BATATA VERDICT!

By: Sandeep Ladda, ED & Milan Shah, Senior Manager- Tax & Regulatory Services, PwC India.

The long awaited decision in the ubiquitous case of Aditya Birla Nuvo Ltd. & others was rendered by the Bombay High Court (HC) last week, whereby the writ petitions of various parties were dismissed while deciding upon certain key issues interalia including entitlement to India-Mauritius Treaty, form vs. substance, etc.

In this case, an Indian company (B Co) had purchased 50% of the total shareholding held by a Mauritius Co (Mauritius Co) in an Indian joint venture telecom company (JV Co). The Mauritius Co was a wholly owned subsidiary of US Company (US Co). Subsequently, another Indian company (T Co) bought the entire share capital of Mauritius Co from the US Co, resulting in indirectly acquiring balance 50% shareholding held by Mauritius Co in JV Co. All three parties were JV partners in JV Co.

After issuing a Nil withholding tax certificate to B Co in relation to the first 50% stake purchase, the Indian Tax Authorities (ITA) later held that capital gains from sale of JV Co shares accrued to US Co and not to Mauritius Co and that B Co was liable to be taxed in India as an agent of US Co. In T Co