HC tells Mauritius firm to pay capital gains tax

The Bombay High Court has disposed of a writ petition filed by E*Trade Mauritius Limited and directed that the tax amount deposited...

The Bombay High Court has disposed of a writ petition filed by E*Trade Mauritius Limited and directed that the tax amount deposited with it earlier should be released to the Tax Department. The capital gains tax of Rs 24.5 crore was paid on the consideration received by E*Trade Mauritius from another Mauritian company on sale of shares of an Indian company.

E*Trade Mauritius is a limited company formed under the laws of Mauritius and is a subsidiary of E*Trade Financial Corporation (E*Trade US). E*Trade Mauritius sold shares of IL&FS Investmart Limited (IL&FS) to HSBC Violet Investments (Mauritius) Limited (HSBC Mauritius). After the transaction,E*Trade Mauritius filed a writ petition before the Bombay High Court challenging a withholding tax certificate issued by the Tax Department to pay capital gain tax on the consideration.

The HC had directed the matter back to the Tax Department for revision proceedings. Further,until disposal of the matter by the Tax authorities,the High Court directed HSBC Mauritius to deposit an amount of Rs 24.5 crore,being the tax amount,with the HC.

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The court held that the tax amount set aside under its earlier order be released to the Tax Department and the balance,of Rs 20 lakh should be released to E*Trade Mauritius. The court has directed HSBC Mauritius to issue a Tax Deducted at Source (TDS) Certificate to E*Trade Mauritius to the extent of tax amount released to the Tax Department.

It appears that the Tax Department had concluded that E*Trade Mauritius was a shell company which acquired funds from E*Trade US for purchase of shares of IL&FS. Further the ownership of shares of IL&FS rested with E*Trade US and accordingly,the actual gains had accrued to E*Trade US, KPMG said.