2024 (3) TMI 310 - AT - Income Tax

Mauritius company wins capital gains exemption for pre-2017 share investments under India-Mauritius DTAA Article 13(4)

Superb Mind Holding Ltd. Versus ACIT Circle Int. Tax 3 (1) (2), Civic Centre, New Delhi.

Superb Mind Holding Ltd. Versus ACIT Circle Int. Tax 3 (1) (2), Civic Centre, New Delhi. - TMI Issues Involved:1. Addition of Rs. 74,15,54,375/- on account of long-term capital gain.2. Eligibility for benefit under Article 13(4) of the DTAA between India and Mauritius.3. Determination of the Assessee's residency and the application of the India-Mauritius Tax Treaty.4. Allegation of the Assessee being a shell/conduit entity.5. Validity of the Tax Residency Certificate (TRC) issued by Mauritius.6. Jurisdiction of the Assessing Officer (AO) regarding the addition of long-term capital gain.7. Violation of principles of natural justice due to lack of fair hearing.Summary:1. Addition of Rs. 74,15,54,375/- on account of long-term capital gain:The assessee challenged the addition made by the AO/DRP under section 112 of the Income Tax Act, arguing that the long-term capital gain should not be taxed in India due to the benefit of the DTAA between India and Mauritius.2. Eligibility for benefit under Article 13(4) of the DTAA between India and Mauritius:The core issue was whether the assessee was entitled to the benefit of Article 13(4) of the DTAA, which exempts capital gains from being taxed in India if the investment was made before 01.04.2017. The Tribunal held that the investments made by the assessee prior to 01.04.2017 were grandfathered and hence, the capital gains were not taxable in India.3. Determination of the Assessee's residency and the application of the India-Mauritius Tax Treaty:The assessee provided evidence of being a resident of Mauritius with a valid TRC. The Tribunal noted that the TRC issued by Mauritius was sufficient to establish the assessee's residency and beneficial ownership under the DTAA, as per CBDT Circular No. 789 and various press releases by the Finance Ministry.4. Allegation of the Assessee being a shell/conduit entity:The AO/DRP alleged that the assessee was a shell/conduit entity set up for tax avoidance. However, the Tribunal found that the assessee had been incorporated in Mauritius since 2007 and had complied with the legal requirements in Mauritius. The Tribunal rejected the AO/DRP's conclusion that the assessee was a conduit or shell company.5. Validity of the Tax Residency Certificate (TRC) issued by Mauritius:The Tribunal emphasized that the TRC issued by Mauritius was sufficient evidence for accepting the residential status and beneficial ownership of the assessee, as per the DTAA and CBDT Circular No. 789. The Tribunal noted that the AO/DRP could not go behind the TRC to question the residential status.6. Jurisdiction of the Assessing Officer (AO) regarding the addition of long-term capital gain:The Tribunal held that the AO exceeded his jurisdiction by making an addition on account of long-term capital gain when the scope of the assessment was limited to the issue of refund claim of the tax deducted at source.7. Violation of principles of natural justice due to lack of fair hearing:The Tribunal noted that the AO/DRP had made the addition without giving a fair and proper opportunity of being heard to the assessee and had arbitrarily brushed aside the detailed submissions and evidence provided by the assessee.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the long-term capital gains on the sale of shares were not liable to tax in India due to the benefit of the DTAA between India and Mauritius, and directed the AO to refund the tax deducted by the buyer.