The appeal filed by Sarva Capital LLC against the order of the ACIT, Circle-3(1)(2), International Taxation, New Delhi, pertains to the assessment order for the fiscal year 2019-20, focusing on the taxability of capital gains under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
Sarva Capital LLC, a Mauritius-based corporate entity, made significant investments in Indian companies. The dispute centers on the capital gains arising from the sale of equity shares, which Sarva Capital contended should be exempt under the India-Mauritius DTAA. The case raised complex issues about the applicability of treaty benefits and the concept of beneficial ownership and tax residency.
The Assessing Officer (AO) initially denied the DTAA benefits, citing reasons such as treaty shopping, lack of substantial commercial presence in Mauritius, and the non-beneficial ownership of income. The Dispute Resolution Panel (DRP) upheld this decision. Sarva Capital appealed against these findings, arguing that they have a valid Tax Residency Certificate (TRC) from Mauritius, substantiating their claim for treaty benefits.
The tribunal analyzed several aspects, including the legal standing of TRC, the company’s management and control in Mauritius, and the substantial activities carried out by the company. It noted that Sarva Capital’s operations and decisions regarding the funds were managed from Mauritius, affirming their status as a resident for tax purposes under the DTAA. The tribunal overturned the lower authorities’ decision, granting Sarva Capital the treaty benefits and exempting the capital gains from Indian tax.
This judgment has significant implications for foreign investments in India through Mauritius and other jurisdictions with similar DTAAs. It affirms the sanctity of the TRC and underscores the importance of substance over form in determining tax obligations under international treaties.
The tribunal’s decision in favor of Sarva Capital LLC highlights the critical role of detailed documentation and proper corporate governance in availing treaty benefits. It sets a precedent on the interpretation of tax treaties and beneficial ownership in cross-border investment scenarios.
The appeal by Sarva Capital was allowed, marking a pivotal decision on the application of the India-Mauritius DTAA to capital gains tax.
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