Section 263 revision and Mauritius share-sale gains: detailed assessment enquiry and treaty entitlement defeated tax challenge.

Revisional jurisdiction could not be invoked under section 263 because the assessment record showed detailed enquiry by the Assessing Officer, and an order is not erroneous merely for lacking elaborate reasoning; section 263 requires both error and prejudice to Revenue. Long-term capital gains from sale of listed shares by a Mauritius-resident foreign company with no permanent establishment in India remained exempt, as the gains fell within the statutory treaty-protected framework and section 115JB did not apply to such a foreign company. Unsubstantiated allegations of treaty shopping and conduit arrangement were rejected, and the assessee was held entitled to the treaty and statutory benefit.

---

---

Issues: (i) Whether the revisional jurisdiction under section 263 of the Income-tax Act, 1961 could be invoked on the ground that the assessment order was passed without proper enquiry or verification; (ii) whether the long-term capital gains arising from sale of listed shares by a foreign company resident in Mauritius were taxable in India, including under section 115JB of the Income-tax Act, 1961 and the India-Mauritius Double Taxation Avoidance Agreement.

Issue (i): Whether the revisional jurisdiction under section 263 of the Income-tax Act, 1961 could be invoked on the ground that the assessment order was passed without proper enquiry or verification.

Analysis: The assessment record showed that the Assessing Officer had issued a detailed questionnaire, called for the tax residency certificate, details of shareholding, permanent establishment, bank accounts, exemption claims and other relevant material, and had examined the replies before completing scrutiny assessment. The order could not be treated as erroneous merely because it was not elaborate. Revisional power under section 263 requires the simultaneous existence of an erroneous order and prejudice to the Revenue, and the Commissioner cannot substitute his own view for a permissible view taken by the Assessing Officer.

Conclusion: The invocation of section 263 on the ground of lack of enquiry was not justified and was against the assessee.

Issue (ii): Whether the long-term capital gains arising from sale of listed shares by a foreign company resident in Mauritius were taxable in India, including under section 115JB of the Income-tax Act, 1961 and the India-Mauritius Double Taxation Avoidance Agreement.

Analysis: The assessee was treated as a tax resident of Mauritius and had no permanent establishment in India. The gains arose from sale of listed shares on which securities transaction tax had been paid. On the statutory scheme, such gains were exempt under section 10(38), and the first proviso to that section read with Explanation 4 to section 115JB excluded the application of section 115JB to a foreign company having no permanent establishment in India. The allegations of treaty shopping, conduit arrangement and absence of commercial rationale were rejected as unsupported by the record; treaty entitlement could not be denied on such theoretical objections.

Conclusion: The long-term capital gains were not taxable in India and the assessee was entitled to the treaty and statutory benefit, which was in favour of the assessee.

Final Conclusion: The revisional order was unsustainable in law because the statutory preconditions for section 263 were not met, and the capital gains from the share sale remained exempt in the hands of the foreign assessee.

Ratio Decidendi: Revision under section 263 cannot be sustained unless the assessment order is both erroneous and prejudicial to the interests of the Revenue, and a foreign company resident in Mauritius with no permanent establishment in India is entitled to exemption on listed share sale gains where securities transaction tax has been paid and section 115JB is inapplicable.

---