Clarification regarding taxation of income from dividends and capital gains under the Indo-Mauritius Double Tax Avoidance Convention (DTAC) - Income Tax - 789/2000

Circular No. 789 F. No. 500/60/2000-FTD Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, the Dated 13th April, 2000 To, All the Chief Commissioners/Directors-General of Income-tax. Subject: Clarification regarding taxation of income from dividends and capital gains under the Indo-Mauritius Double Tax Avoid ance Convention (DTAC). 1. The provisions of the Indo-Mauritius DTAC of 1983 apply to residents of both India and Mauritius. Article 4 of the DTAC defines a resident of one State to mean any person who, under the laws of that State is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature Foreign institutional investors and other investment funds, etc., which are operating from Mauritius are invariably incorporated in that country. These entities are liable to tax under the Mauritius tax law and are, therefore, to be considered as residents of Mauritius in accordance with the DTAC. 2. Prior to 1-6-1997, dividends distributed by domestic companies were taxable in the hands of the shareholder and tax was deductible at source under the Income-tax Act, 1961 . Under the DTAC, tax was deductible at source on the gross dividend paid out at the rate of 5% or 15% depending upon the extent of shareholding of the Mauritius resident. Under the Income-tax Act, 1961, tax was deductible at source at the rates specified under section 115A , etc. Doubts have been raised regarding the taxation of dividends in the hands of investors from Mauritius. It is hereby clarified that wherever a certificate of residence is issued by the Mauritian authorities, such certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAC accordingly. 3. The test of residence mentioned above would also apply in respect of income from capital gains on sale of shares. Accordingly, FIIs, etc., which are resident in Mauritius should not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph 4 of article 13 . 4. The aforesaid clarification shall apply to all proceedings which are pending at various levels. 5. The contents of this circular may be brought to the notice of all the Commissioners of Income-tax and Assessing Officers in your region. (Sd.) Rajat Bansal, OSD (FTD), Central Board of Direct Taxes. Copy to: (1) The Chairman, Members and all other officers in CBDT of the rank of Under Secretary and above. (2) The Comptroller and Auditor General of India (40 copies). (3) The DIT (RS and PR) for printing in the quarterly tax bulletin and for circulation as per his usual mailing list. (4) All Directorates of Income-tax. (5) The DCIT (Inspection Division), Mayur Bhawan, New Delhi. (6) Secretary, Settlement Commission, CIT (WT), 3rd Floor, Lok Nayak Bhawan, Khan Market, New Delhi-3. (7) ITCC Section, CBDT. (Sd.) Rajat Bansal, OSD (FTD), Central Board of Direct Taxes.