Wp/713/2021 Of Bid Services Division (Mauritius) Limited v. Authority For Advance Ruling (Income Tax) And 4 Ors

WP-713-2021-J.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 713 OF 2021 Bid Services Division (Mauritius) Limited)Presently having its office at Level 9, )Tower B, 1 Cybercity, Ebene, Muritius)PAN No. )...Petitioner V/s. 1. Authority for Advance Ruling (Income Tax) )Mumbai Bench, Having it’s office at 5[th] Floor )Hoechst House, 193, V.K. Shah Marg, )Nariman Point, Mumbai-400 021.))2. Assessing Officer of the Petitioner)Assistant Commissioner of Income Taxation)(International Taxation) - 1(1)(2), E-2 Block,)Dr. S.P. Mukherjee Civic Centre, Minto Road,)New Delhi-110 002))3. Director of Income Tax (International )Taxation)-1, New Delhi, 4[th] Floor, Block )E-2 Tower, Civic Centre, New Delhi-110 002))4. Director/Commissioner of Income Tax)(International Taxation & Transfer Pricing), )Hyderabad, Room No. 412, 4[th] Floor, A Block, )IT Towers, A.C. Guards, Hyderabad-4.))5. Union of India )Ministry of Finance, Department of Revenue )Room No. 46, North Block, New Delhi-110 001)...Respondents 1 of 82 WP-713-2021-J.doc Mr. P. J. Pardiwalla, Senior Advocate with Ms. Aarti Sathe and Ms.Aasavari Kadam for Petitioner. Mr. Suresh Kumar, for Respondents. CORAM :DHIRAJ SINGH THAKUR &ABHAY AHUJA, JJ. PRONOUNCED ON :8[th] MARCH 2023 JUDGMENT: 1. By this Petition, Petitioner challenges ruling dated 10[th]February, 2020 denying the benefit of the Mauritius Double TaxationAvoidance Agreement (the “ Mauritius DTAA”) to the Petitioner. 2. Petitioner, a private limited company incorporated under the laws of the Republic of Mauritius on 23[rd] August, 2005, is a whollyowned subsidiary of Bid Services Division (Proprietary) Limited,South Africa the ultimate holding company being the Bidvest GroupLimited in South Africa (“Bidvest”). The Petitioner is holder ofCategory-I Global Business Licence issued by the Finance ServicesCommission, Mauritius as well as a valid Tax Residency Certificate 2 of 82 WP-713-2021-J.doc (“TRC”) issued by the Mauritius Revenue Authority certifying thatthe Petitioner is a tax resident of Mauritius and is entitled to availthe benefits of the Mauritius DTAA. The Petitioner files its corporatetax returns in Mauritius and is a non-resident under the provisions ofthe Income Tax Act, 1961. The Petitioner does not have anypermanent establishment/fixed place of business nor any businessconnection/operations in India. 3.Pursuant to the Government’s approval of restructuring andmodernisation of the Delhi and Mumbai airports, the AAI issued aninvitation to Register Expression of Interest (“ITREOI”) on 17[th]February, 2004 which set out the requirements to be satisfied by theinterested parties in order to participate in the internationalcompetitive bidding process. 4. In response, the GVK-SA Consortium consisting of GVKIndustries Ltd. and SA Airport Operators (SA Airport Operators is ajoint venture of Airports Company South Africa Limited (ACSA), Old 3 of 82 WP-713-2021-J.doc 3.Pursuant to the Government’s approval of restructuring andmodernisation of the Delhi and Mumbai airports, the AAI issued aninvitation to Register Expression of Interest (“ITREOI”) on 17[th]February, 2004 which set out the requirements to be satisfied by theinterested parties in order to participate in the internationalcompetitive bidding process. 4. In response, the GVK-SA Consortium consisting of GVKIndustries Ltd. and SA Airport Operators (SA Airport Operators is ajoint venture of Airports Company South Africa Limited (ACSA), Old 3 of 82 WP-713-2021-J.doc Mutual Life Assurance Company South Africa Limited and the1Bidvest Group Limited (BidVest)) filed their expression of intereston 20[th] July, 2004, with the AAI for both the Mumbai and Delhiairports. Bidvest is one of the parties to the joint venture which inturn is a part of the Consortium. Subsequently, the AAI issued aRequest for Proposal (“RFP”) document to the pre-qualified bidderson 1[st] April, 2005. It is submitted in the Petition that the Consortiumaddressed various letters dated 24[th] May, 2005, 3[rd] June, 2005, 7[th]July, 2005 and 12[th] July, 2005, to the AAI seeking clarification toconfirm the proposed change in the consortium structure. It is alsosubmitted that Bidvest informed AAI vide letter dated 9[th]September, 2005 that BSDM would hold 27% of the total sharecapital of the Joint Venture Company (the “JVC”) if the Consortiumwas selected as the successful bidder. The Consortium submitted thetechnical and financial bid to the AAI providing complete details asrequired by the RFP on 12[th] September, 2005. The AAI inconsultation with the Ministry of Civil Aviation, Government of India 1It was also stated in the EOI that the final holdings of the three SA Airport Operators’ memberswould be finalized once the requirement of the RFP is issued but in any event ACSA’s holding wouldnot be less than 10%.would be finalized once the requirement of the RFP is issued but in any event ACSA’s holding wouldnot be less than 10%. WP-713-2021-J.doc (“GOI”) sent a letter dated 4[th] February, 2006 selecting theConsortium as the successful bidder for modernisation anddevelopment of the Mumbai airport (the “Project”). Subsequently,Mumbai International Airport Limited (“MIAL”) was incorporated on2[nd] March, 2006. 