Income Tax (I-T) authorities are expected to challenge a recent order of the IT Appellate Tribunal (ITAT) here that dismissed a bid to tax the Tatas on capital gains of around Rs 1 lakh crore from the 2006 sale of Idea Cellular shares by a Mauritius subsidiary of the group.
Sources indicated that the ITAT order will be challenged in a case that is being watched keenly because of its huge revenue implications. The challenge will be made in the Bombay High Court.
The matter relates to the April 2006 sale by Tata Industries of its shareholding in Idea Cellular to Birla TMT Holdings.
While the Tatas paid tax on the capital gains in India, its Mauritius-based subsidiary, Apex Investment (Mauritius) Holdings Pvt. Ltd — which too sold its shareholding in Idea Cellular to Birla TMT Holdings — did not pay capital gains tax in the country as, under Article 13 of the India-Mauritius Tax Treaty, it contended there was no liability in India.
Earlier, in 2005, Tata Industries had acquired the entire share capital of Apex Mauritius from its US shareholders — New Cingular Wireless/AT&T).
However, IT officials concluded that under Section 93 of the IT Act, capital gains had to be paid by Apex on about Rs 1 lakh crore, and asked the Tatas to pay the amount.
The ITAT, however, was of the view that Section 93 did not apply in the case as there was no transfer of assets by an Indian taxpayer or company to a non-resident entity.
It held that, in this case, there had been no transfer of assets by a resident to a non-resident — a basic requirement for the provisions of section 93 to be invoked.