LTCG of Mauritius Company on Sale of Shares of Indian Investment made before 1st April 2017 is not Taxable in India: ITAT [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal ruled that the Long term Capital Gain ( LTCG ) of Mauritius Company on the sale of shares of an Indian investment made before the 1^st April 2024 is not taxable in India.

The assessee Superb Mind Holdings, a company in Mauritius, invested in an Indian company called Pearl Retail Solutions Pvt. Ltd. in 2011 and 2012. The assessee decided to sell their 69,999 shares to LEI Singapore Holdings Pte. Ltd. for a sum of Rs. 40,02,37,407. As per the Income Tax Act, 1961 under section 195, LEI Singapore Holdings Pte. Ltd. deducted tax at source, withholding 10.92%  of the transaction amount.

The Assessee approached the revenue department to claim the refund of TDS deducted under Article 13(4) of the India-Mauritius DTAA. The assessing officer rejected the claim. The assessee appealed before the ITAT, New Delhi.

The assessee's counsel argued that the assessee is a registered company in Mauritius with a valid Tax Residency Certificate ( TRC ). They invested in an Indian Company called Pearl Retail Solutions Pvt Ltd in 2011 and 2012, before 01.07.2017. The counsel relied on the assessee's previous case in the A.Y. 2018-19, the facts are similar and the Bombay High Court allowed the deduction. The assessee’s counsel submitted a copy of the Judgment.

The respondent’s counsel, Vijay B Vasanta argued that a similar matter was pending before the Supreme Court filed by the Department in the case of Blacks Stone Capital Partners (Singapore) VI FDI Three Pte. Ltd. so this issue requires careful consideration.

The ITAT bench observed that the assessee had claimed an exemption on long-term capital gains from the sale of shares, citing Article 13(4) of the India-Mauritius DTAA. LEI Singapore Holdings Pte. Ltd. had deducted tax at source on the payments made to the assessee. Currently, the assessee is seeking a refund of the withholding tax deducted on this transaction.

The two-member bench of Vikas Awasthy (Judicial Member) & Naveen Chandra (Accountant Member) observed both sides arguments. The Tribunal observed that the factual matrix of this case and the A.Y 2018-19 case were similar and this fact is not disputed.

The Tribunal observed that the Bombay High Court allowed the deduction after considering multiple factors such as the press release issued by the Finance Ministry's clarification on TRC in Circular of CBDT No.789/2000, a press release of CBDT on the Protocol of amendment of the convention for the avoidance of double taxation and various Supreme Court Judgments such as Vodafone International Holdings and Azadi Bachao Aandolan cases which reinforced these exemptions. 

The Income Tax Tribunal noted that the Bombay High Court, referencing a press release dated 29.08.2016 issued by the Central Board of Direct Taxes ( CBDT ) following the amendment to the Mauritius DTAA effective from 01.04.2017, upheld the grandfathering of capital gains exemption under the erstwhile Mauritius DTAA.

Further, the bench added that the Bombay High Court ruled that the protocol mandates source-based taxation of capital gains arising from the alienation of shares acquired on or after 01.04.2017 in a company resident in India for FY 2017-18. Consequently, the court determined that investments made before 01.04.2017 are grandfathered and not subject to capital gains taxation in India. The situation in the present case before us is similar.

Therefore, the  ITAT ruled in favor of the assessee and allowed the claimed tax exemption.

To Read the full text of the Order CLICK HERE

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