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2023 (11) TMI 697 - AT - Income TaxDenial of treaty benefits treating the assessee as a conduit company set up - Taxability of long-term capital gain claimed as exempt under Article 13(4) of India – Mauritius DTAA - assessee is non-resident corporate entity and tax resident of Mauritius holding a valid TRC - HELD THAT:- It is fairly well settled that TRC issued by the competent of a particular country determines the tax residency of a particular person/entity. The aforesaid position has not only been accepted by the Revenue in Circular No. 789, dated 13.04.2000, but while upholding the validity of the aforesaid Circular, the Hon’ble Supreme Court in case of Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME COURT] has also held that the person/entity holding a valid TRC would be entitled to the treaty benefits. Subsequently, the aforesaid legal position has been followed in many decisions, including the recent decision of Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. Vs. ACIT [2023 (2) TMI 35 - DELHI HIGH COURT] Whether assessee is a conduit entity set up in Mauritius only for the purpose of availing treaty benefits? - AO has made various allegations to conclude that the assessee is a conduit entity, however, such conclusion is not backed by any substantive and cogent material brought on record. In sum and substance, AO has made mere allegations and has failed to substantiate the fact that the assessee is a conduit company through clinching evidences. Unfortunately, learned DRP without going deep into the issue factually, has simply endorsed the view of the AO. Undisputedly, the provisions of section 90(2A) read with Chapter XA of the Act are applicable to the impugned assessment year. Though, AO has alleged that the assessee is a conduit company and has been set up as a part of tax avoidance arrangement, surprisingly, he has not invoked the provisions of GAAR as provided under Chapter XA of the Act. Departmental Authorities have not invoked the LOB clause as provided under Article 27A of India – Mauritius DTAA. Thus, facts on record clearly indicate that the departmental authorities were accepting that the shares in the Indian companies having been acquired prior to 01.04.2017, 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, the AO has introduced the theory of 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 tax avoidance arrangement remains unsubstantiated through cogent evidence brought on record, 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. Decided in favour of assessee.
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