M/S Sanofi Pasteur Hoding Sa Versus The Department of Revenue Ministry of Finance

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M/S. SANOFI PASTEUR HOLDING SA V. THE DEPARTMENT OF REVENUE MINISTRY OF FINANCE FACTS OF THE CASE In the year 2009, Sanofi Pasteur Holding (hereinafter “Sanofi”) had purchased 80.37 % of share capital of a French company, ShanH, from another French company called Merieux Alliance (hereinafter “Merieux”). The remainder of share capital, i.e. 19.67% was purchased from Groupe Industriel Marcel Dassault (hereinafter “GIMD”). GIMD was also a company that was incorporated under French Law. At the time of purchase, ShanH held 82.5% of the share capital of Shantha Biotechnics Limited (hereinafter “SBL”), a company having its registered office in Hyderabad and incorporated under the Companies Act, 1956. On May 25, 2010 the Income Tax Department passed an order under Section 201(1)/(1A) of the Act and held Sanofi as an “assessee-in-default” for the very purpose that they had withheld tax on certain payments made to GIMD and Merieux on the acquisition of shares of ShanH. Subsequent to this order the aggrieved parties made an application to the Authority for Advanced Ruling (hereinafter “AAR”) challenging the taxability of the transaction. However, the AAR ruled against them stating that according to Article 14(5) of the tax treaty the capital gains arising from the transaction of sale of shares of ShanH was taxable. Therefore GIMD and Merieux filed writ petitions in the Andhra Pradesh High Court against this ruling. ISSUES BEFORE THE HIGH COURT. The High Court had multiple issues to consider before pronouncing their judgment in this matter. The Court had to determine whether the investment in SBL by GIMD and Merieux though ShanH was for the purpose of avoiding tax. If this were the case then should the life the corporate veil of ShanH ... ... middle of paper ... ...dia, conclusively established that a DTAA would always prevail over domestic law. It also upheld the Azaadi Bachao Andolan case in as much as it held that the retrospective application of the amendment to the DTAA was valid in law. It can be safely said that the judgment established a very concrete precedent regarding the interpretation of tax treaties in our country. The court tackled the existing ambiguity regarding not only the retrospective application of amendments but also lifting of the corporate veil to determine whether the purpose of setting up of a company was to evade taxes. However, one grey area that the Supreme Court has still to address is the definition of the thin line between definitions of critical terms such as ‘tax avoidance’ and ‘tax evasion’. One can only hope that its not too long before the court chooses to clarify its stance on the same.

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