Tax Residency Certificate and grandfathering under the India-Mauritius DTAA preserved treaty benefits and capital gains protection.

A valid Tax Residency Certificate issued by Mauritius was treated as sufficient evidence of residence for India-Mauritius DTAA purposes, and Indian tax authorities could not disregard it to deny treaty benefits on grounds of treaty shopping, conduit arrangement, lack of commercial rationale, or alleged absence of tax liability in Mauritius. The phrase "liable to taxation" was read as distinct from actual tax payment, so exemption under Mauritian domestic law did not by itself defeat treaty eligibility. On capital gains, shares acquired before 01.04.2017 were protected by the Article 13(4) grandfathering rule, and CCPS converted into equity after that date were treated as pre-cut-off acquisitions for treaty protection.

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Issues: Whether a valid Tax Residency Certificate entitled the assessee to treaty benefits under the India-Mauritius DTAA and whether capital gains from sale of equity shares were taxable in India under Article 13(4), including shares acquired before 01.04.2017 and CCPS later converted into equity shares.

Analysis: A valid TRC issued by the Mauritius tax authorities was held to be sufficient evidence of residence for treaty purposes, and the Indian tax authorities could not go behind it to deny treaty entitlement. The denial of treaty benefits on grounds of treaty shopping, conduit arrangement, lack of commercial rationale, or alleged absence of liability to tax in Mauritius was rejected. The expression "liable to taxation" was treated as distinct from actual tax payment, and the existence of exemption under domestic Mauritian law did not negate treaty eligibility. On the capital gains issue, shares acquired before 01.04.2017 fell within the grandfathering protection under Article 13(4). CCPS acquired before that date and subsequently converted into equity shares were treated as having been acquired before the cut-off, since conversion did not materially alter the underlying rights in a manner that displaced the treaty protection.

Conclusion: The assessee was entitled to India-Mauritius DTAA benefits, and the capital gains in question were not taxable in India under Article 13(4) to the extent they related to pre-01.04.2017 acquisitions, including the converted CCPS.

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