SAIF 2-SE INVESTMENTS MAURITIUS LTD,NEW DELHI vs. ACIT, CIRCLE INTERNATIONAL TAXATION (3)(1)(2) DELHI, NEW DELHI

per Government policy, a foreign investor can hold 5% of shares

in NSE. Thus, he submitted, SAIF II held 5 % of the shares in

NSE, which subsequently got transferred to the assessee. He

submitted, at the time of transfer of equity shares of NSE from

SAIF II to the assessee in the year 2009, again the transaction

went through entire process of regulatory approval of the

competent authorities, such as, FIPB, SEBI etc. He submitted, at

the time of sale of shares, third round of regulatory approval was

granted. Thus, he submitted, while granting approval with regard

to investment in equity shares of NSE, the regulatory authorities

in India have scrutinized assessee as well as its holding

companies group profile and portfolio, which include the ultimate

ownership by the entity in Cayman Island. General reputation of 7 | P a g e

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the assessee and its holding companies, record of fairness and

integrity, including financial integrity, good reputation and

character, and honesty along with impeccable track records of

directors, were taken note of.

scrutinized assessee’s and its holding companies’ credentials and

have found nothing adverse, the Assessing Officer, on mere

suspicion, cannot treat the assessee as conduit company having

no commercial rationale or substance. He submitted, even after

partially exiting from the investments made in the equity shares

of NSE, the assessee still holds substantial part of the equity

shares and assessee’s share holding in NSE has been reduced

from 5% to 3.5% only. Thus, he submitted, the allegations of the

departmental authorities on the residential and business status

of the assessee is wholly unsustainable.

has been incorporated in Mauritius and holding a valid TRC is

beyond dispute. He submitted, under section 73(1)(b) of the

Mauritius Income Tax Act, a company is said to be resident in

Mauritius, if it satisfies either of the two conditions, i.e., the

company is incorporated in Mauritius and has its central 8 | P a g e

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management and control in Mauritius. He submitted, in

assessee’s case, both the conditions are satisfied. He submitted,

as per the provisions of Mauritius Financial Services Act, 2007,

Category 1 GBL, per se, establishes that its control and

management is in Mauritius.

Mauritius Financial Services Act, the assessee is having two

directors, who are residents of Mauritius, its principal bank

account is in Mauritius, it maintains accounting records and

preparing auditing financial statements in Mauritius. Therefore,

the residential status of the assessee cannot be doubted or

disputed. He submitted, the TRC and Category 1 GBL licence

issued to the assessee, not only establishes its residential status

as a resident of Mauritius, but also establishes that its control

and management is in Mauritius. He submitted, once the

assessee is holding TRC, the departmental authorities cannot go

behind the TRC to question the residential status of the assessee.

In this context, he relied upon CBDT Circular Nos. 682, dated

30th March, 1994 and 789, dated 14th April, 2000. He also relied

upon the following decisions:

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i. UOI Vs. Azadi Bachao Andolan and Another [2003] 263 ITR

706 (SC)

ii. Blackstone Capital Partners (Singapore) VI FDI Three Pte.

Ltd. Vs. ACIT [W.P.(C) No.2562/2022, dated 22nd December,

2022].

iii. MIH India (Mauritius) Ltd. Vs. ACIT (ITA No.

1023/Del/2022, dated 16th November, 2022)

iv. HSBC Bank (Mauritius) Ltd. Vs. DCIT [ITA No.

1708/Mum/2016, dated 2nd July, 2018)

v. Reverse Age Healthcare Services Pte. Ltd. Vs. DCIT (ITA

No.1867/Del/2022, dated 17th February, 2023)

case of Vodafone International Holding B.V. [2012] 341 ITR 1 (SC)

relied upon by the Assessing Officer favours the assessee. In this

context, he drew our attention to the observations of the Hon’ble

Supreme Court in paragraph 97 of the judgment. Thus, he

submitted, the assessee, being a resident of Mauritius, is entitled

to avail treaty benefits, which is more beneficial. Therefore, capital

gain arising out of sale of equity shares has to be declared as

exempt under Article 13(4) of the tax treaty.

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the observations of learned DRP and Assessing Officer.

submissions in the light of decisions relied upon and perused the

materials on record. The core issue arising for consideration is,

whether the assessee can be treated as a tax resident of

Mauritius. Consequentially, can the assessee claim benefit of

exemption from taxability of capital gain on sale of equity shares

under Article 13(4) of the tax treaty. For deciding this issue, few

basic facts are required to be considered. Undisputedly, on

perusal of certificate of incorporation issued by Registrar of

Company, Mauritius, it is observed, the assessee has been

incorporated on 7th January, 2008 as a private limited company.

The Category 1 GBL has been issued in favour of the assessee by

Financial Services Commission, Mauritius on 16th January, 2009.

Further, from the date of its incorporation, the Mauritius Revenue

Authorities have issued TRCs in favour of the assessee. Even, in

the impugned assessment year, the assessee holds a valid TRC.

