We are a Mauritius company set up to channel US money into Indian securities. Are we entitled to the India-Mauritius treaty on our dividends, interest and capital gains?
Yes, in substance. The Authority ruled that DLJMB Mauritius Investment Company was resident in Mauritius within the meaning of article 4 of the India-Mauritius agreement and entitled to the benefits flowing from it, notwithstanding that it had been placed in Mauritius partly for regulatory convenience and partly for the treaty. Capital gains on the transfer of securities, long-term and short-term, were not taxable in India by force of article 13. Income from units of mutual funds fell to the residuary article and was not taxable in India. Interest on approved debt instruments was exempt only so far as Indian law provided. Two questions were withdrawn or not pressed.
Pronounced by the Authority for Advance Rulings (S. Ranganathan, J. (Chairman) and Subhash C. Jain, Member) on 1997-07-16, reported as [1997] 228 ITR 268 (AAR). It bears on section 10(15), section 245Q, section 245R(2), section DTAA art 4, section DTAA art 11, section DTAA art 13, section DTAA art 22 of the Income Tax Act 1961, in Residence & Treaty Benefit and Capital Gains matters.
This is an early and much-cited AAR treatment of Mauritius residence, and it matters chiefly as a marker of where the law stood before it changed. The Authority accepted residence under article 4 and gave effect to article 13, which then reserved capital gains on Indian securities to Mauritius. Its qualification on interest is the part most often overlooked: exemption under article 11 for approved debt transactions ran only so far as Indian domestic law provided an exemption, and subject to the limits Indian law set. The capital gains position has since been reversed by treaty. The Protocol signed at Port Louis on 10 May 2016 gave India the right to tax gains on shares acquired on or after 1 April 2017, with a transitional half rate to 31 March 2019, and added a limitation of benefits article.
Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them.
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DLJMB Mauritius Investment Company was incorporated in Mauritius as a subsidiary of DLJ, a United States merchant bank. It proposed to channel about USD 100 million, drawn from several DLJ affiliated entities, into Indian shares, debentures and debt instruments. It was structured in Mauritius partly because that made the approvals of the Reserve Bank of India and the Foreign Investment Promotion Board simpler to obtain, and partly because the India-Mauritius double taxation avoidance agreement was available. Six questions were put: whether the applicant was entitled to the benefits of the agreement; whether dividends were subject to withholding at 5 per cent or 15 per cent; whether interest from approved debt instruments was exempt under article 11; whether long-term and short-term capital gains on the transfer of securities were not taxable in India; whether the activities of an Indian adviser constituted a permanent establishment; and whether income not expressly covered by any article, such as income from units of mutual funds, was taxable only in Mauritius. The second question was withdrawn and the fifth was not pressed.
The Authority held that the applicant was resident in Mauritius within the meaning of article 4 of the agreement and was entitled to the benefits that flow under it. On capital gains, it ruled that the gains, whether long-term or short-term, arising on the transfer of securities were not taxable in India, article 13 reserving them to the State of residence. On the residuary question it held that income derived from units of mutual funds, not being expressly dealt with by any specific article, fell within article 22 and would not be liable to tax in India. On interest, the answer was qualified: interest received in respect of a debt transaction would be exempt only if paid under a transaction approved by the Government, and only subject to such limits of exemption as might be provided for such payments under Indian income-tax law. No ruling was given on the withholding rate on dividends, which was withdrawn, or on the permanent establishment question, which was not pressed.
The Authority took residence as the gateway and answered it on the treaty's own terms. Article 4 defines a resident by reference to liability to tax in the State by reason of domicile, residence, place of management or a similar criterion, and the applicant was incorporated and managed in Mauritius and within its fiscal jurisdiction. That the group had chosen Mauritius with the treaty in mind, and for the practical convenience of Indian regulatory approvals, did not displace the finding: the question the article poses is about fiscal attachment, not about motive. Residence established, the distributive articles applied according to their terms. Article 13, as it then stood, allocated gains on the alienation of property other than the categories specifically reserved to India to the State of residence, which took capital gains on Indian securities out of the Indian charge whether the holding was long or short. Income from units of mutual funds was not the subject of any specific article, so article 22 sent it to the State of residence as well. Interest was treated differently, and the reasoning is the careful part: article 11 does not create an exemption of its own for approved debt, but works with the domestic exemption, so the relief was available only where the transaction had governmental approval and only to the extent and within the limits Indian income-tax law itself allowed.
