VEG 'N' TABLE,NOIDA vs. DCIT, CIRCLE- INT. TAX 3(1)(1), DELHI
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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI SAKTIJIT DEY, VICE- & DR. B.R.R. KUMAR
per Article 13(4) of India – Mauritius DTAA, capital gain derived
from sale of shares acquired prior to 01.04.2017 are exempt from
taxation in the source country. However, the Assessing Officer
has denied the treaty benefits to the assessee by questioning the
residential status of the assessee by treating the assessee as a
conduit company set up for claiming treaty benefits.
Now, it is fairly well settled that TRC issued by the
competent of a particular country determines the tax residency of
a particular person/entity. The aforesaid position has not only
been accepted by the Revenue in Circular No. 789, dated
13.04.2000, but while upholding the validity of the aforesaid
Circular, the Hon’ble Supreme Court in case of Azadi Bachao
Andolan (supra) has also held that the person/entity holding a
valid TRC would be entitled to the treaty benefits. Subsequently,
the aforesaid legal position has been followed in many decisions,
including the recent decision of Hon’ble Jurisdictional High Court
in case of Blackstone Capital Partners (Singapore) VI FDI Three
Pte. Ltd. Vs. ACIT [2023] 452 ITR 111 (Delhi HC).
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ITA No.2251/Del/2022 AY: 2018-19
The only reason on which the Assessing Officer has declined
the treaty benefits to the assessee is because, according to him,
the assessee is a conduit entity set up in Mauritius only for the
purpose of availing treaty benefits, hence, it is a colourable device
to avoid tax. Though, the Assessing Officer has made various
allegations to conclude that the assessee is a conduit entity,
however, such conclusion is not backed by any substantive and
cogent material brought on record. In sum and substance, the
Assessing Officer has made mere allegations and has failed to
substantiate the fact that the assessee is a conduit company
through clinching evidences. Unfortunately, learned DRP without
going deep into the issue factually, has simply endorsed the view
of the Assessing Officer.
At this stage, we must observe, as per sub-section (2) of
section 90 of the Act, wherever the Government of India has
entered into an agreement with any other country outside India
for granting relief of tax or for avoidance of double taxation, then
in relation to the concerned assessee to whom the agreement
applies, the provisions of the Act shall apply to the extent they are
more beneficial to that assessee. In other words, if the provisions
of the DTAA are more beneficial to that particular assessee, the 7 | P a g e
ITA No.2251/Del/2022 AY: 2018-19
provisions of DTAA would override the domestic law. However,
Finance Act, 2013, introduced sub-section (2A) of section 90
w.e.f. 01.04.2016, which reads as under:
“(2A) Notwithstanding anything contained in sub-section 2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him.”
As could be seen from reading of the aforesaid provision,
with the introduction of sub-section (2A), earlier overriding effect
of the treaty provisions to some extent has been diluted as the
provisions of GAAR as provided under Chapter XA of the Act shall
apply irrespective of the fact that such provisions are not
beneficial to the concerned assessee. Thus, the department has
been empowered under the statue w.e.f. 01.04.2016 to deny
treaty benefits to the assessee in a case where GAAR is
applicable.
Undisputedly, the provisions of section 90(2A) read with
Chapter XA of the Act are applicable to the impugned assessment
year. Though, the Assessing Officer has alleged that the assessee
is a conduit company and has been set up as a part of tax
avoidance arrangement, surprisingly, he has not invoked the
provisions of GAAR as provided under Chapter XA of the Act. 8 | P a g e
ITA No.2251/Del/2022 AY: 2018-19
Even, the Departmental Authorities have not invoked the LOB
clause as provided under Article 27A of India – Mauritius DTAA.
Thus, facts on record clearly indicate that the departmental
authorities were accepting that the shares in the Indian
companies having been acquired prior to 01.04.2017, the capital
gain derived from sale of such shares would be exempt from
taxation in India in terms of Article 13(4) of the Indian – Mauritius
DTAA. Only for the purpose of defeating assessee’s claim of
exemption under Article 13(4) of the treaty, the Assessing Officer
has introduced the theory of tax avoidance arrangement and
Conduit Company.
Since, the allegations of the departmental authorities that
the assessee is a conduit company and has been set up under a
scheme of tax avoidance arrangement remains unsubstantiated
through cogent evidence brought on record, we are inclined to
accept assessee’s claim of exemption under Article 13(4) of India –
Mauritius DTAA, qua the capital gain derived from sale of subject
shares. The Assessing Officer is directed to delete the addition.
For the sake of completeness, we must observe, though, the
Assessing Officer has made an attempt to derive strength from
certain observations of Hon’ble Supreme Court in case of 9 | P a g e
ITA No.2251/Del/2022 AY: 2018-19
Vodafone Intl. Holding Vs. Union of India [2012] 17 taxmann.com
202, however, in our view, the observations of the Hon’ble
Supreme Court have to be applied keeping in view the factual
context.
In the facts of the present appeal, since, the departmental
authorities have failed to establish that the assessee is a conduit
company, the TRC issued by the competent authority in
Mauritius would not only determine the residential status of the
assessee, but also its entitlement under the treaty provisions.
In the result, the appeal is allowed, as indicated above.
Order pronounced in the open court on 31st October, 2023
Sd/- Sd/- (DR. B.R.R. KUMAR) (SAKTIJIT DEY) ACCOUNTANT MEMBER VICE-PRESIDENT Dated: 31st October, 2023. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi
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