Essar Com Not Taxable in India on Vodafone Essar Sale | ITAT

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Essar Com Vodafone Essar DTAA benefits

Case details : Essar Com Ltd. v. ACIT - [2025] 176 taxmann.com 53 (Delhi - Trib.) 

Judiciary and Counsel Details

  • Satbeer Simgh Godara, Judicial Member
  • S. Rifaur Rahman, Accountant Member
  • Percy Pardiwal
  • Sr. Adv., Nishant Thakkar,
  • Hiten Thakkar, Advs. and Anand Jain, CA for the Appellant. 
  • N. Venkatraman, ASG,
  • Vipul Agarwal, CIT DR,
  • Smt. Rini Handa, JCIT and
  • Smt. Aditi Gupta, DCIT for the Respondent.

Facts of the Case

The assessee was an investment holding company incorporated in Mauritius, holding a valid Tax Residency Certificate (TRC) from the Mauritius Revenue Authorities (MRA) and a Category 1 Global Business Licence. It was a tax resident of Mauritius under the Mauritius tax law, with its control and management situated wholly in Mauritius. The assessee initially invested in its wholly owned Indian subsidiary, Essar Telecom Investments Ltd. (ETIL), which held shares in Vodafone Essar Ltd. (VEL), an Indian company.

During the assessment year 2012-13, the assessee sold these VEL shares to a non-resident entity, claiming the capital gains were not taxable in India under Article 13(4) of the India-Mauritius DTAA.

The Assessing Officer denied DTAA benefits, alleging the assessee was a sham entity, a tax resident of India under section 6(3) with control and management wholly in India, and incorporated solely for tax avoidance. The Commissioner (Appeals) upheld the order. The matter reached the Tribunal.

Tribunal Held

The Tribunal held that the assessee was not a tax resident of India, as its residential status must be determined annually under section 6(3)(ii), based on events in the relevant previous year. All 11 board meetings in the financial year 2011-12, including decisions on the VEL share sale, were held in Mauritius by qualified non-Indian resident directors. No evidence showed control by Indian persons or entities; decisions were taken by the board in Mauritius, with executions authorised accordingly.

The entity was not a sham or shell company, as it held proper licences, maintained records, and conducted legitimate investment activities. Liquidation of ETIL and direct holding of VEL shares were driven by commercial imperatives, such as lender requirements for direct pledges and RBI rejections, not tax avoidance. No facts indicated tax evasion or round-tripping.

The TRC issued by MRA was conclusive evidence of the assessee’s tax residency and beneficial ownership, as affirmed by CBDT Circular No. 789 dated 13-4-2000 and upheld by the Supreme Court. In the absence of a Limitation of Benefits clause in the DTAA at the relevant time, treaty benefits could not be lawfully denied. Furthermore, the DTAA amendments effective from 1-4-2017, which grandfathered pre-2017 investments, reinforced that the capital gains in question were not taxable in India.

The transactions were genuine, with funds sourced externally via banking channels, and sale proceeds used to repay loans. Allegations of colourable devices were unsubstantiated, as structures were for business efficiency, not evasion. Thus, the assessee was entitled to DTAA benefits, and capital gains were not taxable in India.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied