Tax Planning Strategies Analyzed

BEFORE THE AUTHORITY FOR ADVANCE RULINGS
(INCOME TAX)
NEW DELHI
AAR No. 100 of 2015
Between
1. Intaxicate India Pvt. Ltd., Bangalore................................................
Applicant
And
2. Commissioner of Income-tax, Bangalore.........................................

Respondent
MEMORIAL ON BEHALF OF PETITIONERS
TABLE OF CONTENTS
Table of Contents.................................................................................................. 2
List of Abbreviations.............................................................................................3
Index of Authorities...............................................................................................5
Statement of Jurisdiction........................................................................................9
Statement of facts..................................................................................................10
Statement of Issues................................................................................................11
Summary of Arguments.........................................................................................12
Arguments advanced..............................................................................................13
Prayer ....................................................................................................................29
LIST OF ABBREVIATIONS
&
And
Anr.
Another
AAR
Authority for Advance Rulings
AIR
All India Reporter
AO
Assessment Officer
Art
Article
AY
Assessment Year
Bom
Bombay
CIT
Commissioner of Income Tax
Co.
Company
Del
Delhi
DTAA
Double Taxation Avoidance Agreement
HC
High Court
IIPL
Intaxicate India Private Limited
IML
Intaxicate Mauritius Limited
ITAT
Income Tax Apellate Tribunal
ITR
Income Tax Report
Jour
Journal
Kar
Karnataka
Ltd.
Limited
Mad
Madras
Mum
Mumbai
Ors
Others
Paragraph
Pg.
Page
Pvt.
Private
ROI
Return of Income
SC
Supreme Court
SCC
Supreme Court Cases
SCL
Sebi and Corporate Laws
Sec
Section
W.P.(C)
Writ Petition Civil
v.
Versus
INDEX OF AUTHORITIES
CASES
1. Airports Authority of India, Rajiv Gandhi Bhawan Vs. Director of Income-tax
(international Taxation) Delhi , AAR/ 753-754/2007
2. AfzalUllah v. State of U.PAIR 1964 SC 264,

3. Avasarala Automation Ltd. v. Joint Commissioner of Income Tax,(2003) 185 CTR (Kar) 402
4. Ajay Agarwal v. Union of India AIR 1993 SC1637
5. Aryavart Overseas (P.)Ltd.v. Kay Aar Biscuits (P.)Ltd.C.S.(OS) 1161/1982
6. AzadiBachaoAndolan v. Union of India,(2004) 10 SCC 1
7. Banyan and Berry v. CIT, [1996] 222 ITR 831(Guj)
8. Blue Star Ltd. v. CIT 217 ITR 514 (Bom.),
9. CIT v. P.V.A.L. KulandaganChettiar, (2004) 267 ITR 654 (SC)
10. CITv.Sesa Goa Ltd., [2004] 271 ITR 331 (SC)
11. Commissioner of Income-tax v. RajalakshmiVenkatakrishnan,[1995]215ITR596(Mad)
12. CWT v. Spencer&Co.,(1973) 88 ITR429
13. D. B. Zwirn Mauritius Trading v. Director of Income-tax,AAR NO. 878 OF 2010 & AAR NO.
879 OF 2010
14. Deputy Commissioner of Income Tax v. Ardeshi B. Cursetjee and Sons Ltd. [2008] 11 5 TTJ
(Mum) 916
15. E*trade Mauritius Ltd. C/O Abax Corporate Services Ltd. v. DIT, A.A.R. No.826 of 2009CIT v.
High Energy Batteries (India) Ltd., [2012] 208 ITR 213
16. Goodyear India Ltd., Gedore (India) Pvt. Ltd. v. Kelvinator of India Ltd. AIR 1990 SC 781
17. H.G. CraigHarvey v. Commissioner of Income-tax, [2000] 244 ITR 578 (Mad)
18. Hyosung corporation Korea v. Income Tax Department, AAR No. 1138, 1140-1144, 1150 of
2011
19. Integrated Container Feeder v. JCIT, (2005) 278 ITR 182 (Mum.
20. Ishikawajma-Harima Heavy Industries Ltd.v. Director Of Income Tax, AIR 2007 SC 929
21. Mashreque Bank Vs. Director of Income-tax, (ITA No. 1341/Bom/2007
22. Mc Dowell and Co. v. CIT, (2003) 5 SCC (Jour) 15
23. Munnal and Ors.v. B.S. Baswan and Ors.
24. Padmaraje R. Kadambandev. Commissioner of Income-tax, Pune, AIR 1992 SC 1495
25. R.K Dalmia v. Delhi Administration ,A.I.R 1962 S.C 1821
26. Royal Surgicalv.Collector of Customs,(1997)LC191Tri(Delhi)
27. Raja BahadurKamakhyaNarain Singh v. Commisioner of Income Tax of Bihar[1970]
77 ITR 253 (SC),
28. Satellite Television Asianv.Deputy Commissioner of Income Tax [AAR no 805810/2009] ,
29. Vidyut Investments Limited v. Securities and Exchange Board of India,(2008) 86 SCL
35 SAT
30. Vodafone South Limited and Another v. The Deputy Director of Income Tax International
Taxation and Ors, W.P. Nos. 13210-14 of 2014
31. Zaheer Mauritius v. Director of Income TaxW.P. (C) 1648/2013
LEGAL DATABASES
1. Manupatra
2. SCC Online
3. West Law
4. Hein Online
LEXICONS
1. AiyarRamanathanP , Advanced Law Lexicon, 3rd Edition, 2005, Wadhwa Nagpur.
2. Garner Bryana, Blacks Law Dictionary,7th Edition,1999
3. Boston University Law Review, 2012
LEGISLATIONS
Income Tax Act 1961
Companies Act, 2013
India Mauritius Double Taxation Avoidance Agreement
Securites and Exchange Board of India Guidelines
BOOKS
1. Income Tax Act , Taxmann Publications, 2014
2. Ramaiyyas Guide to Companies Act , Ramaiya (Revised by Arvind P Datar, S.
Balasubramanian) , 2014
3. A Comparative Study of Companies Act 2013 with Rules and Companies Act
1956, Taxmann, 2015
4. Treatise on Double Tax Avoidance Treaty, B.V Venkataramaih,2011
5. Company Law, Avatar Singh
STATEMENT OF JURISDICTION
THE RESPONDENT DO HEREBY SUBMIT THE MEMORANDUM FOR THE

