October 2018

3 Article 11(3) of India-Mauritius DTAA – clarification issued by CBDT; Circular No. 789; Tax Residency Certificate can be the basis for determining beneficial ownership of interest income

Geeta Jani , Dhishat B. Mehta, Chartered Accountants

TS-460-ITAT-2018

HSBC Bank (Mauritius) Limited vs. DCIT

A.Y: 2011-12; Date of Order: 2nd July, 2018

 

Article 11(3) of India-Mauritius DTAA – clarification issued by CBDT; Circular No. 789; Tax Residency Certificate can be the basis for determining beneficial ownership of interest income

 

Facts

The Taxpayer was a limited liability company incorporated, registered and tax resident, in Mauritius and was engaged in banking business. During the year under consideration, the Taxpayer earned interest from investments in debt securities in accordance with the SEBI Regulations. The Taxpayer claimed that its income was exempt in India in terms of Article 11(3)(c) of the India-Mauritius DTAA.

 

The AO, in conformity with the directions of DRP, denied the exemption on the ground that the Taxpayer did not fulfil the following three conditions prescribed in Article 11(3)(c) of the India-Mauritius DTAA.

 

(i)   the interest was not “derived” by the Taxpayer;

(ii)   interest was not “beneficially owned” by the Taxpayer; and

(iii)  the Taxpayer did not carry on bonafide banking business.

 

Aggrieved, the Taxpayer appealed before the Tribunal. The Tribunal held that the Taxpayer derived interest income and that it was carrying on bonafide banking business. As regards the third condition pertaining to ‘beneficial ownership’, the Tribunal remanded the matter to AO.

 

The Taxpayer agitated the issue through miscellaneous application before the Tribunal. Thereafter, the Tribunal recalled its order insofar as it pertained to ‘beneficial ownership’. To suppo

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