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2019 (9) TMI 1549 - AAR - Income TaxAdvance ruling application - Income taxable in India - capital gains on the proposed sale of shares - transfer of shares from a holding company - India-Mauritius Tax Treaty - Applicability of provisions of section 90 - HELD THAT:- Ruling the issues of advancing loan to the holding company with interest at 1 per cent. and waiver of earlier loan while advancing fresh loan, have no relevance while deciding the question before us. Even if the entire sale consideration goes back to the parent holding company it will not dilute the separate legal identity of the applicant. The matter regarding variance in the date of transfer of shares as per contribution agreement and the financial statements has been clarified by the applicant. Suitable clarification has also been provided in respect of the loan given by the applicant not found reflected in form 10-K accounts of the holding company. The other issues raised by the Revenue are also not found relevant for deciding the question before us. Accordingly, the information regarding manner of utilization of sale proceeds, copy of valuation report of shares of BD Singapore, copy of loan agreement between applicant and BS USA and the source of the loan etc., all become inconsequential and no adverse inference can be drawn if the details of the same are not provided by the applicant. We find that the investment was made out of the funds emanating from the applicant, the investment was held for a period of over 15 years during which the business operations in India was carried on and which continued even after the exit, there was continuous generation of taxable revenue in India and thus the applicant fulfils the conditions as laid out above. In fact the hon'ble Supreme Court had observed in that case that the funds coming from Mauritius were not originating from that country but from third nations, still the structure as set up cannot be considered to be a set up for tax evasion. The apex court further held that the Revenue cannot deny the benefits of transfer of shares by alleging that the Mauritius company was merely a conduit and the US company was the actual beneficial owner of the shares. We do not have any adverse finding and we are inclined to accept the plea of the applicant that it was not a benami or set up for tax avoidance as a colourable device and only for treaty shopping, which in any case is not taboo. It is not in dispute that the applicant is a tax resident of Mauritius, possesses a valid tax residency certificate granted by the Mauritius tax authorities and would be covered under the India-Mauritius DTAC The tax treaty between India and Mauritius was originally signed in 1983 which provided a capital gains tax exemption to a Mauritius resident on transfer of Indian securities. The availability of capital gains tax exemption under the Indo-Mauritius Treaty was challenged in courts which had resulted in the Government issuing Circular No. 789 assuring investors the benefits of capital gains exemption under the treaty and which was upheld by the Supreme Court in the Azadi Bachao Andolan case [2003 (10) TMI 5 - SUPREME COURT] As per article 13(4) of India-Mauritius DTAC that the capital gains derived by the resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of the article shall be taxable only in that State. The shares and securities are not specified in clauses 1, 2 and 3 of the article 13. Therefore, any gain arising on sale of shares is liable to tax only in the State in which the person alienating the shares is resident. In the instant case the applicant is resident of Mauritius and accordingly the capital gain arising on transfer of shares of BD India is liable to tax in Mauritius only. We, therefore, uphold the contention of the applicant that by virtue of article 13.4 of India-Mauritius DTAA, capital gain tax is not liable to be charged in India. The applicant is not liable to pay capital gains tax in India in respect of the transfer of shares held in BD India to BD Singapore having regard to the provisions of India-Mauritius DTAA. Question 1 as answered - The capital gains on the sale of shares of Becton Dickinson India Private Limited by the applicant to Becton Dickinson Holdings Pte. Ltd. would not be chargeable to Income-tax in India in the hands of the applicant, having regard to the provisions of article 13 of the India-Mauritius Tax Treaty.
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