JUDGMENT judgment of court was delivered by Vibhu Bakhru J.-These writ petitions have been filed by Revenue challenging common ruling dated July 31, 2012 (Moody's Analytics Inc., USA, In re [2012] 348 ITR 205 (AAR)) (hereinafter referred to as "impugned ruling") passed by Authority for Advance Rulings (hereinafter referred to as "the AAR"). By impugned ruling, Authority for Advance Rulings held that capital gains arising out of sale of shares of Indian company-Copal Research India P. Ltd., sold by company incorporated in Mauritius (Copal Research Ltd.) to Cyprus Co. (M/s. Moody's Group Cyprus Ltd.) and sale of shares of US company (Exevo Inc.) sold by Mauritius Co. (Copal Market Research Ltd.) to another US company (Moody's Analytics, Inc.) were not liable to tax, in India, in hands of seller companies. Consequently, purchasing companies-M/s. Moody's Group Cyprus Ltd. and Moody's Analytics, Inc. had no obligation to withhold tax under section 195 of Income-tax Act, 1961 (hereinafter referred to as "the Act"), from consideration payable to sellers-the Mauritian companies. details of various companies involved in present writ petition are: (i) Copal Research Ltd. ("CRL")-a company incorporated on March 17, 2004, under laws of Mauritius. (ii) Copal Research India P. Ltd. ("CRIL")-an Indian company incorporated on December 31, 2002. (iii) Copal Market Research Ltd. ("CMRL")-a company incorporated on April 1, 2008, under laws of Mauritius. (iv) Copal Partners Ltd. ("Copal-Jersey")-a company incorporated in Jersey on July 21, 2006. (v) Exevo India P. Ltd. ("Exevo-India")-an Indian company incorporated on March 22, 2002. (vi) Exevo Inc. ("Exevo-US")-a company incorporated on July 24, 2002, in United States of America. (vii) Moody's Group Cyprus Ltd. ("Moody-Cyprus")-a company incorporated in Cyprus. (viii) Moody's Analytics, Inc. ("Moody-USA")-a company incorporated in United States of America. (ix) Moody's Group UK Ltd. ("Moody-UK")-a company incorporated in United Kingdom in 2007. CRL, CRIL, CMRL and Copal-Jersey are hereinafter collectively referred to as "Copal group". Moody-Cyprus, Moody-USA and Moody-UK are hereinafter collectively referred to as "Moody group". Exevo-India and Exevo-USA are hereinafter collectively referred to as "Exevo group". facts necessary for considering present petitions relate to three transactions pertaining to sale of shares of constituents of Copal group to constituents of Moody group. tax incidence in respect of two transactions-sale of shares of CRIL by CRL (hereinafter also referred to transaction I or first transaction) and sale of shares of Exevo-US by CMRL (hereinafter also referred to as transaction II or second transaction)-were subject matter of applications filed before Authority for Advance Rulings. first transaction entails sale of shares of CRIL by CRL to MoodyCyprus: CRL entered into share purchase agreement dated November 3, 2011 (hereinafter referred to as "the SPA I") with Moody-Cyprus whereby CRL sold its entire 100 per cent. holding in CRIL to Moody-Cyprus. sale consideration under said SPA I for transfer of shares comprised two components: Fixed sum of USD 31,406,740 payable in lump sum (referred to as initial consideration in SPA I) and deferred consideration in form of "earn-out" payable in one full and final instalment as per clause 5 of SPA I read with schedule 5 thereto. It is relevant to note that Copal-Jersey acquired 100 per cent. shares of CRL on October 18, 2006, and CRL is wholly owned subsidiary of Copa l-Jersey. Out of 1,24,424 shares of CRIL that were sold to Moody Cyprus 1,14,425 (constituting 92 per cent. of entire shareholding of CRIL) were acquired by CRL on August 10, 2004, by way of subscription and balance 9,999 shares (constituting 8 per cent. of subscribed and issued share capital) were purchased on May 21, 2010. relevant facts with respect to transaction II are: CRL acquired 100 per cent. shares of CMRL on April 1, 2008. Thereafter, CMRL acquired 100 per cent. shares of Exevo-USA. Exevo-USA holds 100 per cent. of shareholding (10,06,550 shares) of Exevo-India. Subsequently, CMRL entered into share purchase agreement dated November 3, 2011 (hereinafter referred to as "the SPA II") with Moody-USA whereby CMRL sold all shares of Exevo- USA to Moody-USA. effect of said transaction was that control of Indian company (Exevo-India), which was wholly owned subsidiary of Exevo-USA, was also indirectly transferred to Moody-USA (an American company). sale consideration under said SPA II comprised two components being fixed sum of USD 11,176,000 payable in lump sum (referred to as initial consideration in SPA II) and deferred consideration in form of "earn-out" payable in one full and final instalment as per clause 5 of SPA II read with schedule 5 thereto. Copal-Jersey was, at material time, ultimate holding company of Copal group and its certain shareholders (other than banks and financial institutions) held approximately 67 per cent. of issued and paid up capital of company (the said shareholders are hereinafter referred to as "Copal group shareholders"). Banks and other financial