RESPONDENT UNDER SECTION 245 (R)OF INCOME TAX ACT ,1961BEFORE
THE AUTHORITY FOR ADVANCE RULINGS.
STATEMENT OF FACTS
Intaxicate India Pvt. Ltd. (IIPL), a private limited company incorporated as per the
Indian Companies Act, 1956 in April 2000, is a wholly owned subsidiary of a
Mauritian Company, Intaxicate Mauritius Ltd.,which has a Tax Residency Certificate
(TRC) issued by the Mauritian Tax Authorities.IML acts as a pooling vehicle where it
attracts investors from across the globe to invest in its securities.IML invests in the
securities of IIPL which invests in various sectors like infrastructure. IIPL was a
prompt taxpayer on its income earned. From 2000-2003, IIPL declared huge cash
dividends to its sole shareholder and withheld appropriate taxes per India Mauritius
tax treaty. However IIPL stopped declaring cash dividends post March 2003 and
resorted to issuing equity shares to IML at a meagre face value, and then buying them
back at a very high premium, thus repatriating profits as capital gains to IML.But post
May 2013, IIPL started to issue compulsorily convertible debentures (CCDs) to IML
in accordance with an agreement between IIPL and IML. In March 2014, IIPL bought
back much of the CCDs issued to IML before the completion of the lock in period and
paid the principal amount accumulated interests and premiums along with the
additional amounts as compensation, as agreed upon.IIPL on filing for its return of
income (ROI) with the Indian income-tax department was found to have failed to
withhold tax under section 195 of the Act on the interest payments made to IML and
was issued a SCN. IIPL filed an application with the Authority for Advanced Ruling
(AAR) requesting for a ruling on the transactions undertaken to be taxable as per
India-Mauritius DTAA. The matter is now pending before the AAR for final hearing.
STATEMENT OF ISSUES
1. WHETHER THE PETITION FILED BY INTAXICATE INDIA PVT LTD.

