Treaty residence certificates cannot be made conclusive where the tax authority must still test true residence and treaty entitlement.

A CBDT circular treating a Mauritian certificate of residence as conclusive for treaty benefits was held beyond the scope of sections 90 and 119 of the Income-tax Act, 1961, because delegated instructions cannot alter the statutory or treaty framework. The High Court also held that the Assessing Officer's quasi-judicial power to examine the assessee's true residence, the genuineness of treaty claims, and possible treaty shopping remains intact, including the power to lift the corporate veil where necessary. The circular was therefore invalid to the extent it excluded factual inquiry and conferred impermissible conclusiveness on the foreign residence certificate.

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Issues: (i) Whether the CBDT circular making a Mauritian certificate of residence conclusive for treaty benefits was within the scope of section 119 of the Income-tax Act, 1961 and consistent with section 90 of that Act and the Indo-Mauritius DTAC; (ii) Whether the circular could exclude the Assessing Officer from examining the residence of an assessee, including cases of treaty shopping and use of a corporate facade.

Issue (i): Whether the CBDT circular making a Mauritian certificate of residence conclusive for treaty benefits was within the scope of section 119 of the Income-tax Act, 1961 and consistent with section 90 of that Act and the Indo-Mauritius DTAC.

Analysis: The circular was treated as an instruction binding subordinate authorities, but section 119 permits only administrative directions for proper administration of the Act and not directions that travel beyond the statute or alter the legal effect of the treaty. Section 90 authorises agreements for avoidance of double taxation and relief to the extent more beneficial to the assessee, but does not permit the Board to create a conclusive evidentiary rule by circular. A certificate issued by Mauritius was not found to have statutory conclusiveness under the Act or the treaty.

Conclusion: The circular was held to be ultra vires to the extent it treated the Mauritian certificate of residence as conclusive and operated beyond the limits of sections 90 and 119.

Issue (ii): Whether the circular could exclude the Assessing Officer from examining the real residence of an assessee, including cases of treaty shopping and use of a corporate facade.

Analysis: The Assessing Officer performs a quasi-judicial function and is entitled to enquire into the true residence of the assessee, the genuineness of the claim to treaty relief, and whether the arrangement is a device for tax avoidance. The power includes lifting the corporate veil where necessary. A circular cannot disable that jurisdiction or make a residence certificate conclusive where the statute requires factual determination.

Conclusion: The Assessing Officer's statutory and quasi-judicial power to investigate actual residence and treaty entitlement was held to remain intact, and the circular could not curtail it.

Final Conclusion: The writ petitions succeeded and the impugned circular was invalidated for trenching upon the statutory powers of the tax authorities and for attempting to confer an impermissible conclusive effect on a foreign residence certificate.

Ratio Decidendi: A delegated instruction cannot override the Act or the treaty framework, nor can it make foreign residence certificates conclusive so as to oust the Assessing Officer's quasi-judicial power to determine the true facts and apply treaty benefits according to law.

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