The AAR in  434 ITR 180 (AAR) is required to answer a question whether the capital gains on the proposed out and out sale of shares of Indian subsidiary by the Mauritius holding company (applicant) under a group restructuring would be chargeable to Income-tax in India in the hands of the applicant, hav ing regard to the pre-amended provisions of article 13 of the India-Mauritius Tax Treaty.
The department held a view that the transaction is designed, prima facie, for avoidance of tax and therefore sought application of the proviso to section 245R(2) and lifting of corporate veil in this case citing various documents and financial statements.
The AAR observed that the applicant hold a valid tax residency certificate (TRC) issued by the Mauritius Revenue Authority hence we have to honour the treaty and Court decisions and further thus it held that the motive of tax avoidance is not relevant, so long as the act was done within the framework of law to which it found that the applicant is a tax resident of Mauritius and held a valid tax residency certificate (TRC) issued by the Mauritius Revenue Authority. It was holding Global 1 category business licence under “The Financial Services Act” of Mauritius issued by the financial service commission of Mau- ritius. As per section 71(5) of the said Act, a corporation holding category 1 global business licence shall at all times be administered by a management company. It was clarified that in terms of this requirement, the applicant had no employee as it was administered and managed by International Mauritius Management Limited, a management company. The other conditions regarding management and control from Mauritius, having at least two directors resident in Mauritius, its principal bank accounts being maintained in Mauritius, its accounting and registered office being in Mauritius, etc. were also fulfilled and that there were no common directors in Indian entity , the holding company, and the applicant.