MAHINDRA - BT INVESTMENT COMPANY (MAURITIUS) LIMITED, IFS COURT, TWENTY EIGHT, CYBERCITY EBENE, REPUBLIC OF MAURITIUS Vs. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION-II), MUMBAI

JUDGEMENT

(1.) ON 19.8.1986, Mahindra and Mahindra (M&M), a company incorporated in India and British Telecommunications Plc (BT) a company incorporated in the United Kingdom entered into a joint venture agreement to set up a company in India. They promoted the company, Mahindra -British Telecommunication Ltd (MBT). It was a company limited by shares. The main object was to provide services and equipment in the field of information technology and telecommunications in India. 60% of the shares therein were to be held by M&M and 40% to be held by BT. The total initial share capital was to be 20,000 equity shares of the value of Rs.10 per share. The name of Mahindra -British Telecommunication Ltd was altered to Tech Mahindra Limited (TM). It is now a public limited company, the shares of which are quoted in the stock exchange. Presently, M&M holds 43.96% of the shares therein and BT holds 31% and about 17% of the shares are held by the Indian public. On 28.12.2004, Mahindra British Telecommunication (now Tech Mahindra) and SBC Services Incorporated, a US company (now AT&T Limited) entered into a software and professional services agreement. Thereunder, MBT (now Tech Mahindra) was to provide to SBC Services, (now, AT&T) services described in that agreement, for the price as stipulated in that agreement. There is no term in this agreement that AT&T would be entitled to acquire shares in Tech Mahindra if a particular level of business was given to Tech Mahindra by AT&T.

(2.) IT is seen that on 9.5.2005, a company, Mahindra BT Investment Company (Mauritius) Ltd. [the applicant], was incorporated in Mauritius. It is said that its shares are held by Mahindra Overseas Investment Company Limited, a company incorporated in Mauritius and BT Holdings Ltd in the proportion of 57:43. On 10.5.2005, a day after the incorporation of the applicant, a multiparty agreement was executed, going by the nomenclature, "Option Agreement?. SBC Incorporated (now AT&T), Mahindra & Mahindra Ltd. (M&M), British Telecommunications Plc (BT), Mahindra -British Telecommunications Ltd. (now, Tech Mahindra) and the applicant are seen to be parties to it. It appears from the reply filed by the applicant on 30.6.2011 read along with the report filed by the Revenue leading to that reply, that Mahindra Overseas Investment company the holder of 57% of the shares in the applicant, is a wholly owned subsidiary of Mahindra and Mahindra Ltd. (M&M). As on that day, the applicant had acquired no shares in Tech Mahindra Ltd. As far as the issue of shares is concerned, the entities involved were only AT&T and Tech Mahindra. The applicant has not produced any agreement between SBC International and Mahindra British Telecommunication regarding the issue of the shares. On the other hand an agreement dated 23.6.2005 entered into between the applicant and Tech Mahindra is produced to show that the applicant agreed to invest in Tech Mahindra. The document recites that the applicant desired to subscribe and Mahindra British Telecom (now Tech Mahindra) agrees to issue fresh equity shares to the investor on a partly paid basis to be made fully paid in the manner described thereunder. It is to be noted that the multiparty agreement dated 10.5.2005 referred to earlier, was prior in point of time.

(3.) THE multiparty agreement dated 10.5.2005, referred to as the "Option Agreement", provides that SBC (now AT&T) will be granted options over the shares representing 8% of the enlarged fully diluted ordinary share capital of Mahindra British Telecommunication (now, Tech Mahindra) as at the date of that agreement on condition that certain specified milestones relating to commercial frame work agreement entered into by Mahindra -British Telecom and SBC Services are achieved. In consideration of SBC entering into the agreement, M&M, BT and Tech Mahindra undertake to ensure that the Option Shares shall be allotted and issued to the applicant as soon as possible and in any event, by no later than the date that is 180 days after the date of that agreement. It is recited that that agreement including the grant of Option to SBC under the agreement was in consideration of and as an integral part of the commercial agreement with a view to induce SBC's affiliates to provide business to Tech Mahindra. The manner of SBC exercising the option is also laid down.