DYNAMIC INDIA FUND I, IFS COURT, TWENTYEIGHT, CYBERCITY, EBENE, REPUBLIC OF MAURITIUS Vs. MR. SOMANATH S UKKALI, DDIT C 1(1), BANGALORE

JUDGEMENT

(1.) THE applicant, Dynamic India Fund I (DIF -I), a company incorporated in Mauritius is a 100 percent subsidiary of Dynamic India Fund II (DIF -II), another company based in Mauritius. According to the applicant, the applicant company was set up to invest in growing sectors in India. The funds required for investments in India are pooled from various individual and institutional investors from different parts of the world by DIF -II and invested as capital into DIF -I, the applicant. The said funds are invested in India by the applicant. The applicant has a Tax Residency Certificate from Mauritius valid upto 14 -7 -2011. Its validity has since been extended till 14.7.2012. It is registered as a Foreign Venture Capital Investor. It has obtained on 17 -9 -2004, a license from the Securities Exchange Board of India (SEBI). It does not have a permanent establishment in India.

(2.) THE applicant has made investments in India in units. It has also made investments in shares of Indian companies. The shares have been held with the intention of generating long term capital appreciation. The expenditure is shown as investments in the books of accounts. The shares were acquired in the years 2007 and 2008.

(3.) THE applicant submits that being a tax -resident of Mauritius, it is entitled to claim the benefit of the India -Mauritius Double Taxation Avoidance Convention (DTAC) by virtue of section 90(2) of the Income -tax Act. Article 13 of the DTAC would govern such a transaction and under paragraph 4 of that Article, the capital gain that may arise would be taxable only in Mauritius and not in India. On behalf of the applicant the decision in Union of India vs. Azadi Bachao Anodolan ( : 263 ITR 706) is relied on.