I bought shares of an Indian company from two Mauritius sellers holding valid tax residency certificates. Must I withhold tax on the price, and can the Authority refuse a ruling by calling the structure tax avoidance?
No withholding was required. The Punjab and Haryana High Court quashed the Authority's order declining a ruling under section 245R and, rather than remand, decided the questions itself. It held the Mauritius sellers were residents of Mauritius on their certificates of residence, which the Revenue could not go behind, that 'liable to taxation' in Article 4 does not mean tax actually paid, and that under Article 13(4) of the India-Mauritius treaty gains on alienation of property other than that in paragraphs 1 to 3 — which includes shares, with no limitation by situs — are taxable only in Mauritius. No capital gains tax was payable and the purchaser was not liable to withhold under section 195.
Decided by the High Court (High Court of Punjab and Haryana at Chandigarh, Division Bench — S.J. Vazifdar, Acting Chief Justice (delivering the judgment) and G.S. Sandhawalia J) on 2015-08-26, reported as Civil Writ Petition No. 11037 of 2014 (O&M) (Punjab and Haryana High Court). It bears on section 195, section 245R, section 90 of the Income Tax Act 1961, in Capital Gains, TDS Defaults and Residence & Treaty Benefit matters.
This is a full High Court application of Azadi Bachao to a real acquisition, and it is useful on three fronts. On treaty residence, a certificate of residence issued by the Mauritian authorities is to be accepted, Circular No. 789 having been upheld as issued under sections 90 and 119, and 'liable to taxation' is tested by the totality of the other State's tax law rather than by whether tax was in fact paid — the Court showing that the contrary reading would make the treaty unworkable as exemptions come and go. On Article 13(4), the words 'any property' are deliberately unqualified by situs, in contrast to paragraphs 1 to 3, so gains on shares of an Indian company go to Mauritius alone. On procedure, it is authority that the Authority should not shut out an application under section 245R(2)(iii) on a prima facie avoidance finding after years of hearing, and that a High Court may decide the questions itself where a remand would be unfair. The Court also holds that treaty shopping and the terms of a treaty are matters of sovereign policy for the policy makers.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Blackstone GPV Capital Partners (Mauritius) V-B Ltd and Barclays (H&B) Mauritius Limited were Mauritian companies. In June 2007 Blackstone Mauritius applied to the Foreign Investment Promotion Board to subscribe to up to 80 per cent of SKR BPO Services Pvt Ltd, an Indian company, disclosing its corporate structure, holdings and downstream companies and the purpose of the acquisition; approval was granted in August 2007 and amended in 2010 to include Barclays. Blackstone Mauritius subscribed to 54,720 equity shares for Rs 447.20 crore in September 2007 and made further subscriptions, its holding falling to 79.04 per cent after a buy-back; in October 2010 Barclays bought 12.75 per cent from Blackstone, whose holding fell to 66.29 per cent. By a share purchase agreement of 31 May 2011 the sellers sold their shares in SKR BPO to the petitioner, Blackstone selling 66.29 per cent for about Rs 1,400 crore and Barclays 12.75 per cent for Rs 269.40 crore, the sales closing in July and October 2011. The petitioner applied to the Authority for Advance Rulings under section 245Q(1), asking whether the sellers' gains were not chargeable under Article 13(4) of the India-Mauritius treaty read with section 90(2), and whether it was therefore not required to withhold under section 195. By order dated 2 May 2014, after nearly three years of hearings, the Authority declined to rule, holding on a prima facie view that the transaction was designed for avoidance of income tax.
The impugned order was quashed and set aside. Since the statute requires an application to be decided within six months and over four years had passed, with the matter argued repeatedly before a changing Authority and the record admitted by the Department to be complete, a remand would be unfair, and the Court decided the questions itself at the petitioner's request. It declared that no capital gains tax was payable by Barclays (H&B) Mauritius Limited or Blackstone GPV Capital Partners (Mauritius) V-B Ltd on the sale of the shares of SKR BPO to the petitioner, and that the petitioner was therefore not liable to withhold tax in respect of the consideration. The questions raised before the Authority were answered in the affirmative in the petitioner's favour.
