Tax Residency Certificate governs treaty relief unless cogent evidence or anti-avoidance rules justify denial of benefits.

A valid Mauritius Tax Residency Certificate ordinarily establishes treaty residence and entitlement under the India-Mauritius DTAA, so capital gains on shares acquired before 1 April 2017 remained eligible for exemption under Article 13(4). Allegations that the entity was a conduit, lacked substance, or engaged in treaty shopping could not defeat the treaty claim without cogent evidence. The text also notes that treaty benefits may be denied only where an applicable anti-avoidance mechanism is invoked, such as GAAR or an express limitation of benefits clause; neither was invoked on these facts. The Revenue's denial of exemption was therefore unsustainable.

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Issues: Whether the assessee, being a Mauritius resident holding a valid Tax Residency Certificate, was entitled to exemption under Article 13(4) of the India-Mauritius Double Taxation Avoidance Agreement on capital gains arising from sale of shares acquired prior to 01.04.2017, despite the Revenue's allegation that it was a conduit company set up for treaty shopping.

Analysis: The assessee held a valid Tax Residency Certificate issued by the competent Mauritius authority, and the shares yielding capital gains were acquired long before the relevant cut-off date. The Revenue's denial of treaty benefit rested on allegations that the assessee lacked substance, commercial rationale, and beneficial ownership, and functioned as a conduit entity. However, those allegations were not supported by cogent evidence. The legal position recognised in the treaty context is that a valid Tax Residency Certificate ordinarily establishes residency and treaty entitlement, and any departure from that position must rest on legally sustainable material. Although section 90(2A) and Chapter X-A of the Income-tax Act, 1961 permit denial of treaty benefit where GAAR applies, neither GAAR nor the limitation of benefits clause was invoked in the facts of the case.

Conclusion: The assessee was entitled to treaty exemption under Article 13(4) of the India-Mauritius Double Taxation Avoidance Agreement, and the addition made by denying such benefit was unsustainable.

Final Conclusion: The capital gains on sale of the subject shares could not be brought to tax in India on the basis adopted by the Revenue, and the assessee's treaty claim succeeded.

Ratio Decidendi: A valid Tax Residency Certificate ordinarily governs treaty entitlement, and treaty benefits cannot be denied on mere allegations of conduit status or treaty shopping unless supported by cogent evidence or by an applicable anti-avoidance mechanism such as GAAR or an expressly invoked limitation of benefits clause.

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