Treaty residence and Tax Residency Certificate support India-Mauritius capital gains exemption absent proved conduit status or GAAR invocation.

A Mauritius tax resident holding a valid Tax Residency Certificate and Category 1 Global Business Licence was treated as entitled to India-Mauritius treaty relief on long-term capital gains from shares acquired before 1 April 2017. Mere allegations of lack of substance, external control, or conduit status were insufficient without cogent evidence. Treaty benefits could be denied only through the applicable anti-avoidance framework, but GAAR was not invoked and the limitation of benefit clause was also not applied. On the stated facts, Article 13(4) exemption was available and the gains were not taxable in India.

---

---

Issues: Whether long-term capital gains arising from sale of shares in Indian companies by a Mauritius tax resident holding a valid Tax Residency Certificate were taxable in India, and whether treaty benefits could be denied on the allegation that the assessee was a conduit entity set up for an impermissible tax avoidance arrangement without invocation of GAAR or the limitation of benefit clause.

Analysis: The assessee was a Mauritius tax resident, held a valid Tax Residency Certificate and a Category 1 Global Business Licence, and the shares were acquired before 01.04.2017. The binding effect of a valid Tax Residency Certificate for treaty entitlement stood recognised in the domestic circular and in the settled line of authority relied upon by the Court. The Revenue's denial of treaty relief rested only on allegations that the assessee lacked infrastructure and was controlled from outside Mauritius, but those allegations were not supported by cogent evidence establishing that it was in fact a conduit company. Although section 90(2A) and Chapter X-A permit denial of treaty benefit where GAAR applies, the Assessing Officer did not invoke GAAR, and neither the Assessing Officer nor the DRP invoked the limitation of benefit clause under the treaty. On the facts proved, the treaty exemption under Article 13(4) could not be denied.

Conclusion: The long-term capital gains were held not taxable in India under the India-Mauritius treaty, and the addition was directed to be deleted.

Final Conclusion: Treaty residence supported by a valid Tax Residency Certificate prevailed on the facts, and the Revenue failed to establish a legally sustainable basis to deny treaty relief.

Ratio Decidendi: Where a Mauritius resident holds a valid Tax Residency Certificate and the Revenue fails to substantiate conduit status or invoke the applicable anti-avoidance mechanism, treaty benefits under Article 13(4) cannot be denied merely on suspicion or allegation.

---