the chamber of tax consultants 10 residential...

THE CHAMBER OF TAX CONSULTANTS10TH RESIDENTIAL REFRESHERCONFERENCE ON INTERNATIONALTAXATION

CASE STUDIES ON INTERNATIONAL TAXATION

PRESENTED BY

SUNIL MOTI LALA

Advocate & Tax Counsel

SML tax chamber

www.smltaxchamber.com

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Case Studies on International Taxation

Case Studies

I. Amendment to India - Mauritius Treaty, overseas liquidation and General Anti AvoidanceRule (‘GAAR’)

II. Service PE, Installation PE and Fees for Included Services

III. Application of section 56(2)(viia) of the Income-tax Act, 1961 (‘the Act’) vis-à-vis crossborder transfer of shares

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Case Studies on International Taxation

1. Please note that the facts of the case study are such that for most of the issues, prima-facie, the language ofthe Income-tax Act, 1961 or the relevant Double Tax Avoidance Agreements is against the assessee. Theobjective of this Presentation is to try and find out some favourable answers or give some hope / arguments forfavourable outcomes. The answers are predominantly favourable, however the same cannot be considered asabsolute since contrary views are possible.

2. Kindly do not give any advice or do any tax planning based on the matter contained in this presentation.

3. However, the matter in the presentation may be helpful during assessment and appeals and may be used solelyat your risk and consequences.

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Facts

1. ABC Inc, one of the world’s leading B2B e-commerce conglomerate, holds a100% stake in N BV which in turn holds a) a 100 percent stake in PQR Pvt Ltd(‘PQR’) through its subsidiary - M Co (Mauritius) b) a 100 percent stake inanother Indian company viz. LMN Pvt Ltd, through its subsidiary companyincorporated in Singapore – S Pte Ltd.

2. M Co is a private limited company incorporated under the laws of Mauritius. Itincurs an annual expenditure of MUR 20 Lakhs. It acquired 100 percent of theequity shares of PQR Pvt Ltd (for a consideration of Rs.20 crores) in May2005 and subsequently subscribed to 1,00,000 Compulsorily ConvertibleDebentures (‘CCD’s’) in PQR Ltd on April 30, 2016 which are convertible into1,00,000 equity shares of PQR Ltd on April 30, 2017. The fair market value ofinvestments in PQR Ltd which constituted 52 percent of the total value ofassets of M Co. was Rs.80 crores as on 31.03,2018.

3. With a view to reduce the complexity of the group structure, increaseefficiency and reduce the number of companies, the Group wishes to transferits operations in India to S Pte Ltd by the end of March 2018 and iscontemplating the following options:

Amendment to Mauritius Treaty, overseas liquidation and GAAR

PQR Pvt Ltd(India)

India

Outside India

ABC Inc(USA)

N BV(Netherlands)

M Co(Mauritius)

S Pte Ltd(Singapore)

LMN Pvt Ltd(India)

100%

100%100%

100%equityshares

Option A -Transfer ofshares ofPQR Ltd

Option B –Step 1-

Liquidation

Option B – Step2 – Transfer ofshares of PQR

to S Pte Ltd

1,00,000Compulsoril

yConvertibleDebenturesin PQR Ltd

100%equityshares

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Facts

Option A• M Co, Mauritius transfers its shareholding in PQR Pvt Ltd

(equity shares + converted equity shares) to S Pte Ltd,Singapore in March 2018 thereby transferring control overall Indian operations to S Pte Ltd, Singapore; and

• M Co. goes into liquidation.

Option B• M Co is to liquidate, ultimately transferring all its assets

including equity shares in PQR Ltd to N BV, Netherlands;and

• N BV, Netherlands to transfer the shares held in PQR Ltd,post liquidation, to S Pte Ltd thereby transferring controlover all Indian operations to S Pte Ltd, Singapore.


PQR Pvt Ltd(India)

India

Outside India

ABC Inc (USA)

N BV (Netherlands)

M Co(Mauritius)

S Pte Ltd(Singapore)

LMN Pvt Ltd(India)

100%

100%100%

100% equityshares

Option A -Transfer of

shares of PQRLtd

Option B – Step 1-Liquidation

Option B – Step 2 –Transfer of shares of

PQR to S Pte Ltd

1,00,000CompulsorilyConvertible

Debentures inPQR Ltd

100%equityshares

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Queries

Option A

1. What are the income-tax implications in the hands of M Co as a result of such transfer of equity shares of PQR Ltd to S Pte Ltd?

2. Would it make any difference, if instead of holding CCDs, M Co held Compulsorily Convertible Preference Shares in PQR Ltd?

3. Would the tax authorities be able to invoke General Anti-avoidance Rule (‘GAAR’) of the Income-tax Act, 1961 (‘the Act’) to deny thebenefit, if any under the India – Mauritius DTAA?

Option B

1. What are the income-tax implications of the proposed liquidation in the hands of M Co and N BV?

2. What are the income-tax implications in the hands of N BV consequent to the sale of shares held by N BV in PQR Ltd to S Pte Ltd,post liquidation?

3. Would the tax authorities be able to invoke GAAR on the ground that:• the assessee would be taxable in India on sale of converted shares as per the India-Mauritius Treaty• the main object of the liquidation and subsequent sale was to obtain tax benefit under the India-Netherlands treatyand consequently the entire transaction was an impermissible avoidance arrangement under section 96(1)(b) of the Act.

Amendment to Mauritius Treaty, overseas liquidation and GAAR 6

Queries - Option A - Income-tax implications in the hands of M Co as a result of transfer of equity shares ofPQR Ltd to S Pte Ltd?

Under the Income-tax Act, 1961

M Co - Capital Gains Tax - (Section 45, Section 47(x) read with Rule 8AA and 48 and Section 112 of the Act)

Under the India- Mauritius DTAA – Section 90(2)

• 13(4) - “Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned inparagraphs (1), (2) and (3 ) of this article shall be taxable only in that State.”

13(5) – “For the purposes of this article, the term "alienation" means the sale, exchange, transfer, or relinquishment of theproperty or the extinguishment of any rights therein or the compulsory acquisition thereof under any law in force in therespective Contracting States.”

Income-tax implications of the transfer of shares (originally held as well as converted) prior to the Protocol:

• Gain on sale of (i) original shares and (ii) shares converted (from CCDs) – taxable only in Mauritius


Queries - Option A - Income-tax implications in the hands of M Co as a result of transfer of equity shares ofPQR Ltd to S Pte Ltd?

Text of the Protocol amending the India-Mauritius DTAA:

Article 13 (Capital Gains) of the Convention shall be amended with effect from 1.4.2017, by:

i. inserting - new paragraphs 3A and 3B as follows:

“3A. Gains from the alienation of shares acquired on or after 1st April 2017 in a company which is resident of a Contracting Statemay be taxed in that State.

3B. However, the tax rate on the gains referred to in paragraph 3A of this Article and arising during the period beginning on 1stApril, 2017 and ending on 31st March, 2019 shall not exceed 50% of the tax rate applicable on such gains in the State ofresidence of the company whose shares are being alienated”; and

ii. replacing the existing paragraph 4 with the following:

“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 theContracting State of which the alienator is a resident.”


Queries - Option A - Income-tax implications in the hands of M Co as a result of transfer of equity shares ofPQR Ltd to S Pte Ltd?Income-tax implications of the transfer of shares (originally held as well as converted) post the Protocol:


Particulars Literal Interpretation Considering the object of Grandfathering provisions

Shares acquired in May2005 i.e. originally held

Taxable only in Mauritiusunder Article 13(4)

Taxable only in Mauritius under Article 13(4)

1,00,000 Shares convertedacquired on April 30, 2017(i.e. post April 1, 2017) ,pursuant to conversion ofCCDs acquired pre April 1,2017

Taxable in India underArticle 13(3A) and 13(3B) @50 percent of the domesticrates

• Grandfathering provisions

A grandfathering provision is defined as “a provision that creates anexemption from the law’s effect for something that existed before thelaw’s executive date. A statutory of regulatory clause that exempts aclass of persons or transactions because of circumstances existing beforethe new rule of regulation takes place” – Black’s Law Dictionary

In the given case, one may argue that the amendment in the Protocolapplies, not only to shares acquired prior to April 1, 2017 but also to anact of acquisition of shares (purchase of CCDs) prior to April 1, 2017undertaken prior to April 1, 2017 and therefore the shares would bedeemed to be acquired on the date of acquisition of CCDs i.e. April 30,2016

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Queries - Option A - Income-tax implications in the hands of M Co as a result of transfer of equity shares ofPQR Ltd to S Pte Ltd?Support from the Income-tax Act, 1961

• Section 47(x) of the Act read with Rule 8AA of the Income-tax Rules, 1962 (‘the Rules’)

Section 47 of the Act - Transactions not regarded as transfer.

47 “…(x) any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of acompany into shares or debentures of that company…”

Rule 8AA of the Rules - Method of determination of period of holding of capital assets in certain cases.

• 8AA. (1) The period for which any capital asset, other than the capital assets mentioned in clause (i) of the Explanation 1 toclause (42A) of section 2 of the Act, is held by an assessee, shall be determined in accordance with the provisions of this rule.

(2) In the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee inthe circumstances mentioned in clause (x) of section 47 of the Act, there shall be included the period for which the bond,debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion.

Thus date for acquisition of shares should be taken as date of acquisition of CCDs i.e. April 30, 2016 and therefore the Treatybenefit should be available.


Queries - Option A - Income-tax implications in the hands of liquidation of M Co in the hands of M Co and NBV

There would be no tax implications in the hands of M Co or N BV as the liquidation would be post transfer of shares of PQR Ltdand therefore the provisions of the Act would not be attracted in either of their hands


Queries - Option A – 2. Income-tax implications in the hands of M Co assuming M Co held CCPS in PQRLtd as opposed to CCDs

In view of the discussions on CCDs, considering the object of grandfathering provisions, since the act of acquisition of shares wasprior to April 1,2017 i.e. April 30,2016, the gain from sale of the equity share (converted from preference shares) would be taxableonly in Mauritius.

Support from the Income-tax Act, 1961

Section 55(2)(b)(v)(e) of the Act

Section 55(2)(b)(v)(e) of the Act - Meaning of "adjusted", "cost of improvement" and "cost of acquisition"

55 “…(2) For the purposes of sections 48 and 49, "cost of acquisition",-

(b) in relation to any other capital asset…(v) where the capital asset, being a share or a stock of a company, became the property of the assessee on..(e) the conversion of one kind of shares of the company into another kind,means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from whichsuch asset is derived.”


Queries - Option A – 3. Would the tax authorities be able to invoke GAAR?Judgments of the Supreme Court

• UOI v Azadi Bachao Andolan – (2003) 263 ITR 706 (SC)“…. in the absence of a limitation clause, such as the one contained in Article 24 of the Indo-US Treaty, there are no disabling ordisentitling conditions under the Indo-Mauritius Treaty prohibiting the resident of a third nation from deriving benefits there under. Theyalso urge that motives with which the residents have been incorporated in Mauritius are wholly irrelevant and cannot in any way affect thelegality of the transaction. They urge that there is nothing like equity in a fiscal statute. Either the statute applies proprio vigore or it doesnot. There is no question of applying a fiscal statute by intendment, if the expressed words do not apply...”

• Vodafone International Holdings BV v UOI – (2012) 17 taxmann.com 202 (SC) – Justice KS Radhakrishnan

“India Mauritius Treaty does not contain any Limitation of Benefit (LOB) clause … Indo Mauritius Treaty does not restrict the benefit tocompanies whose shareholders are non – citizens / residents of Mauritius, or where the beneficial interest is owned by non-citizens /residents of Mauritius, in the event where there is no justification in prohibiting the residents of a third nation from incorporating companiesin Mauritius and deriving benefit under the treaty. No presumption can be drawn that the Union of India or the Tax Department is unawarethat the quantum of both FDI and FII do not originate from Mauritius but from other global investors situate outside Mauritius. Mauritius, itis well known is incapable of bringing FDI worth millions of dollars into India. If the Union of India and Tax Department insist that theinvestment would directly come from Mauritius and Mauritius alone then the Indo-Mauritius treaty would be dead letter.

