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14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016
BEFORE THE HONOURABLE HIGH COURT OF KARNATAKA
WP No.100000
Article 226 of the Indian Constitution, 1949
HASSLETON INVESTMENT LIMITED, SINGAPORE………..….PETITIONER
V.
THE AUTHORITY FOR ADVANCE RULING (INCOME TAX), NEW DELHI
……RESPONDENT 1
DIRECTOR OF INCOME- TAX(INTERNATIONAL TAXATION), BENGALURU
…..RESPONDENT 2
Most Respectfully Submitted
MEMORIAL ON BEHALF OF THE PETITIONER
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||i||
MEMORIAL ON BEHALF OF THE PETITIONERS
TABLE OF CONTENTS
Table of Contents ....................................................................................................................... i
Index of Authorities ................................................................................................................. iv
Treatises & Conventions .................................................................................................... iv
Indian Cases ........................................................................................................................ iv
International Cases ............................................................................................................. vi
Reports ................................................................................................................................. vi
Other Authorities ............................................................................................................... vii
List of Abbreviations .............................................................................................................. viii
Statement of Jurisdiction .......................................................................................................... x
Statement of Facts ................................................................................................................... xii
Questions Presented .............................................................................................................. xiii
Summary of Arguments .......................................................................................................... xv
Arguments Advanced ................................................................................................................ 1
ISSUE 1: Whether MAT provisions will be applicable to the Petitioner being a
‘Foreign Company’ as per the definition under Income Tax Act, 1961 and The
Companies Act, 2013. .......................................................................................................... 1
[1.1] ‘Foreign Company’ as per The Income Tax Act, 1961 ............................................. 1
[1.2] Interpretation Of Term ‘Company’ as appearing in Section 115JB .......................... 2
[1.3] Rule of Executive Interpretation ............................................................................... 2
[1.3.1] Legislative History of the MAT provision in the IT Act. .................................. 3
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||ii||
MEMORIAL ON BEHALF OF THE PETITIONERS
ISSUE 2: Whether The Petitioner Had Any Type Of Permanent Establishment /
Place Of Business / Business Connection Either Under Income Tax Act, Companies
Act Or Relevant Tax Treaty. .............................................................................................. 4
[2.1] HIL had no Permanent Establishment ....................................................................... 4
[2.2.1] The agents are acting in the ordinary course of their business ........................... 5
[2.2.2] There activities are not devoted wholly or almost wholly to the foreign
enterprise ........................................................................................................................ 6
[2.3] HIL Had No Place Of Business In India. .................................................................. 6
[2.4] HIL Had NO Business Connection In India .............................................................. 7
ISSUE 3: Whether the Petitioner is required to prepare financials as per Companies
Act, 2013................................................................................................................................ 7
[3.1.] Specific provisions for FPI’s for preparation of books of account .......................... 7
[3.2.] Legislative intent to exclude companies incorporated outside India with no PE in
India ................................................................................................................................... 8
ISSUE 4: Whether the Finance Act, 2015 amendment on imposition of MAT on
foreign company is prospective or retrospective ............................................................... 8
[4.1] Clarificatory Nature of the Amendment. ................................................................... 9
[4.2] Intent of the Legislature ............................................................................................ 9
[4.3.] Remedial nature of the Amendment....................................................................... 10
ISSUE 5: Whether capital gains exemption as per India – Singapore tax treaty will be
applicable to the Petitioner and whether imposition of MAT will be violative of the
tax treaty. ............................................................................................................................ 11
[5.1] Capital Gains Taxable only in Singapore ................................................................ 11
[5.2.] Imposition of MAT to violate Tax Treaty .............................................................. 11
[5.3] Section 115 JB and Section 10(38) of the Act ........................................................ 12
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||iii||
MEMORIAL ON BEHALF OF THE PETITIONERS
ISSUE 6: Whether the petitioner can cherry pick the provisions of Income Tax Act
and tax treaty for the purpose of definition of PE under the Act and capital gains
exemption under the tax treaty. ........................................................................................ 13
[6.1] Provision under Section 90(2) of the Act ................................................................ 13
[6.2] Article 51(1) of the Constitution of India 1949 ....................................................... 14
Issue 7: Whether 115JB is equally applicable to FIIs/FPIs and FDI and the scope and
nature of functioning of FIIs/FPIs and FDIs to understand the investment into India.
.............................................................................................................................................. 14
[7.1] Applicability of Section 115JB to FIIs/FPIs and FDIs ........................................... 15
[7.2] Scope and nature of functioning of FIIs/FPIs and FDIs ......................................... 15
Prayer ...................................................................................................................................... 16
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||iv||
MEMORIAL ON BEHALF OF THE PETITIONERS
INDEX OF AUTHORITIES
TREATISES & CONVENTIONS
Agreement for avoidance of double taxation and prevention of fiscal evasion with
Singapore”, 27th May, 1994Article 5.9 ................................................................................ 5
Agreement for avoidance of double taxation and prevention of fiscal evasion with
Singapore”, 27th May, 1994Article 5, paragraph 9 ............................................................... 4
Model Tax Convention (Condensed Version) – ISBN 978-92-64-08948-8 – OECD 2010 ...... 6
