ACIT, Circle-2(2)(1), Int. Taxation, New Delhi V. Maven India Fund, Mauritius

ITA 1766/DEL/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 5697 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 12-06-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 04-06-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Advance ruling; Capital Gains
• Section: 133(6); 13

Judgement Text

1 ITA no. 1766/Del/2023 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 1766/DEL/2023 Assessment year: 2018-19 ACIT, Circle-2(2)(1), International Taxation-2, New Delhi. Vs M/s Maven India Fund, Suite 317, 3 rd Floor, NG Towerr Ebene Cybercity Ebene, Mauritius. PAN: AAKCM 2505 R APPELLANT RESPONDENT Assessee represented by Shri Deepak Chopra, Adv.; & Ms. Priya Tondon, Adv. Department represented by Shri Vijay B vasanta, CIT (DR) Date of hearing 13.06.2024 Date of pronouncement 23.07.2024 O R D E R PER SAKTIJIT DEY, VP: The captioned appeal, by the Revenue, arises out of order dated 31.03.2023 of learned Commissioner of Income Tax (Appeals)-43, New Delhi, pertaining to the assessment year 2018-19. 2 ITA no. 1766/Del/2023 2. Grounds raised by the Revenue are as under: “1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred ignoring the facts of the case that the assessee had failed to submit relevant documents like educational qualification of its directors, details about its key employees etc. which could prove that the decision making of the assessee lies outside Mauritius. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that the assessee is eligible for availing benefit of India- Mauritius tax treaty even when the control and management of the company is based outside of Mauritius. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that the intent of DTAA is not only avoidance of double taxation but also prevention of fiscal evasion, which was brought out clearly in the assessment order in the present case. 4. The appellant craves to add, amend, modify or alter any grounds of appeal at any time or before the hearing of the appeal.” 3. As could be seen from the grounds raised, lis between the parties is concerning assessee’s claim of exemption on capital gains, derived from sale of shares/ security, under Article 13 of the India-Mauritius Double Taxation Avoidance Agreement (DTAA). Briefly, the facts are, the respondent assessee is a non-resident corporate entity, incorporated in Mauritius. Assessee is recognized as a tax resident of Mauritius on the strength of Tax Residency Certificate (TRC) issued by the Revenue Authority in Mauritius. The assessee is basically an investment fund and carries out investment activities. The assessee is also registered as a Foreign Portfolio Investor (FPI) with Securities and Exchange 3 ITA no. 1766/Del/2023 Board of India (‘SEBI’), as per SEBI Regulations. In terms of its business activities, the assessee had made investments in purchase of shares, trading in futures and options etc. In the year under consideration assessee earned revenue from sale of shares of Indian companies, trading in futures and options, dividend from Indian companies etc. Insofar as capital gain derived from sale of shares acquired prior to 01.04.2017, the assessee did not offer them to tax by claiming exemption under Article 13(4) of India-Mauritius Treaty. Capital gain derived from sale of shares acquired after 01.04.2017 and sold before 31.03.2018 was offered to tax, but, by availing beneficial tax rates in terms of Article 13(3B) of the Tax Treaty. Gain derived from futures and option transactions was claimed exempt u/s 13(4) of the DTAA. Dividend earned from Indian companies were claimed exempt u/s 10(34) of the Act. Whereas, long term capital gain derived from sale of equity shares, on which security transaction tax was paid, was claimed as exempt from taxation u/s 10(38) of the Act. 4. While examining assessee’s claim of exemption under the Treaty provisions, the Assessing Officer called upon the assessee to furnish various details/ documents including ownership, details of directors, control and management of the company etc. However, as alleged by the Assessing Officer, the assessee did not fully comply with the queries made. 4 ITA no. 1766/Del/2023 5. Subsequently, the Assessing Officer made independent enquiries by issuing notice u/s 133(6) of the Act to SEBI. From the information received from SEBI, the Assessing Officer noticed that assessee’s holding company Athena Capital Ltd. was directly held by Shri Mukut Behari Agarwal, who is a resident