Whether immediate repayment of funds to investor can be a ground to doubt genuineness of transaction?
Respected Members
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[2024] 114 ITR (Trib) 1 (ITAT[Del])
[BEFORE THE INCOME-TAX APPELLATE TRIBUNAL — DELHI "D" BENCH]
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INDIA PROPERTY (MAURITIUS) COMPANY-II
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ASSISTANT COMMISSIONER OF INCOME-TAX
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G. S. PANNU (Vice President) and ANUBHAV SHARMA (Judicial Member)
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July 18, 2024.
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1. The assessee company was incorporated in 2006 as an investment fund and held by a company JP IPM-I which was also incorporated in Mauritius.
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2. Being an investment fund, the assessee pooled capital from investors from countries through a series of fund investor vehicles and feeder funds creating a master fund which was used for investment into various entities in India.
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3. The assessee transferred shares in Indian companies and earned LTCG amounting to Rs. 152 crores.
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4. In view of the provisions of section 90(2), the assessee filed a return declaring Nil Income claiming exemption in respect of capital gains under article 13(4) of the DTAA between India and Mauritius and refund of taxes deducted amounting to Rs. 40.01 lakhs.
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5. A.O. in pursuance of directions of DRP denied the treaty benefits and taxed the whole capital gains.
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6. Tribunal by allowing the appeal of assessee held that:
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7. The investments in four companies allegedly giving rise to the capital gains were made in A.Y. 2007-08 to 2011-12.
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8. There was no allegation of the A.O. on the basis of any evidence that any Investment following from India was received for creating the assessee company.
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9. The Investments were held for over five years before they were transferred and the assessee had earlier also made investments and disinvestments and still had investments in various other companies.
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10. The assessee was holding the investment in its own name beneficially and legally.
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11. Therefore, it could not be called as a flyby night operator created merely for tax avoidance purposes.
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12. Assessee had validly discharged its burden by establishing that the external service provider had been outsourced the day-to-day administrative activities of the assessee as per the law of land and payments were made for those services.
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13. It was the wisdom and the direction of the company how day-to-day activities were managed and without establishing that the administrative activities were being shown on sham basis, the revenue could not question the genuineness of the business operations of the assessee on the ground that the directors were not residents of Mauritius or, of absence of operational expenditure and director’s remuneration.
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14. That what was the material was to see that for how long the investments were held and whether the investments had commercial expediencies.
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15. No presumption of conduit status could be drawn merely on the basis of transfer of the consideration immediately after disinvestments because ultimately the funds under Investments were to be returned with whatever gains made.
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16. The assessing officer himself had reproduced in the order, the resolutions of the assessee indicating why the disinvestments were being made and how the proceeds of disinvestments shall be accounted back to the investors.
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17. The commercial rationale for the existence of assessee in Mauritius was not any scheme of tax avoidance but a business model to attract funds from different jurisdictions for Investments in India.
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18. Therefore, except for suspicion there was no evidence with the A.O. to rebut the statutory evidence of the assessee on the basis of the tax residency certificate held by the assessee.