Law:

Section:

NOVEMBER 14, 2011 Section 90 of the Income-tax Act, 1961 read with article 13 of the Double Taxation Avoidance Agreement between India and Mauritius (Capital gains) - Double taxation relief - Where agreement exists - Applicant, a company incorporated in Mauritius, held shares in Indian company and proposes to sell them to a German company - It has sought advance ruling on taxability of capital gains on proposed sale in India having regard to provisions of article 13.4 of Treaty - Revenue contends that applicant-company was created by a British company as a façade to make investment in India with obvious intention of avoiding liability to be taxed under India-UK DTAA and to take advantage of India-Mauritius Treaty; and that funds for purchase having proceeded from principal in UK, beneficial ownership of shares vested with company in UK, and Treaty, that would govern transaction, is one between India and UK - Whether since shares were held by applicant for a considerable length of time, before they are sought to be sold by way of a regular commercial transaction, it may not be possible to go into an enquiry on who made original investment for acquisition of shares and consequences arising therefrom - Held, yes - Whether at worst, it could be a case of Treaty shopping and even then in light of decision of Supreme Court in Union of India v. Azadi Bachao Andolan[2003] 263 ITR 706/132 Taxman 373, no further enquiry on question is warranted or justified - Held, yes - Whether, therefore, capital gains on proposed sale of shares by applicant to German company is not chargeable to tax in India in view of article 13.4 of India-Mauritius Tax Treaty - Held, yes - Whether, however, applicant would be required to file a return of income in India in respect of proposed transfer of shares - Held, yes [In favour of applicant] FACTS The applicant is a company incorporated in Mauritius. It was created by British company in 1998. It had made substantial investment in equity shares of an Indian company. It proposes to sell its entire stake in Indian company to a German company and has sought advance ruling on taxability of capital gains on proposed sale of shares in India having…

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