across various jurisdictions. Out of the said investments, the direct investment in securities of Indian companies was approximately USD 2.338 crores (Rs. 142.688 crores) which as per the assessee is merely 3.54 per cent of the total investment. Over the years, the investments directly into the securities of Indian companies have increased marginally from 3.54 per cent to 5.57 per cent from 2014 to 2018. Specifically, after 1 April 2017, the assessee has made investments of approximately USD 0.8 crores (Rs. 49.272 crores) in India.
5.1 The Assessee submits that it meets the procedural requirements under the Act for availing itself of the tax treaty benefits. Assessee claims that for the purpose of the Act, a treaty applies to a non-resident only when such non-resident furnishes a valid TRC and also provides such other information as is required to be submitted in Form 10F. Which, assessee claims stands complied. The case of assessee is that assessee has an office space in Mauritius, where all its accounting records, registers, books of accounts and other statutory records are maintained. It has two employees based out of Mauritius. The following conditions have been prescribed under the Mauritius laws which are required to be fulfilled for determining 'management and control' of an entity in Mauritius for the assessment year under consideration: a. The company shall have at least 2 directors, resident in Mauritius, who are appropriately qualified and are of sufficient caliber to exercise independence of mind and judgement b. The company shall maintain at all times its principal bank account in Mauritius c. The company shall keep and maintain or is keeping and maintaining, at all limes, its accounting records at its registered office in Mauritius d. The company shall prepare, or proposes to prepare or prepares its statutory financial statements and causes or proposes to have such financial statements to be audited in Mauritius. 5.2 Following are the additional conditions which have been complied with by the assessee:- a. The company has or shall have office premises in Mauritius; and b. The company employs or shall employ on a full-time basis at administrative/ technical level, at least one person who shall be resident in Mauritius. Assesses has also obtained an expert opinion from a legal counsel in Mauritius wherein the legal counsel has after evaluating the facts in the assessees case and basis the prevailing law, stated that the Assessee is a resident of Mauritius. Assessee submitted that it is entitled to the capital gains exclusion in respect of the gains arising on transfer of shares held in Policy bazaar which were acquired prior to 1 April 2017. The Assessee prepares and continues to prepare financial statements which are audited by an accounting firm in Mauritius and filed on an annual basis with the authorities in Mauritius.
Now before us challenging the findings of tax authorities below, the Ld. Senior counsel has relied Circular No. 682 dated 30 9 March 1994, issued by the CBDT claiming that same provides that any resident of Mauritius would be taxable only in Mauritius and will not be subject to tax on capital gains in India. He submitted that further Circular No. 789 dated 13 April 2000, provides that a TRC issued by the Government of Mauritius should be regarded as conclusive evidence regarding the residential status and beneficial ownership of Mauritian entities for applicability of the tax treaty. Ld. Sr. Counsel has stressed on the fact that inspite of some proposed amendments the aforementioned CBDT circulars have not been withdrawn as on date and continue to remain operative for the year under consideration and the tax treaty continues to be as is for investment made by an assessee prior to 1 April 2017.
6.1 Ld. Sr. Counsel has further relied the Hon’ble Supreme Court judgement in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), to submit that said judgment has upheld the applicability of aforesaid circular No. 789 dated 13 April 2000, issued by CBDT, thereby confirming that a Certificate of Residence issued by the Mauritias, is sufficient evidence of residency. He then has relied judgment of Hon’ble Supreme Court in the case of Vodafone International Holdings B.V. v. UOI and Anr [2012] 341 ITR 1 (SC), to contend that the Hon’ble Supreme Court has reaffirmed the Azadi Bachao Andolan (supra) decision.
6.2 Ld. Senior counsel has argued that pursuant to the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings BV (supra), the Finance Bill, 2013, had proposed an amendment wherein it was provided that TRC by itself shall not be sufficient for claiming treaty benefit. However, the same was never implemented. The same was clarified by the Finance Ministry vide Press release dated 1 March 2013 clarified that a TRC provided by a non-resident will be accepted as sufficient evidence to avail relief under a fax treaty and that the tax authorities will not go beyond the TRC to question the residential status of the non-resident, thus, further fortifying the position laid down by the Hon'ble Supreme Court in aforesaid judgements. Ld. Senior counsel has relied judgment of the jurisdictional Hon’ble Delhi High Court in Blackstone Capital Partners (Singapore) v. ACIT, Delhi [TS-41- HC-2023 (DEL)], to submit that based on the rulings of the Hon'ble Supreme Court, CBDT Circulars and Ministry of Finance Press Release, Hon’ble High Court has categorically held that the TRC is statutorily the only evidence required to be eligible for the benefit under the DTAA and the Revenue's attempt to question and go behind the TRC is wholly contrary to the Government of India's consistent policy and repeated assurances to foreign investors. He further has relied judgment of co-ordinate bench in case of MIH India (Mauritius) Ltd. v. ACIT, Delhi, [TS-888- ITAT-2022 (DEL)], where Bench did no appreciate the attempt of Assessing Officer to overcome the ratio laid down by the Hon'ble Supreme Court in case of Azadi Bachao Andolan (supra). Reliance is also placed on judgment in case of Reverse Age Health Services Pte Ltd. v. DCIT, Delhi (ITA No. 1867 Del/ 2022],
It was further submitted that Article 13(4) of tax treaty as applicable in the current facts is not subject to any LOB clause.
