Can’t tax Rs 1 lakh crore gains on Idea share sale by Tatas’ Mauritius arm: ITAT

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has in its recent order dismissed the action of the lower I-T authorities to tax capital gains of around Rs 1 lakh crore in the hands of Tata Industries. This capital gain had arisen on sale of Idea Cellular shares by a Mauritius subsidiary of the Tatas to a Birla group company during the financial year 2006-07.

In April 2006, Tata Industries sold its shareholding in Idea Cellular to Birla TMT Holdings and offered the resultant capital gains on such sale to tax in India. Apex, a Mauritius-based subsidiary of Tata Industries, also sold its shareholding in Idea Cellular to the Birla group company. However, the capital gains arising on sale of Idea Cellular shares held by Apex were not offered to tax in India — the contention being that according to the provisions of the India-Mauritius tax treaty, there would be no tax incidence in India.

The I-T officer determined capital gains on sale of shares by Apex to be Rs 1 lakh crore approximately and sought to tax this sum in the hands of Tata Industries under section 93 of the I-T Act.


The objective of this section is to curb the practice of tax avoidance by an Indian taxpayer (say, a company in India) by transferring its asset to a non-resident (say, an offshore entity). It applies when the resident taxpayer continues to enjoy the income from such assets, even after the transfer. Section 93 is a ‘deeming’ provision — it enables the I-T authorities to disregard the offshore entity and make the Indian taxpayer pay tax on the income of the offshore entity.

The ITAT pointed out that provisions of section 93 will not apply in this case. For this section to apply, there must be a transfer of assets by a tax resident of India (for example, an Indian company) to a non-resident. Whereas, in this case, it was the Mauritius company that had sold its own shareholding in Idea Cellular to a resident company of the Birla group. Further, such sale was made to an unrelated party. Thus, Tata Industries could not be taxed on the capital gains that arose on sale of Idea shares by its Mauritius subsidiary.