Recently, the Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of DDIT v. M/s Saraswati Holding Corpn. Inc. (2009-TIOL-529-ITAT-DEL) ruled on the taxability of the income from the sale of shares in the hands of resident in Mauritius. The Tribunal held that the taxpayer holding tax residence certificate of Mauritius, was entitled to the exemption provided under Article 13(4) of the India-Mauritius tax treaty (the tax treaty). The Tribunal relied on the decision of the Supreme Court in the case of UOI v. Azadi Bachao Andolan [2003] 236 ITR 706 (SC).
Facts of the case
- The taxpayer was a company incorporated in Mauritius holding the tax residence certificate of Mauritius. It was incorporated with the purpose of carrying on business in dealing and making investments in shares and securities etc. in India.
- The taxpayer made investments in the Indian capital market and derived income in the form of short term/long term capital gains. The taxpayer claimed exemption on the income from sale of investments after relying on the article 13(4) of the tax treaty and Circular Nos. CBDT circular no. 682 dated 30 March 1994 and CBDT circular no. 789 dated 13 April 2000 issued by the Central Board of Direct Taxes (CBDT).
- The Assessing Officer (AO) held that the effective management of the taxpayer was in India and accordingly, denied the exemption claimed by the taxpayer under Article 13(4) of the tax treaty.
- The Commissioner of Income-tax (Appeals) [CIT (A)] allowed the exemption under the tax treaty after observing the Delhi Tribunal’s decision in the case of taxpayer itself for the assessment year 2000-018
Contentions of the taxpayer
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