The Income Tax Department in its post-search appraisal report on First Global has said that since the affairs and day-to-day business activities of First Global (Mauritius) were being controlled by one Neeraj Khanna who is resident in India, the income/profit of First Global (Mauritius ) will become taxable under Indian Income Tax Act, 1961.
The department had found share transactions in excess of Rs 35 crore and payment in excess of Rs 48 crore in the account of First Global (Mauritius) and in the books of First Global Stock broking (P) Ltd.
The report also said that enquiries have revealed that Shankar Sharma has four more concerns apart from First Global ( Mauritius) Ltd viz, FG Asset Management, FG Global Opportunities, First Global Capital Management and FG Alternate Management and that these have not been revealed by Shankar Sharma till date.
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The department according to the report felt that in view of the fact that Shankar Sharma and Devina Mehra are the major shareholders of First Global (Mauritius) and that they are stationed in Mumbai, there is a strong possibility that the management and day to day business activities are controlled not from Mauritius but outside Mauritius.
Reacting to the department's finding, First Global director Shankar Sharma said " First Global ( Mauritius ) Ltd. is a 100 percent subsidiary of First Global India and not of Shankar Sharma or Devina Mehra. Its principal business in India is to do GDR arbitrage i.e. buy Indian GDR's in London and sell them in India. It has never done any other kind of transaction in India ever. In an arbitrage trade, only the sale takes place here so where is the question of any profits being earned here? By that token all arbitrage trades by anybody should be taxed in India.
First Global has no other company in Mauritius - all other companies mentioned are mere name approvals for future use and have never been incorporated. The IT department knows this since all these name approvals are on our lawyers file with the IT department."
With a view to ascertain whether management and day to day business activities of First Global (Mauritius) are controlled from outside Mauritius, details were called for from the assessee as per the office summons dated May 3, 2001.
According to the report, as per the assessee's letter dated May 7, the details were not furnished. But certain evidence that had already been gathered by the department establishes that the day to day business activities and financial affairs of First Global ( Mauritius) are controlled by Shankar Sharma and Neeraj Khanna who are resident in Mumbai, the report says.
The matter of holdings in foreign companies has been referred to the Foreign Taxation Department in April, the department's note says.