The applicant is resident in Mauritius within the meaning of Article 4 of the Treaty and is entitled, therefore, to the benefits that flow under the Treaty.
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Handle my notice → Ask a CA on WhatsAppYes, in substance. The Authority ruled that DLJMB Mauritius Investment Company was resident in Mauritius within the meaning of article 4 of the India-Mauritius agreement and entitled to the benefits flowing from it, notwithstanding that it had been placed in Mauritius partly for regulatory convenience and partly for the treaty. Capital gains on the transfer of securities, long-term and short-term, were not taxable in India by force of article 13. Income from units of mutual funds fell to the residuary article and was not taxable in India. Interest on approved debt instruments was exempt only so far as Indian law provided. Two questions were withdrawn or not pressed. This was decided by the Advance Ruling (S. Ranganathan, J. (Chairman) and Subhash C. Jain, Member) and bears on section 10(15), section 245Q, section 245R(2), section DTAA art 4, section DTAA art 11, section DTAA art 13, section DTAA art 22 of the Income Tax Act 1961. It is reported as [1997] 228 ITR 268 (AAR). This is an early and much-cited AAR treatment of Mauritius residence, and it matters chiefly as a marker of where the law stood before it changed. The Authority accepted residence under article 4 and gave effect to article 13, which then reserved capital gains on Indian securities to Mauritius. Its qualification on interest is the part most often overlooked: exemption under article 11 for approved debt transactions ran only so far as Indian domestic law provided an exemption, and subject to the limits Indian law set. The capital gains position has since been reversed by treaty. The Protocol signed at Port Louis on 10 May 2016 gave India the right to tax gains on shares acquired on or after 1 April 2017, with a transitional half rate to 31 March 2019, and added a limitation of benefits article. If it applies to you, the first step is this: Date the acquisition of every share: the grandfathering under the 2016 Protocol turns on whether it was acquired before 1 April 2017.
DLJMB Mauritius Investment Company was incorporated in Mauritius as a subsidiary of DLJ, a United States merchant bank. It proposed to channel about USD 100 million, drawn from several DLJ affiliated entities, into Indian shares, debentures and debt instruments. It was structured in Mauritius partly because that made the approvals of the Reserve Bank of India and the Foreign Investment Promotion Board simpler to obtain, and partly because the India-Mauritius double taxation avoidance agreement was available. Six questions were put: whether the applicant was entitled to the benefits of the agreement; whether dividends were subject to withholding at 5 per cent or 15 per cent; whether interest from approved debt instruments was exempt under article 11; whether long-term and short-term capital gains on the transfer of securities were not taxable in India; whether the activities of an Indian adviser constituted a permanent establishment; and whether income not expressly covered by any article, such as income from units of mutual funds, was taxable only in Mauritius. The second question was withdrawn and the fifth was not pressed. The matter was decided on 1997-07-16 by the Advance Ruling (S. Ranganathan, J. (Chairman) and Subhash C. Jain, Member). On those facts the Advance Ruling held as follows. The Authority held that the applicant was resident in Mauritius within the meaning of article 4 of the agreement and was entitled to the benefits that flow under it. On capital gains, it ruled that the gains, whether long-term or short-term, arising on the transfer of securities were not taxable in India, article 13 reserving them to the State of residence. On the residuary question it held that income derived from units of mutual funds, not being expressly dealt with by any specific article, fell within article 22 and would not be liable to tax in India. On interest, the answer was qualified: interest received in respect of a debt transaction would be exempt only if paid under a transaction approved by the Government, and only subject to such limits of exemption as might be provided for such payments under Indian income-tax law. No ruling was given on the withholding rate on dividends, which was withdrawn, or on the permanent establishment question, which was not pressed.
The Authority took residence as the gateway and answered it on the treaty's own terms. Article 4 defines a resident by reference to liability to tax in the State by reason of domicile, residence, place of management or a similar criterion, and the applicant was incorporated and managed in Mauritius and within its fiscal jurisdiction. That the group had chosen Mauritius with the treaty in mind, and for the practical convenience of Indian regulatory approvals, did not displace the finding: the question the article poses is about fiscal attachment, not about motive. Residence established, the distributive articles applied according to their terms. Article 13, as it then stood, allocated gains on the alienation of property other than the categories specifically reserved to India to the State of residence, which took capital gains on Indian securities out of the Indian charge whether the holding was long or short. Income from units of mutual funds was not the subject of any specific article, so article 22 sent it to the State of residence as well. Interest was treated differently, and the reasoning is the careful part: article 11 does not create an exemption of its own for approved debt, but works with the domestic exemption, so the relief was available only where the transaction had governmental approval and only to the extent and within the limits Indian income-tax law itself allowed. In the words reproduced by the source cited on this page: "The applicant is resident in Mauritius within the meaning of Article 4 of the Treaty and is entitled, therefore, to the benefits that flow under the Treaty."
