Treaty residence under the India-Mauritius DTAA protected share-transfer gains from Indian capital gains tax despite allegations of treaty shopping.

A Mauritius tax resident legally owning shares in an Indian company was held entitled to Article 13(4) of the India-Mauritius DTAA, so the capital gains from the share transfer were taxable only in Mauritius and not in India. The AAR accepted the tax residency certificate, supported by CBDT circulars and Azadi Bachao Andolan, as sufficient to establish treaty entitlement. It rejected the Revenue's attempt to disregard the Mauritius company's corporate identity on allegations of beneficial ownership in a US holding company, holding that treaty benefit cannot be denied merely on conjectures of control, motive, or alleged treaty shopping.

---

---

Issues: Whether a Mauritius resident transferring shares of an Indian company is liable to capital gains tax in India or is entitled to the benefit of Article 13(4) of the India-Mauritius DTAA.

Analysis: The applicant was a tax resident of Mauritius and held shares in an Indian company. The relevant treaty provision allocated taxation of gains from alienation of property other than that covered by paragraphs 1 to 3 of Article 13 exclusively to the State of residence. The tax residency certificate issued by the Mauritius authorities, read with the CBDT circulars and the law declared in Azadi Bachao Andolan, was treated as sufficient to accept treaty entitlement. The Revenue's attempt to displace the applicant's legal ownership on the basis of alleged beneficial ownership in the US holding company was rejected. The Court held that treaty shopping, by itself, is not unlawful, and that the corporate identity of the Mauritius subsidiary could not be ignored in the absence of a legally sustainable basis.

Conclusion: The applicant was entitled to treaty protection and was not liable to capital gains tax in India on the share transfer.

Ratio Decidendi: Where a Mauritius resident is the legal owner of shares and satisfies the treaty residence requirements, Article 13(4) of the India-Mauritius DTAA prevails over the domestic charging provisions, and the tax benefit cannot be denied merely on conjectures of control, motive, or alleged treaty shopping.

---