ITAT Allows Capital Gains Exemption To NSE Investor Under India-Mauritius Tax Treaty

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has allowed the capital gains exemption to NSE investors under the India-Mauritius tax treaty.

The bench of G.S. Pannu (President) and Saktijit Dey (Vice President), while condemning the department, observed that when the assessee holds a valid Tax Residency Certificate (TRC) and Category 1 GBL and, moreover, the entire process relating to the acquisition of shares of NSE and its sale went through a process of scrutiny and approval by various Government Authorities and agencies, doubt entertained by the Assessing Officer regarding the residential and commercial status of the assessee company is quite surprising.

The appellant/assessee is a non-resident corporate entity incorporated in Mauritius and is a tax resident of Mauritius. The Assessing Officer noted the assessee operates as an investment holding company, undertaking various investments. The assessee holds a valid TRC issued by the Mauritius Tax Authorities. The assessee also holds a valid Global Business Licence (Category 1) (GBL-1) issued by the Financial Service Commission in Mauritius.

The assessee’s holding companies are SAIF II Mauritius Company Ltd. (SAIF II), which owns 51% of the shareholding, and SAIF III Mauritius Company Limited (SAIF III), which holds 49% of the shareholding in the assessee company. Two of the directors of the assessee company are residents of Mauritius, whereas two other directors are from Hong Kong.

The assessee received dividend income on equity shares of the National Stock Exchange (NSE), whereas it received net long-term capital gain on part disposal of equity shares of the NSE. The assessee claimed the dividend income as exempt under Section 10(34) of the Act. whereas he claimed the net long-term capital gain to be exempt under Article 13(4) of the India-Mauritius tax treaty.

The Assessing Officer ultimately held that the assessee could not be treated as a tax resident of Mauritius and, hence, would not be entitled to treaty benefits. The AO framed the draft assessment order. The assessee filed objections against the draft assessment order before DRP.

The DRP admitted the additional evidence and called for a remand report from the Assessing Officer; however, ultimately, rejecting the objections, they upheld the decision of the Assessing Officer.

The assessee contended that the assessee was incorporated in Mauritius in 2008 and has been in existence for over 15 years. The assessee’s status as of date continues to be active in the investment holding business, even after the sale of part of its shares on the NSE. The assessee is not a fly-by-night operator but has held the investments for a considerable length of time.

The tribunal held that the assessee has held the shares in NSE for more than a decade, since the year 2009, and even as of date, is still holding 3.5% of the shares in NSE. Thus, holding a period of shares by the assessee demonstrates the status of the assessee as a genuine entity carrying on the business of holding investments. It is now fairly well settled that a TRC issued by an authority in another tax jurisdiction is the most credible evidence to prove the residential status of an entity, and the TRC cannot be doubted.

Case Title: Saif Ii-Se Investments Mauritius Limited Versus Assistant Commissioner Of Income Tax

Case No.: ITA No.1812/Del/2022

Date: 14.08.2023

Counsel For Appellant: Kanchun Kaushal

Counsel For Respondent: Vizay B. Vasanta

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