Case Number: ITA 1812/DEL/2022
Appellant: SAIF 2-SE INVESTMENTS MAURITIUS Ltd, New Delhi
Respondent: ACIT, Circle International Taxation (3)(1)(2) Delhi, New Delhi
Assessment Year: 2018-19
Result: 2018-19
Case Filed on: 2022-08-10
Order Type: Final Tribunal Order
Date of Order: 2023-08-14
Pronounced on: 2023-08-14
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI
BEFORE SHRI G.S. PANNU, PRESIDENT AND SHRI SAKTIJIT DEY, VICE PRESIDENT
ITA No. 1812/Del/2022
Assessment Year: 2018-19
SAIF II -SE INVESTMENTS MAURITIUS LIMITED, 3RD FLOOR, STANDARD CHARTERED TOWER, 19 CYBERCITY, EBENE, MAURITIUS, C/O- PRICE WATERHOUSE & CO. LLP SUCHETA BHAWAN, II-A, VISHNU DIGAMBAR MARG, NEW DELHI
Vs.
Assistant Commissioner of Income Tax, Circle – International Taxation (3)(1)(2), Delhi PAN: AAMCS0710J
Appellant: SAIF 2-SE INVESTMENTS MAURITIUS Ltd (Appellant)
Respondent: Assistant Commissioner of Income Tax, Circle – International Taxation (3)(1)(2), Delhi (Respondent)
Captioned appeal has been filed by the assessee challenging the final assessment order dated 18.07.2022 passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (in short ‘the Act’), pertaining to assessment year 2018-19.
Assessee by: Sh. Kanchun Kaushal, CA Sh. Kshitij Bansal, CA
Department by: Sh. Vizay B. Vasanta, CIT(DR)
Date of hearing: 17.05.2023
Date of pronouncement: 14.08.2023
In total, the assessee has raised 9 grounds. Ground no. 1 is a general ground. Whereas, at the time of hearing, on instructions, learned counsel appearing for the assessee did not press ground nos. 2 and 3. Accordingly, these two grounds are dismissed as not pressed.
In ground nos. 4 to 6, the assessee has raised the issue of non-taxability of long term capital gain derived from sale of shares in an Indian company to be exempt under Article 13(4) of India – Mauritius Double Taxation Avoidance Agreement (DTAA).
Briefly the facts relating to this issue are, the assessee is a non-resident corporate entity incorporated in Mauritius and is a tax resident of Mauritius. As stated by the Assessing Officer, the assessee operates as an investment holding company for undertaking various investments. He has also noted that the assessee holds a valid Tax Residency Certificate (TRC) issued by Mauritius Tax Authorities for the year under consideration. The assessee also holds a valid Global Business Licence (Category 1) (GBL-1) issued by the Financial Service Commission in Mauritius. The assessee’s holding companies are SAIF II Mauritius Company Ltd. (“SAIF II”), which owns 51% shareholding and SAIF III Mauritius Company Limited (“SAIF III”), which holds 49% shareholding in the assessee company. He has also noted that two of the directors of the assessee company are residents of Mauritius, whereas, two other directors are from Hongkong.
In the year under consideration, the assessee received dividend income of Rs.47,64,37,500/- on equity shares of National Stock Exchange (“NSE”), whereas, it received net long term capital gain of Rs.465,99,50,702/- on part disposal of equity shares of NSE. In the return of income filed for the assessment year under dispute, the assessee claimed the dividend income as exempt under section 10(34) of the Act. Whereas, he claimed the net long term capital gain to be exempt under Article 13(4) of India – Mauritius tax treaty.
