Case Note & Summary
The matter before the Bombay High Court consisted of two writ petitions filed by Abu Dhabi Investment Authority (ADIA) and Equity Trust (Jersey) Limited as representative assessee of Green Maiden A 2013 Trust. The petitions challenged a common ruling dated 18 March 2020 passed by the Authority for Advance Ruling (Income Tax), Mumbai Bench, denying ADIA the benefit of the India-United Arab Emirates Double Taxation Avoidance Agreement read with relevant provisions of the Income Tax Act, 1961 in respect of income accruing on investments made or proposed to be made by the Trust. ADIA is a public institution owned by and subject to the supervision of the Emirate of Abu Dhabi and is a resident of UAE under Article 4(2)(d) of the India-UAE DTAA. ADIA established the Trust as settlor under a Deed of Settlement dated 22 July 2013, with Equity Trust (Jersey) Limited as trustee. ADIA is also the sole beneficiary of the Trust, which is revocable and determinable. ADIA made a capital commitment of USD 200,000,000 to the Trust. The Trust was registered with SEBI as a Foreign Institutional Investor under the 1995 regulations and later as a Foreign Portfolio Investor under the 2014 regulations. The trustee entered into an Investment Management Agreement dated 24 July 2013 with Kotak Mahindra (International) Ltd. ADIA filed an application before the AAR to determine taxability of income accruing on investments made or proposed to be made in Indian portfolio companies by the Trust. The questions raised before the AAR were: whether the capital contribution by ADIA to the Trust is a revocable transfer under Section 63 of the Income Tax Act; if so, whether the entire income from investments is chargeable in the hands of ADIA under Section 61 or any other person; if so, whether such income is exempt under Article 24 of the India-UAE DTAA; and if so, whether portfolio companies or other payers are required to deduct tax at source under the Act. The office of Commissioner of Income Tax (International Taxation)-1 Mumbai filed a report under Section 245R(2) of the Act opposing admission of the application. The AAR passed the impugned ruling on 18 March 2020. Petitioners then filed the writ petitions before the High Court. The High Court issued rule and made it returnable forthwith, and with consent of counsel heard and disposed the petitions at the admission stage. The respondents did not file a reply as only questions of law were involved. The court reserved judgment on 7 September 2021 and pronounced on 28 October 2021. The provided excerpt of the judgment does not include the court's analysis or final order.
Headnote
A) Income Tax - Revocable Transfer - Section 63 Income Tax Act, 1961 - Whether capital contribution by settlor to trust is revocable transfer - Deed of Settlement dated 22 July 2013 established revocable and determinable trust with settlor as sole beneficiary; trust could be terminated at direction of sole beneficiary; court considered whether transfer is revocable for taxability (Paras 5-6).
B) Income Tax - Chargeability of Trust Income - Section 61 Income Tax Act, 1961 - Whether entire income from trust investments is chargeable in hands of settlor or any other person - Petitioners claimed income from Indian portfolio investments was assessable only in hands of settlor under Section 61 due to revocable transfer; AAR denied benefit of treaty and relevant provisions; court to determine (Paras 3-4, 8).
C) Double Taxation Avoidance - Exemption under Treaty - Article 24 India-UAE DTAA - Whether income accruing to settlor from Indian investments is exempt from tax in India - Settlor is UAE resident under Article 4(2)(d); exemption claimed under Article 24 read with Sections 61 and 63; AAR denied benefit; court to decide applicability (Paras 3-4, 7-8).
D) Tax Deduction at Source - Obligation to Deduct - Sections 61, 63 Income Tax Act, 1961 - Whether portfolio companies or any person paying sums to trust are required to deduct tax at source - Dependent on prior questions whether trust income is taxable in hands of settlor and exempt under treaty; court to determine (Para 8).
E) Advance Ruling - Admission of Application - Section 245R(2) Income Tax Act, 1961 - Whether AAR application was admissible - Revenue filed report opposing admission under Section 245R(2); court noted report but excerpt does not include ruling on admission (Para 9).
Issue of Consideration
Whether capital contribution by Abu Dhabi Investment Authority to Green Maiden A 2013 Trust is a revocable transfer under Section 63 of the Income Tax Act, 1961; whether entire income from trust investments is chargeable in hands of ADIA under Section 61; whether such income is exempt under Article 24 of India-UAE DTAA; whether payers to the trust are required to deduct tax at source.
