The Income-tax Appellate Tribunal (ITAT) Mumbai bench upheld the exemption of long-term capital gains on the sale of equity shares of an Indian company by Comstar-Mauritius, acquired before April 1, 2017, under the India-Mauritius tax treaty. A revisionary order by the Commissioner of Income-tax (Appeals) was overturned.
The Mauritius entity held a Category-1 Global Business License and a valid tax residency certificate. A protocol to the treaty amends Article 13 from April 1, 2017, giving India the right to tax capital gains from shares acquired after this date, with a grandfathering provision until March 31, 2019. Additionally, a new Article 27A adds ‘Limitation of benefits’, denying the reduced rate on capital gains in cases where the arrangement’s primary purpose is to exploit the tax benefit.
The denial also applies to shell companies during the grandfathering period. The ITAT noted that the taxpayer submitted all transaction details and necessary documents, including the tax residency certificate, and referred to Circular No. 682 dated March 30, 1994, stating that as the shares sold were acquired before April 1, 2017, India did not have the right to tax them.