BEFORE AUTHORITY FOR ADVANCE RULINGS IS MAINTAINABLE.
2. WHETHER THE TRANSACTIONS UNDERTAKEN FOR REDEMPTION

OF CCDS ARE CAPITAL RECEIPTS IN THE HANDS OF IML.
3. WHETHER SALE CONSIDERATION ON BUYBACK OF SHARES ARE

NOT LIABLE TO BE TAXED.
4. WHETHER THE ACTIONS OF THE COMPANY ARE IN COMPLIANCE

WITH THE DOUBLE TAXATION AVOIDANCE AGREEMENT.
5. WHETHER TAX PLANNING CANNOT BE PENALIZED.
10
SUMMARY OF ARGUMENTS
1. The petition filed by Intaxicate India Pvt.Ltd in before Authority for
Advance Rulings is maintainable.
IIPL can approach the AAR under section 245N of the Income Tax Act as the ruling
sought is with regard to the transactions it has undertaken or proposed to be undertaken
with a foreign company, IML. Further, there is no question of a pending issue before
any Authority and the transaction are merely tax planning and not tax evasion.
2. The transactions undertaken for redemption of CCDs are capital recepits
in the hands of IML.
The amount outstanding the principal do not fall under the ambit of interest under any
law. Further, the compensation awarded substitutes the source of income itself for IML
and it hence considered to be capital receipts and is therefore taxable only as per
DTAA.
3. Sale consideration on buyback of shares are not liable to be taxed.
The buyback of shares was a commercial strategy adopted by IIPL so as they needed
new investments year on year to expand their business.
4. The actions of the company are in compliance with the DTAA.
A corporate body has the right to apply whichever statute is more beneficial to their tax
liabilities. Accordingly, transactions undertaken are in strict compliance with the India
Mauritius DTAA.
5. Tax planning cannot be penalized.
Tax planning is not offence and is different for tax evasion
11
ARGUMENTS ADVANCED
A. THE PETITION FILED BY INTAXICATE INDIA PVT LTD IN
AUTHORITY
BE FORE ADVANCED RULINGS IS MAINTAINABLE
Intaxicate India is Pvt Ltd(IIPL) is a company incorporated in India under Indian

Companies Act 1956 which also a 100% subsidiary of a Mauritius company,Intaxicate
Mauritius Ltd. which is a category 1 global business license holding company 1with tax
residency certificate issued by the Mauritian Authorities2. The Income Tax Authority
has issues a show cause notice alleging that
A1.IIPL Can file a petition before Authority for Advanced Ruling
IIPL is a company incorporated in India under Indian Companies Act 1956,
In Ajay Agarwal v. Union of India3 the Supreme Court held that, Once a company
has been duly registered and incorporated as an India company, it is subject to Indian
laws and regulation, as applicable to other domestic Indian companies. In other
words, aresident.IIPL. being incorporated under the Companies Act, 1956 can hence be
considered a resident.
Under section 245N4 of Income Tax Act, 1961, non-resident or certain categories of
resident can obtain binding rulings from the Authority on question of law or fact arising
1
2
3
Integrated Container Feederv. JCIT, (2005)278ITR182(Mum.)

