Exclusive: The Authority for Advance Rulings (income tax) has pronounced an order in favour of former Tata-Quippo shareholder DBZ Mauritius, which is contrary to the Bombay High Court’s view in the Vodafone-Essar tax case.
DSK Legal partner Balbir Singh acted for DBZ Mauritius that held a 3.28 per cent shareholding in Quippo Telecom, which it sold to the Mauritius-based fund Geraldton Finance Ltd in 2010.
Around October of 2010 DSK filed for an advance ruling whether capital gains tax would have to be payable on the sale, which was structured to occur entirely between Mauritius entities, although the underlying assets and shares in Quippo were based in India, explained Singh.
“Where the Vodafone case was a little conflicted in the view, splitting the entire transaction into two parts – shares and underlying assets - here we have a ruling that no capital gains tax liability should arise where the selling and buying companies are both Mauritius entities,” said Singh. “At best this may be a view contrary to Vodafone.”
Although the in the Vodafone case the shareholding in the Indian entity was larger, at roughly two thirds, and in the Quippo-DBZ case it was only 3 per cent, the matrix of facts was very similar, he said.
The ruling was given in an open court by the appellate authority on Monday (29 March) but no copy of the order has been published so far, according to Singh. He added that it was likely that the Income Tax authorities would appeal the order to the Delhi High Court.
The appellate authority relied on the Azadi Bachao case that held that the Mauritian-Indian treaty would prevail over Indian law and grants its benefit to the Mauritius entity in this case.
Comments
Justice chandruchud in his vodafone judgment had observed that if the entity sold was not from cayman islands, but from mauritius, then there would have been no case of capital gains tax. This is according to the India mauritius DTAA and i believe that the income tax department has got it entirely wrong this time.