TMI Blog2023 (11) TMI 692X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to assessee s claim of exemption under Article 13(4) of India-Mauritius DTAA, as, undisputedly, the shares were acquired prior to 01.04.2017. Therefore, the gain derived from sale of such equity shares is taxable only in the country of residence of the assessee, i.e., Mauritius and not in India. However, in so far as the capital gain arising from sale of shares of Veritas Finance Pvt. Ltd. is concerned, the facts are slightly different. Though, in the original return of income, the assessee claimed the resultant capital gain to be exempt under Article 13(4), however, subsequently, the assessee filed revised return of income offering the capital gain to tax under the provisions of Article 13(3A) read with Article 13(3B) of the Treaty by claiming beneficial tax rate under grandfathering clause. The word shares bas been used in a broader sense and will take within its ambit all shares, including preference shares. Thus, since, the assessee had acquired the CCPS prior to 01.04.2017, in our view, the capital gain derived from sale of such shares would not be covered under Article 13(3A) or 13(3B) of the Treaty. On the contrary, it will fall under Article 13(4) of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue are, the assessee is a non-resident corporate entity incorporated under the laws of Mauritius and a tax resident of Mauritius. As stated by the Assessing Officer, the assessee was incorporated primarily for the purpose of making investments in India in education space, agriculture, healthcare, microfinance institutions and other financial services. In course of its business activities, the assessee had made investment in Indian companies by way of equity shares. In the year under consideration, the assessee had sold equity shares of two Indian companies, viz., Sewa Gruh Rin Ltd. and Veritas Finance Pvt. Ltd. and derived income under the head long-term capital gain . In the original return of income filed for the impugned assessment year on 13.03.2020, though, the assessee offered the income derived from sale of equity shares as capital gain, however, claimed it as exempt in terms of Article 13(4) of the India-Mauritius DTAA. Subsequently, on 13.03.2022, the assessee filed a revised return of income offering the long-term capital gain derived from sale of equity share of Veritas Finance Pvt. Ltd. under Article 13(3B) of India-Mauritius DTAA. In course of assessment proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is very institution, the assessee is making investments in India in more than 15 companies aggregating to US Dollar 58 million approximately. He submitted, all investment decisions have been taken in the board meetings in Mauritius. In this regard, he drew our attention to the details of board meetings held in the year under consideration, as placed in the paper book. Drawing our attention to the audited financial statement of the assessee, learned counsel submitted, the assessee has incurred substantial operational expenditure in past years, which proves that neither it is a sham entity nor a conduit company, as alleged by the Assessing Officer. He submitted, once, the Mauritius Revenue authorities have issued TRC to the assessee, the residential status of the assessee cannot be doubted by the departmental authorities in view of CBDT Circular No. 789 dated 13.04.2000 and Circular No. 684 dated 30.03.1994. In this context, he also heavily relied upon the decision of Hon ble Supreme Court in case of Union of India vs. Azadi Bachao Andolan, 132 Taxman 373 (SC). He submitted, even, the Hon ble jurisdictional High Court in case of Blackstone Capital Partners (Singapore) VI FDI Three Pt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e India-Mauritius DTAA. 11. Strongly relying upon the observations of the Assessing Officer and learned DRP, learned Departmental Representative submitted that the share holders of the assessee company are not based in Mauritius, but are residents of other countries. He submitted, all decisions relating these activities are taken out of Mauritius, as the board meetings are mostly through video conferencing. He submitted, since, the share holders are residents of countries, who have LOB clause incorporated in their respective Treaties in India, they have set up the assessee s company in Mauritius as a conduit for the purpose of Treaty shopping. He submitted, the assessee does not have any second business activities in Mauritius and its investment activities in India after 01.04.2017 have reduced. Thus, he submitted, these facts suggest that the assessee has set up for availing Treaty benefits. He further submitted, the assessee s income in Mauritius is not taxable and over the years, it has shown loss. Thus, he submitted, the assessee is fiscally transparent entity. He submitted, since, the assessee is not liable to tax in Mauritius, it cannot be treated as a resident of Mauritiu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer cannot be accepted under any circumstance. Now, it is well settled that once the tax resident of Mauritius is holding a valid TRC, the Assessing Officer in India cannot go behind the TRC to question the residency of the entity. In fact, since, there were considerable number of disputes due to non- acceptance of TRC as a valid piece of evidence for tax residency by the departmental authorities, the CBDT issued circular No. 789 dated 13.04.2000, specifically, with reference to India-Mauritius DTAA clearly stating that once, the TRC has been issued by the competent authority of the other tax jurisdiction, it will be treated as a valid piece of evidence in so far as tax residency status is concerned. The sanctity of the aforesaid circular issued by the CBDT was challenged before the Hon ble High Court and while, ultimately, deciding the issue, Hon ble Supreme Court in case of Union of India vs. Azadi Bachao Andolan (supra), not only upheld the validity of Circular No. 789 dated 13.04.2000, but held that once, the TRC has been issued by the competent authority of the other country, it will demonstrate the tax residency of the entity and the concerned entity would be elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een set up as a scheme of arrangement for tax avoidance through Treaty shopping, in our view, such allegation of the Assessing Officer is thoroughly misconceived and not borne out from any material/evidence brought on record. Further, the allegation of the Assessing Officer to the effect that the assessee is a conduit company is also not borne out from any cogent evidence or material brought on record by the Assessing Officer. The allegation of the Assessing Officer regarding absence of commercial rationale or substance behind setting up of the assessee company, is also in the realm of imagination, rather than based on any concrete evidence. Moreover, the departmental authorities have miserably failed to establish the fact of the assessee, being a conduit company with reference to Article 27A of India-Mauritius DTAA (Limitation on Benefit clause). Therefore, having regard to the relevant facts and ratio laid down in the judicial precedents, discussed above, we have no hesitation in holding that the assessee, having been granted a valid TRC, has to be treated as tax resident of Mauritius, hence, eligible to avail benefit under India-Mauritius DTAA. 18. Having held so, now, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into equity shares results only in qualitative change in the nature of rights of the shares. The conversion of CCPS into equity shares did not, in fact, alter any of the voting or other rights with the assessee at the end of Veritas Finance Pvt. Ltd. The difference between the CCPS and equity shares is that a preference share goes with preferential rights when it comes to receiving dividend or repaying capital. Whereas, dividend on equity shares is not fixed but depends on the profits earned by the company. Except these differences, there are no material differences between the CCPS and equity shares. Moreover, a reading of Article 13(3A) of the tax treaty reveals that the expression used therein is gains from alienation of shares . In our view, the word shares bas been used in a broader sense and will take within its ambit all shares, including preference shares. Thus, since, the assessee had acquired the CCPS prior to 01.04.2017, in our view, the capital gain derived from sale of such shares would not be covered under Article 13(3A) or 13(3B) of the Treaty. On the contrary, it will fall under Article 13(4) of India-Mauritius DTAA, hence, would be exempt from taxation, as the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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