Model Tax Convention (Condensed Version) – ISBN 978-92-64-08948-8 –OECD 2010,para
38............................................................................................................................................ 6
United Nations Convention on Contracts for the International Sale of Goods, Article 26,
“Vienna Convention” 11th April 1980 ................................................................................. 13
INDIAN CASES
Ajay Kumar Banarjee and ors. v. Union of India AIR 1984 SC 1130 ...................................... 8
Assistant Commissioner of Income Tax v. Pride Foramer SAS (2008)116 TTJ (Delhi)369 ... 14
Bangalore Woollen, Cotton & Silk Mills Co. Ltd v. CIT [1950] 18 ITR 423 (Mad) ................. 7
Bank of Tokyo-Mitsubishi UFJ Ltd v. ADIT ITA Nos. 5364/Del/2010 ............................ 12, 14
Barendra Prasad Ray v. ITO1981 AIR 1047 ............................................................................ 5
Bhubaneswar Singh and Bilma Devi Poddar and Ors. v. Union Of India (1994) 6 SCC 77 .. 10
C.E.S.C. Ltd. v. Deputy Commissioner of Income Tax [2003]87ITD653(Cal),
(2003)80TTJ(Kol)806 .......................................................................................................... 13
Castleton Investment ltd. v Director of Income Tax (2015) 280 CTR 409 (SC) ..................... 15
CIT v. B.C. Srinivasa Shetty [1981]SCR (2) 938 ....................................................................... 2
CIT v. Evans Medical Supplies Ltd. [1959] 36 ITR 418 ........................................................... 7
CIT v. Vishakhapatnam Port Trust (1983), 144 ITR 146 (AP) ................................................. 4
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||v||
MEMORIAL ON BEHALF OF THE PETITIONERS
Commissioner Income Tax, Ahmedabad v. Gold Coin Health Private ltd, (2008) 9 SCC 622 . 9
Commissioner of Income Tax v. Podar cement (p) ltd (1997) 5 SCC 482 ................................ 9
Commissioner of Income Tax v. Vatika Township Private Limited (2015) 1 SCC 1 .............. 11
Commissioner of Income Tax, Bangalore v. B.C. Srinivasa Setty, (1981) 2 SCC 460 ............ 9
Commissioner of Income Tax, Ernakulam, Kerala v. Official Liquidator, Palai Central Bank
Ltd., (In Liquidation) (1985) 1 SCC 45 ................................................................................. 9
Dresdner Bank AG v. Additional Commissioner of Income Tax [2007] 108 ITD 375 (Mum) 12
Dun and Bradstreet Espana, SA, (272 ITR 99) ......................................................................... 5
Imperial Chit Fund (P) Ltd v. ITO (1996) 8 SCC 303 ............................................................... 2
In Re: Advance Ruling P .No .13 of 1995 (1997)141 CTR 542 (AAR) .................................. 14
In Re: Castleton Investment Ltd. [2012] 348 ITR 537 (AAR) ................................................ 10
In Re: ZD [2012] ITR 348 (AAR) ............................................................................................. 1
ITA Nos. 5364/Del/2010 and ITA Nos. 5104/Del/2011 decided on 19th September 2014 ...... 2
Jethabhai Javeribhaiv. CIT [1951] 20 ITR 331 (Nag) .............................................................. 7
Kerala SIDC v. CIT, [2003] 259 ITR 51 (SC) ........................................................................... 2
Kerala State Industrial Development Corp. Ltd. v. CIT [2003] 259 ITR 51 (SC) .................... 3
Kerala State Industrial Development Corp. Ltd. v. CIT [2010] 236 CTR 377 9 (Ker) ........... 12
LG Asian Plus Ltd v. Asst. Director of Income Tax 46 SOT 159 ITAT, Delhi Bench ........... 13
Madras v. Fraser and Ross and Anr. [1960] AIR 971 .............................................................. 1
Mahindra and Mahindra Limited v. The Dy. Commissioner of Income Tax [2009]30 SOT374
(Mum) .................................................................................................................................. 11
Narain Swadeshi Weaving Mills v. Cept (1954) 26 ITR 772 (SC) ............................................ 5
Platinum Asset Management Ltd. v Dy. Director of Income Tax, [2014] 61 SOT 119(Mum) 10
Praxiar Pacific Ltd. v. DIT [2010] 326 ITR 276 (AAR) ................................................... 10, 12
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||vi||
MEMORIAL ON BEHALF OF THE PETITIONERS
Premier Enterprises, Secundrabad v. Commercial Tax officer and Another AIR 2003 SC
4449...................................................................................................................................... 10
R.B Jodha Mai Kuthiala v. Commissioner of Income-Tax, Punjab, Jammu & Kashmir and
Himachal Pradesh[1971] 82 ITR 570 (SC) ......................................................................... 10
Sheraton International Inc. v. Deputy Director of Income Tax [2006]10 SOT 542 (Delhi) ... 14
Suresh N. Gupta v. Commissioner of Income Tax (2008) 4 SCC 362 .................................... 11
The Commissioner of Income Tax v. Al-Kabeer Exports Ltd. (2010)233CTR (Bom) 443 ..... 12
The J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. The State of Uttar Pradesh and Ors
AIR 1961 SC 1170 ................................................................................................................. 8
The Vanguard Fire and General Insurance Co. Ltd.................................................................. 1
Timken Co. v. DIT [2010] 326 ITR 193 (AAR) ................................................................ 10, 12
Vodafone International Holdings B.V. v. Union of India & Anr. (2012) [S.L.P. (C) No.
26529] .................................................................................................................................... 9
Zile Singh v. State of Haryana and ors.2004 8 SCC 1 ............................................................ 10
INTERNATIONAL CASES
Lord Advocate v. Huron and Erie Loan and Saving Co.1911 Scottish Cases 612.................... 6
Rogers v. United States, (1902) 185 U.S. 83 ............................................................................. 8
Wyre Forest District Council v. Secretary of State for the Environment [1990] 2 AC 357
(HL)........................................................................................................................................ 1
REPORTS
Justice AP Shah, Report: Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for
the period prior to 01.04.2015 ............................................................................................. 15
Justice AP Shah, Report: Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for
the period prior to 01.04.2015, p.42, Para 5.1.3 .................................................................... 2
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||vii||
MEMORIAL ON BEHALF OF THE PETITIONERS
Justice AP Shah, Report: Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for
the period prior to 01.04.2015.p.63, para 5.8.4 ................................................................... 13
Justice AP Shah, Report: Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for
the period prior to 01.04.2015p.51, Para 5.1.25 .................................................................... 4
Justice AP Shah, Report:Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for
the period prior to 01.04.2015,p.51, Para 5.1.24 ................................................................... 3
OTHER AUTHORITIES
Budget Speech of Minister of Finance for 2000-01 – Part B, [2000] 242 ITR (St.) 18, 29,
Explanatory. Memorandum to the Finance (No.2) Bill, 1996, 220 ITR (St.) 248, 263-264 12
Budget Speech of Prime Minister and Minister of Finance for 1987-88 – Part B, [1987] 165
