Post 2016 amendment, wherein capital gains benefit was grandfathered, Governments of both the countries come together for the first time to amend the convention further.
In this recent amendment, Government of both the countries has amended the preamble of the treaty to replace the phrase “desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains and for the encouragement of mutual trade and investment” with “intending to eliminate double taxation with respect to the taxes covered by this Convention without creating opportunities for non-taxation od reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Convention for indirect benefit of residents of third jurisdiction)”.
This represents a significant change as preamble of any statute set the narrative for the interpretation of provisions. It is clearly visible from the above amendment that benefit of the Indo-Mauritius DTAA cannot be further extended to the residents of third jurisdiction whether directly or indirectly. Further, it also brings up a change in how treaty provisions are applied to circumstances that previously formed the basis for ruling in favor of the taxpayer in the case of Azadi Bachao Andolan [2002] 125 TAXMAN 826 (SC).
Further, Article 27B has been also newly inserted through the Protocol in the convention by this amendment, which is imitation of Principle Purpose Test which finds its roots from BEPS Action Plan 6. This Article aims to restrict the benefit of the convention in respect of those transactions whose principal purpose is to take the benefit whether directly or indirectly.
Observation: According to the aforementioned amendments to the convention, transactions which were designed to avail benefit out of this convention will now subject to the preamble of the treaty. However, the retrospectivity of the preamble will override the grandfathering provisions and limits the benefit or will it work parallelly with such grandfathering provisions, needs to pondered.
Lakshay Prakash Jonwal, Direct Tax Associate, SW
