Delhi Tribunal reaffirms that the taxpayer can claim the benefits of a double taxation avoidance agreement between India and Mauritius on the basis of a tax residency certificate
ITA No.2889/Del./2007 (Delhi Bench)
The assessee, a company incorporated in Mauritius, was engaged in the business of dealing and making investments in shares and securities. The assessee made investments in the Indian capital market and derived short term / long term capital gains.
The assessee claimed capital gain derived by it on sale of investments as not taxable in India on the basis that the company is a Mauritius incorporated company and has a tax residence certificate of Mauritius; therefore, it is not liable for any tax on capital gains earned on investment in shares as per the Double Taxation Avoidance Agreement between India and Mauritius („DTAA‟).
The assessee also contended that the company is not effectively managed from India as its directors and shareholders are not based in India.
The above contentions were however not accepted by the Assessing Officer. (AO)
The Commissioner of Income-tax (Appeals) allowed the claim of the assessee in view of the favourable decision of the Appellate Tribunal in the assessee‟s own case for assessment year 2000-01. Against the said order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Appellate Tribunal.
Contentions of the Revenue
The assessee is not entitled to the benefits of the DTAA as the effective control and management of its affairs was in India.
The Delhi High Court in case of Shiva Kant Jha v. Union of India1 had quashed Circular No.7892 dated 13 April 2000 issued by the Central Board of Direct Taxes („CBDT‟) on the basis that it was ultra vires.
Circular No. 1 dated 10 February 2003 issued by the CBDT has clarified that where an assessee was a resident of both, India and Mauritius, then the AO can proceed to treat such assessee as resident in India provided the effective management of the assessee is in India.
Contentions of the Assessee:
The decision of Shiva Kant Jha (supra) has been reversed by the Supreme Court in the case of Union of Indian v. Azadi Bachao Andolan3, which has held that Circular No. 789 of 13 April 2000 is valid and efficacious.
After the decision of the Supreme Court, Circular No. 789 of 13 April 2000 is binding on the income-tax authorities and therefore capital gains earned in India is not taxable in India.
Ruling of the ITAT:
The ITAT dismissed the appeal of the Revenue by holding that the decision of the Supreme Court in the case of Azadi Bachao Andolan (supra), stands in favour of the assessee.
The Delhi Tribunal has reaffirmed the principles laid down by the Supreme Court in case of Azadi Bachao Andolan (supra), thereby holding that the taxpayer, having a tax residence certificate of Mauritius. can claim the benefits of the DTAA.
1) 256 ITR 563 (HC)
2) The circular clarified that a resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares and that a Certificate of Residence issued by the Mauritian Authorities will constitute sufficient evidence for accepting the status of residence
3) 263 ITR 706 (SC)
Source: DDIT v. M/s Saraswati Holding Corporation Inc. ITA No.2889/Del./2007 (Delhi Bench)