9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (8) TMI 279 - AT - Income TaxTaxability of capital gain in India v/s Mauritius - residential status and beneficial ownership of Mauritian entities for applicability of the tax treaty - As per AO assessee entity is a conduit, created and run for treaty shopping. Thus for merely holding the TRC, the assessee cannot claim absolute immunity HELD THAT - The Appellant is controlled and managed by its board of directors in Mauritius which comprised of two Mauritian resident directors (Moussa Taujoo and Dilshaad Rajabalee) and one US resident director (Steven Boyd) and all meetings physically chaired in Mauritius with majority of its board of directors being the residents of Mauritius. We have been appraised of the all the board minutes forming part of record before the Assessing Officer which shows that the Appellant was controlled and managed by its board of directors in Mauritius and all decisions with respect to the affairs of the company were taken by the Board itself in Mauritius. All SPAs for sale / transfer of shares have been executed by the Mauritian resident directors. Tax authorities below have failed to rebut the statutory evidence of the TRC with cogent evidence, and merely on the basis of suspicion and inferences, the assessee is held to be engaged in treaty shopping. The fact that the assessee had no funds of its own was due to the nature of its operation as investment platform and certainly when any gain is made out from the dis-investment, the benefit has to be transferred to those who had initially invested trusting the fund management skill of assessee. No doubt, the assessee is a dropdown entity associated with the entities operating in Cayman Island, but that does not taint the genuine activities as investment platform and the doctrine of substance over form cannot be stretched to the extent, that merely because the assessee has associated enterprises operating from the Cayman Island, the investments which were made in a prestigious Indian company, in a initial years of its growth, would also become tainted. Lastly, the minuscule percentage of the fund of the assessee, invested in India, as compared to the investments it has made across various economies, rebuts all the inferences drawn by the tax authorities below, questioning the substance over form of assessee and the same cannot be sustained.Assessee appeal allowed.
Issues Involved:
1. Denial of treaty benefits under Article 13(4) of India-Mauritius DTAA. 2. Determination of the commercial rationale for the establishment in Mauritius. 3. Examination of the control and management of the company's affairs. 4. Allegations of treaty shopping and tax avoidance practices. 5. Validity and sufficiency of the Tax Residency Certificate (TRC). Detailed Analysis: Issue 1: Denial of Treaty Benefits under Article 13(4) of India-Mauritius DTAA The Assessee, a resident of Mauritius, claimed exemption from long-term capital gains tax under Article 13(4) of the India-Mauritius DTAA. The Assessee sold shares in an Indian company and paid tax on shares acquired after April 1, 2017, but claimed exemption for shares acquired before this date. The AO denied treaty benefits, which was upheld by the DRP. The Tribunal observed that the Assessee had a valid TRC issued by Mauritius, which should be considered conclusive evidence of residency. The Tribunal relied on CBDT Circulars No. 682/1994 and 789/2000, and the Supreme Court judgments in Azadi Bachao Andolan and Vodafone International Holdings B.V., confirming that the TRC is sufficient evidence for claiming treaty benefits. Issue 2: Determination of the Commercial Rationale for the Establishment in Mauritius The AO questioned the commercial rationale of establishing the Assessee in Mauritius, suggesting it was primarily for exploiting treaty benefits. The Tribunal noted that the Assessee was set up in 2014 as an investment platform for making investments in various jurisdictions, including India. The Assessee maintained an office, accounting records, and statutory documents in Mauritius, and had two employees based there. The Tribunal found that the Assessee met the procedural requirements under the Mauritius laws for determining 'management and control'. Issue 3: Examination of the Control and Management of the Company's Affairs The AO contended that the Assessee failed to establish its control and management in Mauritius, citing the involvement of a US-based director in strategic decisions. The Tribunal observed that the Assessee's board of directors, comprising two Mauritian residents and one US resident, managed and controlled the company's affairs. Key investment and divestment decisions were taken by the board in Mauritius, and the Assessee provided evidence of board meetings and decisions taken in Mauritius. The Tribunal concluded that the Assessee demonstrated sufficient control and management in Mauritius. Issue 4: Allegations of Treaty Shopping and Tax Avoidance Practices The AO alleged that the Assessee engaged in treaty shopping and tax avoidance, as it did not pay taxes in Mauritius, India, China, Singapore, and the Cayman Islands. The Tribunal noted that the Assessee was an investment platform, and its operations involved distributing gains to investors. The Tribunal emphasized that the Assessee's association with entities in the Cayman Islands did not taint its genuine investment activities. The Tribunal found that the Assessee's minimal investment in India compared to its global investments rebutted the AO's inferences of treaty shopping. Issue 5: Validity and Sufficiency of the Tax Residency Certificate (TRC) The Tribunal reiterated that the TRC issued by Mauritius is a statutory evidence of the Assessee's residency. The Tribunal held that the AO failed to provide cogent evidence to rebut the TRC and merely relied on suspicions and inferences. The Tribunal emphasized that the TRC, along with compliance with Mauritius laws, established the Assessee's residency and entitlement to treaty benefits. Conclusion: The Tribunal allowed the Assessee's appeal, holding that the Assessee was entitled to the benefits under the India-Mauritius DTAA. The Tribunal found that the Assessee demonstrated sufficient control and management in Mauritius, and the AO failed to provide evidence to rebut the TRC. The Tribunal concluded that the Assessee's activities were genuine and not aimed at treaty shopping or tax avoidance. The appeal was allowed, and the order was pronounced in open court on 26.07.2024.
|