institutions held balance 33 per cent. shares (approximately) of Copal-Jersey. Copal group shareholders entered into share purchase agreement dated November 4, 2011 (hereinafter referred to as "the "SPA III") with MoodyUK for sale of approximately 67 per cent. of shares of Copal-Jersey to Moody-UK for aggregate consideration of USD 93,509,220 (this transaction is hereinafter also referred to as "transaction III"). Four applications were filed before Authority for Advance Rulings under section 245R of Act in respect of two transactions-transaction I and transaction II. Moody-USA and CMRL filed applications with respect to transaction II being AAR No. 1186 of 2011 and AAR No. 1189 of 2011, respectively. It was contended by said applicants that in view of India- Mauritius Double Taxation Avoidance Agreement (DTAA) read with section 90(2) of Act gains arising in hands of CMRL from transaction II were not taxable under Act and, consequently, MoodyUSA was not required to withhold any tax. advance ruling to said effect was sought from Authority for Advance Rulings. Applications seeking similar ruling with respect to transaction I were filed by MoodyCyprus and CRL being AAR 1187 of 2011 and AAR 1188 of 2011 respectively. AAR admitted applications for consideration and framed following questions in AAR No. 1186 of 2011 (page 214 of 348 ITR): "(1) Whether, on facts and in law, applicant is justified in its view that capital gains arising on sale of shares of Exevo Inc., US ('Exevo Inc') by Copal Market Research Ltd. ('CMRL') to applicant would not be chargeable to tax in India in hands of CMRL? (2) Whether, on facts and in law, applicant is justified in its view that full value of consideration receivable by CMRL for sale of shares of Exevo Inc. to applicant shall be total consideration including the'earn-out' consideration for purposes of computing'Capital gains'? (3) If the'earn-out' consideration is to be treated as business profits, whether such profits would be taxable in India under Act in absence of any'business connection' of CMRL in India? (4) If answer to question No. 3 above is in affirmative, whether the'earn-out' consideration would be chargeable to tax in assessment year relevant to previous year in which transfer took place or year in which earn-out consideration is received by CMRL? (5) If the'earn-out' consideration is to be treated as other income, whether such income would be taxable under Act by virtue of any income having accrued or arisen to CMRL in India through or from: (i) any property in India; or (ii) any asset or source in India? (6) If answer to question No. 5, is in affirmative, whether the'earn- out' consideration would be chargeable to tax in assessment year relevant to previous year in which transfer took place or year in which earn-out is received by CMRL? (7) Whether, on stated facts, applicant, being foreign company and in absence of place of business in India, would be subject to tax under provisions of section 115JB of Act? (8) Whether, on facts and in law, applicant is required to withhold tax under section 195 of Act on income chargeable to tax in India in hands of CMRL from sale of shares in E xevo Inc. to applicant? (9) If answer to question 8 is in affirmative, then whether applicant would be liable to interest under section 201(1A) of Act?" Authority for Advance Rulings framed following questions in AAR No. 1188 of 2011 (page 216 of 348 ITR): "(1) Whether, on facts and in law, applicant is justified in its view that capital gains, if any, arising on sale of shares of Copal Research India P. Ltd. ('CRIPL') by applicant to Moody's group Cyprus Ltd. (Moody's) will not be chargeable to tax in India in hands of applicant, as per provisions of paragraph 4 of article 13 of Double Taxation Avoidance Agreement entered into between India and Mauritius ('the DTAA'/'the Treaty')? (2) Whether, on facts and in law, applicant is justified in its view that full value of consideration receivable by applicant for sale of shares of CRIPL to Moody's shall be total consideration including the'earn- out' consideration for purposes of computing'Capital gains'? (3) If the'earn-out' consideration is to be treated as business profits, whether such profits shall be taxable in India as per provisions of article 7 read with article 5 of DTAA? (4) If answer to question No. 3 above is in affirmative, whether earn-out would be chargeable to tax in assessment year relevant to previous year in which transfer took place of or year in which earn-out is received by applicant? (5) If the'earn-out' consideration is to be treated as other income, whether such income shall be taxable in India as per provisions of article 22 of DTAA? (6) If answer to question 5 above is in affirmative, whether earn-out would be chargeable to tax in assessment year relevant to previous year in which transfer took place or year in which earn-out is received by applicant? (7) Whether, on stated facts, applicant, being foreign company and in absence of place of business or permanent establishment ('PE') in India, would be subject to tax under provisions of section 