In course of assessment proceedings, the Assessing Officer, from time to time, issued statutory notices under section 142(1) and 143(2) of the Act calling for various informations. Each of such notices were complied by the assessee. The basic query of the Assessing Officer was with regard to assessee’s claim of exemption under Article 13(4) of India – Mauritius tax treaty. Though, the assessee justified the claim of exemption by submitting that, being a tax resident of Mauritius holding a valid TRC, it is entitled to treaty benefits, however, the Assessing Officer remained unconvinced. He observed, though, assessee’s principal activity is to hold investments, however, assessee had held investment in only one company throughout its existence, i.e., NSE. He further observed that it has not booked any income from its principal activity in the years 2016, 2017 and 2018. Similarly, it has not booked any operating expenses during these years. He further alleged that the assessee has no employees as evident from the fact that no salary expenses were debited to its books. He further observed that the dividend income earned by assessee on NSE shares were entirely used for repayment of amount owed to related parties and the assessee is not enjoying the benefits of the income in Mauritius. He further observed that the assessee is not paying any tax in Mauritius. He further observed that the key managerial personnel of the assessee and that of the holding companies are same persons. He further observed that the assessee’s holding companies, in turn, are held by a company located in Cayman Island. Thus, he held that the assessee company has no commercial substance and has been set up as a conduit company under a scheme of arrangement to get tax advantage under India – Mauritius tax treaty. Thereafter, referring to OECD Commentary and various judicial precedents, the Assessing Officer ultimately held as under:
Based on the aforesaid reasoning, the Assessing Officer ultimately held that the assessee cannot be treated as a tax resident of Mauritius, hence, would not be entitled to treaty benefits. Accordingly, he framed the draft assessment order. The assessee filed objections against the draft assessment order before learned DRP. In course of proceedings before learned DRP, the assessee furnished various additional evidences to establish its residential status as well as its claim of treaty benefits. Though, learned DRP admitted the additional evidences and called for a remand report of the Assessing Officer, however, ultimately, rejecting the objections, they upheld the decision of the Assessing Officer. In terms with the direction of learned DRP, the assessment was finalized.
Learned counsel appearing for the assessee submitted that the assessee was incorporated in Mauritius in the year 2008 and is in existence for the last 15 years. He submitted, in all these years assessee has filed return of income in India and has been accepted as a tax resident of Mauritius holding a valid TRC. He submitted, for all these years, assessee has filed returns before Mauritius tax authorities and are assessed to tax. He submitted, assessee is a valid investment holding company duly recognized under the Mauritius financial service commission and in lieu thereof a GBL-I license was issued. He submitted, assessee’s tax residency has been accepted by various authorities of the Mauritius Government and as such the TRC issued to the assessee cannot be doubted. He submitted, in assessee’s case the holding companies, the assessee and the investee company are all tax residents of Mauritius. Therefore, it cannot be said that the assessee company lacks commercial substance. He submitted, all the income earned by assessee from investments in NSE shares are duly accounted for in its books and are being enjoyed in Mauritius. He submitted, assessee has regularly filed returns of income before Indian tax authorities in earlier assessment years and has claimed treaty benefit. The Department has allowed such claim of assessee.
Drawing our attention to Article 13(4) of the India – Mauritius tax treaty, learned counsel for the assessee submitted, the capital gain arising from alienation of any property other than those mentioned in Article 13(1) and 13(2) are to be taxed in the country of residence of the alienator. He submitted, the benefit of Article 13(4) of the tax treaty is available to the assessee as it is a tax resident of Mauritius holding a valid TRC.
Drawing our attention to Circular no.789 dated 13.04.2000 issued by Central Board of Direct Taxes (CBDT), learned counsel for the assessee submitted, it has been clarified that wherever a certificate of residence is issued by Mauritius tax authorities, such certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the tax treaty. Further, drawing our attention to decision of Hon’ble Supreme Court in case of Union of India vs. Azadi Bachao Andolan: 263 ITR 706 (SC), learned counsel for the assessee submitted, the Hon’ble Supreme Court has held that, based on TRC, the status of residence as well as beneficial ownership can be accepted for applying the tax treaty. Thus, he submitted, assessee having a valid TRC and GBL-I license issued by Mauritius tax authorities has to be accepted as a tax resident of Mauritius.
Learned counsel for the assessee submitted, while considering assessee’s claim of exemption under Article 13(4) of the tax treaty, the Assessing Officer has not raised any doubt with regard to assessee’s residential status under Mauritius tax laws. He submitted, in earlier years, i.e., assessment year 2016-17 and 2017-18, assessee has claimed treaty benefit under Article 13(4) of the tax treaty and the Department has allowed the benefit. Drawing our attention to the decision of Hon’ble Delhi High Court in case of DIT vs. G.E. Packaged Power Inc.: 373 ITR 65 (Del), learned counsel for the assessee submitted, the Hon’ble Court has held that, where a fundamental aspect permeating through different assessment years has been found as a fact in one way or other and parties have allowed that position to be sustained by not challenging the order, it would not be appropriate to allow that position to be changed in subsequent year. He submitted, applying the rule of consistency, the benefit of Article 13(4) cannot be denied to the assessee in the impugned assessment year as well. Learned counsel for the assessee submitted, none of the allegations made by the Assessing Officer to deny assessee’s claim of treaty benefit are based on any credible evidence brought on record, but on presumptions and surmises. Thus, he submitted, assessee’s claim of exemption under Article 13(4) of the tax treaty has to be allowed.
