High Court of Delhi Overturns AAR Ruling, Grants Mauritius Treaty Benefits
Dewan P Chopra has provided a summary of the Honorable High Court of Delhi's decision (‘Delhi HC’) in the case of Tiger Global International III Holdings vs The Authority for Advance Rulings (Income tax) & Ors dated 28.08.2024.
Read the summary
Delhi HC overturns the AAR ruling in the case of Tiger Global and allows Mauritius treaty benefit to the petitioner on the grounds that the transaction stands grandfathered by Article 13(3A) of India-Mauritius DTAA.
Some key points of the ruling are as follows:
- TRC issued by Mauritius Revenue Authorities should be sufficient to claim the beneficial provisions of Tax Treaty unless it is established that corporate structuring is designed to obtain illegitimate or illegal gains, abuse the underlying objective of conventions
- Provisions of Article 13 of the Treaty is very clear under which shares of Indian company acquired before 01 April 2017 has been grandfathered. Further, Rule 10U(1)(d) read with Rule 10(2) of Income Tax Rules has clearly exempted the provisions of GAAR on the said grandfathering provisions.
- Economic substance principles can be tested, inter alia, on the basis of following:
- quantum of investment,
- period of holding investment,
- expenditure incurred in Mauritius,
- holding a valid TRC and GBL
- satisfying LOB conditions as applicable.
- Revenue would not be justified in doubting the presumption of validity attached to the TRC as it would inevitably result in an erosion of faith and trust reposed by Contracting States in each other.
- Merely because the parent may exercise shareholder influence over its subsidiary would not lead one to draw an adverse inference of the latter being a mere puppet. Further, merely because two of the members of the Board also happened to be connected with the larger conglomerate would not convince us to hold that the Mauritius entities were reduced to mere puppets.
- It would be impermissible for the Revenue to manufacture additional roadblocks or standards that parties would be required to meet in order to avail of DTAA benefits, subject to caveats of illegality, fraud and the transaction being in contravention of the underlying object and purpose of the treaty.