The Court first held that the certificates of residence issued to the two Mauritian companies must be accepted, relying on Azadi Bachao Andolan, where the Supreme Court held that Circular No. 789 is a circular within the meaning of section 90 and prevails even if inconsistent with the Act for assessees covered by the treaty, that circulars under section 119 bind officers even where they deviate from the Act, and that the circular does not curtail the assessing officer's jurisdiction. It then construed Article 4: 'resident of a Contracting State' means a person who under the laws of that State is liable to taxation by reason of domicile, residence, place of management or a similar criterion, and 'liable to taxation' means that the Government is entitled to tax the person, not that he actually pays tax, since a person may be below the taxable limit or covered by an exemption and still be liable to taxation. The contrary view would make the treaty unworkable, its operation turning on whether an exemption happened to be in force, and would make the extent of tax paid irrelevant. Azadi Bachao, drawing on the OECD Model Convention, had rejected the argument that relief arises only where tax is actually paid, and the Court held it irrelevant that no tax was leviable in Mauritius, that being why investments are routed through Mauritius, as the Government of India is well aware. On Article 13, paragraph 4 allocates gains derived by a resident of a Contracting State from the alienation of any property other than that covered by paragraphs 1 to 3 to that State alone; shares fall within 'any property', and unlike paragraphs 1 to 3 the words are not qualified by situs, so where the Government intended to tax gains on property situated in India it said so expressly. The Court added that making a treaty is a sovereign function of policy and that treaty shopping cannot be judged illegal merely because one school of thought considers it improper.
The words "is liable to taxation" mean that the income of the person may be liable to taxation and not that he is actually taxed or pays tax.
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Handle my notice → Ask a CA on WhatsAppNo withholding was required. The Punjab and Haryana High Court quashed the Authority's order declining a ruling under section 245R and, rather than remand, decided the questions itself. It held the Mauritius sellers were residents of Mauritius on their certificates of residence, which the Revenue could not go behind, that 'liable to taxation' in Article 4 does not mean tax actually paid, and that under Article 13(4) of the India-Mauritius treaty gains on alienation of property other than that in paragraphs 1 to 3 — which includes shares, with no limitation by situs — are taxable only in Mauritius. No capital gains tax was payable and the purchaser was not liable to withhold under section 195. This was decided by the High Court (High Court of Punjab and Haryana at Chandigarh, Division Bench — S.J. Vazifdar, Acting Chief Justice (delivering the judgment) and G.S. Sandhawalia J) and bears on section 195, section 245R, section 90 of the Income Tax Act 1961. It is reported as Civil Writ Petition No. 11037 of 2014 (O&M) (Punjab and Haryana High Court). This is a full High Court application of Azadi Bachao to a real acquisition, and it is useful on three fronts. On treaty residence, a certificate of residence issued by the Mauritian authorities is to be accepted, Circular No. 789 having been upheld as issued under sections 90 and 119, and 'liable to taxation' is tested by the totality of the other State's tax law rather than by whether tax was in fact paid — the Court showing that the contrary reading would make the treaty unworkable as exemptions come and go. On Article 13(4), the words 'any property' are deliberately unqualified by situs, in contrast to paragraphs 1 to 3, so gains on shares of an Indian company go to Mauritius alone. On procedure, it is authority that the Authority should not shut out an application under section 245R(2)(iii) on a prima facie avoidance finding after years of hearing, and that a High Court may decide the questions itself where a remand would be unfair. The Court also holds that treaty shopping and the terms of a treaty are matters of sovereign policy for the policy makers. If it applies to you, the first step is this: Obtain and keep the seller's tax residency certificate; the Revenue cannot go behind it to deny treaty residence.
Blackstone GPV Capital Partners (Mauritius) V-B Ltd and Barclays (H&B) Mauritius Limited were Mauritian companies. In June 2007 Blackstone Mauritius applied to the Foreign Investment Promotion Board to subscribe to up to 80 per cent of SKR BPO Services Pvt Ltd, an Indian company, disclosing its corporate structure, holdings and downstream companies and the purpose of the acquisition; approval was granted in August 2007 and amended in 2010 to include Barclays. Blackstone Mauritius subscribed to 54,720 equity shares for Rs 447.20 crore in September 2007 and made further subscriptions, its holding falling to 79.04 per cent after a buy-back; in October 2010 Barclays bought 12.75 per cent from Blackstone, whose holding fell to 66.29 per cent. By a share purchase agreement of 31 May 2011 the sellers sold their shares in SKR BPO to the petitioner, Blackstone selling 66.29 per cent for about Rs 1,400 crore and Barclays 12.75 per cent for Rs 269.40 crore, the sales closing in July and October 2011. The petitioner applied to the Authority for Advance Rulings under section 245Q(1), asking whether the sellers' gains were not chargeable under Article 13(4) of the India-Mauritius treaty read with section 90(2), and whether it was therefore not required to withhold under section 195. By order dated 2 May 2014, after nearly three years of hearings, the Authority declined to rule, holding on a prima facie view that the transaction was designed for avoidance of income tax. The matter was decided on 2015-08-26 by the High Court (High Court of Punjab and Haryana at Chandigarh, Division Bench — S.J. Vazifdar, Acting Chief Justice (delivering the judgment) and G.S. Sandhawalia J). On those facts the High Court held as follows. The impugned order was quashed and set aside. Since the statute requires an application to be decided within six months and over four years had passed, with the matter argued repeatedly before a changing Authority and the record admitted by the Department to be complete, a remand would be unfair, and the Court decided the questions itself at the petitioner's request. It declared that no capital gains tax was payable by Barclays (H&B) Mauritius Limited or Blackstone GPV Capital Partners (Mauritius) V-B Ltd on the sale of the shares of SKR BPO to the petitioner, and that the petitioner was therefore not liable to withhold tax in respect of the consideration. The questions raised before the Authority were answered in the affirmative in the petitioner's favour.
The Court first held that the certificates of residence issued to the two Mauritian companies must be accepted, relying on Azadi Bachao Andolan, where the Supreme Court held that Circular No. 789 is a circular within the meaning of section 90 and prevails even if inconsistent with the Act for assessees covered by the treaty, that circulars under section 119 bind officers even where they deviate from the Act, and that the circular does not curtail the assessing officer's jurisdiction. It then construed Article 4: 'resident of a Contracting State' means a person who under the laws of that State is liable to taxation by reason of domicile, residence, place of management or a similar criterion, and 'liable to taxation' means that the Government is entitled to tax the person, not that he actually pays tax, since a person may be below the taxable limit or covered by an exemption and still be liable to taxation. The contrary view would make the treaty unworkable, its operation turning on whether an exemption happened to be in force, and would make the extent of tax paid irrelevant. Azadi Bachao, drawing on the OECD Model Convention, had rejected the argument that relief arises only where tax is actually paid, and the Court held it irrelevant that no tax was leviable in Mauritius, that being why investments are routed through Mauritius, as the Government of India is well aware. On Article 13, paragraph 4 allocates gains derived by a resident of a Contracting State from the alienation of any property other than that covered by paragraphs 1 to 3 to that State alone; shares fall within 'any property', and unlike paragraphs 1 to 3 the words are not qualified by situs, so where the Government intended to tax gains on property situated in India it said so expressly. The Court added that making a treaty is a sovereign function of policy and that treaty shopping cannot be judged illegal merely because one school of thought considers it improper. In the words reproduced by the source cited on this page: "The words "is liable to taxation" mean that the income of the person may be liable to taxation and not that he is actually taxed or pays tax."