ITR (St.) 13, 14 ...................................................................................................................... 3
CBDT circular, 2nd September, 2015 ....................................................................................... 15
CBDT press release, 24th September, 2015 ............................................................................. 15
JUSTICE G.P SINGH, (Sixth Edn, 1996) “PRINCIPAL OF STATUTORY
INTERPRETATION.”....................................................................................................... 9, 10
Memorandum Explaining the provisions of the Finance Bill,[2012] 342 ITR (St.) 234, 238-
240.......................................................................................................................................... 3
Notes on Clauses, Finance Bill 2002, [2002] 254 ITR (St) 118, 151 ........................................ 3
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||viii||
MEMORIAL ON BEHALF OF THE PETITIONERS
LIST OF ABBREVIATIONS
AAR Authority for Advanced Ruling
AIR All India Reporter
All Allahabad
AO Assessing Officer
AT Appellate Tribunal
AY Assessing year
BIT Bilateral Investment Treaty
Cal. Calcutta
CBDT Central Board of Direct Taxes
CFC Controlled Foreign Corporations
CIT Commissioner of Income Tax
CIT(A) Commissioner of Income Tax (Appeals)
CTR Current Tax Reporter
CUP Comparable Uncontrolled Price
DCF Discount Cash Flow
DCIT Deputy Commissioner of Income Tax
Del. Delhi
DIT Director Income Tax
DTAA Double Taxation Avoidance Agreement
DTC Direct Taxes Code
Edn. Edition
GAAR General Anti Avoidance Rule
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||ix||
MEMORIAL ON BEHALF OF THE PETITIONERS
HC High Court
HIL Hassleton Investment Limited
IT Income Tax
ITAT Income Tax Appellant Tribunal
ITD Income Tax Decisions
ITR Income Tax Reports
LTCG Long Term Capital Gains
Mad. Madras
MAT Minimum Alternate Tax
OECD Organisation for Economic Co-operation and
Development
p. Page Number
r/w Read with
Re Reference
S Section
SAIL Securities Advisers India Limited
SC Supreme Court
SCC Supreme Court Cases
SEBI Securities Investment Board of India
u/s Under Section
UK United Kingdom
USA United States of America
v. Versus
Vol. Volume
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||x||
MEMORIAL ON BEHALF OF THE PETITIONERS
STATEMENT OF JURISDICTION
This Hon’ble High Court of Karnataka has the jurisdiction to try and dispose of the instant
matter under Article 226 of the Constitution of India 1949, which states that
“(1) Notwithstanding anything in Article 32 every High Court shall have powers,
throughout the territories in relation to which it exercise jurisdiction, to issue to any person
or authority, including in appropriate cases, any Government, within those territories
directions, orders or writs, including writs in the nature of habeas corpus, mandamus,
prohibitions, quo warranto and certiorari, or any of them, for the enforcement of any of
the rights conferred by Part III and for any other purpose
(2) The power conferred by clause (1) to issue directions, orders or writs to any
Government, authority or person may also be exercised by any High Court exercising
jurisdiction in relation to the territories within which the cause of action, wholly or in part,
arises for the exercise of such power, notwithstanding that the seat of such Government or
authority or the residence of such person is not within those territories
(3) Where any party against whom an interim order, whether by way of injunction or stay
or in any other manner, is made on, or in any proceedings relating to, a petition under
clause (1), without
(a) furnishing to such party copies of such petition and all documents in support of the
plea for such interim order; and
(b) giving such party an opportunity of being heard, makes an application to the High
Court for the vacation of such order and furnishes a copy of such application to the party
in whose favour such order has been made or the counsel of such party, the High Court
shall dispose of the application within a period of two weeks from the date on which it is
received or from the date on which the copy of such application is so furnished, whichever
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||xi||
MEMORIAL ON BEHALF OF THE PETITIONERS
is later, or where the High Court is closed on the last day of that period, before the expiry
of the next day afterwards on which the High Court is open; and if the application is not so
disposed of, the interim order shall, on the expiry of that period, or, as the case may be, the
expiry of the aid next day, stand vacated
(4) The power conferred on a High Court by this article shall not be in derogation of the
power conferred on the Supreme Court by clause (2) of Article 32”
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||xii||
MEMORIAL ON BEHALF OF THE PETITIONERS
STATEMENT OF FACTS
In the present controversy Hassleton Investment Limited (HIL) a company registered in
Singapore and FPI as per Foreign Portfolio Investors Regulations, 2014 engaged services of
Securities Advisors India Ltd (SAIL). On offloading the securities( in case of short term
capital gains),covered u/s 115AD of Income Tax Act, 1961 and long term capital gains
availed exemption u/s 10(38) of the Act & paid Securities Transaction Tax(STT). In January
sold major Investments, and paid STT since gains were LTCG, assumed exemption u/s
10(38) of the Act. The ITD appeared before the AAR stating that HIL’s case was covered by
rulings in The Timken Company Case(2010)326 ITR 193(AAR) and Praxair Pacific Limited
CASE(2010)326 ITR 276(AAR). The ITD maintained that SAIL was the key advisor of HIL
hence its Permanent Establishment i.e. Agency PE in India therefore required to pay MAT u/
s 115 JB of the Act on the total income of HIL. HIL argued that SAIL was not its Agency PE
neither did have fixed place of business, hence not required to prepare its financials as per the
Companies Act 1956/2013.
ITD was of the view that amendment to S.115JB by the FA 2015 was prospective and HIL
was covered prior to the amendment, within the ambit of MAT and that ‘company’ in
S.115JB(1) covered foreign companies, hence required to prepare financials as per
Companies Act 2013. Stated HIL-SAIL are Principal-Agent; hence SAIL was HIL’s Agency
PE. Also, entire capital gains was taxable in Singapore- Article 13(4) of India – Singapore tax
treaty, imposition of MAT violate treaty obligations. The AAR held it had an Agency PE in
India -liable to pay MAT u/s 115JB for FY 2014-15. Further definition of ‘foreign company’
to be borrowed from Companies Act, 2013 and HIL had a place of business in India through
SAIL. HIL filed writ petition of Certiorarified Mandamus under Article 226 of the Indian
Constitution to quash passed by AAR and to prevent ITD from any recovery proceedings.
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||xiii||
MEMORIAL ON BEHALF OF THE PETITIONERS
QUESTIONS PRESENTED
ISSUE 1
Whether MAT provisions will be applicable to the petitioner being a ‘foreign company’
as per the definition under Income Tax Act, 1961 and the Companies Act, 2013.
ISSUE 2
Whether the petitioner had any type of Permanent Establishment / Place of Business
/Business Connection either under Income Tax Act, Companies Act or relevant tax
treaty.
ISSUE 3
Whether the petitioner is required to prepare financials as per Companies Act, 2013 or
whether it is governed by SEBI Regulations.
ISSUE 4
Whether the Finance Act, 2015 amendment on imposition of MAT on foreign company
is prospective or retrospective as argued by both parties.
ISSUE 5
Whether capital gains exemption as per India –Singapore tax treaty will be applicable
to the petitioner and whether imposition of MAT will be violative of the tax treaty.
