The AAR further said the applicants failed on other yardsticks, viz. the period of business operation in India, the generation of tax revenue in India, timing of exit, and continuity of business on such exit. "In the absence of any strategic FDI in India, there was neither any business operation in India nor they ever generated any taxable revenue in India. So one can only conclude that the arrangement was a pre-ordained transaction which was created for tax avoidance purpose,” it noted.
Even if the Singapore company derived its value from the assets located in India, the fact remains that what the applicants had transferred was shares of a Singapore company and not that of an Indian company, it said.
The actual control and management of the applicants was not in Mauritius but in USA, with Charles P Coleman as the beneficial owner of the entire group structure. The applicant companies
were only a “see-through entity” to avail of the benefits of the DTAA, it said.
Explaining the transaction, the ruling cited the tax department’s findings, which say the Mauritius entities of Tiger Global had acquired 26 million shares of Flipkart between 2012 and 2015 through SingaporeCo. Of which, it had transferred 16.2 million shares to a Luxembourg-based firm. Prior to this transaction, the hedge funds approached the tax department, seeking a certification of nil withholding, which was not accepted by the department. The same month, the tax department passed the order under Section 197, and charged the withholding tax to the tune of Rs 886 crore.
Tiger Global funds were not acting independently but only as a conduit for the real beneficial owners based out of USA, tax sleuths found.
The applicants are part of Tiger Global Management LLC USA and have been held through its affiliates through a web of entities based in Cayman Islands and Mauritius. Though the holding-subsidiary structure might not be a conclusive proof for tax avoidance, the purpose for which the subsidiaries were set up does indicate the real intention behind the structure, the AAR observed.
Amit Maheshwari, tax partner, AKM Global, a consulting firm, stated, “This is yet another instance of the AAR rejecting the application of the taxpayer by coming to the conclusion that the transaction was designed to avoid tax. The government should do away with the proviso under section 245R(2), which allows the AAR to reject applications if it’s prima facie found that the transaction or issue was designed to avoid tax. This leads to undue delays as the tax department opposes every application, especially these Mauritius structures,” he said.