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Clarification regarding taxation of income from dividends and capital gains under the Indo-Mauritius Double Tax Avoidance Convention (DTAC)

1. The provisions of the Indo-Mauritius DTAC of 1983 apply to ‘residents’ of both India and Mauritius. Article 4 of the DTAC defines a resident of one State to mean “any person who, under the laws of that State is liable to taxation therein by reason of his domicile, residence, place of management or any other crite­rion of a similar nature.” Foreign Institutional Investors and other investment funds, etc., which are operating from Mauritius are invariably incorporated in that country. These entities are ‘liable to tax’ under the Mauritius Tax law and are, therefore, to be considered as residents of Mauritius in accordance with the DTAC.

2. Prior to 1-6-1997, dividends distributed by domestic companies were taxable in the hands of the shareholder and tax was deducti­ble at source under the Income-tax Act, 1961. Under the DTAC, tax was deductible at source on the gross dividend paid out at the rate of 5% or 15% depending upon the extent of shareholding of the Mauritius resident. Under the Income-tax Act, 1961, tax was deductible at source at the rates specified under section 115A, etc. Doubts have been raised regarding the taxation of dividends in the hands of investors from Mauritius. It is hereby clarified that wherever a Certificate of Residence is issued by the Mauri­tian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as benefi­cial ownership for applying the DTAC accordingly.

3. The test of residence mentioned above would also apply in respect of income from capital gains on sale of shares. Accord­ingly, FIIs, etc., which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph 4 of article 13.

Circular : No. 789, dated 13-4-2000.


Reference is invited to the Circular No. 789, dated 13-4-2000 issued by the Board where it was clarified that “wherever the certificate of residence is issued by the Mauritian authorities, such certificate will constitute sufficient evidence for accepting the status of residence, as well as beneficial ownership for applying DTAC accordingly.” The said circular specified the mode of proof of residence of an entity in Mauritius.
Certain doubts have been raised regarding the effect of the aforesaid circular, particularly whether the said circular would also apply to entities which are resident of both India and Mauritius. In order to remove all doubts on the subject, it is hereby clarified that where an assessee is a resident of both the Contracting States, in accordance with para 1 of article 4 of Indo-Mauritius DTAC, then, his residence is to be determined in accordance with para 3 of the said article, which reads as under :—
“3. Where, by reason of the provisions of paragraph 1, a person other than an individual is resident of both the Contracting States, then it shall be deemed to be a resident of the Contracting State in which the place of effective management is situated.”

In view of the above, where an Assessing Officer finds and is satisfied that a company or an entity is resident of both India and Mauritius, he would be free to proceed to determine the residential status under para 3 of article 4 of DTAC. Where it is found as a fact that the company has its place of effective management in India, then notwithstanding its being incorporated in Mauritius, it would be taxed under the DTAC in India.
Circular : No. 1/2003, dated 10-2-2003.


n Circular No. 789 was quashed by the Delhi High Court in Shiv Kant Jha v. Union of India [2002] 122 Taxman 952 [The Supreme Court in Union of India v. Azadi Bachoo Andolan [2002] 125 Taxman 826 stayed the operation of the Delhi High Court Judgment].

n Provisions of DTAA will be applicable only if the recipient is resident in Mauritius in terms of the DTAA and is liable to pay tax in that country—TVM Ltd. v. CIT [1999] 102 Taxman 578/237 ITR 230 (AAR-N. Delhi).

n To the extent the guidelines as given in CBDT Circular No. 742, dated 2-5-1996 purport to extend the applicability of the pre­sumptive rate of profits even to the cases where the foreign telecasting company has no permanent establishment in India, it cannot be treated as laying down the correct position in law—TVM Ltd. v. CIT [1999] 102 Taxman 578/237 ITR 230 (AAR – N. Delhi).

n Applicant which is a collective investment vehicle like a mutual fund and has set up its business in Mauritius and made investments in Indian companies and will have income in form of dividends, interest and capital gains from its investments, it will be entitled to benefit of DTAA between Mauritius and India —XYZ/ABC Equity Fund v. CIT [2001] 116 Taxman 719/250 ITR 194 (AAR – N. Delhi).

n Even a non-independent agent can be deemed to be a P.E. only if he can act independently in the matter of concluding contracts on behalf of the principal on his own, freely and without control from the other—TVM Ltd. v. CIT [1999] 102 Taxman 578/237 ITR 230 (AAR – N. Delhi).

See Companies Incorporated in Mauritius, In re [1996] 89 Taxman 125 (AAR – New Delhi)/DLJMB Mauritius Investment Company v. CIT [1997] 94 Taxman 218 (AAR – New Delhi)/Dr. Rajni Kant R. Bhatt v. CIT [1996] 89 Taxman 82 (AAR – New Delhi).


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July 2024