9911796707
TMI Blog2024 (2) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... see in terms of Central Board of Direct Taxes (CBDT') order (No. F. No. 187/3/2020ITA-1) dated 31 March 2021 and August 13, 2020. 2.1 That the notice in the present case has been issued by NeAC/NfAC whereas the appellant is assessed to tax with International Tax charge and as such notice issued u/s 143(2) is without jurisdiction and the consequential assessment proceedings concluded by the AO are null and void. 3. That on the facts and circumstances of the case and in law, the La. AO grossly erred in violating principles of natural justice without providing reasonable opportunity of being heard to the Appellant during the course of assessment proceedings, and without considering the submission and material/ evidence filed on record. 4. That on the facts and circumstances of the case and in law, the Ld. AO erred in: a. taxing capital gains of Rs. 163,26,34,468 on sale of shares of Suryoday Small Finance Bank, Disha Medical Services, Rural Shores Business Services, Veritas under section 112 of the Act, as against under Article 13(4) of the India-Mauritius DTAA. b. Taxing interest income of Rs. 30,00,000/- as per provisions of the Act as against under Article 11 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t require adjudication. 3. At the time of hearing, learned counsel appearing for the assessee, on instructions, did not press ground No. 2 along with its sub-grounds. Hence, these grounds are dismissed as not pressed. 4. In ground Nos. 4, 5 and 5.1, the assessee has raised the common issue with reference to applicability of beneficial provisions of India-Mauritius Double Taxation Avoidance Agreement (DTAA) to the income earned under the head 'capital gain'. In addition to the aforesaid grounds, the assessee has raised an additional ground vide letter dated 09.05.2023 on the issue of taxability of longterm capital gain from sale of shares under Article 13(4) of India-Mauritius DTAA. Since, the adjudication of additional ground does not require fresh investigation of facts and can be decided based on the facts already available on record, we are inclined to admit the additional ground. 5. As could be seen, grounds Nos. 4 & 5 of the main grounds as well as the additional ground are on the common issue of taxability or otherwise of capital gain from sale of equity shares under Article 13(4) of India-Mauritius DTAA. 6. Briefly, the facts relating to the issue are, the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned DRP. However, learned DRP, in sum and substance, endorsed the views of the Assessing Officer. 8. Before us, learned counsel appearing for the assessee submitted, the assessee is not only incorporated in Mauritius but also a resident of Mauritius, which is demonstrated from the Tax Residency Certificate (TRC) issued by Mauritius revenue authorities. He submitted, assessee's registered office is situated in Mauritius and it maintains regular books of account and other statutory records in the registered office. He submitted, the key policy decisions, such as, fund flow, investment activities, divestment of investments are taken collectively outside India by assessee's board of directors, who are all non-residents including the resident directors in Mauritius. In this context, he drew our attention to share holding patterns of the assessee company as well as the details of the directors. He submitted, the assessee is continued with its business activities as on date and is holding multiple investments in Indian companies. He submitted, the assessee was primarily incorporated for making investments in microfinance institutions in India and from this very institution, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive basis had offered the capital gain from sale of shares of Varitas Finance Pvt. Ltd. under Article 13(3B) of India-Mauritius DTAA, however, capital gain from sale of equity shares is not at all taxable in view of Article 13(4) of the DTAA, as the shares were acquired prior to 01.04.2017 and the amended provisions of Article 13 as well as the limitation of benefit (LOB) clause as provided under Article 27A of the Treaty would not be applicable as it is applicable only with reference to Article 13(3B) of the Treaty. 10. Without prejudice, learned counsel submitted, the conditions of Article 27A are not applicable to the assessee, as the assessee cannot be considered to be a shell / conduit company, as neither the assessee has negligible or nil business operations nor its expenses are below the threshold limit prescribed in Article 27A. Thus, he submitted, the long-term capital gain derived from sale of equity shares is not taxable under any circumstance in case Article 13 of India-Mauritius DTAA is applied. Thus, he submitted, the long-term capital gain wrongly offered to tax in the revised return of income is not taxable under Article 13(4) of the India-Mauritius DTAA. 11. St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficial owners of the capital gain income are residents of different countries; (iii). that the TRC is not sufficient to establish the tax residency; (iv). that the assessee is not a beneficial owner of income as control and dominion of fund is not with the assessee; (v). that there is no commercial rationale of establishment of assessee in Mauritius as it has nil or negligible business; that the assessee cannot be a tax resident of Mauritius , as it is not IT liable to tax in Mauritius in terms of Article 4(1) of the Treaty. Of course, learned DRP has agreed with the views expressed by the Assessing Officer. 15. Keeping in view the aforesaid observations of the departmental authorities, let us examine the issue at hand. 16. First and foremost, the residential status of the assessee needs to be decided. As discussed earlier, from its very inception, the assessee has been granted TRC by Mauritius tax authorities. Though, the Assessing Officer is conscious of this fact, however, he has brought the theory of substance over form to deny Treaty benefits to the assessee despite valid TRC. In our view, the aforesaid decision of the Assessing Officer cannot be accepted under an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andolan (supra). While dealing with this particular issue, the Hon'ble Supreme Court interpreted the expression "liable to taxation" as used in Article 4 of India-Mauritius DTAA as well as the domestic law of Mauritius and held that merely because tax exemption under certain specified head of income including capital gain from sale of shares has been granted under the domestic tax laws of Mauritius, it cannot lead to the conclusion that the entities availing such exemption are not liable to taxation. The Hon'ble Supreme Court categorically rejected Revenue's contention that avoidance of double taxation can arise only when tax is actually paid in one of the contracting States. Hon'ble Court held that 'liable to taxation' and 'actual payment of tax' are two different aspects. Thus, keeping in view the ratio laid down by Hon'ble Supreme Court, as aforesaid, the reasoning of the Assessing Officer that since, the assessee is not liable to tax under Article 4 of the India-Mauritius Treaty, it cannot claim benefit of Treaty provisions, is liable to be rejected. 17. In so far as the allegation of the Assessing Officer that the assessee has been set up as a scheme of arrangement for tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 13(3B) of the Treaty by claiming beneficial tax rate under grandfathering clause. 19. Before us, the assessee has raised an additional ground reversing the stand taken in the revised return of income and has claimed exemption under Article 13(4) of the Tax Treaty in respect of capital gain arising from sale of equity shares of Veritas Finance Pvt. Ltd. It is the case of the assessee that it had acquired the cumulative convertible preference shares (CCPS) of Veritas Finance Pvt. Ltd. on 18.03.2016, whereas, the CCPS were converted to equity shares on 04.08.2017. Thus, it is the case of the assessee that the shares of Veritas Finance Pvt. Ltd. were acquired prior to 01.04.2017, hence, it will not be covered under Article 13(3A) and 13(3B), rather, under Article 13(4) of the Treaty. In our considered opinion, assessee's claim is acceptable. 20. Undoubtedly, the assessee has acquired CCPS prior to 01.04.2017, which stood converted into equity shares as per terms of its issue without there being any substantial change in the rights of the assessee. As rightly contended by learned counsel for the assessee, conversion of CCPS into equity shares results only in qualitative cha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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