Sanofi not liable to pay tax for Shantha Biotech

The Andhra Pradesh High Court today ruled that the transaction involving the acquisition of Shantha Biotechnics here by French drug maker Sanofi Avantis is not taxable in India.

Based on a petition filed by Sanofi, a division bench, comprising Justice G Raghuram and Justice MS Ramachandra Rao, observed that capital gain out of the transaction is chargeable in France and not in India. The bench also set aside the earlier ruling of Authority for Advanced Rulings (AAR) in favour of the Income Tax department.

 Sanofi Aventis that acquired Shantha Biotech in 2010 was asked to pay Rs 650 crore as capital gains tax to the Indian government. Sanofi bought Shantha from Frances 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 Indian biotech sector. The I-T department 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 in issue to chargeable to tax, 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 of the issue falls within article 14 (5) of the DTAA and the tax resulting from there is allocated to France, it further said.  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.

Rohit Jain partner, Economic Laws Practices, a legal firm which represented Sanofi, said the verdict gives a boost to foreign investments into the country. The I-T Department 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. 

- PTI