..learned senior counsel contended that in the absence of LOB Clause in the India-Mauritius Treaty, the scope of the treaty would bepositive from Mauritius Special Purpose Vehicles (SPVs) created specifically to route investments into India, meets with our approval”


Queries - Option A – 3. Would the tax authorities be able to invoke GAAR?

Text of the Protocol amending the India-Mauritius DTAA:

“Article 27A – Limitation of Benefits

1. A resident of a Contracting State shall not be entitled to the benefits of Article 13(3B) of this Convention if its affairs were arrangedwith the primary purpose to take advantage of the benefits in Article 13(3B) of this Convention.

2. A shell/conduit company that claims it is a resident of a Contracting State shall not be entitled to the benefits of Article 13(3B) of thisConvention. A shell/ conduit company is any legal entity falling within the definition of resident with negligible or nil businessoperations or with no real and continuous business activities carried out in that Contracting State.

3. A resident of a Contracting State is deemed to be a shell/conduit company if its expenditure on operations in that Contracting State isless than Mauritian Rs.1,500,000 or Indian Rs. 2,700,000 in the respective Contracting State as the case may be, in the immediatelypreceding period of 12 months from the date the gains arise.

4. A resident of a Contracting State is deemed not to be a shell/conduit company if:(a) it is listed on a recognized stock exchange of the Contracting State; or

(b) its expenditure on operations in that Contracting State is equal to or more than Mauritian Rs.1,500,000 or Indian Rs.2,700,000 inthe respective Contracting State as the case may be, in the immediately preceding period of 12 months from the date the gains arise.

Explanation: The cases of legal entities not having bona fide business activities shall be covered by Article 27A (1) of the Convention.“

Since M Co incurs annual expenditure of MUR 2,000,000 it cannot be considered as a Shell company.



GAAR v LOB (SAAR)

• Authors Declan Gavin & Cecile Gyles state that: "LOB provision is an anti-abuse provision that sets out which residents of theContracting States are entitled to the treaty's benefits. The purpose of an LOB provision is to limit the ability of third countryresidents to obtain benefits under the said treaty.“ – 36 taxmann.com 38 (Article)

• The Limitation of Benefit (LOB) clause in some of India’s tax treaties is a specific anti-avoidance rule to prevent tax abuse.It is settled principle that, where a specific rule is available, a general rule will not apply. SAAR normally covers a specificaspect or situation of tax avoidance and provides a specific rule to deal with specific tax avoidance schemes. Therefore, whereanti-avoidance rules are provided in a tax treaty in the form of limitation of benefit (as in the Singapore treaty) etc., the GAARprovisions shall not apply overriding the treaty. – Expert Committee’s Final Report on GAAR

• Similarly, where specific anti-avoidance rules are provided in a tax treaty in the form of limitation of benefit (as in theSingapore, Treaty) etc., the GAAR shall not apply overriding the treaty. If there is evidence of violations of anti-avoidanceprovisions in the treaty, the treaty should be revisited, but GAAR should not override the treaty. -36 taxmann.com 38 (Article)

• GAAR itself may not be a significant tool or one that is even necessary to challenge perceived treaty abuses. If Indiaconsiders that treaty benefits should be limited in particular circumstances, the simple approach would be to negotiate specificLOB provisions with its treaty partners, and clearly define, the class of persons that should be eligible to receive treatybenefits. - (2012) 6 ILT 309 (Article)



Limitation of Benefits Clause

Thus, one can conclude that the LOB clause = SAAR and that a GAAR cannot overrule a SAAR.

Therefore the tax authorities would not be justified in invoking GAAR to hold that M Co is a Shell Co considering thatthe amended India-Mauritius DTAA has an LOB clause, which is satisfied in the instant case.

Notification 49 / 2016 dated June 22, 2016

• Investments made prior to April 1, 2017 resulting in gains after April 1, 2017 would not be hit by GAAR.

• Though the shares were technically acquired post April 1, 2017, the investment in the same in the form of CCDs was madeprior to April 1, 2017 and consequently, GAAR should not apply.


Queries - Option A – 3. Would the tax authorities be able to invoke GAAR?However, the Department may seek to deny the treaty benefit by invoking Article 27A (1) or Rule 10U(2) reproduced below:

“Article 27A – Limitation of Benefits

1. A resident of a Contracting State shall not be entitled to the benefits of Article 13(3B) of this Convention if its affairs werearranged with the primary purpose to take advantage of the benefits in Article 13(3B) of this Convention.

Explanation: The cases of legal entities not having bona fide business activities shall be covered by Article 27A (1) of theConvention.“

Application of General Anti Avoidance Rule

10U - 2) …the provisions of Chapter X-A shall apply to any arrangement, irrespective of the date on which it has been enteredinto, in respect of the tax benefit obtained from the arrangement on or after the 1st day of April, 2017 (as per Notification 49 /2016)

• In the given facts Article 27A(1) should not be invoked for the following reasons:

• M Co holds shares in PQR Ltd since May 2005 (i.e 18 years before the sale transaction)• M Co incurs an expenditure of MUR 20 lac during the year, (Therefore, not a shell company)• The transaction of sale of shares of PQR Ltd was part of a legitimate business re-organisation


Queries - Option A – 3. Would the tax authorities be able to invoke GAAR?Can Treaty benefit be denied to M Co by applying Article 27A(1) read with the Explanation contained therein

Dow Agro Sciences Agricultural Products Ltd [2015] 65 taxmann.com 245 (AAR)This is a transaction which began almost 20 years back, could not have been a scheme to avoid the payment of taxes. Theshares were acquired 20 years or as the case may be 18 years, 14 years and 10 years back for a substantial cost of about Rs. 61crores and if they are sought to be now transferred to a Singapore concern which is the own subsidiary of the applicant, it cannotamount to a design or a scheme to avoid payment of taxes in India.

Castleton Investment Ltd [2012] 24 taxmann.com 150 (AAR - New Delhi)“As far as the first submission is concerned, it has to be seen that the investments in the shares were made in the years 1993and 1996 and they had been held for all these years. Though the applicant is part of the GSK group and could be said to beunder the vertical control of Wellcome Limited, U.K. the fact remains that it is a legal entity in the eye of law and there is noadequate material to rebut its ownership over the shares. On the materials, it is also not possible to hold that the beneficial ownerof the shares is some other entity.Having regard to the above observation, the AAR ruled that capital gains earned by the Castleton Investments Ltd (Mauritius)from transfer of shares in GSKPL (India) to GSK Pte (Singapore) is exempt from tax in India under the India-Mauritius Tax Treaty.

NB: However, there seems to be an anomaly in Article 27A as clauses (2), (3), (4) mention that companies incurring Rs.1,500,000or Indian Rs. 2,700,000 shall not be considered as Shell companies and would be eligible to avail benefits of Article 13(3B) andthen vide Explanation states that legal entities not having bona fide business activities would not be eligible to benefits.

The Explanation renders the definition of shell companies in Article 27A(3) redundant to that extent. The Working Committeewould need to clarify this aspect.


Queries - Option B - Income-tax implications of the liquidation of M Co in the hands of M Co and N BV

a. Income-tax implications in the hands of M Co


Section 46 of the Act – Capital gains on distribution of assets by companies in liquidation.

“46. (1) Notwithstanding anything contained in section 45, where the assets of a company are distributed to its shareholderson its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of section 45”

Consequently, no tax in India in the hands of the liquidating company (M Co).

b. Income-tax implications in the hands of N BV.


“46… (2) Where a shareholder on the liquidation of a company receives any money or other assets from the company, heshall be chargeable to income-tax under the head "Capital gains", in respect of the money so received or the market value ofthe other assets on the date of distribution, as reduced by the amount assessed as dividend within the meaning of sub-clause(c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for thepurposes of section 48.”


Queries - Option B - Income-tax implications of the liquidation of M Co in the hands of N BV

• Taxability of N BV under section 46(2) read with section 9(1)(i)?

NB: We are not getting into the computation of capital gains in this case study.


Particulars Amount (in INR)

Market Value of shares of assets received on distribution of M C xxxxxxxxxx

Less:Accumulated profits, if any, covered under section 2(22)(c) (See Slide 20)Cost of acquisition of shares of M Co in the hands of N BV

(xxxxxxxxxx)(xxxxxxxxxx)

Capital Gains (See Slides 21, 22 & 23) xxxxxxxxxx

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Queries - Option B - Income-tax implications of the liquidation of M Co in the hands of N BVTaxability of N BV under section 46(2) read with section 2(22)(c)

If M Co has accumulated profits –I]. The market value of assets distributed by M Co’s to the extent of accumulated profits, whether capitalised or not, shall be treated as dividendunder section 2(22)(c) of the Act.

Section 2(22)(c) – "dividend" includes “…(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which thedistribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not;…”

However, N BV shall not be liable to tax on deemed dividend under section 2(22)(c) as dividend paid by a foreign company to another foreigncompany cannot be subject to tax in India for the following reasons:

But for section 9(1)(iv), dividend paid by an Indian company to a non-resident company outside India would not be considered as incomechargeable to tax in India under section 5(2)(b) of the Act – Pzifer Corpn v CIT – (2003) 129 TAXMAN 459 (Bom).Therefore, dividend paid by a non-resident company to another non-resident company cannot be brought to tax in India.

One cannot apply Explanation 5 to Section 9(1)(i), inserted vide Finance Act, 2012 (wref 1962) to dividends paid by a foreign company outsideIndia, in light of Para 6 of CBDT Circular No 4 / 2015

“Declaration of dividend by such a foreign company outside India does not have the effect of transfer of any underlying assets located in India. Itis therefore, clarified that the dividends declared and paid by a foreign company outside India in respect of shares which derive their valuesubstantially from assets situated in India would not be deemed to be income accruing or arising in India by virtue of the provisions ofExplanation 5 to section 9 ( I ) (i) of the Act.”

The Circular would, by inference, also extend to the deemed dividend paid / distributed by the foreign company.



Income deemed to accrue or arise in India.9. (1) The following incomes shall be deemed to accrue or arise in India :—(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from anyproperty in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India.

Explanation 5.—For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a companyor entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if theshare or interest derives, directly or indirectly, its value substantially from the assets located in India.

[Explanation 6.—For the purposes of this clause, it is hereby declared that—(a) the share or interest, referred to in Explanation 5, shall be deemed to derive its value substantially from the assets (whether tangibleor intangible) located in India, if, on the specified date, the value of such assets—(i) exceeds the amount of ten crore rupees; and(ii) represents at least fifty per cent of the value of all the assets owned by the company or entity, as the case may be;

Capital gains on distribution of assets by companies in liquidation.

46. (2) Where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall bechargeable to income-tax under the head "Capital gains", in respect of the money so received or the market value of the other assets onthe date of distribution, as reduced by the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48.



It may be possible to argue that N BV should not be liable to capital gains tax under section 9(1)(i) read with section 46as the amount / asset received by the Shareholder on liquidation does not amount to a transfer

• CIT v R M Amin – (1977) 106 ITR 368 (SC) – “The question as to whether the distribution of assets of a company which hasgone into voluntary liquidation to its shareholders would amount to sale, exchange, relinquishment or transfer within themeaning of section 12B of the Act of 1922 as amended in 1956 was considered by this court in the case of Commissioner ofIncome-tax v. Madurai Mills Co. Ltd. [1973] 89 ITR 45, 49 (SC) - "When a shareholder receives money representing his shareon distribution of the net assets of the company in liquidation, he receives that money in satisfaction of the right whichbelonged to him by virtue of his holding the shares and not by operation of any transaction which amounts to sale, exchange,relinquishment or transfer.“

“When a shareholder receives moneys representing his share on distribution of the net assets of the company in liquidation,he, in the opinion of the High Court, receives such moneys in satisfaction of the right which belongs to him by virtue of hisholding the share and not by way of consideration for the extinguishment of his right in the share.”



