In Re Dow AgroSciences Agricultural Products Ltd (AAR)

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DATE: January 11, 2016 (Date of pronouncement)
DATE: January 26, 2016 (Date of publication)
AY: -
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Transfer of shares of an Indian Co by a Mauritius entity to a Singapore entity due to group reorganization is not a scheme for avoidance of tax. The capital gains are exempt under India-Mauritius DTAA. Treaty shopping is permissible. A ROI u/s 139(1) need not be filed if income is exempt from tax

(i) Dow IMEA Group was dismantled in 2010 and that is how the need for realignment of the group arose whereby DAS entity was to be shifted from an entity which falls under Europe region to an entity which would fall in the Asia-Pacific region. This was to be done with a view to achieve better control. Singapore is one of the upcoming countries in Asia-Pacific region in the opinion of the applicant and therefore, the Dow group contemplated to shift the share holding of DAS India from Mauritius to Singapore. All this exercise is also more than 5 years old from the date of the last acquisition of the shares. Thus, it cannot be said that the proposed transfer of shares was amounting to a scheme to avoid payment of taxes in India. It was clearly for the business considerations. We, therefore, reject the contention of the Revenue that this amounting to a scheme to avoid payment of taxes in India. We accept the contention raised by the applicant about its not having a PE in India;

(ii) The applicant has also relied upon the decision of Azadi Bachao Andolan [2003] 263 ITR 706 wherein the Hon’ble Supreme Court declared that treaty shopping is not taboo. The applicant has also relied on the decision of AAR in E*Trade Mauritius Limited (324 ITR 1) – page number 344 to 369 which also reiterates the principles of treaty shopping. The other decisions relied upon by the applicant are M/s. Sanofi Pasteur Holding SA (354 ITR 316), Castleton Investment Ltd. (AAR No.999 of 2010) (252 CTR 131), Deere & Co.(337 ITR 277), Ardex Investments Mauritius Limited (AAR) (340 ITR 272), Armstrong World Industries Mauritius Multiconsult Limited (AAR) (349 ITR 303). In Ardex Investments Mauritius Limited it is clearly mentioned that mere investment through a Mauritian company cannot be viewed or characterized as objectionable treaty shopping, when investments have been held for a period 10 years and the arrangement has not come all of a sudden. If setting-up Mauritius Company is with an eye on the DTAA, it by itself will not make it a tax avoidance arrangement;

(iii) We do not accept the contention of the department that DAS India has not declared and distributed dividends since 2004 and therefore, to the extent of accumulated profits, sale proceeds should have to be assessed in India. We ignore this contention as it is not relevant. Considering the other factors like investment function made 20 years back etc., we are of the clear opinion that there is no scheme for the tax avoidance. We also do not accept the contention of the Revenue that it is a colorable device.

(iv) This takes us to the last question about the requirement to file return of income under section 139 of the Act. In their report dated 23.8.2015, it is argued by the Revenue mainly relying upon the Ruling in Castelton Investment Ltd and more particularly paragraphs 31,32,33 & 34 of that Ruling, that the applicant would be liable to file return under section 139. In the decision of Castleton Investment Ltd. the view was taken that when any person claims the benefit of DTAC, that person is invoking section 90 sub-section (2) of the Act to do so. A view was, therefore, taken that a person earning the income that is chargeable to be taxed under the Act, had to claim by invoking 90(2) for getting the benefit of DTAC. It was, therefore, concluded by this Authority that even if a person is entitled to take relief under DTAC, he had to seek the same and that could be done only during the consideration of his return of income or at least or at best while filing his return. The Authority took the view that the obligation on the applicant to file a return of income under section 139 of the Act cannot simply disappear merely because a person may be entitled to claim the benefit of DTAC. The applicant however, meets this argument by relying on the Rulings of this Authority in FactSet Research Systems Inc. reported in (317 ITR 169) and Vanenburg Group B.V. vs. CIT AAR No.727 of 2006. We must at this juncture point out that the law laid down in the judgments of Factset Research Systems Inc. and Vanenburg Group BV vs. CIT was not considered in the Castleton judgment so also the judgment of the Federal Court in Chatturam vs. CIT was also not considered in Castleton judgment, we, therefore respectfully disagree with the Castleton judgment in so far the applicability of section 139(1) of the Act to the present applicant and answer the question in negative.

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