These facts are not disputed by the Assessing Officer.

viz., SAIF II, acquired 5% unlisted equity shares of NSE, being 11 | P a g e

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22,50,000 shares at a price of USD 55.55 per share for a total

consideration USD 125 million. At the time of acquisition of

shares by SAIF II, the various regulatory authorities of the

Government of India, such as, FIPB, SEBI, RBI, NSE India

undertook due diligence with regard to the credentials of the

assessee by verifying all the documents regarding the corporate

structure of the company, beneficial ownership, financial

structure and various other factors. While conducting the due

diligence all necessary and relevant documents were examined,

which clearly disclose the share holding pattern and structure of

not only the assessee, but also assessee’s holding companies and

as also the holding company of SAIF II and SAIF III based in

Cayman Island. After thoroughly conducting the due diligence,

acquisition of shares by SAIF II was approved and Government of

India issued a Press Release disclosing the FDI in relation to 13

entities, including assessee.

shares of NSE to the assessee in the year 2009. At the time of

transfer of shares from SAIF II to the assessee, the regulatory

authorities again carried out due diligence and approved the

transfer of shares. Again at the time of part sale of shares of NSE 12 | P a g e

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by assessee in the impugned assessment year, the regulatory

authorities carried out the necessary verification as per the laid

out procedure and approved the sale. Thus, as could be seen from

the aforesaid facts, not only the acquisition of shares by the

assessee, but even sale of shares was approved after thorough

inquiry by various regulatory authorities in India.

regulatory authorities have gone into the share holding and

financial structure of the assessee and its parent companies and

all other relevant factors. Thus, when the assessee holds a valid

TRC all and Category 1 GBL and, moreover, the entire process

relating to acquisition of shares of NSE and its sale went through

a process of scrutiny and approval by various Government

Authorities and Agency, doubt entertained by the Assessing

Officer regarding residential and commercial status of the

assessee company is quite surprising. The findings of the

departmental authorities that the assessee is a conduit company

lacking commercial substance runs in the teeth of approval

granted by various Government agencies and authorities

approving the purchase and sale of shares by assessee. Rather,

the observations of the departmental authorities that assessee is 13 | P a g e

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a conduit implies that various other Government agencies have

approved the purchase and sale of shares by the assessee, that

too, of a Government company, without undertaking a reality

check. In other words, the Assessing Officer is pointing an

accusing finger to other Government agencies. This, in our view,

is preposterous, hence, unacceptable.

in NSE for more than a decade, since the year 2009, and even as

on date, is still holding 3.5% shares in NSE. Thus, holding period

of shares by the assessee demonstrates the status of the assessee

as a genuine entity carrying on the business in holding

investment. It is now fairly well settled that TRC issued by an

authority in the other tax jurisdiction is the most credible

evidence to prove the residential status of an entity and the TRC

cannot be doubted. In fact, the CBDT, specifically in the context

of India – Mauritius treaty, has issued Circular No. 682, dated

30th March, 1994 and 789, dated 14th April, 2000 clarifying that

TRC issued by Mauritius Tax Authorities proves the residential

status of a resident of Mauritius and no other evidence is

required. In case of UOI Vs. Azadi Bachao Andolan (supra), the

Hon’ble Supreme Court has not only upheld the validity of the 14 | P a g e

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aforesaid CBDT Circulars, but has also held that “liable to

taxation” as used in Article 4 of India-Mauritius DTAA does not

mean that merely because tax exemption under certain specified

head of income including capital gain from sale of shares has

been granted under the domestic tax laws of Mauritius, it can

lead to the conclusion that the entities availing such exemption

are not liable to taxation. The Hon’ble Supreme Court

categorically rejected Revenue’s contention that avoidance of

double taxation can arise only when tax is actually paid in one of

the contracting States. Hon’ble Court held that ‘liable to taxation’

and ‘actual payment of tax’ are two different aspects. The Hon’ble

Supreme Court has further observed that for economic

development, initially, many developing countries allowed some

amount of treaty shopping to attract FDI.

Three Pte. Ltd. (supra), the Hon’ble Jurisdictional High Court has

again reiterated the legal position that the departmental

authorities cannot question the validity of TRC, which proves the

residential status of the entity. Thus, applying the ratio laid down

in these decisions, it has to be held that once the assessee holds a

valid TRC, it proves the residential status of the assessee as 15 | P a g e

ITA No.1812/Del/2022 AY: 2018-19

resident of Mauritius, hence, it will be eligible to treaty benefits.

The various allegations of the Assessing Officer regarding

residential status of the assessee, lack of commercial substance

etc. are in the nature of vague allegations without backed by

substantive evidence, hence, do not deserve consideration.

Unfortunately, learned DRP has merely endorsed the view

expressed by the Assessing Officer without properly analyzing the

facts and evidences brought on record.

clearly establish that not only the assessee is a resident of

Mauritius, but being a beneficial owner of the income derived

from sale of shares, is entitled to the treaty benefits.

Undisputedly, the shares sold by the assessee in the year under

consideration were acquired in the year 2009, much prior to

01.04.2017. Therefore, the provisions of Article 13(3A) of the tax

treaty would not be applicable. That being the case, the capital

gain derived by the assessee from sale of shares would fall within

the ambit of article 13(4) of the tax treaty. In that view of the

matter, the capital gain, being exempt under the treaty

provisions, cannot be brought to tax in India. Therefore, we direct

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the Assessing Officer to delete the addition. These grounds are

allowed.

and 234B, being consequential in nature, and ground no. 9,

challenging the initiation of penalty under section 270A of the

Act, being premature at this stage, are dismissed.

Order pronounced in the open court on 14th August, 2023

Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT VICE PRESIDENT Dated: 14th August, 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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