India: Tax residency certificate not conclusive of eligibility for benefits under the Mauritius treaty (tribunal decision)
Tax authority may still challenge taxpayer’s eligibility for treaty benefits on substance grounds.
The Delhi Bench of the Income-tax Appellate Tribunal held that a tax residency certificate, although a condition for eligibility, is not conclusive evidence of entitlement to benefits under the India-Mauritius income tax treaty, and the tax authority may still challenge the taxpayer’s eligibility for treaty benefits on substance grounds.
The tribunal found that while capital gains arising to a Mauritius tax resident from redemption of equity-oriented mutual fund units would not be taxable in India under the Mauritius treaty because the mutual fund units did not constitute “shares” for purposes of the treaty, the tax authority could still challenge the taxpayer’s entitlement to treaty benefits on the grounds that the taxpayer lacked commercial substance.
Because the facts relating to the taxpayer's commercial substance, control, and management, and applicability of the limitation of benefits clause under the treaty had not been adequately examined, the tribunal remanded those issues to the tax officer for fresh adjudication.
The lead case is: Emerging India Focus Funds v. ACIT (IT(IT)A No. 148/Del/2026)
Read an October 2026 report prepared by the KPMG member firm in India