Law Points
- Revocable transfer under Section 63 Income Tax Act attaches income to settlor under Section 61
- India-UAE DTAA Article 24 exemption may apply to UAE resident
- AAR ruling binding only on applicant and assessing officer
- trust income from Indian investments may be taxable in hands of settlor if transfer revocable
Case Details
2021 LawText (BOM) (10) 76
Writ Petition No. 770 of 2021 along with Writ Petition No. 709 of 2021
K.R. Shriram, Abhay Ahuja
Percy Pardiwalla, Aarti Sahte, Aasavari Kadam, Ashok Kotangle, P.A. Narayanan
Abu Dhabi Investment Authority; Equity Trust (Jersey) Limited (Representative Assessee of Green Maiden A 2013 Trust)
Authority for Advance Ruling (Income Tax), Mumbai Bench; Deputy Commissioner of Income Tax (International Taxation) 1(1)(1); Additional Commissioner of Income Tax (International Taxation) Range 1(1); Commissioner of Income Tax (International Taxation) 1 Mumbai; Assistant Commissioner of Income Tax (International Taxation) Circle 2(3)(2); Union of India, Ministry of Law
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Nature of Litigation
Writ petitions under the ordinary original civil jurisdiction of the Bombay High Court challenging a common ruling dated 18 March 2020 passed by the Authority for Advance Ruling (Income Tax) denying the benefit of the India-UAE Double Taxation Avoidance Agreement read with provisions of the Income Tax Act, 1961.
Remedy Sought
Petitioners sought to quash or set aside the AAR ruling dated 18 March 2020 and to obtain a declaration that income accruing on investments made or proposed to be made by Green Maiden A 2013 Trust is exempt or not taxable in India, and that no tax deduction at source is required.
Filing Reason
The AAR denied ADIA the benefit of the India-UAE DTAA read with Sections 61 and 63 of the Income Tax Act in respect of income accruing on investments made or proposed to be made by the Trust, prompting the petitioners to challenge the ruling.
Previous Decisions
Authority for Advance Ruling passed a common ruling dated 18 March 2020 denying the benefit; no other prior judicial decisions are mentioned in the excerpt.
Issues
Whether capital contribution made or proposed to be made or transferred by ADIA to Green Maiden A 2013 Trust is a revocable transfer under Section 63 of the Income Tax Act, 1961.
If the transfer is revocable, whether the entire income arising from investments by the Trust in Indian portfolio companies is chargeable to income tax in the hands of ADIA under Section 61 of the Act or in the hands of any other person.
If the entire income is chargeable in the hands of ADIA, whether such income is exempt from tax in India under Article 24 of the India-UAE Double Taxation Avoidance Agreement.
If the income is exempt, whether portfolio companies or any other person responsible for paying any sum to the Trust are required to deduct tax at source under the Act on sums payable to the Trust.
Whether the AAR application was admissible under Section 245R(2) of the Income Tax Act, 1961, given the revenue's report opposing admission.
Submissions/Arguments
Petitioners contended that the trust was revocable, ADIA as settlor and sole beneficiary was entitled to have the capital contribution treated as a revocable transfer, and income from Indian investments was not assessable in India under Article 24 of the India-UAE DTAA read with Sections 61 and 161 of the Income Tax Act.
Petitioners submitted that ADIA settled the trust due to absence of legal framework for trusts in UAE, inability to establish a sole shareholder subsidiary, commercial and administrative reasons including limitation of liability, and Jersey's compliant regulatory regime.
Revenue opposed admission of the AAR application by filing a report under Section 245R(2) of the Income Tax Act, 1961, and before the High Court did not file a reply as only questions of law were involved.
Judgment Excerpts
ADIA is a public institution owned by and subject to the supervision of the Emirate of Abu Dhabi.
The trust is settled by ADIA in Jersey. Under the Deed of Settlement dated 22nd July 2013, the trust is being set up by and for the benefit of ADIA who is, apart from being the settlor, also the sole beneficiary of the trust.
ADIA is challenging the order/ruling dated 18th March 2020 passed by AAR in case of ADIA as well as Equity Trust (Jersey) Ltd. denying ADIA the benefit of India-UAE DTAA read with relevant provisions of the Act in respect of the income accruing on the investments made or proposed to be made by Green Maiden A 2013 Trust.
The office of CIT (IT)-1 Mumbai, filed a report under Section 245R (2) of the Act opposing admission of the application filed by ADIA.
Procedural History
ADIA filed an application before the Authority for Advance Ruling to determine taxability of income accruing on investments made or proposed to be made by the Trust. The office of Commissioner of Income Tax (International Taxation)-1 Mumbai filed a report under Section 245R(2) opposing admission. The AAR passed a common ruling dated 18 March 2020 denying the benefit. Petitioners filed writ petitions before the Bombay High Court challenging the ruling. The High Court issued rule and made it returnable forthwith, heard the petitions at the admission stage with consent of counsel, reserved judgment on 7 September 2021, and pronounced judgment on 28 October 2021.
Acts & Sections
- Income Tax Act, 1961: 5(2), 61, 63, 161, 245-O, 245R(2)
- India-United Arab Emirates Double Taxation Avoidance Agreement: Article 4(2)(d), Article 24