of United Arab Emirates (UAE). Further, referring to the documents received from SEBI, he observed that the beneficial owner of the assessee company was Mukut Behari Agarwal. He further noted that assessee, as well as its holding company, in Mauritius, were registered on the same day. Thus, based on such information received, the Assessing Officer concluded as under: “The ultimate control and management as well as the beneficiary of the entire corporate structure/group was Sh Mukut Behari Agonwal, who is a tax resident of United Arab Emirates The Assessee company is making different claims as per its conveniences with its submissions wide various replies. This clearly reflects the deliberate attempt to hide the information and mis-guiding the Income Tax Authorities about its claim. Therefore, it becomes clear that the directors in the Assessee company are just for namesake the actual decision-making lies outside Mauritius. The Assessee and its holding company were just used as corporate layers to channel funds of the tax residents of the United Arab Emirates through Mauritius to India The Assessee is not doing any bonafide business activity and was just being used to channelize funds to India to avail treaty benefits. The applicant company has no commercial substance. Mere possession of a TRC alone is not sufficient proof of control and management of the applicant company in Mauritius. Therefore, it may be safely inferred that the applicant company is a mere conduit/shell company.” 5 ITA no. 1766/Del/2023 6. Thus, ultimately, he concluded that since the control and management of the assessee company lies outside Mauritius and in UAE, the beneficial owner being resident of UAE, the assessee company is not entitled to avail benefit of India- Mauritius Treaty. Accordingly, the Assessing Officer rejected assessee’s claim of exemption under Article 13(3B) and 13(4) of the India-Mauritius Treaty and brought to tax the entire capital gain derived from sale of shares and futures and options etc. 7. Contesting the above said decision of the Assessing Officer, assessee preferred appeal before learned First Appellate Authority. After considering the submissions of the assessee in the context of facts and materials on record, learned First Appellate Authority, being satisfied that the assessee is a genuine tax resident of Mauritius, allowed assessee’s claim of exemption under the India-Mauritius Tax Treaty. 8. Before us, learned Departmental Representative submitted that specific information was received from SEBI, which indicated that control and management of the assessee was with Athena Capital Ltd., which, in turn, was completely held by Shri Mukut Behari Agarwal, a resident of UAE. He submitted, all corporate decisions were taken by Mukut Behari Agarwal in Mauritius, therefore, the control and management of the assessee, for all practical purposes, 6 ITA no. 1766/Del/2023 was in UAE. Therefore, though, the assessee may be holding a TRC issued by the Mauritius Authority, however, it could not be treated as a tax resident of Mauritius for availing Treaty benefits. He submitted, recently India and Mauritius have introduced a broad protocol to amend India-Mauritius DTAA, which was signed on 07.03.2024. He submitted, as per the new preamble to be brought in place of the old preamble, the common intention of the parties to the treaty is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance including through treat-shopping arrangements. Drawing our attention to Article 3(2) he submitted, the provisions of the protocol will apply from the date of entry into force of the protocol irrespective of the date on which the taxes are levied or the taxable years to which the taxes relate. However, he fairly submitted that as per Article 3(1) of the protocol, the amendment would come into force only after they are notified by each of the contracting States. 