115JB of Act? (8) Whether, on stated facts and in law, Moody's Group Cyprus Ltd., another non-resident, is required to withhold tax under section 195 of Act on income chargeable to tax in India in hands of applic ant from sale of shares?" Authority for Advance Rulings adopted questions framed in AAR No. 1186 of 2011 in AAR No. 1189 of 2011, which were also answered in terms of ruling in AAR No. 1186 of 2011. Similarly, questions framed in AAR No. 1188 of 2011 were adopted by Authority in AAR No. 1187 of 2011 and answered accordingly. Authority for Advance Rulings passed common order in all four applications and by impugned ruling held that capital gains arising out of said transaction were not liable to tax in India in hands of respondents. Authority for Advance Rulings further ruled that earn-out consideration would also be part of consideration receivable by respondents. Authority for Advance Rulings held that there was no obligation on Moody-USA and Moody-Cyprus to withhold tax under section 195 of Act. Aggrieved by impugned ruling, Revenue has filed present writ petitions. learned counsel, appearing for Revenue, has submitted that transactions for sale of shares of Exevo-USA and CRIL must not be viewed in isolation but in conjunction with sale of shares of Copal-Jersey to Moody- UK as contemplated under SPA III dated November 4, 2011. And, all transactions, i.e., transaction I, transaction II and transaction III were integral part of single transaction. It was argued that commercial understanding between Copal group shareholders and Moody- UK was to structurally transfer entire businesses and interest of Copal group to Moody group and same was effectuated by three transactions (transaction I, transaction II and transaction III). It was stated that Copal group shareholders held approximately 67 per cent. shareholding of Copal-Jersey and banks and financial institutions held balance shares constituting approximately 33 per cent. of share capital of Copal-Jersey. Given shareholding structure of Copal group, transfer of shares of Copal- Jersey by Copal group shareholders would consummate transfer of entire Copal group, i.e., businesses and downstream subsidiaries of Copal-Jersey, to Moody group. This, it was contended, was real transaction between Copal group shareholders and Moody-UK. It was submitted that sale and purchase agreements read together indicate that, structurally, entire Copal group was transferred to Moody group. It was argued that but for separate sale transactions in respect of shares of CRIL and Exevo-US (i.e., SPA I and SPA II) executed one day prior to sale of shares of Copal-Jersey (i.e SPA-III), gains arising from sale of shares of Copal-Jersey in hands of Copal group shareholders would be taxable under Act, as shares of Copal-Jersey would derive their value substantially on account of value of assets situated in India namely shares of Exevo-India and CRIL. It was reasoned that by virtue of section 9(1)(i) of Act read with Explanation 5 thereto, capital gains arising in hands of Copal group shareholders (who were non- residents) would be taxable under Act as said gains would be deemed to accrue and arise in India. It was submitted that in order to avoid this incidence of tax, transaction of sale of businesses and interests of Copal group to Moody group was structured in manner so as to include two separate transactions for sale of shares of CRIL held by CRL to Moody- Cyprus and shares of Exevo-USA to MoodyUSA. Sellers in both these transactions, namely, CRL and CMRL were companies incorporated in Mauritius and tax chargeable on gains arising from sale of shares in hands of Mauritius entities could be avoided by virtue of India-Mauritius Double Taxation Avoidance Agreement. It was submitted that in given circumstances, transactions in question, namely, sale of shares of CRIL and Exevo-US were interspersed and as such were transactions structured prima facie for avoidance of tax. learned counsel for assessee had objected to contentions of Revenue and submitted that same were neither raised before Authority for Advance Rulings nor pleaded in writ petition. He further submitted that shares of CRIL and shares of Exevo-USA were sold to Moody group as they insisted on acquiring 100 per cent. shareholding of these companies. However, with respect to shares of Copal-Jersey only 67 per cent. of its shares were sold to separate entity of Moody group. That transaction, thus, ought to be considered as transaction independent of transaction I and transaction II. Before proceeding to consider rival submissions, it would be necessary to refer to clause (iii) of proviso to section 245R(2) of Act which reads as under: "245R. Procedure on receipt of application.