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2023 (11) TMI 231 - AT - Income TaxIncome taxable in India - capital gain derived by the assessee from sale of shares of two Indian companies in view of Article 13(4) of India – Mauritius Tax Treaty - GAAR applicability - Allegations of the departmental authorities that the assessee is a conduit company and has been set up under a scheme of impermissible tax avoidance arrangement - assessee is a tax resident of Mauritius and is an investment holding company - only reason on which the AO has declined the treaty benefits to the assessee is because assessee is a stepping stone conduit entity set up in Mauritius only for the purpose of availing treaty benefits, hence, it is an impermissible tax avoidance arrangement - HELD THAT:- If the provisions of the DTAA are more beneficial to that particular assessee, the provisions of DTAA would override the domestic law. With the introduction of sub-section (2A), of section 90 w.e.f. 01.04.2016 earlier overriding effect of the treaty provisions to some extent has been curtailed as the provisions of GAAR as provided under Chapter XA of the Act shall apply irrespective of the fact that such provisions are not beneficial to the concerned assessee. Thus, the department has been empowered under the statue w.e.f. 01.04.2016 to deny treaty benefits to the assessee in a case where GAAR is applicable. Undisputedly, the provisions of section 90(2A) read with Chapter XA of the Act are applicable to the impugned assessment year. Though, the Assessing Officer has alleged that the assessee is a conduit company and has been set up as a part of impermissible tax avoidance arrangement, surprisingly, he has not invoked the provisions of GAAR as provided under Chapter XA of the Act. Departmental authorities were accepting the fact that the shares in the Indian companies having been acquired prior to 01.04.2017, hence, the capital gain derived from sale of such shares would be exempt from taxation in India in terms of Article 13(4) of the Indian – Mauritius DTAA. Only for the purpose of defeating assessee’s claim of exemption under Article 13(4) of the treaty, AO has introduced the theory of impermissible tax avoidance arrangement and Conduit Company. Since, the allegations of the departmental authorities that the assessee is a conduit company and has been set up under a scheme of impermissible tax avoidance arrangement remains unsubstantiated, we are inclined to accept assessee’s claim of exemption under Article 13(4) of India – Mauritius DTAA, qua the capital gain derived from sale of subject shares held in two Indian entities. AO directed to delete the addition. Decided in favour of assessee.
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