Article 29 - Termination - Mauritius

ARTICLE 29 TERMINATION This Convention shall remain in force indefinitely but either of the Contracting States may, on or before the thirtieth day of June in any calendar year beginning after the expiration of a period of five years from the date of its entry into force, give the other Contracting State through diplomatic channels, written notice of termination and, in such event, this Convention shall cease to have effect (a) in India, in respect of income and capital gains assessable for the assessment year commencing on 1st day of April in the second calendar year next following the calendar year in which the notice is given, and subsequent years ; (b) in Mauritius, in respect of income and capital gains assessable for the assessment year commencing on 1st day of July in the second calendar year next following the calendar year in which the notice is given, and subsequent years. In WITNESS WHEREOF the undersigned, being duly authorised thereto, have signed the present Convention. Done on this 24th day of August, 1982 at Port Louis on two original copies each in Hindi and English languages, both the texts being equally authentic. In case of divergence between the two texts, the English text shall be the operative one. ******* Taxation of income from dividend and capital gains under the Indo-Mauritius Double Tax Avoidance Convention 1. The Ministry of Finance today 13-4-2000 issued a clarification regarding taxation of income from dividends and capital gains under the Indo-Mauritius Double Tax Avoidance Convention (DTAC). In a circular addressed to all the Chief Commissioners of Income-tax, the Ministry said provisions of the Indo-Mauritius DTAC of 1983 apply to residents of both India and Mauritius. Article 4 of the DTAC defines a resident of one State to mean any person who, under the laws of that State is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. Foreign Institutional Investors and other investment funds, etc., which are operating from Mauritius are invariably incorporated in that country. These entities are liable to tax under the Mauritius tax law and are therefore to be considered as residents of Mauritius in accordance with the DTAC. 2. The circular said prior to 1-6-1997, dividends distributed by domestic companies were taxable in the hands of the shareholder and tax was deductible at source under the Income-tax Act, 1961. Under the DTAC, tax was deductible at source on the gross dividend paid out at the rate of 5% or 15% depending upon the extent of shareholding of the Mauritius resident. Under the Income-tax Act, 1961, tax was deductible at source at the rates specified under section 115A, etc. Doubts have been raised regarding the taxation of dividends in the hands of investors from Mauritius. It is hereby clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAC accordingly. 3. It further said, the test of residence mentioned above would also apply in respect of income from capital gains on sale of shares. Accordingly, FIIs, etc., which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph 4 of article 13. The aforesaid clarification shall apply to all proceedings which are pending at various levels. PIB Press Release : Dated 13-4-2000 . Clarification regarding agreement for avoidance of double taxation with Mauritius 1. A Convention for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes of income and capital gains was entered into between the Government of India and the Government of Mauritius and was notified on 6-12-1983. In respect of India, the Convention applies from the assessment year 1983-84 and onwards. 2. Article 13 of the convention deals with taxation of capital gains and it has five paragraphs. The first paragraph gives the right of taxation of capital gains on the alienation of immovable property to the country in which the property is situated. The second and third paragraphs deal with right of taxation of capital gains on the alienation of movable property linked with business or professional enterprises and ships and aircrafts. 3. Paragraph 4 deals with taxation of capital gains arising from the alienation of any property other than those mentioned in the preceding paragraphs and gives the right of taxation of capital gains only to that State of which the person deriving the capital gains is a resident. In terms of paragraph 4, capital gains derived by a resident of Mauritius by alienation of shares of companies shall be taxable only in Mauritius according to Mauritius tax law. Therefore, any resident of Mauritius deriving income from alienation of shares of Indian companies will be liable to capital gains tax only in Mauritius as per Mauritius tax law and will not have any capital gains tax liability in India. 