IN RE: X LTD. Vs. STATE

JUDGEMENT

(1.) THESE are two applications under section 245Q(1) of the Income -tax Act, 1961 ('the Act'). The applicants are limited liability companies incorporated in Mauritius on 22 -11 -1994. A certificate issued by the Income -tax Department of the Mauritius has been produced which purports to be a 'tax residence certificate' issued under the Convention between the Government of the Republic of India and Government of the Republic of Mauritius for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains entered into in 1982. These certificates declare that the applicants are "qualified in terms of the aforesaid Convention as resident in Mauritius".

(2.) THE memoranda as well as the articles of association of the two companies have been filed, which are identical in both cases. The objects of each of the companies include carrying on business as an investment and holding company and for that purpose to acquire and hold, either in the name of the company or that of any nominee, and to use, sell, assign, transfer, mortgage, pledge or otherwise deal with or dispose of shares, stocks, bonds, debentures and securities. The authorised capital of each company is stated to be US $ 10,000,100 comprising of 100 founder shares of US $ 1 each and 10,000,000 ordinary shares of US $ 1 each. Each memorandum shows one share each as having been agreed to be taken by the two subscribers to the memorandum: company X and company Y. The address of each of these has been given as "c/o their Chartered Accountants in Mauritius and the memorandum has been signed by the two Chartered Accountants, respectively on behalf of these companies. It is also necessary to refer to two of the articles of association of the companies for our present purposes which provide, inter alia, that the number of directors shall not be less than two and more than ten or such other number as the company may be ordinary resolution determine. The first directors appointed under the articles are the two chartered Accountants referred to above who have signed the memorandum on behalf of the subscriber -shareholders and Mr. P, a banker of Hongkong. It also provides that no director shall be required to hold shares in the company to qualify him for an appointment and presumably none of the directors hold any shares in the companies. It is further provided that the board meetings of the directors are to be held in or chaired from Mauritius. Subject to this, the directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. The address of the registered head office of the companies is also the same as the address of the two shareholders. It is stated that this is also the place where the meetings of the board of directors and the general meetings are held.

(3.) EACH of the two companies, it is stated, carries on the business of investing in the banking and financial sector in India and has invested US $ over 60,00,000 by way of subscription for shares in an Indian Bank. A certificate has been produced from that bank to confirm that each of these companies have been allotted two crores equity shares of that bank of Rs. 10 each (or a total of Rs. 20 crores).