ITAT recalls decision on beneficial ownership under Indo-Mauritius treaty

Assessee appealed it was denied benefit of treaty on capital gains from share transfer

In a rare move, an income tax tribunal has recalled its order asking the tax department to review its decision on beneficial ownership of a transaction under the Indo-Mauritius tax treaty. The tribunal would now itself take a decision in the matter.

The Mumbai-based Income Tax Appellate Tribunal (ITAT) has allowed an application filed against its order on the issue whether ‘beneficial ownership’ is inbuilt under the India-Mauritius double tax avoidance agreement (DTAA).

The appeal before ITAT came up because the assessee was denied the benefit of the treaty on capital gains of Rs 904.98 crore from share transfer as the assessing official held that the beneficial owners of shares were in Cayman Islands.

In the earlier hearing, ITAT had raised a fundamental question whether the concept of ‘beneficial ownership’ can be read into Article 13 of the India-Mauritius DTAA. The article deals with capital gains issues.

It thus passed the order directing the income tax department to decide the issue again.

Against this direction, the assessee preferred a miscellaneous application and sought rectification or recall of the order on the ground that there was enough material on record to hold that the assessee was the beneficial owner of the shares in the Indian companies and thus, the issue whether beneficial ownership requirements can be read into Article 13 of the treaty was purely academic.

The appeal also said in view of jurisdictional high court rulings in Sony Pictures Network and Coca Cola India, the ITAT being the final fact finding authority cannot remand a question of law back to the lower authorities.

The tribunal noted that the question whether the beneficial ownership requirements could be read into Article 13 was not at all raised by the assessee as a ground of appeal but in view of Rule 11 of the ITAT Rules, 1963, it will not be confined to grounds of appeal while deciding an appeal.

However, ITAT said, “The mistake, however, occurred in sending the matter back to the assessing officer for this adjudication. That call, on the requirements or lack of requirements in Article 13 with respect to beneficial ownership should have been taken by the Tribunal itself.”

Thus, it held that there is clearly a mistake apparent on record to remit the matter back. “To this extent, our decision was indeed vitiated in law and must be rectified,” ITAT said.

It held that such adjudication should have been done by the ITAT itself.

Amit Maheshwari, tax partner at AKM Global, said the beneficial ownership is an evolving concept and it will be interesting to see the final stance of the tribunal now in the recalled proceedings.