Investors from Mauritius are often denied capital gains tax relief in India on the grounds that those controlling the companies are based outside the country. This may change now, according to reports.
One such attempt by the Income tax (I-T) department to lift the ‘corporate veil’ was struck down this week by a court which ruled that the tricky subject of ‘beneficial ownership’ (BO) of the Mauritian entity cannot be linked to capital gains.
According to the Economics Times, the ruling by Income tax Appellate Tribunal (ITAT), a quasi-judicial authority, relating to Blackstone FP Capital Partners Mauritius V Ltd, pertains to financial year 2015-16 when it booked capital gains of over IRS9billion after selling stocks of CMS Info Systems.
“The tax officer’s contention was that the effective control of the company in Mauritius lay with entities in the Caribbean tax haven Cayman Islands.
Thus, Blackstone could not derive the capital gains tax benefits – with no tax required to be paid for sale of stocks bought before 2017 – as provided in the amended treaty between India and Mauritius.”
The tax officer reportedly believed it was a fit case to lift the proverbial corporate veil to point fingers at the real BOs.
However, ruling on the appeal by Blackstone, the Mumbai bench of the Tribunal said the “concept of BO of the capital gains” cannot be read into the scheme of Article 13 (dealing with capital gains) of the treaty.
“The Tribunal has held that the Treaty does not require the BO test to be met for capital gains tax exemption. The (apex tax body) CBDT had already issued Circular no. 789 in 2000 stating that wherever a Certificate of Residence is issued by the Mauritian Authorities, such a Certificate will constitute sufficient evidence for accepting the status of residence as well as BO for applying the Treaty,” the Economics Times added.
