Sanofi Pasteur Holding SA v. Department of Revenue, Ministry of Finance

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The Tax PublishersW.P. Nos. 14212 of 2010 and 3339 & 3358 of 2012 2013 TaxPub(DT) 0842 (AP-HC) : (2013) 052 (I) ITCL 0219 : (2013) 354 ITR 0316 : (2013) 257 CTR 0401 : (2013) 213 TAXMAN 0504 : (2013) 084 DTR 0185 INCOME TAX ACT, 1961 --Double taxation relief--Agreement between India and France Capital gains vis-a-vis shares--SBL was a Indian company whose 80 per cent shares were held by SHANH a France Company incorporated under France law. Shares of SHANH were held by two France companies namely, MA and GIMD. A share purchase Agreement (SPA) was entered into amongst 'MA' and 'GIMD' and another France company 'SANO FI'. In terms of SPA shares of SHANH were transferred to SANOFI, another France company. Question arose was : whether taxable in India in terms of Article 14(5) of DTAA between India and France and whether shares acquired by MA and GIMD were for controlling interest in SHANH, as well as of 'SBL' an Indian company. Revenue held that alienation of shares to French companies capital gains his assessable to Indian tax. Held :Not acceptable. SPA was an alienation of more than 10% shares of 'SHANH' by MA and GIMD to 'SANOFD' and as such, it was a taxable capital gains chargeable in France and not in India under article 14(5) of DTAA between India and France. Moreover SHANH was an incorporated to serve as an investment vehicle of foreign direct investment in India by way of participation in SBL and SBL shares held by 'SHANH' were not transferred to SANOFI' Consistent with the organizational structure of the MA group, SHANH was incorporated (on 31-10-2006) as a French company with MA as the unique shareholder. Since 08-03-2007, SHANH evolved into a JV with MA and GIMD having 80:20 participation, GIMD joining as a strategic investor. In May, 2009 Mr. Georges Hibon acquired 1.9% participation in SHANH having purchased 13,000 shares from MA and GIMD (10,400 shares and 2,600 shares, respectively). The ASG (responding to a specific query from the Court, on 30-8-2012) fairly conceded that it is not the case of Revenue that in 2006 itself SHANH was conceived as a preordained scheme to avoid tax in India. Revenue asserts that since MA and GIMD claim that the capital gains liability arises only in France, it must be inferred that 'it' is a pre-ordained scheme to avoid Indian tax liability. This argument on behalf of the Revenue does not commend acceptance by this Court. If SHANH, was not a pre-ordained scheme or arrangement conceived to avoid Indian tax liability at its inception in 2006 (as conceded by Revenue), the point in time when the bona fide corporate genesis of SHANH as a French resident tax paying entity stood transmitted into a pre-ordained Indian tax avoidance arrangement must be clearly asserted and established. Revenuels case on this aspect is ambivalent and incoherent. Revenue appears to suggest that the petitioners claim (based on DTAA provisions), of immunity from capital gains liability under the Act (for the Transaction in issue) transforms the entirety of the antecedent exertions by SHANH (of purchase of SBL shares from time to time), its genesis as a registered resident tax paying entity in France, its origin as a wholly owned subsidiary of MA and evolution thereafter into a JV comprising MA and GIMD in March, 2007 and thereafter as JV comprising MA, GIMD and Georges Hibon in 2009, a scheme or an arrangement for avoidance of capital gains liability under the Act. Court is not persuaded to accept this incoherent syllogism. Court accordingly reject the same. This Court is of the considered view that SHANH as a French resident corporate entity (initially a subsidiary of MA, thereafter a JV of MAlGIMD and eventually a JV comprising MAlGIMDl Georges Hibon) is a distinct entity of commercial substance, distinct from MA and/or GIMD and/or Georges Hibon, incorporated to serve as an investment vehicle, this being the commercial substance and business purpose, i.e., of foreign direct investment in India, by way of participation in SBL. Extent of MA control over SBL : Extent of MA control over SBL : After purchase of SBL shares by SHANH (both consequent on the 6-11-2006 SPA and later de hors this SPA as well) SBL at all points in time was controlled and managed by its qualified board of directors comprising Mr. Georges Hibon as the Chairman, Mr. Johannes Burlin, Dr. K.I. Varaprasad Reddy, Mr. Philippe Sans, Mr. Abhey Yograj, Mr. Alain Merieux and Ms. Takizawa, serving as directors, at different points in time. Mr. Georges Hibon, who had twenty years of experience with Merck and had worked with Connaught Vaccines was appointed as the Chairman of the SBL Board. Mr. Philippe Sans and Ms. Takizawa, who were earlier associated with bio Merieux, were directors of SHANH. These persons actively participated and contributed to the business development of SBL. The SBL Board meeting (held in Paris) on 7-11-2006 records : that Mr. Georges Hibon was associated with Merck and Connaught Vaccines; that Mr. Philippe Sans had been with the MA group for over twenty years and had served as the President and CEO of bio Merieux North America, for five years; that Mr. Johannes Burlin had earlier been with the MA group and is currently working as president and CEO of Advanced Bio Science Laboratories, Inc., USA; and that Mr. Georges Hibon (a person totally unconnected with MA) is elected to serve as Chairman of the SBL Board. Minutes of this meeting also record the re-constitution of various committees of SBL directors such as the audit committee, the remuneration committee and the share transfer committee involving participation of Mr. Philippe Sans, Mr. Burlin and others. Minutes of the SBL Board meeting dated 29-11-2006 and 4-6-2009 (at Hyderabad and Chicago respectively) evidence active participation of Mr. Philippe Sans. No choking, chilling or extra-ordinary control, invasion or interference by MA or MA/GIMD in SBL affairs is apparent. Vodafone pointed out that a group parent company giving