• Vijay Kumar Budhia v CIT – (1993) 204 ITR 355 (SC) – “It is sub-section (2) which is particularly relevant in the present case.Even though the income received by the assessee in the liquidation proceedings was not on account of any transfer ofproperty, yet Parliament has chosen to treat such receipt as capital gains, subject of course to certain specified deduction.May be, it is a case of a fiction created by Parliament—may be not. The validity of the provision is not questioned nor is it inissue herein..”

• CIT v Murarilal Budhia – (1983) 139 ITR 410 (Patna) - On a plain reading of the sections 45 and 46, it follows that, but for theprovisions contained in section 46(2), the money received by a shareholder on the liquidation of a company could not havebeen treated as a profit and gain arising from transfer of a capital asset. The position was, however, changed because of thesaid provisions being there. But notwithstanding such a position, section 46(2) makes a receipt of money or other asset by ashareholder, on the liquidation of a company, in respect of his share, a capital gain chargeable to income-tax as such. In otherwords, by virtue of the provisions contained in section 46(2), the money or other asset received by the shareholder in respectof his share held in a company in liquidation, the receipt is deemed to arise from the transfer of a capital asset, which squarelyfalls within the purview of section 45. It then becomes as income within the meaning of section 2(24).”

Also, taxation cannot arise by importing one deeming provision [46(2)] into another [9(1)(i)] or vice-versa - MancheriPuthusseri Ahmed v Kuthiravattam Estate Receiver, AIR 1997 SC 208, 214, (1996) 6 SCC 185, 195, relying on CIT vShakuntala, (1961) 43 ITR 352, 357 (SC); CIT v Moon Mills Ltd., (1966) 59 ITR 574, 579 (SC)]



Under the India-Netherlands DTAA - Capital Gains - Article 13


Article 13(1) Gains derived by a resident of one of the States from the alienation of immovable property …and situated in the other State may betaxed in that other State

Article 13(2) Gains from the alienation of movable property forming part of the business property of a permanent establishment…or of movableproperty pertaining to a fixed base available to a resident of one of the States in the other State, including such gains from the alienationof such permanent establishment…. may be taxed in that other State.

Article 13(3) Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such shipsor aircraft, shall be taxable only in the State in which the place of effective management of the enterprise is situated….

Article 13(4) Gains derived by a resident of one of the States from the alienation of shares (other than shares quoted on an approved stockexchange) forming part of a substantial interest in the capital stock of a company which is a resident of the other State, the value ofwhich shares is derived principally from immovable property situated in that other State other than property in which the business of thecompany was carried on, may be taxed in that other State. A substantial interest exists when the resident owns 25 per cent or more ofthe shares of the capital stock of a company.

Article 13(5) Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in theState of which the alienator is a resident.However, gains from the alienation of shares issued by a company resident in the other State which shares form part of at least a 10 percent interest in the capital stock of that company, may be taxed in that other State if the alienation takes place to a resident of that otherState. However, such gains shall remain taxable only in the State of which the alienator is a resident if such gains are realised in thecourse of a corporate organisation, reorganization, amalgamation, division or similar transaction, and the buyer or the seller owns atleast 10 per cent of the capital of the other.

Article 13(6) The provisions of paragraph 3 shall not affect the right of each of the States to levy according to its own law at tax on gains from thealienation of shares or 'jouissance' rights in a company, the capital of which is wholly or partly divided into shares and which under thelaws of that State is a resident of that State, derived by an individual who is a resident of the other State and has been a resident of thefirst-mentioned State in the course of the last five years preceding the alienation of the shares or 'jouissance' rights.

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Meaning of alienation, liquidation and transfer as per Dictionaries and Judicial Dictionaries – Does alienation include liquidation?

Alienate

The word ‘alienate’ contemplates a transfer - Law Lexicon

Transfer

A permanent alienation is a transfer – Judicial Dictionary – 13th Edition – KJ Aiyar

Any mode of disposing of or parting with an asset - Black’s Law Dictionary

Liquidate / Liquidation

Convert (asset) into cash – Oxford Dictionary , To convert (non liquid asset) into cash – Black’s Law Dictionary

Liquidation = conversion of shares into cash = parting with an asset i.e. shares, which therefore = transfer, which = alienation

Therefore, one can infer that alienation includes liquidation and gains from liquidation would be taxable only inNetherlands as per Article 13(5).



However most meanings of “alienation” are “transfer from one to another”. Since in liquidation there is no “another”, the Revenuemay argue that alientation does not include liquidation and therefore the gains will not be taxable in Netherlands under Article13(3) and consequently taxable in India

Even If alienation does not include liquidation, then the Source state viz. India has no right to tax the gains from liquidation underArticle 13 of the India-Netherlands DTAA (See Slide 27) .

Most treaties (unlike Netherland) provide as under:


Country Treaty Provision

USA, UK Except as provided in Article 8 (Shipping and Air Transport) of this Convention, each Contracting State may taxcapital gains in accordance with the provisions of its domestic law.

Canada Gains from the alienation of any property, other than those referred to in paragraph 1 may be taxed in bothContracting States.

27



Country Treaty Provision

Luxembourg, Malta, Mexico, Mongolia,Montenegro, Morocco, Mozambique,Myanmar, Nambia, New Zealand,Norway, Oman, Poland, Portugal, Qatar,Russia, Saudi Arabia, Serbia, Sri Lanka,Slovenia, South Africa, Spain , SwissConfederation, Syrian Arabic Republic,Taipei, Tajikistan, Trinidad & Tobago,Turkey, Turkmenistan, UAE, Uganda,Ukraine, Uzbekistan, Vietnam, Georgia,Estonia, Lithuania

4. Gains from the alienation of shares of the capital stock of a company the property of whichconsists directly or indirectly principally of immovable property situated in a Contracting State may betaxed in that State.5. Gains from the alienation of shares other than those mentioned in paragraph 4 in a companywhich is a resident of a Contracting State may be taxed in that State.6. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3, 4 and 5,shall be taxable only in the Contracting State of which the alienator is a resident.

Brazil Gains from the alienation of any property other than that referred to in paragraphs 1 and 2, may betaxed in both Contracting States.

28


Once an income is not covered by a specific Article of the DTAA it cannot be taxed as per the ‘Other Income’ Article, if any or thedomestic laws. Therefore, the gains on liquidation realised by N BV are not taxable in India.

DCIT v Andaman Sea Food P Ltd – (2012) 22 taxmann.com 400 (Kol)

“..A tax treaty assigns taxing rights of various types of income to the source State upon fulfilment of conditions laid down in respective clauses of the treaty.When these conditions are satisfied, the source State gets the right to tax the same, but when those conditions are not satisfied, the source State does nothave the taxing right in respect of the said income. When a tax treaty does not assign taxability rights of a particular kind of income to the source State underthe treaty provision dealing with that particular kind of income, such taxability cannot be invoked under the residuary provisions of article 23 either…

ACIT v EPCOS AG Germany - (2009) 28 SOT 412 (Pune)

It is also important to bear in mind the fact that article 23 begins with the words 'items of income not expressly covered' by provisions of article 6-22… Therefore, article 23 does not apply to items of income which can be classified under sections 6-22 whether or not taxable under these articles..”

As per the residence rule, irrespective of the geographical location of a place where a person earns income, the income is taxable in the tax jurisdiction inwhich a person is resident. A tax subject, i.e., the taxable unit, thus, invariably belongs to the residence jurisdiction or, in the case of the USA citizenshipjurisdiction, as the US laws provide for taxation of all citizens—irrespective of their residential status. The source rule, however, lays down that an incomeearned in a tax jurisdiction, irrespective of the residential status of the person earning the said income, is liable to be taxed in the tax jurisdiction where theincome is earned.herefore, broadly speaking, a tax treaty is primarily a detailed instrument assigning the taxing rights between two or more competing tax jurisdictions over a taxsubject, unless a tax jurisdiction has a right to tax an income; it is irrelevant whether or not, under the domestic tax legislation of that tax jurisdiction, theincome-in-question is taxable.. To examine taxability of a cross-border income in a source tax jurisdiction, without first establishing the right to tax that incomeby the source tax jurisdiction, is like putting the cart before the horse. Therefore, before proceeding to consider taxability of a non-resident covered by theprovisions of a tax treaty in terms of the provisions of the domestic tax laws of the source jurisdiction, it is useful to first check whether source jurisdiction has aright to tax that income at all.


Queries - Option B - Income-tax implications of the liquidation of M Co in the hands of and N BV

Conclusions for Option B

• Under the Income-tax Act, 1961

Under the Act, M Co would not be liable to tax in India since as per Section 46(1) distribution on liquidation does not amount totransfer.

• Under the India-Netherlands DTAA

Article 13 “..(5). Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 shall betaxable only in the State of which the alienator is a resident…”

As per Article 13 of the India-Netherlands DTAA, N BV shall be liable to capital gains tax only in Netherlands.

In any case, India would not have the right to tax the above income as per India-Netherlands Treaty.

NB: The above would also apply to residents of – Philippines, Tanzania, Korea – Romania, Singapore, Thailand, Zambia,Cyprus, Indonesia, Kenya

Option B - Income-tax implications in the hands of N BV – When N BV sells shares of PQR to S Pte Ltd

As per Article 13(5), taxable only in Netherlands and not India


Queries - Option B – Would the tax authorities be able to invoke GAAR to transaction under Option B?

Section 95 - Applicability of General Anti-Avoidance Rule.(1) Notwithstanding anything contained in the Act, an arrangement entered into by an assessee may be declared to be animpermissible avoidance arrangement and the consequence in relation to tax arising therefrom may be determined subject to theprovisions of this Chapter….Explanation.—For the removal of doubts, it is hereby declared that the provisions of this Chapter may be applied to any step in, ora part of, the arrangement as they are applicable to the arrangement.

Section 96 - Impermissible avoidance arrangement.(1) An impermissible avoidance arrangement means an arrangement, the main purpose of which is to obtain a tax benefit, andit—(a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm's length;

(b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act;

(c) lacks commercial substance or is deemed to lack commercial substance under section 97, in whole or in part; or

(d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes.

(2) An arrangement shall be presumed, unless it is proved to the contrary by the assessee, to have been entered into, or carriedout, for the main purpose of obtaining a tax benefit, if the main purpose of a step in, or a part of, the arrangement is to obtain atax benefit, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit.



Tax planning or reduction ≠ arrangement is a non est / sham or a device for avoidance of tax (see case laws below). Therefore Taxplanning or reduction ≠ misuse or abuse of Treaty.

• CIT v Punjab State Electricity Board - 320 ITR 469 (Punjab & Haryana)Merely because tax liability was reduced could not be conclusive of arrangement being sham or a device – Assessee was therefore entitled todepreciation and no substantial question of law arises.

• Banyan & Berry v CIT - 222 ITR 831 (Guj)Every legitimate and genuine act on the part of the taxpayer resulting in reduction of tax liability cannot be treated as device for avoidance of tax.

• Industrial Development Corporation of Orissa Ltd v CIT - 268 ITR 130 (Orissa)An act which is otherwise valid in law cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in someeconomic detriment or prejudice to the national interests.

• CIT v George Williamson (Assam)Ltd - 265 ITR 626 (Gau)It is open for assesses to arrange their affairs in such a manner that it would not attract the tax liabilities

• CIT v Mrs. Sarita P Shirke & Anr - 280 ITR 325 (Bom)In any case, even otherwise if a person is entitled to an exemption in law and he accordingly makes a plan for avoiding the tax liability which isotherwise legally entitled to it would not amount to a tax evasion.

