TIGER GLOBAL INTERNATIONAL IV HOLDINGS vs THE AUTHORITY FOR ADVANCE RULINGS (INCOME-TAX) & ORS.

* IN THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment reserved on: May 16, 2024
Judgment pronounced on: August 28, 2024

+ W.P.(C) 6764/2020 & CM APPL. 23479/2020
TIGER GLOBAL INTERNATIONAL III HOLDINGS
….. Petitioner
Through: Mr. Porus Kaka, Sr. Adv. with Mr. Manish Kanth, Ms. Parul Jain, Mr. Afaan Arshad, Mr. Arijit Ghosh, Mr. Anirudh Srinivasan and Mr. Brijesh Ujjainwal, Advs.

versus

THE AUTHORITY FOR ADVANCE RULINGS (INCOME- TAX) & ORS. ….. Respondents
Through: Mr. G. C. Srivastava, Spl. Counsel with Mr. Kalrav Mehrotra and Mr. Mayank Patawani, Advs.
Mr. Chetan Sharma, ASG with Mr. Asheesh Jain, CGSC along with Mr. Gaurav Kumar and Ms. Neha Narang, Advs. for R- 2.
Mr. Sunil Agarwal, Sr.SC with Mr. Shivansh Pandya, Jr.SC along with Mr. Utkarsh Tiwari, Adv.

+ W.P.(C) 6765/2020 & CM APPL. 23481/2020
TIGER GLOBAL INTERNATIONAL II HOLDINGS
….. Petitioner
Through: Mr. Porus Kaka, Sr. Adv. with Mr. Manish Kanth, Ms. Parul Jain, Mr. Afaan Arshad, Mr. Arijit Ghosh, Mr. Anirudh Srinivasan and Mr. Brijesh Ujjainwal, Advs.

versus

THE AUTHORITY FOR ADVANCE RULINGS( INCOME-TAX) & ORS. ….. Respondents
Through: Mr. G. C. Srivastava, Spl. Counsel with Mr. Kalrav Mehrotra and Mr. Mayank Patawani, Advs.
Mr. Chetan Sharma, ASG with Mr. Asheesh Jain, CGSC along with Mr. Gaurav Kumar and Ms. Neha Narang, Advs. for R- 2.
Mr. Sunil Agarwal, Sr.SC with Mr. Shivansh Pandya, Jr.SC along with Mr. Utkarsh Tiwari, Adv.

+ W.P.(C) 6766/2020 & CM APPL. 23483/2020
TIGER GLOBAL INTERNATIONAL IV HOLDINGS
….. Petitioner
Through: Mr. Porus Kaka, Sr. Adv. with Mr. Manish Kanth, Ms. Parul Jain, Mr. Afaan Arshad, Mr. Arijit Ghosh, Mr. Anirudh Srinivasan and Mr. Brijesh Ujjainwal, Advs.

versus

THE AUTHORITY FOR ADVANCE RULINGS (INCOME-TAX) & ORS. ….. Respondents
Through: Mr. G. C. Srivastava, Spl. Counsel with Mr. Kalrav Mehrotra and Mr. Mayank Patawani, Advs.
Mr. Chetan Sharma, ASG with Mr. Asheesh Jain, CGSC along with Mr. Gaurav Kumar and Ms. Neha Narang, Advs. for R-2 Mr. Sunil Agarwal, Sr.SC with Mr. Shivansh Pandya, Jr.SC along with Mr. Utkarsh Tiwari, Adv.
CORAM:
HON’BLE MR. JUSTICE YASHWANT VARMA
HON’BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV

J U D G M E N T

YASHWANT VARMA, J.

S. NO.
SUB-HEADING
PARAGRAPH NOS.
A.
INTRODUCTION
1 to 3
B.
THE FACTUAL NARRATIVE
4 to 23
C.
IMPUGNED ORDER- SALIENT FINDINGS
24 to 33
D.
SUBMISSIONS OF THE PETITIONERS
34 to 60
E.
ARGUMENTS OF THE RESPONDENTS
61 to 92
F.
THE PRELIMINARY OBJECTIONS
93 to 106
G.
ORGANISATIONAL STRUCTURE OF THE PETITIONERS
107 to 115
H.
THE MAURITIUS ROUTE
116 to 119
I.
DECISIONS RENDERED BY THE SUPREME COURT
120 to 143
J.
THE HIGH COURT DECISIONS
144 to 155
K.
TAX AVOIDANCE AND TREATY ABUSE
156 to 182
L.
FAVOURABLE TAX JURISDICTIONS
183 to 193
M.
TAX RESIDENCY CERTIFICATES
194 to 200
N.
INTERNATIONAL PERSPECTIVES ON TREATY SHOPPING
201 to 204
O.
LOB PROVISIONS IN THE DTAA
205 to 209
P.
THE ECONOMIC SUBSTANCE QUESTION
210 to 211
Q.
CHAPTER X-A AND GAAR
212 to 231
R.
BENEFICIAL OWNERSHIP
232 to 246
S.
OUR SUMMATION
247 to 268
T.
CONCLUSIONS AND TAKEAWAYS
269
U.
OPERATIVE DIRECTIONS
270-271