principle guidance to group companies by providing generic policy guidelines to group subsidiaries, parent company exercising shareholders influence on its subsidiaries and absent evidence of wholesale subordination of the subsidiaries, decision-making to the parent company, is not a circumstance that would not legitimize an inference, of the subsidiary being the alter ego or a puppet of the holding company nor would permit ignoring the separate corporate existence and identity of the subsidiary. On analyses of the relevant material on record Court finds no documentary or other bases to legitimize an inference that either MA or MA/GIMD exercised any extra ordinary or chilling control over the affairs of SBL except qua their participative rights as JV partners in SHANH and through SHANH. From the uncontested pleadings; analyses of competing interpretations of the organizational structure of the MA group; the transactional documents (the 6-11-2006 SPA, the 7-11-2006 SHAls and the 8-3-2007 SHANH partnership agreement between MA and GIMD), it is clear that the MA group, (an established player in invitro diagnostics, food quality and nutrition, prophylactic vaccines, immuno-therapy in developed and developing countries) as part of its forays into the preventive vaccine business in developing countries, incorporated SHANH on 31-10-2006 as a French resident company with itself as the sole and unique shareholder. Even prior to SHANH incorporation, MA was negotiating with GIMD to come on board an investment vehicle, inter alia as a strategic investor to constitute a JV. The intention was clearly that SHANH (an investment vehicle operating as a JV) would acquire a controlling stake in SBL. In reality, since the very inception SHANH had acquired SBL shares, both qua the 6-11-2006 SPA and even thereafter and independent of this SPA. Having a footprint in India in the prophylactic vaccine business through controlling participation (shareholding) in SBL is the clear commercial substance and business purpose of SHANH. No curial or academic authority is placed to hazard a conclusion that a corporate entity must necessarily involve itself either in manufacture or marketing/trading in/of goods or services to qualify for the ascription of being in business or commerce. Creation of wholly owned subsidiaries or joint ventures either for domestic or overseas investment is a well established business/commercial organizational protocol; and investment is of itself a legitimate, established and globally well recognized business/commercial avocation. SHANH is a special purpose joint venture investment vehicle, established initially by MA and co adopted in due course by GIMD and eventually by Mr. Georges Hibon, to facilitate investment by way of participation in the shareholding of SBL. That is the SHANH business and its commercial purpose. [Para 13] Conclusions on issues 1 and 2 : (i) Under the 6-11-2006 SPA; thereafter and independent of this SPA as well, SHANH (not MA or MAlGIMD) had purchased SBL shares and remitted the value therefore. The shares were registered in the name of SHANH, which is the recorded shareholder in the SBL shareholders/ register. In view of the rulings and rationes in Chiranjit Lal Chowdhury (supra); Mrs. Bacha F. Guzdar (supra); Smt. Maharani Ushadevi (supra), Rustom Cavasjee Cooper (supra); Western Coalfields Ltd. (supra), Balkrishan Gupta (supra); Life Insurance Corpn. of India (supra) and Clariant International Ltd. (supra) SHANH is the legal and beneficial owner of SBL shares, being the registered shareholder, having been recorded as such in the shareholders register of SBL; (ii) On a true and fair construction and a holistic analyses of the uncontested facts, the relevant transactional documents, surrounding circumstances and orders and correspondence by Indian authorities and Revenue, enumerated hereunder : (a) E-mails evidencing negotiations between MA and GIMD during August/September, 2006; (b) minutes of the meeting of the MA Board dated 26-10-2006; (c) incorporation and registration of SHANH on 31-10-2006 as a French corporate entity; (d) resolutions of the SHANH shareholders meeting dated 31-10-2006; (e) Escrow agreements dated 2-11-2006 and 3-11-2006 between SHANH, and Calyon Bank, Lyon and Blom Bank, Geneva, respectively and UOIL; (f) The SPA dated 6-11-2006; (g) The two SHAls dated 7-11-2006; (h) The SHANH partnership agreement dated 8-3-2007 between MA and GIMD, in the presence of SHANH; (i) The acquisition/subscription by SHANH in March, 2008 of SBL shares and remittances by SHANH to SBL, (evidenced by the certificate of foreign inward remittance dated 8-3-2008, issued by IOB, Chennai); (j) The shareholders/ agreement dated 5-5-2009 qua which Mr. Georges Hibon acquired a minority participation (13,000 shares) in SHANH from MA and GIMD; (k) Further purchases by SHANH of SBL shares from UOIL and others during July and August, 2009; (l) SBL dividend remittances to SHANH account for 2006-07, 2007-08 and 2008-09 evidenced by IOB bank statements of SBL; (m) Amended (on 14-2-2007) Articles of Association of SBL read with the 6-11-2006 SPA and the two 7-11-2006 SHAls; (n) Correspondence inter alia by FIPB recognising and adverting to SHANH being the holder of SBL shares; (o) The 16-4-2008 custody agreement between SHANH and HSBC; (p) SPA dated 10-7-2009 between MAlGIMD and Sanofi; (q) Notice dated 4-8-2009 issued by Revenue under section 133A of the Act; and (r) Orders of assessment dated 14-12-2009. Assessed and analyzed in the light of principles delineated in the Supreme Court decisions in Radha Sundar Dutta (supra) and Puzhakkal Kuttappu (supra); and in Ford v. Beech; Intrepreneure Pub. Co. Ltd. (supra); West Bromwich Building Society (supra); Hideo Yoshimoto (supra) and the textual authority of Lewison, (pertaining to construction of documents/contracts), compel the conclusion that : (i) SHANH is a company registered and resident in France; (ii) though a wholly owned subsidiary of MA at its incorporation on 31-10-2006, evolved thereafter into a JV corporate entity (of MAlGIMD) and