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2023 (8) TMI 823 - AT - Income TaxTaxability of global income - residential status of assessee - taxability of long term capital gain derived from sale of shares in an Indian company to be exempt u/Article 13(4) of India – Mauritius DTAA - assessee is a non-resident corporate entity incorporated in Mauritius holding a valid Tax Residency Certificate (TRC) issued by Mauritius Tax Authorities - as per AO assessee operates as an investment holding company for undertaking various investments - assessee claimed the dividend income as exempt u/s 10(34) - whether the assessee can be treated as a tax resident of Mauritius? - HELD THAT:- It is a fact on record that the assessee is holding the shares in NSE for more than a decade, since the year 2009, and even as on date, is still holding 3.5% shares in NSE. Thus, holding period of shares by the assessee demonstrates the status of the assessee as a genuine entity carrying on the business in holding investment. TRC issued by an authority in the other tax jurisdiction is the most credible evidence to prove the residential status of an entity and the TRC cannot be doubted. In fact, the CBDT, specifically in the context of India – Mauritius treaty, has issued Circular No. 682, dated 30th March, 1994 and 789, dated 14th April, 2000 clarifying that TRC issued by Mauritius Tax Authorities proves the residential status of a resident of Mauritius and no other evidence is required. In case of UOI Vs. Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME COURT]held that “liable to taxation” as used in Article 4 of India-Mauritius DTAA does not mean that merely because tax exemption under certain specified head of income including capital gain from sale of shares has been granted under the domestic tax laws of Mauritius, it can lead to the conclusion that the entities availing such exemption are not liable to taxation. The Hon’ble Supreme Court categorically rejected Revenue’s contention that avoidance of double taxation can arise only when tax is actually paid in one of the contracting States. Hon’ble Court held that ‘liable to taxation’ and ‘actual payment of tax’ are two different aspects - As for economic development, initially, many developing countries allowed some amount of treaty shopping to attract FDI. Thus materials available on record clearly establish that not only the assessee is a resident of Mauritius, but being a beneficial owner of the income derived from sale of shares, is entitled to the treaty benefits. Undisputedly, the shares sold by the assessee in the year under consideration were acquired in the year 2009, much prior to 01.04.2017. Therefore, the provisions of Article 13(3A) of the tax treaty would not be applicable. Capital gain derived by the assessee from sale of shares would fall within the ambit of article 13(4) of the tax treaty. Capital gain, being exempt under the treaty provisions, cannot be brought to tax in India. Therefore, we direct the AO to delete the addition - Decided in favour of assessee.
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