2023 (9) TMI 941 - AT - Income Tax

Stay petition - recovery proceedings - whether a prima facie case had been made out by the assessee and whether balance of convenience is in favour of the assessee? - HELD THAT - As in order to come to a conclusion whether a prima facie case has been made out or not itself requires extensive verification of facts and documents. In view of the provisions of section 254(2A) read together with its proviso thereon, we deem it fit and appropriate to direct the assessee to pay 20% of the outstanding demand in two equal instalments in August and September, 2023. The assessee shall produce the proof of remittance of stipulated instalments before the Bench by 15.09.2023. In the alternative, the assessee is also entitled to furnish security equivalent to the value of 20% of the outstanding demand in favour of the Income tax Department on or before 15.09.2023. The assessee is directed to ensure compliance of the aforesaid contentions before the Bench on or before 15.09.2023. Subject to the aforesaid conditions, the demand raised by the Revenue is kept in abeyance for a period of 90 days from the date of compliance as mandated to the assessee before the Bench, i.e. 15.09.2023 or till the disposal of the appeal, whichever is earlier. It is hereby made clear that till 15.09.2023, no recovery proceedings shall be initiated on the assessee for the demand.

Summary

Issues:
The judgment involves the stay application by the assessee seeking to keep the demand raised for the AY 2018-19 in abeyance, based on the denial of benefits under the India-Mauritius Tax Treaty and the determination of tax residency.

Issue 1: Denial of Benefits under India-Mauritius Tax Treaty

The assessee, a company incorporated in Mauritius, declared long-term capital gains from the transfer of equity shares of Indian companies as exempt under Article 13 of the India-Mauritius Tax Treaty. However, the Assessing Officer treated the assessee as a conduit entity and charged the entire long-term capital gains as taxable income. The Dispute Resolution Panel upheld this decision, leading to the final assessment order against which the assessee appealed before the Tribunal.

Issue 2: Tax Residency and Place of Effective Management

The assessee, held 100% by another Mauritius company, claimed to be a tax resident of Mauritius with a valid Tax Residency Certificate (TRC). The assessee argued that the long-term capital gains should not be taxable under the India-Mauritius Tax Treaty. The Assessing Officer contended that the assessee did not have a place of effective management in Mauritius, raising objections to granting the treaty benefits. The Tribunal noted the need for extensive verification of facts and documents to determine if a prima facie case existed.

Decision:

The Tribunal directed the assessee to pay 20% of the outstanding demand in two equal instalments or provide equivalent security to the Income Tax Department. Compliance was required by September 15, 2023. The demand was kept in abeyance for 90 days from the date of compliance or until the appeal's disposal, whichever was earlier. No recovery proceedings were to be initiated until September 15, 2023. The stay application was disposed of based on these conditions.

This judgment addresses the denial of benefits under the India-Mauritius Tax Treaty and the determination of tax residency, emphasizing the need for verification of facts and documents to establish a prima facie case. The Tribunal provided specific directives regarding payment of the outstanding demand and the timeframe for compliance, ensuring the demand was kept in abeyance temporarily.