-... (2) Authority may, after examining application and records called for, by order, either allow or reject application: Provided that Authority shall not allow application where question raised in application,-... (iii) relates to transaction or issue which is designed prima facie for avoidance of income-tax except in case of resident applicant falling in sub- clause (iii) of clause (b) of section 245N or in case of applicant falling in sub-clause (iiia) of c lause (b) of section 245N:" principal questions for consideration are whether two transactions in question-for sale and purchase of CRIL shares and Exevo-USA shares (SPA I and SPA II) are designed prima facie for avoidance of income-tax under Act and whether applications in respect of said transactions were liable to be disallowed by Authority for Advance Rulings in terms of clause (iii) of proviso to section 245R(2) of Act. Before proceeding to address rival contentions, it would be relevant to examine shareholding/investment structure and interrelation between various entities of Copal group. This could be understood by chart demonstrating structure of Copal group of companies, which is reproduced below: Individual shareholders Banks and financial institutions 33% (approximately) 67% (approximately) Copal Partners Ltd., Jersey 100% 100% 10% 37.84% EthosData Copal Partners Copal Partners Copal Research Holdings Middle East Ltd., (UK) Ltd. Ltd., Mauritius Ltd. Cyprus 100% 100% 100% 100% 100% Copal Copal Copal Copal Market Business Copal Research Partners Partners Research Consulting Ltd., (HK) (US) India P. (Beijing) Inc. Ltd. Co. Mauritius Ltd. Ltd. 100% 100% 100% Exevo Research EthosData (UK) Exevo Inc. US Pte. Ltd., UK Ltd., Singapore 100% Seller Target Exevo India P. Ltd. bare perusal of above structure indicates that sale of 67 per cent. of shares of Copal-Jersey by Copal group shareholders to Moody-UK would result in Moody group acquiring 67 per cent. indirect economic interest in CRL and CMRL (being wholly owned downstream subsidiaries of Copal- Jersey) and this would obviously include interest in any consideration paid by Moody-Cyprus and Moody-USA to CRL and CMRL respectively for acquiring shares of CRIL and Exevo-US as contemplated under SPA I and SPA II. This obviously would be illogical as on one hand concerned entities of Moody group would pay for assets of CRL and CMRL (transaction I and transaction II) and on other hand another entity of Moody group would pay to reacquire significant part of consideration paid day earlier (transaction III). This was explained by learned counsel for respondents. He stated that consideration paid by Moody-USA to CMRL was distributed by CMRL as dividend to CRL. CRL distributed funds received as dividend and consideration for sale of shares of CRIL to Copal-Jersey, which in turn distributed amounts received as dividends to its shareholders. It follows from above that transactions of November 3, 2011 (i.e., SPA I and SPA II) resulted in Copal group shareholders receiving (i) dividend constituting 67 per cent. of fixed consideration paid by Moody- Cyprus and Moody-USA for acquisition of shares of CRIL and Exevo- US, respectively; and (ii) sale consideration for shares of Copal-Jersey. banks and financial institutions which held shares in Copal-Jersey also participated in dividends that were distributed from funds received from sale proceeds of sales of CRIL and Exevo-US. It would be obvious that this could not have been commercially achieved if overall transaction had been structured in manner as suggested by Revenue, i.e., by simpliciter sale of shares of Copal-Jersey. Thus, even if it is assumed that transactions for sale of shares of CRIL and Exevo-US as well as sale of 67 per cent. shares of Copal-Jersey are considered as singular transaction which essentially entails exit by shareholders of Copal-Jersey, commercially, structure of transfer as suggested by Revenue would not be alternative to transactions in question; first of all, for reason that Moody group would not acquire 100 per cent. direct control over CRIL and Exevo-US but only indirect 67 per cent. economic interest therein and, secondly, banks and financial institutions holding 33 per cent. shares in Copal-Jersey would not have received their share of consideration from sale of shares of CRIL and Exevo-US. respondents explained that there is commercial rationale for sale of shares of CRIL and Exevo-US s those companies represented holding interest in Indian companies and Moody's had insisted on acquiring entire 100 per cent. capital of those companies. Accordingly, transfer of those shares took place at Mauritian level and not by sale of shares of upstream holding company/companies at Jersey level. Sale of shares of ultimate holding company, i.e., Copal-Jersey could be effected only to extent of 67 per cent. of shareholding which was held by Copal group shareholders as balance 33 per cent. was held by banks and financial institutions and their shares were not being acquired by Moody-UK. There is no material to indicate that this commercial transaction was not bona fide. Thus, in our view, contention of Revenue that transaction as presently structured has been done only for purposes of avoiding tax and as alternative to sale of shares by shareholders of Copal-Jersey (which would not be as tax friendly) is not sustainable as transaction structured in manner as suggested by Revenue, i.e., sale of shares of Copal-Jersey alone, would not achieve