ITAT’s recent decision on India-Mauritius tax treaty Art. 13(4): Could the Indian tax authorities invoke GAAR and Limitation of Benefits (LOB) provisions?

 By: Dr. Amar Mehta  -  February 22, 2024


In a recent decision of the Indian Income Tax Appellate Tribunal (ITAT), the taxpayer company (a Mauritius company) had derived capital gains from sale of shares of two Indian companies. The Indian tax authorities denied the taxpayer company’s claim for Indian tax exemption in respect of those capital gains under Art. 13(4) of the India-Mauritius tax treaty.

As per the Indian tax authorities, the taxpayer company was merely a “paper company” (a conduit company) incorporated in Mauritius for obtaining advantage of the beneficial provisions of the India-Mauritius tax treaty. Further, the Indian tax authorities noted that the taxpayer company had neither office premises nor employees.

The ITAT considered the fact that though the Indian tax authorities had treated the taxpayer company as a conduit company, they had invoked neither the General Anti Avoidance Rules (GAAR) under the domestic tax law nor the ‘limitation of benefits’ provisions contained in Art. 27A of the India-Mauritius tax treaty.

This article analyzes the ITAT’s above-mentioned decision, and it also examines whether the tax authorities could have invoked either the GAAR provisions under the domestic tax law or the Limitation of benefits provisions in the tax treaty. 

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