By Geeta Jani, Dhishat B. Mehta Chartered Accountants
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Capital gains arising from sale of shares of an Indian company by a Mauritius company are not chargeable to tax in India in terms of Article 13(4) of India-Mauritius DTAA.
Facts:
The appellant was a company incorporated in Mauritius (‘MCo’). Mauritius tax authority had issued Tax Residence Certificate (‘TRC’) to MCo. MCo held equity shares of an Indian company. MCo sold the shares to another Mauritius company resulting in capital gains.
MCo sought ruling of AAR on the following questions:
Whether MCo was liable to tax on capital gain under Income-tax Act and India-Mauritius DTAA?
Whether the sale of shares was subject to withholding tax u/s. 195 of Income-tax Act?
MCo contended that in terms of Article 13(4) of India-Mauritius DTAA, capital gain arising from sale of shares was not liable to tax in India and that TRC constituted valid and sufficient evidence of residential status under India-Mauritius DTAA. MCo also relied on Supreme Court’s decision in Union of India v. Azadi Bachao Andolan, (2003) 263 ITR 706 (SC) and Circular No. 789 of 2000 of CBDT.
Held:
In terms of Article 13(4) of India-Mauritius DTAA, power of taxation of gains is vested only in the state of residence (i.e., in this case, Mauritius). If the provision in DTAA is more beneficial, the taxpayer is entitled to seek benefit under DTAA. Hence, MCo was not liable to pay tax in India on capital gains.
Sale of share is not subject to withholding tax u/s. 195 of T I Act.
