EMERGING INDIA FOCUS FUNDS,MAURITIUS vs. ACIT, CIRCLE INTERNATIONAL TAX, 1(2)(2), DELHI

ITITA 148/DEL/2026Status: DisposedITAT Delhi29 September 2026AY 2023-2433 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal noted that the DRP had already considered the cancellation of the management shareholder's GBL, loss of effective management, and treaty eligibility/LOB considerations, holding that the assessee failed to maintain substance requirements for treaty benefits. The Revenue, relying on the Supreme Court's decision in *AAR v. Tiger Global International II Holdings* (2026), argued that a Tax Residency Certificate (TRC) is not conclusive and the Revenue can examine abuse and substance. The Tribunal acknowledged that *Tiger Global* allows the Revenue to contend that a Mauritian TRC is not the end of inquiry, but the Revenue bears the burden of establishing abuse. The Tribunal found that while the Revenue raised issues regarding the absence of an office/staff and the *Tiger Global* decision, the case that the assessee was a sham/conduit required scrutiny. Crucially, the Tribunal noted that the license of the assessee's controlling shareholder was revoked, leaving ambiguity regarding who possessed legal authority for investment/redemption decisions and whether Board approvals were obtained. Due to the principle of natural justice, the Tribunal set aside the issue of treaty benefit availing, applicability of Article 27A, and the relevance of new materials to the AO for fresh adjudication, directing the AO to provide the assessee an effective opportunity to rebut the propositions. The appeal was allowed for statistical purposes.

What were the facts?

The assessee, Emerging India Focus Funds, a Mauritius tax resident and SEBI registered Category 1 Foreign Portfolio Investor, is engaged in a Collective Investment Scheme. For Assessment Year 2023-24, it reported capital gains of Rs.289.16 crores on redemption of equity-oriented mutual funds, claiming exemption under Article 13(4) of the India-Mauritius Double Tax Avoidance Agreement (DTAA). The Assessing Officer (AO) and Dispute Resolution Panel (DRP) disagreed, holding Rs.134.13 crores taxable under Article 13(3A) as gains from mutual funds acquired post-01.04.2017, and Rs.124.96 crores taxable under Article 13(3A) with Article 27A (Limitation of Benefits) invoked due to the cancellation of the assessee's Global Business License (GBL) on 13.04.2022. The AO's final assessment order dated 16.01.2026 made additions aggregating to Rs.259,10,11,117. The assessee appealed to the Income Tax Appellate Tribunal (ITAT).

What were the issues?

1. Whether capital gains of Rs.134,13,14,625 earned on redemption of mutual funds acquired after 01.04.2017 are taxable in India under Article 13(3A) of the India-Mauritius DTAA, or exempt under Article 13(4), considering that the underlying assets of mutual funds are equity/shares (Assessee: Exempt under Art. 13(4) as mutual funds are not 'shares' under Art. 13(3A); Revenue: Taxable under Art. 13(3A) as underlying assets are shares). 2. Whether capital gains of Rs.124,96,96,492 earned on mutual funds acquired prior to 01.04.2017 are taxable in India under Article 13(3A) of the India-Mauritius DTAA, with Article 27A (Limitation of Benefits) being invoked due to cancellation of the GBL (Assessee: Exempt under Art. 13(4) and Art. 27A should not apply; Revenue: Taxable under Art. 13(3A) and Art. 27A applies due to cancellation of GBL and lack of substance). 3. Whether the AO erred in levying interest of Rs.14,42,98,584 under section 234B of the Act (Assessee: Incorrectly levied; Revenue: Not recorded.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 234B,Section 90(4)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI

Before: MS. KAVITHA RAJAGOPAL & SH. NAVEEN CHANDRA

For Appellant: Shri Ajay Vohra, Sr. Adv, Shri Samarth Chaudhari, Adv. and Shri Gourav, C.A
For Respondent: Dr. Shalini Verma, CIT-D.R
Hearing: 02.07.2026Pronounced: 29.09.2026

PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :

The above captioned appeal is preferred by the assessee against the assessment order dated 16.01.2026, passed by Income Tax Department, Office of the Assistant Commissioner of Income Tax, Circle – International Tax 1(2)(2), Delhi (hereinafter referred to as ‘ld. AO), under section 143(3)/144C(13) of the Income Tax Act, 1961

IT(IT)A No. 148/DEL/2026 [A.Y 2023-24] Emerging India Focus Funds (hereinafter ‘the Act’) in pursuance of directions of the ld. Dispute Resolution Panel-1, New Delhi (in short ‘ld. DRP') dated 03.12.2025 pertaining to Assessment Year

The order continues below.

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