TMI Blog2022 (11) TMI 1390X X X X Extracts X X X X X X X X Extracts X X X X ..... any in which the assessee had invested the money towards equity was principally holding immovable property. Neither any such allegation has been made by the Assessing Officer in the assessment order before invoking Article 13(4) of India Netherlands Tax Treaty, nor in course of the proceeding before DRP or even the Tribunal any material has been brought on record by Revenue to demonstrate that the condition of Article 13(4) of India Netherlands Tax Treaty is satisfied. Thus the short term capital gain will not be taxable even under Article 13(4) of the India Netherlands Tax Treaty. Thus, seen from any angle, the short-term capital gain arising on sale of shares is not taxable in India. In view of the aforesaid, we delete the addition made by the AO. Appeal of assessee allowed. - Shri G.S. Pannu, Hon ble President And Shri Saktijit Dey, Judicial Member For the Appellant : Sh. Kamal Sawhney, Advocate, Sh. Prashant Meharchandani, Advocate, Sh. Arun Bhadouria, Advocate. For the Respondent : Ms. Sapna Bhatia, CIT(DR). ORDER PER SAKTIJIT DEY, JM : Assessee has filed the captioned appeal challenging the final assessment order dated 06.04.2022 passed under section 143(3) read with sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, he observed, PayU Global B.V., in turn, is owned by Prosus NV, another company incorporated in Netherlands with primary listing at Amsterdam Stock Exchange. Further, on perusal of bank statement of the assessee, the Assessing Officer noticed that prior to purchase of shares, the holding company PayU Global B.V. has transferred money in form of loan to the assessee, which was utilized for purchase of shares of Citrus India. Further, on going through the financial statements of the assessee, the Assessing Officer observed that the assessee is incurring meager expenses and almost negligible expenses for operational requirements for running a business/commercial venture. He observed, the assessee does not carry out any commercial/business activity in Mauritius. After analyzing all these facts the Assessing Officer held that the assessee is a mere conduit entity through which the holding company at Netherlands has invested in shares of Citrus India. He observed, the effective control and management of the assessee company lies with the holding company at Netherlands and the holding company essentially is the beneficial owner of the capital gain. He observed, only for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made by the Assessing Officer. 4. Before us, learned counsel appearing for the assessee submitted, the assessee is a company incorporated in Mauritius in the year 2006. He submitted, the assessee is into investment activities since its inception. He submitted, even in the year under consideration, the assessee had proposed to make investments of Rs.665 crores. He submitted, while purchasing shares in Citrus India the assessee had made inbound investments and had subsequently sold the shares to PayU India, wherein, the assessee is having substantial interest, as, it holds 82% of the shares. He submitted, even till date, PayU India is holding the shares of Citrus India. He submitted, it is a fact on record that the assessee is a Mauritius based company having a valid TRC issued by Mauritian Tax Authorities. Therefore, as per the Circular No. 789, dated 13.04.2000 issued by Central Board of Direct Taxes (CBDT), the assessee is entitled to get the benefit of India Mauritius Tax Treaty, as, applicable to the relevant assessment year. He submitted, in case of Azadi Bachao Andolan (supra), it has been clearly and categorically held that the beneficial provisions of India Mauritius Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JCIT Vs. Merrill Lynch Capital Market Espana SA SV in ITA No. 6109/Mum/2018, dated 11.10.2019. He submitted, since, the Assessing Officer has failed to factually establish such fact by bringing any cogent material on record, the amount is not taxable even under Article 13(4) of India Netherlands Tax Treaty. In support of his contention, learned counsel relied upon the following decisions as well: 1. UASC/CSL Ltd. Vs. DCIT [2007] 12 SOT 588 (Mum.) 2. Motorola Inc. Vs. Deputy Commissioner of India Tax, Non-Resident Circle [95 ITD 269 (Delhi Tribunal)] 7. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned DRP. She submitted, the Assessing Officer has established on record that the assessee had made investment in shares in Citrus India by availing loan from its holding company. She submitted, though, the holding company actually intended to buy the shares from Citrus India, however, to avoid taxation of capital gain in India, the holding company made the investment through its conduit company based at Mauritius. She submitted, the structuring of the arrangement would establish that, in substance, the transaction in investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding of their own. Having taking note of the factual position, it is necessary to observe, the taxability of capital gain arising from sale of shares of Citrus India to PayU India by the assessee, in normal course, would be subject to Article 13(4) of the Tax Treaty or the domestic law, whichever is more beneficial to the assessee. Article 13 of the Tax Treaty prior to its amendment read as under: ARTICLE 13 - Capital gains - 1. Gains from the alienation of immovable property, as defined in paragraph (2) of article 6, may be taxed in the Contracting State in which such property is situated. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in that other State, 3. Notwithstanding the provisions of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the enterprise is situated. 6 [3A. Gains from the alienation of shares acquired on or after 1st April 2017 in a company which is resident of a Contracting State may, be taxed in that State. 3B. However, the tax rate on the gains referred to in paragraph 3A of this Article and arising during the period beginning on 1st April, 2017 and ending on 31st March, 2019 shall not exceed 50% of the tax rate applicable on such gains in the State of residence of the company whose shares are being alienated; I 7 [4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 3A shall be taxable only in the Contracting State of which the alienator is a resident] 5. For the purposes of this article, the term alienation means the sale, exchange, transfer, or relinquishment of the property or the extinguishment of any rights therein or the compulsory acquisition thereof under any law in force in the respective Contracting States. 11. On a reading of Article 13 post amendment, it becomes quite clear that some changes were made to the pre-amended Article 13 by insertion of paragraph 3A and 3B and substitution of paragraph 4 with a new paragraph 4. Paragraph 3A of Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y night operator or mere conduit company as the Assessing Officer has attempted to make out. Merely because the assessee availed loans from its holding company to invest in shares of Citrus India, ipso facto, cannot be a reason to treat the assessee as a conduit company. 13. The CBDT Circular no. 789 dated 13.04.2000, while dealing with the issue of TRC issued by Mauritian Authorities and applicability of the beneficial provisions of India Mauritius Tax Treaty on the strength of such TRC, states as under: It is hereby clarified that wherever a certificate of residency 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 DTAA accordingly. Thus, as per the aforesaid circular issued by CBDT, wherever a certificate of residency is issued by the Mauritian Tax Authorities, such certificate will constitute sufficient evidence for accepting the status of residence as well as the beneficial ownership for applying the provisions of India Mauritius Tax Treaty. The validity of the aforesaid CBDT Circular came up for consideration before Hon ble Supreme Court in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vent of ratification of MLI providing amendment to the preamble of India Mauritius Tax Treaty by Mauritius Government, which is yet to see the light of the day. In our view, without unreservedly following the binding ratio of the Hon ble Supreme Court in case of Azadi Bachao Andolan (supra), which is the law of the land under Article 141 of the Constitution of India, the Assessing Officer has allowed his mind to be clouded by extraneous considerations and contingent events to deny the benefit of India Mauritius Tax Treaty to the assessee, which the assessee is legally entitled to on the strength of the TRC issued by the Mauritian Tax Authorities and as per CBDT Circular No. 789, dated 13.04.2000. In view of the aforesaid, we have no hesitation in holding that the gain derived by the assessee on sale of shares of Citrus India to PayU India is not taxable in India as per preamended Article 13(4) of India Mauritius Tax Treaty. While coming to such conclusion, we have followed the binding ratio of the Hon ble Supreme Court in case of Azadi Bachao Andolan (supra) and CBDT Circular no. 789, dated 13.04.2022. 15. Having held so, for the sake of completeness, it is necessary to examine, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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