The AAR`s decision created a sense of uncertainty and panic in the mind of the investor who invested via the Mauritius route. The judgment highlighted the broad interpretation of the tax avoidance treaties signed by India and Mauritius. Now, investors` concern will also be to research possible ownership and administrative aspects of a tax exemption agreement under the agreement. There is uncertainty about the direct and indirect transfer of shares in assets located in India. It will also be interesting to see how the tax authorities investigate the indirect transfer of shares under the Indo-Mauritius Agreement, given that the standard perception in the tax system was that the indirect transfer of shares under the agreement was exempt from capital gains tax and that various court decisions had also claimed the same in various cases. However, AAR held in that judgment that the exemption provided for in the contract does not apply to “indirect transfers”. In addition, AAR has gone beyond the concept of grandfathering rule and has also somehow overturned the Supreme Court`s decision in the Vodafone case3 in which such controversial decisions were overturned by AAR. It will be interesting to see how the Treaty, the Grandfather Rule and the general provisions to combat the Avoidance Rule will be interpreted as Tiger Global embarks on the path to higher attractiveness. The claimant argued that the transaction was not prima facie intended for tax avoidance. This is not the company`s ownership structure, but this particular transaction determines whether or not the intention was to avoid taxes, which the authorities have not proven. It was also argued that all decision-making and board meetings were conducted and conducted on behalf of the Mauritius Company and its directors. It was also argued that the limited access to the company`s bank accounts did not show that the Mauritius-based director had no financial control over the company.

Naomi Fowler ■ India and the renegotiation of its double taxation agreement with Mauritius: an update India has comprehensive double taxation agreements (DBAAs) with 88 countries. [4] This means that there are agreed tax rates and jurisdictions for certain types of income generated in one country for a taxpayer residing in another country. According to the Income Tax Act of India of 1961, there are two provisions, Section 90 and Section 91, which provide special relief for taxpayers to protect them from double taxation. Article 90 is for taxpayers who have paid tax to a country with which India has signed DTAs, while Article 91 relieves taxpayers who have paid taxes to a country with which India has not signed a DBAA. Thus, India relieves both types of taxpayers. The Double Tax Avoidance Agreement between India and Mauritius (hereinafter referred to as “DTAA”) provides for a possible tax exemption for foreign investors, which is why Mauritius is considered one of the preferred means of investing in India, which exempts capital gains tax on the sale of shares of an Indian company. In the past, the Indian Ministry of Finance has questioned the eligibility of the capital gains tax exemption under the tax treaty on the grounds that the Mauritian company has no real commercial substance and was only created for grain farming. This approach has led to lengthy and significant litigation in a number of cases involving investments in India via Mauritius. 13 para. 4 The DTA provides that profits made by a resident of a Contracting State as a result of the sale of shares may be taxed only in that State. In addition, the Central Council for Direct Taxation (CBDT) clarified in Circular No.

789 of 13.04.2000 that, according to Article 13(4) of the DTA, a resident of a State is any person taxable under the law of that State. In one of these prestigious legal proceedings, after reviewing the terms of the Treaty and CBDT Circulars No. 682 of 30 March 1994 and No. 789 of 13 April 2000, the Supreme Court of India confirmed the position that Mauritius Company can claim the benefits of the tax treaty if it has received a “certificate of tax residence” (“CVR”) from the Mauritian tax authorities. Based on the Supreme Court`s decision, entities that hold a valid TRC should be entitled to benefits under the contract. However, despite the Supreme Court`s decision, the debate is not yet settled and the tax authorities are examining Mauritius` investments and trying to deny the benefits of the contract under the pretext of concluding treaties. Recently, the Advance Ruling Authority (“AAR”) confirmed that capital gains from the sale of Indian shares held by a company resident in Mauritius can only be taxed in Mauritius, in the case of D B Zwirn Mauritius Trading No. 2 Ltd (“D B Zwirn”). In the present case, the applicant sold its entire stake in Quippo Telecom Infrastructure to another company established in Mauritius.

The AAR`s conclusion was based on the Supreme Court`s decision in the case of Azadi Bachao Andolan. The Hon. Supreme Court in the Azadi Bachao Andolan case ruled that the certificate of residence issued by the Mauritius Revenue Authority constitutes valid and sufficient proof of residency status under the India-Mauritius DTAA. In the case of E Trade Mauritius and Delhi ITAT in the case of Saraswati Holding Corporation, they considered that profits resulting from the sale of shares in an Indian company to a company established in Mauritius are taxable only in Mauritius within the meaning of Article 13(4) of the DTA. The relevant provision of article 13, paragraph 4, of the DTA between India and Mauritius is extracted as follows: “Article 13 – Capital gains: 1. ……. 2. ……… 3. …………

4. Profits made by a resident of a Contracting State as a result of the sale of property other than those referred to in paragraphs 1, 2 and 3 of this Article may be taxed only in that State. The CBDT clarified in Circular No. 682 of 30.03.1994 that, according to the DTA, a resident of Mauritius who derives income from the sale of shares in an Indian company is taxable only in Mauritius. The corresponding extract from Circular No. 682 of 30 March 1994 reads as follows: `Subject: Double Taxation Convention with Mauritius – Clarification concerning. 1…. 2.. (3) Paragraph 4 concerns the taxation of capital gains resulting from the sale of assets other than those referred to in the preceding subparagraphs and grants the right to tax capital gains only to the State of residence of the person making the capital gains. For the purposes of paragraph 4, capital gains realised by a resident of Mauritius through the sale of shares in companies shall be taxable only in Mauritius under Mauritian tax legislation. Therefore, under the Mauritian tax law, any resident of Mauritius who derives income from the sale of shares of Indian companies is subject to capital gains tax only in Mauritius and no capital gains tax in India.

4. Paragraph 5 defines “sale” as the sale, transfer of exchange or renunciation of ownership or cancellation of any right thereto or its compulsory acquisition under any law in force in India or Mauritius. Further clarifications were provided by the CBDT regarding the taxation of capital gains income under the India-Mauritius DTAA by Circular No. 789 of 13 April 2000. The problem now is that if we comply with the Income Tax Act, the profit from the transfer of shares of an Indian corporation is subject to capital gains tax under the Income Tax Act. However, the capital gains tax position was also subject to the provisions of the DTA between India and Mauritius. Article 13, paragraph 4, of the Commission conferred the power to tax profits made by a resident of a Contracting State on the sale of certain property only in the State of residence, that is, Mauritius. The fact that the fixed assets are located in India is irrelevant. The taxpayer is legally entitled to claim the benefit under the DTA if the provision contained therein is more advantageous than the corresponding provision of national law. This well-regulated principle was upheld by the Supreme Court in Union of India v.

Azadi Bachao Andolan, quoted above, states in the following passage: “An overview of the above cases clearly shows that the legal consensus in India was that Article 90 is specifically designed to empower and empower the central government to issue an opinion implementing the terms of a double taxation agreement […].