5.The Consortium agreement dated 2[nd] April, 2006 was enteredinto to record their respective interse rights and obligations inrelation to the management and functioning of the Consortium vis-a-vis the JVC, wherein the Petitioner was a party. On 4[th] April, 2006,the AAI also entered into an Operation, Management andDevelopment Agreement (the “OMDA”) and on the same dayshareholders agreement was entered into between AAI, MIAL andthe prime members i.e. GVK Airport Holdings Pvt. Ltd. (“GAHPL”),Petitioner and AGL, which recorded the terms and conditions thatgovern their relationship as the shareholders of the JVC and recordedtheir respective rights and obligations. Under the shareholdersagreement, the Petitioner agreed to subscribe and acquire 27% of 5 of 82 the total issued and paid up share capital of MIAL. This 27% sharecapital of MIAL comprised of 216,000,000/- shares, which wasacquired in five tranches between the years 2006 and 2012 by thePetitioner as follows:- 6.The balance equity shares in MIAL are subscribed to by GAHPL (37%), AGL (10%) and AAI (26%) respectively. 7.The Board of Directors of the Petitioner vide board meetings held on 20[th] February, 2011 and 28[th] February, 2011 in Mauritiusdecided to transfer the shares to GAHPL. 6 of 82 WP-713-2021-J.doc 5 of 82 the total issued and paid up share capital of MIAL. This 27% sharecapital of MIAL comprised of 216,000,000/- shares, which wasacquired in five tranches between the years 2006 and 2012 by thePetitioner as follows:- 6.The balance equity shares in MIAL are subscribed to by GAHPL (37%), AGL (10%) and AAI (26%) respectively. 7.The Board of Directors of the Petitioner vide board meetings held on 20[th] February, 2011 and 28[th] February, 2011 in Mauritiusdecided to transfer the shares to GAHPL. 6 of 82 WP-713-2021-J.doc 8.On 1[st] March, 2011, the Petitioner entered into a SharePurchase Agreement (“SPA”) alongwith subsequent addendums withGAHPL and GVK Industries Limited, both of which are companiesincorporated under the Companies Act, 1956, whereby the Petitioneragreed to sell and transfer to GAHPL and GAHPL agreed to purchaseand acquire from the Petitioner the shares constituting 13.5% of thetotal paid up share capital, comprising of 108,000,000 shares ofMIAL for the purchase price of USD 287,222,000. The shareholdingpost divestment of stake in MIAL by the Petitioner would be asunder:- WP-713-2021-J.doc 9. On 18[th] April, 2011, Petitioner made an application underSection 197(1) of the Act to the Assistant Director of Income TaxCircle-1(1) (International Taxation), New Delhi for obtaining a “Nil”withholding tax certificate and was issued a certificate dated 20[th]May, 2011, authorising GAHPL to make payment/remittance of USD287,222,000 to the Petitioner for the transfer of shares withoutdeduction of any tax at source under Section 195 of the Act. 10. Subsequently, vide 9[th] addendum to the SPA dated 3[rd] October,2011, the sales consideration for the sale and purchase of theabovementioned offered shares was reduced to US$ 231,000,000due to change in payment mechanism and other changes to waivecertain procedural aspects and payment was to be done upfrontwhich was duly communicated to the concerned tax authorities videletter dated 5[th] October, 2011 filed with Assistant Director of IncomeTax (International Taxation) Circle-1(1), New Delhi intimating thechange in the sale consideration and enclosing a copy of the 9[th]Addendum to the SPA respectively. 8 of 82 WP-713-2021-J.doc 11.The said transfer of shares was completed in the financial yeari.e. 2011-2012. 12.On 10[th] February, 2012, Petitioner filed an application underSection 245Q(1) before Respondent no.1 to determine thecorrectness of its belief that the capital gains that arose in the handsof the Petitioner by virtue of the sale of shares held by it in MIALhaving regard to the provisions of the India-Mauritius DTAA wouldnot be taxable in India. The Petitioner raised the following questionfor determination before Respondent: “Whether on the facts and circumstances of the case, thegains arising from the transaction from sale of shares, tobe effected pursuant to the share purchase agreementdated 1[st] March, 2011, held by the Petitioner in MumbaiInternational Airport Pvt. Ltd would be liable to tax inIndia having regard to the provisions of Art 13 (4) of theIndia-Mauritius Double Taxation Avoidance Agreement?” 13. By letter dated 5[th] January, 2015, the office of the Respondentno. 4 objected to the admission of the application filed by thePetitioner before Respondent No.1, inter alia on the followinggrounds: 9 of 82 WP-713-2021-J.doc a) It was alleged that at the time of bidding for thepurposes of the modernisation and development ofMumbai airport, the parent company, of the Petitioneri.e. Bidvest was a part of the Consortium and not thePetitioner. It was also submitted that the technical andfinancial bid filed by the Consortium had taken intoaccount the technical expertise and competence of theconstituents of the Consortium including that of theSouth African parent company of the Petitioner. 13. By letter dated 5[th] January, 2015, the office of the Respondentno. 