Sapein Funds Ltd. vs. CIT (International Taxation), Delhi-3, New Delhi

ITA No. 976/DEL/2022: Sapein Funds Ltd., Mauritius vs. CIT (International Taxation), Delhi-3, New Delhi

Assessment Year: 2017-18

Date of Hearing: 20.04.2023
Date of Pronouncement: 08.06.2023

Judges:

Before Sh. Saktijit Dey, Judicial Member
Dr. B. R. R. Kumar, Accountant Member

Summary of the Order

This order pertains to the appeal filed by Sapein Funds Ltd. against the order of ld. CIT(IT)-3, New Delhi dated 24.03.2022. The contentious point was the issuance of notice under Section 263 of the Income Tax Act, 1961 (‘the Act’), and the subsequent order, deemed illegal, bad in law, and without jurisdiction by the appellant.

The appellant, Sapein Funds Ltd., is a company registered in Mauritius, engaged in investment activities in India through the Foreign Portfolio Investment scheme. The respondent is the Commissioner of Income Tax (International Taxation), Delhi-3, New Delhi.

The grounds of appeal highlighted the appellant’s argument against the impugned notice and order, emphasizing that the Principal Commissioner of Income Tax failed in establishing an error in the original assessment order which would justify the assumption of jurisdiction under Section 263. The appellant contested the legality of the notice and subsequent order, asserting that the original assessment order was neither erroneous nor prejudicial to the interests of the revenue.

The tribunal, after reviewing the arguments and evidences presented, found in favor of the appellant, Sapein Funds Ltd. The tribunal concluded that the assessee, being a tax resident of Mauritius, is entitled to benefits under the India-Mauritius Double Taxation Avoidance Agreement. The tribunal determined that the impugned notice and order under Section 263 by the CIT (IT)-3 failed to establish substantive reasons for revising the previously passed assessment order, thereby ruling the action as lacking jurisdiction and legal basis.

Moreover, the tribunal underscored the importance of respecting Tax Residency Certificates issued by the Mauritian authorities, affirming the appellant’s status as a resident and beneficial owner under the DTAA. The tribunal’s findings emphasized that the structure and operations of Sapein Funds Ltd. in Mauritius and its investments in India are in accordance with legal frameworks, thereby dismissing the application of Section 263 of the Act on the grounds stated by the CIT.

The tribunal’s decision allowed the appeal of Sapein Funds Ltd., setting a precedent on the interpretation of legal jurisdiction, the applicability of DTAAs, and the assessment of beneficial ownership and tax residency under international taxation law.

Conclusion

The Income Tax Appellate Tribunal, by allowing the appeal of Sapein Funds Ltd., provided clarity on the application of Section 263, the relevance of tax residency certifications, and the interpretation of DTAAs, thereby reinforcing the legal frameworks governing international taxation and investment.

Order Pronounced in the Open Court on 08/06/2023.

Saktijit Dey, Judicial Member
Dr. B. R. R. Kumar, Accountant Member

Sapein Funds Ltd. vs. CIT (International Taxation), Delhi-3, New Delhi