Four, in this order. Whether the PPT applies to your treaty at all without a notification under s.90(1) — the Mumbai Tribunal says it does not. Whether it had entered into effect for the year, since the Board's own circular says it is prospective. Whether the claim falls inside the Cyprus, Mauritius or Singapore grandfathering, which the same circular puts outside the PPT. And only then whether obtaining the benefit was one of the principal purposes of the arrangement.
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting entered into force for India on 1 October 2019 and modified a large part of India's treaty network. Its central anti-abuse rule is the Principal Purpose Test, which is in the standard form set out in CBDT Circular No. 01/2025: 'Notwithstanding the other provisions of this Convention (or Agreement), a benefit under this Convention (or Agreement) shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention (or Agreement).' Note the two halves: the department has to reach a reasonable conclusion about purpose, and even then the assessee can still show the benefit is consistent with the treaty's object and purpose.
The first answer is jurisdictional and it is the cheapest. In the Sky High Appeal XLIII matter the Mumbai Tribunal held that the MLI's modifications cannot be given effect in India without a separate notification under s.90(1), relying on the Supreme Court's ruling reported at (2023) 458 ITR 756 that a notification under the Act is a mandatory precondition to any Indian court, authority or tribunal giving effect to a treaty or an amendment to one. Because no such notification had been issued for the India-Ireland treaty, the PPT could not be applied at all. That reasoning is general and has been followed by the Delhi Tribunal in a large batch of aircraft leasing appeals. It is a Tribunal view only, no High Court has considered it, and CBDT Circular No. 01/2025 proceeds throughout on the opposite assumption — so plead it first but do not plead it alone.
The second answer is timing. The Board's circular states that the PPT is intended to be applied prospectively. For treaties where it came in bilaterally, it applies from the entry into force of the treaty or the amending protocol. For MLI treaties it applies from the dates worked out under Article 35: for taxes withheld at source, where the event giving rise to the tax occurs on or after the first day of the previous year beginning on or after the later of the two States' entry-into-force dates; for all other taxes, for previous years beginning on or after six calendar months from that later date. India's date is 1 October 2019 and the partner State's has to be taken from the OECD's MLI database.
The third answer is grandfathering. The circular records India's bilateral commitments in the Cyprus, Mauritius and Singapore treaties and clarifies that those grandfathering provisions remain outside the purview of the PPT and are governed instead by the specific provisions of the treaty itself. For shares acquired before 1 April 2017 that is usually the whole case.
Only then does the merits argument arise, and there is now one Indian decision on it. In SC Lowy P.I. (LUX) S.A.R.L. v. ACIT the Delhi Tribunal, in what several commentators describe as the first Indian ruling on the PPT, refused to apply it to a Luxembourg foreign portfolio investor held by Cayman feeder funds. What carried it was chronology — the company was incorporated in March 2015, before the PPT existed — together with substance: a valid tax residency certificate the department did not challenge, tax paid in Luxembourg on global income, real operating and professional expenditure, control over its own investment decisions, and a portfolio the overwhelming bulk of which was outside India. The Tribunal treated an allegation of treaty abuse as something requiring compelling evidence rather than conjecture.
Two cautions. The PPT is not the only anti-abuse tool: GAAR in Chapter X-A operates independently, s.90(2A) says Chapter X-A applies even where it is not beneficial, and the Board's clarification of 15 March 2025 says the January circular addresses only the PPT and does not interact with domestic anti-abuse rules. And a TRC does not answer a PPT objection — the Supreme Court in the Tiger Global appeals holds the certificate is necessary but not conclusive, and the authorities may examine the substance of the arrangement.
The PPT has become the department's default objection to any treaty claim by a holding or investment vehicle, and it is often raised without any analysis of purpose at all. Three of the four answers above are questions of law and date that can be settled from the file without any factual enquiry, which means most PPT paragraphs can be answered before the substance argument is ever reached. For an investor holding pre-April-2017 shares through Mauritius, Singapore or Cyprus, the Board's own circular is close to a complete answer.
I hold a Mauritius TRC. Can the department still deny me treaty relief on the capital gains?
We outsource back-office work to our Indian subsidiary. Does that give us a permanent establishment in India?
My protocol has an MFN clause and I applied the lower rate India later agreed with an OECD member. Was I entitled to?
A foreign professional worked on our matter in India but we neither briefed him nor paid him. Can we be treated as his agent and made liable for his tax?
We are a foreign company paid a technical service fee by an Indian company. Does that fee accrue in India if all our work was done abroad?
I am a foreign company on a turnkey contract. I fabricated the platform abroad and only installed it in India. Can the Department tax the offshore fabrication profit because the contract was one indivisible whole?
I am resident in India but my rubber estate and my business are in Malaysia. The treaty says that income may be taxed there. Can India tax it as well?
I canvass orders in India for foreign suppliers and pass them on for acceptance abroad. Does that give the foreign supplier a business connection here, so that I can be taxed as its agent?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.