In a recent decision of the Bombay High Court, the
availability of the capital gains exemption in India under the
India-Mauritius tax treaty was upheld.
The gains arose from a transaction that was concluded in
2009 (i.e. before the 2016 protocol that eliminated the capital
gains exemption). The taxpayer had approached the Authority for
Advance Rulings (AAR) for a ruling on the taxability of the
gains in India, and obtained a ruling that the gains were not
taxable in view of the exemption under the India-Mauritius
The ruling of the AAR was challenged by the commissioner
before the Bombay High Court on the ground that the Mauritius
taxpayer was a shell company, and allowing it to avail of
treaty benefits would amount to justifying treaty shopping. In
support of this contention, the following arguments were
- The Mauritius transferor had never
nominated anyone on the board of the Indian company;
- The beneficial owner of the Indian company
was not the Mauritius transferor but the ultimate Bermuda
- The Mauritius transferor did not incur any
utility expenditure or staff salaries; and
- Income and expenses shown in the financial
statement of the Mauritius transferor apart from profit
arising on sale of shares of the Indian company consisted
only of interest paid/received from group companies.
The Bombay High Court, however, felt that on facts, the bona
fides of the taxpayer could not be assailed. Specifically, the
fact that the Mauritius taxpayer had held on to the shares of
the Indian company for more than 13 years was relied upon by
the court. Despite challenges from the tax authorities, this
decision joins a long line of Indian judicial pronouncements
where the availability of benefits under the India-Mauritius
treaty has been upheld.
Stay of tax demand when an appeal is pending before first
In February 2016, the Central Board of Direct Taxes (CBDT)
made it mandatory for the tax authorities to grant a stay of
tax demands during the pendency of the first appeal, as long as
the taxpayer paid 15% of the disputed demand. In July 2017, the
CBDT revised this amount from 15% to 20%.
India-Mauritius treaty not included in the list of covered
tax agreements for the MLI
On July 5 2017, Mauritius signed the Multilateral Instrument
(MLI). However, Mauritius did not notify its tax treaty with
India as a covered agreement in its tentative list.
Accordingly, the current tax treaty between India and Mauritius
will not be affected by the MLI.
However, Mauritius has reiterated its commitment to
implementing the BEPS minimum standards into its entire tax
treaty network by the end of 2018 and has committed to modify
its remaining treaties through bilateral negotiations.
Rakesh Dharawat (email@example.com)
and Hariharan Gangadharan (firstname.lastname@example.org)
Tel: +91 22 6108 1000