Moot Proposition ,p. 2
A.I.R 1993 SC 1637, See also R.K Dalmia v. Delhi Administration ,A.I.R 1962 S.C 1821
Under section 245Na(ii) : an advance ruling can be obtained by the following persons: a residentundertaking proposing to undertake a transaction with a non-resident can obtain advance ruling in
respect of any question of law or fact in relation to the tax liability of the non-resident arising out of such
transaction a notified public sector company any person, being a resident or non-resident, can obtain an
advance ruling to decide whether an arrangement proposed to be undertaken by him is an impermissible
avoidance arrangements and may be subjected to General Anti Avoidance Rules or not
12
out of any transaction/proposed transactions which are relevant for the determination of
his tax liability.5
In the instant case, the application was made by IIPL requesting for a ruling on
transactions undertaken and to be undertaken in connection with a transaction with the
non- resident IML .
Hence IIPL a resident can file a petition before Authority for Advanced Ruling.
A2. The question raised before AAR is not pending in any Income Tax Authority
An advance ruling cannot be sought where the question is already pending in the case
of the applicant before any income tax authority, the Appellate Tribunal or any court; or
Involves determination of fair market value of any property; or Relates to a transaction
which is designed prima facie for avoidance of income tax.6
In Hyosung corporation Korea v. Income Tax Department,7it was held that A mere
filing of return of income does not attract the bar unless question raised before
advanced rulings is an issue pending for adjudication in income tax authority.8
Ishikawajma-Harima Heavy Industries Ltd.v. Director Of Income Tax, AIR2007SC929
Section 245R of Income Tax Act,1961 : the Authority shall not allow the application where the
question raised in the application,( i ) is already pending before any income-tax authority or Appellate
Tribunal [except in the case of a resident applicant falling in sub-clause ( iii ) of clause ( b ) of section
245N ] or any court;( ii ) involves determination of fair market value of any property;( iii ) relates to a
transaction or issue which is designed prima facie for the avoidance of income-tax [except in the case of
a resident applicant falling in sub-clause ( iii ) of clause ( b ) of section 245N ]:] See also: Commissioner
of Income-tax v. SakarlalBalabhai , [1968]69ITR186(Guj)
6
AAR No. 1138, 1140-1144, 1150 of 2011
Royal Surgicalv.Collector of Customs,(1997)LC191Tri(Delhi)
13
This goes on to say that, merely because IIPL has filed a return of income does not
initiate any process as per any act. It was merely performing a procedure prescribed by
law.
Further, inAirports Authority of India, Rajiv Gandhi Bhawan Vs. Director of Incometax (international Taxation) Delhi9, this Authority held that,If the question relating to
tax deduction at source which is raised before the Authority was not the question which
was pending for consideration by the Appellate Authority, there is no bar to
approaching the forum. It is true that in the process of deciding the legal obligation of
the applicant in that case under section 195 of the Act, the liability of the applicant to
pay income tax on the said sum had to be decided, but, on that account, the question or
the issue of tax deduction cannot be said to be pending before the Authority10.In a
case where the question raised before the Authority could not be said to be identical nor
can it said to be the very same question pending determination by the Appellate
Authority,the embargo under the proviso to section 245R(2) should be strictly construed
and the applicant should not be denied the remedy to have an early ruling in the
matter11.
Airports Authority of India, Rajiv Gandhi Bhawanv. Director of Income-tax (international Taxation)
Delhi AAR/ 753-754/2007
See also: Vidyut Investments Limitedv. Securities and Exchange Board of India,(2008)86SCL35SAT
11
Satellite Television Asianv.Deputy Commissioner of Income Tax [AAR no 805-810/2009] See also,
Aryavart Overseas (P.) Ltd.v. Kay Aar Biscuits (P.)Ltd.C.S.(OS) 1161/1982
14
The Income Tax Department has only asked for a cause for the said tax planning.
However, what is to be noted is that, IIPL has approached AAR in order to seek
adjudge the said transactions to be valid According to the DTAA.
Thus in the instant case IIPL can approach AAR as the question is not pending in any
Income Tax authority.
Also in December 2013, AAR in the case of Mitsubhishi Corporation Ltd, held that the
application filed before but before the issue of notice of assessment cannot be
considered as pending for adjudication before the income tax authorities.
A.3 The transaction is not for avoidance of tax
The strategies developed by IIPL are purely commercial. A corporate body has the right
to choose whichever law is better for their tax liability12.
.The transactions undertaken and to be undertaken were only sale of capital
assets(equity shares and ccds) by IML and theshould only be taxable as per IndiaMauritius DTAA. To be more specific, Article 13, Paragraph 4 of the DTAA confers
the power of taxation of the gains derived by a resident of a contracting State from the
alienation of specified property only in the State of residence i.e. in Mauritius.
There is no doubt that the tax payer is entitled in law to seek the benefit under the
DTAA if the provision therein is more advantageous than the corresponding provision
in the domestic law.13
12
Mashreque Bank Vs.Director of Income-tax, (ITA No. 1341/Bom/2007
13
.E*trade Mauritius Ltd. C/O Abax Corporate Services Ltd. v. DIT, A.A.R.
15
No.826 of 2009
In AzadiBachaoAndolanv. Union of India14,the court pronounced the above said

principle. For the proposition which we have just now stated, the following passage in
the said decision would suffice:
Section 90 is specifically intended to enable and empower the Central Government
to issue a notification for implementation of the terms of a double taxation avoidance
agreement. When that happens, the provisions of such an agreement, with respect of
cases to which where they apply, would operate even if inconsistent with the provisions
of the Income-tax Act.
Therefore, the mere fact that the transactions look like a method for tax evasion does
not necessarily mean that it is tax evasion.On the facts presented by the applicant and in
the light of legal position discussed; the applicant has no liability to pay capital gains
tax under section article 13 of DTAA.15Thus the Intaxicate India Pvt Ltd is not entitled
to pay tax under section 195 of Income Tax Act.
14
[(2003)ITR 706 (SC)]
15
supra 4;
16
B. THE TRANSACTIONS UNDERTAKEN FOR REDEMPTION OF CCDs

