Gagil FDI Limited Vs ACIT (ITAT Delhi)
The case concerns Gagil FDI Limited, a company incorporated in Cyprus, which appealed against an assessment order dated 29 April 2024 for the assessment year 2021–22 under Sections 143(3) and 144C(13) of the Income Tax Act, 1961. The primary dispute relates to whether the assessee was entitled to benefits under the India–Cyprus Double Taxation Avoidance Agreement (DTAA) for long-term capital gains (LTCG) and dividend income arising from the sale of shares of the National Stock Exchange of India Ltd. (NSEIL).
Gagil FDI Limited, a wholly owned subsidiary of GA Global Investments Ltd., held a valid Tax Residency Certificate (TRC) from the Cyprus Revenue Authorities. It had acquired NSEIL shares in 2014 from its holding company for €12.25 million through preference shares and share premium. During FY 2020–21, it sold these shares in multiple tranches to unrelated third parties and declared LTCG on the sale in its return of income, claiming exemption under Article 13 of the India–Cyprus DTAA. Dividend income from NSEIL shares was also offered to tax at 10% under Article 10 of the same treaty.
The Assessing Officer (AO) denied these treaty benefits, concluding that Gagil FDI Limited was merely a conduit or shell company used by General Atlantic, USA, to route profits from India through Cyprus to avoid Indian taxes. The AO relied on factors such as common directors between Gagil and General Atlantic USA, the U.S.-based authorized signatory for bank operations, and a lack of physical presence in Cyprus. Consequently, LTCG of ₹9,595 crore and dividend income of ₹20.62 crore were added to taxable income.
