M/S. SANOFI PASTEUR HOLDING SA V. DEPARTMENT OF REVENUE MINISTRY OF FINANCE FACTS OF THE CASE In 2009, Sanofi Pasteur Holding (hereinafter “Sanofi”) had purchased 80.37% of the share capital of a French company, ShanH, from another French company called Merieux Alliance (hereinafter “Merieux”). The remaining part of the share capital, equal to 19.67%, was purchased by Groupe Industriel Marcel Dassault (hereinafter "GIMD"). GIMD was also a company under French law. At the time of purchase, ShanH held 82.5% equity share capital of Shantha Biotechnics Limited (hereinafter “SBL”), a company having its registered office in Hyderabad and incorporated under the Companies Act, 1956. On 25 May 2010 income tax The Department issued an order under Section 201(1)/(1A) of the Act and found Sanofi to be a "defaulting assessee" precisely because it had made tax withholdings on certain payments made to GIMD and Merieux on the acquisition of shares in ShanH. Following this order, the damaged parties appealed to the Advanced Ruling Authority (hereinafter "AAR") contesting the taxability of the operation. However, the AAR ruled against them by stating that under Article 14(5) of the tax treaty, the capital gains arising from the ShanH share sale transaction were taxable. Therefore GIMD and Merieux have filed writ petitions in the Andhra Pradesh High Court against this ruling. MATTERS BEFORE THE HIGH COURT. The High Court had multiple issues to consider before giving its judgment in this matter. The Court had to determine whether the investment in SBL by GIMD and Merieux via ShanH was for the purpose of tax evasion. If that were the case, then the life of the corporate veil of ShanH……middle of paper……dia, should establish conclusively that a DTAA would always prevail over domestic law. It also accepted the Azaadi Bachao Andolan case in so far as it held that the retroactive application of the amendment to the DTAA was valid in law. It can be safely said that the ruling has established a very concrete precedent regarding the interpretation of tax treaties in our country. Village. The Court addressed existing ambiguity regarding not only the retroactive application of the amendments, but also the lifting of the corporate veil to determine whether the purpose of forming a company was to avoid tax. However, one gray area that the Supreme Court has yet to address is defining the fine line between the definitions of critical terms such as “tax avoidance” and “tax evasion.” One can only hope that it will not be too long before the court chooses to clarify its position on the same issue.