ACIT, CIRCLE-2(2)(1), INT. TAXATION, NEW DELHI vs. MAVEN INDIA FUND, MAURITIUS

concerning assessee’s claim of exemption on capital gains, derived from sale of

shares/ security, under Article 13 of the India-Mauritius Double Taxation

Avoidance Agreement (DTAA). Briefly, the facts are, the respondent assessee is a

non-resident corporate entity, incorporated in Mauritius. Assessee is recognized as

a tax resident of Mauritius on the strength of Tax Residency Certificate (TRC)

issued by the Revenue Authority in Mauritius. The assessee is basically an

investment fund and carries out investment activities. The assessee is also

registered as a Foreign Portfolio Investor (FPI) with Securities and Exchange

3 ITA no. 1766/Del/2023 Board of India (‘SEBI’), as per SEBI Regulations. In terms of its business

activities, the assessee had made investments in purchase of shares, trading in

futures and options etc. In the year under consideration assessee earned revenue

from sale of shares of Indian companies, trading in futures and options, dividend

from Indian companies etc. Insofar as capital gain derived from sale of shares

acquired prior to 01.04.2017, the assessee did not offer them to tax by claiming

exemption under Article 13(4) of India-Mauritius Treaty. Capital gain derived

from sale of shares acquired after 01.04.2017 and sold before 31.03.2018 was

offered to tax, but, by availing beneficial tax rates in terms of Article 13(3B) of the

Tax Treaty. Gain derived from futures and option transactions was claimed exempt

u/s 13(4) of the DTAA. Dividend earned from Indian companies were claimed

exempt u/s 10(34) of the Act. Whereas, long term capital gain derived from sale of

equity shares, on which security transaction tax was paid, was claimed as exempt

from taxation u/s 10(38) of the Act.

the Assessing Officer called upon the assessee to furnish various details/

documents including ownership, details of directors, control and management of

the company etc. However, as alleged by the Assessing Officer, the assessee did

not fully comply with the queries made.

4 ITA no. 1766/Del/2023 5. Subsequently, the Assessing Officer made independent enquiries by issuing

notice u/s 133(6) of the Act to SEBI. From the information received from SEBI,

the Assessing Officer noticed that assessee’s holding company Athena Capital Ltd.

was directly held by Shri Mukut Behari Agarwal, who is a resident of United Arab

Emirates (UAE). Further, referring to the documents received from SEBI, he

observed that the beneficial owner of the assessee company was Mukut Behari

Agarwal. He further noted that assessee, as well as its holding company, in

Mauritius, were registered on the same day. Thus, based on such information

received, the Assessing Officer concluded as under:

“The ultimate control and management as well as the beneficiary of the entire corporate structure/group was Sh Mukut Behari Agonwal, who is a tax resident of United Arab Emirates The Assessee company is making different claims as per its conveniences with its submissions wide various replies. This clearly reflects the deliberate attempt to hide the information and mis-guiding the Income Tax Authorities about its claim. Therefore, it becomes clear that the directors in the Assessee company are just for namesake the actual decision-making lies outside Mauritius. The Assessee and its holding company were just used as corporate layers to channel funds of the tax residents of the United Arab Emirates through Mauritius to India The Assessee is not doing any bonafide business activity and was just being used to channelize funds to India to avail treaty benefits. The applicant company has no commercial substance. Mere possession of a TRC alone is not sufficient proof of control and management of the applicant company in Mauritius. Therefore, it may be safely inferred that the applicant company is a mere conduit/shell company.”

5 ITA no. 1766/Del/2023 6. Thus, ultimately, he concluded that since the control and management of the

assessee company lies outside Mauritius and in UAE, the beneficial owner being

resident of UAE, the assessee company is not entitled to avail benefit of India-

Mauritius Treaty. Accordingly, the Assessing Officer rejected assessee’s claim of

exemption under Article 13(3B) and 13(4) of the India-Mauritius Treaty and

brought to tax the entire capital gain derived from sale of shares and futures and

options etc.

preferred appeal before learned First Appellate Authority. After considering the

submissions of the assessee in the context of facts and materials on record, learned

First Appellate Authority, being satisfied that the assessee is a genuine tax resident

of Mauritius, allowed assessee’s claim of exemption under the India-Mauritius Tax

Treaty.

information was received from SEBI, which indicated that control and

management of the assessee was with Athena Capital Ltd., which, in turn, was

completely held by Shri Mukut Behari Agarwal, a resident of UAE. He submitted,

all corporate decisions were taken by Mukut Behari Agarwal in Mauritius,

therefore, the control and management of the assessee, for all practical purposes,