4 objected to the admission of the application filed by thePetitioner before Respondent No.1, inter alia on the followinggrounds: 9 of 82 WP-713-2021-J.doc a) It was alleged that at the time of bidding for thepurposes of the modernisation and development ofMumbai airport, the parent company, of the Petitioneri.e. Bidvest was a part of the Consortium and not thePetitioner. It was also submitted that the technical andfinancial bid filed by the Consortium had taken intoaccount the technical expertise and competence of theconstituents of the Consortium including that of theSouth African parent company of the Petitioner. b) It was also submitted that the Petitioner was not inexistence when the EOI was filed by the Consortium inJuly, 2004 and it came in existence only in August, 2005.It was further submitted that only after the successful bidwas given in favour of the Consortium that the Petitionerwas brought into the Consortium in place of their parentcompany, Bidvest. It was therefore submitted that therewas no economic/commercial purpose for makinginvestment in the name of the Mauritian Group Entity,i.e. the Petitioner except for avoidance of tax in India asthe Petitioner wanted to take the benefit of the MauritiusDTAA provisions for any subsequent divestment of theirinvestment in the JVC. Several other objections were alsomade to oppose the admission of the aforesaidapplication and it was alleged that the entire transactionwas designed prima facie for tax avoidance as per Clause(iii) of proviso to Section 245R (2) of the Act. 14. That, in response to the objections filed by the department, thePetitioner vide its letter dated 25[th] February, 2015 filed its detailedresponse as under : 10 of 82 WP-713-2021-J.doc “a. In respect of substituting the Petitioner instead of theSouth African entity, the Petitioner submitted as follows:-“After shortlisting of the Consortium as pre-qualifiedbidders, on 1[st] April, 2005 the AAI issued RFP document.In response to the RFP document, in September, 2005the Consortium submitted its offer, i.e. Technical andFinancial Bid for Mumbai Airport. The ownershipstructure in the Technical and Financial bid clearlymentioned the facts that GAHPL, ACSA Global and BSDMshall hold 37%, 10% and 27% respectively in the JVCwhile the remaining 26% will be held by AAI. This fact isfurther supported by the following documents, whichform a part of the Technical and Financial bid:- Proposed shareholding pattern in MIAL -Board resolution passed by BSDM for submission of a bid and financial offer as part of the Consortium. -Complete details of bidders and other parties such asplace of incorporation, registered officer address, directordetails, etc. -Statement confirming no liquidation /receivership and Solvency of BSDM issued by Standard Bank TrustCompany (Mauritius) Limited. -Category 1 Global Business License issued by Financial Services Commission. -Certificate of Incorporation of Bid Services Division Mauritius Limited.the total share capital of proposed JVC. -Equity commitment from BSDM that it will hold 27% of Further, it is also pertinent to note that the Ministry ofCivil Aviation, Government of India and AAI which is astatutory body incorporated under an act of Parliamenti.e. Airport Authority of India Act, 1994 has thoroughlyevaluated the Technical and Financial Bid documentscontaining the structure details of Bidvest and only thenthe Consortium was eventually declared as the successfulbidder for the Mumbai Airport vide its letter dated 2[nd] b. In respect of investing through the Petitioner allegedlyfor the purposes of avoiding tax, it was submitted asfollows; -Bidvest is engaged into various business lines and has over 300 subsidiaries (direct plus indirect) spanning over5 continents. -It is a general commercial practice on the part of any -Equity commitment from BSDM that it will hold 27% of Further, it is also pertinent to note that the Ministry ofCivil Aviation, Government of India and AAI which is astatutory body incorporated under an act of Parliamenti.e. Airport Authority of India Act, 1994 has thoroughlyevaluated the Technical and Financial Bid documentscontaining the structure details of Bidvest and only thenthe Consortium was eventually declared as the successfulbidder for the Mumbai Airport vide its letter dated 2[nd] b. In respect of investing through the Petitioner allegedlyfor the purposes of avoiding tax, it was submitted asfollows; -Bidvest is engaged into various business lines and has over 300 subsidiaries (direct plus indirect) spanning over5 continents. -It is a general commercial practice on the part of any ultimate holding company of a group of companies to bidfor projects in its own name so as to highlight thefinancial and technical competency of the group as awhole. However, while routing its investments in variousprojects, separate companies are formed which incommercial parlance is termed as Special PurposeVehicles (SPVs). -SPVs are formed for commercial reasons as such for hedging business, political and economic risk of acountry, mobility of investments, ability to raise loansfrom diverse investments, valuation from growthperspective and tapping global funds for listing purposes,facilitate specialisation and undivided attention on theproject in hand. Hence, ease of doing business andsupportive business environment is an importantcriterion in determining the jurisdiction of setting up ofsuch SPVs. c. In respect of increase of value of shares by merely tentimes within a short span of less than six months fromthe date of last tranche of the investment, it wassubmitted as follows: “-as required under the RFP and as agreed by theConsortium members under the Technical and FinancialBid which was binding in nature, the Consortiummembers were required to und for the first seven yearsby way of equity bank guarantee provided by the 12 of 82 Consortium members. Hence, towards its share of equitycommitment, BSDM made regular equity infusion intoMIAL during the yer 2006-2012 whenever the equitycash calls were made by MIAL. -The consideration for the transfer was arrived aftertaking