Indian tax appeals authority has directed that the taxpayer should provide additional evidence to substantiate residence status based on the place of effective management of a Mauritius-based company to obtain the capital gains tax exemption under the India-Mauritius treaty (SMR Investments Ltd. v. DDIT); mere certificate of residence issued by Mauritius government is not enough to claim the treaty benefits. The ruling departs from the previous view of the government as well as the Supreme Court that the benefits under the Mauritius treaty are available to a Mauritius company if the company is in possession of a certificate of residence issued by the Mauritius government.
Proposed Direct Tax Code recently tabled for discussion in Indian parliament contains the general anti avoidance rules which would override treaty provisions in case of impermissible arrangements. Planning for investment in India via Mauritius? Think again….