ISSUE 6
Whether the petitioner can cherry pick the provisions of Income Tax Act and tax treaty
for the purpose of definition of PE under the Act and capital gains exemption under the
tax treaty.
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||xiv||
MEMORIAL ON BEHALF OF THE PETITIONERS
ISSUE 7
Whether 115JB is equally applicable to FIIs/FPIs and Foreign Direct Investors (FDI)
and the scope and nature of functioning of FIIs/FPIs and FDIs to understand the
investment into India.
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||xv||
MEMORIAL ON BEHALF OF THE PETITIONERS
SUMMARY OF ARGUMENTS
ISSUE 1:
HIL being a ‘foreign company’ falls within the definition of the IT Act and the legislature
never intend the MAT provisions to apply on a foreign company.
ISSUE 2:
HIL did not have a Permanent business Establishment /place of business or Business
connection in India as SAIL was as an independent agent.
ISSUE 3:
HIL, is not to prepare financials as per Companies Act, 2013 as HIL is governed by the
specific provisions of SEBI (FPI) guidelines, 2015 and has no agency PE in India.
ISSUE 4:
The amendment proposed by Financial Act, 2015 is to be held retrospectively, as it is a
Clarificatory Amendment and legislature never intended it to apply prospectively and the
amendment is remedial in nature
ISSUE 5:
Article 13(4) of the Tax Treaty shall be applicable hence imposition of MAT shall be
violative of the tax treaty.
ISSUE 6:
Under Section 90(2) of the Income Tax Act, 1961 the beneficial provisions can be cherry
picked.
ISSUE 7:
Section 115JB of the Income Tax Act, 1961 will not apply to FPI/FII/FDI as it has been
clearly propounded by the CBDT press release 2014.
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||1||
MEMORIAL ON BEHALF OF THE PETITIONERS
ARGUMENTS ADVANCED
ISSUE 1: WHETHER MAT PROVISIONS WILL BE APPLICABLE TO THE PETITIONER BEING A
‘FOREIGN COMPANY’ AS PER THE DEFINITION UNDER INCOME TAX ACT, 1961 AND THE
COMPANIES ACT, 2013.
It is humbly contended before the Hon’ble Court that the order passed by Authority of
Advance Ruling (hereinafter referred to as ‘AAR’) is erroneous in concluding that Hassleton
Investment Ltd. (hereinafter referred as ‘HIL’) is liable u/s 115JB as HIL being a ‘foreign
company’ falls within the definition of the Income Tax Act (hereinafter referred as ‘Act’)
[1.1] MAT provision u/s.115 JB is inapplicable to foreign companies. [1.2] as the legislature
never intended that. [1.3]
[1.1] ‘FOREIGN COMPANY’ AS PER THE INCOME TAX ACT, 1961
“Company” u/s. 115JB is the overriding charging provision as it provides for payment of
income-tax. So there is no need of borrowing the definition of “company” from S. 2(42) of
the Companies Act, 2013; as the act is a complete code in itself and defines foreign
company.1 A word already defined in the interpretation clause, prima facie, governs
whenever that word is used in the body of the statute.2 If Parliament in a statutory enactment
defines its terms, it must intend that, in the absence of a clear indication to the contrary, those
terms as defined shall govern what is proposed, authorized or done under or by reference to
that enactment.3.Thus, the definition of the Company from the Companies Act need not be
referred.
1 In Re: ZD [2012] ITR 348 (AAR).
2The Vanguard Fire and General Insurance Co. Ltd., Madras v. Fraser and Ross and Anr. [1960] AIR 971.
3Wyre Forest District Council v. Secretary of State for the Environment [1990] 2 AC 357 (HL).
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||2||
MEMORIAL ON BEHALF OF THE PETITIONERS
[1.2] INTERPRETATION OF TERM ‘COMPANY’ AS APPEARING IN SECTION 115JB
The definition of company is qualified with expression ‘unless the context otherwise
requires’, which makes it clear that the definition is subject to an overall restrictive clause
stated in this section.4 Thus if the definition of company is applied without considering the
opening statement stated in S. 2, S.115JB would become unworkable. As per the bare reading
of Section 115JB it is clear that for calculation of ‘Book Profit’ every company has to prepare
the profit and loss in accordance with the provisions of Schedule VI of the Companies Act,
1956. Implying that a foreign company has to recast its entire global accounts in the manner
prescribed by the Act which is a colossal task because ‘Foreign Company’ is defined in S.
2(17).For the purpose of the adjustments as provided in the explanation to S. 115JB for the
computation of the ‘Book Profit’. A foreign company may end up paying the tax on its entire
global income which may not have been accrued/ arisen or received in India. Since there is an
absence of procedure for computation of “Book Profit’ in case of foreign companies.
[1.3] RULE OF EXECUTIVE INTERPRETATION
The legislative intent shall be relevant to clear the inconsistency and ambiguity in the
applicability of MAT provisions.5 Legislative intent should be taken into account in case of
ambiguity6
Minimum Alternate Tax was effectively introduced in India in order to tax ‘Zero Tax
Companies’ since then there have been various amendments in this provision and it has been
reintroduced several times.7 Subsequently it was reintroduced as Section 115 JB in year 2001
and has been recently amended by Finance Act of 2015, which levies 18.5% MAT on
4CIT v. B.C. Srinivasa Shetty [1981]SCR (2) 938.
5 ITA Nos. 5364/Del/2010 and ITA Nos. 5104/Del/2011 decided on 19th September 2014.
6Kerala SIDC v. CIT, [2003] 259 ITR 51 (SC); Imperial Chit Fund (P) Ltd v. ITO (1996) 8 SCC 303.
7 Justice AP Shah, Report: Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for the period prior to 01.04.2015, p.42, Para 5.1.3.
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||3||
MEMORIAL ON BEHALF OF THE PETITIONERS
companies if the tax payable the companies on their taxable income is less than 18.5% of its
book profit, considering the book profit as its total income.
[1.3.1] Legislative History of the MAT provision in the IT Act.