• OECD Definition of tax evasionTax Evasion -“A term that is difficult to define but which is generally used to mean illegal arrangements where liability to tax is hidden or ignoredi.e. the tax payer pays less tax than he is legally obligated to pay by hiding income or information from tax authorities”. In case of tax evasiondeliberate steps are taken by the tax payer in order to reduce the tax liability by illegal or fraudulent means.



Decisions of the Court – What constitutes tax avoidance? Difference between tax avoidance and tax abuse.

As per Section 95 and 96, GAAR can be invoked to a transaction or arrangement if the following 2 conditions are fulfilled:

i. Its main purpose to obtain a tax benefit andii. It satisfies any of the clauses (a,b, c or d) of Section 96

Clause (a) and (d) of Section 96 would find no application to the given case as i) no unusual rights or obligations are created andii) liquidation like amalgamation, demerger etc are also ordinarily resorted to for bona fide purposes.

Clause (b) - Mere tax benefit arising out of such transaction cannot amount to abuse or misuse of the Treaty or Act else condition(i) above would become redundant.

Clause (c) - The liquidation of M Co is a conscious business decision with the aim to integrate activities under one vertical –Cannot be said to lack commercial substance.

Therefore, considering the aforesaid decisions and on interpreting the provisions of Section 95 and 96, one mayconclude that GAAR cannot be applied to the liquidation of M Co and subsequent transfer of shares of PQR Ltd by N BVto S Pte Ltd (Singapore)


Key Takeaways1. Grandfathering provisions under the Protocol to the India Mauritius DTAA – should apply to the act of acquisition of shares and not

merely to acquisition of shares and therefore:Capital gains on sale of shares acquired after April 1, 2017 which were converted from CCDs acquired prior to April 1, 2017 would notbe taxable in India

2. Same as above for CCPS

3. Even though shares were converted after April 1, 2017, the investments (in CCDs) was made prior to April 1, 2017 (i.e. April 30, 2016)and consequently for the said investment as well as for those shares acquired in 2005, GAAR should not be invoked (Notification 49dated June 22, 2016)

4. Limitation of Benefit clause (Article 27A) in DTAA = SAAR. GAAR cannot overrule SAAR and therefore where the DTAA has an LOBclause, GAAR should not be invoked.

5. Dividends paid (from accumulated profits pre-liquidation) by F Co 1 (having underlying assets in India) to F Co 2 – not taxable in India– CBDT Circular 4 / 2015

6. Therefore Dividend distributed (from accumulated profits post-liquidation) by F Co 1 (having underlying assets in India) to F Co 2–nottaxable in India.


Key Takeaways

7. While a foreign shareholder (N BV) of a foreign liquidating company (M Co) (having underlying asset in India) may be liable for capitalgains tax under section 46(2) – it may be possible to contend that legally it is not permissible to import one deeming provision / legalfiction i.e. 46(2) into another 9(1)(i) [NB: The above proposition needs to be tested in Court and therefore advice, if any must be givenwith proper caveats)

8. “Alienation” includes “liquidation” - Therefore gain to the Shareholders i.e. N BV- consequent to liquidation of M Co - would betaxable in Netherlands and not in India under Article 13(5).

9. Even assuming “alienation” does not include “liquidation”, the India-Netherlands DTAA does not give India the right / power to taxgains arising to N BV, both on a) liquidation of M Co (Having underlying assets in India and b) sale of Indian shares to S Pte Ltd.

10. GAAR cannot be invoked merely because one part / step in the transaction was taken keeping in mind the tax benefit. At least oneother condition (out of 4) in Section 96(1) ought to be fulfilled.


Facts

1. The assessee, I Co, a resident Indian Company and belonging toD group of companies, was engaged in the business ofdeveloping, constructing, operating and maintaining a portin Gujarat. It entered into contracts for purchase of cranes fromC Co, China (a non-resident) wherein cranes were to bemanufactured in China itself and on completion, were to beimported in India. The assesee entered into a contract with C Cofor the installation of aforesaid cranes covering a period of 185days (installation was to be completed in 155 days as percontract and C Co was to provide after sales services for aperiod of 30 days). As per the contract, C Co, China sent itsemployees to India to carry out the installation of the cranes(actual period of 155 days) as well as to render after salesservices on site (actual period of 30 days) post completion ofinstallation certified by the Engineer. I Co paid separateconsideration for (i) purchase of cranes and (ii) installationservices (including after sales services) without deducting anytax at source

Service PE, Installation PE and Fees for Included Services

I Co

(Indian Companyor ‘the assessee’)

D Co

(Denmark GroupCompany)

C Co

(China Company)

E Co

(UK Company)

India

Outside India

U Co

(USA Company)

Pre-determinedstandards for

themanufacture of

cranes

Supply ofcranes +

installation(155 days) andafter salesservice (30

days)

Separateconsideration for (i)

purchase and(ii)installation

(including after salesservices), No tax

deducted

Review of thepre-existingdesign and

constructionaudit of the

cranes suppliedby C Co

Considerationfor design

review, No taxdeducted

60% of I Co

GeneralAdministrationand back office

support services(20 days, 12employees,

Rs.5.5 crores) +marketing activity

(60 days, 2employees, Rs.

Nil)

Considerationat cost plus10%, No tax

deducted

36

Facts

2. The assessee engaged U Co (a non-resident), a companyregistered in USA, purely to review the pre-existing design andconstruction audit of the cranes supplied by C Co, China andmonitor that the cranes meet the pre-determined set standardsset by D Co, Denmark for the entire group and which were alsoalready agreed to between the assessee and C Co, China prior tothe import of cranes into India. U Co was to carry out the reviewof designs and suggest changes to C Co wherever required. UCo was also to send the modified / improved designs to I Co. ICo paid U CO for their design review services without deductingany tax at source.

3. The assessee had also entered into a General administration cumback office support services agreement (‘the GABO agreement’)with E Co (holding 60 percent stake in the assessee). E Co ismainly engaged in the activity of providing GABO supportservices from UK to all its group entities located all over the world.On a need basis E Co also sends it employees to render the saidservices to the countries of its Group entities. It had 180employees who were exclusively engaged in providing suchservices world-wide.


I Co


D Co


C Co

(China Company)

E Co

(UK Company)

India

Outside India

U Co

(USA Company)


themanufacture of

cranes

Supply ofcranes +


days)




deducted






60% of I Co





Nil)


deducted

37

Facts

As per the aforesaid GABO agreement, the assesseecompensated E Co at cost plus 10 percent in lieu of such services(amounting to Rs.5.50 crores), duly certified by their Global auditor,without deducting any tax at source. The same was also acceptedby the assessee’s TPO to be at ALP. To render such services E Cosent 12 of its employees to India for a period of 20 days in the year.Also, E Co, being a 60 percent shareholder in the assessee alsosent 2 other employees to India for a period of 60 days to assistthe assessee in marketing / negotiating a big contract. However,as the contract negotiation failed, E Co being a 60 percentshareholder considered the aforesaid activities as shareholdersactivities and did not charge any fees for the same. Consequently,14 employees of E Co visited India for 80 days, as indicatedabove. During the relevant year, the assessee earned a turnoverof Rs. 50 crore which was approximately 5 percent of the revenueearned by the entire Group.

4. The AO passed an order under section 201 of the Act, consideringthe assessee as an “assessee in default” in respect of theaforesaid payments (other than Purchase Consideration paid forthe purchase of cranes) since no tax was deducted on any of theaforesaid payments. .


I Co


D Co


C Co

(China Company)

E Co

(UK Company)

India

Outside India

U Co

(USA Company)


themanufacture of

cranes

Supply ofcranes +


days)




deducted






60% of I Co





Nil)


deducted

38

Queries

1. Is the AO justified in passing an order under section 201 of the Act treating the assessee as an “assessee in default” withregard to the aforesaid payments made without deduction of tax at source viz.

a) Payment of Rs. 5.50 crores to E Co for the GABO support services rendered pursuant to the agreement on the groundthat E Co had a Service PE in India

b) Payment of consideration to C Co for installation of cranes and after sales services on the ground that the same amountsto FTS and also that the C Co had an installation PE; and

c) Payment to U Co for the review of design and construction audit of the cranes supplied by C Co on the ground that themodification / improvement of designs amount to development of design and also made available technology, etc. to theassessee.

2. Would the answer to Query 1 (a) above differ, if E Co charged a nominal fee for sending its employees to India to assist theassessee in marketing / negotiating a big contract?

3. In Query 1(a) above, would the AO be justified in passing an order under section 201 of the Act in respect of the payment ofRs.5.50 crores paid to E Co for GABO support services if E Co sent 12 of its employees to render GABO support servicesunder the agreement for a period of 31 days on the ground that the said employees constituted a Service PE in India?

.

Service PE, Installation PE and Fees for Included Services 39

Queries – 1a). Does E Co have a Service PE in India?Under the India- UK DTAA

Article 5 – Permanent Establishment(2) - The term "permanent establishment" shall include especially :

“(k) the furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and fees fortechnical services), within a Contracting State by an enterprise through employees or other personnel, but only if:

i. activities of that nature continue within that State for a period or periods aggregating more than 90 days within anytwelve-month period; or

ii. services are performed within that State for an enterprise within the meaning of paragraph 1 of Article 10 (Associatedenterprises) and continue for a period or periods aggregating more than 30 days within any twelve-month period”

Article 10 – Associated Enterprises“Where 1. (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of anenterprise of the other Contracting State, or(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting Stateand an enterprise of the other Contracting State,and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations w whichdiffers from those which would be made between independent enterprises, then any profits which would, but for those conditions,have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits ofthat enterprise and taxed accordingly.”


Queries – 1a). Does E Co have a Service PE in India?

Literal Interpretation

Since services are rendered by AE in India is for more that 30 days (i.e. 20 days for GABO + 60 days for marketing service),there is a Service PE


Queries – 1a). Does E Co have a Service PE in India?Literal Interpretation may give absurd results

Contrary to an ordinary taxing statute, a tax treaty must be given a liberal interpretation with a view to implement the trueintentions of the parties – UOI v Azadi Bachao Andolan – (2003) 263 ITR 706 (SC).

Assuming two services on a stand-alone basis with only 1 day activity for GABO Services:

• If only 1 day activities of GABO services carried on in India – No Service PE / Taxation in India since < 30 days

• If only marketing activity for 60 days – No Service PE / taxation for E Co.

• However if only 1 day of GABO service – 61 days – E Co would have a Service PE - Absurd

I Co


E Co

(UK Company)

Outside India

India

60%Marketing activity(60 days,, Rs. Nil)

E Co sends it employees only for marketing services

No tax in India asno income is

earned


I Co


E Co

(UK Company)

Outside India

India

60%


support services(1 day, Rs.5.5

crores)

E Co sends it employees only for GABO services

No tax in India asthe number ofdays for whichemployees are

sent < thresholdunder 5(2)(k)(ii)

42


• To overcome the absurd outcome of the literal interpretation we would need to apply the following principles:

i. Activities which do not result into profit should not be considered for determining the existence of a Service PE

ii. If ‘A’ activity / service (marketing) which does not result in any income from ‘B’ activity (GABO), then the number of days for‘A’ activity (marketing) should not be added to the number of days for ‘B’ Activity (GABO) for determining the existence ofService PE from ‘B’ Activity?

• Do we have any Judge made law (case law) laying down the above principles?

ACIT v EPCOS AG, Germany – (2009) 28 SOT 412 (Pune) – Where no income is derived (as in the case of the employees ofE Co assisting the assessee for marketing / negotiating a big contract for which no fee was charged), determination of a PE ismeaningless

“…When the PE carries on an activity which does not serve overall purpose of the foreign enterprise, or which does notcontribute to profits of the enterprise, the existence of such a PE is wholly academic and does not have any tax implications inthe source jurisdiction….