A. INTRODUCTION

1. These three writ petitions impugn the order dated 26 March 2020 of the Authority for Advanced Rulings1 pursuant to which three applications numbered as AAR Nos. 04/2019, 05/2019 and 07/2019 have come to be dismissed with the AAR holding that the transaction in respect of which the ruling was sought was prima facie designed for the avoidance of tax and thus falling within the scope of clause (iii) of the Proviso to Section 245R(2) of the Income Tax Act, 19612. In view of the aforesaid, the AAR held that it was not obliged to render any findings on the merits of the question which stood posited, namely of whether the petitioner was entitled to avail the benefits of the Double Tax Avoidance Agreement3 between India and Mauritius in respect of the sale of shares of Flipkart Private Limited, a private company limited by shares and incorporated under the laws of Singapore [hereinafter to be referred to as “Flipkart Singapore”] and the question of taxability of capital gains connected therewith.
2. It would appear that the petitioner had essentially sought to derive benefit from Article 13(3A) of the India-Mauritius DTAA and which had subjected to tax capital gains arising from an alienation of shares acquired on or after 01 April 2017. The petitioner had principally urged that Paragraph 3A of Article 13 had thus grandfathered all acquisition of shares prior to 01 April 2017 and the gains arising from their transfer would thus be exempt from taxation. The petitioner had sought exemption from the levy of capital gains tax by virtue of it having admittedly acquired the shares of Flipkart Singapore prior to 01 April 2017. The AAR has essentially held that the petitioners were mere conduit companies and disentitled to claim benefits of the DTAA since the transaction lacked commercial substance and the establishment of an entity in Mauritius was principally aimed at deriving undue benefits under the DTAA.
3. For the sake of brevity, we propose to take note of the salient facts as they emanate from W.P.(C) 6765/2020 confining them to those necessary for answering the challenge which stands laid.
B. THE FACTUAL NARRATIVE
4. The petitioner is stated to be a private company limited by shares incorporated under the laws of the Mauritius and having its principal office in that country. As per the petitioner, it had been set up with the primary objective of undertaking investment activities with the intention of earning long term capital appreciation and investment income. As per the disclosures made in the writ petition, the immediate shareholders of the petitioner are also Mauritian companies whose shareholders in turn are private equity funds who had raised funds from several investors across the globe. According to the petitioner, the indirect shareholders of the petitioner consisted of almost 500 investors residing in an as many as 30 jurisdictions spread across the globe. Tiger Global Management LLC4, a company incorporated in terms of the laws of Delaware USA was asserted to be the petitioner’s Investment Manager and has thus at various places of these proceedings also been referred to as the management company.
5. The Investment Manager, TGM LLC, according to the petitioners, had not placed any investments with them and it is categorically asserted in this regard that neither TGM LLC nor any of its affiliates have either invested in the petitioner or the private equity funds that had indirectly invested with them. The petitioner has been granted a Category 1 Global Business License5 and is also a tax resident of Mauritius. In evidence of the aforesaid, the petitioners have also placed on the record the Tax Residence Certificate6 issued by the Mauritius revenue authorities dated 22 June 2018. The activities of the petitioner are regulated by the Financial Services Commission7 of Mauritius.
6. As per the Constitution of the petitioner, the management of the company is vested in its Board of Directors8 and which is in turn empowered to delegate such of its powers as it may deem necessary to a Director, a Committee of Directors9 or such other professional functionaries or persons as may be resolved. The original directors who were the signatories of the Charter are stated to be Mr. Moussa Taujoo, Mr. Mohammad Akshar Maherally and Mr. Steven D. Boyd.
7. The petitioner was incorporated on 15 June 2011 and has been domiciled since then in Mauritius. As per the disclosures made in its Audited Financial Statement, its principal shareholders are Tiger Global Five Parent Holdings10, Tiger Global Six Parent Holdings11, Tiger Global Seven Parent Holdings12, Tiger Global Eight Holdings13 and Tiger Global Principals14. All of the above entities are stated to be Mauritius based private companies. The individual shareholding of the aforenoted entities in the petitioner is declared and disclosed in its audited financial reports and the relevant part whereof is extracted hereinbelow:-
“1.? ?Organization and Purpose
Tiger Global International II Holdings (the “Company”) is a private company incorporated on June 15, 2011 and is domiciled in Mauritius. The Company holds a Category I Global Business License under the Financial Services Act 2007 and is regulated by the Financial Services Commission.

The principal objective is to act as an investment holding company for a portfolio investment domiciled outside Mauritius.

The Company has a Board of Directors (the “Directors”) consisting of one non-resident director who is related to Tiger Global Management, LLC and two directors who are residents of Mauritius. The activities of the Company are managed by the Directors.

The Company is owned by Tiger Global Five Parent Holdings, Tiger Global Six Parent Holdings, Tiger Global Seven Parent Holdings, Tiger Global Eight Holdings and Tiger Global Principals (the “Shareholders”), Mauritius private companies. Tiger Global Five Parent Holdings owns 61.5%. Tiger Global Six Parent Holdings owns 12.1%, Tiger Global Seven Parent Holdings owns 14.7%, Tiger Global Eight Holdings owns 8.5%, and Tiger Global Principals owns 3.2% of the Company. Tiger Global Five Parent Holdings is majority owned by Tiger Global Private Investment Partners V, L.P.. a Cayman Islands exempted limited partnership. Tiger Global Six Parent Holdings is majority owned by Tiger Global Private Investment Partners VI, L.P. a Cayman Islands exempted limited partnership. Tiger Global Seven Parent Holdings is majority owned by Tiger Global Private Investment Partners VII, L.P., a Cayman Islands exempted limited partnership. Tiger Global Eight Holdings is majority owned by Tiger Global Private Investment Partners VIII, L.P., a Cayman Islands exempted limited partnership. Tiger Global Management, LLC is the management company of Tiger Global Private Investment Partners V, L.P, Tiger Global Private Investment Partners VI, L.P., Tiger Global Private Investment Partners VII, L.P and Tiger Global Private Investment Partners VIII. L.P. Tiger Global Principals is wholly owned by Tiger Global Side Fund LLC, a Delaware Limited Liability Company. All members of Tiger Global Side Fund, LLC are afflicted with Tiger Global Management, LLC.”

8. The petitioner acquired 2,36,70,710 shares of Flipkart Singapore between October 2011 to April 2015. It is the assertion of the petitioner that its shareholding in Flipkart Singapore had been acquired between 04 October 2011 and 17 April 2015 and thus undisputedly prior to 01 April 2017, the determinative date which finds mention in Article 13(3A) of the India-Mauritius DTAA.
9. The aforenoted DTAA was signed and executed originally on 06 December 1983. The Protocol for Amendment of the India-Mauritius DTAA was signed on 10 May 2016 which principally sought to introduce the taxation of capital gains arising in India. Thereafter, and by virtue of a notification dated 10 August 2016, Paragraphs 3A and 3B came to be inserted in Article 13(3) and were ordained to come into effect from 01 April 2017 and thus corresponding to Assessment Year15 2018-19.
10. As was noticed hereinabove, it was by virtue of Paragraph (3A) and its insertion in Article 13 that the gains from the alienation of shares in a company that is a resident of a Contracting State became subject to a capital gains tax. Article 13 as it stands post the amendments noted above is reproduced hereinbelow:-
“ARTICLE 13
CAPITAL GAINS
1. Gains from the alienation of immovable property, as defined in paragraph (2) of article 6, may be taxed in the Contracting State in which such property is situated.
2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in that other State.
3. Notwithstanding the provisions of paragraph (2) of this article, gains from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships and aircraft, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
[3A. Gains from the alienation of shares acquired on or after 1st April 2017 in a company which is resident of a Contracting State may be taxed in that State.
Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3) of this article shall be taxable only in that State.
3B. However, the tax rate on the gains referred to in paragraph 3A of this Article and arising during the period beginning on 1st April, 2017 and ending on 31st March, 2019 shall not exceed 50% of the tax rate applicable on such gains in the State of residence of the company whose shares are being alienated;]
4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 3A shall be taxable only in the Contracting State of which the alienator is a resident.]
5. For the purposes of this article, the term “alienation” means the sale, exchange, transfer, or relinquishment of the property or the extinguishment of any rights therein or the compulsory acquisition thereof under any law in force in the respective Contracting States.”

