P&H HC: Relief For Mauritius Based Investors

It’s a decision that could spell relief for many Mauritius based investors. This week the Punjab & Haryana High Court has re-iterated that a Mauritian tax residency certificate is sufficient to avail treaty benefits. Senior advocate Porus Kaka tells CNBC TV18’s Menaka Doshi that this re-iteration is important given the continuous litigation regarding the India-Mauritius tax treaty benefits

In 2011 Blackstone Mauritius sold 66.29% & Barclays Mauritius sold 12.75% of equity in SKR BPO to Serco. SKR owned 100% of BPO service provider Intelenet and 20% of another BPO Sparsh.
Blackstone & Barclays applied to AAR seeking an advance ruling on the taxability of the transaction in India and whether Serco was to withhold tax before making the purchase payment. The premise was that since both sellers were Mauritius based entities they would be exempt from Indian capital gains tax under the India-Mauritius double tax avoidance treaty.
After a 3 year delay AAR declined to give a ruling on the basis of a prima-facie finding that the transaction was designed for avoidance of income tax.

The matter then went to the Punjab & Haryana High Court where Revenue argued that the entire transaction was nothing but a device for taking advantage of the DTAC between India and Mauritius. It was a case of treaty shopping. That Blackstone Mauritius and Barclays cannot be considered to be residents of Mauritius as they have absolutely no business interest in Mauritius. That the Residency Certificate issued in favour of Black Stone Mauritius and Barclays are irrelevant.

But The High Court disagreed. It set aside the AAR ruling and declared that no capital gains tax was payable by Barclays Mauritius and Blackstone Mauritius. Nor was there any withholding tax liability on Serco.

The High Court decision reiterates 2 important views – that ‘it is incumbent upon the authorities in India to accept the certificates of residence issued by the Mauritian authorities.’ And on treaty shopping it said ‘entering into a treaty and terms and conditions thereof are the sovereign functions involving important aspects of policy’

To be clear – these views of the P&H HC are not new precedent. The HC has re-iterated the Supreme Court’s views in the famous Azaadi Bachao Andolan case. But it’s an important re-iteration as senior advocate Porus Kaka explains…