In the face of it, when a PE is not engaged in a critical activity having some contribution to overall profits of the enterprise or arevenue generating activity, the exercise to ascertain whether or not a PE is in existence is a meaningless ritual and an emptyformality…”



Reuters Ltd v DCIT (IT) – (2015) 63 taxmann.com 115 (Mum- Trib)

The assessee a tax resident of United Kingdom entered into a distribution agreement with RIPL and provided it ‘ReutersServices’ under the said agreement for which no employees were sent to India. The assesee earned distribution fee. Theassessee had also deputed one, 'S', as Bureau Chief of Bombay who was to operate as a Chief Reporter who was present inIndia for a period of 7 months (more than 30 days as provided under the DTAA).

Question before the Tribunal – Whether the assessee had a Service PE in India due to the services performed by S?

“There is no furnishing of services by the Bureau Chief (comparable to employees sent for marketing services) to the RIPLwhich has lead to earning of a distribution fee (Comparable to GABO Fees) to the assessee.

Thus, it cannot be held that the News Bureau Chief (comparable to employees sent for marketing services) constitute aservice PE in India for the assessee to the Article 5(2)(k) as he has not furnished any services in India on which the assesseehas earned the distribution fee (comparable to GABO fees). In view of findings given above, it is held that neither under Article5(2)(k) nor under Article 5(4), read with Article 5(5), the assessee had a PE in India and, therefore, the distribution fee(comparable to GABO fees) received by the assessee could not be held to be taxable in India…”


Queries – 2. If E Co charged a nominal fee for the employees sent to India to assist in marketing /negotiating a big contract, would it constitute a Service PE?

• If marketing activities are not charged for – No service PE / Taxation for GABO services (see earlier slide)

• Merely since £ 1 is charged for marketing – there cannot be a Service PE / taxation for GABO services

• The decision in the case of Reuters Ltd v DCIT (IT) – (2015) 63 taxmann.com 115 (Mum- Trib) (provided above) will apply

• Thus where marketing activities are charged for and number of days for marketing services exceeds 30 days, there will beonly one Marketing Service PE and income earned from the said activity would be taxable.

• However, as GABO Service PE will not exist (since period of stay of employees < 30 days as provided in Article 5(2)(k), theservices of Rs. 5.50 crores will not be taxable in India.


Queries – 2. If E Co charged a nominal fee for the employees sent to India to assist in marketing /negotiating a big contract, would it constitute a Service PE?• The above discussion leads to an inference / concept of 2 or more PEs which seems contrary to the language of the India-UK

DTAA as far as services from AEs are concerned

Article 5 – Permanent Establishment

• (2) - The term "permanent establishment" shall include especially :

“(k) the furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and fees fortechnical services), within a Contracting State by an enterprise through employees or other personnel, but only if:

i. activities of that nature continue within that State for a period or periods aggregating more than 90 days within anytwelve-month period; or

ii. services are performed within that State for an enterprise within the meaning of paragraph 1 of Article 10 (Associatedenterprises) and continue for a period or periods aggregating more than 30 days within any twelve-month period”

• The Supreme Court in UOI v Azadi Bachao Andolan – (2003) 263 ITR 706 (SC) held that contrary to an ordinary taxingstatute, a tax treaty must be given a liberal interpretation with a view to implement the true intentions of the parties.


Queries – 2. If E Co charged a nominal fee for the employees sent to India to assist in marketing /negotiating a big contract, would it constitute a Service PE?

• If we consider all treaties(other than US / UK / Canada / Singapore) –

DTAAs not differentiating between AEs and Non-AEs and not referring to “same or connected projects”“The furnishing of services, including consultancy or managerial services, by an enterprise of a Contracting State throughemployees or other personnel engaged by the enterprise for such purpose, in the other Contracting State constitutes apermanent establishment only if activities of that nature continue for a period or periods aggregating 183 days / 90 days ormore within any twelve-month period..”

DTAAs not differentiating between AEs and Non-AEs and using the term “same or connected project”“The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engagedby the enterprise for such purpose constitutes a permanent establishment, but only where activities of that nature continue (forthe same or connected project) within the country for a period or periods aggregating more than 183 days / 90 / 91 days withinany 12-month period.”

• All treaties recognise the concept of existence of more than 1 Service PE

• For US / Canada one day of service from AE can lead to a Service PE and the concept of 2 Service PEs is not relevant

• However, for UK / Singapore the literal interpretation would give absurd results and may be contrary to the intention of Indiavisibly demonstrated in Treaties with other countries.


Queries – 3. Would E Co constitute a Service PE of the 12 employees were in India for 31 days? If so, howmuch income could be attributed to the impugned Service PE?

E Co would constitute a Service PE under Article 5(2)(k)(ii) for GABO services as

• The number of days of stay of 12 employees i.e. 31 days> threshold limit of 30 days, and

• E Co earns income from such activity

Attribution of income to the Service PE:

Article 7 of the India – UK DTAA

“1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on businessin the other Contracting State through a permanent, establishment situated therein. If the enterprise carries on business asaforesaid, the profits of the enter price may be taxed in the other State but only so much of them as is directly or indirectlyattributable to that permanent establishment.

5. Subject to paragraphs 6 and 7 of this Article, in the determination of the profits of a permanent establishment, there shall beallowed as deduction expenses which are incurred for the purposes of the business of the permanent establishment, includingexecutive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situatedor elsewhere, which are allowed under the provisions of and subject to the limitations of the domestic law of the Contracting Statein which the permanent establishment is situated.”


Queries – 3. Would E Co constitute a Service PE of the 12 employees were in India for 31 days? If so, howmuch income could be attributed to the impugned Service PE?Attribution of income to the Service PE:

Per Article 7, what is to be attributed are the profits of the PE. Since the fee charged by E Co was at cost plus 10 percent i.e. Rs.5.50 crore, the profits earned is the 10 percent mark-up i.e. Rs.5.50 crore x 10 / 110 = Rs.50 lakhs. – Dimension Data Asia Pacific(Pte) Ltd v DCIT (IT) – (2016) 67 taxmann.com 326 (Mum-Trib)

How much attributable to India?

Only that much of profits can be included in taxable income of a foreign enterprise which are attributable to business carried onby it in India through its PE. Fees received for providing management services from outside India could not be attributed to a PEin India – DIT v WNS Global Services (UK) Ltd – (2013) 32 taxmann.com 53 (Bom), DIT (IT) v Ishikawajima Harima Heavy IndsCo Ltd – (2013) 29 taxmann.com 75 (Bom) and ADIT v Lucent Technologies International Inc – (2014) 48 taxmann.com 373 (Del)Rule 10 of the Rules - Determination of income in the case of non-residents

In any case in which the Assessing Officer is of opinion that the actual amount of the income accruing or arising to any non-residentperson whether directly or indirectly, through or from any business connection in India or through or from any property in India or throughor from any asset or source of income in India or through or from any money lent at interest and brought into India in cash or inkind cannot be definitely ascertained, the amount of such income for the purposes of assessment to income-tax may be calculated:i. at such percentage of the turnover so accruing or arising as the Assessing Officer may consider to be reasonable, orii. on any amount which bears the same proportion to the total profits and gains of the business of such person (such profits and gainsbeing computed in accordance with the provisions of the Act), as the receipts so accruing or arising bear to the total receipts of thebusiness, oriii. in such other manner as the Assessing Officer may deem suitable


Queries – 3. Would E Co constitute a Service PE of the 12 employees were in India for 31 days? If so, howmuch income could be attributed to the impugned Service PE?

How much attributable to India?

Option 1 – On the basis of turnover

* Since turnover in India constitutes 5 percent of Global Turnover

However, this computation does not reflect the true profits attributable to India and may be considered as the highest amountattributable


Particulars Amount (in INR)

Profits earned by E Co Rs. 5.50 crores x 10 / 110 Rs.50 lakhs

Profits Attributable to the Service PE Rs. 50 lakhs x 5 percent* Rs.2.5 lakhs

50

Queries – 3. Would E Co constitute a Service PE of the 12 employees were in India for 31 days? If so, howmuch income could be attributed to the impugned Service PE?How much attributable to India?

Option 3 – On the basis of man days for which employees were present in India vis-à-vis total number of man days ofemployees of E Co (in and outside India) for GABO services to the assessee

Option 1 resulting in attribution of Rs.2.5 lacs is therefore a better option.

However, if the man days in India < 108 days i.e. say number of employees are 5 or less (for 20 days) or if number of days inIndia are 5 or less (for 12 employees), Option 2 maybe a better option to work out attribution.


Particulars Computation Amount (in INR)

Total man days 180 employees x 260 days (assuming 5 working days x 52weeks)

46,800 days

Total man days attributableto India

46,800 days x 5 percent (since India’s turnover is 5% of theglobal turnover)

2,340 days

Man Days in India 31 days x 12 employees 372 days

Profits Attributable 50 lacs x 372 days / 2,340 days Rs.794,880

51

Queries – 1b. Installation and after sales activities by C Co – FTS and / or Installation PE?

Under the Act – Section 5(2) and Section 9(1)(vii)

“5. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes allincome from whatever source derived which—

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year.”

“9.(1) The following incomes shall be deemed to accrue or arise in India :—

(vii) income by way of fees for technical services payable by—

Explanation 2.—For the purposes of this clause, "fees for technical services" means any consideration (including any lump sumconsideration) for the rendering of any managerial, technical or consultancy services (including the provision of services oftechnical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertakenby the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".”

•



Installation activities may come within the purview of construction / assembly and thus not FTS which is deemed to accrue / arisein India

ITO v Bennet Coleman & Co Ltd – TS-684-ITAT-2014 (Mum) – ITA No 57 / Mum / 2009

“…The definition of the word “assembly” does not appear in the Act and hence the word has to be interpreted as understood incommon parlance… When a collection of units or components are aligned and positioned after being put together so as to ensuretheir proper operation and functioning it would certainly qualify as “assembly”..Consequently, insofar as the consideration paid toFERAG AG, related to installation and commissioning of the units and components of the mailroom equipment, the same will notfall within the purview of ‘Fees for Technical Services” as defined in Explanation 2 to Section 9(1)(vii) of the Act.”

ITO v National Mineral Development Corporation Ltd – (1992) 42 ITD 570

“Erecting a conveyor belt is a form of construction. There is nothing to suggest what type of construction is contemplated by thatword used in s. 9(1)(vii). If loose parts of a machinery are assembled it can also be called as construction of the machine…Therefore, we hold that the assessee would come within Explanation 2 to s. 9 (1)(vii) and the payments sought to be made forwhich No Objection Certificates were sought to be obtained for asst. yrs. 1985-86 and 1986-87 cannot be said to be fees fortechnical services.”


Queries – 1b. Installation and after sales activities by C Co – FTS and / or Installation PE?• Birla Corporation Ltd v ACIT – (2015) 53 taxmann.com 1 (Jabalpur – Trib)

“In a situation in which a part of the consideration for purchases of plant, machinery or equipment can be attributed to the installation,commissioning or assembly of the plant and equipment, or any supervision activity in connection thereto, to that extent, theconsideration paid to the vendor can indeed be taxable in India under section 5(2)(b). That element of the income clearly accrues andarises in India since the related economic activity is performed in India. As the income accrues and arises in India, there is no need tolook at the deeming fiction under section 9(1)(vii) which deals only with an income which is deemed to (Emphasis by underliningsupplied by us) accrues or arises in India. Something which accrues and arises in India need not be deemed to accrue and arise inIndia as well. That precisely seems to be the reason as to why the definition of 'fees for technical services' under Explanation 2 toSection 9 (1)(vii) specifically excludes "consideration for any construction, assembly, mining or like project undertaken by therecipient". Even though this exclusion clause does not make a categorical mention about 'installation, commissioning or erection' ofplant and equipment, these expression, belonging to the same genus as the expression 'assembly' used in the exclusion clause andthe exclusion clause definition being illustrative, rather than exhaustive, as evident from the expression 'or like project undertaken bythe recipient, the installation, commissioning and erection of plant and equipment are also, in our considered view, covered by thisexclusion clause. The common thread, and the highest common factor, in all the three activities set out in the exclusion clause, i.e.construction, assembly and mining, is that all these activities are carried out at the project site in India, and that factor is also present ininstallation, commissioning and erection. In any case, once we come to the conclusion, as seems to be free from any doubt orcontroversy, that income as a result of such activities, as installation, commissioning, erection or assembly of a plant, machinery orequipment, in Indian accrues or arises in India and is, therefore, taxable, if at all can be taxed, under section 5, there cannot be anyoccasion to invoke the deeming fictions under section 9, nor have the authorities below invoked this deeming fiction either..”