11. The Notes to the Financial Statement submitted for the period ending on 31 December 2017 acknowledged the amendments in the DTAA and declared that capital gains arising on sale of shares acquired in an Indian tax resident company between 01 April 2017 to 31 March 2019 would be subject to tax at the rate of 50% of the domestic tax rate, subject to the fulfilment of the Limitation of Benefits16 clause in the DTAA. The petitioner further averred in those Notes that the capital gains on sale of shares acquired in an Indian tax resident company post 31 March 2019 would be taxed in India and the capital gains arising out of sale of shares of a foreign company which though not a tax resident of India but one whose shares derive their value substantially from assets situated in India may not be taxable under the DTAA.
12. The Notes to the Financial Statement further took the position that the sale of shares in respect of investments made directly or indirectly in Indian entities on or after 01 April 2017 would be subject to General Anti Avoidance Rules17 under Indian domestic tax laws. The relevant section of the Notes to the Financial Statement and which deals with taxation is reproduced hereinbelow:-
“4.? ?Taxation
The Company conducts its investment activities as a tax resident of Mauritius and holds one investment in a Singapore company with Indian subsidiaries. The Company expects to obtain benefits under the double taxation treaty between Mauritius and India and between Mauritius and Singapore.

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, 2016, 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 companies acquired on or after April 1, 2017 will be subject to tax at domestic rates, shares acquired in the Indian tax resident companies prior to April 1, 2017, should be grandfathered. Accordingly, this change may not have an impact on tax position of the Company as at December 31, 2017.

Capital gains arising on sale of shares acquired in an Indian tax resident company between April 1, 2017 and March 31, 2019 will be subject to tax at 50% of the domestic rate in India subject to the Limitation of Benefit (“LOB”) clause Capital gains on sale of shares acquired in an Indian tax resident company post March 31, 2019 will be taxed in India. Capital gains on sale of shares in a foreign company which is not a tax resident of India and which derives its value substantially from the assets situated in India may not be taxable in India under the India-Mauritius treaty subject to fulfilment of certain conditions. However, the sale of shares, in respect of investments made directly or indirectly in Indian entities on or after April 1, 2017, will be subject to General Anti Avoidance Rules under Indian domestic tax laws.

Under the 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 and should not be subject to capital gains tax in Singapore on the sale of securities.

The Company is subject to tax in Mauritius at the rate of 15% on its net income. However, on the basis that the Company is a Global Business Category I company, the Company should be entitled to a deemed tax credit equivalent to the higher of actual foreign tax suffered or a presumed foreign tax equivalent of 80% of the Mauritian tax on its foreign source income. Where the Mauritius entity holds more than 5% of the underlying investee company, a foreign tax credit should be available for the underlying tax and dividend distribution tax paid by the investee company.

Gains or profits derived from the sale of units or of securities by the Company are specifically exempt from income tax in Mauritius. Dividends paid by a company resident in Mauritius are exempt from withholding tax.

No provision for tax expense has been made in the financial statements for the year ended December 31, 2017, as the Company has accumulated tax losses of $164,266.

The accumulated tax losses which will be available for offset against future taxable profits are as follows:

Up to the year ended
December 31.

Accumulated Tax
Losses

2018
$
38,354
2019

45,356
2020

42,725
2021

37,831
2022

–

$
$ 164,266

The Directors intend to continue the operations in a manner that the Company continues to: (i) comply with the requirements of the tax treaty between India and Mauritius and between Singapore and Mauritius: (ii) be a tax resident of Mauritius, and (iii) maintain that its central management and control resides in Mauritius. In addition, the Company intends to obtain a Tax Resident Certificate in Mauritius every year. Accordingly, no provision for Indian or Singaporean income taxes has been made in the financial statements of the Company for taxes related to capital gains, if any.”

13. On 09 May 2018, a Share Purchase Agreement18 came to be executed between Walmart International Holdings, Inc., a Delaware Corporation, which was described as the ‘purchaser’ and the shareholders of Flipkart Singapore, which was identified in Schedule I to that agreement and collectively described to be the ‘sellers’, and Fortis Advisors LLC, a Delaware limited liability company, which was described as the ‘sellers’ representative’. As per the SPA, the sale of the shares held by the petitioner is stated to have been approved by the Board in its meeting held on 04 May 2018. The aforesaid subject appears to have arisen for discussion in the meeting of 12 June 2018, when the Board took note of the offer of Walmart to purchase a controlling stake in Flipkart Singapore for USD 16 billion and Tiger Global International III Holdings19 [the petitioner in W.P.(C) 6764/2020], Tiger Global International IV Holdings20 [the petitioner in W.P.(C) 6766/2020] and the present petitioner having considered to sell 74% of their stake in Flipkart Singapore and close that transaction.
14. These facts are also taken note of in the impugned order passed by the AAR and which captures details of the shareholding of the petitioner, TG III and TG IV as well as the number of shares sold and the gross consideration received. The shareholding pattern of the petitioner, TG III and TG IV was set forth in a tabular form in the impugned order and which is reproduced hereinbelow:-
S. No.
Applicants
Number of shares acquired
Period/ date of acquisition
1.
Tiger Global International II Holdings, Mauritius
23,670,710
October, 2011 to April, 2015
2.
Tiger Global International III Holdings, Mauritius
2,282,825
23rd June 2014
3.
Tiger Global International IV Holdings, Mauritius
105,928
24th April, 2012

15. The number of shares sold and gross consideration received was additionally captured in the following table:-
S. No.
Applicants
Number of shares sold
Gross consideration received
1.
Tiger Global International II Holdings, Mauritius
14,754,087
USD 1,893,510,103.82 equivalent to INR Rs. 13122,02,50,194/-
2.
Tiger Global International III Holdings, Mauritius
1,422,897
USD 1,81,782,633.10 equivalent to INR Rs. 1259,75,36,473.83
3.
Tiger Global International IV Holdings, Mauritius
66,026
USD8,435,171.44 equivalent to INR Rs. 58,45,57,380.79

16. Thereafter, the petitioner appears to have approached the tax authorities on 02 August 2018 for grant of a ‘nil’ withholding tax certificate in terms as contemplated under Section 197 of the Act. The petitioner in this application had asserted that although the shares held by it and constituting 13.48% of the share capital of Flipkart Singapore derived their value substantially from assets in India, since those shares were acquired prior to 01 April 2017, they would not be taxable or subjected to a capital gains tax in light of the TRC held by the petitioner read along with Article 13 of the DTAA. The petitioner with this application also enclosed its Certificate of Incorporation, Category 1 GBL, TRC along with Form 10F, a PAN card and a copy of the SPA.
17. The aforesaid application came to be disposed of on 17 August 2018 with the respondent holding that the petitioner would not be entitled to the benefits of the DTAA. This was based on the competent authority being of the opinion that the petitioner was not independent in its decision making with regard to various capital assets held by it. It was accordingly informed that the certificate under Section 197 would be issued subject to the payer deducting tax at the rate of 10% plus surcharge and applicable cess. The order dated 17 August 2018 disposing of the Section 197 application is extracted hereinbelow:-
“Sir,

Sub: Your application in form 13 for issuance of lower/ Nil deduction certificate dated 2.8.2018 and 13.8.2018- in the case of Tiger Global International II Holding- Regd.