9. Learned counsel for the assessee submitted that there is no dispute that the assessee holds a valid TRC issued by Mauritius Revenue Authority, which entitles the assessee to avail benefit of India-Mauritius Tax Treaty. He submitted, as per Article 13(4) of the DTAA, capital gain derived from sale of shares, acquired prior to 01.04.2017 is exempt from taxation. He submitted, shares acquired after 01.04.2017 but sold prior to 31.03.2019, though, is subject to tax, however, 7 ITA no. 1766/Del/2023 beneficial tax rate would apply in terms of Article 13(3B). He submitted, the limitation of benefit (LOB) clause under Article 27A of the Treaty, applies to Article 13(3B) and not 13(4). He submitted, even the LOB clause is not applicable to the assessee as none of the conditions mentioned therein are fulfilled. He submitted, in case the Revenue authorities wanted to over-ride the pre conditions they should have invoked the machinery provision contained in Section 144BA of the Act, which has not been done. 10. Proceeding further, he submitted that the protocol between India and Mauritius authorities providing for amendment to India-Mauritius Treaty, since, has not been notified by both the Governments, the provision of the protocol cannot be applied. In this context he relied upon the decision in the case of Assessing Officer v. Nestle SA, 2023 SCC OnLine SC 1372. He submitted, since the assessee is holding a valid TRC and is Category 1 global business license holder and since all the directors of the assessee company are residents of Mauritius; and all Board Resolutions are passed in Mauritius, the assessee has to be treated as a tax resident of Mauritius, thereby eligible to avail the Treaty benefits. He submitted, the erroneous factual findings of the Assessing Officer have been clearly pointed out by the learned First Appellate Authority after thoroughly examining the facts and materials available on record. He submitted, simply based on certain information received from SEBI the Assessing Officer has 8 ITA no. 1766/Del/2023 concluded that Directors of the assessee company are not residents of Mauritius and the beneficial ownership of the assessee company lies with a person residing in UAE, therefore, the control and management of the assessee is outside Mauritius. He submitted, learned First Appellate Authority has clearly discussed the correct facts, which demonstrate that not only the assessee is a genuine tax resident of Mauritius, having commercial substance, but the control and management of the assessee for the year under consideration was in Mauritius. Thus, he submitted, the learned First Appellate Authority was justified in allowing assessee’s claim of exemption. He submitted, the Departmental Authorities cannot go beyond Circular no. 789 issued by the Central Board of Direct Taxes, stating that a valid TRC issued by Mauritius Authorities is adequate evidence of residency as well as beneficial ownership. In support of his contention, learned counsel relied upon the following decisions: - UOI v. Azadi Bachao Andolan 263 ITR 706 (SC); - Bid Services Division (Mauritius) Ltd. v. Authority for Advance Ruling, W.P. No. 713 of 2021, judgment dated 08.03.2023 (Bombay High Court); - Superb Mind Holding Ltd. v. ACIT, ITA no. 1568/Del/2022, dated 05.03.2024 (Trib.) - Norwest Venture Partners X –Mauritius v. DCIT – ITA no. 2311/Del/2023 decision dated 19.03.2024; - Leapfrog Financial Inclusion India (II) Ltd. v. ACIT ITA nos. 365 and 366/Del/ 2023 dated 11.08.2023. 9 ITA no. 1766/Del/2023 11. We have considered rival submissions in the light of ratio laid down in the judicial precedents cited before us and also perused the materials available on record. Undisputed facts are that the assessee is a company incorporated in Mauritius and the Mauritius Revenue Authority has issued TRC in favour of the assessee for the year under consideration. Assessee also holds Category 1 Global Business License issued by the Financial Services Department, Mauritius. The assessee has been registered as a FPI by SEBI under the SEBI Regulations and the registration continues till date. It is also a fact that the assessee is held by Athena Capital Limited, another Mauritius based company. 12. As discussed earlier, assessee’s claim of exemption of capital gain under Article 13(3B) and 13(4) of India-Mauritius DTAA has been primarily denied by the Assessing Officer on the ground that the beneficial owner of the assessee is an UAE resident, hence the control and management of the assessee company is based out of Mauritius and in UAE. Of course, the Assessing Officer has also commented that the assessee has no commercial substance in Mauritius as neither any business activity is carried on in Mauritius nor any expenses have been incurred by the assessee in Mauritius. The aforesaid observations of the Assessing Officer primarily are based upon certain information/ document issued by the SEBI in response to notice issued u/s 133(6) of the Act. However, learned First Appellate Authority, after examining the facts and materials on record, has recorded a 10 ITA no. 1766/Del/2023 categorical factual finding that the documents received from SEBI did not pertain to the assessment year under dispute but for some other assessment year. Therefore, the fact relating to control and management of the assessee as well as beneficial ownership cannot be ascertained from such documents. 