Treaty protection for Mauritian share transfer gains: no Indian tax, no withholding, no return filing, and no MAT exposure.

A Mauritian resident company that produced a valid tax residency certificate and showed that the shares were held in its own name and account was entitled to treaty protection under Article 13(4) of the India-Mauritius DTAA. On those facts, the capital gains from the share transfer were not taxable in India under section 90, so the transferee had no withholding obligation under section 195 and no Indian return of income was required for those gains. The ruling also accepted that section 115JB did not apply to the foreign company in the circumstances considered, leaving the applicant outside MAT liability.

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Issues: Whether capital gains arising from transfer of shares by a Mauritian resident company were taxable in India under the India-Mauritius tax treaty; whether the transferee was required to withhold tax under section 195; whether an Indian return of income was required where the gains were not taxable in India; and whether section 115JB applied to the foreign company.

Issue (i): Whether capital gains arising from transfer of shares by a Mauritian resident company were taxable in India under the India-Mauritius tax treaty.

Analysis: The applicant produced a valid tax residency certificate and established that the shares had been subscribed for and held in its own name and account. The objection that it was merely a permitted transferee was rejected on the facts, as the participation of the Mauritian sponsor in the share purchase arrangement was explained by the mutual fund structure and regulatory requirements. In these circumstances, Article 13(4) of the India-Mauritius DTAA applied, and the applicant was entitled to treaty protection under section 90 of the Income-tax Act, 1961.

Conclusion: The capital gains were not taxable in India and the answer was in favour of the assessee.

Issue (ii): Whether the transferee was required to withhold tax under section 195.

Analysis: Once the transferor's capital gains were held not chargeable to tax in India under the applicable treaty, there was no underlying withholding obligation on the payer in respect of the consideration paid for the transfer.

Conclusion: There was no liability to withhold tax and the answer was in favour of the assessee.

Issue (iii): Whether an Indian return of income was required where the gains were not taxable in India.

Analysis: The ruling proceeded on the basis that where the treaty protected the capital gains from Indian taxation, there was no occasion to require a return of income in India for such gains.

Conclusion: The applicant was not required to file an income-tax return in India and the answer was in favour of the assessee.

Issue (iv): Whether section 115JB applied to the foreign company.

Analysis: The ruling accepted that the special provision for minimum alternate tax was not applicable to a foreign company in the circumstances considered, and that the applicant could not be brought to tax under that provision.

Conclusion: The applicant was not liable to tax under section 115JB and the answer was in favour of the assessee.

Final Conclusion: Treaty residence and the factual ownership structure entitled the applicant to relief, with the result that the transfer gains were outside Indian taxation and the ancillary withholding, return-filing, and MAT consequences did not arise.

Ratio Decidendi: Where a Mauritian resident transferor establishes treaty residence and beneficial ownership of the shares in its own right, capital gains on the transfer are governed by Article 13(4) of the India-Mauritius DTAA and are not taxable in India.

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