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2024 (2) TMI 268 - AT - Income TaxTaxability of capital gain arising on sale of shares under the treaty provisions - taxability of income in India - assessee is a tax resident of Mauritius holding a valid TRC and is engaged in the business as an investment holding company having a Category 1 global business licence issued by the competent authority in Mauritius - AO and DRP have rejected assessee’s claim by holding that assessee being a mere paper company is not entitled to treaty benefits - HELD THAT:- Reasoning, on which, the departmental authorities have denied assessee’s claim of benefit under Article 13(4) of the tax treaty are unacceptable. It is evident, in course of proceedings before the departmental authorities, the assessee has furnished all materials and evidences to establish its residential status, bank statements reflecting details of investments made in foreign currency, Foreign Inward Remittance Certificate (FIRC) and various other documents have been submitted by the assessee before the departmental authorities. Whereas, neither the AO, nor DRP, except making vague allegations regarding the status of the directors and the structure of the company have held that since, the assessee is a mere paper company, it is not entitle to treaty benefits. This, in our view, is against the spirit of CBDT Circular no. 789, dated April 13, 2000 and the ratio laid down by the Hon’ble Supreme Court in case Union of India Vs. Azadi Bachao Andolan (2003 (10) TMI 5 - SUPREME COURT). In a recent decision of Blackstone Capital Partners (Singapore) VI FDI Three PTE. Ltd. (2023 (2) TMI 35 - DELHI HIGH COURT] it has been held that once the assessee holds a valid TRC, the Departmental Authorities cannot go behind it to question residential status. In the facts of the present appeal, except making vague allegations, the departmental authorities have failed to bring on record any cogent material to substantiate their allegations that the assessee is merely a paper company, hence, cannot be treated as a genuine tax resident of Mauritius. Interestingly, though, the AO has made various allegations regarding the status and genuineness of the assessee while denying benefit under Article 13(4) of the tax treaty, however, while computing the capital gain he has allowed set off of long-term capital loss relating to the assessment year 2012-13. This fact shows that the Assessing Officer to certain extent has accepted the genuineness of the activities carried on by the assessee, i.e., investment in shares of Indian companies. Thus, we hold that the assessee is entitled to claim exemption under Article 13(4) of the tax treaty qua the capital gain arising on sale of shares. Therefore, the amount in dispute is not taxable in India. Decided in favour of assessee.
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