Treaty residence protection for Mauritius share-sale gains confirmed under the pre-amended India-Mauritius tax treaty.

An advance ruling application could not be refused merely because the Revenue alleged tax avoidance or sought additional information that was not shown to be necessary for deciding the reference; the applicant had furnished material relevant to the question raised, so rejection on those grounds was unwarranted. On the merits, a Mauritius resident holding a valid tax residence certificate was treated as the legal owner of shares in an Indian company, with the long-standing investment and regulatory approvals supporting treaty entitlement. Applying the pre-amended article 13 of the India-Mauritius Tax Treaty, capital gains from alienation of those shares fell within the residence-state rule and were not chargeable to income-tax in India.

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Issues: (i) Whether the application could be declined on the ground that the transaction was prima facie designed for tax avoidance and that some information sought by the Revenue had not been furnished; (ii) whether capital gains arising on transfer of shares of an Indian company by a Mauritius resident were chargeable to income-tax in India under article 13 of the India-Mauritius Tax Treaty.

Issue (i): Whether the application could be declined on the ground that the transaction was prima facie designed for tax avoidance and that some information sought by the Revenue had not been furnished?

Analysis: The application for advance ruling can be declined only where the statutory conditions for refusal are satisfied. The applicant had furnished the material relevant to the question raised, and the Revenue did not demonstrate how the additional information sought was necessary for deciding the reference. Circumstantial matters relating to post-transfer utilisation of proceeds, inter-company loan arrangements, or consolidated accounts were held not to be decisive for answering the specific taxability question. The objections based on incomplete disclosure and alleged tax-avoidance design were not accepted as a basis to reject the application.

Conclusion: The application was not liable to be rejected on the ground of non-furnishing of information or prima facie tax avoidance.

Issue (ii): Whether capital gains arising on transfer of shares of an Indian company by a Mauritius resident were chargeable to income-tax in India under article 13 of the India-Mauritius Tax Treaty?

Analysis: The applicant was held to be a tax resident of Mauritius having a valid tax residence certificate. The investment in the Indian company had been made years earlier with regulatory approvals and was held for a substantial period. On the facts, the applicant was treated as the legal owner of the shares and not a mere benami or conduit entity. The ruling applied the pre-amended article 13 of the treaty, under which gains from alienation of property other than immovable property, business property of a permanent establishment, ships or aircraft were taxable only in the State of residence. Shares of the Indian company fell within that residual category. The Revenue's plea to lift the corporate veil and deny treaty benefits was rejected on the facts.

Conclusion: The capital gains on the proposed transfer of shares were not chargeable to income-tax in India in the hands of the applicant.

Final Conclusion: The treaty benefit under the unamended India-Mauritius arrangement was available, and the gains from the share transfer were taxable only in Mauritius, not in India.

Ratio Decidendi: Under the pre-amended India-Mauritius Tax Treaty, gains derived by a Mauritius resident from the alienation of shares of an Indian company are taxable only in Mauritius unless the case falls within a specific treaty exception; a valid tax residence certificate and long-standing investment support entitlement to treaty benefits absent proof of sham or legal infirmity.

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