Mauritius treaty protection for share-sale gains upheld where investment substance and residency were not rebutted.

Mauritius residence certificate-based treaty protection was available for long-term capital gains on transfer of shares in Indian companies where the assessee had been incorporated in Mauritius as an investment fund, had acquired and held the shares for several years through banking channels, and continued to hold other investments. The absence of local expenditure, employees, or director remuneration was not enough, by itself, to show a sham, lack of commercial substance, or conduit arrangement. The analysis distinguished cases involving a foreign entity inserted only at the point of sale. On the facts, the Revenue failed to rebut treaty entitlement or establish any tax-avoidance device or round-tripping arrangement.

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Issues: Whether the assessee was entitled to claim treaty protection for the long-term capital gains arising from transfer of shares in Indian companies on the strength of its Mauritius tax residency certificate, and whether the Revenue had material to disregard that claim on the ground of lack of commercial substance or conduit arrangement.

Analysis: The assessee was incorporated in Mauritius as an investment fund and had held the relevant shares for several years before transfer. The record showed that the investments were made through banking channels in earlier years and that the assessee continued to hold other investments as well. The alleged absence of local expenditure, employee base, or remuneration to directors was not sufficient, by itself, to negate the genuineness of the investment structure or to prove a sham. The decision also distinguished cases where a foreign company is interposed only at the stage of disposal of shares to a third party with no commercial substance. On the facts, the assessee's residence status and treaty entitlement were not rebutted by evidence showing any tax-avoidance device or round-tripping arrangement.

Conclusion: The treaty benefit was held to be available and the capital gains were not taxable in India in the manner asserted by the Revenue.

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