ARE CAPITAL RECEPITS IN THE HANDS OF IML
Intaxicate India Private Limited(IIPL), a wholly owned subsidiary of a Mauritian Tax

Resident,
IntaxicateMauritius
Limited(IML),
issuedCompulsorily
Convertible
Debentures as a commercial strategy. The redemption of these before a specified lockin period demanded payment of additional amounts as stipulated in the agreement.
These are not liable for payment of tax as, amount paid for redemption of CCDs does
not come under the ambit of interest[i],The additional amount paid by IIPL is capital
receipts in the hands on IML.[ii], and the additional amount paid by IIPL is capital
receipts in the hands on IML.[iii]
i.
Amount paid for redemption of CCDs does not come under the ambit of
interest
The CCD creates or recognizes the existence of a debt, which remains to be so till it is
repaid or discharge,either by payment or by conversion.16A Compulsorily Convertible
Debenture is a debt which is compulsorily liable to be discharged by conversion into
equity.17
16
CWT v. Spencer&Co.,(1973) 88 ITR429

W.P. (C) 1648/2013
17
17
In Zaheer Mauritius v. Director of Income Tax,18 the Delhi High Court held that,
The expression interest as defined under Section 2(28A) of the Act cannot apply
to all gains that are received by a debenture holder (lender) irrespective of the
transaction resulting in such gains. As an illustration, a lender may assign its debt
to a third party and if such debt is held as a capital asset, the gain or loss arising
from the transaction would be a capital gain/loss in the hands of a lender and
would not be construed as interest. Similarly, any loss suffered by the lender in
such transaction i.e. where a debt is assigned for a consideration less or greater
than the amount lent, would be a capital loss or gain respectively.
Concededly, gains arising from sale of capital assets would not be in the nature of
interest. Any outstanding amount excluding the principal amount can hence be
considered as gains on the capital of the lender. The amount received by IML is nothing
but compensation for the loss incurred by them as they could have earned much greater
profits, had they invested it elsewhere.
Arguendo, even if it were to be considered as interest, such interest arising in a
contracting state and paid to a resident of the other contracting state maybe taxed only
in the other state.19 Thus, the amount paid by IIPL to IML is not taxable as interest
under any circumstance as IML holds the Tax Residency Certificate 20 issued by
Mauritian authorities.
18
ibid
1 of Article 11, India Mauritius Double Taxation Avoidance Agreement, 1983
20
Vodafone South Limited and Another v. The Deputy Director of Income Tax International Taxation and
Ors, W.P. Nos. 13210-14 of 2014
19
18
ii.
The additional amount paid by IIPL is capital receipts in the hands on

IML.
A voluntary payment which is made entirely without consideration but depends on the
whim of the donor cannot fall in the category of income, i.e,unless made under a legal
or contractual obligation, or custom or usage or as a maintenance allowance, they were
not taxable.21
Thetransactions involving is in strict compliance with the provisions agreed upon by
IML and IIPL which stated that if there arises a situation where IIPL is to redeem the
debentures at a much early period, then IIPL, in addition to the principal payment and
accumulated interests is also required to pay an additional sum by whatever name called
such as compensation, penalty, additional premiums, additional sale consideration etc.
Therefore, any additional payment which comes under the ambit of the above
mentioned terms do not falls under the purview of income and is hence not liable to tax.
In Blue Star Ltd. v. CIT,22
A particular income arising from termination of a contract which affects the trading
structure or such cancellation results in the loss of what may be regarded as a source
ofincome, payment made to compensate for such cancellation is a capital receipt.
Since such capital gains are not taxable under India-Mauritius Double Taxation
Avoidance Agreement.
21
Commissioner of Income-tax v. RajalakshmiVenkatakrishnan, [1995]215ITR596(Mad) See

also,Padmaraje R. Kadambandev. Commissioner of Income-tax, Pune, AIR 1992 SC 1495
22
217 ITR 514 (Bom.), See also, Deputy Commissioner of Income Tax v. Ardeshi B. Cursetjee and Sons
Ltd. [2008] 11 5 TTJ (Mum) 916
19
C. SALE CONSIDERATION ON BUYBACK OF SHARES ARE NOT

