Substance Over Form Invoked Once Again! AAR Denies Indo- Mauritius DTAA Benefits

Investments by the foreign investors in India through the Mauritius route has always been a contentious issue, from the Indian taxation perspective. The Hon'ble High Courts of various states and the Authority for Advance Ruling ("AAR") have revisited the provisions of the India – Mauritius Double Taxation Avoidance Agreement ("DTAA") (specifically Article 13 which deals with the taxation of the capital gains) time and again. The denial of tax benefits by the tax authorities has led to such revisions. According to them, the transactions are structured with the sole purpose of taking advantage of the provisions of the DTAA. The AAR, in its recent ruling dated February 10, 2020¹, denied capital tax benefits to a resident of Mauritius and held that the entire transaction was structured to avoid capital gains tax ("CGT") in India.