Tiger Global International Iii Holdings v. 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. 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 ..... Respondents Through: Mr. G. C. Srivastava, Spl. Counsel with Mr. Kalrav Mehrotra and Mr. Mayank Patawani, Advs. 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. 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 Signature Not Verified Digitally SignedW.P.(C) 6764/2020 & other connected matters By:KAMLESH KUMARSigning Date:28.08.202419:21:23By:KAMLESH KUMARSigning Date:28.08.202419:21:23 Page 1 of 224 Ujjainwal, Advs. versus THE AUTHORITY FOR ADVANCE RULINGS( INCOME-TAX) & ORS. ..... Respondents ..... Respondents Through: Mr. G. C. Srivastava, Spl. Counsel with Mr. Kalrav Mehrotra and Mr. Mayank Patawani, Advs. 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 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 ..... Respondents Through: Mr. G. C. Srivastava, Spl. Counsel with Mr. Kalrav Mehrotra and Mr. Mayank Patawani, Advs. Mr. Chetan Sharma, ASG Signature Not Verified 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 VARMAHON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV J U D G M E N T YASHWANT VARMA, J. Signature Not Verified A.INTRODUCTION 1.These three writ petitions impugn the order dated 26 March 2020 of the Authority for Advanced Rulings[1] 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, 1961[2]. 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 1 AAR 2 Act Signature Not Verified Digitally SignedW.P.(C) 6764/2020 & other connected matters By:KAMLESH KUMARSigning Date:28.08.202419:21:23By:KAMLESH KUMARSigning Date:28.08.202419:21:23 1 AAR 2 Act Signature Not Verified Digitally SignedW.P.(C) 6764/2020 & other connected matters By:KAMLESH KUMARSigning Date:28.08.202419:21:23By:KAMLESH KUMARSigning Date:28.08.202419:21:23 benefits of the Double Tax Avoidance Agreement[3] 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-MauritiusDTAA 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 13had 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 3 DTAA Signature Not Verified 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 LLC[4], 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 1Global Business License[5] and is also a tax resident of Mauritius. In evidence of the aforesaid, the petitioners have also placed on the record the Tax Residence Certificate[6] issued by the Mauritius revenue authorities dated 22 June 2018. The activities of the petitioner are regulated by the Financial Services Commission[7]of Mauritius. 6.As per the Constitution of the petitioner, the management of the 4 TGM LLC 5 Category 1- GBL 6 TRC 7 FSC Signature Not Verified company is vested in its Board of Directors[8] and which is in turn empowered to delegate such of its powers as it may deem necessary to a Director, a Committee of Directors[9] 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. 6.As per the Constitution of the petitioner, the management of the 4 TGM LLC 5 Category 1- GBL 6 TRC 7 FSC Signature Not Verified company is vested in its Board of Directors[8] and which is in turn empowered to delegate such of its powers as it may deem necessary to a Director, a Committee of Directors[9] 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 Holdings[10], Tiger Global Six Parent Holdings[11], Tiger Global Seven Parent Holdings[12], Tiger Global Eight Holdings[13] and Tiger Global Principals[14]. 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 PurposeTiger 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 8 BoD 9 CoD 10 TG Five Holdings 11 TG Six Holdings 12 TG Seven Holdings 13 TG Eight Holdings 14 TG Principals Signature Not Verified 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. 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. Signature Not Verified 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 Year[15] 2018-19. 10.As was noticed hereinabove, it was by virtue of Paragraph (3A) and its insertion in Article 13that 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. 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. 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. 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. 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. 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 paragraph 3A of this Article and arising during the period 15 A.Y. Signature Not Verified [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. 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. 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 paragraph 3A of this Article and arising during the period 15 A.Y. Signature Not Verified beginning on 1st April, 2017 and ending on 31[st] 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.] 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.‖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 Benefits[16] 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 Rules[17] under Indian domestic tax laws. The relevant section of the Notes to the Financial Statement and which 16 LOB 17 GAAR Signature Not Verified 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. 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 Rules[17] under Indian domestic tax laws. The relevant section of the Notes to the Financial Statement and which 16 LOB 17 GAAR Signature Not Verified 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 Signature Not Verified 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: 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: 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 Agreement[18] came to be executed between Walmart International Holdings, Inc., a DelawareCorporation, which was described as the ‗purchaser‘ and the 18 SPA Signature Not Verified 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 Holdings[19][the petitioner in W.P.(C) 6764/2020], Tiger Global International IV Holdings[20][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:- 19 TG III 20 TG IV Signature Not Verified International IV Holdings, Mauritius 15.The number of shares sold and gross consideration received was additionally captured in the following table:- 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. 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 Signature Not Verified Page 14 of 224 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 Signature Not Verified 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. 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)-4[21]. 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 21 CIT (International Taxation) Signature Not Verified Signature Not Verified 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. 7.5 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 Signature Not Verified 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 10.3BENEFICIAL 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 10.5COMPANY 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 AARin 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:- Signature Not Verified 19.02.2019 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 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. xxxx xxxx xxxx 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. xxxx xxxx xxxx 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 Signature Not Verified xxxx xxxx xxxx 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 Signature Not Verified its registered office in Mauritius and obtains secretarial and support services from Mauritius bas