2023 (6) TMI 741 - HC - Income Tax

Income taxable in India - sale of shares by the petitioner of an Indian company - benefit of Tax Residency Certificate (TRC) - petitioner takes the stand, that since it has been issued a TRC under the laws of Mauritius, it is entitled to take benefit of the provisions of Article 13 of the India-Mauritius DTAA obtaining between India and Mauritius - AO ruled, that the TRC issued to the petitioner was not conclusive evidence, which would establish its residential status, consequently making the petitioner eligible for treaty benefits. HELD THAT - AO has attributed an intent to the assessee- which is that it would indulge in tax evasion inter alia, by treaty shopping, without any material or information of such kind being put to it. We are of the view, that unless relevant information, if any, which is available with the AO, is put to the petitioner, which leads to a conclusion that the TRC obtained by the petitioner is not legally valid and/or viable, the impugned order passed by the AO cannot be sustained. Without expressing any final view in the matter, in our opinion, the best way forward would be to set aside the order, and direct the AO to confront the petitioner with material or information, which according to her, would have her arrive at a conclusion that the TRC on which the petitioner seeks to place reliance deserves to be rejected. AO, who has called for the relevant information, will furnish the same to the petitioner, as soon as the same is made available.

Summary

Issues Involved:
The issues involved in the judgment include the challenge to the order and notice issued by the Assessing Officer (AO) without regard to the Tax Residency Certificate (TRC), the jurisdiction of the AO in the matter, and the validity of the TRC as evidence of residential status for treaty benefits.

Challenge to Order and Notice:
The petitioner had previously challenged the order and notice issued by the AO regarding the sale of shares without considering the TRC issued in its favor. The transaction involved the sale of shares of an Indian company to another entity without deduction of tax at source. The petitioner contended that the TRC entitled it to benefits under the India-Mauritius Double Taxation Avoidance Agreement.

Jurisdiction of the AO:
The High Court had set aside the previous order and notice, directing the AO to examine jurisdictional issues raised by the petitioner. The recent order by the AO questioned the validity of the TRC as conclusive evidence of residential status for treaty benefits. The AO ruled that TRC alone was not sufficient proof and suggested intent of tax evasion without substantial evidence.

Validity of TRC for Treaty Benefits:
The AO's order raised concerns about treaty shopping and the validity of the TRC as evidence of residential status. The High Court found the AO's rationale tentative and lacking substantial information to reject the TRC. It was emphasized that without concrete evidence against the TRC, the AO's order could not be upheld, and the petitioner should be provided with relevant material before further proceedings.

Conclusion:
The High Court set aside the impugned order and directed the AO to confront the petitioner with material or information leading to the rejection of the TRC if deemed necessary. The AO was instructed to provide necessary information to the petitioner before taking further steps in the matter. The writ petition was disposed of accordingly, and pending applications were closed, with parties instructed to act based on the digitally signed copy of the order.