Place of effective management essential to substantiate the residential status of the Mauritius company while claiming the capital gains exemption in India

Facts

• The assessee (SMR Investments Limited) is a company incorporated in Mauritius with two shareholders (Mr. Suresh Rajpal and Ms. Mavis Tse Rajpal, who respectively hold 99% and 1% of the share capital) and three directors.
• During the financial year 2001-02, the assessee sold shares held in M/s HCL Technologies, an Indian company.
• The resultant long-term capital gains was claimed as exempt from tax in India in terms of Article 13(4) (See note- 1) of the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius, on the premise that the assessee was a tax resident of Mauritius and the tax residence certificate issued by the Financial Services Commission, Mauritius was produced to this effect.
• The Assessing Officer (AO), however, sought to tax the capital gains in India, by maintaining that assessee was a resident of India as its place of effective management was situated in India.

Issues before the Tribunal:- Whether the place of effective management of the assessee is in India or Mauritius, and consequently whether the capital gains are taxable in India or Mauritius?

Contentions of the assessee

• Neither the AO nor the Commissioner of Income tax (Appeals) has been able to substantiate the allegation that the control and management of the assessee is situated in India with any documentary evidence.
• Reliance was placed on the ruling of the Honourable Delhi Tribunal 2 wherein, the residential status of a non­resident company was determined based on the tax residency certificate issued by a foreign government and the place where the board meetings were conducted.
• Copies of the passport of, and an affidavit filed by, a former director of the company, were placed before the Tribunal, to substantiate that the director of the assessee was in Mauritius on the dates on which the board meetings of the assessee were held, thereby indicating that the effective control was in Mauritius.
• Reliance was placed of the provisions of the Indian Evidence Act, 1872 that, in case any party rebuts the general presumption that the board meetings of a Mauritius activity would have been held in Mauritius, then the onus to prove such allegation is on the party making the allegation. However, both the lower authorities have failed to discharge this onus. Hence the assessee’s income cannot be taxed in India.

Contentions of the Revenue