According to Double Taxation Avoidance Act
between India and Mauritius, Capital Gains arising from sale of
shares is taxable in the country of residence of the shareholder
and not in the country of residence of the Company whose shares
have been sold. Therefore, a Company resident in Mauritius
selling shares of Indian Company will not pay tax in India.
Since there is no Capital Gains tax in Mauritius it will escape
tax altogether. Therefore, residence in Mauritius assumes
importance.
CBDT vide
circular No.789 dated 13/4/2000 had issued instructions to the
officers to accept a certificate of residence issued by
Mauritius Authorities as proof of residence in Mauritius. An
NGO had filed a writ against the circular in Delhi High Court.
The Court quashed the said circular with the result that A.Os
became entitled to go beyond the certificate of residence to
verify the residential status. The Supreme Court has now
vacated the Delhi High Court’s order, the result being that on
the basis of certificate of residence issued by Mauritius
Government, a Company can claim exemption from Capital Gains tax
on sale of shares.
