TMI Blog2023 (11) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier overriding effect of the treaty provisions to some extent has been curtailed as the provisions of GAAR as provided under Chapter XA of the Act shall apply irrespective of the fact that such provisions are not beneficial to the concerned assessee. Thus, the department has been empowered under the statue w.e.f. 01.04.2016 to deny treaty benefits to the assessee in a case where GAAR is applicable. Undisputedly, the provisions of section 90(2A) read with Chapter XA of the Act are applicable to the impugned assessment year. Though, the Assessing Officer has alleged that the assessee is a conduit company and has been set up as a part of impermissible tax avoidance arrangement, surprisingly, he has not invoked the provisions of GAAR as provided under Chapter XA of the Act. Departmental authorities were accepting the fact that the shares in the Indian companies having been acquired prior to 01.04.2017, hence, the capital gain derived from sale of such shares would be exempt from taxation in India in terms of Article 13(4) of the Indian Mauritius DTAA. Only for the purpose of defeating assessee s claim of exemption under Article 13(4) of the treaty, AO has introduced the theo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mauritius holding a valid Tax Residency Certificate ( TRC ), is entitled to avail benefits under India Mauritius Double Taxation Avoidance Agreement (DTAA). It was submitted that in terms of Article 13(4) of India Mauritius treaty long term capital gain arising at the hands of a tax resident of Mauritius can only be taxable in Mauritius and not in India. 4. The Assessing Officer, however, did not accept the claim of the assessee. After calling for necessary details relating to corporate structure of the assessee and its activities, the Assessing Officer observed that as per information available in internet, all the group B directors in Assessee Company are employees/directors of the SANNE GROUP in Mauritius, which provides directors to such companies, which are structured with the sole purpose of availing treaty benefits. He observed that control and management decisions of the company were vested with a non-resident of Mauritius, rather than director resident in Mauritius. Further, he made various other allegations, such as, the company does not own any land/building and pays no rent. It has no electricity, water and telephone expenses. It has no employees as wages and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d taken by the assessing officer. The assessee objections on the above is therefore, rejected. 7. Before us, learned counsel appearing for the assessee submitted that the decision of the Assessing Officer to tax the long term capital gain under the provisions of the domestic law by denying treaty benefits is completely erroneous and unsustainable. He submitted, the fact that the assessee is a tax resident of Mauritius holding a valid TRC and is a investment holding company having a Category 1 Global Business Licence, has not been disputed by the Departmental Authorities. He submitted, once the assessee holds a valid TRC, the residential status of the assessee cannot be questioned. In support of such contention, he relied upon the decision of the Hon ble Supreme Court in case of Union of India vs. Azadi Bachao Andolan (2003) 263 ITR 706 and CBDT Circular No. 789, dated 13.04.2000. He submitted, there is no dispute that the assessee has acquired the shares in the Indian companies, prior to 01.04.2017. Therefore, the long-term capital gain derived by the assessee is exempt under Article 13(4) of India Mauritius DTAA. 8. He submitted, without invoking the General Anti Avoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in case of Azadi Bachao Andolan (supra) has also held that the person/entity holding a valid TRC would be entitled to the treaty benefits. Subsequently, the aforesaid legal position has been followed in many decisions, including the recent decision of Hon ble Jurisdictional High Court delivered in case of Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. Vs. ACIT [2023] 452 ITR 111 (Delhi HC). 12. The only reason on which the Assessing Officer has declined the treaty benefits to the assessee is because, according to him, the assessee is a stepping stone conduit entity set up in Mauritius only for the purpose of availing treaty benefits, hence, it is an impermissible tax avoidance arrangement. Though, the Assessing Officer has made various allegations to conclude that the assessee is a conduit entity, however, such conclusion is not backed by any substantive and cogent material brought on record. In sum and substance, the Assessing Officer has made mere allegations and has failed to substantiate the fact that the assessee is a conduit company through clinching evidences. Unfortunately, learned DRP without going deep into the issue factually, has simply endors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the theory of impermissible tax avoidance arrangement and Conduit Company. 16. Since, the allegations of the departmental authorities that the assessee is a conduit company and has been set up under a scheme of impermissible tax avoidance arrangement remains unsubstantiated through cogent evidence brought on record, we are inclined to accept assessee s claim of exemption under Article 13(4) of India Mauritius DTAA, qua the capital gain derived from sale of subject shares held in two Indian entities. The Assessing Officer is directed to delete the addition. 17. For the sake of completeness, we must observe, though, the Assessing Officer has made an attempt to derive strength from certain observations of Hon ble Supreme Court in case of Vodafone Intl. Holding Vs. Union of India [2012] 17 taxmann.com 202, however, in our view, the observations of the Hon ble Supreme Court have to be applied keeping in view the factual context. 18. In the facts of the present appeal, since, the departmental authorities have failed to establish that the assessee is a conduit company, the TRC issued by the competent authority in Mauritius would not only determine the residential status of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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