into account the valuation of the business of MIALusing appropriate valuation method” d. In respect of observation of Respondent No.4 inparagraph 1(i) and (ii) of letter dated 5[th] January, 2015it was submitted as follows:- -“Government of India had undertaken restructuring andmodernisation of Mumbai airport with the key objectivesof world class development, expansion and managementof the Airport. The JVC had to ensure the timelyprovision of high quality airport infrastructure. -The selection of the Consortium by the Ministry of CivilAviation/AAI largely depended upon the past credentialswith regard to successful completion of similar airportprojects worldwide, operational expertise, managerialand financial capabilities, financial commitments andcommitment to provide quality airport services. Theobjective and requirement were clearly mentioned in theRFP issued by AAI. -ACSA and Bidvest had requisite technical andmanagement expertise in airport development andoperation. Conversely, on an independent evaluationGVK did not meet the qualification criteria mentioned inthe RFP. -Therefore, in order to meet the criterion laid down byAAI, GVK, Bidvest and ACSA collectively as a Consortiumoffered their bid to AAI bringing technical and financialcapabilities together on the basis of which they were ableto win the bid. WP-713-2021-J.doc e. The Petitioner also relied upon the decisions of AzadiBachao Andolan reported in (2003) 132 Taxmann 373(SC), D.B.Zwrin Mauritius Trading No.3 Limited (AARNo.878/2010) -ACSA and Bidvest had requisite technical andmanagement expertise in airport development andoperation. Conversely, on an independent evaluationGVK did not meet the qualification criteria mentioned inthe RFP. -Therefore, in order to meet the criterion laid down byAAI, GVK, Bidvest and ACSA collectively as a Consortiumoffered their bid to AAI bringing technical and financialcapabilities together on the basis of which they were ableto win the bid. WP-713-2021-J.doc e. The Petitioner also relied upon the decisions of AzadiBachao Andolan reported in (2003) 132 Taxmann 373(SC), D.B.Zwrin Mauritius Trading No.3 Limited (AARNo.878/2010) f. The Petitioner therefore submitted that in view of theabove factual and legal position, the application filed bythe Petitioner before Respondent No. 1 deserved to beadmitted.” 15. That Petitioner attended the hearing on 25[th] February, 2015,wherein the Petitioner once again reiterated the above submissionsand once again prayed that the application be admitted byRespondent No.1. The matter was adjourned to a further date on therequest of the office of the Respondent No.4. By letter dated 27[[th]] March 2015 addressed through their 16. By letter dated 27[[th]] March 2015 addressed through theirauthorised representatives to Respondent no.1, the Petitionersubmitted that the contention of the department with regard tosubstitution of Bidvest by the Petitioner was incorrect and they onceagain filed a letter dated 25[th] February 2015 along with theannexures reiterating the correct facts in respect thereof. They alsosubmitted that they had repeatedly, during the course of various 14 of 82 WP-713-2021-J.doc hearings before Respondent no.1, submitted that the additionaldetails sought for by the office of the Respondent no.4 were notrelevant for the purpose of determining whether the application filedby the Petitioner should be admitted in terms of Section 245R(2) ofthe Act. They further submitted that most of the details sought for bythe Respondent no.4 were already there before the Respondent no.1and there was no requirement to file any additional details /documents. 17.Respondent no.4 submitted their reply on 16[th] April 2015 onthe admissibility under Section 245R(2) of the Act beforeRespondent no.1.the admissibility under Section 245R(2) of the Act beforeRespondent no.1. 18.Vide letter dated 15[th] July 2015 Petitioner through theirauthorised representative submitted their paragraph wise reply to theaforesaid final report. The matter was heard on 27[th] July 2015 andthe application filed by the Petitioner was admitted. 15 of 82 WP-713-2021-J.doc 19.As the office of Respondent no.1 fell vacant in the year 2015,the matter was refixed in January 2007 whereafter various Bencheswere set up in the cities including Mumbai to which BenchPetitioner’s matter was transferred. Thereafter again, the office ofAAR fell vacant post February 2018 and the matters were refixed forhearing in May 2018 when the Bench was constituted again. Thematter came up for hearing on 16[th] July 2019. During this period,once again, some more documents were requested for from thePetitioner, which the Petitioner supplied. Thereafter, Respondentno.4 filed a final report with the following contentions : 15 of 82 WP-713-2021-J.doc 19.As the office of Respondent no.1 fell vacant in the year 2015,the matter was refixed in January 2007 whereafter various Bencheswere set up in the cities including Mumbai to which BenchPetitioner’s matter was transferred. Thereafter again, the office ofAAR fell vacant post February 2018 and the matters were refixed forhearing in May 2018 when the Bench was constituted again. Thematter came up for hearing on 16[th] July 2019. During this period,once again, some more documents were requested for from thePetitioner, which the Petitioner supplied. Thereafter, Respondentno.4 filed a final report with the following contentions : “(i)The GVK – SA Consortium did not include the BSDMas one of the members during the entire Stage 1 andfor most part