same commercial results and thus could not be considered as real transaction which has been structured differently to avoid incidence of tax. In view of our conclusion that commercial transaction as structured could not be structured at Jersey level and sale of shares of ExevoUS and CRIL at Mauritius level cannot be stated to be without any commercial reason but only to avoid tax, it is not necessary to examine whether gains arising in hands of Copal group shareholders from sale of shares of Copal-Jersey would be exigible to tax assuming that shares of Exevo-US and CRIL had not been transacted at Mauritius level. However, as edifice of arguments advanced by Revenue is based on substratal assumption that gains arising from sale of shares of Copal-Jersey would be subject to tax, if shares of Exevo-US and CRIL had not been sold by CRL and CMRL, we consider it appropriate to consider this contention. In our view, aforesaid contention of Revenue also cannot be accepted for reason that even if sale of shares by Copal group shareholders to Moody-UK has been structured in manner as suggested by Revenue, there would be no incidence of tax. According to Revenue, real transaction is sale of shares by shareholders of Copal- Jersey to Moody-UK. This would mean that shareholders holding 67 per cent. of equity in Copal-Jersey, namely, Copal group shareholders would transfer their shares to Moody-UK without there being any sale of shares by CRL and CMRL of their equity holdings in CRIL and Exevo-US, respectively. consideration payable by Moody-UK to Copal group shareholders for their 67 per cent. shareholding was agreed as USD 93,509,220. This consideration obviously does not include fixed value of shares of CRIL or Exevo-India as 100 per cent. economic interest of those companies was acquired by Moody group one day prior to sale and purchase of shares of Copal-Jersey and fixed consideration thereof had been distributed as dividends. If sale and purchase transactions under SPA I and SPA II had not been executed and only 67 per cent. shares of Copal-Jersey would have been acquired by Moody-UK then value of Copal-Jersey shares would also include value of shares of CRIL and Exevo-US. In other words, 67 per cent. of USD 42,582,740 (being aggregate of fixed consideration payable for shares of CRIL and Exevo-US), would represent value of shares of Copal-Jersey held by Copal group shareholders, which was derived from assets situated in India. Thus, while value of said shares derived from assets situated outside India was USD 93,509,220, value of sale shares derived from assets situated in India would be USD 28,530,435.8 (67 per cent. of fixed consideration). earn-out consideration payable is ignored as same was contemplated to be paid after sale of Copal-Jersey shares and, thus, would not add to value of said shares. It is apparent from above that only fraction of value of shares of Copal-Jersey was derived indirectly from value of shares of CRIL and Exevo-India. question, thus, arises is whether sale of shares of overseas company which derives only minor part of its value from assets located in India could be deemed to be situated in India by virtue of Explanation 5 to section 9(1)(i) of Act. This question can be answered by reference to express language of section 9(1)(i) of Act as well as by applying principle that income sought to be taxed under Act must have territorial nexus with India. By virtue of section 9(1)(i) of Act all income arising from transfer of capital asset situated in India would be deemed to accrue or arise in India and would thus be exigible to tax under Act. share of company incorporated outside India is not asset which is situated in India and but for Explanation 5 to section 9(1)(i) of Act gains arising out of any transaction of sale and purchase of share of overseas company between non-residents would not be taxable in India. This would be true even if entire value of shares of overseas company was derived from value of assets situated in India. This issue arose in case of Vodafone International Holdings B. V. v. Union of India [2012] 341 ITR 1 (SC); [2012] 6 SCC 613 and Supreme Court held that transaction of sa le and purchase of share of overseas company between two non-residents would fall outside ambit of section 9(1)(i) of Act. Subsequently, section 9(1) was amended by virtue of Finance Act, 2012, by introduction of Explanations 4 and 5 to section 9(1)(i) of Act, which read as under: "Explanation 4.-For removal of doubts, it is hereby clarified that expression'through' shall mean and include and shall be deemed to have always meant and included'by means of','in consequence of' or'by reason of'. Explanation 5.