TaxTMI 
TaxTMI 
2026 (2) TMI 1309
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.... of the case and in law, the Ld. CIT grossly erred in holding that the assessment order u/s 143(3) dated 02.12.2019 passed by the assessing officer is erroneous in so far as it is prejudicial to the interest of revenue. 3. In the facts and circumstances of the case and in law, the Ld. CIT grossly erred in holding that the appellant is not entitled to the benefit of India-Mauritius Double Taxation Avoidance Agreement (India-Mauritius DTAA). 4. In the facts and circumstances of the case and in law, the Ld. CIT grossly erred in holding that the long-term capital gains of INR149,37,42,732 earned by the appellant on sale of listed securities (on which securities transaction tax has been paid) is taxable in India u/s 115JB of the Act." 3. Shri Porus F Kaka, Senior Advocate appearing on behalf of the assessee narrating facts of the case submitted that the assessee is a tax resident of Mauritius and is engaged in activity of holding investments in equity shares. The Tax Residency Certificate (TRC) issued by Mauritius Revenue Authority for FY 2016-17 is at page 45 of the paper book. During the course of scrutiny assessment proceedings, the assessee had furnished TRC to ....
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....ok. 3.1. The ld. Counsel submits that the CIT has wrongly assumed jurisdiction u/s. 263 of the Act. The CIT while passing the impugned order has made certain factual incorrect observations. The CIT held that there is possibility of conduit created by the assessee. The ld. Counsel asserted that the assessee is engaged in making investments in share of the Indian company. The assessee need not create any conduit to take the benefit of treaty as the assessee is eligible for benefit u/s. 10(38) of the Act. He submitted that in so far as applicability of provisions of section 115JB of the Act on the assessee, Explanation 4 to section 115JB of the Act clearly oust the application of provisions of section 115JB on foreign companies. Hence, the provisions of section 115JB of the Act would not apply to the assessee. 4. On the observation made by the CIT that the assessee company is not the beneficial owner of the income and does not have control and dominion over the funds and that the assessee has resorted to 'treaty shopping', the ld. Counsel submitted that the parent/holding company of the assessee Sandstone Capital India Master Fund Ltd. is also based in Mauritius. The TRC of the ....
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....eld that the LTCG earned by the assessee on sale of shares is taxable under the provisions of Income Tax Act and also under Article 13(4) of India-Mauritius DTAA. It is an undisputed fact that the assessee was incorporated in Mauritius and is a tax resident of Mauritius. The assessee has placed on record TRC issued by the Tax Authorities of Mauritius at page 45 of the paper book. It is also not in dispute that the assessee is having no PE in India. These facts have been accepted by the AO in the assessment order passed u/s. 143(3) of the Act. 8. The CIT has exercised revisional powers in the instant case on two issues:- * First, whether the assessment order passed by the AO calling for relevant details and making necessary verification/inquiry would require revision under section 263 of the Act being erroneous and prejudicial to the interest of revenue. * Second, whether the long term capital on disposal of shares is taxable under the provisions of Income-tax act and also under Article 13(4) of India-Mauritius DTAA." 9. The CIT has alleged that while passing the assessment order AO has not made necessary verification and enquiries. We find that the AO had is....
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....t was just has been imposed." [Emphasized by us] Further, the CIT cannot exercise revisional power u/s. 263 of the Act to substitute his opinion or view. [Re: CIT vs. Gabriel India Ltd, 203 ITR 108 (Bombay)]. 10. The second issue raised by the CIT in revision proceedings is with respect to taxability of capital gains on sale of shares under the provisions of Income Tax Act and also Article 13(4) of India-Mauritius DTAA. The ld. Counsel for the assessee has argued that even if treaty benefit is not allowed to the assessee, the capital gain on sale of shares is not taxable in the hands of the assessee under section 10(38) of the Act. Before proceeding further, it would be relevant to refer to the provisions of section 10(38) of the Act as they were applicable to assessment year 2017-18. The same are reproduced herein under:- "(38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes in....
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....d in stock exchange would be entitled to benefit of exemption u/s. 10(38) of the Act. We find no merit in the submissions of ld. DR that the case of assessee is covered by Explanation 2 to section 115JB of the Act. Explanation 2 would not operate in the case of assessee as none of the conditions of said explanation can be applied in the case of assessee. Hence, we find that LTCG on sale of shares is not taxable under provisions of the Act. 13. The CIT has summed up his findings in para 10.10 of the impugned order as under:- "10.10 Summary In a nutshell, following facts emerges: 1. The scheme of arrangement employed by the assessee is a tax avoidance through treaty shopping mechanism. 2. The assessee company is just a conduit and the real owner is the shareholders/investors who are tax residents of different countries. 3. The TRC is not sufficient to establish the tax residency if the substance establishes otherwise. 4. The assessee company is also not a beneficial owner of income as control and dominion of fund is not with the company. 5. There is no commercial rationale of establishment of assessee company in Mauritius as th....
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....ies as required under different provisions of the Act, by which it is governed and is taking advantage of any provisions which are available to it within the Act or any legislation or treaty, the Revenue cannot deny the benefit to the assessee on flimsy objections. 16. The CIT to exercise its revisional powers u/s. 263 of the Act has to satisfy two mandatory conditions i.e. (i) any order passed by the AO is erroneous; and (ii) the said order is prejudicial to the interest of Revenue. Both the conditions have to be met concurrently. The satisfaction of twin conditions set out in u/s. 263 of the Act is sine qua non for exercising revisional jurisdiction. Merely, for the reason that the assessment order is prejudicial to the interest of Revenue cannot ipso facto grant ammunition to the CIT for exercise of the revisional powers. The provisions of section 263 of the Act cannot be invoked by the CIT for the reason that the order passed by AO is not detailed order or the view taken by the AO is not in consensus with the view of CIT. The Hon'ble Apex Court in the case of Malabar Industries Company Ltd. vs CIT has held: "A-bare reading of this provision makes it clear that th....