India-Mauritius treaty residence and grandfathering protection upheld for pre-2017 share sale capital gains exemption.

Mauritian tax residency supported by a valid residency certificate, Category-1 Global Business Licence and treaty documents was accepted, and Indian tax authorities could not disregard that status absent cogent evidence of fraud, shell or conduit operations, or management outside Mauritius. The Tribunal also applied the India-Mauritius treaty grandfathering protection to shares acquired before 01.04.2017, and held Article 27A limitation of benefits was irrelevant where benefit was not claimed under Article 13(3B). As the DRP's directions did not amount to merits-based adjudication, the assessment order denying exemption was unsustainable and the treaty benefit under Article 13(4) was allowed.

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Issues: Whether the assessee was entitled to exemption under Article 13(4) of the India-Mauritius tax treaty on capital gains arising from sale of shares acquired prior to 01.04.2017, and whether the addition made by denying treaty benefit was sustainable.

Analysis: The assessee furnished a valid tax residency certificate issued by the Mauritian authorities, a Category-1 Global Business License, and the requisite treaty documentation. The material on record did not establish, with cogent evidence, that the assessee was a shell or conduit company or that its control and management were outside Mauritius so as to displace the treaty residence claim. The Tribunal held that the Indian tax authorities could not disregard the residency certificate in the absence of fraud or illegal activity. It further held that the grandfathering protection under the amended treaty applied to shares acquired before 01.04.2017, and that Article 27A regarding limitation of benefits was irrelevant because the assessee had not claimed benefit under Article 13(3B). The directions of the DRP were also found not to amount to a merits-based adjudication, and the final assessment order was held unsustainable.

Conclusion: The assessee was held entitled to treaty under Article 13(4), and the addition denying exemption was deleted.

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