VEG 'N' TABLE,NOIDA vs. DCIT, CIRCLE- INT. TAX 3(1)(1), DELHI

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).

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 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 Even, the Departmental Authorities have not invoked the LOB clause as provided under Article 27A of India – Mauritius DTAA.

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 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.