De facto control and management test: Mauritius resident company was not taxed in India on share transfer gains.

A Mauritius resident company was held not chargeable to capital gains tax in India on transfer of shares of an Indian company under Article 13(4) of the India-Mauritius DTAA because its board and core financial decisions were taken in Mauritius, including budgets, statements, dividends, buybacks and share-related decisions. The record also showed maintenance of records, banking operations, statutory filings and shareholder meetings in Mauritius, while the Revenue failed to prove that the company's important affairs were controlled from India. Applying the settled test of de facto control and management, the AAR found no basis to treat the company's affairs as wholly situated in India.

---

---

Issues: Whether the applicant, a Mauritius resident company, was chargeable to capital gains tax in India on transfer of shares of an Indian company to AT&T under Article 13(4) of the India-Mauritius DTAA.

Analysis: The applicant established that its board meetings and core financial decisions were taken in Mauritius, including approval of financial budgets and statements, declaration of dividends, buyback decisions, and decisions concerning the shares in question. The board also included a UK resident representative, and the materials showed that the company maintained its records, banking operations, statutory filings, and shareholder meetings in Mauritius. The Revenue did not produce substantial evidence to show that the company's important affairs relevant to income-tax were controlled from India. On the settled meaning of control and management, the relevant test is de facto control and management, not merely a theoretical power to control, and the facts did not support the conclusion that the company's affairs were wholly situated in India.

Conclusion: The applicant was not chargeable to capital gains tax in India under Article 13(4) of the India-Mauritius DTAA.

---