While explaining the purpose of inserting MAT provisions in the IT Act for the first time
Finance minister had made it clear that only the domestically widely held company will pay
tax at a specified rate on their book Profit.8 Further, the notes on clauses explaining the
provisions of Finance bill, 2002, providing for amendments to S. 115JB stated that the
existing provisions of the said Section provide for ‘levy of a minimum tax on domestic
companies’ on the book profit.9 Memorandum of the Finance bill 201210 stated that in order
to align the provisions of the Income tax Act with the Companies Act, it is proposed to
amend S. 115JB to the provide that companies which are covered u/s 211 to be included by
Explanation 3 which is added to S. 115JB and are suppose to prepare their Profit & Loss
account as per Schedule VI of the Companies Act. This amendment makes it clear that the
obligation is only because of its regulatory requirements and not because of its independent
nature. Thus in the present matter if the legislature intended on including the FPI/FII it would
have clarified itself.11
Thus it is humbly submitted before the Hon’ble court that court that the legislature never
intended to apply S. 115 JB (MAT) to be applicable to the foreign Company12 was made
clear by the Finance minister in his speech, the rates discussed were always meant to be
8 Budget Speech of Prime Minister and Minister of Finance for 1987-88 – Part B, [1987] 165 ITR (St.) 13, 14
9 Notes on Clauses, Finance Bill 2002, [2002] 254 ITR (St) 118, 151
10 Memorandum Explaining the provisions of the Finance Bill,[2012] 342 ITR (St.) 234, 238-240
11Justice AP Shah, Report:Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for the period prior to 01.04.2015,p.51, Para 5.1.24.
12Kerala State Industrial Development Corp. Ltd. v. CIT [2003] 259 ITR 51 (SC);
14TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2016 ||4||
MEMORIAL ON BEHALF OF THE PETITIONERS
aligned to domestic companies and the obligation u/s 115JB (2) does not exist de hors the
Companies Act.13
ISSUE 2: WHETHER THE PETITIONER HAD ANY TYPE OF PERMANENT ESTABLISHMENT /
PLACE OF BUSINESS / BUSINESS CONNECTION EITHER UNDER INCOME TAX ACT,
COMPANIES ACT OR RELEVANT TAX TREATY.
It is humbly contended before the Hon’ble court that the ruling of AAR in considering SAIL
as an Agency of HIL and considering that HIL had a Permanent business Establishment in
India is an erroneous decision as SAIL had no permanent establishment and was an
independent agent [2.1] either had no place of business[2.2] or business connection.[2.3]
[2.1] HIL HAD NO PERMANENT ESTABLISHMENT
Permanent Establishment as defined in the Act includes a fixed place of business through
which the business of the enterprise is wholly or partly carried on. It postulates the existence
of a virtual projection of the foreign enterprise of one country onto the soil of another
country.
Here HIL and SAIL are two separate entities where HIL is a tax resident of Singapore, while
SAIL an Indian company deals with the advisory function regarding the investments in the
Indian market. Thus in no way SAIL could be considered as a virtual Projection of HIL or as
Fixed Place of Business in India as per The Income Tax Act14.
ARGUENDO:
The words “Permanent Establishment” as stated in Article 5 of the India Singapore DTAA15
defines the existence of a sizeable element of an permanent nature of a foreign enterprise in
13Justice AP Shah, Report: Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for the period prior to 01.04.2015p.51, Para 5.1.25.
14CIT v. Vishakhapatnam Port Trust (1983), 144 ITR 146 (AP)
15“Agreement for avoidance of double taxation and prevention of fiscal evasion with Singapore”, 27th May, 1994Article 5, paragraph 9.
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another, which can be considered as a fixed place of business in that country.16 In the present
matter AAR has concluded that HIL had a Permanent establishment in India as SAIL acted as
its Agency PE for all its business in India; therefore it would be liable to pay MAT. SAIL in
the present matter has been only acting in the capacity of an ‘independent agent’ to HIL.
Article 5, Para 9 of the India-Singapore DTAA lays down two conditions which are required
to be satisfied in order to consider an agent as an independent agent: 2.2.1 Acting in the
ordinary course of his business, 2.2.2 Activities should not be devoted wholly or almost
wholly on behalf of the foreign enterprise.17
[2.2.1] The agents are acting in the ordinary course of their business
The words "ordinary course of their business" in Article 5 paragraph 9 clearly means that the
agent’s activity constituted his regular business. Business connotes some real, substantive and
systematic course of activity or conduct with a set purpose.18 It is the fundamental idea of
continuous exercise of an activity carried on continuously and systematically by a person by
the application of his labor and skill with a view to earning income. SAIL is a company
registered in India, provided advisory services to its clients about investment in Indian
Market. HIL (FPI) invested in India with the advice provided by SAIL and paid a huge
commission fees to SAIL every year.19
16Dun and Bradstreet Espana, SA, (272 ITR 99)
17“Agreement for avoidance of double taxation and prevention of fiscal evasion with Singapore”, 27th May, 1994Article 5.9.
18Narain Swadeshi Weaving Mills v. Cept (1954) 26 ITR 772 (SC)
19Barendra Prasad Ray v. ITO1981 AIR 1047
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[2.2.2] There activities are not devoted wholly or almost wholly to the foreign
enterprise
An enterprise is said to be acting in the ordinary course of business if it performs activities
which makes it economically and legally, belong to the sphere of its ordinary course of
business.
As an investment advisory firm SAIL is typically responsible to his client (HIL) for the
results of it’s work but is not subject to significant control with respect to the manner in
which that work is carried out. It is not subjected to detailed instructions from the principal as
to the conduct of the work. The fact that the HIL is relying on the special skill and knowledge
of the SAIL is an indication of independence.20
[2.3] HIL HAD NO PLACE OF BUSINESS IN INDIA.
“Place of Business” covers any premises, facilities or installations used for carrying on
business of the enterprise whether or not they are used exclusively for that purpose. This may
be the case where foreign enterprises have certain premises or a part thereof owned by the
other enterprise to their disposal.21 SAIL was only providing the advisory help in the capacity
of an independent agent and was under no capacity to conclude contracts on behalf of HIL.22
Thus HIL has no office or employees in India, and carry out the decision making activities
outside India and is not required to prepare or maintain books of account separately as per
Schedule VI of the Companies act. The SEBI regulations for FPI which merely prescribes the
information to be maintained by FPIs with respect to the trade engaged in India.
20 Model Tax Convention (Condensed Version) – ISBN 978-92-64-08948-8 –OECD 2010,para 38.
21 Model Tax Convention (Condensed Version) – ISBN 978-92-64-08948-8 – OECD 2010.
22 Lord Advocate v. Huron and Erie Loan and Saving Co.1911 Scottish Cases 612.
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MEMORIAL ON BEHALF OF THE PETITIONERS
[2.4] HIL HAD NO BUSINESS CONNECTION IN INDIA
The term Business Connection (hereinafter referred as ‘BC’) as refereed in the Act states that
any income earned directly or indirectly, through or from any BC in India would be deemed
to accrue and arise in India and would be taxable in India.23 The section specifically provides
that such a business connection shall not include any business activity carried out through a
broker, general commission agent or any other agent having an independent status24 In the
matter at hand, SAIL provided only advisory services to HIL in the capacity of an
independent agent and was not wholly or mainly working for it or was in the control of HIL
as has been established previously.