-For removal of doubts, it is hereby clarified that asset or capital asset being any share or interest in company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if share or interest derives, directly or indirectly, its value substantially from assets located in India;" notes to clauses explained introduction of Explanations 4 and 5 to section 9(1)(i) of Act as being clarificatory. plain reading of Explanation 5 also indicates that given reason for its introduction was for removal of any doubts. In other words, language of said legislative amendment suggests that it was always intention of Legislature that asset which derives its value from assets in India should be considered as one which is situated in India. clear object of section 9(1)(i) of Act is, inter alia, to cast net of tax also on income which arises from transfer of assets in India irrespective of residential status of recipient of income. Since assets are situated in India, entire income arising from their transfer could be said to arise in India. Explanation 5 introduced legal fiction for limited purpose of imputing that assets which substantially derive their value from assets situated in India would also be deemed to be situated in India. It is trite law that legal fiction must be restricted to purpose for which it was enacted. object of Explanation 5 was not to extend scope of section 9(1)(i) of Act to income, which had no territorial nexus with India but to tax income that had nexus with India, irrespective of whether same was reflected in sale of asset situated outside India. Viewed from this standpoint there would be no justification to read Explanation 5 to provide recourse to section 9(1)(i) for taxing income which arises from transfer of assets overseas and which do not derive bulk of their value from assets in India. In this view, expression "substantially" occurring in Explanation 5 would necessarily have to be read as synony mous to " principally", "mainly" or at least "majority". Explanation 5 having been stated to be clarificatory must be read restrictively and at best to cover situations where in substance assets in India are transacted by transacting in shares of overseas holding companies and not to transactions where assets situated overseas are transacted which also derive some value on account of assets situated in India. In our view, there can be no recourse to Explanation 5 to enlarge scope of section 9(1) of Act so as to cast net of tax on gains or income that may arise from transfer of asset situated outside India, which derives bulk of its value from assets outside India. It is also relevant to refer to draft report submitted by expert committee appointed by Prime Minister in 2012 to report on retrospective amendment relating to indirect transfer of assets (Shome Committee). said Committee had, in its draft report, considered import of expression "substantially" as used in Explanation 5 to section 9(1)(i) of Act. Committee considered submissions of stakeholders that expression "substantially" did not have any fixed meaning and was vague. After analysis, Committee noted that it was necessary to pin down definition of said expression and for that purpose, there were no reason to depart from Direct Tax Code Bill, 2010 (DTC) that had been put in public domain. Under DTC, gains from sale of assets situated overseas, which derived more than 50 per cent. of their value from assets situated in India, were liable to be taxed in India. Shome Committee in its draft report recommended as under: "The word'substantially' used in Explanation 5 should be defined as threshold of 50 per cent. of total value derived from assets of company or entity. In other words, capital asset being any share or interest in company or entity registered or incorporated outside India shall be deemed to be situated in India, if share or interest derives, directly or indirectly, its value from assets located in India being more than 50 per cent. of global assets of such company or entity. This has been explained through above illustration." In addition to above, United Nations Model Double Taxation Convention between Developed and Developing Countries and OECD Model Tax Convention on Income and on Capital may also be referred to since said conventions deal with regime whereunder right to tax capital gains can be fairly and reasonably apportioned between Contracting States. Since models propose regime which is generally accepted in respect of indirect transfers, same, although not binding on Indian authorities, would certainly have persuasive value in interpreting expression "substantially" in reasonable manner and in its contextual perspective. United Nations Mod el Double Taxation Convention between Developed and Developing Countries and OECD Model Tax Convention on Income and on Capital provide that taxation rights in case of sale of shares are ceded to country where underlying assets are situated only if more than 50 per cent. of value of such shares is derived from such property. Paragraph (4) of article 13 of United Nations Model Double Taxation Convention between Developed and Developing Countries provides that Contracting State is allowed to tax gain on alienation of shares of company or on alienation of interests in other entities property of which consists principally of immovable property situated in that State. For this purpose, term "principally" in relation to ownership of immovable property means value of such immovable property exceeding 50 per cent. of aggregate value of all assets owned by such company, partnership, trust or estate. It is also relevant to note that India has signed treaty with Korea incorporating this clause. relevant portion of article 13 of said UN Convention is quoted below: "13. Capital gains.