India: Mauritius company not an Indian tax resident because control and management not situated “wholly” in India (tribunal decision)
Capital gains recognized by taxpayer from transfer of shares of Indian company thus not taxable in India under Mauritius treaty
The Delhi Bench of the Income-tax Appellate Tribunal held that the taxpayer, a Mauritius-based holding company, was not a tax resident of India under the Income tax Act, 1961 because control and management of its affairs were not situated “wholly” in India. The tribunal based its conclusion on the following facts:
- The taxpayer held a valid tax residency certificate (TRC).
- The taxpayer’s directors were not Indian residents.
- All significant business decisions were made by the board of directors in meetings held in Mauritius
The tribunal rejected the tax authority’s claims that the taxpayer was a sham entity because the tax authority produced no evidence to substantiate its claim of tax avoidance or lack of substance in the taxpayer.
As a result of the tribunal’s conclusion, capital gains recognized by the taxpayer from the transfer of shares of an Indian company were not taxable in India under the India–Mauritius income tax treaty.
The case is: Essar Communications Limited v. ACIT
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