There are two conflicting views on whether installation activity would be taxable. The reasoning in the Birla judgmentseems to have greater merit and therefore, installation activities of C Co may be taxable in India under section 5.



India-China DTAA

Article 12(4) – 12 “(4) The term "fees for technical services" as used in this Article means any payment for the provision ofservices of managerial, technical or consultancy nature by a resident of a Contracting State in the other Contracting State, butdoes not include payment for activities mentioned in paragraph 2(k ) of Article 5 and Article 15 of the Agreement.”

Article 5(2)(j) – “5 (2). The term "permanent establishment" includes especially :

(j) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where suchsite, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 183days;”

• Specific Installation PE clause (and not general FTS) to be applied

Gujarat Pipavav Port Ltd v ITO (IT) – (2016) 67 taxmann.com 370 (Mum- Trib) Birla Corporation Ltd v/s ACIT - (2015) 53 taxmann.com 1 (Jab ITAT) , Horizontal Drilling International S.A, In Re - (1999) 237 ITR 142 (AAR), Aditya Birla Nuvo Ltd v/s ADIT - (2011) 44 SOT 601 (Mum ITAT)

Accordingly the installation activities fall under Article 5(2)(j) and cannot be taxed as FTS.



Whether C Co has an Installation PE in India?

India-China DTAA

Article 5(2)(j) – “5 (2). The term "permanent establishment" includes especially :

(j) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where suchsite, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 183days;”

C Co sends its employees to India for a period of 185 days:• 155 days for installation of cranes• 30 days for after sales services

• Since the after sales activities do not come within the purview of activities such as construction, installation or assembly, theperiod of after sales is to be excluded while computing the threshold of 183 days

Therefore, excluding after sales services – number of days in India = 155 days < 183 threshold as per Article 5(2)(j) andtherefore there is no installation PE in India and therefore though the installation activity (being technical in nature) mayamount to FTS under the India- China DTAA (in the absence of “make available”) it will not be taxable in India.



After sales activities carried out by C Co , whether FTS ?

• It may be possible to argue that after sales activities may not even arise if the cranes function well for 30 days andthat therefore the same are provided Free of Cost (‘FOC’)

• Alternatively, assuming it does amount to FTS under the India-China DTAA (in the absence of “make available”) itmay be possible to contend that it is inextricably linked to sale of cranes and therefore in the nature of businessincomes (and not FTS) and therefore not taxable in the absence of a PE.

• DDIT (IT) v Avaya Global Connect Ltd – (2011) 43 SOT 439 (Mum)Technical services for activation of enhanced features of equipment supplied by the assessee which were embedded in thehardware at the time of sale, were inextricably linked to the sale of the equipment and therefore could not be taxed as FTS.

• ACIT v Woodword Governors India P Ltd – (2007) 15 SOT 362 (Del) – (in the context of Section 80IB)“As the assessee is engaged in the business of manufacture and sale of high precision governors and other control devices.Given the high technical precision it is incumbent upon the when the need arises provide after sales service and repair suchproducts for their continued efficient use. Admittedly, all these activities are carried out by the undertaking itself and onlysupplement the manufacturing activity being carried out by the undertakingassessee to not only adequately train thecustomers’ employees to be able to use such products but as and”.


Queries – 1c. Does review of design amount to development of design / make available technology andtherefore does payment for the same amount to FIS?/Does review of design by U Co amount to FIS under the India-US DTAA?

• Gujarat Pipavav Port Ltd v ITO (IT) – (2016) 67 taxmann.com 370 (Mum- Trib)“All the services related with audit and construction of cranes were availed out of India...Therefore, there was not any transferof technical plan/design by Liftech to assessee and that nothing was 'made available' to the assessee in India. Once it is heldthat provisions of article 12 of the DTAA are not applicable… Here, one more thing has to be considered that the assesseehad availed a commercial service pertaining to review of pre-determined designs and construction audit of cranes while theywere being manufactured. In other words, Liftech had not provided any know-how to the assessee for manufacturing ofcranes”

• ACIT v Viceroy Hotels Ltd – (2012) 143 TTJ 0627 (Hyd)The services rendered by M do not fit into either of the categories defined in art. 12(4)(a) or 12(4)(b) since the services do notinvolve technical expertise nor does it make available any technical know-how plan, design etc. What is being done by M isbasically inspection of the hotel, reviewing the facilities, comparing the same with M’s standards and suggestingimprovements/change wherever required to meet the M standard. Generally speaking technology will be made available whenthe person acquiring the service is enabled to apply the technology…it is thus clear that M themselves are not preparing andtransferring any drawing, designs, technical plan etc. They are simply reviewing, what is being done by the parties engaged fordesigning and upgrading the hotel. In view of this, the fees paid to M will not fall within the ambit of fees for includedservices…


Queries – 1c. Does review of design amount to development of design / make available technology andtherefore does payment for the same amount to FIS?

What if the designs furnished by U Co were in modification of designs provided by the assessee (with or without predeterminedstandards?

• Worley Parsons Pty Ltd in Re – (2009) 313 ITR 74 (AAR)

The Revenue’s representative has argued that the ‘make available’ criterion is satisfied in the instant case for the reason thatthe review and report would help or assist ONGC to make use of the information while interacting with the bidders andpreparing tender documents insofar as the Contract No. 1 is concerned. For the reasons stated supra we cannot accept thisargument which proceeds on a misinterpretation of the phrase ‘make available’…. Assuming that the applicant has furnishedcertain designs in modification of the designs prepared by the third party…. the essence of the transaction is not developmentand transfer of a technical design or plan…The purpose of agreement was for provision of services and not for supply ortransfer of technical plan or.”

Considering the above, it can be argued that even if U Co provided the assessee with modified designs it wouldn’tamount to FIS. However, depending on the facts of the each case, modification of design may amount to makingavailable technical knowledge.


Key TakeawaysService PE

11. Where ‘A’ service does not contribute to income under ‘B’ Activity / service, the period of providing ‘A’ service is not to be aggregatedwith the period of ‘B’ Activity / Service for determining existence of a PE (Reuters Ltd v DCIT (IT) – (2015) 63 taxmann.com 115 (MumTrib)

Also, the period for provision of one type of service cannot be aggregated with the period of provision of another service for determingService PE unless both services are of the same nature

Installation PE / After sales service

12. Installation activity even if FTS under the Treaty (in the absence of make available clause) would be governed by the Installation PEArticle and if the period during which the activity of installation is carried out < threshold limit provided in the said Article, the fee forthe same would not be taxable.

13. While computing the threshold limit of days for determining installation PE, the period of after sales services is to be excluded

14. Depending on the facts of each case, it may be possible to argue that the after sales service is provided free of cost or that it isinextricably connected to sales and therefore not taxable in the absence of PE (even if the same is technical in nature)

Review of Designs / Modification of designs

15. Review / modification of designs (with or without pre-determined standards) does not make available technology etc nor does itamount to transfer of technical plan / design and therefore not FIS

16. Modification of designs (in the absence of pre-determined standards) may or may not make available technology etc - Depending onthe facts of each case.


Facts

1. ABC, a closely held company engaged in the business of bankingand financial services holds 50 percent stake in an Indian PrivateSector Bank viz, LMN Pvt Ltd (‘LMN’) through its wholly ownedsubsidiary G Co, Germany, also engaged in the same business.The balance 50 percent stake in LMN is owned by a closely heldcompany, resident of Korea viz K Co, and PQR Pvt Ltd, India in theratio of 24 percent and 26 percent, respectively.

2. ABC’s business was no longer operational due to the financialdifficulty arising out of the sub-prime crisis. However, itssubsidiaries G Co and LMN were fully operational. The value of theshares of LMN (Rs.120 crores) held by G Co constituted 60percent of the value of all its assets. ABC could not continue itsbusiness and therefore decided to sell its stake in G Co and closedown. . Due to the financial state of the ABC Group, no buyerproposed to purchase the stake in G Co. However, K Co and PQRPvt Ltd, already holding shares in the underlying asset of G Cooffered to purchase the stake in G Co. After prolongednegotiations, due to the hit in reputation of the ABC Group and therequirement of ABC to sell its properties, ABC sold the shares of GCo to K Co and PQR Pvt Ltd in equal proportion at a cut price (lessthan FMV under Rule 11UA) arrived at during their negotiations

Application of section 56(2)(viia) of the Income-tax Act, 1961 (‘the Act’) vis-à-vis crossborder transfer of shares

PQR Pvt Ltd(India)

India

Outside India

ABCUSA

G Co,Germany

LMN Pvt Ltd(India)

K Co,Korea

24%

50%

26%

100%

ABC Inc transfersone-half of the

shares held in GCo to K Co

ABC Inc transfersone-half of the

shares held in GCo to PQR Pvt

Ltd

K Co’s stake inLMN Pvt Ltd

indirectlyincreases by 25%

PQR Pvt Ltd’sstake in LMN Pvt

Ltd indirectlyincreases by 25%

61

Queries

1. What are the income-tax implications in the hands of K Co in the following situations:

a. ABC transfers the shares of G Co (which in turn holds shares in LMN Pvt Ltd) to K Co at a discounted price (as indicated inthe diagram)

b. ABC transfer shares of G Co to K Co, at a discounted price, assuming that G Co never held any shares in LMN Pvt Ltd (i.e.G Co has no underlying asset in India)

c. ABC directly holds shares in LMN Pvt Ltd and transfers the said shares to K Co at a discounted price?

2. What would be the income-tax implications in the hands of the recipient of shares in situation 1(c) above, if the recipient wasa closely held company, resident in Switzerland as (opposed to K Co)?

3. What would be the income-tax implications in the hands of the recipient of shares in 1 (c) above, assuming that the recipientis Singapore based company which had its shares listed on the Singapore stock exchange?

4. What are the income-tax implications in the hands of PQR Ltd in the following situations:

a. ABC transfers the shares of G Co (which in turn holds shares in LMN Pvt Ltd) to PQR Ltd at a discounted price (as indicatedin the diagram)

b. ABC transfer shares of G Co to PQR Ltd, at a discounted price, assuming that G Co does not hold shares in LMN Pvt Ltdc. ABC directly holds shares in LMN Pvt Ltd and transfers the said shares to PQR Ltd at a discounted price.

Application of section 56(2)(viia) of the Income-tax Act, 1961 (‘the Act’) vis-à-vis crossborder transfer of shares 62

1b. K Co’s income tax implications - where ABC transfers shares of G Co(assuming G Co has no underlying assets in India ) to K Co below fairmarket value

Under the Act

Definition of income – Section 2(24)

“In this Act, unless the context otherwise requires,

…(24) "income" includes -

…(xv) any sum of money or value of property referred to in clause (vii) orclause (viia) of sub-section (2) of section 56;…”


India

OutsideIndia

ABCUSA

G Co,Germany

LMN Pvt Ltd(India)

K Co,Korea

24%100%

ABC Inctransfers one-

half of theshares held inG Co to K Co

1b. K Co’s income tax implications - where ABC transfers shares of G Co(assuming G Co has no underlying assets in India ) to K Co below fair marketvalue

Income from other sources – Section 56

Section 56(2)(viia) – “...(2) In particular, and without prejudice to the generality of theprovisions of sub-section (1), the following incomes, shall be chargeable to income-taxunder the head "Income from other sources", namely :…

(viia) where a firm or a company not being a company in which the public aresubstantially interested, receives, in any previous year, from any person or persons, onor after the 1st day of June, 2010, any property, being shares of a company not being acompany in which the public are substantially interested,—

(i) without consideration, the aggregate fair market value of which exceeds fiftythousand rupees, the whole of the aggregate fair market value of such property;(ii) for a consideration which is less than the aggregate fair market value of the propertyby an amount exceeding fifty thousand rupees, the aggregate fair market value of suchproperty as exceeds such consideration

Therefore on a literal interpretation shares of G Co received by K Co becomes incomeof K Co under section 56(2)(viia).


