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2023 (8) TMI 1374 - AT - Income TaxIncome taxable in India - income derived from capital gains on sale of shares denied treating assessee as a shell/conduit company - scope of benefit of the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius - assessee is a non-resident corporate entity incorporated in Mauritius and is a tax resident of Mauritius - AO held that the assessee has been interposed as an entity in Mauritius only for the purpose of deriving treaty benefits for the principal purpose of tax avoidance, thus applying the doctrine of substance over form it can be concluded that entire scheme is a tax avoidance arrangement HELD THAT:- Assessee is a tax resident of Mauritius and holds a valid TRC issued by the Mauritius tax authorities. Once the assessee holds a valid TRC, the departmental authorities cannot question assessee’s residential status and entitlement to treaty benefits. Though, the AO has made various allegations in the draft assessment order to conclude that the assessee is a shell/conduit company set up to obtain tax advantage under tax treaty, hence, it is a tax avoidance arrangement. After carefully going through the various reasonings of the Assessing Officer, we are of the view that they are not based on cogent evidence brought on record to establish that the assessee is a shell/conduit company and not the beneficial owner under the tax treaty. When the GAAR provisions are applicable to the assessment years under dispute, if the Assessing Officer was of the view that the capital gain derived from transfer of unlisted equity shares is an impermissible tax avoidance arrangement in terms of Section 95 r.w Section 96 of the Act, he should have proceeded in accordance with Section 144BA r.w Rule 10UB. However, there is nothing on record to suggest that the Assessing Officer has invoked the aforesaid provisions. Thus, in our view, the reasonings of the Assessing Officer to treat the assessee as shell/conduit company to deny the benefits under India Mauritius tax treaty is without any substance as they are not backed by credible evidence. Specific case of the assessee in the present appeals is, the shares were acquired prior to 01.04.2017, hence, neither Article 13(3A) nor Article 13(3B) would apply. On the contrary, the assessee would be covered under Article 13(4) of the tax treaty. Hence, the entire capital gain would be exempt from taxation. Thus, in our view, applicability of Article 27A to the subject transaction is a misnomer. Therefore, reasoning of DRP in upholding the decision of the AO is unacceptable. Thus, in our view, once it is factually found that the unlisted equity shares, on sale of which the assessee derived the capital gain, were acquired before 01.04.2017, then the assessee is entitled to claim exemption under Article 13(4) of the Tax Treaty. Assessing Officer is directed to factually verify this aspect and in case he finds that the shares were acquired after 01.04.2017 and sold prior to 31st March 2019, then, benefit under Article 13(3B) of the tax treaty can be given to that extent.
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