The Authority of Advance Rulings has issued its ruling in the matter of E*Trade Mauritius; and the Ruling essentially follows the decision of the Supreme Court in Azadi Bachao Andolan. The facts before the Authority were that the Applicant was a company incorporated in the Mauritius Mauritius United States of America Mauritius India Mauritius Mauritius
The Revenue however contended before the AAR US US US India US Mauritius US India
The AAR analysed the decision in Azadi Bachao, and ruled, “…the Supreme Court found no legal taboo against ‘treaty shopping’ … if a resident of a third country, in order to take advantage of the tax reliefs and economic benefits arising from the operation of a Treaty between other countries through a conduit entity set up by it, the legal transactions entered into by that conduit entity cannot be declared invalid. The motive behind setting up such conduit companies and doing business through them in a country having beneficial tax treaty provisions was held to be not material to judge the legality or validity of the transactions.”
The Revenue contended that where the incorporation of a Mauritius AAR
In an earlier post discussing a recent English decision on lifting the corporate veil, Niranjan had stated that ‘sham’ is a legal concept which requires Courts to see what the legal substance of the relationship between the parties is. Courts are, however, not entitled to look at alleged ‘economic realities’ in deciding on the basis of allegations of sham. The AAR India Mauritius India
While the decision does not contain any broad proposition of law beyond that which was already laid down in Azadi, it is significant for once again emphasizing that the ‘sham’ doctrine is a legal concept and not an economic concept. Further, the AAR has once again foiled the attempts of the Revenue to circumvent the ruling in Azadi by relying on McDowell’s case. Undoubtedly, McDowell’s case was decided by a larger Bench of the Supreme Court – that cannot be reason enough to supersede Azadi, which has elaborated on the true effect of McDowell. As the Bombay High Court had stated in Akshay Textiles, 308 ITR 401, and as once more clarified by the AAR, McDowell as interpreted and understood in Azadi is the law in India.
