Treaty relief does not override anti-abuse rules where a share transfer lacks genuine commercial substance.

An advance ruling application may be rejected at the threshold where the material discloses a prima facie arrangement suggestive of tax avoidance under Section 245R(2). Treaty protection under the Mauritius DTAA is not automatic merely because a tax residence certificate exists, and the transaction must be viewed as a whole under the domestic anti-abuse framework, including the indirect transfer provisions and Chapter XA. On the facts, the share transfer arrangement lacked genuine commercial substance and was not protected by grandfathering or treaty provisions, so the revenue could examine taxability in India and the challenge failed.

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Issues: Whether the AAR was justified in rejecting the advance ruling applications as prima facie relating to tax avoidance and whether the capital gains arising from the transfer of shares in a Singapore company by Mauritian companies could be examined for taxability in India under the Income-tax Act, 1961 read with the Mauritius DTAA.

Analysis: The transaction had to be examined as a whole and not by a dissecting approach. The applicable domestic law and the treaty framework, especially the indirect transfer provisions, the post-2017 treaty amendment, and the anti-abuse architecture under Chapter XA, showed that treaty protection was not automatic merely because a TRC existed. The AAR was entitled to form only a prima facie view at the threshold under the maintainability bar in Section 245R(2) where the materials disclosed an arrangement suggestive of tax avoidance. The Court held that the transaction, on the facts found, was structured through an arrangement lacking genuine commercial substance and was not insulated by the grandfathering clause or the treaty provisions.

Conclusion: The AAR was right in rejecting the applications as prima facie hit by the bar against tax-avoidance matters, and the Revenue was entitled to enquire into taxability under the Act read with the DTAA; the challenge failed.

Ratio Decidendi: A transaction may be examined at the threshold for prima facie tax avoidance under Section 245R(2), and treaty relief cannot be claimed to defeat domestic anti-abuse provisions where the arrangement lacks genuine commercial substance.

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