thence of MAlGIMD and Mr. Georges Hibon; (iii) is not a sham, illegal or illusory contrivance, a mere nominee or an alter ego of either MA and or MAlGIMD; (iv) in the light of the discussion, analyses and rationes in Azadi Bachao Andolan (supra) and Vodafone International Holdings B.V. (supra), SHANH is not a corporate entity brought into existence and pursued only or substantially for avoiding capital gains liability under provisions of the Act; (v) SHANH is an investment vehicle; foreign direct investment in SBL being its commercial purpose and substance; (vi) observations of Chinnappa Reddy, J (in his concurring opinion) do not constitute the operative McDowell & Co. Ltd. (supra) ratio, as discernible from the analyses in M.V. Valliappan (supra); Banyan & Berry (supra); Arvind Narottam (supra); Mathuram Agrawal (supra); Azadi Bachao Andolan (supra); Walfort Share and Stock Brokers Pvt. Ltd. (supra); and Vodafone International Holdings B.V. (supra); (vii) apropos the concession by Revenue and even otherwise, on an independent and holistic analyses of the transactional documents and surrounding circumstances, SHANH was not conceived for avoiding capital gains liability under the provisions of the Act. As observed in the Vodafone International Holdings B.V. (supra) factual context (equally applicable herein), SHANH was conceived and incorporated in consonance with MA's established business practices and organizational structure, as a wholly owned subsidiary to serve as an investment vehicle. SHANH thereafter transformed as a JV comprising MAlGIMD and eventually evolved as a JV comprising MAlGIMD/Mr. Georges Hibon. SHANH was established and functioned as a special purpose investment vehicle, to facilitate foreign direct investment and to cushion potential investment risks of MAlGIMD, on direct investment in SBL; (viii) the uncontested assertion by petitioners, that a higher rate of capital gains tax is payable and has been remitted to Revenue in France (than would have been the case, if liable under provisions of the Act), lends further support to the inference that SHANH was not conceived, pursued and persisted with to serve as an Indian tax-avoidant device; (ix) SHANH since its inception was the legal and beneficial owner of SBL shares and this constitutes its participation in SBL investment. SHANH since its incorporation (on 31-10-2006) has been in existence till the transaction in issue (qua the SPA dated 10-7-2009); and what is significant and uncontested, continues to exist even thereafter and currently. The commercial and business purpose of SHANH as a special purpose investment vehicle (for investment in SBL) constitutes its business operations in India; SHANH hitherto received and continues to receive dividends on its SBL shareholding which have been and are assessable to tax under provisions of the Act; and even post the transaction in issue, the commercial and business purpose of SHANH as an investment vehicle is intact. These indicators/factors are, in the light of Vodafone, adequate bases to legitimize the conclusion that SHANH is not a gossamer, sham or conceived only for Indian tax avoidance structure. Consequently, as observed in Vodafone International Holdings B.V. (supra) a further enquiry as to de facto control versus legal control and legal right versus practical rights by SHANH over SBL is unwarranted. (x) since Revenue failed to establish, (on the basis of the facts and circumstances leading to the transaction in issue) that the genesis or continuance of SHANH establishes it to be an entity of no commercial substance or business purpose and/or that SHANH was interposed only as a tax-avoidant device, no case is made out for piercing or lifting the corporate veil of SHANH - vide Bank of Chettinad (supra); Provident Investment Co. Ltd. (supra); Lamesa Holdings BV (supra); Venkatesh (supra); Azadi Bachao Andolan (supra); Prevost Car Inc. (supra); Walfort Share & Stock Brokers (P.) Ltd. (supra); and Vodafone International Holdings B.V. (supra) ; (xi) De hors conclusion (x) supra, even on piercing the corporate veil of SHANH, the transaction in issue is clearly one of the transfer by MAlGIMD of their SHANH shareholding (and of the marginal shareholding of Mr. Georges Hibon in SHANH as well) to Sanofi; and is not expressly or by any legitimate inference of the transactional documents and surrounding circumstances, a transfer of SBL shareholding, which continues with SHANH; (xii) subsequent to the transaction in issue and currently as well, SHANH continues in existence as a registered French resident corporate entity and as the legal and beneficial owner of SBL shares; and (xiii) the transaction in issue clearly and exclusively is one of transfer of the entire shareholding in SHANH, by MAlGIMD in favour of Sanofi. Transfer of SBL shares in favour of Sanofi is neither the intent nor the effect of the transaction. (xiv) Revenue's perception of the SHANH persona and interpretation of the transactional documents (including the amended SBL AOA) and surrounding circumstances is fundamentally misconceived for another reason. If MA is considered as only MA qua the amended SBL AOA; that the 6-11-2006 SPA and the 7-11-2006 SHAs were instruments under which MA (not SHANH) acquired the SBL shares and that consequently the legal and beneficial owner of SBL shares is MA and not SHANH; then and on this interpretationl construction, the following transactional documents would irretrievably fail : the 7-11-2006 SHA's; the Escrow agreements dated 2-11-2006 and 3-11-2006; the SHANH partnership agreement dated 8-3-2007 between MA and GIMD; the May, 2007 purchase of SHANH shares by Mr. Georges Hibon from MAlGIMD; and even the 10-7-2009 SPA between MAlGIMD and Sanofi. As a consequence of Revenue's interpretation qua the 8-3-2007 SPA, GIMD would have acquired a 20% shareholding of SHANH which had neither a commercial substance, a business purpose or any value whatsoever; the Escrow agreements dated 2-11-2006 and 3-11-2006 with the French and Swiss Banks would be of no consequence; and under the 10-07-2009 SPA, Sanofi