Big relief

Hyderabad, Feb. 15: The Andhra Pradesh high court today ruled that the transaction involving the acquisition of Shantha Biotechnics here by French drug maker Sanofi Avantis was not taxable in India.

Based on a petition filed by Sanofi, a division bench, comprising Justice G. Raghuram and Justice M.S. Ramachandra Rao, observed that the capital gains arising out of the transaction was chargeable in France and not in India.

The bench also set aside the earlier verdict of the Authority for Advanced Rulings in favour of the income tax department.

Sanofi Aventis, which acquired Shantha Biotech in 2010, was asked to pay Rs 650 crore as capital gains tax to the Indian government.

Sanofi bought Shantha from France’s Merieux Alliance that had more than 90 per cent in the Indian vaccine maker.

Sanofi paid Rs 3,700 crore to acquire Shantha, making it the first big-ticket deal in the domestic biotech sector.

The I-T department had claimed Sanofi was taxable under section 195 of the income tax act because it bought Shantha through ShanH, a special purpose vehicle incorporated in France by Merieux in 2006.

“The capital gain arising as a consequence of the transaction and the resultant tax is allocated to France (not to India) under DTAA (double taxation avoidance agreements),” the bench said.

The retrospective amendments to the Income Tax Act, 1961, have no impact on the interpretation of DTAA, it said. The transaction falls within Article 14 (5) of DTAA and the tax resulting from there is allocated to France, it added.

The I-T department had earlier argued that although this was an extra-territorial deal, it claimed capital gains because the transaction involved transfer of an Indian asset, namely Shantha. Also, the profit made by Merieux from the sale of shares to Sanofi was generated in India.

Rohit Jain, partner at Economic Laws Practices, a legal firm which represented Sanofi, said the verdict gave a boost to foreign investments into the country.

“In the light of our conclusions, the ruling dated 28-11-2011 of Authority of Advanced Rulings, the order of the Sanofi Assessment 25-05-2010, the consequent notice of demand, also dated 25-05-2010, and the rectification order dated 15-11-2011 are quashed,” the bench said.