4. Paragraph 5 defines alienation to mean the sale, exchange, transfer or relinquishment of the property or the extinguishment of any rights in it or its compulsory acquisition under any law in force in India or in Mauritius. Circular : No. 682, dated 30-3-1994 . Clarification regarding taxation of income from dividends and capital gains under the Indo-Mauritius Double Tax Avoidance Convention (DTAC) 1. The provisions of the Indo-Mauritius DTAC of 1983 apply to residents of both India and Mauritius. Article 4 of the DTAC defines a resident of one State to mean any person who, under the laws of that State is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. Foreign Institutional Investors and other investment funds, etc., which are operating from Mauritius are invariably incorporated in that country. These entities are liable to tax under the Mauritius Tax law and are, therefore, to be considered as residents of Mauritius in accordance with the DTAC. 2. Prior to 1-6-1997, dividends distributed by domestic companies were taxable in the hands of the shareholder and tax was deductible at source under the Income-tax Act, 1961. Under the DTAC, tax was deductible at source on the gross dividend paid out at the rate of 5% or 15% depending upon the extent of shareholding of the Mauritius resident. Under the Income-tax Act, 1961, tax was deductible at source at the rates specified under section 115A, etc. Doubts have been raised regarding the taxation of dividends in the hands of investors from Mauritius. It is hereby clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAC accordingly. 3. The test of residence mentioned above would also apply in respect of income from capital gains on sale of shares. Accordingly, FIIs, etc., which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph 4 of article 13. Circular : No. 789, dated 13-4-2000. CLARIFICATION ONE Reference is invited to the Circular No. 789, dated 13-4-2000 issued by the Board where it was clarified that wherever the certificate of residence is issued by the Mauritian authorities, such certificate will constitute sufficient evidence for accepting the status of residence, as well as beneficial ownership for applying DTAC accordingly. The said circular specified the mode of proof of residence of an entity in Mauritius. Certain doubts have been raised regarding the effect of the aforesaid circular, particularly whether the said circular would also apply to entities which are resident of both India and Mauritius. In order to remove all doubts on the subject, it is hereby clarified that where an assessee is a resident of both the Contracting States, in accordance with para 1 of article 4 of Indo-Mauritius DTAC, then, his residence is to be determined in accordance with para 3 of the said article, which reads as under : 3. Where, by reason of the provisions of paragraph 1, a person other than an individual is resident of both the Contracting States, then it shall be deemed to be a resident of the Contracting State in which the place of effective management is situated. In view of the above, where an Assessing Officer finds and is satisfied that a company or an entity is resident of both India and Mauritius, he would be free to proceed to determine the residential status under para 3 of article 4 of DTAC. Where it is found as a fact that the company has its place of effective management in India, then notwithstanding its being incorporated in Mauritius, it would be taxed under the DTAC in India. Circular : No. 1/2003, dated 10-2-2003. JUDICIAL ANALYSIS n Circular No. 789 was quashed by the Delhi High Court in Shiv Kant Jha v. Union of India [2002] 122 Taxman 952 [The Supreme Court in Union of India v. Azadi Bachoo Andolan [2002] 125 Taxman 826 stayed the operation of the Delhi High Court Judgment]. n Provisions of DTAA will be applicable only if the recipient is resident in Mauritius in terms of the DTAA and is liable to pay tax in that countryTVM Ltd. v. CIT [1999] 102 Taxman 578/237 ITR 230 (AAR-N. Delhi). n To the extent the guidelines as given in CBDT Circular No. 742, dated 2-5-1996 purport to extend the applicability of the presumptive rate of profits even to the cases where the foreign telecasting company has no permanent establishment in India, it cannot be treated as laying down the correct position in lawTVM Ltd. v. CIT [1999] 102 Taxman 578/237 ITR 230 (AAR - N. Delhi). n Applicant which is a collective investment vehicle like a mutual fund and has set up its business in Mauritius and made investments in Indian companies and will have income in form of dividends, interest and capital gains from its investments, it will be entitled to benefit of DTAA between Mauritius and India XYZ/ABC Equity Fund v. CIT [2001] 116 Taxman 719/250 ITR 194 (AAR - N. Delhi). n Even a non-independent agent can be deemed to be a P.E. only if he can act independently in the matter of concluding contracts on behalf of the principal on his own, freely and without control from the otherTVM Ltd. v. CIT [1999] 102 Taxman 578/237 ITR 230 (AAR - N. Delhi). See Companies Incorporated in Mauritius, In re [1996] 89 Taxman 125 (AAR - New Delhi)/DLJMB Mauritius Investment Company v. CIT [1997] 94 Taxman 218 (AAR - New Delhi)/Dr. Rajni Kant R. Bhatt v. CIT [1996] 89 Taxman 82 (AAR - New Delhi).