India

OutsideIndia

ABCUSA

G Co,Germany

LMN PvtLtd (India)

K Co,Korea

24%100%

ABC Inctransfers

one-half ofthe sharesheld in G

Co to K Co

1b. K Co’s income tax implications - where ABC transfers shares of G Co(assuming G Co has no underlying assets in India ) to K Co below fair marketvalue

Scope of total income.- Section 5

5. (1) Subject to the provisions of this Act, the total income of any previous year of a person whois a resident includes all income from whatever source derived which—(a) is received or is deemed to be received in India in such year by or on behalf of such person; or(b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or(c) accrues or arises to him outside India during such year :Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be soincluded unless it is derived from a business controlled in or a profession set up in India.

“..(2) Subject to the provisions of this Act, the total income of any previous year of a person whois a non-resident includes all income from whatever source derived which—(a) is received or is deemed to be received in India in such year by or on behalf of such person; or(b) accrues or arises or is deemed to accrue or arise to him in India during such year…”

However, since shares of G Co are not received or deemed to be received in India, K Cowould not be taxable on receipt of the said shares under section 56(2)(viia)


India

OutsideIndia

ABCUSA

G Co,Germany

LMN PvtLtd (India)

K Co,Korea

24%100%

ABC Inctransfers


Co to K Co

Queries – 1a. K Co’s income tax implications - where ABC transfersshares of G Co (which holds shares in LMN Pvt Ltd) to K Co below fairmarket value

Can the AO tax the receipt of G Co’s shares by K Co at a value below the fair market value in thehands of K Co, on the ground that G Co has an underlying asset in India by invoking Explanation5 to Section 9(1)(i) of the Act in Section 56(2)(viia)?

Income deemed to accrue or arise in India.“9. (1) The following incomes shall be deemed to accrue or arise in India :—(i) all income accruing or arising, whether directly or indirectly, through or from any businessconnection in India, or through or from any property in India, or through or from any asset orsource of income in India, or through the transfer of a capital asset situate in India…

Explanation 5.—For the removal of doubts, it is hereby clarified that an asset or a capital assetbeing any share or interest in a company or entity registered or incorporated outside India shall bedeemed to be and shall always be deemed to have been situated in India, if the share or interestderives, directly or indirectly, its value substantially from the assets located in India…”

Explanation 6.—For the purposes of this clause, it is hereby declared that—(a) the share or interest, referred to in Explanation 5, shall be deemed to derive its valuesubstantially from the assets (whether tangible or intangible) located in India, if, on the specifieddate, the value of such assets—(i) exceeds the amount of ten crore rupees; and(ii) represents at least fifty per cent of the value of all the assets owned by the company or entity,as the case may be;


India

OutsideIndia

ABCUSA

G Co,Germany

LMN PvtLtd (India)

K Co,Korea

24%

50%

100%

ABC Inctransfers

one-half ofthe shares

held in G Coto K Co

K Co’sstake in

LMN Pvt Ltdindirectlyincreases

by 25%

66

Queries – 1a. K Co’s income tax implications - where ABC transfers shares of G Co (which holds shares inLMN Pvt Ltd) to K Co below fair market value

Deeming provisions / legal fiction cannot go beyond the purpose for which the deeming was done / fiction was enacted.

Thus K Co would be taxable in India in respect of receipt of shares of G Co (having underlying asset in India) under section56(2)(viia) read with Explanation 5 to Section 9(1)(i).

However the issue arises whether Explanation 5 to Section 9(1)(i) can be imported into Section 56(2)(viia)

The answer seems to be NO for the following 2 reasons:

Reason 1:

a. The deeming provision in Explanation 5 was introduced so as to tax the transferor earning gains by indirectly transferringassets in India; and

b. As per settled Law, the deeming provisions (introduced in Section 9(1)(i) with the object to tax the transferor) cannot beextended beyond the object for which the fiction was enacted [so as to tax the transferee K Co under section 56(2)(viia)]

Reason 2: Explanation in one provision [Section 9(1)(i)] cannot be imported into another [ Section 56(2)(viia)]


Queries – 1a. K Co’s income tax implications- where ABC transfers shares of G Co (which holds shares inLMN Pvt Ltd) to K Co below fair market value

Reason 1 a). Deeming provision in Explanation 5 was introduced so as to tax the transferor earning gains by indirectlytransferring assets in India; and

Relevant extract Memorandum of Finance Bill 2012 introducing Explanation 5 to Section 9(1)(i)

“…Sub-section (1)(i) provides a set of circumstances in which income accruing or arising, directly or indirectly, is taxable in India.One of the limbs of clause (i) is income accruing or arising directly or indirectly through the transfer of a capital asset situate inIndia…Certain judicial pronouncements have created doubts about the scope and purpose of sections 9 and 195. Further, there arecertain issues in respect of income deemed to accrue or arise where there are conflicting decisions of various judicial authorities.Therefore, there is a need to provide clarificatory retrospective amendment to restate the legislative intent in respect of scope andapplicability of section 9 and 195 and also to make other clarificatory amendments for providing certainty in law…”



Vodafone International Holdings BV v Union of India & Anr., (2012) 6 SCC 613, pp.672, 673 - The Supreme Court held that aforeign company transferring shares of a foreign company (having underlying assets / value / shares in India) to another foreigncompany could not be taxed in India by holding

“The Legislature has not used the words indirect transfer in section 9(1)(i ). If the word 'indirect' is read into section 9(1)(i), itwould render the express statutory requirement of the 4th sub-clause in section 9(1)(i) nugatory. This is because section 9(1)(i)applies to transfers of a capital asset situate in India…Section 9(1)(i) covers only income arising or accruing directly or indirectly or through the transfer of a capital asset situated inIndia. Section 9(1)(i ) cannot by a process of "interpretation" or "construction" be extended to cover "indirect transfers" of capitalassets/ property situate in India…”



Reason 1b - Legal fictions / deeming provisions are created only for a definite purpose and they are limited to thepurpose for which they are created and should not be extended beyond their legitimate field

• Atwal (HS) v Union of India AIR 1994 SC 2531 & CIT v P K Badiani (1970) 76 ITR 369, 376 (Bom)

• Mancheri Puthusseri Ahmed v Kuthiravattam Estate Receiver, AIR 1997 SC 208, 214, (1996) 6 SCC 185, 195, relying on CIT vShakuntala, (1961) 43 ITR 352, 357 (SC);

• CIT v Moon Mills Ltd., (1966) 59 ITR 574, 579 (SC)]

• State of Bombay v Pandurang Vinayak Chaphalkar, (1953) SCR 773;

• Bengal Immunity Company Ltd v State of Bihar, (1955) 2 SCR 603, 702,(1955) 6 STC 446, 534 (SC)

• CIT v Elphinstone Spinning & Weaving Mills Co., (1960) 40 ITR 142, 154 (SC);

• Rajputana Trading Co.Ltd. v CIT, (1969) 72 ITR 286

• CIT v Hindustan Petroleum Corporation Ltd. (1991) 187 ITR 1, 11 (Bom)

• K R Venkitaperumal Raja v CIT, (1992) 193 ITR 213, 218 (Ker)

• H.S.Atwal v Union of India, AIR 1994 SC 2531, 2533



Reason 2: Explanation or meaning from one provision [Section 9(1)(i)] cannot be used for another provision unlessexpressly permitted [eg: Section 194J allows the import of definition of royalty from Section 9(1)(vi)]

Decisions of the Courts regarding importing Explanations of one Section / Article into another

• State of Bombay v United Motors (India)Ltd. AIR 1953 SC 252 - 1953 SCR 1069

• CIT vs Venkateswara Hatcheries (P)Ltd (1999) 237 ITR 174 (SC)

Conclusion – Under the Act, K Co would not be liable to tax.



Conclusion

Therefore in 1(a), K Co may not be taxable in India under section 56(2)(viia) as the shares of G Co (having underlying asset inIndia) cannot be deemed to be received in India under section 5(2) since it may not be legally permissible to import Explanation 5to Section 9(1)(i) into Section 56(2)(viia).


Queries – 1c. K Co’s income tax implications - assuming ABC directly holdsshares in LMN Pvt Ltd and transfers shares of LMN Pvt Ltd to K Co below fairmarket value

Under the Act

As per Section 5(2), the source of income i.e. income under section 56(2)(viia), beingreceipt of Indian shares (shares of LMN Pvt Ltd) below fair market value is in India andtherefore K Co is taxable in India as ‘Income from Other Sources’

Under the India-Korea DTAAOther Income – Article 23

“Items of income of a resident of a Contracting State, wherever arising, not dealt with inthe foregoing Articles of this Convention, shall be taxable only in that State.”

As per Article 23 of the India – Korea DTAA, the impugned other income shall betaxable only in Korea.

Conclusion – Under the Act, the receipt of shares would be taxable in the handsof K Co as Income from Other Sources. However, as per the India-Korea DTAA, KCo would not be taxed in India and would be taxed only in Korea, if taxable as perKorean Laws.


India

OutsideIndia

ABCUSA

LMN PvtLtd (India)

K Co,Korea

24%50%

ABC Inctransfers

shares heldin LMN PvtLtd to K Co

73

Queries – 1c. K Co’s income tax implications - assuming ABC directly holds shares in LMN Pvt Ltd andtransfers shares of LMN Pvt Ltd to K Co below fair market value

Other Treaties having same / similar provision as Korea

• Philippines

• Mauritius (Pre Amendment)

• Kuwait

• Nepal

• Saudi Arabia

• UAE


Queries – 2. Tax implications of transaction 1(c) - if the recipient was a closelyheld company resident of Switzerland as opposed to K Co?

Under the Act

As per Section 5(2), the source of income i.e. income under section 56(2)(viia), beingreceipt of Indian shares (shares of LMN Pvt Ltd) below fair market value is in India andtherefore Swiss Co is taxable in India as ‘Income from Other Sources’

Conclusion – The receipt of shares would be taxable in the hands of Swiss Co.


India

OutsideIndia

ABCUSA

LMN PvtLtd (India)

Swiss Co

24%50%

ABC Inctransfers


75

Queries – 2. Tax implications of transaction 1(c) - if the recipient was a closely held company resident ofSwitzerland as opposed to K Co?

Under the India-Swiss Confederation DTAA

Other Income - Article 22“1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this

Agreement shall be taxable only in that State.

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the otherContracting State through a permanent establishment situated therein, or performs in that other State independent personalservices from a fixed base situated therein, and the right or property in respect of which the income is paid is effectivelyconnected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the casemay be, shall apply.

3. Notwithstanding the provisions of paragraph 1, if a resident of a Contracting State derives income from sources within theother Contracting State in the form of lotteries, crossword puzzles, races including horse races, card games and other gamesof any sort or gambling or betting of any form or nature whatsoever, such income may be taxed in that other ContractingState.”


Queries – 2. Tax implications of transaction 1(c) - if the recipient was a closely held company resident ofSwitzerland as opposed to K Co?

Under the India-Swiss Confederation DTAA

Conclusion: Under the India-Swiss Confederation DTAA, Swiss Co shall not be liable to tax in India, since the DTAAdoesn’t provide India with the right to tax income under section 56(2)(viia).


Queries – 3. Tax implications of transaction 1(c) - if the recipient was a listedcompany resident of Singapore as opposed to K Co?