Please refer to the above.

2.? ?As per the details filed by you on 13.8.2018 and the material on record, it is found that all the control over the decision making over the purchase and sale of shares mentioned in the Share Purchase Agreement (SPA) does not lie with you.

3.? ?It is seen that you are not independent in the decision making with regard to the capital assets held by you. Accordingly, the benefits of the India- Mauritius DTAA treaty is not available to you on the sale of Shares for which you have filed an application in Form 13 for issuance of lower/NIL deduction certificate u/s 197 of the Income Tax Act, 1961.

4.? ?As per your submission dated 13.8.2018, you have that the proposed transaction is expected to close on 17.8.2018 (i.e) today. Hence, the capital gains shall be taxed as per the Income Tax Act, 1961 and certificate u/s: 197 shall be issued requiring the payer to deduct tax, accordingly at the rate of 10% plus surcharge and health and education cess as applicable. In this regard, considering the time limit of closure of the transaction, it is requested that your reply shall reach this office by way of email/fax within 1 PM today, i.e 17.8.2018
Yours faithfully,

(M.P. DWIVEDI)
Dy. Commissioner of Income Tax
InetrnationaITaxation-4(1)(2),Mumbai”

18. It becomes pertinent to note that on 18 August 2018, the petitioners transferred their shareholding in Flipkart Singapore to Fit Holdings SARL, a Luxembourg entity. The total number of shares forming subject matter of this transaction were 1,47,54,087 and at a transaction value of around INR 131,22,02,50,194/-.
19. It is thereafter that the petitioner along with TG III and TG IV moved the AAR on 19 February 2019 seeking its opinion on the taxability of the transaction in question. Aggrieved by the failure of the AAR to dispose of the said application even though the period of six months as contemplated under Section 245R(6) had expired, the petitioner approached this Court by way of W.P.(C) 12145/2019, which came to be disposed of on 19 November 2019 with the direction that the AAR would deal with the application moved by the petitioners in an expeditious manner and dispose of the same within two months. That period came to be extended by a subsequent order of the Court dated 24 January 2020.
20. During the course of consideration of the said application, the AAR also called for a report from the Commissioner of Income Tax (International Taxation)-421. The said authority submitted its report on 03 January 2020 and where it opined as follows:-
“7.3 As per the notes to financial statements of the year ending 31.12.2011, The Applicant is owned by Tiger Global Five Parent Holdings, Tiger Global Six Parent Holdings, and Tiger Global Principals (the “Shareholders”), Mauritius private companies. Tiger Global Five Parent Holdings owns 79.3%, Tiger Global Six Parent Holdings owns 16.7% and Tiger Global Principals owns 4.0% of the Company. Tiger Global Five Parent Holdings is wholly owned by Tiger Global Private Investment Partners V, L.P., a Cayman Island exempted limited partnership. Tiger Global Six Parent Holdings is wholly owned by Tiger Global Private Investment Partners VI, L.P., a Cayman Island exempted limited partnership. Tiger Global Management, L.L.C. is the management company of Tiger Global Private Investment Partners V, L.P. and Tiger Global Private Investment Partners VI, L.P. Tiger Global Principals is wholly owned by Tiger Global Side Fund, LLC, a Delaware Limited Liability Company. All members of Tiger Global Side Fund, LLC are affiliated with Tiger Global Management, LLC.
7.4 As per the notes to the financial statement for the year ending 31.12.2017, The Company is owned by Tiger Global Five Parent Holdings, Tiger Global Six Parent Holdings, Tiger Global Seven Parent Holdings, Tiger Global Eight Holdings and Tiger Global Principals (the “Shareholders”), Mauritius private companies. Tiger Global Five Parent Holdings owns 61.5%, Tiger Global Six Parent Holdings owns 12.1%, Tiger Global Seven Parent Holdings owns 14.7%, Tiger Global Eight Holdings owns 8.5%, and Tiger Global Principals owns 3.2% of the Company. Tiger Global Five Parent Holdings is majority owned by Tiger Global Private Investment Partners V, L.P., a Cayman Islands exempted limited partnership. Tiger Global Six Parent Holdings is majority owned by Tiger Global Private Investment Partners VI, L.P., a Cayman Islands exempted limited partnership. Tiger Global Seven Parent Holdings is majority owned by Tiger Global Private Investment Partners VII, L.P., a Cayman Islands exempted limited partnership. Tiger Global Eight Holdings is majority owned by Tiger Global Private Investment Partners VII, L.P., a Cayman Islands exempted limited partnership. Tiger Global Management, LLC is the management company of Tiger Global Private Investment Partners V, L.P., Tiger Global Private Investment Partners VI, L. P., Tiger Global Private Investment Partners VII, L.P and Tiger Global Private Investment Partners VIII, L.P. Tiger Global Principals is wholly owned by Tiger Global Side Fund, LLC, a Delaware Limited Liability Company. All members of Tiger Global Side Fund, LLC are affiliated with Tiger Global Management, LLC.
7.5 From the date of inception to the financial year ending 31.12.2017, the applicant is part of Tiger Global Management LLC, USA and its affiliates, through a web of entities based out of Cayman Islands and Mauritius.
7.6 As per the business plan of the applicant dated 6.6.2011, it is stated that the Tiger Global Six Parent Holdings, Mauritius is the promoter of the applicant. It has also been stated that the applicant is being set up for making investments in India through the applicant. It is also stated that the promoter shall provide the applicant with funds for making investments in India.
xxxx xxxx xxxx
10.1. SHAREHOLDING PATTERN:

As per the Financial Statement for the year ending 31.12.2017, the structure of the applicant is as below

On perusal of the share holding pattern of the applicant, it is observed that the applicant is held by Tiger Global Management LLC, a Delaware Corporation through a web of entities based out of Cayman Islands and Mauritius. It indicates that the real control of the company does not lie within Mauritius.
xxxx xxxx xxxx
10.3 BENEFICIAL OWNER OF THE SHARES:

The applicant, in its application for Category 1 Global Business License has not mentioned any beneficial owner of the Shares of the holding company. However, it is pertinent to note that in the case of Tiger Global International III holdings, which has applied for the lower/NIL deduction certificate before the Dy. CIT-IT-4(1), has submitted in the one of the document, that Mr. Charles P Coleman as the Beneficial Owner of the Tiger Global Six Parent Holdings, which is the promoter company in the case of the applicant. Therefore, from the documents submitted by the applicant, it is appears that Mr. Charles P Coleman is the beneficiary owner of the shares and it can be said that the real control does not lie with the directors based out of Mauritius but the directors based out of mauritius appear to be just name lenders.

xxxx xxxx xxxx

10.5 COMPANY WITH NO INCOME
On perusal of the financial statements of the applicant, it is observed that the applicant does not have any income from the date of inception and the sources of fund for the investment in Flipkart Private Limited has been from the entities based out of Mauritius, which are controlled by entities based out of Cayman Islands and ultimately controlled by Tiger Global Management, LLC, USA.