Thus it is humbly submitted before this Hon’ble court that the SAIL does not constitute a
business Connection, Place of business or Permanent establishment of HIL as it is merely
acting in the capacity of an independent agent.
ISSUE 3: WHETHER THE PETITIONER IS REQUIRED TO PREPARE FINANCIALS AS PER
COMPANIES ACT, 2013
It is humbly contended before the Hon’ble Court that based on the facts and circumstances of
the case, AAR was erroneous in holding HIL to prepare Financials as per Companies Act,
2013 as they are governed by the specific provisions of SEBI [3.1] and had no PE in India
[3.2].
[3.1.] SPECIFIC PROVISIONS FOR FPI’S FOR PREPARATION OF BOOKS OF ACCOUNT
HIL is a FPI registered under SEBI (FPI) Regulations, 2014.25 SEBI (FPI) Regulations 2014,
S.30 Chapter V, state the need to maintain books of accounts as per the guidelines mentioned
23 CIT v. Evans Medical Supplies Ltd. [1959] 36 ITR 418; Jethabhai Javeribhaiv. CIT [1951] 20 ITR 331 (Nag).
24Bangalore Woollen, Cotton & Silk Mills Co. Ltd v. CIT [1950] 18 ITR 423 (Mad).
25Factual Matrix, para 2.
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MEMORIAL ON BEHALF OF THE PETITIONERS
under it26. The existence of specific provisions for FPI clearly ensures that there is no need to
make accounts as per Companies Act, 2013. This holds validity due to the Latin expression27
“Generalia Specialibus Non Derogant” i.e. general law yields to specific law.28
[3.2.] LEGISLATIVE INTENT TO EXCLUDE COMPANIES INCORPORATED OUTSIDE INDIA WITH
NO PE IN INDIA
A foreign company with a “place of business” in India has to prepare balance sheet and profit
and loss account in accordance with the provisions of the Act29. Foreign companies are
defined as companies with a place of business and conducting business activity in India and
are required to make out a balance sheet and profit and loss account in the prescribed
format.30 Since, HIL is a company incorporated in Singapore, with no Agency PE in India, it
does not have to prepare its financial statement as per the Companies Act, 2013.
Thus it is humbly submitted before the Hon’ble Court that due to the existence of specific
laws, which preside over general law, HIL being a FPI requires to make accounts as per SEBI
(FPI) Regulations, 2014.
ISSUE 4: WHETHER THE FINANCE ACT, 2015 AMENDMENT ON IMPOSITION OF MAT ON
FOREIGN COMPANY IS PROSPECTIVE OR RETROSPECTIVE
It is humbly contended before the Hon’ble Court that the Finance Act, 2015 amendment on
imposition on foreign companies is retrospective in nature as it is clarificatory in nature [4.1],
the legislature never intended to apply MAT to FPI’s [4.2]and remedial nature of the
amendment [4.3]
26 Section. 30 of SEBI (FPI) regulations, 2014.
27Rogers v. United States, (1902) 185 U.S. 83.
28The J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. The State of Uttar Pradesh and Ors AIR 1961 SC 1170; Ajay Kumar Banarjee and ors. v. Union of India AIR 1984 SC 1130.
29 S.591 r/w S.594 of Companies Act, 2013.
30 S. 2(42) r/w S.381 of Companies Act 2013.
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MEMORIAL ON BEHALF OF THE PETITIONERS
[4.1] CLARIFICATORY NATURE OF THE AMENDMENT.
The Hon’ble Apex Court held that a clarificatory/declaratory amendment has retrospective
effect.31 It means “Amendments to remove doubts existing as to the common law, or the
meaning or effect of any statute”32 S. 115JB(2), a computation provision of MAT mandates
preparation of profit and loss accounts as per Part II Schedule VI of the Companies Act, 1956
and imposes obligations u/s. 210 of the Companies Act, 1956. As proved in Issue No. 3, FPIs
and FIIs are not bound to prepare financials as per the Companies Act, 2013 i.e. do not fall
under the computation provision.33 In order to resolve this conflict, the Finance Act
amendment of 2015 excluded the capital gains made by a foreign company by sale of
securities from the ambit of MAT. As stated above, for an amendment to be clarificatory in
nature, it has to remove the existing doubts and ambiguities present in the law. It is evident
that by introduction of the amendment a conflicting position of law is being elucidated.
Therefore, the amendment can be considered as clarificatory in nature.
[4.2] INTENT OF THE LEGISLATURE
The Act provides for a separate scheme34 for taxing income of FIIs / FPIs from Indian
securities at concessional rates for encouraging FDI. Income earned by FIIs / FPIs from their
Indian securities are treated as “capital gains”, instead of “business profits”, and are taxed
according to the nature of gains under the scheme.35 However, application of MAT Provision,
would render the separate scheme for FIIs / FPIs under the Act redundant. And, Legislature
31Commissioner of Income Tax v. Podar cement (p) ltd (1997) 5 SCC 482; Commissioner Income Tax, Ahmedabad v. Gold Coin Health Private ltd, (2008) 9 SCC 622; Vodafone International Holdings B.V. v. Union of India & Anr. (2012) [S.L.P. (C) No. 26529].
32JUSTICE G.P SINGH, (Sixth Edn, 1996) “PRINCIPAL OF STATUTORY INTERPRETATION.”
33Commissioner of Income Tax, Ernakulam, Kerala v. Official Liquidator, Palai Central Bank Ltd., (In Liquidation) (1985) 1 SCC 45; Commissioner of Income Tax, Bangalore v. B.C. Srinivasa Setty, (1981) 2 SCC 460.
34 S.115 AD, The Income Tax Act, 1961.
35 Ibid.
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MEMORIAL ON BEHALF OF THE PETITIONERS
never intended for one section of the legislation to contradict another36. If a particular income
is governed under Section 115AD of the Income Tax Act, it would be governed by the
prescription of that section alone37. Accordingly, the MAT Provision would not apply to FIIs
/ FPIs and they would continue to be governed under the separate scheme provided under the
Act.
[4.3.] REMEDIAL NATURE OF THE AMENDMENT
Justice GP Singh opined the following with respect to remedial nature of an amendment:
“The usual reason of passing a declaratory amendment is to set aside what
Parliament deems to have been a judicial error, whether in the statement of
common law or in the interpretation of the statute.”38
A proviso, which is inserted to remedy unintended consequences of the legislature and to
make the provision workable, requires to be treated as retrospective in operation so that a
reasonable interpretation can be given to the section as a whole39. There was an existence of
ambiguity in law regarding the application of MAT to FPI’s. Timken case40 and Praxir case41
clearly stated that only FPI’s with a PE in India were liable to pay MAT. The Castleton
Investment Ltd case42 however, without overruling the previous judgments’ stated that FPI’s
have to pay MAT regardless they have a PE or not. The amendment was inserted to remedy
36Bhubaneswar Singh and Bilma Devi Poddar and Ors. v. Union Of India (1994) 6 SCC 77.
37Platinum Asset Management Ltd. v Dy. Director of Income Tax, [2014] 61 SOT 119(Mum).
38JUSTICE G.P SINGH, (Sixth Edn, 1996) “PRINCIPAL OF STATUTORY INTERPRETATION.”
39R.B Jodha Mai Kuthiala v. Commissioner of Income-Tax, Punjab, Jammu & Kashmir and Himachal Pradesh[1971] 82 ITR 570 (SC) ; Zile Singh v. State of Haryana and ors.2004 8 SCC 1; Premier Enterprises, Secundrabad v. Commercial Tax officer and Another AIR 2003 SC 4449.
40 Timken Co. v. DIT [2010] 326 ITR 193 (AAR)
41 Praxiar Pacific Ltd. v. DIT [2010] 326 ITR 276 (AAR)
42 In Re: Castleton Investment Ltd. [2012] 348 ITR 537 (AAR) ;
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MEMORIAL ON BEHALF OF THE PETITIONERS
this ambiguity in law, hence it will be considered retrospective in nature. Doctrine of
fairness43 held that legislation, conferring benefit, to be construed as retrospective44.
Thus, it is humbly submitted before the Hon’ble Court that the amendment was clarificatory
in nature, to remedy unintended consequences and the legislature never intended to impose
MAT hence, is retrospective in nature.
ISSUE 5: WHETHER CAPITAL GAINS EXEMPTION AS PER INDIA – SINGAPORE TAX TREATY
WILL BE APPLICABLE TO THE PETITIONER AND WHETHER IMPOSITION OF MAT WILL BE
VIOLATIVE OF THE TAX TREATY.
It is humbly contended before the Hon’ble Court that capital gains exemption under Article
13(4) of the Double Tax Avoidance Agreement[5.1] (hereinafter referred to as DTAA) deems
imposition of MAT u/s 115 JB violative of the exemption provided by the tax treaty[5.2].
Moreover, S.10 (38) covers the income arising from capital gains thereby, S.115 JB shall not
be applicable [5.3]
[5.1] CAPITAL GAINS TAXABLE ONLY IN SINGAPORE
The DTAA under Article 13(4) provides for taxation of capital gains in country of
incorporation of the foreign company. The Article mentions that the gains derived by a
resident of a Contracting State from the alienation of any property are taxable only in that
State45. As proved in Issue 2, the petitioner does not have a permanent establishment in India
and hence shall not be liable to pay MAT.
[5.2.] IMPOSITION OF MAT TO VIOLATE TAX TREATY
MAT, was introduced to tax “zero tax companies” preventing them from avoiding tax on
43 Suresh N. Gupta v. Commissioner of Income Tax (2008) 4 SCC 362
44Commissioner of Income Tax v. Vatika Township Private Limited (2015) 1 SCC 1
45Mahindra and Mahindra Limited v. The Dy. Commissioner of Income Tax [2009]30 SOT374 (Mum).
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MEMORIAL ON BEHALF OF THE PETITIONERS
profits and dividends.46 Budget speech of 1987 referred to “domestic companies” for
applicability of MAT, signifying exclusion of foreign companies from imposition of MAT.47.
Legislative intent indicates imposition of MAT on companies with PE in India.48 In Bank of
Tokyo-Mitsubishi UFJ Ltd49 ITAT held MAT provisions don’t apply to foreign companies
per se, the AAR in Timken and Praxair Pacific Ltd.50 held MAT applicable to foreign
companies with PE in India. S.115JB requires companies to prepare profit and loss account in
accordance with Companies Act, 1956 as mentioned in Issue 3, mandating foreign company
to prepare global accounts in accordance the Companies Act 1956, net profits disclosed by
the global profit & loss account is to be considered, foreign company becomes liable to pay
income-tax on its entire global income, notwithstanding its accrual in India. In the absence of
definite guidance with regards to the computation of book profits in the case of foreign
companies in the statue, evidently signifying the want of Legislative intent to make foreign
companies chargeable to MAT.51
[5.3] SECTION 115 JB AND SECTION 10(38) OF THE ACT
S.10(38) of the Act reads that income arising from transfer of securities long term capital
asset, is chargeable to securities transaction tax provided that the same by way of long term
capital gain is taken into account in computing book profit and income tax payable under
section 115JB. The proviso to Section 10(38) signifies adding long-term capital gains while
computing book profits u/s 115 JB(2). Moreover, for attracting proviso to Section 10(38),
46 Budget Speech of Minister of Finance for 2000-01 – Part B, [2000] 242 ITR (St.) 18, 29, Explanatory. Memorandum to the Finance (No.2) Bill, 1996, 220 ITR (St.) 248, 263-264.
47Kerala State Industrial Development Corp. Ltd. v. CIT [2010] 236 CTR 377 9 (Ker).
48The Commissioner of Income Tax v. Al-Kabeer Exports Ltd. (2010)233CTR (Bom) 443.
49 Bank of Tokyo-Mitsubishi UFJ Ltd v. ADIT ITA Nos. 5364/Del/2010.
50 Timken Co. v. DIT [2010] 326 ITR 193 (AAR); Praxiar Pacific Ltd. v. DIT [2010] 326 ITR 276 (AAR)
51Dresdner Bank AG v. Additional Commissioner of Income Tax [2007] 108 ITD 375 (Mum)
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MEMORIAL ON BEHALF OF THE PETITIONERS
company must be covered u/s 115JB. Similarly, in LG Asian Plus Ltd v. Asst. Director of
Income Tax,52 it was held tax on income from the transfer of securities by an FPI should be
charged on the income arising from the transfer of such securities.