LIABLE TO BE TAXED
Any profits or gains arising from the transfer of a capital asset, would be chargeable to
income-tax under the head capital gains23. However in relation to transfer of a capital
asset by a holding company to its Indian subsidiary, section 47(iv) of the Act provides
that such a transfer of a capital asset by a holding company to its subsidiary company
shall not be regarded as transfer for the purpose of section 45 of the Act.24
In Raja BahadurKamakhyaNarain Singh v. Commisioner of Income Tax of Bihar,25
the court held that,
The surplus realized on the sale of shares would be capital gain, if the assessee is an
ordinary investor realizing his holding; but it would be revenue, if he deals with them
as an adventure in the nature of trade. The fact that the original sale was made with
the intention to buyback if an enhanced price could be obtained is by itself not
enough but in conjunction with the conduct of the assessee and other circumstances,
it may point to the trading character of the transaction.
IIPL bought back the shares it had sold to IML as it needed fresh investments for
investments in the securities of Indian companies as the Indian markets had started
doing well at that time.
By the transfer of equity shares in IML to IIPL in the form of buybacks, which is its
wholly owned subsidiary in India, the key conditions under section 47(iv) of the Act
23
Section 45 of Income Tax Act, 1995

H.G. CraigHarvey v. Commissioner of Income-tax, [2000]244ITR578(Mad)
25
[1970] 77 ITR 253 (SC),
24
20
are fulfilled. The gains on the transfer of equity shares is only to IML would not be
taxable in India. In all fairness, the applicant states that in the event the provisions of
section 47A of the Act is found to be attracted on the occurrence of any of the events
stated therein, it will offer to tax any gains arising from the proposed transfer of
equity shares in IML
21
D. THE ACTIONS OF THE COMPANY ARE IN COMPLIANCE WITH

THE DTAA
As per Section 90(2) of the Act, the income of a non-resident is taxable in India in
accordance with the provisions of the Act or the provisions of DTAA, whichever is
more beneficial to the non-residents. The actions of the IIPL are reasonable and it is
more beneficial for them to rely on the India Mauritius Double Taxation Agreement.
IML has a Tax Residency Certificate issued by the Mauritian Authorities.26A valid TRC
is an ultimate evidence of beneficial ownership of the shares and the gains arising there
from.27
In the case of AfzalUllah v. State of U.P28, the court deemed it pertinent to note that,
Certificate of residence is issued by the Mauritius Authorities, will constitute
sufficient evidence for accepting the status of residence as well as beneficial
ownership for applying the DTAC accordingly. The test of residence mentioned
above would also apply in respect of income from capital gains on sale of shares.
Companies resident in Mauritius would not be liable for tax in India on income from
capital gains arising in India on sale of shares as per paragraph 4 of Article 1329.
Capital gains arising from alienation30 of shares in Indian companies held by the
applicant would not be taxable in India.31
26
Moot Proposition, Page 1, 2

AzadiBachaoAndolan v. Union of India,(2004) 10 SCC 1 See also,Vodafone South Limited and Another
v. The Deputy Director of Income Tax International Taxation and Ors, W.P. Nos. 13210-14 of 2014
28
AIR 1964 SC 264, See also, Munnal and Ors. v. B.S. Baswan and Ors.
29
India Mauritius Double Taxation Avoidance Agreement, 1983
30
5 of India Mauritius Double Taxation Avoidance Agreement, Alienation: the sale, exchange transfer
or relinquishment of the property or the extinguishment of any right in it or its compulsory acquisition
under any law in force in India or in Mauritius.
27
22
Here, the transaction the subsidiary company has undertaken has resulted in capital
gains to the holding company.
In D. B. Zwirn Mauritius Trading v. Director of Income-tax,32the Authority for
Advanced Rulings held that, In terms of paragraph 4, capital gains derived by a
resident of Mauritius by alienation of shares of companies shall be taxable only in
Mauritius according to Mauritius tax law. Therefore, any resident of Mauritius deriving
income from alienation of shares of Indian companies will be liable to capital gains tax
only in Mauritius as per Mauritius tax law and will not have any capital gains tax
liability in India.
Under the India Mauritius double taxation avoidance agreement, since such transactions
are not taxable, there is no tax liability at all for IIPL. Since there is no dividend accrued
as such by the subsidiary, Dividend Distribution Tax need not be levied.
By a Circular No. 682 dated 30-3-1994 issued by the Central Board of Direct Taxes in
exercise of its powers under Section 90 of the Act, the Government of India clarified
that capital gains of any resident of Mauritius by alienation of shares of an Indian
company shall be taxable only in Mauritius according to Mauritius taxation laws and
will not be liable to tax in India. 33
As far as capital gains resulting from alienation of shares are concerned, Article 13(4)
provides that the gains derived by a resident of a contracting State shall be taxable only
31
CIT v. P.V.A.L. KulandaganChettiar, (2004) 267 ITR 654 (SC)

