TaxTMI 
TaxTMI 
2007 (7) TMI 345
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....the form of short-term/long-term capital gains. According to the assessee the said transactions are covered by the provisions of Double Taxation Avoidance Agreement (DTAA) between India and Mauritius and as per art. 13 of the said DTAA and Circular Nos. 682 dt. 30th March, 1994 [(1994) 118 CTR (St) 1] and 789 dt. 13 April, 2000 [(2000) 160 CTR (St) 5] issued by the CBDT, the capital gains made on the sale of investments are not taxable in India. 2.3 The assessee filed its return of income for the asst. yr. 2000-01 on 23rd Nov., 2000 declaring nil income, because the capital gains earned by the company was the only income, which is not taxable under the IT Act, 1961 (hereinafter referred to as the Act). 2.4 The Hon'ble Delhi High Court in the case of Shiva Kant Jha vs. Union of India (2002) 175 CTR (Del) 371 : (2002) 122 Taxman 952 (Del) has quashed and set aside the impugned Circular No. 789 dt. 13th April, 2000 issued by the CBDT accepting the contention that the said circular is ultra vires the provisions of s. 90 and s. 119 of the Act and is also otherwise bad and illegal. There was another circular dt. 10th Feb., 2003 issued by the CBDT viz. Circular No. 1 whereby they had la....
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....the evidence produced before him in the form of photostat copies of appellant company's board resolution dt. 29th Oct., 1995, authorizing Shri Vikas Mehrotra, director of the company, to appoint or execute any documents for the appointment of any person/s in India as the lawful power of attorneys of the appellant to execute necessary documents and details of telephone calls made by Shri Vikas Mehrotra on the ground that this was fresh evidence, not admissible, under r. 46A of IT Rules, 1962." 2.7 The learned counsel for the assessee contended that the AO had erred in law and on facts in assuming jurisdiction on the assessee a registered company of Mauritius and had wrongly invoked the provisions of IT Act, 1961. No income-tax could be levied on the income-capital gains-earned in India as per DTAA entered into between India and Mauritius. Article 13(4) of the DTAA between India and Mauritius provides that the gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paras 1.2 and 3 of this article shall be taxable only in that State. In other words, capital gains earned by the Mauritius company from the transactions in Indi....
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.... 3.1 The learned Departmental Representative relied on the orders of the Revenue authorities. We have considered the rival submissions. We shall first make a reference to the provisions of the DTAA between India and Mauritius. Articles 4(1) and (3) of the DTAA, read as follows: "4(1) For the purposes of this convention, the term 'resident of a Contracting State' means any person who under the laws of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of similar nature. The terms 'resident of India' and 'resident of Mauritius' shall be construed accordingly; (3) Where by reason of the provisions of para 1, a person other than an individual is a resident of both the Contracting States, then it shall be deemed to be a resident of the Contracting State in which its place of effective management is situated." 3.2 A reading of cl. 4(1) would show that to determine the residential status of an assessee in a Contracting State one has to necessarily look into the relevant laws of that State and see if the assessee is a resident of that Contracting State within the meaning of the laws of that State. Under s. 6(3) of ....
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....s a resident both of India and Mauritius. We see no purpose or justification in the DTAC for application of this test in any other situation." 3.4 In view of the above it was necessary for the Revenue authorities to first establish that the control and management of the affairs of the assessee during the previous year were situated wholly in India. This test laid down in s. 6(3)(ii) is materially different from the test of place of effective management contemplated by art. 4(3) of the DTAA between India and Mauritius. 3.5 Let us analyse the evidence on record, which could justify conclusions that the assessee's effective place of management was only in India. The assessee, as already stated, is a tax resident of Mauritius and copy of the tax resident certificate issued by the CIT, IT Department, Republic of Mauritius, is placed at p. 1 of the assessee's paper book. The assessee was a company incorporated with the RoC, Mauritius and the certificate of incorporation is placed at p. 2 of the assessee's paper book. The assessee was also granted status of an off shore company by the Mauritius off-shore business authorities. The certificate in this regard is placed at p. 3 of the asses....
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....ement of the assessee was in India. The law is well settled that control and management of affairs does not mean the control and management of the day-to-day affairs of the business. The fact that discretion to conduct operations of business is given to some person in India would not be sufficient. The word 'control and management of affairs' refers to head and brain, which directs the affairs of policy, finance, disposal of profits and such other vital things consisting the general and corporate affairs of the company. 4. We have perused the power of attorney by which persons in India were authorized to conduct the business on behalf of the assessee. In our view, the terms of the said power of attorney merely empowered the persons in India to conduct the day-to-day affairs of the company. It is also noticed that the assessee in support of its claim that the directions were issued from market by the two shareholders sought to file telephone bills recording the calls made to India from time to time. These were sought to be filed as an additional evidence before the CIT(A). The CIT(A) rejected the application for admission of additional grounds. The observation of CIT(A) for rejecti....
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....he Revenue authorities bringing to tax the capital gains in the hands of the assessee cannot be sustained. We, therefore, hold that the income in the form of capital gains on sale of shares as assessed to tax by the Revenue authorities should be deleted. Ground Nos. 1 to 1.3 are accordingly allowed. 5. Ground Nos. 2 to 2.3 raised by the assessee, read as follows: "2. That the learned CIT(A) has grossly erred both in law and on facts in confirming the addition of Rs. 3,83,11,550 on the ground that this is unexplained investment in purchase of various shares in India; 2.1 That the learned CIT(A) has failed to appreciate the fact that the amount of Rs. 3,83,11,550 was in the form of remittances made by Mauritius office of the appellant company through banking channels for purchase of shares and securities in Indian capital market; 2.2 That the learned CIT(A) has failed to consider the CBDT Circular No. 5 dt. 20th Feb., 1969, which was relied upon by the appellant during the course of hearing of appeal, wherein the instruction was issued to the effect that the money brought into India by non-resident through banking channels for investments or for other purposes is not liable to In....
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....0th Feb., 1969. The copy of the said circular is placed in the paper book at pp. 73-74. The second and third paras of the said circular are given as under wherein it has been laid down as follows: "Money brought into India by non-residents for investments or other purposes is not liable to Indian income-tax. Therefore, there is no question of a remittance into the country being subjected to income-tax in India. The question of assessment to tax arises only when there is no evidence to show that the amount, in question, in fact represents such remittance. In other words, in the absence of proper supporting evidence, the taxpayer's story that the money has been brought into India from outside may be disbelieved by the ITO who may then proceed to hold that the money had in fact been earned in India." "If the money has been brought into India through banking channels or in the form of assets like plant and machinery or stock-in-trade, for which the necessary import permits had been obtained, no question at all are asked by the ITOs as to the origin of the money or assets brought in. It is only in cases where the money is claimed to have been brought from outside otherwise than throug....