6 ITA no. 1766/Del/2023 was in UAE. Therefore, though, the assessee may be holding a TRC issued by the

Mauritius Authority, however, it could not be treated as a tax resident of Mauritius

for availing Treaty benefits. He submitted, recently India and Mauritius have

introduced a broad protocol to amend India-Mauritius DTAA, which was signed

on 07.03.2024. He submitted, as per the new preamble to be brought in place of the

old preamble, the common intention of the parties to the treaty is to eliminate

double taxation without creating opportunities for non-taxation or reduced taxation

through tax evasion or avoidance including through treat-shopping arrangements.

Drawing our attention to Article 3(2) he submitted, the provisions of the protocol

will apply from the date of entry into force of the protocol irrespective of the date

on which the taxes are levied or the taxable years to which the taxes relate.

However, he fairly submitted that as per Article 3(1) of the protocol, the

amendment would come into force only after they are notified by each of the

contracting States.

assessee holds a valid TRC issued by Mauritius Revenue Authority, which entitles

the assessee to avail benefit of India-Mauritius Tax Treaty. He submitted, as per

Article 13(4) of the DTAA, capital gain derived from sale of shares, acquired prior

to 01.04.2017 is exempt from taxation. He submitted, shares acquired after

01.04.2017 but sold prior to 31.03.2019, though, is subject to tax, however,

7 ITA no. 1766/Del/2023 beneficial tax rate would apply in terms of Article 13(3B). He submitted, the

limitation of benefit (LOB) clause under Article 27A of the Treaty, applies to

Article 13(3B) and not 13(4). He submitted, even the LOB clause is not applicable

to the assessee as none of the conditions mentioned therein are fulfilled. He

submitted, in case the Revenue authorities wanted to over-ride the pre conditions

they should have invoked the machinery provision contained in Section 144BA of

the Act, which has not been done.

Mauritius authorities providing for amendment to India-Mauritius Treaty, since,

has not been notified by both the Governments, the provision of the protocol

cannot be applied. In this context he relied upon the decision in the case of

Assessing Officer v. Nestle SA, 2023 SCC OnLine SC 1372. He submitted, since

the assessee is holding a valid TRC and is Category 1 global business license

holder and since all the directors of the assessee company are residents of

Mauritius; and all Board Resolutions are passed in Mauritius, the assessee has to

be treated as a tax resident of Mauritius, thereby eligible to avail the Treaty

benefits. He submitted, the erroneous factual findings of the Assessing Officer

have been clearly pointed out by the learned First Appellate Authority after

thoroughly examining the facts and materials available on record. He submitted,

simply based on certain information received from SEBI the Assessing Officer has

8 ITA no. 1766/Del/2023 concluded that Directors of the assessee company are not residents of Mauritius

and the beneficial ownership of the assessee company lies with a person residing in

UAE, therefore, the control and management of the assessee is outside Mauritius.

He submitted, learned First Appellate Authority has clearly discussed the correct

facts, which demonstrate that not only the assessee is a genuine tax resident of

Mauritius, having commercial substance, but the control and management of the

assessee for the year under consideration was in Mauritius. Thus, he submitted, the

learned First Appellate Authority was justified in allowing assessee’s claim of

exemption. He submitted, the Departmental Authorities cannot go beyond Circular

no. 789 issued by the Central Board of Direct Taxes, stating that a valid TRC

issued by Mauritius Authorities is adequate evidence of residency as well as

beneficial ownership. In support of his contention, learned counsel relied upon the

following decisions:

- UOI v. Azadi Bachao Andolan 263 ITR 706 (SC); - Bid Services Division (Mauritius) Ltd. v. Authority for Advance Ruling, W.P. No. 713 of 2021, judgment dated 08.03.2023 (Bombay High Court); - Superb Mind Holding Ltd. v. ACIT, ITA no. 1568/Del/2022, dated 05.03.2024 (Trib.) - Norwest Venture Partners X –Mauritius v. DCIT – ITA no. 2311/Del/2023 decision dated 19.03.2024; - Leapfrog Financial Inclusion India (II) Ltd. v. ACIT ITA nos. 365 and 366/Del/ 2023 dated 11.08.2023.