Therefore, it is humbly submitted before the Hon’ble Court, in the presence of DTAA
exemption the MAT provisions are inapplicable, regardless of the interpretation given to
Section 115 JB of the Act.53 Sustaining the principles of pacta sunt servanda (agreements
must be honoured)54 and good faith, the capital gains exemption as per India – Singapore tax
treaty will be applicable to the petitioner and the imposition of MAT will violate the tax
treaty.
ISSUE 6: WHETHER THE PETITIONER CAN CHERRY PICK THE PROVISIONS OF INCOME TAX
ACT AND TAX TREATY FOR THE PURPOSE OF DEFINITION OF PE UNDER THE ACT AND
CAPITAL GAINS EXEMPTION UNDER THE TAX TREATY.
It is humbly contended before the Hon’ble Court, cherry picking is permitted u/s 90(2) of the
Act [6.1] keeping Article 51(1) of the Constitution of India 1949[6.2].
[6.1] PROVISION UNDER SECTION 90(2) OF THE ACT
Section 90(2) permits a non-assesse to be governed by the beneficial provisions of the Act or
the applicable treaty55.Where the Government has entered into an agreement with the
Government of any country outside India or specified territory outside India, as the case may
be, under subsection (1) for granting relief of tax, or as the case may be, avoidance of double
taxation, then, in relation to the assesse to whom such agreement applies, the provisions of
52 LG Asian Plus Ltd v. Asst. Director of Income Tax 46 SOT 159 ITAT, Delhi Bench.
53Justice AP Shah, Report: Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for the period prior to 01.04.2015.p.63, para 5.8.4.
54United Nations Convention on Contracts for the International Sale of Goods, Article 26, “Vienna Convention” 11th April 1980.
55C.E.S.C. Ltd. v. Deputy Commissioner of Income Tax [2003]87ITD653(Cal), (2003)80TTJ(Kol)806
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MEMORIAL ON BEHALF OF THE PETITIONERS
this Act shall apply to the extent they are more beneficial to that assesse56. Section 90(2) r/w
Chapter XA of the Act, states that DTAA clearly overrides Section 115 JB of the Act. Hence,
levying of MAT on the capital gains despite exemption under the DTAA, denies treaty
benefits and amounts to violation of DTAA provisions.57
[6.2] ARTICLE 51(1) OF THE CONSTITUTION OF INDIA 1949
Under S. 90(2), DTAA provisions override the Act including Section 115 JB if contain more
beneficial provisions for assesse company. The intent of Section 115 JB cannot be interpreted
to override treaty obligations.58 Cognizance must be paid to Article 51(1) of the Indian
Constitution which lays that the
“State shall endeavor to foster respect for international law and treaty obligations in the
dealings of organized people with one another.”59
In the light of Constitutional provision, the non-residential assesse is entitled to cherry pick
the beneficial provision. Hence, it is humbly submitted before the Hon’ble Court that the
petitioner is entitled to cherry pick the beneficial provision as has been made imperative
through the aforementioned statutory and constitutional provision.
ISSUE 7: WHETHER 115JB IS EQUALLY APPLICABLE TO FIIS/FPIS AND FDI AND THE SCOPE
AND NATURE OF FUNCTIONING OF FIIS/FPIS AND FDIS TO UNDERSTAND THE INVESTMENT
INTO INDIA.
It is humbly contended before the Hon’ble Court that Section 115JB will not be applicable to
FIIs/FPIs and FDIs. [7.1]
56In Re: Advance Ruling P .No .13 of 1995 (1997)141 CTR 542 (AAR).
57Assistant Commissioner of Income Tax v. Pride Foramer SAS (2008)116 TTJ (Delhi)369
58Bank of Tokyo-Mitsubishi UFJ Ltd v. ADIT ITA Nos. 5364/Del/2010
59Sheraton International Inc. v. Deputy Director of Income Tax [2006]10 SOT 542 (Delhi).
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MEMORIAL ON BEHALF OF THE PETITIONERS
[7.1] APPLICABILITY OF SECTION 115JB TO FIIS/FPIS AND FDIS
The AP Shah committee report60 along with the Supreme Court61 hold 115JB inapplicable to
FIIs/FPIs with no place of business in India. CBDT circular62 states the Government’s
acceptance of the recommendations made by the AP Shah Committee report. Furthermore,
the legislature never intended to impose MAT to FIIs.63 As stated in circular64that a foreign
company with no PE in India, is associated with a country having DTAA with India, then
MAT will not be applicable. Hence, a foreign company investing through FDI shall not fall
u/s 115JB.
[7.2] SCOPE AND NATURE OF FUNCTIONING OF FIIS/FPIS AND FDIS
FDI pertains to large investments through which the investor obtains lasting interest in the
enterprise of another country.65 In India funds through FDI are generated through automatic
route or government route. The reinvestment of earnings and transfer of assets between a
parent company and its subsidiary often constitutes a significant part of FDI calculations. FDI
is difficult to dispose as it involves huge investments. FPI can be defined as66
“A person satisfying the eligibility criteria under Regulation 4 and registered
under Chapter II of the Regulations deemed as an intermediary.”
Thus, it is humbly submitted before the Hon’ble Court that Section 115JB will not apply to
FIIs/FPIs but instead to FDIs.
60Justice AP Shah, Report: Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for the period prior to 01.04.2015.
61Castleton Investment ltd. v Director of Income Tax (2015) 280 CTR 409 (SC).
62 CBDT circular, 2nd September, 2015
63Justice AP Shah, Report: Applicability of Minimum Alternate Tax (MAT) on FIIs / FPIs for the period prior to 01.04.2015.
64 CBDT press release, 24th September, 2015.
65 Foreign Exchange Management Act (FEMA), 1999.
66 Regulation 2(h) of the SEBI (FPI) Provision,2014.
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MEMORIAL ON BEHALF OF THE PETITIONERS
PRAYER
WHEREFORE, in the light of the issues raised, arguments advanced and authorities cited,
the Petitioner humbly submits that this Hon’ble Court be pleased to:
1. Set aside the impugned order by the Authority for Advance Ruling; and
2. Hold MAT inapplicable and provide Capital Gains exemption as per the Double
Tax Avoidance Agreement
AND/OR
Pass any other order that it deems fit in the interest of Justice, Equity and Good Conscience.
All of which is most humbly and respectfully submitted.
Place: Bengaluru, Karnataka
Date: __ February, 2016
S/d ____________
(COUNSELS ON BEHALF OF THE PETITIONER)