Treaty benefit for pre-2017 share gains upheld where residence certificate and treaty conditions were not displaced.

A Mauritius resident holding a valid Tax Residency Certificate was treated as entitled to treaty relief under the unamended India-Mauritius tax treaty for short-term capital gains on shares acquired before 1 April 2017, because the pre-amended Article 13(4) allocated taxing rights to the State of residence and the later amendment did not apply retrospectively. The Tribunal also noted that the CBDT circular recognising a residence certificate as sufficient treaty evidence remained operative. On the alternative India-Netherlands treaty basis, India could tax the gain only if the shares derived their value principally from immovable property in India, and the Revenue failed to prove that condition. The capital gain was therefore not taxable in India under either treaty.

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Issues: (i) Whether the assessee, a Mauritius resident holding a valid Tax Residency Certificate, was entitled to treaty benefit under Article 13(4) of the India-Mauritius tax treaty for short-term capital gain on sale of shares acquired before 1 April 2017; and (ii) whether the gain was taxable in India even on the footing that the India-Netherlands tax treaty applied.

Issue (i): Whether the assessee, a Mauritius resident holding a valid Tax Residency Certificate, was entitled to treaty benefit under Article 13(4) of the India-Mauritius tax treaty for short-term capital gain on sale of shares acquired before 1 April 2017.

Analysis: The assessee was a Mauritius resident with a valid Tax Residency Certificate, and the share acquisitions resulting in the gain were completed before 1 April 2017. The pre-amended Article 13(4) allocated taxing rights over such gains to the State of residence. The amended Article 13, including paragraph 3A, applied only to shares acquired on or after 1 April 2017 and therefore did not govern the transaction. The Tribunal also held that the CBDT circular recognising a Mauritian residence certificate as sufficient evidence for treaty purposes remained applicable, and the later legislative and treaty developments relied upon by the Revenue could not override the then-operative treaty position and the binding law declared by the Supreme Court.

Conclusion: The assessee was entitled to treaty protection under the pre-amended India-Mauritius tax treaty, and the capital gain was not taxable in India under that treaty.

Issue (ii): Whether the gain was taxable in India even on the footing that the India-Netherlands tax treaty applied.

Analysis: Under Article 13(4) of the India-Netherlands tax treaty, India could tax the gain only if the value of the shares was derived principally from immovable property situated in India, other than property used in the business of the company. The Revenue did not establish that condition on facts, and no material showed that the Indian company's value was principally derived from immovable property. In the absence of proof satisfying the treaty condition, the gain could not be brought to tax under the Netherlands treaty either.

Conclusion: The gain was not taxable under the India-Netherlands tax treaty as well.

Final Conclusion: The addition made on account of short-term capital gain was deleted, and the assessee succeeded on the core taxability issue.

Ratio Decidendi: A valid Tax Residency Certificate entitled the taxpayer to treaty benefits for a pre-2017 share transfer governed by the unamended residence-based capital gains article, and a source State can tax under the alternative treaty only if it proves satisfaction of the specific immovable-property condition.

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