of the Stage 2 of bidding process i.e.issue of ITREOI by AAI, filing of EOI by the GVK-SAConsortium, shortlisting of prequalified bidders by AAI,issue of RFP to prequalified bidders by AAI, airportvisits and sight inspection by prequalified bidders,discussions with the government agencies byprequalified bidders etc., but was brought in justbefore the filing of the Technical and Financial Bid atthe far end of the Stage 2 of the bidding process.Infact, the entity BSDM was not even in existenceduring Stage 1 and for most part of Stage 2 of thebidding process. It was incorporated just two weeksprior to the submission of binding bid by GVK-SAConsortium.as one of the members during the entire Stage 1 andfor most part of the Stage 2 of bidding process i.e.issue of ITREOI by AAI, filing of EOI by the GVK-SAConsortium, shortlisting of prequalified bidders by AAI,issue of RFP to prequalified bidders by AAI, airportvisits and sight inspection by prequalified bidders,discussions with the government agencies byprequalified bidders etc., but was brought in justbefore the filing of the Technical and Financial Bid atthe far end of the Stage 2 of the bidding process.Infact, the entity BSDM was not even in existenceduring Stage 1 and for most part of Stage 2 of thebidding process. It was incorporated just two weeksprior to the submission of binding bid by GVK-SAConsortium. 16 of 82 WP-713-2021-J.doc (ii)No prior approval of the AAI was taken by theConsortium regarding constitution of Bidvest with anyother entity at any stage before the submission of theTechnical and Financial Bid, which was therequirement as per paragraph 6.4 of the REF andparagraph 6.1 of the ITREOI.Consortium regarding constitution of Bidvest with anyother entity at any stage before the submission of theTechnical and Financial Bid, which was therequirement as per paragraph 6.4 of the REF andparagraph 6.1 of the ITREOI. (iii)If the Bidvest group wanted an SPV to undertake theproject efficiently, commercial and business senseindicates that Mumbai or South Africa would havebeen the best alternatives but not some third taxjurisdiction like Mauritius. The only advantage thejurisdiction of BSDM, a Mauritian entity, in theConsortium lacked commercial substance and bonafidebusiness purpose but was a clear design to avoidpaying legitimate tax to the Indian Government, as it isa tax avoidance scheme. The Mauritius entity needs tobe overlooked and the Indian-South Africa DTAAbrought in, thereby making the capital gains taxable inIndia.project efficiently, commercial and business senseindicates that Mumbai or South Africa would havebeen the best alternatives but not some third taxjurisdiction like Mauritius. The only advantage thejurisdiction of BSDM, a Mauritian entity, in theConsortium lacked commercial substance and bonafidebusiness purpose but was a clear design to avoidpaying legitimate tax to the Indian Government, as it isa tax avoidance scheme. The Mauritius entity needs tobe overlooked and the Indian-South Africa DTAAbrought in, thereby making the capital gains taxable inIndia. (iv)As per the provisions Section 93 of the Act, the capitalgains arising out of the same of 13.5% equity stake inMIAL by BSDM to GAHPL is deemed to be the incomein the hands of the ultimate holding company of BSDMi.e. Bidvest. As per the provisions of the Indian IncomeTax Act, 1961 and as per the provisions of Article13(4) of the DTAA between India and South Africa,this income is chargeable to tax in India.”gains arising out of the same of 13.5% equity stake inMIAL by BSDM to GAHPL is deemed to be the incomein the hands of the ultimate holding company of BSDMi.e. Bidvest. As per the provisions of the Indian IncomeTax Act, 1961 and as per the provisions of Article13(4) of the DTAA between India and South Africa,this income is chargeable to tax in India.” 20.The matter was finally heard on 22[nd] August 2019 beforeRespondent no.1, whereat, the Petitioner reiterated the submissionsmade by the Petitioner regarding the non-taxability of the gain 17 of 82 WP-713-2021-J.doc arising from the transaction of sale of the shares, effected pursuantto the SPA dated 1[st] March 2011 held by the Petitioner in MIALhaving regard to the provisions of Article 13(4) of the MauritiusDTAA. 21.Pursuant to the hearing, the submissions made by thePetitioner at the time of hearing were summarized by the Petitionerby way of written submissions dated 4[th] September 2019 and filed bythe Petitioner before Respondent no.1. 22.Mr. Pardiwala, learned Senior Counsel for the Petitioner,would submit that on the basis of the ITREOI, EOI and RFP it wasclear that the AAI had permitted use of the special purpose vehiclestructured for the purposes of submitting the technical and financialbid as well as for holding shares in the MIAL. He would submit thatthe technical and financial bid submitted by the Consortium gave theshare holding pattern in the proposed joint venture company whichcontained the name of Petitioner as one of the parties that wouldhold direct interest in the proposed joint venture company. Learned 18 of 82 WP-713-2021-J.doc Counsel would submit that the bid listed out the financial andtechnical capabilities of the Petitioner with specific reference to thedefinition of prime member and evaluated entity as contained in theRFP. Learned Senior Counsel would submit that therefore Petitioneris neither a shell nor a conduit nor an entity interposed as a device toevade taxes in India. 