-... (4) Gains from alienation of shares of capital stock of company, or of interest in partnership, trust or estate, property of which consists directly or indirectly principally of immovable property situated in Contracting State may be taxed in that State. In particular: (a) Nothing contained in this paragraph shall apply to company, partnership, trust or estate, other than company, partnership, trust or estate engaged in business of management of immovable properties, property of which consists directly or indirectly principally of immovable property used by such company, partnership, trust or estate in its business activities. (b) For purposes of this paragraph,'principally' in relation to ownership of immovable property means value of such immovable property exceeding 50 per cent. of aggregate value of all assets owned by company, partnership, trust or estate." OECD Model Tax Convention on Income and on Capital provides means of settling on uniform basis most common problems that arise in field of international juridical double taxation. Article 13 of said Convention deals with taxes on capital gains. Article 13(1) provides that gains derived by resident of Contracting State from alienation of immovable property situated in another Contracting State may be taxed in that other State. Article 13(4) of said Convention provides that "gains derived by resident of Contracting State from alienation of shares or comparable interests deriving mo re than 50 per cent. of their value directly or indirectly from immovable property situated in other Contracting State may be taxed in that other State". In view of above, gains arising from sale of share of company incorporated overseas, which derives less than 50 per cent. of its value from assets situated in India would certainly not be taxable under section 9(1)(i) of Act read with Explanation 5 thereto. Thus, in present case, even if transaction had been structured in manner as suggested on behalf of Revenue, gains arising to shareholders of Copal-Jersey from sale of their shares in Copal-Jersey to Moody UK would not be taxable under section 9(1)(i) of Act, as their value could not be stated to be derived substantially from assets in India. In this view, contention of Revenue that entire transaction of sale of Copal- Jersey shares has been structured in manner so as to include sale of shares in CRIL and Exevo-US by Mauritian companies only to avoid incidence of tax and take benefit of DTAA is ex facie flawed. learned counsel for Revenue has contended that entire structure of investments to hold companies in India had been evolved only with object of avoiding tax and intermediary companies in Mauritius had been incorporated only with view to avoid tax in event of future sale. In our view, this contention is also devoid of any merit. investment structure evolved over period of time and it also cannot be ignored that 92 per cent. of share capital of CRIL was subscribed by CRL. It has been contended on behalf of Revenue that Rishi Khosla is prime mover of Copal group. It is stated that he along with one Jeol Perlman left their earlier employment and promoted Copal-Jersey and are in de facto control and management of entire Copal group. It is contended that other companies/subsidiaries of Copal group are only shell companies. It is further alleged that CRL and CMRL are not operative since their revenues are generated from within Copal group. It is, therefore, urged that since Rishi Khosla is resident of United Kingdom, situs of CRL and CMRL ought to be taken as United Kingdom-from where affairs of Copal Group, including CRL and CMRL are alleged to be conducted-and not Mauritius. learned counsel for Revenue had submitted that Rishi Khosla had also varied terms of transactions. According to him, same indicated that management of companies was synonymous with Rishi Khosla. learned counsel for respondents contested these contentions urged by petitioner. It was stated that companies were managed by their respective board of directors. It is also disputed that CRL and CMRL were not operative companies. It is stated that both CRL and CMRL held category I Global Business Licences (GBL) with effect from March 18, 2004, and April 3, 2008, respectively. CRL received substantial revenues from provision of services relating to business of financial research and CMRL also received revenues from provision of services relating to business of market research. financial statements of both said companies indicated that companies had received substantial revenues. respondent also disputed contentions that CRL and CMRL were shell companies and asserted that said companies were companies with substance. In alternative, it was submitted that India-Mauritius Double Taxation Avoidance Agreement did not include Limitation of Benefits (LOB) clause and thus, it was not open for Revenue to contend