would have acquired 100% shareholding of SHANH, a wholly vacuous corporate entity, since this SPA was not for acquisition of MAlGIMD shareholding of SBL but for the SHANH shareholding of these JV partners. Further, the findings and conclusions of Revenue 14-12-2009 assessment of SHANH, for assessment years 2008-09 and 2009-10 under section 201(1) of the Act, would become illegal and the tax of Rs.1.33 crores remitted by SHANH to Indian Revenue tantamount to unlawful collection of tax on a non-existent transaction involving no capital gain. Such fundamentally extravagant consequences must, be avoided, particularly by conjectural assumptions based on artificial interpretations pursuing a dissected approach instead of a holistic analysis of the transactional documents and the surrounding circumstances. [Para 19] In the facts and circumstances of the present lis, is stated to be rejected. Provisions of the DTAA including Article 25 have been extracted. On a true and fair construction, absent a grammatical ambiguity and the literal meaning of the text corresponding to its legal meaning, it is clear that only income arising and taxable in India, in accordance with the provisions of this Convention (DTAA) i.e., Article (14(5)), would be taken into account for computation of the French tax, to the extent of the amount of tax paid in India, in accordance with the provisions of the said Article (14(5)), so however that it shall not exceed the amount of French tax attributable to such income. Article 25(2)(a)(i) applies only where the income is taxable in India in accordance with the provisions of the DTAA. Revenue predicates its claim to tax the transaction in issue on a purposive construction of Article 14(5) and ascription of a see through therein, to treat alienation of SHANH shares (the subject matter of the transaction in issue) as involving deemed transfer of control over the management and the underlying assets, of SBL. This proposition by Revenue, Court has noticed, is premised over other substrating assumptions, viz., that SHANH is an entity of no commercial substance and the legal and beneficial owner of SBL shares is MAlGIMD, not SHANH. In conclusions recorded on Issues 1 and 2 and in the preceding analyses on Issues 3 and 4, Court has rejected the above contentions by Revenue and concluded that: (i) SHANH is an entity of commercial substance and business purpose; is not a mere nominee of MAlGIMD; is the true and beneficial owner of SBL shares; and Article 14(5) neither incorporates nor accommodates a see through; (ii) the transaction in issue is of alienation of SHANH shares and not transfer of the shares or of the control, management or underlying assets of SBL; (iii) retrospective amendments to provisions of the Act are neither relevant nor operate to impact in any manner the good faith interpretation of DTAA provisions; and (iv) that the tax (on capital gain) on the transaction in issue, is allocated exclusively to France under Article 14(5) of the DTAA, not to India. In the light of aforesaid analyses of the provisions of Article 25 of the DTAA and Court conclusions on Issues 1 to 4, the income accruing to MAlGIMD consequent on the transaction in issue neither arises nor is taxable in India in accordance with provisions (Art.14(5)) of the DTAA and is hence outside the province of Article 25. The transaction in issue is clearly liable to French Tax. Therefore, Indian tax if paid, notwithstanding the immunity to Indian tax liability, would not be entitled to tax credit against the French tax attributable to the income accrued on the transaction in issue.[Para 22] Conclusions on Issues 3 and 4 : On analyses of the relevant facts and attendant circumstances, duly considered in the light of curial and other authority referred to, Court conclude: (a) that the transaction in issue (pursuant to the SPA dated 10-7-2009 between MAlGIMD and Sanofi) is for alienation of 100% SHANH shares held by MA, GIMD and Mr. Georges Hibon in favor of Sanofi (falling within Article 14(5) of the DTAA); and constitutes neither the transfer nor deemed transfer of shares or of the control, management, or underlying assets of SBL (i.e., not a transfer, within the meaning of the expression as defined in section 2(47) of the Act); (b) the consequent tax on the capital gain accrued to MAlGIMD, is clearly and exclusively allocated to France under the provisions of Article 14(5) of the DTAA; (c) retrospective amendments to provisions of the Act (by the Finance Act, 2012) per se do not operate to deflect, modify; or subject DTAA provisions to provisions of the Act (interpreted on good faith principle and construed in the light of applicable principles of statutory construction). There is no ambiguity in the Article 14(5) expressions - alienation or participation; and since these terms (identical, not synonymous) are neither employed nor defined in the Act, there is no warrant for invoking provisions of Article 3(2) of the DTAA; and thereby provisions of the Act to the transaction in issue; and in transgression of provisions of the DTAA; and (d) the transaction in issue is not liable to tax in India, under the provisions of the Act read in conjunction with provisions of the DTAA. In the light of the relevant precedential authority, considered in Issues 1 and 2 and the conclusions recorded, the controlling interest of SHANH over the affairs, assets and management of SBL being incidental to its shareholding and not a separate asset cannot be considered or computed as a distinct value, of SHANH shares. The assets of SBL in the light of binding precedential authority cannot be considered as belonging to a shareholder (even if a majority shareholder) - SHANH. The value of the controlling rights over SBL attributable to the SHANH shareholding is also incapable of determination and computation. There is also the issue of the value of Shanta West, a subsidiary of SBL. For these reasons, the computation component which is inextricably integrated to the charging provision (in section 45 of the Act) fails, and consequently the charging provision would not apply. [Paras 23 & 24] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersW.P. Nos. 14212 of 2010 and 3339 & 3358 of 2012