10.8 On analysis of the financial statements of the applicant, it is found that the initial source of investment and subsequent sources of investment in Flipkart P Ltd have been capital contributions from the shareholders. The applicant has no income of its own and the sources of fund for investment and expenses are capital contributions from the entities based out of Mauritius, which are held by entities based out of Cayman Islands and ultimately controlled by the entity, Tiger Global Management LLC, USA. The source of investment and instructions for a specified amounts given by a person, ie. Mr. Charles P Coleman, who is not in the board of directors and the top executives of the Tiger Global management LLC, i.e. Justin Horan present in the minutes of the meeting clearly shows that the applicant is only a conduit for the investment of US Based Entity, Tiger Global Management LLC, through a web of other conduit companies based out of Mauritius and Cayman Islands.

10.9 The above facts prima facie indicates that the applicant is not acting “INDEPENDENTLY” but as a conduit for the real beneficial owners based out the USA. Further, the facts of the case are squarely covered by the observations made by the Hon’ble AAR in its ruling in the case of AB Mauritius in AAR No, 1128 of 2011 dated 8.11.2017. Therefore, considering the above facts and the ruling of the AAR and also the judgement of the Hon’ble HC of Bombay in the case of Aditya Birla Nuvo Limited Vs DDIT(2012) 342 ITR 0308, the treaty benefits of the india- Mauritius DTAA are not available to the applicant, the ultimate beneficiary of the shares of Indian Company is Tiger Global Management LLC, a company incorporated in the United States of America. Hence the applicant can not be provided any benefit under the Treaty of India- Mauritius DAA due to the fact that prima facie the said transaction appears to be designed for avoidance of tax.”

21. Seeking to controvert the various adverse comments appearing in the report of the CIT (International Taxation), the petitioner submitted its response dated 16 January 2020 before the AAR. The chronology of events leading up to the acquisition and sale of Flipkart shares was disclosed as under:-
Date
Particulars

15.06.2011.
Date of incorporation of the Applicant

17.06.2011
GBL-1 granted to the Applicant

19.10.2011 – 17.04.2005

Shares of Singapore Co acquired by the Applicant over time
09.05.2018
Pursuant to a Share Purchase Agreement by and among Wai-Mart International Holdings Inc, the Shareholders of Singapore Co, Fortis Advisors LLC, and Walmart Inc, the Applicant agreed to sell 14,754,087 shares of Singapore Co to the Buyer for a total consideration of USD

02.08.2018
The Applicant approached the tax authorities for a certificate of nil withholding under section 197 of the Act, in relation to the Transfer seeking a certification of nil withholding prior to consummation of the transaction.

17.08.2018
The tax authorities issued a letter informing the Applicant that it would not be permitted to avail benefits under the India – Mauritius DTAA, on the basis that the “control over the decision making over the purchase and sale of” shares did not lie with the Applicant.

Subsequently, on the same day, the tax authorities issued the 197 Certificate directing the Buyer to withhold tax at rates which vary from 6.05% (exclusive of surcharge and cess) on the consideration payable to the Petitioner in respect of the Transfer.

