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  • Service: Tax, International Corporate Tax, Mergers & Acquisitions, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 7/23/2012

India - Treatment of transfers under tax treaty with Mauritius 

July 16:  The KPMG member firm in India has prepared reports on the following developments (read these July 2012 reports, by clicking on the hyperlinks provided below):
  • Transfer of shares “at cost” by Indian company to foreign parent company, pursuant to a group restructuring, not a sham transaction or “colourable device”: The Mumbai Bench of Income-Tax Appellate Tribunal held that the transfer of shares “at cost” by an Indian company to a foreign overseas parent company, as part of group restructuring, was not a sham transaction or a colourable device. It was determined that: (1) the cost of acquisition was book value—rather than fair market value, as proposed by the Assessing Officer—for computing the amount of capital gains; (2) the restructuring agreement could not be rejected absent proof of a fictitious arrangement; and (3) a valuation certificate relied upon by the Assessing Officer was only for use by the Reserve Bank of India for purposes of assigning net asset value of the shares.

    The case is: Euro RSCG Advertising Pvt. Ltd. Read a July 2012 report [PDF 202 KB]


  • Tax residency certificate issued by Mauritius authorities establishes bona fide belief for taxpayer to claim treaty benefits under the India-Mauritius income tax treaty; no penalty to be imposed on denial of treaty benefits: The Mumbai Bench of the Income-tax Appellate Tribunal held that a tax relief certificate issued by the India tax officer and a tax residency certificate issued by the Mauritius tax authorities constitute a basis for the taxpayer’s bona fide belief for claiming a tax exemption on shipping profits under the India-Mauritian income tax treaty. Accordingly, a penalty was not to be imposed on the non-resident taxpayer or agent.

    The case is: R Liners Ltd. Read a July 2012 report [PDF 208 KB].


  • Capital gains on transfer of shares of Indian company by Mauritius company (holding a valid tax residency certificate) not subject to tax under India-Mauritius income tax treaty: The Authority for Advance Ruling concluded that (1) capital gains of a Mauritius entity (holding a valid tax residency certificate) from the proposed sale of an investment in India is not subject to tax, pursuant to a provision of the India-Mauritius income tax treaty; and (2) the Indian tax authorities may apply provisions of the general anti-avoidance rule after the effective date of 1 April 2013.

    The case is: Dynamic India Fund I. Read a July 2012 report [PDF 208 KB]


  • Transfer of shares by a legitimate plan is not “tax avoidance”: The Bombay High Court upheld the taxpayer’s plan as a tax-efficient transfer of shares, and concluded that the transaction was not a tax avoidance device simply because, if transferred otherwise, would have been subject to capital gains tax.

    The case is: Unichem Laboratories Ltd. Read a July 2012 report [PDF 198 KB]


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