1. Policy vs Jurisprudence
N.Venkataraman
Senior Advocate

2. Broad Holding Structure
 HTIL- Hongkong
 HTICHIL-
 Amber International-Netherlands
 HTI(BVI) Holding Ltd.
 CGP Investments-Cayman Islands
 Array.-Holdings- Mauritius
 CGP India Investment Ltd- Mauritius
 Series of Entities in Mauritius
 HEL India

3. Contracting Parties
 HTIL-Hongkong-Seller of shares
 VIH(BV)-Netherlands-Buyer of shares
 Shares sold-not the shares of HTIL, Hongkong
but shares in the Cayman Island entity

4. Cayman Islands Entity
 Company established under the laws of CI
 Prohibited from carrying any operations or
functions
 Registered office situated in CI
 Company merely holding shares for smooth
transition
 No other business activity

5. Transactions-
Possibilities- Net effect

6.  Purchase of HEL Shares in India- Liable to Capital
Gains tax
 Purchase of shares of the Mauritius companies-
Protected by India-Mauritius treaty-no capital
gains tax
 Purchase of Cayman Island shares-not protected
by any treaty
 Net Effect- controlling interest in HEL India and the
Indian business market

7. Court evolved Doctrines
 Piercing the Corporate Veil
 Substance over form
 Beneficial Ownership
 Alter Ego

8. Test-Strategic Foreign
Direct Investment

9.  Investment coming to India as an Investment
destination
 Duration of time of the Holding structure
 Period of business operations in India
 Generation of taxable revenues in India
 Timing of Exit
 Continuity business on exit
Strategic FDI considered to be genuine and not a
sham

10. Sham Transactions
 Structure used for circular trading
 Round tripping
 To pay bribes
 (Entities to be discarded by applying the test of
Fiscal nullity)

11. Look At vs Look Through
 Look At- Direct- Transaction under question
 Look Through-Transaction „in consequence of‟
 Section 9 – Transfer, existence of Capital Asset and
situation of such asset in India
 Expression „Directly or Indirectly‟ go with the
income and not with the transfer of Capital Asset
 Indirect transfers not governed by Section 9-
Absence of Look Through test

12. Doctrines vs Look Through
When there are Court evolved doctrines i.e.
piercing the Corporate Veil, substance over
form, do we need a statutory provision in the
form of “ Look Through” ?

13. Westminster Doctrine
 “Given that a document or transaction is
genuine, court cannot go behind it to some
supposed underline substance”
 Doctrine of series of Transaction
“If a transaction from the beginning to the end is
found to be genuine holistically, intermittent steps
cannot be examined to find out whether the steps
are genuine or a sham”

14. Application of the Test
 Judgment applies the test commencing from the
Hong kong shares upto the Indian shares
 Finds holistically a genuine transaction
 Sale of Cayman Island shares therefore should not
be examined independently in the series of
transaction
 Mere holding of shares for smooth transition in
Cayman Islands by itself is a genuine business

15. Application of the Test
 Applicability of the Doctrine-if Hongkong shares
are sold
 Doctrine whether applicable for sale of Cayman
Island shares?

16. Share vs Asset
 Sale of Share vs Sale of Asset
 Conceptual difference between pre ordained
transactions created for tax avoidance and a
transaction which evidences investment to
participate
 If investment terminates into genuine reasons,
can avoidance of tax also be held genuine (FDI
vs Indian scenario)

17. Transaction vs Effect
 A transaction can be taxed and not its effect
 Piercing Corporate Veil?

18. Situs of Shares and
Valuation

19.  Would be where the company is incorporated and
where its shares can be transferred
 Clear cut straight forward share sale and not
Asset sale
 Valuation cannot be the basis for taxation
especially in the case of Capital Gains
 Valuation maybe a science but not law
 Valuation is a matter of opinion

20.  CGP was treated in the Hutchison structure as
an investment vehicle.
 When shares are sold lock stock and barrel
transactions cannot be broken up to identify the
underlying assets
 Merely because there is no capital gains tax at
the time of exit would not make a share sale
(investment) a sham or a tax avoidant

21. Section 195
 Decision of the third judge
 Will NRI transactions go out of the purview of
section 195?
 Whether the judgment of the learned third judge
constitute a binding precedent

22. Policy vs Jurisprudence
 A policy in place- Court normally do not interfere
unless contrary to public interest
 When a policy is not in place as in the case of
India- Mauritius treaty can court create policy
using judicial tool of interpretation ?

23. Consequences
 WillGovernment go for retrospective
amendment- consequences thereof?
 Will
PIL be filed demanding retrospective
amendment?
 Whether the judgment is amenable to judicial
review and reference to Constitution Bench?