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In a clear win for French pharma major Sanofi, the Andhra Pradesh High Court has ruled that the offshore transaction that led to it gaining control of Hyderabad-based company Shantha Biotechnics was not taxable in India.
The transaction is taxable only in France according to the India-France double taxation avoidance pact, a division Bench of Justices G. Raghuram and M.S. Ramachandra Rao said.
Both the Authority for Advance Ruling’s order and the Income-Tax Department’s demand notice (Rs 985 crore for tax and interest and another Rs 985 crore for penalty) were also set aside by the High Court.
Significantly, the Division Bench ruled that the transaction was not designed for tax avoidance.
The move by Budget 2012-13 to retrospectively bring indirect transfer of shares within the tax net had no impact on the DTAA, it was held.
“The AP High Court judgment upholds the primacy of India’s tax treaty commitments”, said Rohan Shah, Managing Partner, Economic Laws Practice, a law firm. ELP was legal counsel for the petitioners (parties in the matter).
THE TRANSACTION
Institut Merieux (IM) and Groupe Industriel Marcel Dassault (GIMD), both French companies, held 80 per cent and 20 per cent shares, respectively, in ShanH SAS (ShanH), another French company. ShanH, in turn, held shares in Indian company Shantha Biotechnics Ltd.
In August 2009, IM and GIMD sold its shareholding in ShanH to another French company, Sanofi Aventis. The transaction was carried out in France.
Indian income-tax authorities sought to bring this transaction to tax in India and issued a demand notice to Sanofi for not deducting tax at source on the deal amount. They also relied on the retrospective amendments to income-tax law in Budget 2012-13 to support their arguments for bringing the Sanofi transaction to tax in India.
>rishikumar.vundi@thehindu.co.in
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