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TMI Blog2024 (8) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... tely Rs. 40.427 crores on these shares purchased after 1 April 2017. However, the long term capital gain from sale of 9013 shares was not offered to tax and was claimed exempt under Article 13(4) of India-Mauritius DTAA. To which the AO had denied the treaty benefit. The DRP had sustained same and accordingly final assessment order was passed, which is under challenge by raising following grounds; 3. We find that in DRP order all the relevant aspects as discussed by AO have been duly narrated as follows; "......... The assessee's submissions were considered but assessee could not justify its commercial rationale of establishment in Mauritius except just for exploiting India Mauritius Treaty benefits. It has submitted a Tax Residency Certificate of Mauritius for the year under consideration. It has been analysed that lease agreement is signed between SANNE Mauritius and 9 group companies of the assessee including assessee itself. Tiger Global private Investment Partners VIII, L.P (Cayman) holds 99.8% shareholding in assessee company and the rest is held by Tiger Global Side Fund LLC(Delaware). Tiger Global private Investment Partners VIII, L.P is a Caymans Island exempted l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same can be evidenced from the cash flow statements which are duly audited. It is pertinent to note that Mauritius has no withholding tax on such payments. Under the current laws of the Cayman Islands, there are no income, estate, transfer, sale or other taxes applicable to the Company. The Company obtains benefits under the double taxation treaty between Mauritius and China. Under the current treaty, subject to certain conditions, an entity which is a tax resident in Mauritius, but has no branch or permanent establishment in China, may not be subject to capital gains tax in China on the sale of securities provided that the assets of the Chinese company do not principally consist of, directly or indirectly, immovable properties located in China. Under the treaty between Mauritius and India, subject to certain conditions, an entity which is a tax resident in Mauritius, but has no branch or permanent establishment in India, should not be subject to capital gains tax in India on the sale of securities. On May 10, 2018, India and Mauritius signed a protocol to amend their tax treaty with the objective of providing India with the taxing right of the capital gains. As per the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he object and purpose of the relevant provisions. These provisions set the legal basis of dealing with treaty shopping scenarios. The recent ruling of the AAR in AB Mauritius (2018) 402 ITR 311 and observations made by the Bombay High Court in Indo star Capital v. CTT also held on similar view based on 'substance over the form' principle. The place of incorporation argument is based on the premise that form is required to be recognized for deciding taxation issues. The Azadi Bachao Andolan of the Hon'ble Supreme Court is also based on this argument. However, the primacy of form of the taxpayer in deciding tax liability has not been approved under a tax treaty framework. For instance, under a dual residency situation always the economic substance overrides the form. The "control and management" test for tax residency of companies is basically based on the principle of "substance over form". The Hon'ble AAR in the assessee's own group company's case has dealt with an identical issue as to whether tax treaty benefit would be accorded in such a case. The AAR declined to give a ruling on non-taxability of a Mauritian resident in India in view of the India-M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies in a regional grouping that includes Cayman Islands and Asia. During the year of incorporation, the assessee made investments worth approximately USD 66.037 crores (Rs. 4,030.087 crores) across various jurisdictions. Out of the said investments, the direct investment in securities of Indian companies was approximately USD 2.338 crores (Rs. 142.688 crores) which as per the assessee is merely 3.54 per cent of the total investment. Over the years, the investments directly into the securities of Indian companies have increased marginally from 3.54 per cent to 5.57 per cent from 2014 to 2018. Specifically, after 1 April 2017, the assessee has made investments of approximately USD 0.8 crores (Rs. 49.272 crores) in India. 5.1 The Assessee submits that it meets the procedural requirements under the Act for availing itself of the tax treaty benefits. Assessee claims that for the purpose of the Act, a treaty applies to a non-resident only when such non-resident furnishes a valid TRC and also provides such other information as is required to be submitted in Form 10F. Which, assessee claims stands complied. The case of assessee is that assessee has an office space in Mauritius, where all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial status and beneficial ownership of Mauritian entities for applicability of the tax treaty. Ld. Sr. Counsel has stressed on the fact that inspite of some proposed amendments the aforementioned CBDT circulars have not been withdrawn as on date and continue to remain operative for the year under consideration and the tax treaty continues to be as is for investment made by an assessee prior to 1 April 2017. 6.1 Ld. Sr. Counsel has further relied the Hon'ble Supreme Court judgement in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), to submit that said judgment has upheld the applicability of aforesaid circular No. 789 dated 13 April 2000, issued by CBDT, thereby confirming that a Certificate of Residence issued by the Mauritias, is sufficient evidence of residency. He then has relied judgment of Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. v. UOI and Anr [2012] 341 ITR 1 (SC), to contend that the Hon'ble Supreme Court has reaffirmed the Azadi Bachao Andolan (supra) decision. 6.2 Ld. Senior counsel has argued that pursuant to the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings BV (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s up that the appellant is admittedly a resident of Mauritius and there is a TRC issued in favour of the assessee by the treaty partner. As with regard to the consequences of holding a TRC, we are of the considered view that circular number 682/1994 and circular no. 789/2000 of Board, along with the judgment of Hon'ble Supreme Court of India in the case of Azadi Bachao Andolan (supra) and others and Vodafon (supra), sufficient lay down that the TRC is a statutory evidence of the residential status and even if it is not considered conclusive evidence, the onus shifts on the Assessing Officer to establish by evidences that except for holding the TRC, the entity is a conduit, created and run for treaty shopping. 11. In the case in hand after going through the assessment order and the findings of DRP, we are of the considered view that the Assessing Officer has drawn the conclusion of assessee being a conduit and treating shopping entity questioning various aspect about purpose of investment, organisational set up, premises held to operate, management of affairs, distribution of gains to conclude the entity is a conduit, created and run for treaty shopping. Thus for merely holding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner at the Independent Commission against Corruption and Head of the Supreme Audit Institution of Mauritius. He was Auditor General of Government of Mauritius and Chief Executive Officer of the Audit Department and Senior Internal Auditor, UNICEF and Director of Supreme Audit Institution of Mauritius. Ms. Dilshad Rajabalee is resident of Mauritius and Fellow member of the Association of Chartered Certified Accountants - United Kingdom (FCCA) and Earlier working with pricewater house coopers Mauritius in audit and assurance department. Mr. Steven Boyd is resident of United States of America and Juris Doctor from Georgetown University Law Centre and Bachelor of Arts. 17. The key decisions with respect to the investment holding company and divestment decisions are taken only by the Board of directors of the Appellant. The Board of Directors have the sole authority over the affairs of the Applicant. The decision to invest into and ultimately sell the shares held in Policybazaar was taken by the Directors of the Appellant in Mauritius. 18. Further, we have been appraised of the all the board minutes forming part of record before the Assessing Officer which shows that the Appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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