In the recent matter of Asia Today Limited1, the Hon’ble Mumbai Tribunal has held that even in a case of a foreign entity which has first been incorporated in British Virgin Islands and later redomiciled to Mauritius, the Tax Residency Certificate (TRC) issued by the Mauritius tax authorities shall be consider sacrosanct and consequently the taxpayer shall be eligible for benefit of Double Taxation Avoidance Agreement (‘DTAA’ or ‘Treaty’). A summary of the matter is presented below.
Background
Asia Today Ltd. (‘ATL’, earlier known as Signpost International Limited) was incorporated in British Virgin Islands (BVI) but later got redomiciled in Mauritius on 29th June 1998 and then it was issued a TRC by the Mauritius tax authorities on 6th July 1999. ATL is a foreign telecasting company. It sells advertising time and collects subscription revenues through its Indian affiliates Zee Telefilms Limited and El Zee, but its claim was that since it does not have any permanent establishment in India, no part of its income was taxable in India. The Assessing Officer did not accept the claim. He was of the view that its Indian agent constitute virtual projection of the foreign company and is said to have Dependent Agent Permanent Establishment (DAPE) in India.
Observations and Judgement
The matter pertained to FY 1999-2000 & FY 2000-01 At the outset, the Indian Income tax department contended that since originally the company was belonged to BVI, it should not be allowed the benefit of treaty between India and Mauritius. However, the Hon’ble Tribunal set aside this objection stating it observations that-
“5. ……. given the ground realities of offshore world, re-naming, re-structuring and even re-domiciliation of offshore companies are facts of life. A re-domiciliation of the company by itself cannot lead to denial of treaty entitlements of the jurisdiction in which the company is re-domiciled, though, of course, the fact of re-domiciliation of the company could at best trigger detailed examination or the re-domiciled company being actually fiscally domiciled in that jurisdiction. As we hold so, we are alive to the fact that in the light of judgments of Hon'ble Courts above, one could possibly argue that once a tax residency certificate was issued, it could not even be open to the tax authorities to make such investigations, but then it is not necessary to deal with these nuances of law. There is not even a suggestion, leave aside any material to suggest so, that the assessee company is not now fiscally domiciled in the Mauritius. …….”
Besides, the Tribunal also observed that this issue has been raised by the department after 2 decades and in the interim, the tax authorities itself have been allowing the same treaty benefit for several years.
As regard the matter of ATL having DAPE in India, the Tribunal considered this issue as academic in nature, as the Indian parties were being remunerated at arm’s length and the matter was already covered by a recent ruling in the matter of same taxpayer2 for earlier years.
Conclusion
The Hon'ble Tribunal in the light of several old rulings3 has rightly held that TRC issued by Mauritius tax authorities shall be valid and shall be a sufficient proof of tax residency. The Circular No. 789 dated 13th April, 2000 issued by the Central Board of Direct Taxes also categorically states the same. The present judgement has stated that the fact of change of domicile of a company from BVI to Mauritius will not have any negative bearing on its tax residency.
However, the judgements relates to old Assessment Years i.e. 2000-01 & 2001-02 and in the present era of GAAR and MLI, such re-domiciliation could be challenged if the primary purpose of such an act was tax avoidance. Specifically in the context of Mauritius, as Mauritius has not effected MLI with India, Indian tax authorities can still invoke GAAR to challenge the tax residency.
1 [2021] 129 taxmann.com 35 (Mumbai - Trib.)
