The Mauritius entity held a Category-1 Global Business License (GBL) issued by the Financial Services Commission, Mauritius. It was also holding a valid tax residency certificate, issued by the Mauritius authorities.
It should be noted that a protocol to the India-Mauritius tax treaty amends Article 13 with effect from April 1, 2017. In other words, if shares of an Indian company were acquired on or after April 1, 2017, India gets the right to tax the resultant capital gains. A grandfathering provision stipulates reduced rates in respect of capital gains arising between April 1, 2017, and March 31, 2019.
The protocol also adds a new Article 27A relating to ‘Limitation of benefits’ – the reduced rate on capital gains is denied, in those cases where the affairs were arranged with the ‘primary purpose’ of taking advantage of this tax benefit. Further, a shell company is also denied the benefit of reduced rate of tax, which is available for the grandfathering period.
The ITAT bench noted that the taxpayer had submitted all the details explaining the transaction along with all the necessary documents required by the I-T official, including a copy of the tax residency certificate. Referring to the Circular No. 682 dated March 30, 1994, issued by the Central Board of Direct Taxes (CBDT), the tax tribunal stated that as the shares that were sold were acquired prior to April 1, 2017, India did not have the right to tax the same.