18.08.2018
Sale of shares to the Buyer (Transfer Date)

19.02.2019
Date of filing the present Application.

22. While controverting the allegation that the transaction was prima facie designed for avoidance of tax, the petitioners asserted as follows:-
“It may also be noted that Courts have consistently held that a prima facie finding must be arrived at based on the evidence and material available on record, and mere pleading would not be sufficient. In the present case, it can be seen that as far as the allegations regarding beneficial ownership are concerned, the CIT has not submitted any basis or material to justify the allegation the beneficial ownership of shares sold as part of the Transfer does not lie with the Applicant. The CIT has merely referred to the case of Tiger Global International III Holdings in support of his allegation. The Applicant submits that this reference is wholly inappropriate and legally unsustainable for several reasons: first, the bars to admission under section 254R(2) of the Act have to determined on a case by case basis, for each individual applicant. It is not legally permissible or appropriate for the CIT to argue against admissibility with reference to the case of any other person. In the present case, not a single finding of fact in relation to the Applicant has been put forth by the CIT to justify his unsubstantiated allegation that the beneficial ownership of the shares does not lie with the Applicant. The Second, in any event, the allegation in the case of Tiger Global International III Holdings was made in the course of proceedings under section 197, and not under section 245R of the Act. As held by the Supreme Court in Transmission Corporation of AP Ltd v. CIT and in countless cases since, it is well settled that deduction of tax at source is in the nature of tentative determination and the final view has to be taken in the course of regular assessment. As such, a tentative determination under section 197 in the case of some other entity would not in any way fetter the jurisdiction of this Hon’ble Authority to proceed with the present Application, which has been filed by a wholly different entity. In fact, rejection of the Application at the admission stage for this reason would be tantamount to failure to exercise the jurisdiction vested by the Act in this Hon’ble Authority. For this reason, it is submitted the CIT’s allegation in respect of beneficial ownership of shares is devoid of legal merit and should therefore be disregarded completely by this Hon’ble Authority.
The CIT’s allegation that the “real control” of the Applicant did not lie in Mauritius is wholly erroneous and without substance, factual support, or legal merit. The CIT’s reliance on the fact that a person from the USA has been authorised to give instructions regarding the operation of the Applicant’s bank account is misplaced and counter intuitive, since it is in fact the Board of Directors of the Applicant that has provided this authorization. Contrary to the CIT’s claim, this demonstrates that the Board of Directors has in fact exercised its authority, control and management over the affairs of the Applicant. If the argument of the CIT is taken to its logical conclusion, the Board of Directors of a company would virtually be required to undertake all day to day administrative tasks itself in order to demonstrate its control over the affairs of the company, resulting in an absurd outcome unintended by law.
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From a perusal of the above, a transaction can be considered ‘designed’ for the avoidance of tax only if the facts involved in the transaction show that the transaction was not based on sound commercial or business rationale but was entered into for the purpose of avoidance of tax by ‘illegal or improper means’ without any real and genuine business purpose. By contrast, the CIT has not identified or proved even a single fact that contradicts the assertions made in the Application or establishes even a single element of artificiality in the transaction undertaken by the Applicant. In fact, the sole basis for the allegations made in the R2 Report is that the Applicant is owned by intermediate entities in Mauritius and the Cayman Islands, and ultimately owned by one or more entities resident in the United States. It is submitted that this holding structure of the Applicant is of no relevance if the transaction is not prima facie found to be designed for the avoidance of income-tax. In the present case, the CIT has deemed the holding structure of the Applicant to be ipso facto determinative of whether the transaction is designed for the avoidance of income-tax, which is not the standard to be applied to invoke clause (iii) of the proviso to section 245R(2). Instead, it must be proven that the transaction itself (and not the structure of the entity undertaking the transaction) is designed for the avoidance of income-tax in order to invoke clause (iii). The CIT has failed to discharge this burden of proof.
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In the present case, the Applicant has set out the complete details relating to the business and commercial purpose of the transaction in the Application itself. Further, as detailed above and as evidenced by the documentation placed before this Hon’ble Authority in support, the Applicant is managed and controlled by its Board of Directors in Mauritius in accordance with its constitution. The Directors are involved in and responsible for all actions and business activities of the companies. The Applicant has its registered office in Mauritius and obtains secretarial and support services from Mauritius based service providers. The decision to invest into and ultimately sell the shares of Singapore Co was taken by the Directors of the Applicant in Mauritius after proper discussions and deliberations. Necessary resolutions have been passed by the Board of Directors of the Applicant in this regard. Moreover, the funds invested by the Applicant in Singapore Co as well as the sale proceeds received by the Applicant from the Transfer were legally and beneficially owned by the Applicant in its sole, independent and exclusive capacity. Both in law and in fact, the Applicant beneficially held the shares of Singapore Co and was not contractually, legally, or economically obliged or accountable to any other third party with respect to the consideration received for the Transfer. It is clear that the sole object of the Transfer was to execute a strategic exit, maximize return on investment and enhance value to the Applicant’s shareholders.
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In conclusion, it is submitted as follows:
(i) The CIT has not established prima facie tax avoidance based on the materials on record. Further, the CIT has not discharged his burden of establishing on the basis of the materials as to why there is prima facie tax avoidance. There has been no attempt by the CIT to reason or explain why the present transaction was designed prima facie for tax avoidance.
(ii) The reference made by the CIT to the case of Tiger Global International III Holdings is wholly inappropriate and unjustified. The finding under clause (iii) of the proviso to section 245R(2) has to be made based on the evidence and material available on record in the case at hand, and not with reference to the facts relating to some other entity.
(iii) For the bar under clause (iii) of the proviso to be attracted, it must be shown that the transaction was ‘designed’ specifically for tax avoidance which is apparent prima facie i.e., with a premediated object of tax avoidance that is evident from the record. The CIT has not identified or proved even a single fact that contradicts the assertions made in the Application or establishes even a single element of artificiality in the transaction undertaken by the Applicant.
(iv) The transaction entered into by the Applicant is commercially driven and has been undertaken within the four corners of the law. In such circumstances, Courts including the Hon’ble Supreme Court and this Hon’ble Authority have held that a transaction of this nature is legal and permissible and is neither illegal or improper.
(v) The Applicant’s claim for exemption from tax is predicated solely on the allocation of tax to Mauritius under the provisions of the Mauritius Treaty. It is settled law that in such circumstances, clause (iii) of the proviso to section 245R(2) is not attracted.”
23. Subsequent to the submission of the aforesaid replies, written submissions appear to have been tendered by respective sides and whereafter the impugned order came to be passed by the AAR.
C. IMPUGNED ORDER- SALIENT FINDINGS
24. Proceeding firstly to deal with the explanation which was proffered by the petitioner of the transaction being restricted to a mere transfer of shares, the AAR in the impugned order observes:
“34. The applicants have contended that the transaction involved in the present application was sale of shares simpliciter undertaken between two unrelated independent parties which cannot be considered as being designed for avoidance of tax. The contention of the applicants is too simplistic to be accepted. The precise question raised in the application is chargeability of capital gains on sale of shares under the Act read with DTAA between India and Mauritius. The capital gain is not dependent on mere sale of shares. As per the mechanism of computation of capital gains, the cost of acquisition of shares is to be reduced from the sale price of shares. Therefore, in the mechanism of capital gains computations what is relevant is not only the sale of shares but also the purchase of shares. We have to, therefore, look at the entire transaction of acquisition as well as sale of shares as a whole and we cannot adopt only a dissecting approach by examining the sale of shares as suggested by the applicants.
35. The design for avoidance of tax may be a long drawn process. It is found from the Notes to Financial Statement that the principal objective of the applicant companies was to act as an investment holding company for a portfolio investment domiciled outside Mauritius. The investment made by the applicants in the Singapore Company, with Indian subsidiary, was with a prime objective to obtain benefits under the double taxation treaty between Mauritius and India and between Mauritius and Singapore. The organization structure of the applicants, as described in the Notes to Financial Statement, has been depicted by the Revenue in the form of chart reproduced earlier, which is not denied by the applicants. The applicants are part of Tiger Global Management LLC USA and have been held through its affiliates through web of entities based in Cayman Islands and Mauritius. Though the holding subsidiary structure might not be a conclusive proof for tax avoidance, the purpose for which the subsidiaries were set up does indicate the real intention behind the structure. From the materials brought on record, the fact that the applicants were set up for making investment in order to derive benefit under the DT AA between Mauritius and India is an inescapable conclusion.”

25. It proceeded further to find that apart from Mr. Charles P Coleman, who was, according to it, representing TGM LLC on the Board, all other members were “mere puppets”. This becomes evident from a reading of paragraph 36, which is extracted hereinbelow:
“36. The Revenue has pointed out, by citing evidences from the Minutes of the Meeting of Board of Directors of the applicants, that the key decisions were taken by Mr. Steven Boyd, the non-resident Director, who was also General Counsel of Tiger Global Management LLC and that the other Directors were not independent but mere puppets. It is found that Mr. Steven Boyd was the non-resident Director of the applicant companies. Under the circumstance no adverse inference can be drawn if he was privy to the crucial decisions taken in the Board meetings. Further, the Supreme Court has held in the case of Vodafone (supra) that there was nothing wrong if the funds for making FDI by Mauritius companies/individuals had not originated from Mauritius but had come from investors of third countries. In view of this judgement, the Revenue’s submission that funds had come not from the applicants but from the promoters in USA, so as to treat the arrangement as tax avoidance, has to be rejected.”

