Case nº A.A.R. No. 1123 of 2011 of AAR Cases, January 11, 2016 (case In Re: Dow AgroSciences Agricultural Products Ltd. Vs)
| Judge | For Appellant: Rajan Vora, SRBC & Assoc., CA and Vijay Vaidya, SRBC & Asso., CA |
| President | V.S. Sirpurkar, J. (Chairman), A.K. Tewary, Member (Revenue) and R.S. Shukla, Member (Law) |
| Resolution Date | January 11, 2016 |
| Issuing Organization | AAR Cases |
Judgment:
V.S. Sirpurkar, J. (Chairman)
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Dow AgroSciences Agricultural Products Limited (hereinafter referred to as 'the Applicant'), is a company incorporated in Mauritius and having its registered office at Suite 308, St.James Court, St Denis Street, Port Louis, Republic of Mauritius and is a tax resident of Mauritius. The Applicant is a part of Dow group of companies (together, hereinafter referred to as 'Dow Group' or 'Group'). A copy of the Certificate issued by the Registrar of Companies in Mauritius and the Tax Residency Certificate of the Applicant has been enclosed as Attachment 1 and Attachment 2 respectively.
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Dow Agrosciences India Private Limited (hereinafter referred to as 'DAS India'), a company incorporated in India having its registered office at Unit No. 1, Corporate Park, V N Purav Marg, Chembur, Mumbai-400071, is a part of Dow Group and is engaged in manufacturing and trading of pesticides and insecticides.
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The Applicant had acquired 61,836,990 shares of Rs. 10 each in DAS India for an amount of IRN 618,369,900 as under:
The balance 200 shares of Rs. 10 each have been acquired by DAS Agricultural Investment Holding Company Ltd. for an amount of INR 2,000.
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It is further, pleaded that the applicant proposes to transfer these shares in favour of a Dow Group Entity Singapore and thus the Group entity Singapore hereinafter called SDA Singapore would be a transferee company.
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This transfer is pleaded with an objective of the group re-organization. It is pleaded:
i) Dow Group is a large and complex group having presence in several countries across the world. In order to reduce complexities, improve efficiency and reduce costs in group companies worldwide, Dow Group is transforming its holding model. The group reorganization will change the business model of the group giving the capability to support more diverse, growing business that is also expected to be more profitable in the long-term.
ii) Prior to 2010, Dow group was divided in the following 5 areas depending on its geographical locations:
- North America
- South America
- Europe
- Asia Pacific
- Dow India, Middle East and Africa ('Dow IMEA group)
iii) In the beginning of year 2010, the IMEA group was dismantled and countries in IMEA group were realigned to other regions as per geographical convenience. The Asia pacific region now consists of countries like India, China and other South East Asian countries. The Europe region, inter alia, consists of Mauritius, United Kingdom, Germany and other European countries.
iv) In order to achieve objective of operational excellence and administrative convenience, it became necessary for the Dow group to re-align the holding model of DAS India.
v) It is contemplated that the holding company of DAS India would be shifted from an entity which falls under the Europe region to an entity which falls in the Asia Pacific region, with a view to achieve better control. Singapore is one of the upcoming countries in the Asia Pacific region. Keeping in view the above facts, Dow group is contemplating to shift the shareholding of DAS India from Mauritius to Singapore.
vi) The Group believes that such re-alignment would help the Group to focus on customer service including support for new product launches, strong compliance culture, commitment to health, safety and the environment, and commitment to developing people that deliver strong results for the Group even as the external environment has become more demanding.
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It is then claimed in the application:
i) Dow group proposes to achieve the above objective through its entity in Singapore i.e. DAS Singapore. DAS Singapore will be a 100% subsidiary of DAS Mauritius.
ii) DAS Mauritius proposes to contribute shares held in Dow India as its capital in DAS Singapore. By virtue of this, DAS India would become 100% subsidiary of DAS Singapore.
iii) In view of above, the Applicant proposes to transfer the shareholding (i.e. 61,836,990 shares) of DAS India to DAS Singapore by way of contribution.
iv) The value of DAS Singapore's shares recorded in the books of DAS Mauritius would be considered as the sales consideration for transfer of shares of DAS India.
v). The cost at which DAS Mauritius has obtained the shares of DAS India would be the cost of acquisition.
vi). The Applicant also wishes to state that it does not have an office, or employee or agents in India and hence no permanent establishment in India as per Article 5 of the India Mauritius Double Taxation Avoidance Agreement.
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It is reiterated by the applicant that it is not required to maintain any books of accounts in India as prescribed in Section 211 of the Companies Act, 1956 and further it is not required to comply with the propositions of Section 594 of the Companies Act, 1956 relating to companies incorporated outside India provisions and establishing of places of business in India. On this background following 6 questions are proposed by the applicant:--
(1) Whether on the facts and circumstances of the case, the investment held by the Applicant in equity shares of Dow Agrosciences India Private Limited (hereinafter referred to as 'DAS India') would be considered as 'capital asset' under section 2(14) of the Act?
(2) Based on the facts and circumstances of the case, whether capital gains arising from the proposed transfer of shares of DAS India by the Applicant to DAS Singapore (a company proposed to be incorporated in Singapore), would be subject to tax in India?
(3) Based on the facts and circumstances of the case, if the answer to Question 1 is in the negative, whether the gains arising to the Applicant from the proposed transfer of equity shares of DAS India will be taxable in India in the absence of a Permanent Establishment of the Applicant in India and in light of the provisions of Article 7 read with Article 5 of the India Mauritius Double Taxation Avoidance Agreement (hereinafter referred to as 'India Mauritius DTAA')?
(4) If the answer to Question 2 is negative, whether the Applicant would be liable to pay minimum alternate tax under the provisions of section 115JB of the Act?
(5) Based on the facts and circumstances of the case, if the proposed transfer of shares by the Applicant to DAS Singapore is not taxable, whether the provisions of section 92 to section 92F of the Act relating to transfer pricing would still be applicable?
(6) Based on the facts and circumstances of the case, if the proposed transfer of shares by the Applicant to Dow Singapore is not taxable, whether the sale consideration receivable by the Applicant should suffer any withholding tax as per section 195 of the Act?
(7) Based on the facts and circumstances of the case, if the proposed transfer of shares of DAS India is not taxable in India, whether the Applicant is required to file any return of income under section 139 of the Act?
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Shortly stated the case of the applicant is that it is a non-resident Indian as it is not covered under the provisions of section 6(3) of the Income-tax Act, 1961. The applicant also relies on Section 226 and contends that it is not covered under any of the provisions thereof nor is it a company formed and registered as per the provisions of Indian Companies Act. It is more particularly pleaded that the applicant is not covered under clauses (i), (ia), (ib) (ii) and (iii). It is, therefore, claimed on the basis of the certificates issued by the Mauritian authorities that the applicant is neither an Indian Company nor the control and management of its affairs is situated in India and as such its status is that of a non-resident for the purposes of the Income-tax Act, 1961.
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The application contains the stand of the applicant on each question. As regards the first question, the applicant pleads that its investment in Dow Agrosciences India i.e. DAS India as a capital asset. In support of this proposition, the applicant relies on Instruction No. 181-1-89-IT (AI)dated 31.8.1989 or Instruction No. 1827 and Supplementary Circular No. 4/2007 dated 15.6.2007 issued by Central Board of Direct Taxes (CBDT). It is reiterated that considering the accounting test and intention test as also quantum test...
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