9 ITA no. 1766/Del/2023 11. We have considered rival submissions in the light of ratio laid down in the

judicial precedents cited before us and also perused the materials available on

record. Undisputed facts are that the assessee is a company incorporated in

Mauritius and the Mauritius Revenue Authority has issued TRC in favour of the

assessee for the year under consideration. Assessee also holds Category 1 Global

Business License issued by the Financial Services Department, Mauritius. The

assessee has been registered as a FPI by SEBI under the SEBI Regulations and the

registration continues till date. It is also a fact that the assessee is held by Athena

Capital Limited, another Mauritius based company.

Article 13(3B) and 13(4) of India-Mauritius DTAA has been primarily denied by

the Assessing Officer on the ground that the beneficial owner of the assessee is an

UAE resident, hence the control and management of the assessee company is based

out of Mauritius and in UAE. Of course, the Assessing Officer has also commented

that the assessee has no commercial substance in Mauritius as neither any business

activity is carried on in Mauritius nor any expenses have been incurred by the

assessee in Mauritius. The aforesaid observations of the Assessing Officer

primarily are based upon certain information/ document issued by the SEBI in

response to notice issued u/s 133(6) of the Act. However, learned First Appellate

Authority, after examining the facts and materials on record, has recorded a

10 ITA no. 1766/Del/2023 categorical factual finding that the documents received from SEBI did not pertain

to the assessment year under dispute but for some other assessment year.

Therefore, the fact relating to control and management of the assessee as well as

beneficial ownership cannot be ascertained from such documents.

of learned First Appellate Authority. The information received from SEBI, which

has been reproduced in the assessment order, clearly indicates that it did not

pertain to assessment year under dispute but to subsequent assessment years.

Therefore, no conclusion regarding control and management of the assessee

company or beneficial ownership for the impugned current year can be drawn

based on such documentary evidences.

and SEBI registration clearly demonstrate that the assessee is a genuine tax

resident of Mauritius. Except the information received from SEBI, the Assessing

Officer has failed to bring on record any adverse material which can establish

beyond any shadow of doubt that the control and management of the assessee was

outside Mauritius and the beneficial owner was a resident of UAE. On the

contrary, information available with the Assessing Officer clearly suggests that in

the year under consideration the assessee had three directors, all residents of

11 ITA no. 1766/Del/2023 Mauritius. Even, sample copies of Board Resolutions furnished in the paper book

demonstrate that Board meetings were conducted in Mauritius. It has also been

brought to our notice by learned counsel that even after capital gains from sale of

equity shares became taxable in India after 01.04.2017, under the Treaty

provisions, the assessee has not stopped its investment activities in India but has

continued with them and paid tax in India. The aforesaid contention of the assessee

remains uncontroverted. Thus, the very fact that the assessee has continued its

business activities in India proves that it is not a fly by night operator created only

for the purpose of availing Treaty benefits. In so far as applicability of protocol

dated 07.03.2024 amending the India-Mauritius Treaty, undisputedly as per Article

3(1) to the protocol, it will come into force only after each of the contracting States

notify it.

fairly submitted that the process mentioned in Article 3(1) of the protocol is yet to

be finalized. Thus, when the protocol is yet to come into force, it cannot be made

applicable.

assessee, they are based upon the broad principles set out by the Hon’ble Supreme

Court in case of Azadi Bachao Andolan (supra), while interpreting CBDT Circular

12 ITA no. 1766/Del/2023 no. 789 dated 13.04.2004. The ratio laid down in the judicial precedents clearly

applies to assessee’s case. Thus, on over all consideration of facts and materials on

record we do not find any infirmity in the decision of learned First Appellate

Authority.

challenged the decision making process of learned First Appellate Authority

basically on the following three points:

(i) Commissioner (Appeals) has ignored the fact that the assessee failed to submit relevant documents like qualifications of its Directors, details about its key employees etc. which could prove that the decision making of the assessee lies outside Mauritius. (ii) Commissioner (Appeals) is wrong in allowing treaty benefit when the control and management of the assessee is outside Mauritius. (iii) Commissioner (Appeals) failed to appreciate that intent of DTAA is not only avoidance of double taxation but also prevention of fiscal evasion.

Authority in the context of facts and material available on record, we do not find

any deficiency in the order of learned First Appellate Authority on the points raised

by Revenue, as noted above. Under these circumstances, we do not find merit in

13 ITA no. 1766/Del/2023 the grounds raised by Revenue. Accordingly, they are dismissed. Decision of

learned First Appellate Authority is upheld.

Order pronounced in open court on 23.07.2024.

Sd/- Sd/- (M. BALAGANESH) (SAKTIJIT DEY ) ACCOUNTANT MEMBER VICE PRESIDENT

Dated: 23.07.2024. *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI