Grandfathered treaty protection under India-Mauritius DTAA kept pre-2017 share sale gains outside Indian tax net

Mauritius resident share sales were held to remain protected by the grandfathering rule under the India-Mauritius DTAA where the investments were made before 1 April 2017 and the taxpayer held a valid tax residency certificate. Applying Article 13(4) and treating the year's facts as materially identical to the earlier year's coordinate bench ruling, the gains from the long-term capital sale of shares in an Indian company were not taxable in India. On that basis, tax deducted at source on those gains was refundable, and the treaty protection was affirmed for pre-1 April 2017 investments.

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Issues: Whether long-term capital gains arising from sale of shares by a Mauritius resident holding a valid tax residency certificate, in respect of investments made before 1 April 2017, were taxable in India and whether tax deducted at source on such gains was refundable.

Analysis: The assessee's investment in the Indian company had been made in AYs 2011-12 and 2012-13, well before the 1 April 2017 protocol changes to the India-Mauritius DTAA. The same shareholding was partly sold in the preceding assessment year, and on identical facts the coordinate bench had already held that the gains were not taxable in India after considering Article 13(4) of the India-Mauritius DTAA and the grandfathering principle. The facts for the year under appeal were found to be materially identical, and the departmental position did not dispute that parity.

Conclusion: The long-term capital gains were not liable to tax in India, and the assessee was entitled to relief on the tax deducted at source.

Ratio Decidendi: Investments made by a Mauritius resident with a valid tax residency certificate before 1 April 2017 continue to enjoy the grandfathered treaty protection under the India-Mauritius DTAA, so the resulting capital gains are not taxable in India.

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