A - Authority For Advance Ruling (AAR), New Delhi

A – Authority for Advance Ruling (AAR), New Delhi

Applicant, a tax resident of India, is a public limited company with 25.06% of its shares held by a Mauritian company. Applicant proposed a scheme of share buy-back from all its shareholders which was accepted by the Mauritian company only. Thus, applicant approached AAR on the question whether capital gains arising in the hands of Mauritian company on account of such share buyback is chargeable to capital gains tax in India under India-Mauritius DTAA and whether applicant is liable to withhold Income-tax under section 195 of the Income-tax Act, 1961 (IT Act).

Applicant argued that the proposed share buy-back is strictly in terms of Indian corporate laws & tax laws and any gains arising on account of such buyback are liable to tax as capital gains in India under the IT Act. However, India-Mauritius DTAA provides a beneficial treatment and such gains are taxable only in Mauritius and not in India. Indian tax