2013 TaxPub(DT) 0842 (AP-HC) : (2013) 052 (I) ITCL 0219 : (2013) 354 ITR 0316 : (2013) 257 CTR 0401 : (2013) 213 TAXMAN 0504 : (2013) 084 DTR 0185

INCOME TAX ACT, 1961

--Double taxation relief--Agreement between India and France Capital gains vis-a-vis shares--SBL was a Indian company whose 80 per cent shares were held by SHANH a France Company incorporated under France law. Shares of SHANH were held by two France companies namely, MA and GIMD. A share purchase Agreement (SPA) was entered into amongst 'MA' and 'GIMD' and another France company 'SANO FI'. In terms of SPA shares of SHANH were transferred to SANOFI, another France company. Question arose was : whether taxable in India in terms of Article 14(5) of DTAA between India and France and whether shares acquired by MA and GIMD were for controlling interest in SHANH, as well as of 'SBL' an Indian company. Revenue held that alienation of shares to French companies capital gains his assessable to Indian tax. Held :Not acceptable. SPA was an alienation of more than 10% shares of 'SHANH' by MA and GIMD to 'SANOFD' and as such, it was a taxable capital gains chargeable in France and not in India under article 14(5) of DTAA between India and France. Moreover SHANH was an incorporated to serve as an investment vehicle of foreign direct investment in India by way of participation in SBL and SBL shares held by 'SHANH' were not transferred to SANOFI'

Consistent with the organizational structure of the MA group, SHANH was incorporated (on 31-10-2006) as a French company with MA as the unique shareholder. Since 08-03-2007, SHANH evolved into a JV with MA and GIMD having 80:20 participation, GIMD joining as a strategic investor. In May, 2009 Mr. Georges Hibon acquired 1.9% participation in SHANH having purchased 13,000 shares from MA and GIMD (10,400 shares and 2,600 shares, respectively). The ASG (responding to a specific query from the Court, on 30-8-2012) fairly conceded that it is not the case of Revenue that in 2006 itself SHANH was conceived as a preordained scheme to avoid tax in India. Revenue asserts that since MA and GIMD claim that the capital gains liability arises only in France, it must be inferred that 'it' is a pre-ordained scheme to avoid Indian tax liability. This argument on behalf of the Revenue does not commend acceptance by this Court. If SHANH, was not a pre-ordained scheme or arrangement conceived to avoid Indian tax liability at its inception in 2006 (as conceded by Revenue), the point in time when the bona fide corporate genesis of SHANH as a French resident tax paying entity stood transmitted into a pre-ordained Indian tax avoidance arrangement must be clearly asserted and established. Revenuels case on this aspect is ambivalent and incoherent. Revenue appears to suggest that the petitioners claim (based on DTAA provisions), of immunity from capital gains liability under the Act (for the Transaction in issue) transforms the entirety of the antecedent exertions by SHANH (of purchase of SBL shares from time to time), its genesis as a registered resident tax paying entity in France, its origin as a wholly owned subsidiary of MA and evolution thereafter into a JV comprising MA and GIMD in March, 2007 and thereafter as JV comprising MA, GIMD and Georges Hibon in 2009, a scheme or an arrangement for avoidance of capital gains liability under the Act. Court is not persuaded to accept this incoherent syllogism. Court accordingly reject the same. This Court is of the considered view that SHANH as a French resident corporate entity (initially a subsidiary of MA, thereafter a JV of MAlGIMD and eventually a JV comprising MAlGIMDl Georges Hibon) is a distinct entity of commercial substance, distinct from MA and/or GIMD and/or Georges Hibon, incorporated to serve as an investment vehicle, this being the commercial substance and business purpose, i.e., of foreign direct investment in India, by way of participation in SBL. Extent of MA control over SBL : Extent of MA control over SBL : After purchase of SBL shares by SHANH (both consequent on the 6-11-2006 SPA and later de hors this SPA as well) SBL at all points in time was controlled and managed by its qualified board of directors comprising Mr. Georges Hibon as the Chairman, Mr. Johannes Burlin, Dr. K.I. Varaprasad Reddy, Mr. Philippe Sans, Mr. Abhey Yograj, Mr. Alain Merieux and Ms. Takizawa, serving as directors, at different points in time. Mr. Georges Hibon, who had twenty years of experience with Merck and had worked with Connaught Vaccines was appointed as the Chairman of the SBL Board. Mr. Philippe Sans and Ms. Takizawa, who were earlier associated with bio Merieux, were directors of SHANH. These persons actively participated and contributed to the business development of SBL. The SBL Board meeting (held in Paris) on 7-11-2006 records : that Mr. Georges Hibon was associated with Merck and Connaught Vaccines; that Mr. Philippe Sans had been with the MA group for over twenty years and had served as the President and CEO of bio Merieux North America, for five years; that Mr. Johannes Burlin had earlier been with the MA group and is currently working as president and CEO of Advanced Bio Science Laboratories, Inc., USA; and that Mr. Georges Hibon (a person totally unconnected with MA) is elected to serve as Chairman of the SBL Board. Minutes of this meeting also record the re-constitution of various committees of SBL directors such as the audit committee, the remuneration committee and the share transfer committee involving participation of Mr. Philippe Sans, Mr. Burlin and others. Minutes of the SBL Board meeting dated 29-11-2006 and 4-6-2009 (at Hyderabad and Chicago respectively) evidence active participation of Mr. Philippe Sans. No choking, chilling or extra-ordinary control, invasion or interference by MA or MA/GIMD in SBL affairs is apparent. Vodafone pointed out that a group parent company giving principle guidance to group companies by