23.Mr. Pardiwala has also drawn the attention of this Court to theprovisions of Section 90(2) of the Act as well as Article 13(4) of theMauritius DTAA to emphasize that the gains arising from thetransaction of sale of shares effected pursuant to the Share PurchaseAgreement dated 1[st] March 2011 held by the Petitioner in MIALwould not be liable to tax in India. Learned Senior Counsel wouldsubmit that since Petitioner is incorporated in Mauritius, it is liable totax in Mauritius. He submits that, besides, Petitioner held Category1 Global Business License and also a valid TRC issued by theMauritian Authorities establishing the fact that it was a tax residentof Mauritius and would be entitled to the beneficial provisions of theMauritius DTAA. 19 of 82 WP-713-2021-J.doc 24.Learned Senior Counsel has also drawn the attention of thisCourt to Circular No.682 dated 30[th] March 1994 issued by theCentral Board of Direct Taxes (“CBDT”) which mentions that capitalgains arising to a resident of Mauritius on transfer of shares in anIndian company would be liable to tax only in Mauritius. 19 of 82 WP-713-2021-J.doc 24.Learned Senior Counsel has also drawn the attention of thisCourt to Circular No.682 dated 30[th] March 1994 issued by theCentral Board of Direct Taxes (“CBDT”) which mentions that capitalgains arising to a resident of Mauritius on transfer of shares in anIndian company would be liable to tax only in Mauritius. 25.Learned Senior Counsel has further placed reliance uponCircular No.789 dated 13[th] April 2000 issued by the CBDT whichclarifies that companies which are resident in Mauritius would not betaxable in India on income from capital gains arising in India on thesale of shares as per Article 13(4) of the Mauritius DTAA. He furthersubmits that the said circular also clarifies that wherever a certificateof residence is issued by the Mauritian authorities such certificatewill constitute sufficient evidence for accepting the status ofresidence as well as beneficial ownership for applying the doubletaxation avoidance convention. Learned Senior Counsel has alsorelied upon Press Release dated 1[st] March, 2013 with respect to theTRC. Learned Senior Counsel relies upon the decision of Union of 20 of 82 WP-713-2021-J.doc India & Anr. v. Azadi Bachao Andolan and Anr.2 in support of hiscontentions. Learned Senior Counsel also refer to the decision in thecase of Vodafone International Holding B.V. v. Union of India3 reliedupon by the Revenue as well as the Authority and would submit thatthe decision of Vodafone International Holding B.V. v. Union of India(supra) would in fact support the case of the Petitioner. LearnedSenior Counsel would submit thatVodafone International HoldingB.V. v. Union of India (supra) read as a whole leads to a conclusionthat the Ruling is completely contrary to the principles affirmedtherein. He would submit that the allegation of interposing Petitionerfor tax evasion has only been raised at the time of sale of the sharesand not earlier. With respect to the observations that incorporationof Petitioner lacked economic /commercial rationale, learned SeniorCounsel drew the attention of this Court to paragraph 4.3 of thewritten submissions and to the decision in the case of VodafoneInternational Holding B.V. v. Union of India (supra). Mr. Pardiwalawould submit that nowhere the impugned Ruling establishes taxevasion. No material has been brought on record to demonstrate the 2[2003] 263 ITR 706 (SC)3[2012] 341 ITR 1 (SC)3[2012] 341 ITR 1 (SC) WP-713-2021-J.doc same. Learned Senior Counsel would submit that only paragraph 98of the decision in the case of Vodafone International Holding B.V. v.Union of India (supra) has been quoted by the Authority whereasparagraph 97 of the said decision has been conveniently omitted.Learned Senior Counsel takes us to the said paragraph to make hispoint that paragraph 97 upholds Circular 789 on residence andbeneficial ownership in the absence of Limitation of Benefits (LOB)clause, which is admittedly not applicable in the present case asArticle 27A to the Mauritius DTAA was inserted with effect from 1[st]July 2017 whereas the sale transaction pertains to Financial Year2011-2012. Learned Senior Counsel would therefore submit that theTreaty benefit should have been given to Petitioner. Learned SeniorCounsel also refers to Press Release dated 29[th] August, 2016 by theCBDT and submits that investments made before 1[st] April, 2017 havebeen grandfathered and will not be subject to capital gains taxationin India. 26. Learned Senior Counsel would submit that surprisingly,Respondent no.1-Authority did not accept the contentions raised on WP-713-2021-J.doc 26. Learned Senior Counsel would submit that surprisingly,Respondent no.1-Authority did not accept the contentions raised on WP-713-2021-J.doc behalf of the Petitioner regarding the non-taxability of the gainarising from the transaction of sale of shares to be effected pursuantto the SPA dated 1[st] March, 2011 held by the Petitioner in MIAL, byvirtue of Article 13(4) of the Mauritius DTAA and passed rulingdated 10[th] February, 2020 rejecting the contentions raised by thePetitioner holding that the Petitioner is not entitled to the benefitsunder Article 13(4) of the Mauritius DTAA. 27.Aggrieved by the aforesaid Ruling, Petitioner has filed thisPetition for the following principal reliefs: (a) That this Hon’ble Court may please to issue a Writ ofCertiorari or a writ in the nature of Certiorari or any otherappropriate writ, order or direction, calling for the recordsof the Petitioner’s case and after going into the legality