Mauritius treaty residency and pre-amendment share gains: valid certificate upheld, India-Mauritius capital gains exemption applied.

A valid Mauritius Tax Residency Certificate was treated as sufficient evidence of treaty residency, and Indian authorities could not deny India-Mauritius DTAA benefits on allegations of treaty shopping, conduit structure, lack of beneficial ownership, or insufficient commercial substance without supporting material. Capital gains from sale of shares acquired before the relevant treaty amendment remained governed by Article 13(4), and the original pre-cut-off acquisition of convertible preference shares, later converted into equity, did not alter that treaty position under Article 13(3A) or Article 13(3B). The gains were therefore not taxable in India and were taxable only in the State of residence.

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Issues: (i) Whether the assessee, a Mauritius resident holding a valid Tax Residency Certificate, could be denied treaty benefits under the India-Mauritius Double Taxation Avoidance Agreement on grounds of treaty shopping, conduit structure, absence of beneficial ownership, or lack of commercial substance. (ii) Whether capital gains arising from sale of equity shares and converted preference shares were taxable in India under Article 13 of the India-Mauritius Double Taxation Avoidance Agreement, or exempt under Article 13(4).

Issue (i): Whether the assessee, a Mauritius resident holding a valid Tax Residency Certificate, could be denied treaty benefits under the India-Mauritius Double Taxation Avoidance Agreement on grounds of treaty shopping, conduit structure, absence of beneficial ownership, or lack of commercial substance.

Analysis: A valid Tax Residency Certificate issued by the competent authority of Mauritius was held to be sufficient evidence of residency for treaty purposes. The tax authorities in India could not go behind the certificate to examine residency on a substance-over-form basis. The objections based on alleged treaty shopping, conduit arrangement, absence of commercial rationale, and fiscal transparency were found unsupported by material evidence. The limitation of benefits clause was also not established to apply on the facts.

Conclusion: The assessee was entitled to be treated as a tax resident of Mauritius and was not to be denied treaty benefits on the stated grounds.

Issue (ii): Whether capital gains arising from sale of equity shares and converted preference shares were taxable in India under Article 13 of the India-Mauritius Double Taxation Avoidance Agreement, or exempt under Article 13(4).

Analysis: Capital gains from shares acquired before 01.04.2017 fell within Article 13(4) and were taxable only in the State of residence. For the Veritas investment, the original acquisition of cumulative convertible preference shares before the cut-off date, followed by conversion into equity shares, did not change the character for treaty purposes so as to attract Article 13(3A) or Article 13(3B). The capital gains therefore remained covered by Article 13(4).

Conclusion: The capital gains were not taxable in India and were exempt under Article 13(4) of the treaty.

Final Conclusion: Treaty residency was upheld, and the assessee obtained relief on the capital gains issue, resulting in only partial success in the appeal.

Ratio Decidendi: A valid Tax Residency Certificate issued by the competent foreign authority is sufficient to establish treaty residency, and capital gains on shares acquired before the relevant treaty amendment remain governed by the pre-amendment allocation rule under Article 13(4).

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