providing generic policy guidelines to group subsidiaries, parent company exercising shareholders influence on its subsidiaries and absent evidence of wholesale subordination of the subsidiaries, decision-making to the parent company, is not a circumstance that would not legitimize an inference, of the subsidiary being the alter ego or a puppet of the holding company nor would permit ignoring the separate corporate existence and identity of the subsidiary. On analyses of the relevant material on record Court finds no documentary or other bases to legitimize an inference that either MA or MA/GIMD exercised any extra ordinary or chilling control over the affairs of SBL except qua their participative rights as JV partners in SHANH and through SHANH. From the uncontested pleadings; analyses of competing interpretations of the organizational structure of the MA group; the transactional documents (the 6-11-2006 SPA, the 7-11-2006 SHAls and the 8-3-2007 SHANH partnership agreement between MA and GIMD), it is clear that the MA group, (an established player in invitro diagnostics, food quality and nutrition, prophylactic vaccines, immuno-therapy in developed and developing countries) as part of its forays into the preventive vaccine business in developing countries, incorporated SHANH on 31-10-2006 as a French resident company with itself as the sole and unique shareholder. Even prior to SHANH incorporation, MA was negotiating with GIMD to come on board an investment vehicle, inter alia as a strategic investor to constitute a JV. The intention was clearly that SHANH (an investment vehicle operating as a JV) would acquire a controlling stake in SBL. In reality, since the very inception SHANH had acquired SBL shares, both qua the 6-11-2006 SPA and even thereafter and independent of this SPA. Having a footprint in India in the prophylactic vaccine business through controlling participation (shareholding) in SBL is the clear commercial substance and business purpose of SHANH. No curial or academic authority is placed to hazard a conclusion that a corporate entity must necessarily involve itself either in manufacture or marketing/trading in/of goods or services to qualify for the ascription of being in business or commerce. Creation of wholly owned subsidiaries or joint ventures either for domestic or overseas investment is a well established business/commercial organizational protocol; and investment is of itself a legitimate, established and globally well recognized business/commercial avocation. SHANH is a special purpose joint venture investment vehicle, established initially by MA and co adopted in due course by GIMD and eventually by Mr. Georges Hibon, to facilitate investment by way of participation in the shareholding of SBL. That is the SHANH business and its commercial purpose. [Para 13] Conclusions on issues 1 and 2 : (i) Under the 6-11-2006 SPA; thereafter and independent of this SPA as well, SHANH (not MA or MAlGIMD) had purchased SBL shares and remitted the value therefore. The shares were registered in the name of SHANH, which is the recorded shareholder in the SBL shareholders/ register. In view of the rulings and rationes in Chiranjit Lal Chowdhury (supra); Mrs. Bacha F. Guzdar (supra); Smt. Maharani Ushadevi (supra), Rustom Cavasjee Cooper (supra); Western Coalfields Ltd. (supra), Balkrishan Gupta (supra); Life Insurance Corpn. of India (supra) and Clariant International Ltd. (supra) SHANH is the legal and beneficial owner of SBL shares, being the registered shareholder, having been recorded as such in the shareholders register of SBL; (ii) On a true and fair construction and a holistic analyses of the uncontested facts, the relevant transactional documents, surrounding circumstances and orders and correspondence by Indian authorities and Revenue, enumerated hereunder : (a) E-mails evidencing negotiations between MA and GIMD during August/September, 2006; (b) minutes of the meeting of the MA Board dated 26-10-2006; (c) incorporation and registration of SHANH on 31-10-2006 as a French corporate entity; (d) resolutions of the SHANH shareholders meeting dated 31-10-2006; (e) Escrow agreements dated 2-11-2006 and 3-11-2006 between SHANH, and Calyon Bank, Lyon and Blom Bank, Geneva, respectively and UOIL; (f) The SPA dated 6-11-2006; (g) The two SHAls dated 7-11-2006; (h) The SHANH partnership agreement dated 8-3-2007 between MA and GIMD, in the presence of SHANH; (i) The acquisition/subscription by SHANH in March, 2008 of SBL shares and remittances by SHANH to SBL, (evidenced by the certificate of foreign inward remittance dated 8-3-2008, issued by IOB, Chennai); (j) The shareholders/ agreement dated 5-5-2009 qua which Mr. Georges Hibon acquired a minority participation (13,000 shares) in SHANH from MA and GIMD; (k) Further purchases by SHANH of SBL shares from UOIL and others during July and August, 2009; (l) SBL dividend remittances to SHANH account for 2006-07, 2007-08 and 2008-09 evidenced by IOB bank statements of SBL; (m) Amended (on 14-2-2007) Articles of Association of SBL read with the 6-11-2006 SPA and the two 7-11-2006 SHAls; (n) Correspondence inter alia by FIPB recognising and adverting to SHANH being the holder of SBL shares; (o) The 16-4-2008 custody agreement between SHANH and HSBC; (p) SPA dated 10-7-2009 between MAlGIMD and Sanofi; (q) Notice dated 4-8-2009 issued by Revenue under section 133A of the Act; and (r) Orders of assessment dated 14-12-2009. Assessed and analyzed in the light of principles delineated in the Supreme Court decisions in Radha Sundar Dutta (supra) and Puzhakkal Kuttappu (supra); and in Ford v. Beech; Intrepreneure Pub. Co. Ltd. (supra); West Bromwich Building Society (supra); Hideo Yoshimoto (supra) and the textual authority of Lewison, (pertaining to construction of documents/contracts), compel the conclusion that : (i) SHANH is a company registered and resident in France; (ii) though a wholly owned subsidiary of MA at its incorporation on 31-10-2006, evolved thereafter into a JV corporate entity (of MAlGIMD) and thence of MAlGIMD and Mr. Georges Hibon; (iii) is