It was decided by the High Court on 2015-08-26 and is reported as Civil Writ Petition No. 11037 of 2014 (O&M) (Punjab and Haryana High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 195, section 245R, section 90, 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 impugned order was quashed and set aside. Since the statute requires an application to be decided within six months and over four years had passed, with the matter argued repeatedly before a changing Authority and the record admitted by the Department to be complete, a remand would be unfair, and the Court decided the questions itself at the petitioner's request. It declared that no capital gains tax was payable by Barclays (H&B) Mauritius Limited or Blackstone GPV Capital Partners (Mauritius) V-B Ltd on the sale of the shares of SKR BPO to the petitioner, and that the petitioner was therefore not liable to withhold tax in respect of the consideration. The questions raised before the Authority were answered in the affirmative in the petitioner's favour. It arises in Capital Gains, TDS Defaults and Residence & Treaty Benefit matters, on section 195, section 245R, section 90 of the Income Tax Act 1961, and was decided by High Court of Punjab and Haryana at Chandigarh, Division Bench — S.J. Vazifdar, Acting Chief Justice (delivering the judgment) and G.S. Sandhawalia J. 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 concede that the seller must actually pay tax in the other State; 'liable to taxation' is judged on the totality of that State's law, not on whether tax was paid on this receipt. Check whether the treaty article allocating gains qualifies the property by situs; where it does not, the source State has no right to tax. Where the Authority for Advance Rulings sits on an application beyond the statutory six months or shuts it out on a prima facie avoidance view, consider a writ petition and ask the High Court to decide the questions rather than remand. Keep the regulatory record — FIPB applications and approvals disclosing the group structure — since disclosure of the structure to the Government weighed against the avoidance allegation.
Still good law. A Division Bench judgment of August 2015 applying Azadi Bachao Andolan; the source page records it cited in four later matters. It construes the India-Mauritius treaty as it stood for transactions closing in 2011; the treaty was subsequently amended, and the General Anti-Avoidance Rules have since come into force, neither of which was examined here. No later decision was available to check it against. 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 harvested page is clipped: about 32,493 characters from the middle are missing, covering the Authority's reasoning as recorded by the Court, the parties' submissions on avoidance, and the earlier part of the Court's analysis, including whatever it said about the Revenue's factual case that the structure was designed for avoidance and about section 245R(2)(iii). The facts, the questions referred, the statutory provisions, the analysis from paragraph 36 onwards and the operative order were read in full. The source page names G.S. Sandhawalia J as the author while the judgment as printed is delivered by S.J. Vazifdar, Acting Chief Justice; the discrepancy is in the source. The judgment records the application as made on 31 May 2011 in one paragraph and on 3 May 2011 in another. The Court expressly declined to decide the petitioner's further contention that the April 2012 order admitting the application obliged the Authority to rule one way or the other. The batch line lists sections 195(2), 197 and 201; none of these is discussed in the parts read, the judgment turning on sections 195, 245R and 90 with Articles 4 and 13 of the treaty. No reporter citation appears on the source page. 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 impugned order was quashed and set aside. Since the statute requires an application to be decided within six months and over four years had passed, with the matter argued repeatedly before a changing Authority and the record admitted by the Department to be complete, a remand would be unfair, and the Court decided the questions itself at the petitioner's request. It declared that no capital gains tax was payable by Barclays (H&B) Mauritius Limited or Blackstone GPV Capital Partners (Mauritius) V-B Ltd on the sale of the shares of SKR BPO to the petitioner, and that the petitioner was therefore not liable to withhold tax in respect of the consideration. The questions raised before the Authority were answered in the affirmative in the petitioner's favour.
TaxSphere, “Serco BPO Pvt Ltd v Authority for Advance Rulings”, https://taxnotice.vittsphere.com/caselaw/case/serco-bpo-p-ltd-v-acit/ (validity last checked 2026-08-29)
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