India- Singapore DTAA

Income Not Expressly Mentioned - Article 23

“Items of income which are not expressly mentioned in the foregoing Articles of thisAgreement may be taxed in accordance with the taxation laws of the respectiveContracting States.”

Relevant extract of Section 56(2)(viia)

Section 56(2)(viia) – “...(2) In particular, and without prejudice to the generality of theprovisions of sub-section (1), the following incomes, shall be chargeable to income-taxunder the head "Income from other sources", namely :…(viia) where a firm or a company not being a company in which the public aresubstantially interested, receives, in any previous year, from any person or persons, onor after the 1st day of June, 2010, any property, being shares of a company not being acompany in which the public are substantially interested


India

OutsideIndia

ABCUSA

LMN PvtLtd (India)

S Ltd

24%50%

ABC Inctransfers


78

Queries – 3. Tax implications of transaction 1(c) - if the recipient was a listed company resident ofSingapore as opposed to K Co?

Is S Ltd a company in which the public are substantially interested?

2. In this Act, unless the context otherwise requires -…(18) "company in which the public are substantially interested"—a company is said to be a company in which the public aresubstantially interested…(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditionsspecified either in item (A) or in item (B) are fulfilled, namely :—(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right toparticipate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India inaccordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ;…”

S Ltd, being a foreign company can never be listed on a stock exchange in India as a result of which it would never be possiblefor it to satisfy the definition of company in which the public are substantially interested as provided above even if it was listed ona stock exchange abroad. Therefore, as per section 56(2)(viia) of the Act, S Ltd would be liable to tax on receipt of shares of GCo.



Can S Ltd claim the benefit of Article 26 of the India – Singapore DTAA?

Non-Discrimination – Article 26

“1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirementconnected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of thatother State in the same circumstances and under the same conditions are or may be subjected”

Daimler Chrysler India Pvt Ltd v DCIT – (2009) 29 SOT 202 (Pune) – ITAT allowed the assessee benefit of carry forward of lossesnotwithstanding the applicability of Section 79 on the basis of the assessee’s plea of applicability of the non-discrimination Article of theIndia – Germany DTAA.“In other words, notwithstanding the fact that two Indian subsidiaries are Indian companies and shareholding pattern of their capital has changed,the listing or non-listing of their parent companies in a recognized Indian stock exchange will be determining factor for whether or not the disabilityclause provided by section 79 can be invoked…. The precise point of ownership discrimination was this. When an Indian subsidiary had an Indianparent company shares of which were listed on any recognized stock exchange of its domicile country i.e., India, the Indian subsidiary company wastreated as a company in which public were substantially interested. However, when an Indian subsidiary company had a German parent companyshares of which were listed in any stock exchange in its domiciled country, i.e., Germany, the subsidiary company was not given the status of acompany in which public were substantially interested. There is no rational basis for this differentiation in treatment…In view of the provisions ofarticle 24(4) and in view of the preceding discussions, it was to be held that the disability on carry forward and set-off of accumulated losses onaccount of change in shareholding pattern, under section 79, read with section 2(18), cannot be extended to an Indian subsidiaries of a Germanparent companies as long as German parent companies are listed in a German stock exchange recognized under their domestic laws. To thisextent, the rigour of section 79 must stand relaxed due to treaty override…”



Can S Ltd claim the benefit of Article 26 of the India – Singapore DTAA?

Accordingly, S Ltd being a public listed company on the Singapore Stock exchange can claim the benefit of Article 26(1) of theIndia-Singapore DTAA by contending that it was impossible for it to be listed on a stock exchange in India and therefore cannotbe subjected to taxation / requirements which are more burdensome as compared to nationals of India (Indian public companies).


Queries – 4c. PQR Pvt Ltd’s income tax implications - assumingABC directly holds shares in LMN Pvt Ltd and transfers shares ofLMN Pvt Ltd to PQR Pvt Ltd below fair market value.

Under the Act

PQR Pvt Ltd would be liable to tax under section 56(2)(viia) of the Actsince share of one Indian Pvt Ltd company is transferred to anotherPvt Ltd Indian company.


PQR PvtLtd (India)

India

OutsideIndia

ABCUSA

LMN PvtLtd (India)

50%

26%

ABC Inctransfers

shares heldin LMN PvtLtd to PQR

Pvt Ltd

82

Queries – 4b. PQR Pvt Ltd’s income tax implications -where ABC transfers shares of G Co (assuming G Co hasno underlying assets in India ) to PQR Pvt Ltd below fairmarket value.


PQR PvtLtd (India)

India

OutsideIndia

ABCUSA

G Co,Germany

LMN PvtLtd (India)

50%

26%

100%

ABC Inctransfers


Co to PQRPvt Ltd

83

Literal Interpretation

Based on a literal interpretation, PQR Pvt Ltd would be taxable since it receives shares of aclosely held company for less than its fair market value

Queries – 4a. PQR Pvt Ltd’s income tax implications - whereABC transfers shares of G Co (which holds shares in LMNPvt Ltd) to PQR Pvt Ltd below fair market value.

PQR PvtLtd (India)

India

OutsideIndia

ABCUSA

G Co,Germany

LMN PvtLtd (India)

50%

26%

100%

ABC Inctransfers


Co to PQRPvt Ltd

Queries – 4b. PQR Pvt Ltd’s income tax implications - where ABC transfers shares of G Co (assuming G Cohas no underlying assets in India ) to PQR Pvt Ltd below fair market valuePurposive Interpretation

Section 2(18) – “company in which the public are substantially interested"—a company is said to be a company in which thepublic are substantially interested—

"company in which the public are substantially interested"—a company is said to be a company in which the public are substantiallyinterested—(a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the shares areheld (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank ; or

(aa) if it is a company which is registered under section 25 of the Companies Act, 1956 (1 of 1956) ; or

(ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and otherrelevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested :

Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessmentyear or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in thedeclaration ; or

(ac) if it is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business ofacceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act,1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society ; or


Queries – 4b. PQR Pvt Ltd’s income tax implications - where ABC transfers shares of G Co (assuming G Cohas no underlying assets in India ) to PQR Pvt Ltd below fair market value

Purposive Interpretation(ad) if it is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate inprofits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and werethroughout the relevant previous year beneficially held by, one or more co-operative societies ;

(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item(A) or in item (B) are fulfilled, namely :—

(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were,as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts(Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ;

(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carryingnot less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevantprevious year beneficially held by—(a) the Government, or(b) a corporation established by a Central, State or Provincial Act, or(c) any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiarycompany has been held by the parent company or by its nominees throughout the previous year.

Explanation.—In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture orprocessing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for thewords "not less than fifty per cent", the words "not less than forty per cent" had been substituted ;



Purposive Interpretation

The definition and concept of “company in which the public are substantially interested” in Section 2(18) can only apply to anIndian company and not foreign companies.

Therefore, one may argue that the term “company not being a company in which the public are substantially interested” is to berestricted to Indian companies only and Consequently, Section 56(2)(viia) should not be applicable where the recipient is a foreigncompany or shares transferred are those of a foreign company.



However, for the sake of completeness it may be pointed out in the context of pre-amended Section 2(18), the Bombay High Court in CITv Indo-Nippon Chemical Co Ltd (1986) 161 ITR 635, relevant to AY 1964-65 held that the term ‘public’ used in section 2(18) was not to benarrowly interpreted to mean Indian public only, thereby extending the coverage of Section 2(18) to a company owned by Japanese publicand ruling in favour of the assessee. The relevant part of the pre-amended Section 2(18) at the time of the aforesaid judgment isreproduced below:

“2 (18) 'company in which the public are substantially interested'—a company is said to be a company in which the public are substantiallyinterested —(a)******

(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and

(i)its shares (not being shares entitled to a fixed rate of dividend whether with or without a future right to participate in profits) carrying notless than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout therelevant previous year beneficially held by —

(a)the Government, or(b)a corporation established by a Central, State or Provincial Act, or(c)any company to which this clause applies or any subsidiary company of such company ,where such subsidiary company fulfils theconditions laid down in clause (b) of section 108 (hereinafter the clause referred to as the subsidiary company), or(d)the public (not being a director, or a company to which this clause does not apply) ;".



Intention of Section 56(2)(v) to Section 56(2)(vii b) – Anti abuse provisions

• Section 56(2)(v) (Finance Act 2004) and Section 56(2)(vi) [Taxation Laws (Amendment) Act, 2006 w.e.f 1.4.2007)– Sought to tax giftsreceived by Individuals and HUFs in the form of money from non-relatives which were bogus in nature – To curb conversion of the(Indian) recipient’s black money into white money.

• Section 56(2)(vii) (Finance Act 2009) –extended the scope to tax the receipt of gifts in kind (shares, securities, jewellery, drawings,paintings etc) in the hands of (Indian) individual or HUFs. Therefore it widened the scope of the anti-abuse provisions to curb moneylaundering in India.

• Section 56(2)(viia) (Finance Act 2010) – further extended the anti-abuse provision to prevent the practice of transferring unlistedshares at prices much below their fair market value to non-public companies.

• Section 56(2)(viib) (Finance Act 2012) – Sought to tax issue of shares for a price above the FMV (shareholder has to be resident)

Conclusion – One can argue that the provisions of Section 56 are anti abuse provisions introduced by the Government to preventconversion of black money of Indian nationals / companies into white money / money laundering in India. The Indian Government wouldnot be concerned with a foreign entities black money outside India and therefore one may infer that these sections are intended to applyto Indian entities only and therefore since the shares received by PQR Pvt Ltd were foreign shares, the same may not be taxable undersection 56(2)(viia) of the Act.

NB: The above proposition needs to be tested in Court and one should not advise on the basis of the above.


Key Takeaways


Transaction Whether taxable in the hands of the recipient under section 56(2)(viia) – Remarks

17 Where F Co 1 transfers shares of FCo 2 to F Co 3

Literally speaking applicable, but not taxable under section 56(2)(viia) because ofSection 5(2)

18 Where F Co 1 transfers shares of FCo 2 (having underlying in India) to FCo 3

No. Because of Section 5(2) and Explanation 5 to Section 9(1)(i) cannot be importedinto Section 56(2)(viia)

19 F Co 1 transfers shares of I Co 1 to FCo 2

Taxable under section 56(2)(viia) read with section 5(2) under the Act. However, nottaxable if the Recipient is a resident ofa. Korea, Philippines, Mauritius (Pre Amendment), Kuwait, Nepal, Saudi Arabia, UAEb. Switzerland, Israel, Ireland, Armenia, Czech Republic, Germany, Hungary, Iceland,

Jordan, Kazakhstan, Montenegro, Morocco, Mozambique, Myanmar, Russia,Serbia, Slovenia, Sudan, Sweden, Syrian Arabic Republic, Tajikistan, Tanzania,Trinidad & Tobago & Estonia

20 Where F Co 1 transfers shares of ICo 2 to F Co 2 where F Co 2 is listedon a Stock Exchange abroad

Taxable under section 56(2)(viia) read with section 5(2) under the Act.However, not taxable if the recipient is a resident of Singapore (or other Treaties whereinOther Income is taxable in India) due to the existence of Non-discrimination Articles

21 Where shares of I Co 1 transferred toI Co 2

Taxable under section 56(2)(viia). However, when shares are of a F Co or the recipientof shares is a foreign company, it may be possible (though not easy) to argue thatsection 56(2)(viia) is not applicable.NB: The above proposition needs to be tested by the Court and no advice should begiven in reliance of the same.

THANK YOU!1. Mr. P D Desai

2. Mr. Vishal J Shah

3. The Chamber of Tax Consultants

4. Mr. Jimit Devani & Mr Kartik Badiani

5. Mr. Tushar Hathiramani (my Junior who assisted me in the Presentation)

6. And last but not the leastALL THE PARTICIPANTS, FOR YOUR PATIENT HEARING

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