AAR NO. 878 OF 2010 & AAR NO. 879 OF 2010
33
Supra n 1
32
23
in that State. In the instant case, such capital gains derived by a resident of Mauritius
shall be taxable only in Mauritius.
Prior to 1st June, 1997, dividends distributed by domestic companies were taxable in
the hands of the shareholder and tax was deductible at source under the Income-tax Act,
1961. Under the DTAC, tax was deductible at source on the gross dividend paid out at
the rate of 5% or 15% depending upon the extent of shareholding of the Mauritius
resident. Under the Income-tax Act, 1961, tax was deductible at source at the rates
specified under section 115A, etc. It is hereby clarified that wherever a certificate of
residence is issued by the Mauritian authorities, such certificate will constitute
sufficient evidence for accepting the status of residence as well as beneficial ownership
for applying the DTAC accordingly.34
34
Supra n.13
24
E. TAX PLANNING CANNOT BE PENALISED

The financial needs of the Welfare State, if backed by the law have to be respected and
met. The residents of Mauritius are not liable to tax in respect of capital gains derived in
India.35Tax avoidance generally refers to legally reducing tax payments.36Transfer of
shares through a legitimate scheme of arrangement is not a tax avoidance device.37
The allegations raised by the Revenue is that the acts of the company is a sham so as to
evade the taxes introduces by the Revenue. However,the term liability to tax in a tax
treaty does not equate to an actual payment of tax; simply because an exemption is
granted on a particular source of income does not mean that an entity is not liable to
tax at all. 38Tax planning may be legitimate provided it is within the framework of
law.39
The buybacks and redemption of CCDs exempt the company from the taxes like DDT
and BBdt. However, it is not fair to assume that IIPL has not paid any tax at all. The
company has a very efficient tax planning system which has exempted them from such
taxes.
In Mc Dowell and Co. v. CIT, 40 is reproduced as under: " There is behind taxation
laws as much moral sanction as is behind any other welfare legislation and it is a
35
Supra n 12
Nigel Feetham, Tax Arbitrage : The trawling of International Tax System, 2 (2011)
37CIT v. High Energy Batteries (India) Ltd., [2012] 208 ITR 213 See also, CITv.Sesa Goa Ltd.,[2004]
271 ITR 331 (SC)
38
Goodyear India Ltd., Gedore (India) Pvt. Ltd. v. Kelvinator of India Ltd. AIR1990SC781
39
Banyan and Berry v. CIT, [1996] 222 ITR 831(Guj)
40
(2003) 5 SCC (Jour) 15
36
25
pretence to say that avoidance of taxation is not unethical and that it stands on no
less a moral plane than honest payment of taxation.
It is open to the assessee to have a tax planning and alltax planning allowable in law
cannot be equated or treated as the planning meant for evasion of tax.41
All transactions undertaken and to be undertaken by IIPL fall within the framework
of DTAA. That being said, there is nothing which suggests that such transactions
were to avoid any tax which can be levied. Therefore, the allegations raised by the
Revenue maybe deemed to be false.
41
Avasarala Automation Ltd. v. Joint Commissioner of Income Tax,(2003)185CTR(Kar)402
26
PRAYER
In the light of Issues raised, arguments advanced and authorities cited, it humbly prayed
and implored before this Honble Forum to kindly adjudge and declare that:
6. The petition filed by Intaxicate India Pvt Ltd. before Authority for Advance
Rulings is maintainable.
7. The transactions undertaken for redemption of CCDs are capital receipts in the
hands of IML.
8. Sale consideration on buyback of shares are not liable to be taxed.
9. The actions of the company are in compliance with the Double Taxation
Avoidance Agreement.
10. Tax planning cannot be penalized.
And pass any other order that it deems fit in the interest of Justice, Equity and Good
Conscience. And for this, the counsel for the petitioner as in duty bound shall forever
pray.
Respectfully,
Sd/COUNSELS FOR PETITIONER
27
28
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BEFORE THE AUTHORITY FOR ADVANCE RULINGS

