Elara India Opportunities Fund Limited Vs Dy. CIT (International Taxation)- (ITAT Mumbai)
Elara India Opportunities Fund Limited, a portfolio investor registered with SEBI and a tax resident of Mauritius, contested the final assessment order for Assessment Year 2020-21 issued by the Assessing Officer (AO). The dispute arose from the addition of Rs. 6,64,96,351 under Section 68 of the Income Tax Act, pertaining to the sale of shares of M/s. International Conveyors Ltd. (ICL).
Assessee’s Investments: Elara India Opportunities Fund had acquired 65 lakh shares of ICL between 2008 and 2009 and held them for over 10 years. During the relevant assessment year, the fund sold 22,41,929 shares of ICL for Rs. 6,64,96,351.
Tax Treatment: The assessee declared these proceeds as exempt income under the India-Mauritius Double Taxation Avoidance Agreement (DTAA), claiming the gains were not taxable in India.
AO’s Position: The AO treated the transaction as a sham, alleging it was a mechanism for converting unaccounted funds into exempt long-term capital gains (LTCG). The AO invoked Section 68, asserting the amount represented unexplained income.
Proceedings before DRP: Elara India Opportunities Fund appealed to the Dispute Resolution Panel (DRP), arguing that Section 68 does not apply to non-residents benefiting from DTAA provisions. The DRP upheld the AO’s decision, citing provisions under the Income Tax Act and the DTAA.
