Facts of the Case

The assessee, Battery Ventures VII (Mauritius), is a limited liability company incorporated in Mauritius. During the assessment proceedings, the assessee furnished Tax Residency Certificates issued by the Mauritius Tax Authorities for the relevant period.

The case relates to the transfer of shares of Indian companies and the taxability of the resulting capital gains. The Assessing Officer passed an order under Section 143(3) read with Section 144C(13) for Assessment Year 2017-18.

The Revenue alleged that the assessee had under-reported the sale consideration relating to transfer of capital assets and initiated proceedings for penalty on the alleged misreporting of income amounting to ₹24,08,80,362.

The matter reached the Income Tax Appellate Tribunal after the order of the CIT(A). 

Issues Involved

  1. Whether the CIT(A) erred in holding that the assessee had not under-reported the sale consideration arising from the sale of capital assets.
  2. Whether the assessee had misreported income of ₹24,08,80,362 from transfer of capital assets, thereby attracting penalty proceedings. 

Petitioner’s Arguments (Revenue)

  • The assessee had under-reported the sale consideration relating to the transfer of shares of Indian companies.
  • Such under-reporting resulted in misreporting of income, warranting the initiation of penalty proceedings.
  • The order of the CIT(A) was therefore incorrect and required to be set aside.

Respondent’s Arguments (Assessee)

  • It is a tax resident of Mauritius and had duly submitted the Tax Residency Certificate issued by the Mauritius authorities.
  • As per Article 13(4) of the India–Mauritius DTAA, gains arising from the transfer of shares of Indian companies by a Mauritius resident are taxable only in Mauritius and not in India.
  • Since the capital gains are not taxable in India, the question of under-reporting or misreporting of income does not arise.

Court Findings

  • Under Article 13(4) applicable for FY 2016-17, capital gains arising from the transfer of shares of an Indian company by a Mauritius resident are taxable only in Mauritius.
  • The assessee had produced valid Tax Residency Certificates issued by the Mauritius authorities.
  • The Assessing Officer himself had accepted in the assessment order and remand report that the assessee was entitled to the benefits of the India–Mauritius tax treaty. 

Court Order

The ITAT held that the order of the CIT(A) was correct and that the Revenue’s appeal had no merit.

Therefore, the appeal filed by the Revenue was dismissed.

Important Clarification

  • The assessee is a tax resident of Mauritius, and
  • Valid Tax Residency Certificates are produced,

then under Article 13(4) of the India–Mauritius DTAA, capital gains arising from the transfer of shares of Indian companies are taxable only in Mauritius and not in India.

Consequently, penalty proceedings for alleged under-reporting of such income in India are not sustainable.


Link to download the order -  https://itat.gov.in/public/files/upload/1703829322-1937%20Battery%20Ventures%20VII.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.