andpropriety thereof, to quash and set aside the impugnedruling dated 10[th] February 2020; (b) That this Hon’ble Court may please to issue a Writ ofMandamus or a writ in the nature of Mandamus or anyother appropriate writ, order or direction, directing theRespondent no.1 to rule that the gain arising on the sale ofshares of MIAL to GAHPL would not be chargeable to tax inIndia having regard to the provisions of Article 13(4) of theMauritius DTAA. 23 of 82 WP-713-2021-J.doc 28.Mr. Suresh Kumar, learned standing Counsel for theRespondents supports the impugned Ruling and submits that thetransaction by the Petitioner is sham and bogus. He would submitthat entire structure of incorporation of Petitioner and Petitioner’sintroduction is a device to avoid taxation. Learned Counsel refers tothe Affidavit-in-reply dated 5[th] May 2022 filed on behalf of theRespondents in support of his contentions. Mr. Suresh Kumar readsthrough the impugned decision and submits that interposing anentity for taking benefit of a tax treaty, even from the beginning, isnot permitted. Learned Counsel refers to paragraph 59 of theimpugned decision and submits that the Petitioner is a shell and asham. It has no employees, no assets. He would submit that it is adevice only interposed for taking tax benefit under the MauritiusDTAA and to evade taxes in India. Learned Counsel refers toparagraph 67 of the impugned Ruling. Learned Counsel also drawsthe attention of the Court to paragraphs 66 and 67 of the judgmentin the case of Vodafone International Holding B.V. v. Union of India(supra). He would submit that in jurisdiction under Article 226 this 24 of 82 WP-713-2021-J.doc Court cannot review the view taken by an authority. LearnedStanding Counsel, therefore, submits that the Petition ought to bedismissed. 29. We have heard Mr. Pardiwalla, learned Senior Counsel for thePetitioner and Mr. Suresh Kumar, learned standing Counsel for theRespondents and with their able assistance we have perused thepapers and proceedings and have considered the rival contentions. 30.Before proceeding further it would be appropriate to set forth the “Decision” in paragraphs No. 55 to 76 of the impugned Ruling as under:- “55. We have carefully considered the contentions ofthe applicant, arguments and objections of the Revenueand the response thereof the applicant. We have alsoperused the documents on record and the factual matrixof the case. The basic facts have been elaborated in thesubmissions of applicant and revenue above. 56. Applicant (in short BSDM) was incorporated inMauritius on 23-8-2005 i.e. two weeks beforesubmission of technical and financial bid by GVK – SAConsortium. When EOI was filed by the consortium on20-7-2004, the BSDM was not even in existence. Right 25 of 82 WP-713-2021-J.doc 30.Before proceeding further it would be appropriate to set forth the “Decision” in paragraphs No. 55 to 76 of the impugned Ruling as under:- “55. We have carefully considered the contentions ofthe applicant, arguments and objections of the Revenueand the response thereof the applicant. We have alsoperused the documents on record and the factual matrixof the case. The basic facts have been elaborated in thesubmissions of applicant and revenue above. 56. Applicant (in short BSDM) was incorporated inMauritius on 23-8-2005 i.e. two weeks beforesubmission of technical and financial bid by GVK – SAConsortium. When EOI was filed by the consortium on20-7-2004, the BSDM was not even in existence. Right 25 of 82 WP-713-2021-J.doc from issue of ITREOI, filing of EOI, shortlisting of pre-qualified bidders by AAI, issue of RFP to pre-qualifiedbidders, airport visits, site inspection and discussionswith Govt. agencies, etc., Bidvest was involved asmember of consortium. Only at Stage 2 of the biddingprocess, Bidvest was substituted by BSDM. It is also afact that no prior approval of AAI was obtained byconsortium at any stage before filing of technical andfinancial bid which was a requirement as per para 6.4 ofRFP and para 6.1 of ITREOI. The evaluated entities atpre-qualified bidding stage were GVK-ACSA and Bidvest.GVK is a major business group of India and Bidvest is aninternational investment holding company based inSouth Africa with investment in food service, trading,distribution, etc. Both these groups have financialmuscle and management capabilities to undertake suchproject. ACSA has necessary technical expertise andexperience in the field of operation and maintenance ofairport. The two business groups and ACSA completethe competences required to bid for the project. Theconsortium was declared as successful bidders by AAI on04-02-2006 based on financial and managementcapabilities and experience in air force management ofthe evaluated entities. 57. GVK group is based in India. The bid services groupis based in South Africa. The ACSA (in whichgovernment of South Africa has stake) is the onlytechnical expert in the consortium in the field of airportand maintenance is also based in South Africa. GVK,ACSA and Bidvest were the evaluated entities as pre-qualifying bidding stage. 58. Just ten days prior to filing of technical and financialbid in September, 2005, the applicant wasbrought in the consortium. After AAI declared GVK 26 of 82 WP-713-2021-J.doc consortium as successful bidder for undertaking themodernisation of Mumbai airport vide letter dated4.2.2006, the Mumbai International Airport Pvt. Ltd.(MIAL), the capital JV company was incorporated on2.6.2006. GAHPL, BSDM, AGL and AAI were designatedas prime members of the joint venture and ashareholder agreement between the four entities andMIAL was entered into on 4.4.2006. 