that said companies should be denied treaty benefit with India. In our view, CRL and CMRL cannot be stated to be shell companies so as to ignore their corporate identities. Even, according to Revenue, companies are generating revenue from intra-group services. fact that company may render services to its related enterprise would not render company to be non-existent or give reasons for lifting its corporate veil. financial statements placed on record indicate that CRL and CMRL have been generating revenues and we also have no reason to doubt statement that CRL and CMRL have been providing services in relation to business of financial research and market research respectively. next issue that needs to be addressed is whether CRL and CMRL should be considered as residents of UK on account of alleged role of Rishi Khosla in its affairs. Undoubtedly, Rishi Khosla has vital role to play in affairs of Copal group. respondents have placed on record business advisory agreement entered into with Rishi Khosla, which defines his role as advisor. "earn-out" consideration payable is also based on formula which is to be applied with reference to "computation date" which is defined to mean date when Rishi Khosla is disentitled to act as director. This also indicates that role of Rishi Khosla in affairs of Copal group would be significant and he cannot be stated to be playing role of mere agent employed for concluding transactions as contemplated under various agreements (SPA I, SPA II and SPA III). However, in our opinion, this by itself would not be sufficient to assume CRL and CMRL to be tax residents of United Kingdom. Authority for Advance Rulings had considered this aspect and held that Revenue was unable to show that effective management of companies was not where board of directors of companies situated. It was held that although Rishi Khosla may have played role larger than that of normal agent but circumstances did not warrant inference that control and management of companies vested with him and not with respective board of directors. relevant findings of Authority for Advance Rulings are as under (page 210 of 348 ITR): "Assuming that learned counsel for Revenue is right in his submission decision in Vodafone has modified ratio of decision in Azadi Bachao Andolan on conclusiveness of tax residency certificate, it cannot be said that it has been shown that effective management of companies is not from where their board of directors function. Normally, management of company vests in its board of directors as authorised by general body. role of Rishi Khosla highlighted by Revenue is in respect of sale transactions undertaken and in pushing them through. It does not appear to be role in connection with running of businesses of companies concerned. It is not shown that management of companies in Mauritius in general, is not with board of directors of those companies sitting in Mauritius and that management and control is from United Kingdom of which Rishi Khosla is resident. Even if one were to take business advisory agreement relied on by applicants with pinch of salt, it cannot be said that role played by Rishi Khosla in these transactions establish that management and control of Mauritian companies is with Rishi Khosla. It is, therefore, not possible to accept contention of learned counsel for Revenue that by applying place of management test, seller companies could be held to be non-Mauritian companies. It was contended that Rishi Khosla has not acted in terms of board resolution relied on and that he had varied terms of transaction at his pleasure and this demonstrates that he had dominion over companies. He had in fact acted beyond authority conferred on him by resolution of board relied on. board resolution was sham put forward to achieve object of avoidance of tax. Though there may be some substance in argument that Rishi Khosla has not merely played role of normal agent, circumstances relied on are not sufficient to warrant inference that control and management of seller companies rested with Rishi Khosla and not with board of directors of these companies. 13. There may be some substance in argument of learned counsel that this Authority has to consid er only negative, namely, that control of companies is not in Mauritius and it is not necessary for this Authority to find positively that control and management is with Rishi Khosla, before coming to conclusion that applicants are not entitled to claim benefit of India Mauritius DTAC. But on available facts, presumption that control and management of companies rest with board of directors cannot be said to have been rebutted by sufficient or cogent material. I overrule arguments in this behalf." We concur with abovequoted conclusion of Authority for Advance Rulings. material on record is insufficient to conclude that corporate structure of CRL and CMRL should be ignored and residence of Rishi Khosla be considered as situs of said companies. writ petitions are, accordingly, dismissed. parties are left to bear their own costs. *** Director of Income-tax (International-Tax) v. Copal Research Ltd