Policy Vs Prejudice by Mr.N.Venkataraman


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Policy Vs Prejudice by Mr.N.Venkataraman

  1. 1. Policy vs Jurisprudence N.Venkataraman Senior Advocate
  2. 2. Broad Holding Structure HTIL- Hongkong HTICHIL- Amber International-Netherlands HTI(BVI) Holding Ltd. CGP Investments-Cayman Islands Array.-Holdings- Mauritius CGP India Investment Ltd- Mauritius Series of Entities in Mauritius HEL India
  3. 3. Contracting Parties HTIL-Hongkong-Seller of shares VIH(BV)-Netherlands-Buyer of shares Shares sold-not the shares of HTIL, Hongkong but shares in the Cayman Island entity
  4. 4. Cayman Islands Entity Company established under the laws of CI Prohibited from carrying any operations or functions Registered office situated in CI Company merely holding shares for smooth transition No other business activity
  5. 5. Transactions-Possibilities- Net effect
  6. 6.  Purchase of HEL Shares in India- Liable to Capital Gains tax Purchase of shares of the Mauritius companies- Protected by India-Mauritius treaty-no capital gains tax Purchase of Cayman Island shares-not protected by any treaty Net Effect- controlling interest in HEL India and the Indian business market
  7. 7. Court evolved Doctrines Piercing the Corporate Veil Substance over form Beneficial Ownership Alter Ego
  8. 8. Test-Strategic ForeignDirect Investment
  9. 9.  Investment coming to India as an Investment destination Duration of time of the Holding structure Period of business operations in India Generation of taxable revenues in India Timing of Exit Continuity business on exitStrategic FDI considered to be genuine and not asham
  10. 10. Sham Transactions Structure used for circular trading Round tripping To pay bribes (Entities to be discarded by applying the test of Fiscal nullity)
  11. 11. Look At vs Look Through Look At- Direct- Transaction under question Look Through-Transaction „in consequence of‟ Section 9 – Transfer, existence of Capital Asset and situation of such asset in India Expression „Directly or Indirectly‟ go with the income and not with the transfer of Capital Asset Indirect transfers not governed by Section 9- Absence of Look Through test
  12. 12. Doctrines vs Look Through When there are Court evolved doctrines i.e. piercing the Corporate Veil, substance over form, do we need a statutory provision in the form of “ Look Through” ?
  13. 13. Westminster Doctrine “Given that a document or transaction is genuine, court cannot go behind it to some supposed underline substance” Doctrine of series of Transaction“If a transaction from the beginning to the end isfound to be genuine holistically, intermittent stepscannot be examined to find out whether the stepsare genuine or a sham”
  14. 14. Application of the Test Judgment applies the test commencing from the Hong kong shares upto the Indian shares Finds holistically a genuine transaction Sale of Cayman Island shares therefore should not be examined independently in the series of transaction Mere holding of shares for smooth transition in Cayman Islands by itself is a genuine business
  15. 15. Application of the Test Applicability of the Doctrine-if Hongkong shares are sold Doctrine whether applicable for sale of Cayman Island shares?
  16. 16. Share vs Asset Sale of Share vs Sale of Asset Conceptual difference between pre ordained transactions created for tax avoidance and a transaction which evidences investment to participate If investment terminates into genuine reasons, can avoidance of tax also be held genuine (FDI vs Indian scenario)
  17. 17. Transaction vs Effect A transaction can be taxed and not its effect Piercing Corporate Veil?
  18. 18. Situs of Shares and Valuation
  19. 19.  Would be where the company is incorporated and where its shares can be transferred Clear cut straight forward share sale and not Asset sale Valuation cannot be the basis for taxation especially in the case of Capital Gains Valuation maybe a science but not law Valuation is a matter of opinion
  20. 20.  CGP was treated in the Hutchison structure as an investment vehicle. When shares are sold lock stock and barrel transactions cannot be broken up to identify the underlying assets Merely because there is no capital gains tax at the time of exit would not make a share sale (investment) a sham or a tax avoidant
  21. 21. Section 195 Decision of the third judge Will NRI transactions go out of the purview of section 195? Whether the judgment of the learned third judge constitute a binding precedent
  22. 22. Policy vs Jurisprudence A policy in place- Court normally do not interfere unless contrary to public interest When a policy is not in place as in the case of India- Mauritius treaty can court create policy using judicial tool of interpretation ?
  23. 23. Consequences WillGovernment go for retrospective amendment- consequences thereof? Will PIL be filed demanding retrospective amendment? Whether the judgment is amenable to judicial review and reference to Constitution Bench?