Private International Law: Bombay HC Delineates its Scope in International Tax Matters

[By Kajal Singh and Nikunj Maheshwar]

The authors are students at Institute of Law, Nirma University.


In the backdrop of divergent national laws and broadly worded treaties, Private International Law (PIL) helps in deciding the choice of law, jurisdiction and enforcement of judgements between the sovereign states.[i] While the application of PIL in matters concerning family and property have attained some certainty, the world at large remains divided on its application in matters concerning tax and revenue.[ii] Axiomatically, because tax laws vary in accordance with disparate interests of countries and wherein domestic courts are vested with exclusive jurisdiction to decide matters pertaining to them.

Recently, the Bombay High Court (HC) in the case of Aberdeen Asia Pacific Including Japan Equity Fund v. Deputy Commissioner of Income Tax[iii] (Aberdeen) was to decide the applicability of PIL to an international tax matter. The HC opined that in absence of any deeming fiction in the Indian Income Tax Act, 1961 (the ITA) the principles of PIL will apply in determining the status of the foreign entity and its liability under the ITA.

The authors in the subsequent discussion will analyse the judgement and highlight its significance in the realm of international tax matters.

Facts of the Case

In 2010, Aberdeen Delaware Business Trust (Trust), which had been incorporated in accordance with laws of Delaware, USA converted into Aberdeen Institutional Commingled Funds LLC (AICFL), a limited liability company (LLC). As a sequitur, all its sub-trusts also converted into sub-funds or series of AICFL. The Delaware laws provided that any trust may be converted into an LLC and on such conversion, only the legal status of the entity will change. Further, for all other purposes, it will be treated as the erstwhile trust.

Post reorganization, the sub-funds decided to carry forward the losses which were incurred by the sub-trusts prior to the conversion. Pertinently, the ITA provides for carry forward of losses subject to certain conditions in cases wherein the company undergoes a change in its legal form. However, the ITA has no specific provision which speaks of the taxability of a trust converted into an LLC.

Subsequently, seeking clarification on whether the sub-funds created post-conversion can carry forward the losses incurred by sub-trusts, AICFL filed an application before the Authority of Advance Ruling (AAR). The AAR observed that the sub-funds will not be allowed to carry forward the losses.

Pursuant to the AAR’s ruling, AICFL appealed before the HC. The HC rejected the petition on technical grounds but on the substantive issue held that the reorganization (para 21) of the trust shall be dealt in accordance with the laws of Delaware. Despite this observation of the HC, the tax department, under section 148 of the ITA, initiated reassessment proceeding against the sub-funds. Consequently, the sub-funds challenged these proceedings before the HC.

Arguments and the Judgment

Revenue authorities argued that AICFL was never an assessee in India and the erstwhile trust has ceased to exist. Unlike in Delaware, an entity’s change in its legal form will lead to the formation of a new entity in India. Accordingly, the new entity so formed will be allotted a different PAN number. Thus, losses incurred by the sub-trusts cannot be allowed to be carried forward in the name of a new entity. Additionally, under section 70 of ITA, only an assessee who has previously filed an income tax return in India is allowed to carry forward its losses. Essentially, AICFL is a new entity formed and has never filed an income tax return in India and thus, in accordance with section 70 is disallowed to carry forward the losses.

Per contra, the petitioners argued that in absence of any deeming fiction in Indian law which speaks of the taxability of such a conversion, the same should be determined in accordance with the principle of lex domicilii, i.e. the law of the country or place where the trust was incorporated. Thus, since the trust was incorporated, in accordance with the laws of Delaware the conversion is essentially a change in its status and not the formation of a new entity.

The HC adverting to the argument of lex domicilii followed the lead of the Supreme Court (SC) in the case of Technip SA v. SMS Holdings[iv] (Technip SA), upheld the application of the principle and passed confirmed that the LLC will be treated as the erstwhile trust and would thus, be allowed to carry forward its losses.


The Supreme Court of UK in the case of Kuwait Airways Corporation v Iraqi Airways Co[v] (Kuwait Airways) opined that in cases involving foreign elements and parties, more weightage must be accorded to the laws of another country irrespective of them being different from the laws of the forum court.

To appreciate the judgments, it is relevant to revisit the case of Technip SA, wherein the jurisprudence laid in Kuwait Airways was made the law of the land. In the instant matter, Technip, a French company acquired control over another French company, Coflexip which had under its control Seamec, a listed Indian company. The SC was to decide whether Indian or French law will apply in determining the date on which Technip acquired control of Seamec. The SC held that as per PIL, the question of legal status must be determined according to the law of the land, where the entity/person was incorporated unless it is contrary to public policy. Elaborating upon the same, the court held that merely because laws of two sovereign states are different will not make them ipso facto contrary to public policy; rather they will have to be tested on the touchstone of morality and justice.

Adverting to another ruling of M/s Citicorp trustee Company Ltd. v. Commissioner[vi] were in the AAR, was to determine the taxability of a UK based trust that converted into a company. It observed that neither the Indian tax laws nor the Double Tax Avoidance Agreement between India and the UK discussed about the taxability of entities in event of such conversion. Thus, the AAR held that in the absence of any explicit provision in the treaty and in the law, the legal status of the entity will be determined as per the laws of the UK, and accordingly the company will not be taxed in India.

This judgement assiduously, affirms the applicability of PIL in matters where Indian laws are either silent or contrary to the foreign laws to determine the legal status of the company. Additionally, the judgement, being ground-breaking, affirms the observation of AAR in the abovementioned case and extrapolates applicability of PIL in international tax matters.

The Aberdeen judgement is also instructive on the issue of determining the legal status and taxability of Protected Cell Companies (PCC) which unlike many jurisdictions are not governed by any specific legislation in India. Appositely, a reference could be made to the case of Nicholas Applegate South East Asia Funds Ltd. v. Assistant Director of Income Tax,[vii] (International taxation). In the instant case, the ITAT did not directly comment upon the taxability of PCC under Indian Tax regime however, it’s an approach in determining its legal status for the purpose of taxation was guided by the laws of Mauritius, the lex domicilii of the PCC.

Since the observation of ITAT was not further appealed against, the question of legal status never arose before the higher Courts in India. This judgement not only affirms the stance of ITAT and but also adds finality to the treatment to be accorded to PCC’s under the Indian Tax regime.


The present judgement is seminal in the realm of both national, and international taxation and rightly adjusts the focus on the intricate interplay between international law and issues pertaining to taxation involving foreign entities. It brings judicial clarity on the topic of determining the legal status of the foreign entity and its taxability, especially in cases wherein the national laws of the forum country are either silent or do not recognize certain laws of the foreign state. To summarize, this can be treated as a glimpse into the Indian judiciary’s outlook towards the application of PIL in matters concerning foreign entities to render justice which has been now extended to International tax matters.


[i] Dicey and Morris, the Conflict of Law, Lawrence, Collins, Sweet and Maxwell, (12th Ed., 1993).

[ii] Ibid

[iii] 2020 SCC OnLine Bom 711.

[iv]  (2005) 5 SCC 465.

[v] (2002) UKHL 19.

[vi] (2005) 197 CTR (AAR) 211.

[vii] (2009) 121 TTJ (Mum) 289.


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