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2007 (7) TMI 345 - AT - Income TaxIncome accrues or arises in India or is deemed to have accrued or arisen in India - Tax Resident Or Not - Double Taxation Relief - investments in Indian capital market and derived income in the form of short-term/long-term capital gains - DTAA between India and Mauritius - Not admitting the additional evidence produced before CIT, in the form of photostat copies of appellant company's board resolution - Validity of CBDT Circular - HELD THAT:- In our view, the evidence was admissible under r. 46A(4) of the rules. The assessee also filed board's resolution, whereby the authority to take decision was only with Shri Vikas Mehrotra, one of the two shareholders of the assessee. In our view, the above evidence prima facie indicate that the control and management of the affairs of the assessee were not wholly in India. It cannot also be said that the place of effective management of the assessee was in India. It has been the contention of the assessee that the decisions regarding investments were taken only by the directors of the company, who were stationed at Mauritius or United States. This plea of the assessee, in our view, has been fairly demonstrated and established. The AO did not choose to examine the persons in India, who were stated to be in effective control and management of the affairs of the assessee in India. The reasons assigned by the AO for coming to the conclusion that the place of effective management of the assessee was situated in India cannot be sustained. The CIT(A), in our view, erred in confirming the order of the AO. We are, therefore, inclined to hold that the assessee was not a resident in India and, therefore, its income could not be taxed in India except to the extent that which accrues or arises in India or is deemed to have accrued or arisen in India, as laid down in s. 5(2) of the Act. It is further, seen that the capital gains on sale of shares fall within the ambit of art. 13(4) of the Indo-Mauritius DTAA and, therefore, such profits are taxable only in the State of Mauritius. In the case of Union of India vs. Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME COURT], Court had an occasion to analyse Circular issued by the CBDT, whereby it had laid down that FIIs operating from Mauritius incorporated in that country are liable to tax under Mauritius Tax Laws and it has to be considered as residents of Mauritius. Thus the AOs were debarred from making any further enquiries in the case of the companies incorporated in Mauritius. The Hon'ble Supreme Court upheld the validity of this circular and held that such companies were not liable to taxation under the IT Act, 1961 in respect of capital gains on sale of shares. Even on the basis of this decision, the action of the Revenue authorities bringing to tax the capital gains in the hands of the assessee cannot be sustained. We, therefore, hold that the income in the form of capital gains on sale of shares as assessed to tax by the Revenue authorities should be deleted. Ground Nos. 1 to 1.3 are accordingly allowed. Unexplained cash credit - remittances made by the Mauritius office through banking channels for the investment in shares and securities in Indian capital market - HELD THAT:- In the light of the decision in the case of Dy. CIT vs. Finlay Corporation Ltd.[2003 (1) TMI 266 - ITAT DELHI-D], and Circular, we are of the view that the action of the Revenue authorities in bringing to tax the sum cannot be sustained. We have already held that the assessee is a tax resident of Mauritius. There is no basis for corning to the conclusion that any income of the assessee accrued, arose or was received in India. Thus, we direct that the addition made be deleted. Ground Nos. 2 to 2.3 raised by the assessee, are allowed. In the result, the appeal filed by the assessee, is allowed.
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