AO Can’t Doubt Residential Status Without Being Backed by Substantive Evidence If NR Holds Valid TRC | ITAT

Case Details: Saif II-Se Investments Mauritius Ltd. v. ACIT - [2023] 154 taxmann.com 617 (Delhi-Trib.)

Judiciary and Counsel Details

• • G. S. Pannu, President & Saktijit Dey, Vice-president
  • Kanchun Kaushal & Kshitij Bansal, CA’s for the Appellant.
  • Vizay B. Vasanta, CIT (DR) for the Respondent.

Facts of the Case

Assessee, a tax resident of Mauritius, operated as an investment company for undertaking various investments. Assessee’s holding company acquired 5 per cent unlisted equity shares of NSE transferred to assessee in the year 2009. Assessee received net long-term capital gain on part disposal of said shares and claimed long-term capital gain to be exempt under Article 13(4).

Assessing Officer (AO) held that the assessee had no commercial substance and had been set up as a conduit company under a scheme of arrangement to get tax advantage under the India-Mauritius tax treaty. He held that the assessee could not be treated as a tax resident of Mauritius and would not be entitled to treaty benefits.

The Dispute Resolution Panel upheld the decision of the AO. Aggreived assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that undisputedly, on perusal of the certificate of incorporation issued by the Registrar of Company, Mauritius, it is observed that the assessee was incorporated on 7-1-2008 as a private limited company. The Category 1 GBL was issued in favour of the assessee by the Financial Services Commission, Mauritius, on 16-1-2009.

Further, from 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. The AO did not dispute these facts.

Once the assessee holds a valid TRC, it proves the residential status of the assessee as resident of Mauritius. Hence, it will be eligible for treaty benefits. The various allegations of AO regarding the residential status of the assessee, lack of commercial substance, etc., were in the nature of vague allegations without being backed by substantive evidence,

Unfortunately, DRP has endorsed the view AO expressed without properly analyzing the facts and evidence brought on record. Thus, the capital gain derived by the assessee from the sale of shares would fall within the ambit of Article 13(4) of the tax treaty.

List of Cases Reviewed

• • Union of India v. Azadi Bachao Andolan [2003] 132 Taxman 373/263 ITR 706 (SC)
  • Black Stone Capital Partners (Singapore) VI FDI Three Pte. Ltd. v. Asstt. CIT [2023] 146 taxmann.com 569/452 ITR 111 (Delhi) (para 20) followed.

List of Cases Referred to

• • Union of India v. Azadi Bachao Andolan [2003] 132 Taxman 373/263 ITR 706 (SC) (para 12)
  • Blackstone Capital Partners (Singapore) VI FDZ Three Pte. Ltd. v. Asstt. CIT [2023] 146 taxmann.com 569/452 ITR 111 (Delhi) (para 12)
  • MIH India (Mauritius) Ltd. v. ACIT [IT Appeal No. 1023 (Delhi) of 2022, dated 16-11-2022] (para 12)
  • HSBC Bank (Mauritius) Ltd. v. Dy. CIT [2018] 96 taxmann.com 544 (Mum. – Trib.) (para 12)
  • Reverse Age Health Services (P.) Ltd. v. Dy. CIT [2023] 147 taxmann.com 358 (Delhi – Trib.) (para 12)
  • Vodafone International Holdings B.V. v Union of India [2012] 17 taxmann.com 202/204 Taxman 408/341 ITR 1 (SC) (para 13).