It is submitted that all the documentation were placed before the Ld. AO in support of claim that the Assessee is managed and controlled by its respective Board of Directors in Mauritius. The Directors are involved in and responsible for actions and investment / divestment activities of the assessee.
Ld. DR had relied the findings of tax authorities below and particularly referring to facts like absence of independent office space, one of Director being US based Counsel and that in a group case entity AAR has ruled against the group entity.
After considering the rival contentions, it comes up that the appellant is admittedly a resident of Mauritius and there is a TRC issued in favour of the assessee by the treaty partner. As with regard to the consequences of holding a TRC, we are of the considered view that circular number 682/1994 and circular no. 789/2000 of Board, along with the judgment of Hon’ble Supreme Court of India in the case of Azadi Bachao Andolan (supra) and others and Vodafon (supra), sufficient lay down that the TRC is a statutory evidence of the residential status and even if it is not considered conclusive evidence, the onus shifts on the Assessing Officer to establish by evidences that except for holding the TRC, the entity is a conduit, created and run for treaty shopping.
In the case in hand after going through the assessment order and the findings of DRP, we are of the considered view that the Assessing Officer has drawn the conclusion of assessee being a conduit and treating shopping entity questioning various aspect about purpose of investment, organisational set up, premises held to operate, management of affairs, distribution of gains to conclude the entity is a conduit, created and run for treaty shopping. Thus for merely holding the TRC, the assessee cannot claim absolute immunity and we have to examine how far AO succeeded to rebut the statutory evidence of TRC.
What we observe is that the assessee came into existence in 2014 as an investment platform for making investments located in various countries and the funds for the investments comes across various jurisdiction which inter alia includes retirement, trusts, schools, colleges, universities, insurance companies. During the year of incorporation itself, the Appellant made investment worth approximately USD 66.037 crores (INR 4,030.087 crores) across various jurisdictions.
The Appellant has an office space in Mauritius, where all its accounting records, registers, books of accounts and other statutory records are maintained. In addition to its qualified board of directors, it has employees based out of Mauritius. The Appellant filed its return of income in the country of residence i.e. Mauritius, for the period relevant to AY 2020-21 wherein the Appellant has stated that the place of central management and control of the Appellant is in Mauritius.
The Appellant prepares and continues to prepare financial statements which are audited by an accounting firm in Mauritius and filed on an annual basis with the authorities in Mauritius. The Appellant files its income-tax return with the Mauritius tax 13 authorities on a year-on-year basis. For the year ended December 2019, the Appellant has paid taxes in Mauritius of USD 12,700 (after claiming eligible credits in Mauritius).
The Appellant is controlled and managed by its board of directors in Mauritius which comprised of two Mauritian resident directors (Moussa Taujoo and Dilshaad Rajabalee) and one US resident director (Steven Boyd) and all meetings physically chaired in Mauritius with majority of its board of directors being the residents of Mauritius.
Assessee has provided the composition of the Appellant's board with qualification of directors and same sufficiently satisfy us that the directors are professionals with qualifications and experience to commensurate with the responsibility to manage the funds. Mr. Moussa Taujoo is resident of Mauritius and is Fellow Chartered Certified Accountant with Diploma in Public Financial Mangement & Accounting and Chairperson of the Audit Practice Review Panel of the Financial Reporting Council. He has been Deputy Commissioner at the Independent Commission against Corruption and Head of the Supreme Audit Institution of Mauritius. He was Auditor General of Government of Mauritius and Chief Executive Officer of the Audit Department and Senior Internal Auditor, UNICEF and Director of Supreme Audit Institution of Mauritius. Ms. Dilshad Rajabalee is resident of Mauritius and Fellow member of the Association of Chartered Certified Accountants – United Kingdom (FCCA) and Earlier working with pricewater house coopers Mauritius in audit and assurance department. Mr. Steven Boyd is resident of United States of America and Juris Doctor from Georgetown University Law Centre and Bachelor of Arts.
The key decisions with respect to the investment holding company and divestment decisions are taken only by the Board of directors of the Appellant. The Board of Directors have the sole authority over the affairs of the Applicant. The decision to invest into and ultimately sell the shares held in Policybazaar was taken by the Directors of the Appellant in Mauritius.
Further, we have been appraised of the all the board minutes forming part of record before the Assessing Officer which shows that the Appellant was controlled and managed by its board of directors in Mauritius and all decisions with respect to the affairs of the company were taken by the Board itself in Mauritius. All SPAs for sale / transfer of shares have been executed by the Mauritian resident directors.
Thus, we are of the considered view that tax authorities below have failed to rebut the statutory evidence of the TRC with cogent evidence, and merely on the basis of suspicion and inferences, the assessee is held to be engaged in treaty shopping. The fact that the assessee had no funds of its own was due to the nature of its operation as investment platform and certainly when any gain is made out from the dis-investment, the benefit has to be transferred to those who had initially invested trusting the fund management skill of assessee.
No doubt, the assessee is a dropdown entity associated with the entities operating in Cayman Island, but that does not taint the genuine activities as investment platform and the doctrine of ‘substance over form’ cannot be stretched to the extent, that merely because the assessee has associated enterprises operating from the Cayman Island, the investments which were made in a prestigious Indian company, in a initial years of its growth, would also become tainted.
Lastly, the minuscule percentage of the fund of the assessee, invested in India, as compared to the investments it has made across various economies, rebuts all the inferences drawn by the tax authorities below, questioning the substance over form of assessee and the same cannot be sustained.