Global Tax Update
CA Raj Chawla
Quotes of the day:
1. Once a friend asked another friend What would you do if I cheat you. The other friend replied: Trusting you was my decision. Proving me right is your choice.
2. Be there for others but never leave yourself behind. Be you & never make yourself available too much for the others. Remember Excess supply results reduction in the price.
Global Tax Update:
1. The Supreme Court judgment in the case of Tiger Global holding that irrespective of the Treaty, India has entered into with Mauritius, irrespective of the Circular issued by CBDT way back in 2000, the Income Tax Department can tax the income by way of capital gains arising in the hands of a Mauritius company in respect of the underlying assets i.e. shares held by it’s Singapore company in an Indian company, is going to again raise a serious issue about uncertainty in taxation in India and affect the sentiments of foreign investors.
2. Interestingly the Supreme Court holds that its earlier judgment delivered in the case of Azadi Bachao Andolan is no more applicable. It also holds that Doctrine of ‘substance’ over ‘form’ have been consistently recognized in Indian Jurisprudence relying on the judgment delivered long time back in 1985 in the case of McDowell and Co despite the fact that in it’s own judgement of Azadi Bachao Andolan delivered in 2003 that McDowell judgement has been considered and a contrary view has been taken.
3. Supreme Court further holds that Indian Tax Authorities can even challenge the Tax Residency Certificate issued by the Mauritius Authorities on the basis of its prima facie finding that effective management and control of the entity were not in Mauritius.
4. This is contrary to official stand of CBDT in its circular no 789 issued on 13th April, 2000. Supreme Court further holds Income Tax department has right to deny the benefit of Article 13 of the Tax Treaty entered into with a Sovereign Country (this Article exempts levy of capital gain tax in case of a Tax Resident of Mauritius) as well as ignore it’s own Circular No. 789 dated 13.04.2000 issued by Central Board of Direct Taxes (CBDT).
5. This judgment is going to have far reaching implication on the issue of uncertainty in taxation in India (which is one of the most important requirement of ease of doing business) that may arise in respect of investment made by FDI, FPI, FIIs etc.
6. All along post 2000 after the issue of this Circular 789 (which was defended by the Central Government vehemently before Supreme Court in 2003 and consequently approved by the Supreme Court in its land mark judgment of Azadi Bachao Andolan ), the accepted position has been that investment in India through Mauritius will not be liable to tax and Indian Tax Authorities can’t question the Residency Certificate issued by Mauritius Authority.
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With best regards
CA (Dr) Raj Chawla
B.Com (Hons), FCA, FCS, FCMA, LLB
MIMA, DISA, MICA, Phd, ASA (Aust), CMP (USA)
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