Case Law Details
Usekiwi Infolabs Private Limited Vs ITO (ITAT Delhi)
The facts clearly shows that assessee has got an investment from Kstart LLC, Mauritius as a contribution towards issue of 20,000 compulsorily convertible preference shares having face value of ₹ 10 each at a premium of ₹ 827.50 per share. For this proposition the bank account of K start LLC with Deustch bank account number 02 MCR502499 shows that a sum of US dollar 2,45,962.54 were transferred on 3 February 2016 in the bank account of the assessee company. On the same date of there was a capital contribution of US$ 260,000 in the same bank account from the holding company Kaalari Capital Partners III LLC Mauritius. For the above investment it is apparent that KYC form submitted by Duestch Bank AG shows that Kstart LLC is having a global commercial license i.e. 1/GBL having its registered office at IFS, IFS court, Bank Street, 28, cyber city, EBENE72201, Mauritius and the bank account of the remitter is 502499. The above sum was received in the Yes bank account of the assessee. The banker of the assessee, Yes Bank limited was provided the above declaration in the FIRC dated 3 February 2016 by the banker of the investor. The investment was under the automatic route for issue of 20,000 compulsorily convertible cumulative preference shares of Rs 10 each at a premium of Rs 827.50 per share under the right issue. The above investment was also documented in the meeting of the board of directors of the assessee company on 23rd of January 2016 wherein the above investment was authorised. After such authorization the investment has been made. No doubt the existing shareholders of the assessee company renounced the rights available to them for application towards these instruments in favour of the investor. However that does not make the investment by the investor or in the assessee company as non genuine. The assessee also submitted a brief write-up before the assessing officer about the introduction of K start LLC, Which is found to be seed fund created by kaallari capital, a leading Indian venture capital firm which has the asset base of US$ 650 million. Assessee also supported the investment with extract of livemint which shows that K start LLC is a start-up accelerator run by venture capital firm Kaalari capital and has invested $ 5 lakh each in three start-ups in healthcare, financial services and online video content management. It also shows that Kalari capital has taken Unicorns such as Flipkart Ltd, a snapdeal and also launched K start putting aside US$ 20 million for the program over the next two years. K start will invest US$ 1 lakh-US$ 5 lakh in 6-9 other start-ups this year. For its start-ups, K start has gathered a set of notable advisors such as former Tata group chairman Ratan Tata, Ms Zia Modi managing partner at law firm AZB partners , senior Ranjan Anandan, managing director of south-east Asia and India Google incorporation and Varsha Rao head of global operation at home rental startup Airbnb. Further as per information received by foreign tax and tax research division of government of India under the exchange of information under article 26 of the Double Taxation Avoidance Convention between India and Mauritius, Kstart LLC was having three different directors. As per the directors report of K start LLC, it is to operate as an investment holding company. It has investment as its fair market value having the cost of US dollar 33,51,414 and equity of class A shareholders of US dollar 35,31,823. A note to financial statements of the report clearly shows that Kstart LLC is a limited liability company and subsidiary of kalalri capital III, LLC of Mauritius private limited life Co Ltd by shares. With respect to the income stream of K start LLC, it is also stated that company is organized for the purpose of realizing returns through long-term capital appreciation of investments made by the company, primarily in technology and service companies located in with significant business activity in having Nexus to the Indian subcontinent. Therefore the only stream of income of that company is profit or loss generated on sale of the investments. As on 31st of March 2016 it has invested in unlisted privately held equity and preferred securities of US$ 3,630,954. On looking at the investment and associated risk wherein the summary of investment is shown, it has invested in four different entities in India, one entity in Singapore and three different entities in United States of America. It also shows that shareholders have made capital commitment to the company amounting to US$ 11.2 million as on December 31, 2016. The class B shares are issued to only one entity i.e. Kalaari capital Partners III LLC. Investor has also paid US$ 146,302 as management fee to Kaalari capital advisors private limited. In view of the above facts it is apparent that creditworthiness and genuineness of the above investment cannot have any doubt. The learned assessing officer also could not point out for what reasons he is having any doubt about the creditworthiness and genuineness of the above investment when such an extensive details are made available by the assessee and he himself obtained information under Exchange of Information provisions of DTAA.
However, we would also like to deal with the argument of the learned authorised representative that in case of a non-resident investor the assessee is not required to prove anything other than the identity of the shareholders. We have carefully perused the provisions of Section 68 of the income tax act which speaks about taxing any sum credited in the books of account of the assessee for which assessee could not satisfy the learned assessing officer about the nature and source of such credit. It does not make any distinction whether the sum is found credited from a resident shareholder or a non-resident shareholder. Further the compliance with the reserve bank of India guidelines as applicable under The Foreign Exchange Management Act neither proves nor disproves the nature and source of credit from a non-resident as per Income Tax Act, those evidences may have persuasive value. On careful perusal of para number 11.7 of the decision of the coordinate bench in case of Russian technology centers private limited (supra) it does not say that in case of a non-resident shareholder only the identity is to be proved. In that particular case also the coordinate bench has held that the primary onus is to be weighed on the scale of evidence available on the record and the discharge of burden by the assessee on the basis of the documents on facts and circumstances of the each case.
Further looking at the provisions u/s 56(2)(viib), it clearly applies to the resident and not to a sum received from a non-resident. Therefore, this section does not apply to the impugned transaction.
Therefore, looking at the various evidences produced by the assessee, evidences obtained by the learned assessing officer in terms of article 26 of the Double Taxation Avoidance Convention between India and Mauritius, the annual financial statement of the investor, the background of the investor as mentioned in the financial statements, the amount of investments made by the investor in other companies across the globe, the amount of share capital introduced by the holding company of the investor, the financial operations of the investor deciphered from the financial statements of the investor, Financial and Legal Due diligence by investors, we do not find that there is an iota of doubt about the creditworthiness and genuineness of the about transaction of allotment of 20,000 compulsorily convertible redeemable shares resulting into allotment of shares worth Rs 1,67,50,000 from K start LLC of Mauritius.
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