58. Just ten days prior to filing of technical and financialbid in September, 2005, the applicant wasbrought in the consortium. After AAI declared GVK 26 of 82 WP-713-2021-J.doc consortium as successful bidder for undertaking themodernisation of Mumbai airport vide letter dated4.2.2006, the Mumbai International Airport Pvt. Ltd.(MIAL), the capital JV company was incorporated on2.6.2006. GAHPL, BSDM, AGL and AAI were designatedas prime members of the joint venture and ashareholder agreement between the four entities andMIAL was entered into on 4.4.2006. 59. The GVK group committed to provide 37% equity inthe JV through GAHPL and Bidvest group committed toprovide 27% equity funding required to be invested byBSDM, whereas capital ACSA committed 10% offunding through AGL. What in effect change is therouting of funds of Bidvest group through Mauritius.The other two groups i.e. GVK and ACSA continued tohave their head quarters in India and South Africarespectively. So in the JV there is a Shell company,without any tangible assets, employees, space, etc.which was incorporated few days before the bidding. Ithas no management experts or financial advisers on itspay roll or on hire. Further, Mauritius unlike London orNew York is not a known financial center or a vibrantbusiness hub from where capital can be sourced atcheaper rates or top quality professionals’engineers/consultants could be employed. NeitherMauritius can boast of being seat of civil aviationexperts. We thus, failed to appreciate what purpose theapplicant is serving being in the JV or what is theeconomic or commercial rationale for roping in theapplicant in the JV. Did it hire finance professionals whocould arrange finance or did the entity have collateralsfor raising funds or did it provide a meeting groundwhere active, cerebral discussions could take placeduring the development process of the project or fromwhere difficulties encountered during implementation 27 of 82 WP-713-2021-J.doc phase could be addressed. Did it discuss critical needs ofthe project in the board meetings? The answer to allthese above crucial questions were ‘no’. We askourselves the questions that if GAHPL or ACSA aremissing from JV, can the project still operate, theanswer is ‘no’. But if the applicant is missing and theBidvest provides the funding alone, would the JVsurvive, the answer is ‘yes’. 60. As per Indo-South Africa DTAA, the capital gain onshare sale is taxable in India. If applicant was notinterposed the Bidvest group would have to pay capitalgain tax in India on the share sale transaction. Byincorporating Mauritian entity benefit of Indo-MauritiusDTAA is sought under Article 13(4) under which capitalgain is not taxable in India. Further, there is no capitalgain tax in Mauritius. The entire value creation activitieswere happening in India which was also the basis forsteep rise in share valuations subsequently. 61. Let us examine, what is the real role of applicant inthe JV. It served as conduit for routing funds for SouthAfrican based holding companies. The shares of jointventure were bought in the name of applicant thoughthe beneficial owners were the holding companies inSouth Africa. The applicant kept on noting andendorsing decisions of the holding company in theBoard meetings without any contribution or discussionabout the decision making process. In short, theapplicant is not in a position to create any value for thejoint venture. 62. One can claim that holding company will always bepredominantly controlling all vital decisions ofsubsidiary company and that latter may beimplementing such decisions. This may be true but if an WP-713-2021-J.doc 61. Let us examine, what is the real role of applicant inthe JV. It served as conduit for routing funds for SouthAfrican based holding companies. The shares of jointventure were bought in the name of applicant thoughthe beneficial owners were the holding companies inSouth Africa. The applicant kept on noting andendorsing decisions of the holding company in theBoard meetings without any contribution or discussionabout the decision making process. In short, theapplicant is not in a position to create any value for thejoint venture. 62. One can claim that holding company will always bepredominantly controlling all vital decisions ofsubsidiary company and that latter may beimplementing such decisions. This may be true but if an WP-713-2021-J.doc entity claims treaty benefits it must establish theeconomy rationale and substance for treaty entitlement.Treaty shopping is well known for international taxplanning whereby an entity is interposed in a countrywith favourable tax laws. Lately, the world over it isreckoned that improper nature of treaty shoppingstructure is created if the following factors are satisfiedi.e., the beneficial owner of the treaty shopping entitydoes not reside in the country where entity is created;the interposed entity has minimal or no economicactivity in the jurisdiction where it is located and lastlyits income is subject to minimal tax in the country oflocation. 63. The doctrine of substance over form mandatestaxing transaction pursuant to its economic effect ratherthan its form and that a valid transaction must haveboth a substantial purpose apart from reduction of taxliability. 64. The India-Mauritius treaty and India-South Africatreaty are based on OECD model convention and article13 on capital gains are adopted from the sameconvention. In f