not a sham, illegal or illusory contrivance, a mere nominee or an alter ego of either MA and or MAlGIMD; (iv) in the light of the discussion, analyses and rationes in Azadi Bachao Andolan (supra) and Vodafone International Holdings B.V. (supra), SHANH is not a corporate entity brought into existence and pursued only or substantially for avoiding capital gains liability under provisions of the Act; (v) SHANH is an investment vehicle; foreign direct investment in SBL being its commercial purpose and substance; (vi) observations of Chinnappa Reddy, J (in his concurring opinion) do not constitute the operative McDowell & Co. Ltd. (supra) ratio, as discernible from the analyses in M.V. Valliappan (supra); Banyan & Berry (supra); Arvind Narottam (supra); Mathuram Agrawal (supra); Azadi Bachao Andolan (supra); Walfort Share and Stock Brokers Pvt. Ltd. (supra); and Vodafone International Holdings B.V. (supra); (vii) apropos the concession by Revenue and even otherwise, on an independent and holistic analyses of the transactional documents and surrounding circumstances, SHANH was not conceived for avoiding capital gains liability under the provisions of the Act. As observed in the Vodafone International Holdings B.V. (supra) factual context (equally applicable herein), SHANH was conceived and incorporated in consonance with MA's established business practices and organizational structure, as a wholly owned subsidiary to serve as an investment vehicle. SHANH thereafter transformed as a JV comprising MAlGIMD and eventually evolved as a JV comprising MAlGIMD/Mr. Georges Hibon. SHANH was established and functioned as a special purpose investment vehicle, to facilitate foreign direct investment and to cushion potential investment risks of MAlGIMD, on direct investment in SBL; (viii) the uncontested assertion by petitioners, that a higher rate of capital gains tax is payable and has been remitted to Revenue in France (than would have been the case, if liable under provisions of the Act), lends further support to the inference that SHANH was not conceived, pursued and persisted with to serve as an Indian tax-avoidant device; (ix) SHANH since its inception was the legal and beneficial owner of SBL shares and this constitutes its participation in SBL investment. SHANH since its incorporation (on 31-10-2006) has been in existence till the transaction in issue (qua the SPA dated 10-7-2009); and what is significant and uncontested, continues to exist even thereafter and currently. The commercial and business purpose of SHANH as a special purpose investment vehicle (for investment in SBL) constitutes its business operations in India; SHANH hitherto received and continues to receive dividends on its SBL shareholding which have been and are assessable to tax under provisions of the Act; and even post the transaction in issue, the commercial and business purpose of SHANH as an investment vehicle is intact. These indicators/factors are, in the light of Vodafone, adequate bases to legitimize the conclusion that SHANH is not a gossamer, sham or conceived only for Indian tax avoidance structure. Consequently, as observed in Vodafone International Holdings B.V. (supra) a further enquiry as to de facto control versus legal control and legal right versus practical rights by SHANH over SBL is unwarranted. (x) since Revenue failed to establish, (on the basis of the facts and circumstances leading to the transaction in issue) that the genesis or continuance of SHANH establishes it to be an entity of no commercial substance or business purpose and/or that SHANH was interposed only as a tax-avoidant device, no case is made out for piercing or lifting the corporate veil of SHANH - vide Bank of Chettinad (supra); Provident Investment Co. Ltd. (supra); Lamesa Holdings BV (supra); Venkatesh (supra); Azadi Bachao Andolan (supra); Prevost Car Inc. (supra); Walfort Share & Stock Brokers (P.) Ltd. (supra); and Vodafone International Holdings B.V. (supra) ; (xi) De hors conclusion (x) supra, even on piercing the corporate veil of SHANH, the transaction in issue is clearly one of the transfer by MAlGIMD of their SHANH shareholding (and of the marginal shareholding of Mr. Georges Hibon in SHANH as well) to Sanofi; and is not expressly or by any legitimate inference of the transactional documents and surrounding circumstances, a transfer of SBL shareholding, which continues with SHANH; (xii) subsequent to the transaction in issue and currently as well, SHANH continues in existence as a registered French resident corporate entity and as the legal and beneficial owner of SBL shares; and (xiii) the transaction in issue clearly and exclusively is one of transfer of the entire shareholding in SHANH, by MAlGIMD in favour of Sanofi. Transfer of SBL shares in favour of Sanofi is neither the intent nor the effect of the transaction. (xiv) Revenue's perception of the SHANH persona and interpretation of the transactional documents (including the amended SBL AOA) and surrounding circumstances is fundamentally misconceived for another reason. If MA is considered as only MA qua the amended SBL AOA; that the 6-11-2006 SPA and the 7-11-2006 SHAs were instruments under which MA (not SHANH) acquired the SBL shares and that consequently the legal and beneficial owner of SBL shares is MA and not SHANH; then and on this interpretationl construction, the following transactional documents would irretrievably fail : the 7-11-2006 SHA's; the Escrow agreements dated 2-11-2006 and 3-11-2006; the SHANH partnership agreement dated 8-3-2007 between MA and GIMD; the May, 2007 purchase of SHANH shares by Mr. Georges Hibon from MAlGIMD; and even the 10-7-2009 SPA between MAlGIMD and Sanofi. As a consequence of Revenue's interpretation qua the 8-3-2007 SPA, GIMD would have acquired a 20% shareholding of SHANH which had neither a commercial substance, a business purpose or any value whatsoever; the Escrow agreements dated 2-11-2006 and 3-11-2006 with the French and Swiss Banks would be of no consequence; and under the 10-07-2009 SPA, Sanofi would have acquired 100% shareholding