26. The AAR then proceeded to examine the question of the situs of control and management of the writ petitioners. It ultimately came to hold against them principally on account of the signing authority which stood conferred on Mr. Coleman as would be evident from a reading of the following passages forming part of the impugned order:
“37. What is relevant to consider here is the control and management of the applicant companies. Though the applicants have submitted that their control and management was with the Board of Directors in Mauritius, what is material is not the routine control of the affairs of the applicants but their overall control. The control and management of applicants does not mean the day-to-day affairs of their business but would mean the head and brain of the Companies. Therefore, it will be relevant to examine whether the head and brain of the applicants was in Mauritius.
38. The fact that the authority to operate the bank accounts for transaction above US$ 2,50,000 was with Mr. Charles P. Coleman, countersigned by one of the Mauritius based Directors, has not been disputed by the applicants. As per clause 31 of the Constitution document of the applicant companies, the principal bank account of the companies had to be maintained in Mauritius. Further clause 30.2 of the said document stipulated that all cheques or orders for payment shall be signed by any two directors or by such other person or persons as the directors may from time to time appoint. Thus, the cheques were required to be signed by two directors or such other persons as appointed by the Board of Directors. The applicants have submitted that there was nothing wrong with Mr. Charles P. Coleman being appointed by the Board of Directors as signatory of cheques above a particular limit. Apparently, the argument of the applicants may seem logical. However, as the principal bank account of the applicants was maintained in Mauritius, it would have made sense if a local person based in Mauritius was appointed to sign the cheques on behalf of the Directors. The applicants have not explained as to why Mr. Charles P. Coleman, who was not based in Mauritius was appointed to sign the cheques of Mauritius bank account. In this regard it is relevant to consider that Mr. Charles P. Coleman was the beneficial owner as disclosed by the applicants in the application form for Category “I” Global Business Licence filed with Mauritius Financial Services Commission. Mr. Coleman was also the authorized signatory for the immediate parent company of the applicants viz. Tiger Global Five Percent Holdings and Tiger Global Six Percent Holdings and was also the sole Director of ultimate holding company Tiger Global PIP Management V Limited and Tiger Global PIP Management VI Limited. In view of these facts the appointment of Mr. Charles P. Coleman as authorized signatory of bank cheques above a limit can’t be considered as a mere coincidence.
39. The applicants have contended that authorization to certain person to operate its bank account doesn’t ipso facto mean that the applicants had no control over its funds. It must be considered that authorization given by the applicants to operate its bank account was not to certain person but to Mr. Charles P. Coleman, whose influence over the group has been described in the preceding para. Mr. Charles P. Coleman and another authorized signatory Mr. Anil Castro, though being not on the Board of Directors of the applicants, were the key personnel of the Group and were managing and controlling the affairs of the entire organization structure. From the evidences brought on record by the Revenue, it is evident that the funds of the applicants were ultimately controlled by Mr. Charles P. Coleman and the applicants had only a limited control over their fund. Apparently, the decision for investment or sale was taken by the Board of Directors of the applicants but the real control over the decision of any transaction over USD 2,50,000 was exercised by Mr. Charles P. Coleman only. Obviously, he was controlling the decision of the Board of Directors of the applicants through the non-resident Director Mr. Steven Boyd who was accountable to him. We have, therefore, no hesitation to conclude that the head and brain of the companies and consequently their control and management was situated not in Mauritius but outside in USA.”

27. While dealing with the argument of the writ petitioners that their holding structure would not be determinative of whether the transaction was designed to avoid tax, the AAR observed as follows:
“40. The applicants have contended that the holding structure of the applicants has no relevance to determine whether the transaction was prima facie designed for avoidance of tax. In our opinion it is not the holding structure only that would be relevant. The holding structure coupled with prima facie management and control of the holding structure, including the management and control of the applicants, would be relevant factors for determining the design for avoidance of tax. As discussed earlier, the real management and control of the applicants was not with their respective Board of Directors but with Mr. Charles P. Coleman, the beneficial owner of the entire group structure. The applicant companies were only a “see through entity” to avail the benefits of India-Mauritius DTAA.”

28. The AAR then proceeded to make the following observations with respect to the amendments which were introduced in the DTAA and the grandfathering clause comprised in sub-paragraph 3(A) of Article 13 of the said DTAA:
41. The applicants have submitted that a claim for treaty eligibility does not tantamount to tax avoidance. The applicants’ claim for exemption of capital gains was in accordance with the provisions of Article-13 of India- Mauritius treaty. It was contended that under the circumstances, it cannot be said that the question raised in the application related to a transaction or issue designed prima facie for avoidance of income-tax. It is a settled principle that a treaty is to be interpreted in good faith. The context and purpose of the treaty must be determined on the basis of preamble and annexure including agreement, subsequent agreement regarding interpretation of terms of the treaties, relevant international rules applicable to the agreement etc. The Circular No. 682 dated 30.03.1994 issued by the CBDT had clarified that 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 the Mauritius tax law and will not have any capital gains tax liability in India. It was imperative from this Circular that what was exempted for a resident of Mauritius was the capital gains derived on alienation of shares of Indian company. In the present case capital gains has not been derived by alienation of shares of any Indian company rather the applicants have come before us in respect to capital gains arising on sale of shares of Singapore Company. The Protocol for Amendment of Convention for Avoidance of Double Taxation between India and Mauritius was Signed on 10.05.2016 which provided that taxation of capital gains arising from alienation of shares acquired on or after 1st April, 2017 in a company resident in India will be taxed on source basis with effect from financial year 2017-18. At the same time investment made before 1st April, 2017 was grandfathered and not subject to capital gains tax in India. Thus as per the amended DTAA between India & Mauritius as well, what was not taxable was capital gains arising on sale of shares of a company resident in India. It is thus crystal clear that exemption from capital gains tax on sale of shares of company not resident in India was never intended under the original or the amended DTAA between India and Mauritius. In view of this clear stipulation in the India-Mauritius DTAA, the applicants were not entitled to claim benefit of exemption of capital gains on the sale of shares of Singapore Company. Thus, the applicants have no case on merits and fail on the ground of treaty eligibility as well.”

