The Centre has filed a special leave petition (SLP) before the Supreme Court against the Andhra Pradesh High Court ruling in the Sanofi case.

The AP High Court had in February ruled that the offshore transaction that led to Sanofi gaining control of Hyderabad-based Shantha Biotechnics was not taxable in India.

The transaction is taxable only in France, according to the India-France double taxation avoidance pact (DTAA), the AP High Court had ruled.

The leave petition filed before the apex court has termed the AP High Court’s interpretation of the India-France DTAA as erroneous.

The Centre has, through the petition, also sought reconsideration of the Vodafone ruling by a larger bench of Supreme Court.

Also, the differing interpretation of term “tax avoidance” as per the apex court rulings in McDowell, Azadi Bachao Andolan and Vodafone needs to be referred to a larger bench of the apex court, the petition has said. It contends that the Sanofi case is akin to Aditya Birla Nuvo case, not Vodafone.

The Vodafone ruling was extensively relied upon by the AP High Court to hold that ShanH, the investment vehicle used in the deal, was an independent entity with commercial substance, and not a mere nominee.

The AP High Court had thus held that capital gains on indirect share transfers were not taxable under the Indo-France DTAA.


Institut Merieux (IM) and Groupe Industriel Marcel Dassault (GIMD), both French companies, held 80 per cent and 20 per cent shares, respectively, in ShanH SAS (ShanH), another French company. ShanH, in turn, held shares in Indian company Shantha Biotechnics Ltd.

In August 2009, IM and GIMD sold its shareholding in ShanH to another French company, Sanofi Aventis. The transaction was carried out in France.

Indian income-tax authorities sought to bring this transaction to tax in India and issued a demand notice to Sanofi for not deducting tax at source on the deal amount. They also relied on the retrospective amendments to income-tax law in Budget 2012-13 to support their arguments for bringing the Sanofi transaction to tax in India.

Both the Authority for Advance Ruling’s order and the Income-Tax Department’s demand notice (Rs 985 crore for tax and interest and another Rs 985 crore for penalty) were set aside by the AP High Court.

Significantly, the division bench ruled that the transaction was not designed for tax avoidance.

The move by Budget 2012-13 to retrospectively bring indirect transfer of shares within the tax net had no impact on the DTAA, it was held.