The shutdown of the AAR created a feeling of insecurity and panic in the mind of the investor who invested by the road to Mauricie. The judgment brushed aside the broad interpretation of tax evasion contracts signed by India and Mauritius. It will now also be a matter for investors to look for possible ownership and management aspects of a post-contract tax exemption agreement. The direct and indirect transfer of shares in assets held in India is ambiguous. It will also be interesting to see how the tax authorities envisage the indirect transfer of shares within the meaning of the India-Maurice Treaty, given that the standard perception under the tax system was that the indirect transfer of shares under the contract was exempt from capital transfer tax and that several judicial statements were also the same in different cases. However, in that case, AAR found that the treaty exemption did not apply to “indirect transfers.” In addition, AAR has gone beyond the concept of grandfather and has also set aside somewhere the decision of the Supreme Court of Hon`ble in the Vodafone3 case, where such contentious judgments were overturned by AAR. It will be interesting to see how the contract, the grandfather rule and the provisions on the general anti-avoidance rule are interpreted if Tiger Global gets a greater appeal. In the current situation where there is economic instability in the market, this is a major setback for investors, where each country is trying to create a friendly market for investment and where judgments like AAR will remove investors from the country. First, the effects of such an order are expected to be colossal. Investors were protected under the grandfather`s general rule, i.e. investments before April 1, 2017, will not be taxable, but after changing the rules of the agreement between the Government of the Republic of India and the Government of Mauritius to avoid double taxation, exit plans have been strengthened2.
The impact would also be visible in the process, as there is considerable uncertainty about the resignations of private equity firms and the DBAA signed by India with Mauritius. This is not the first time AAR has ruled against the normal course of the contract. On a few occasions, it has been found that investors and companies derive their money from Mauritius and Singapore, primarily to take advantage of DTAA`s advantage between India and Mauritius.