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2024 (7) TMI 1275 - AT - Income TaxTaxability of income in India - Denial of exemption u/Article 13(3B) and 13(4) of the India-Mauritius Treaty and brought to tax - since the control and management of the assessee company lies outside Mauritius and in UAE, the beneficial owner being resident of UAE, the assessee company is not entitled to avail benefit of India- Mauritius Treaty - Taxing the entire capital gain derived from sale of shares and futures and options etc. - CIT(A) holding that the assessee is eligible for availing benefit of India- Mauritius tax treaty HELD THAT - On perusal of materials on record we agree with the aforesaid factual finding of learned First Appellate Authority. The information received from SEBI, which has been reproduced in the assessment order, clearly indicates that it did not pertain to assessment year under dispute but to subsequent assessment years. Therefore, no conclusion regarding control and management of the assessee company or beneficial ownership for the impugned current year can be drawn based on such documentary evidences. TRC certificate, Category 1 Global Business License, and SEBI registration clearly demonstrate that the assessee is a genuine tax resident of Mauritius. Except the information received from SEBI, the Assessing Officer has failed to bring on record any adverse material which can establish beyond any shadow of doubt that the control and management of the assessee was outside Mauritius and the beneficial owner was a resident of UAE. Information available with the AO clearly suggests that in the year under consideration the assessee had three directors, all residents of Mauritius. Even, sample copies of Board Resolutions furnished in the paper book demonstrate that Board meetings were conducted in Mauritius. The very fact that the assessee has continued its business activities in India proves that it is not a fly by night operator created only for the purpose of availing Treaty benefits. In so far as applicability of protocol dated 07.03.2024 amending the India-Mauritius Treaty, undisputedly as per Article 3(1) to the protocol, it will come into force only after each of the contracting States notify it. On a specific query from the Bench, learned Departmental Representative fairly submitted that the process mentioned in Article 3(1) of the protocol is yet to be finalized. Thus, when the protocol is yet to come into force, it cannot be made applicable. Judicial precedents relied upon by the learned counsel for the assessee, they are based upon the broad principles set out by the Hon ble Supreme Court in case of Azadi Bachao Andolan 2003 (10) TMI 5 - SUPREME COURT while interpreting CBDT Circular no. 789 dated 13.04.2004. The ratio laid down in the judicial precedents clearly applies to assessee s case. Thus, on over all consideration of facts and materials on record we do not find any infirmity in the decision of learned First Appellate Authority. Decided against revenue.
Issues Involved:
1. Failure to submit relevant documents proving decision-making lies outside Mauritius. 2. Eligibility for benefits under the India-Mauritius tax treaty despite control and management being outside Mauritius. 3. Intent of the Double Taxation Avoidance Agreement (DTAA) concerning prevention of fiscal evasion. Detailed Analysis: 1. Failure to Submit Relevant Documents Proving Decision-Making Lies Outside Mauritius: The Revenue argued that the assessee failed to submit relevant documents, such as the educational qualifications of its directors and details about its key employees, which could prove that the decision-making of the assessee lies outside Mauritius. The Assessing Officer (AO) made independent inquiries by issuing a notice under Section 133(6) of the Act to SEBI. The AO concluded that the ultimate control and management, as well as the beneficiary of the entire corporate structure/group, was a resident of the UAE. The AO alleged that the directors in the assessee company were just for namesake and the actual decision-making lies outside Mauritius. The AO inferred that the assessee company was a mere conduit/shell company with no commercial substance. 2. Eligibility for Benefits Under the India-Mauritius Tax Treaty Despite Control and Management Being Outside Mauritius: The AO concluded that since the control and management of the assessee company lies outside Mauritius and in UAE, the assessee company is not entitled to avail benefits of the India-Mauritius Treaty. Accordingly, the AO rejected the assessee's claim of exemption under Article 13(3B) and 13(4) of the India-Mauritius Treaty and brought the entire capital gain derived from the sale of shares and futures and options to tax. The First Appellate Authority, however, found that the assessee is a genuine tax resident of Mauritius and allowed the assessee's claim of exemption under the India-Mauritius Tax Treaty. The Tribunal agreed with the First Appellate Authority, noting that the TRC certificate, Category 1 Global Business License, and SEBI registration clearly demonstrate that the assessee is a genuine tax resident of Mauritius. The Tribunal found no adverse material to establish that the control and management of the assessee was outside Mauritius and the beneficial owner was a resident of UAE. 3. Intent of the Double Taxation Avoidance Agreement (DTAA) Concerning Prevention of Fiscal Evasion: The Revenue argued that the intent of the DTAA is not only the avoidance of double taxation but also the prevention of fiscal evasion. The AO commented that the assessee has no commercial substance in Mauritius as neither any business activity is carried on in Mauritius nor any expenses have been incurred by the assessee in Mauritius. The Tribunal, however, noted that the information received from SEBI did not pertain to the assessment year under dispute but to subsequent assessment years. Therefore, no conclusion regarding the control and management of the assessee company or beneficial ownership for the impugned current year can be drawn based on such documentary evidence. The Tribunal observed that the Departmental Authorities cannot go beyond Circular no. 789 issued by the Central Board of Direct Taxes, stating that a valid TRC issued by Mauritius Authorities is adequate evidence of residency as well as beneficial ownership. The Tribunal upheld the decision of the First Appellate Authority, finding no infirmity in the decision-making process. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the decision of the First Appellate Authority. The Tribunal concluded that the assessee is a genuine tax resident of Mauritius and eligible to avail benefits under the India-Mauritius Tax Treaty. The Tribunal found no merit in the grounds raised by the Revenue and upheld the decision of the First Appellate Authority. The appeal was dismissed, and the decision was pronounced in open court on 23.07.2024.
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