of SHANH, a wholly vacuous corporate entity, since this SPA was not for acquisition of MAlGIMD shareholding of SBL but for the SHANH shareholding of these JV partners. Further, the findings and conclusions of Revenue 14-12-2009 assessment of SHANH, for assessment years 2008-09 and 2009-10 under section 201(1) of the Act, would become illegal and the tax of Rs.1.33 crores remitted by SHANH to Indian Revenue tantamount to unlawful collection of tax on a non-existent transaction involving no capital gain. Such fundamentally extravagant consequences must, be avoided, particularly by conjectural assumptions based on artificial interpretations pursuing a dissected approach instead of a holistic analysis of the transactional documents and the surrounding circumstances. [Para 19] In the facts and circumstances of the present lis, is stated to be rejected. Provisions of the DTAA including Article 25 have been extracted. On a true and fair construction, absent a grammatical ambiguity and the literal meaning of the text corresponding to its legal meaning, it is clear that only income arising and taxable in India, in accordance with the provisions of this Convention (DTAA) i.e., Article (14(5)), would be taken into account for computation of the French tax, to the extent of the amount of tax paid in India, in accordance with the provisions of the said Article (14(5)), so however that it shall not exceed the amount of French tax attributable to such income. Article 25(2)(a)(i) applies only where the income is taxable in India in accordance with the provisions of the DTAA. Revenue predicates its claim to tax the transaction in issue on a purposive construction of Article 14(5) and ascription of a see through therein, to treat alienation of SHANH shares (the subject matter of the transaction in issue) as involving deemed transfer of control over the management and the underlying assets, of SBL. This proposition by Revenue, Court has noticed, is premised over other substrating assumptions, viz., that SHANH is an entity of no commercial substance and the legal and beneficial owner of SBL shares is MAlGIMD, not SHANH. In conclusions recorded on Issues 1 and 2 and in the preceding analyses on Issues 3 and 4, Court has rejected the above contentions by Revenue and concluded that: (i) SHANH is an entity of commercial substance and business purpose; is not a mere nominee of MAlGIMD; is the true and beneficial owner of SBL shares; and Article 14(5) neither incorporates nor accommodates a see through; (ii) the transaction in issue is of alienation of SHANH shares and not transfer of the shares or of the control, management or underlying assets of SBL; (iii) retrospective amendments to provisions of the Act are neither relevant nor operate to impact in any manner the good faith interpretation of DTAA provisions; and (iv) that the tax (on capital gain) on the transaction in issue, is allocated exclusively to France under Article 14(5) of the DTAA, not to India. In the light of aforesaid analyses of the provisions of Article 25 of the DTAA and Court conclusions on Issues 1 to 4, the income accruing to MAlGIMD consequent on the transaction in issue neither arises nor is taxable in India in accordance with provisions (Art.14(5)) of the DTAA and is hence outside the province of Article 25. The transaction in issue is clearly liable to French Tax. Therefore, Indian tax if paid, notwithstanding the immunity to Indian tax liability, would not be entitled to tax credit against the French tax attributable to the income accrued on the transaction in issue.[Para 22] Conclusions on Issues 3 and 4 : On analyses of the relevant facts and attendant circumstances, duly considered in the light of curial and other authority referred to, Court conclude: (a) that the transaction in issue (pursuant to the SPA dated 10-7-2009 between MAlGIMD and Sanofi) is for alienation of 100% SHANH shares held by MA, GIMD and Mr. Georges Hibon in favor of Sanofi (falling within Article 14(5) of the DTAA); and constitutes neither the transfer nor deemed transfer of shares or of the control, management, or underlying assets of SBL (i.e., not a transfer, within the meaning of the expression as defined in section 2(47) of the Act); (b) the consequent tax on the capital gain accrued to MAlGIMD, is clearly and exclusively allocated to France under the provisions of Article 14(5) of the DTAA; (c) retrospective amendments to provisions of the Act (by the Finance Act, 2012) per se do not operate to deflect, modify; or subject DTAA provisions to provisions of the Act (interpreted on good faith principle and construed in the light of applicable principles of statutory construction). There is no ambiguity in the Article 14(5) expressions - alienation or participation; and since these terms (identical, not synonymous) are neither employed nor defined in the Act, there is no warrant for invoking provisions of Article 3(2) of the DTAA; and thereby provisions of the Act to the transaction in issue; and in transgression of provisions of the DTAA; and (d) the transaction in issue is not liable to tax in India, under the provisions of the Act read in conjunction with provisions of the DTAA. In the light of the relevant precedential authority, considered in Issues 1 and 2 and the conclusions recorded, the controlling interest of SHANH over the affairs, assets and management of SBL being incidental to its shareholding and not a separate asset cannot be considered or computed as a distinct value, of SHANH shares. The assets of SBL in the light of binding precedential authority cannot be considered as belonging to a shareholder (even if a majority shareholder) - SHANH. The value of the controlling rights over SBL attributable to the SHANH shareholding is also incapable of determination and computation. There is also the issue of the value of Shanta West, a subsidiary of SBL. For these reasons, the computation component which is inextricably integrated to the charging provision (in section 45 of the Act) fails, and consequently the charging provision would not apply. [Paras 23 & 24]