Case Law Details
Re. Tiger Global International II Holdings, Mauritius & Ors (Authority for Advance Rulings New Delhi)
Facts:
♠ Tiger Global International (II, III, IV) were the applicants, the Mauritius based companies which holds several shares in the Flipkart Private Limited, the Singapore based Company, the company which derive its substantial value from the assets located in the India.
♠ The Mauritius based companies had made investments in the Flipkart (Singapore) in various tranches during the period from Oct-2011 to Apr-2015, therefore, these companies were eligible to get benefit of grandfathering clause as per amended DTAA between India & Mauritius.
♠ On 18.08.2018 all the three applicants transferred certain shares of Singapore Co. to Fit Holdings S.A.R.L. (Buyer), a company incorporated under the laws of Luxembourg. These transfers were undertaken as part of a broader transaction involving the majority acquisition of Singapore Co. by Walmart Inc., a company incorporated in the United States of America, from several shareholders, including the applicants.
♠ The applicants had approached the Indian tax authorities under section 197 of the Act on 02-08-2018 seeking a certification of nil withholding prior to consummation of the transfer. The tax authorities had informed vide communication dated 17-08-2018 that the applicants were not eligible to avail benefit under the Indo-Mauritius Tax Treaty as the applicants were not independent in their decision making and the control over the decision making of the purchase and sale of the shares did not lie with them. The tax authorities had passed an order under section 197 of the Act on 17-08-2018 and prescribed the income tax rate ranging from 6% to 8.5%.
♠ Thereafter, the applicants’ approach before the AAR on 19-02-2019 and raised following question;
Whether, on the facts and in the circumstances of the case, gains arising to the Applicants (a private company incorporated in Mauritius) from the sale of shares held by the Applicants in Flipkart Private Limited (a private company incorporated in Singapore) to Fit Holdings S.A.R.L. (a company incorporated in Luxembourg) would be chargeable to tax in India under the Income-tax Act, 1961 read with the Double Taxation Avoidance Agreement between India and Mauritius?
♠ Beside the other issues, the main issue before the AAR was Whether transaction / issue designed prima facie for avoidance of tax?
Revenue’s Submission
The Revenue submitted that the following facts discovered during the course of 197 proceedings indicated that the scheme was designed prima facie for avoidance of tax.
(a) Ownership Structure & Control: The Revenue has submitted that as per Notes to the Financial Statement of the year ending 31.12.2011, the applicants were held by the Tiger Global Management LLC, a USA based investment entity that invests in public and private markets across the world through a web of entities based out of low tax jurisdictions in Cayman Islands and Mauritius, which indicated that the real control of the Company does not lie within Mauritius.
(b) Decision Making: On the basis of the Minutes of the Meeting furnished by the applicants, the Revenue submitted that Mr. Steven Boyd, non-resident USA Director (who was also General Counsel of Tiger Global Management LLC) had attended all the Board meetings in which crucial decisions were taken and that the Mauritius Directors were in effect mere spectators or took advice from Mr. Steven Boyd.
(c) Financial Control: From the evidences brought on record by the Revenue, it was evident that the funds of the applicants were ultimately controlled by Mr. Charles P. Coleman and the applicants had only a limited control over their fund. Apparently, the decision for investment or sale was taken by the Board of Directors of the applicants but the real control over the decision of any transaction over USD 2,50,000 was exercised by Mr. Charles P. Coleman only.
(d) Beneficial ownership: On bare perusal of the documents submitted by Tiger Global International III Holdings with Mauritius Financial services commission for the purpose of obtaining Category 1 Global Business License, it is found that the applicants itself has clearly specified the BENEFICIAL OWNER OF THE COMPANY AS MR. CHARLES P COLEMAN. IT IS PERTINENT TO NOTE THAT MR. CHARLES P COLEMAN IS THE FOUNDER AND PARTNER OF TIGER GLOBAL MANAGEMENT LLS, USA.
AAR Findings
- The AAR Concluded that, the control and management of applicants does not mean the day-to-day affairs of their business but would mean the head and brain of the Companies. Therefore, it will be relevant to examine whether the head and brain of the applicants was in Mauritius.
- The funds of the applicants were ultimately controlled by Mr. Charles P. Coleman and the applicants had only a limited control over their fund. Apparently, the decision for investment or sale was taken by the Board of Directors of the applicants but the real control over the decision of any transaction over USD 2,50,000 was exercised by Mr. Charles P. Coleman only. We have, therefore, no hesitation to conclude that the head and brain of the companies and consequently their control and management was situated not in Mauritius but outside in USA.
- The real management and control of the applicants was not with their respective Board of Directors but with Mr. Charles P. Coleman, the beneficial owner of the entire group structure. The applicant companies were only a “see-through entity” to avail the benefits of India – Mauritius DTAA.
- The financial statements filed with the applications, all the three applicants had not made any other investment other than in the shares of Flipkart. Thus, the real intention of the applicants was to avail the benefit of India-Mauritius treaty, whatever be the stated objective.
- The applicants fail miserably if we apply the yardsticks as laid down by the Hon’ble Supreme Court in the case of Vodafone Case. There was no foreign direct investment made by the applicant companies in India and, therefore, there cannot be any question of participation in investment. The applicants had made investment in shares of Flipkart which was a Singapore company and thus the immediate investment destination was in Singapore and not in India. In view of this fact the applicants also fail on other yardsticks viz. the period of business operation in India, the generation of tax revenue in India, timing of exit and continuity of business on such exit. In the absence of any strategic foreign direct investment in India there was neither any business operation in India nor they ever generated any taxable revenue in India. In the absence of any direct investment in India one can only conclude that the arrangement was a pre-ordained transaction which was created for tax avoidance purpose.
- The objective of India-Mauritius DTAA was to allow exemption of capital gains on transfer of shares of Indian company only and any such exemption on transfer of shares of the company not resident in India, was never intended by the legislator. Further, as discussed earlier the actual control and management of the applicants was not in Mauritius but in USA with Mr. Charles P. Coleman, the beneficial owner of the entire group structure. Therefore, we have no hesitation to conclude that the entire arrangement made by the applicants was with an intention to claim benefit under India – Mauritius DTAA, which was not intended by the lawmakers, and such an arrangement was nothing but an arrangement for avoidance of tax in India.
- Therefore, the bar under clause (iii) to proviso to Section 245R(2) of the Act is found to be squarely applicable to the present cases. Accordingly, the applications are rejected.
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