On the contrary, learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned DRP. He submitted, for availing the benefit of Article 13(4) of the tax treaty, assessee has to demonstrate that it is a tax resident of Mauritius in terms of Article 4 of the tax treaty. Drawing our attention to Article 4 of the tax treaty, learned Departmental Representative submitted, a person is to be considered as a resident of a Contracting State, if, it is liable to tax therein by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature. He submitted, while deciding assessee’s claim of treaty benefit, the Assessing Officer has brought various materials/evidences on record to demonstrate that, though, assessee is claiming to be a tax resident of Mauritius, however, it is just a shell/conduit company having no commercial substance. He submitted, the benefit of TRC cannot be absolute and conclusive when the other materials brought on record reveal otherwise. He submitted, in assessee’s case, though, it is claiming to be an investment holding company, however, there is nothing on record to demonstrate that it has undertaken any investment activity in other companies in earlier or subsequent years. Further, there is no operating expenditure to indicate any business activity in Mauritius. He submitted, the assessee company has been established only to avoid tax in India on capital gain by taking advantage of the tax treaty. Thus, he submitted, assessee is not entitled to the benefit of Article 13(4) of the tax treaty.
We have considered rival submissions in the light of decisions relied upon and perused the materials on record. We have also applied our mind to the decisions cited before us. We have noted, though, the Assessing Officer has alleged that assessee company lacks commercial substance and is a shell company, however, the undisputed factual position is, assessee has obtained a valid TRC from Mauritius tax authorities. Further, it has also obtained a valid GBL-I license from the Financial Service Commission, Mauritius. It is also evident, in earlier assessment years, i.e., assessment years 2016-17 and 2017-18, assessee has claimed exemption under Article 13(4) of the tax treaty and such claim has been allowed by the Department. In our considered opinion, Article 13(4) of the tax treaty is unambiguous and provides that gains derived by a resident of a Contracting State from alienation of any property other than those mentioned in Article 13(1) and 13(2) shall be taxable only in the Contracting State of which the alienator is a resident. Article 13(4) does not make any distinction between a company having commercial substance or a shell/conduit company. It provides for taxation of capital gain in the State of residence of the alienator. Therefore, as per the tax treaty, capital gain derived by a tax resident of Mauritius from alienation of any property other than those specified in Article 13(1) and 13(2) is taxable only in Mauritius. Therefore, as long as the assessee holds a valid TRC issued by Mauritius tax authorities, it has to be accepted as a tax resident of Mauritius. The Hon’ble Supreme Court in case of Union of India vs. Azadi Bachao Andolan (supra) has held that, based on TRC, the status of residence and beneficial ownership can be accepted for applying the tax treaty.
In the facts of the present appeal, there is no material brought on record by the Revenue to demonstrate that, in the year under consideration, assessee’s TRC has either been cancelled or nullified by the Mauritius tax authorities. Therefore, in view of TRC issued by Mauritius tax authorities, the tax residency status of the assessee cannot be disputed. Therefore, in our view, assessee’s claim of exemption under Article 13(4) of the tax treaty has to be allowed. Accordingly, we delete the addition of Rs.465,99,50,702/-.
Ground no. 7, being consequential, is allowed for statistical purposes.
Ground no. 8 is in relation to initiation of penalty proceedings under section 271AAC. As noted, penalty proceedings are distinct and separate from assessment proceedings. Thus, this ground does not require adjudication at this stage.
In the result, the appeal is partly allowed.
Order pronounced in the open court on 14th August, 2023.
G.S. PANNU
President
SAKTIJIT DEY
Vice President
Copy forwarded to:
Assistant Registrar
ITAT, New Delhi
SAIF 2-SE INVESTMENTS MAURITIUS Ltd vs. ACIT: Final Tribunal Order
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