AO Not Justified in Denying Treaty Benefits to Mauritius Co. Holding Investments in Indian Co. For More Than 5 Years | ITAT

Case Details: India Property Mauritius Company Vs. ACIT - [2024] 164 taxmann.com 440 (Delhi-Trib.)

Judiciary and Counsel Details

• Anubhav Sharma, Judicial Member & G.S. Pannu, Vice President
• Ajay Vohra, Sr. Adv. & Divyanshu Aggarwal, Adv. for the Appellant.
• Vizay B. Vassanta, CIT-(DR) & Vivek Vardhan, Sr. DR for the Respondent.

Facts of the Case

The assessee was a company incorporated in Mauritius and was engaged in the business of investment activities. The assessee claimed to hold a valid Tax Residency Certificate (‘TRC’) and Global Business License-I issued by Mauritius’s Financial Services Commission.

During the year under consideration, the assessee transferred shares of Indian Companies and earned long-term capital gains. Given the provisions of section 90(2), the assessee claimed the capital gains as exempt as per Article 13(4) of the India-Mauritius Tax Treaty (DTAA).

During the assessment proceedings, the Assessing Officer (AO) denied the Treaty benefits and contended that the assessee was a mere conduit entity without any economic substance. Aggrieved by the order, the assessee preferred an appeal to the Dispute Resolution Panel (DRP), wherein the DRP upheld the additions made by the AO. The matter then reached before the Delhi Tribunal.

ITAT Held

The Tribunal held that the assessee was incorporated as an investment fund. The assessee pools capital from investors from countries through a series of funds, such as investor vehicles or feeder funds, to create a master fund used for investment in various entities in India. The investment in the companies allegedly giving rise to the capital gains was made in the relevant assessment year.

Such investments were held for over five years before they were transferred, and the assessee was earlier also making investments and still holds investments in various other companies. Indeed, the assessee held the investment in its name beneficially and legally. It cannot be called a fly-by-night operator created merely for tax avoidance purposes. There was no evidence from the AO to rebut the statutory evidence of the presumption of the genuineness of the business activity of the assessee company based on the TRC held by the assessee.

Further, it was held that when the assessee was incorporated as an investment fund, then such model of transaction was obvious. The material fact to be seen was how long the investments were held and whether the investments had commercial expediencies. No presumption of conduit status merely based on the transfer of the consideration immediately after divestments can be drawn because, ultimately, the funds under investments were to be returned with whatever gains were made.

Therefore, the AO cannot question the genuineness of the business operations of the assessee.

List of Cases Referred to

• Union of India v. Azadi Bachao Andolan [2003] 132 Taxman 373/263 ITR 706 (SC) (para 6),
• Blackstone Capital Partners (Singapore) v. Fdi Three Pte. Ltd. v. Asstt. CIT (International Taxation) [2023] 146 taxmann.com 569/452 ITR 111 (Delhi) (para 6),
• MIH India (Mauritius) Ltd. v. ACIT [ITA no. 1023/Del/2022] (para 6),
• DIT v. Mitsubishi Corporation [2021] 130 taxmann.com 276/283 Taxman 273/438 ITR 174 (SC) (para 8),
• Hitachi High Technologies Singapore Pte Ltd. v. Dy. CIT [2020] 113 taxmann.com 327/180 ITD 861 (Delhi – Trib.) (para 8),
• BG International Limited v. DCIT [IT Appeal No. 31 (DDN) of 2020, 31-12-2020] (para 9),
• Amadeus IT Group SA v. DCIT [IT Appeal No. 2007 (Delhi) of 2017, 29-01-2021] (para 9),
• CIT v. Roca Bathroom Products (P.) Ltd. [2022] 140 taxmann.com 304/445 ITR 537 (Madras) (para 10),
• Super Brands Ltd. (UK) v. ADIT [2023] 147 taxmann.com 323 (Delhi – Trib.) (para 10)
• Shelf Drilling Ron Tappmeyer Limited v. ACIT [Writ Petition No. 2340 of 2021] (para 10).