No Treaty Shopping if Revenue Failed to Rebut Statutory Evidence of TRC With Cogent Evidence | ITAT

Case Details: Tiger Global Eight Holdings vs. DCIT - [2024] 165 taxmann.com 16 (Delhi-Trib.)

Judiciary and Counsel Details

• G.S. Pannu, Vice President & Anubhav Sharma, Judicial Member
• Porus Kaka, Sr. Adv., Manish Kant, Adv., Ms. Amrita Shenoy & Hetal Jakharia, CAs for the Appellant.
• Vizay B. Vasanta, CIT-DR for the Respondent.

Facts of the Case

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. The assessee held shares in Etechaces Marketing and Consulting Pvt. Ltd., a company incorporated under the laws of India and has the brand ‘Policybazar’. During the year under consideration, out of the total shares of ‘Policbazar’, the assessee sold some shares and the long-term capital gain from the sale of such shares was not offered to tax and was claimed exempt under Article 13(4) of India-Mauritius DTAA.

The Assessing Officer (AO) denied the treaty benefits on the ground that the assessee was a conduit and indulged in treaty shopping and tax avoidance practices.

On appeal, the Dispute Resolution Panel (DRP) had sustained the additions. Aggrieved by the order, the assessee filed the instant appeal before the Tribunal.

ITAT Held

The Delhi Tribunal held 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. The appellant was admittedly a resident of Mauritius and a TRC was issued in favour of the assessee by the treaty partner.

Further, the assessee furnished all the documents before the AO in support of the claim that the assessee was managed and controlled by its respective Board of Directors in Mauritius. The Directors were involved in and responsible for actions and investment/ divestment activities of the assessee.

The assessee was controlled and managed by its board of directors in Mauritius, which comprised two Mauritian resident directors and one US resident director. All meetings were physically chaired in Mauritius, and the majority of the board of directors were residents of Mauritius. The key decisions regarding the investment holding company and divestment were taken only by the Board of Directors of the assessee.

Further, the Board of Directors had the sole authority over the assessee’s affairs. The decision to invest in and ultimately sell the shares held in Policybazaar was taken by the assessee’s directors in Mauritius. The Mauritian resident directors have executed all SPAs for the sale/transfer of shares.

Tax authorities failed to rebut the TRC’s statutory evidence with cogent evidence, and merely based on suspicion and inferences, the assessee was held to be engaged in treaty shopping.

Undoubtedly, the assessee was a dropdown entity associated with entities in the Cayman Islands. However, this association does not discredit its genuine activities as an investment platform. The doctrine of ‘substance over form’ cannot be applied to suggest that merely because the assessee’s associated enterprises operate from the Cayman Islands, the investments made in a prestigious Indian company during its early growth years are tainted.

Further, the small percentage of the assessee’s fund invested in India, compared to its investments in other economies, refutes the tax authorities’ inferences questioning the substance over the form of the assessee. These inferences cannot be sustained.

List of Cases Referred to

• Union of India v. Azadi Bachao Andolan [2003] 132 Taxman 373/263 ITR 706 (SC) (para 6.1)
• Vodafone International Holdings B.V. v. Union of India [2012] 17 taxmann.com 202/204 Taxman 408/341 ITR 1 (SC) (para 6.1)
• Blackstone Capital Partners (Singapore) v. ACIT TS-41-HC-2023 (para 6.2)
• MIH India (Mauritius) Ltd. v. ACIT ITAT-2022 (para 6.2).