29. In the context of the perceived control and holding pattern of the writ petitioners, the AAR held that in light of the decision of the Supreme Court in Vodafone International Holdings B.V. v. Union of India & Anr.22, as well as Circular No. 789 dated 13 April 2000 the Income Tax authorities would be entitled to discard a device adopted by an assessee and to proceed to take into consideration the essence of the transaction between the parties. Ruling on this aspect the AAR held:
“42. The applicants have disputed the contention of the Revenue that the tax residency in Mauritius was established only to take advantage of India- Mauritius DTAA. The applicants submitted that Mauritius comprehensive tax treaty network with various countries (and not just India) facilitated efficient asset management and achieved a competitive return for their investors. According to the applicants, the mere fact of obtaining a TRC to avail the treaty benefits does not make it a colourable device for tax avoidance. It had been held by the Hon’ble Supreme Court in the case of Vodafone (supra) that DTAA and Circular No. 789 dated 13.4.2000 would not preclude the Income Tax Department from denying the tax treaty benefits in suitable cases. It was further held that the Department is entitled to look at the entire transaction of sale as a whole and if it is established that the Mauritian company was interposed as a device, it was open to the Tax Department to discard the device and take into consideration the real transaction between the parties, and the transaction may be subjected to tax. It is relevant to consider here that though the tax residency is stated to be established to take benefit of Mauritius tax treaty network with various countries and not just India, in effect the entire investment made by the applicants was with Singapore company only, in respect of which the benefit of India-Mauritius DTAA is being claimed. As is evident from their financial statements filed with the application, all the three applicants had not made any other investment other than in the shares of Flipkart. Thus, the real intention of the applicants was to avail the benefit of India-Mauritius treaty, whatever be the stated objective.”

30. In paragraph 44, the AAR distinguished a decision rendered by it in the case of Moody’s Analytics Inc. USA, In re (AAR)23 observing that since that decision pertained to capital gains derived from the transfer of shares of an Indian company, it was clearly distinguishable. It also chose to explain away its own decision in Golden Bella Holdings Ltd. v. Deputy Commissioner of Income-tax (International Taxation)-2(3)(2)24, as well as Star Television Entertainment Ltd., In re (AAR)25, on similar grounds. Paragraph 44 of the impugned order reads thus:
“44. The applicants have also relied upon the ruling of this Authority in the case of Moody’s Analytics Inc. USA. It is found that the issue involved in that case was capital gains arising to Mauritius company on transfer of its shares in Indian company to a foreign company, which was held as not chargeable to tax in India. As the issue involved there was capital gain on transfer of shares of Indian company, the facts are found to be distinct as the applicant has not transferred the shares of Indian Company but that of a Singapore company. In the case of Golden Bella Holdings Ltd, also relied by the applicants, the facts were different as the investment was made in CCDs of an Indian Private Limited company and the interest income derived therefrom was held as not taxable under the beneficial provision of DTAA between India and Cyprus. The facts of the case of STAR Television Entertainment Limited (supra) are also found to be different as the issue involved therein was capital gain arising on amalgamation. The other judicial pronouncements relied upon by the applicants are also found to be different and distinct on facts and the ratio of those decisions can’t be imported to the facts of the present case.”
31. We also deem it apposite to extract paragraphs 47 and 48 of the impugned order and which are reproduced hereinbelow:
“47. The applicants fail miserably if we apply the yardsticks as laid down by the Hon’ble Supreme Court in the case of Vodafone (supra). There was no foreign direct investment made by the applicant companies in India and, therefore, there cannot be any question of participation in investment. The applicants had made investment in shares of Flipkart which was a Singapore company and thus the immediate investment destination was in Singapore and not in India. In view of this fact the applicants also fail on other yardsticks viz. the period of business operation in India, the generation of tax revenue in India, timing of exit and continuity of business on such exit. In the absence of any strategic foreign direct investment in India there was neither any business operation in India nor they ever generated any taxable revenue in India. In the absence of any direct investment in India one can only conclude that the arrangement was a pre-ordained transaction which was created for tax avoidance purpose.
48. In view of the foregoing, we are of the considered opinion that the issue involved in the question raised in the present applications was designed prima facie for avoidance of tax. The applicants have contended that shares of the Singapore Company derived their value substantially from assets located in India and, therefore, it was eligible to take benefit of Article 13 (4) of India – Mauritius Treaty. Even if the Singapore Company derived its value from the assets located in India, the fact remains that what the applicants had transferred was shares of Singapore Company and not that of an Indian company. The objective of India-Mauritius DTAA was to allow exemption of capital gains on transfer of shares of Indian company only and any such exemption on transfer of shares of the company not resident in India, was never intended by the legislator. Further, as discussed earlier the actual control and management of the applicants was not in Mauritius but in USA with Mr. Charles P. Coleman, the beneficial owner of the entire group structure. Therefore, we have no hesitation to conclude that the entire arrangement made by the applicants was with an intention to claim benefit under India – Mauritius DTAA, which was not intended by the lawmakers, and such an arrangement was nothing but an arrangement for avoidance of tax in India. Therefore, the bar under clause (iii) to proviso to Section 245R(2) of the Act is found to be squarely applicable to the present cases. Accordingly, the applications are rejected.”

32. As would be evident from a reading of the aforesaid extracts, although the AAR accepts that the investments made were in respect of Flipkart Singapore, and consequently the immediate investment destination being recognized to be Singapore and not India, it observed that even if it were to accept the contention of the petitioner that the shares of Flipkart derived their value substantially from assets located in India, the fact that the transfer was in respect of shares of a Singapore company as distinguished from an Indian company, would remain unimpacted. The AAR holds that the objective of the DTAA was confined to the grant of exemption from capital gains arising from the transfer of shares of an Indian company only and that exemption on transfer of shares of a company not resident in India was never intended or contemplated under the DTAA.
33. It was on an overall consideration of the above, that it ultimately came to conclude that the transaction was entered into with an intent to derive benefits from the DTAA in a manner which was never intended by the two contracting States and that consequently clause (iii) of the Proviso to Section 245R(2) would be attracted. It was on the aforesaid basis that the applications of the present petitioner as well as TG III and TG IV came to be rejected.
D. SUBMISSIONS OF THE PETITIONERS
34. Appearing for the writ petitioners, Mr. Kaka, learned senior counsel submitted that Article 13(4) of the DTAA exempts all residents of Mauritius from capital gains tax that may accrue or arise in India. It was Mr. Kaka’s submission that the term ‘resident’ would clearly be guided by the CBDT Circulars as well as the concept of TRCs’ which came to be adopted in the Convention. Mr. Kaka firstly drew our attention to CBDT Circular No. 789 dated 13 April 2000 and which reads as follows:
“734. Clarification regarding taxation of income from dividends and capital gains under the Indo-Mauritius Double Tax Avoidance Convention (DTAC)
1. The provisions of the Indo-Mauritius DTAC of 1983 apply to ‘residents’ of both India and Mauritius. Article 4 of the 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 Mauritius Tax law and are, therefore, to be considered as residents of Mauritius in accordance with the DTAC.
2. 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 the DTAC, 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 Mauritius resident. Under the Income-tax Act, 1961, tax was deductible at source at the rates specified under section 115A, 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 the