2. Commissioner of Income-tax, Bangalore.........................................

MEMORIAL ON BEHALF OF PETITIONERS

MEMORIAL ON BEHALF OF PETITIONERS

Authority for Advance Rulings

All India Reporter

Commissioner of Income Tax

Double Taxation Avoidance Agreement

Intaxicate India Private Limited

Intaxicate Mauritius Limited

Income Tax Apellate Tribunal

Income Tax Report

MEMORIAL ON BEHALF OF PETITIONERS

Supreme Court Cases

Sebi and Corporate Laws

Writ Petition Civil

MEMORIAL ON BEHALF OF PETITIONERS

2. AfzalUllah v. State of U.PAIR 1964 SC 264,

MEMORIAL ON BEHALF OF PETITIONERS

MEMORIAL ON BEHALF OF PETITIONERS

MEMORIAL ON BEHALF OF PETITIONERS

THE RESPONDENT DO HEREBY SUBMIT THE MEMORANDUM FOR THE

MEMORIAL ON BEHALF OF PETITIONERS

MEMORIAL ON BEHALF OF PETITIONERS

1. WHETHER THE PETITION FILED BY INTAXICATE INDIA PVT LTD.

2. WHETHER THE TRANSACTIONS UNDERTAKEN FOR REDEMPTION

3. WHETHER SALE CONSIDERATION ON BUYBACK OF SHARES ARE

4. WHETHER THE ACTIONS OF THE COMPANY ARE IN COMPLIANCE

MEMORIAL ON BEHALF OF PETITIONERS

MEMORIAL ON BEHALF OF PETITIONERS

BE FORE ADVANCED RULINGS IS MAINTAINABLE

Intaxicate India is Pvt Ltd(IIPL) is a company incorporated in India under Indian

Integrated Container Feederv. JCIT, (2005)278ITR182(Mum.)

MEMORIAL ON BEHALF OF PETITIONERS

Ishikawajma-Harima Heavy Industries Ltd.v. Director Of Income Tax, AIR2007SC929

AAR No. 1138, 1140-1144, 1150 of 2011

Royal Surgicalv.Collector of Customs,(1997)LC191Tri(Delhi)

MEMORIAL ON BEHALF OF PETITIONERS

MEMORIAL ON BEHALF OF PETITIONERS

Mashreque Bank Vs.Director of Income-tax, (ITA No. 1341/Bom/2007

In AzadiBachaoAndolanv. Union of India14,the court pronounced the above said

[(2003)ITR 706 (SC)]

MEMORIAL ON BEHALF OF PETITIONERS

B. THE TRANSACTIONS UNDERTAKEN FOR REDEMPTION OF CCDs

Intaxicate India Private Limited(IIPL), a wholly owned subsidiary of a Mauritian Tax

CWT v. Spencer&Co.,(1973) 88 ITR429

MEMORIAL ON BEHALF OF PETITIONERS

MEMORIAL ON BEHALF OF PETITIONERS

The additional amount paid by IIPL is capital receipts in the hands on

Commissioner of Income-tax v. RajalakshmiVenkatakrishnan, [1995]215ITR596(Mad) See

MEMORIAL ON BEHALF OF PETITIONERS

C. SALE CONSIDERATION ON BUYBACK OF SHARES ARE NOT

Section 45 of Income Tax Act, 1995

MEMORIAL ON BEHALF OF PETITIONERS

MEMORIAL ON BEHALF OF PETITIONERS

D. THE ACTIONS OF THE COMPANY ARE IN COMPLIANCE WITH

Moot Proposition, Page 1, 2

MEMORIAL ON BEHALF OF PETITIONERS

CIT v. P.V.A.L. KulandaganChettiar, (2004) 267 ITR 654 (SC)

MEMORIAL ON BEHALF OF PETITIONERS

MEMORIAL ON BEHALF OF PETITIONERS

E. TAX PLANNING CANNOT BE PENALISED

MEMORIAL ON BEHALF OF PETITIONERS