It was decided by the Advance Ruling on 1997-07-16 and is reported as [1997] 228 ITR 268 (AAR). Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and only the Commissioner and the officers under him in relation to that applicant and that transaction — and only until the law or the facts change. That is section 245S, and it means the ruling is not a precedent and binds nothing in your case. You cite it because the Authority reasoned the point out, often first and most fully, and the Tribunal and the courts treat a considered ruling as persuasive. Check before you rely on one: most of these were pronounced before 2009, and a great deal of cross-border tax has been rewritten since by amendment, protocol and judgment. On section 10(15), section 245Q, section 245R(2), section DTAA art 4, section DTAA art 11, section DTAA art 13, section DTAA art 22, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Authority held that the applicant was resident in Mauritius within the meaning of article 4 of the agreement and was entitled to the benefits that flow under it. On capital gains, it ruled that the gains, whether long-term or short-term, arising on the transfer of securities were not taxable in India, article 13 reserving them to the State of residence. On the residuary question it held that income derived from units of mutual funds, not being expressly dealt with by any specific article, fell within article 22 and would not be liable to tax in India. On interest, the answer was qualified: interest received in respect of a debt transaction would be exempt only if paid under a transaction approved by the Government, and only subject to such limits of exemption as might be provided for such payments under Indian income-tax law. No ruling was given on the withholding rate on dividends, which was withdrawn, or on the permanent establishment question, which was not pressed. It arises in Residence & Treaty Benefit and Capital Gains matters, on section 10(15), section 245Q, section 245R(2), section DTAA art 4, section DTAA art 11, section DTAA art 13, section DTAA art 22 of the Income Tax Act 1961, and was decided by S. Ranganathan, J. (Chairman) and Subhash C. Jain, Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not carry the capital gains conclusion across without checking which limb of the amended article 13 applies to your instrument and year. Read the treaty exemption for interest with the domestic exemption; here it ran only so far as Indian law allowed. Assemble substance evidence for the limitation of benefits article rather than relying on a tax residency certificate alone.
Superseded by amendment. The capital gains holding has been reversed by treaty. The Protocol amending the India-Mauritius Convention was signed at Port Louis on 10 May 2016: shares acquired before 1 April 2017 remain grandfathered, gains on shares acquired on or after that date are taxable in India, tax was limited to 50 per cent of the domestic rate for the transition period from 1 April 2017 to 31 March 2019 subject to limitation of benefits conditions, and the full domestic rate applies from 2019-20. The same Protocol added a limitation of benefits article aimed at treaty shopping. On the residence limb, the Supreme Court in Union of India v. Azadi Bachao Andolan (7 October 2003) upheld the Mauritius residence certification approach against a treaty-shopping challenge, so that part of the reasoning was not undermined judicially. The Authority itself was replaced by the Board for Advance Rulings from 1 September 2021 (Finance Act 2021; Notification 96/2021), whose rulings are appealable to the High Court under section 245W, and the Income-tax Act 1961 was replaced by the Income-tax Act 2025 from 1 April 2026. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Indian Kanoon text does not reproduce the six questions verbatim, so they are given in substance. Whether the India-Mauritius agreement has been further amended since 2016, including by any protocol introducing a principal purpose test, was not established from the sources reached and should be checked. The reported citation comes from the Indian Kanoon text and was not checked against the ITR volume. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Authority held that the applicant was resident in Mauritius within the meaning of article 4 of the agreement and was entitled to the benefits that flow under it. On capital gains, it ruled that the gains, whether long-term or short-term, arising on the transfer of securities were not taxable in India, article 13 reserving them to the State of residence. On the residuary question it held that income derived from units of mutual funds, not being expressly dealt with by any specific article, fell within article 22 and would not be liable to tax in India. On interest, the answer was qualified: interest received in respect of a debt transaction would be exempt only if paid under a transaction approved by the Government, and only subject to such limits of exemption as might be provided for such payments under Indian income-tax law. No ruling was given on the withholding rate on dividends, which was withdrawn, or on the permanent establishment question, which was not pressed.
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