13. On perusal of materials on record we agree with the aforesaid factual finding of learned First Appellate Authority. The information received from SEBI, which has been reproduced in the assessment order, clearly indicates that it did not pertain to assessment year under dispute but to subsequent assessment years. Therefore, no conclusion regarding control and management of the assessee company or beneficial ownership for the impugned current year can be drawn based on such documentary evidences. 14. Be that as it may, the TRC certificate, Category 1 Global Business License, and SEBI registration clearly demonstrate that the assessee is a genuine tax resident of Mauritius. Except the information received from SEBI, the Assessing Officer has failed to bring on record any adverse material which can establish beyond any shadow of doubt that the control and management of the assessee was outside Mauritius and the beneficial owner was a resident of UAE. On the contrary, information available with the Assessing Officer clearly suggests that in the year under consideration the assessee had three directors, all residents of 11 ITA no. 1766/Del/2023 Mauritius. Even, sample copies of Board Resolutions furnished in the paper book demonstrate that Board meetings were conducted in Mauritius. It has also been brought to our notice by learned counsel that even after capital gains from sale of equity shares became taxable in India after 01.04.2017, under the Treaty provisions, the assessee has not stopped its investment activities in India but has continued with them and paid tax in India. The aforesaid contention of the assessee remains uncontroverted. Thus, the very fact that the assessee has continued its business activities in India proves that it is not a fly by night operator created only for the purpose of availing Treaty benefits. In so far as applicability of protocol dated 07.03.2024 amending the India-Mauritius Treaty, undisputedly as per Article 3(1) to the protocol, it will come into force only after each of the contracting States notify it. 15. On a specific query from the Bench, learned Departmental Representative fairly submitted that the process mentioned in Article 3(1) of the protocol is yet to be finalized. Thus, when the protocol is yet to come into force, it cannot be made applicable. 16. So far as the judicial precedents relied upon by the learned counsel for the assessee, they are based upon the broad principles set out by the Hon’ble Supreme Court in case of Azadi Bachao Andolan (supra), while interpreting CBDT Circular 12 ITA no. 1766/Del/2023 no. 789 dated 13.04.2004. The ratio laid down in the judicial precedents clearly applies to assessee’s case. Thus, on over all consideration of facts and materials on record we do not find any infirmity in the decision of learned First Appellate Authority. 17. Before parting we must observe, in the grounds raised the Revenue has challenged the decision making process of learned First Appellate Authority basically on the following three points: (i) Commissioner (Appeals) has ignored the fact that the assessee failed to submit relevant documents like qualifications of its Directors, details about its key employees etc. which could prove that the decision making of the assessee lies outside Mauritius. (ii) Commissioner (Appeals) is wrong in allowing treaty benefit when the control and management of the assessee is outside Mauritius. (iii) Commissioner (Appeals) failed to appreciate that intent of DTAA is not only avoidance of double taxation but also prevention of fiscal evasion. 18. After carefully going through the observations of learned First Appellate Authority in the context of facts and material available on record, we do not find any deficiency in the order of learned First Appellate Authority on the points raised by Revenue, as noted above. Under these circumstances, we do not find merit in 13 ITA no. 1766/Del/2023 the grounds raised by Revenue. Accordingly, they are dismissed. Decision of learned First Appellate Authority is upheld. 19. Appeal is dismissed. Order pronounced in open court on 23.07.2024. Sd/- Sd/- (M. BALAGANESH) (SAKTIJIT DEY ) ACCOUNTANT MEMBER VICE PRESIDENT Dated: 23.07.2024. *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI