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TMI Blog2023 (8) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian company to be exempt under Article 13(4) of India - Mauritius Double Taxation Avoidance Agreement (DTAA). 4. Briefly the facts relating to this issue are, the assessee is a non-resident corporate entity incorporated in Mauritius and is a tax resident of Mauritius. As stated by the Assessing Officer, the assessee operates as an investment holding company for undertaking various investments. He has also noted that the assessee holds a valid Tax Residency Certificate (TRC) issued by Mauritius Tax Authorities for the year under consideration. The assessee also holds a valid Global Business Licence (Category 1) (GBL-1) issued by the Financial Service Commission in Mauritius. The assessee's holding companies are SAIF II Mauritius Company Ltd. ("SAIF II"), which owns 51% shareholding and SAIF III Mauritius Company Limited ("SAIF III"), which holds 49% shareholding in the assessee company. He has also noted that two of the directors of the assessee company are residents of Mauritius, whereas, two other directors are from Hongkong. 5. In the year under consideration, the assessee received dividend income of Rs. 47,64,37,500/- on equity shares of National Stock Exchange ("NSE"), wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treaty shopping mechanism. ii. The assessee is just a conduit and the real owners of the income are ultimate holding companies based in Cayman Island. iii. TRC is not sufficient to establish the tax residency, if the substance establishes otherwise. iv. There is no commercial rationale of establishment of the assessee company in Mauritius. v. The control and management of the assessment company is not in Mauritius. 7. Based on the aforesaid reasoning, the Assessing Officer ultimately held that the assessee cannot be treated as a tax resident of Mauritius, hence, would not be entitled to treaty benefits. Accordingly, he framed the draft assessment order. The assessee filed objections against the draft assessment order before learned DRP. In course of proceedings before learned DRP, the assessee furnished various additional evidences to establish its residential status as well as its claim of treaty benefits. Though, learned DRP admitted the additional evidences and called for a remand report of the Assessing Officer, however, ultimately, rejecting the objections, they upheld the decision of the Assessing Officer. In terms with the direction of learned DRP, the assessment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f directors, were taken note of. 10. He submitted, when the regulatory authorities in India have scrutinized assessee's and its holding companies' credentials and have found nothing adverse, the Assessing Officer, on mere suspicion, cannot treat the assessee as conduit company having no commercial rationale or substance. He submitted, even after partially exiting from the investments made in the equity shares of NSE, the assessee still holds substantial part of the equity shares and assessee's share holding in NSE has been reduced from 5% to 3.5% only. Thus, he submitted, the allegations of the departmental authorities on the residential and business status of the assessee is wholly unsustainable. 11. Without prejudice, he submitted, the fact that the assessee has been incorporated in Mauritius and holding a valid TRC is beyond dispute. He submitted, under section 73(1)(b) of the Mauritius Income Tax Act, a company is said to be resident in Mauritius, if it satisfies either of the two conditions, i.e., the company is incorporated in Mauritius and has its central management and control in Mauritius. He submitted, in assessee's case, both the conditions are satisfied. He submitted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration is, whether the assessee can be treated as a tax resident of Mauritius. Consequentially, can the assessee claim benefit of exemption from taxability of capital gain on sale of equity shares under Article 13(4) of the tax treaty. For deciding this issue, few basic facts are required to be considered. Undisputedly, on perusal of certificate of incorporation issued by Registrar of Company, Mauritius, it is observed, the assessee has been incorporated on 7th January, 2008 as a private limited company. The Category 1 GBL has been issued in favour of the assessee by Financial Services Commission, Mauritius on 16th January, 2009. Further, from the date of its incorporation, the Mauritius Revenue Authorities have issued TRCs in favour of the assessee. Even, in the impugned assessment year, the assessee holds a valid TRC. These facts are not disputed by the Assessing Officer. 16. It is further relevant to observe, assessee's holding company, viz., SAIF II, acquired 5% unlisted equity shares of NSE, being 22,50,000 shares at a price of USD 55.55 per share for a total consideration USD 125 million. At the time of acquisition of shares by SAIF II, the various regulatory authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conduit implies that various other Government agencies have approved the purchase and sale of shares by the assessee, that too, of a Government company, without undertaking a reality check. In other words, the Assessing Officer is pointing an accusing finger to other Government agencies. This, in our view, is preposterous, hence, unacceptable. 19. It is a fact on record that the assessee is holding the shares in NSE for more than a decade, since the year 2009, and even as on date, is still holding 3.5% shares in NSE. Thus, holding period of shares by the assessee demonstrates the status of the assessee as a genuine entity carrying on the business in holding investment. It is now fairly well settled that TRC issued by an authority in the other tax jurisdiction is the most credible evidence to prove the residential status of an entity and the TRC cannot be doubted. In fact, the CBDT, specifically in the context of India - Mauritius treaty, has issued Circular No. 682, dated 30th March, 1994 and 789, dated 14th April, 2000 clarifying that TRC issued by Mauritius Tax Authorities proves the residential status of a resident of Mauritius and no other evidence is required. In case of UOI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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