Direct Tax Alert - Beneficial Ownership Clause cannot be inferred in Article 13 of India-Mauritius DTAA

The term “Beneficial Ownership” is relevant for the Double Tax Avoidance Agreement (DTAA) as well as the Income-tax Act, 1961 (IT Act) as it determines the taxation of income/person. There has been significant litigation in respect of the set-off of losses solely on the ground of beneficial ownership. On the DTAA front, there are different Articles (like Royalty, Fees for Technical Services etc.) which grant the concession if the taxpayer is the beneficial owner of the income. However, Article 13 (relevant to Capital Gains) of most of the DTAAs entered by India does not contain a reference to the term beneficial ownership. Hence, a question may arise as to whether this term should be read into such an Article where there is no express reference to it. In this regard, recently, the Mumbai Tax Tribunal1 (Tax Tribunal) had to decide whether the provisions of beneficial ownership can be read into Article 13 of the India-Mauritius DTAA or not. We, at BDO in India, have summarized the above ruling and have provided our comments on the impact of this decision hereunder:


Taxpayer, a Mauritius tax-resident, holds Global Business License issued by the Financial Services Commission, Mauritius and is registered as a Foreign Venture Capital investor with the Securities and Exchange Board of India. For the fiscal year 2015-16, the taxpayer earned long-term capital gains of INR 9 bn. The taxpayer treated this gain as not taxable in India in terms of India-Mauritius DTAA. However, the tax officer denied benefit under Article 13(4) of the India-Mauritius DTAA by observing that the taxpayer is not the beneficial owner of the shares sold and that the ownership lies with Blackstone FP Capital (Mauritius) VA Ltd, Cayman Islands (Blackstone – Cayman Island) based-entity. For coming to this conclusion, the tax officer considered the following:

  • Real/ Effective owners of the taxpayer;
  • Administrative Control of the taxpayer;
  • Source of investment in the shares;
  • Trail of transactions of acquisition of shares and sale thereof; and
  • Directions issued to carry out transactions of purchase and sale of shares.

The tax officer in his order further stated that the taxpayer in its application for Category 1 global business license for financial services has accepted that Blackstone – Cayman Island entity is the owner of the taxpayer. Further, after considering the enlisted issues, the tax officer concluded that all the decisions regarding the taxpayer were made by Blackstone – Cayman Island. The tax officer also relied on Supreme Court2 and various High Court decisions3 to support its stance of lifting the corporate veil for the taxpayer. Accordingly, the tax officer taxed the long-term gains in the hands of the taxpayer which was approved by the Dispute Resolution Panel. Hence, the taxpayer filed an appeal with the Tax Tribunal.


The Mumbai Tax Tribunal held that the concept of beneficial ownership is a pre-requisite for entitlement of DTAA benefits and cannot be inferred or assumed in the absence of specific provisions. While coming to this conclusion, the Tax Tribunal made the following observations:

  • Article 10 and Article 11 of the India-Mauritius DTAA specifically provide for beneficial ownership of interest and dividend to be eligible to claim the benefit under the DTAA. However, this rider is missing in Article 13 of the India-Mauritius DTAA.
  • As the concept of beneficial ownership is the sine qua non for entitlement of treaty benefits, therefore, in the absence of specific provisions the same cannot be inferred or assumed.
  • When the provisions of the DTAAs do not specifically insert the test of beneficial ownership in Article 13, then assuming so, will result in rewriting the treaty itself. This approach results in negating the benefits of the treaty resulting in uncertainty and unpredictability for the taxpayers.
  • DTAAs are bilaterally agreed upon between two countries and therefore any violation of this approach, no matter how well-intended, will lead to high tax unpredictability.

The Tax Tribunal distinguished the taxpayer’s case from the judgements relied on by the tax officer and remanded the matter back to the tax officer to adjudicate whether the concept of beneficial ownership is inbuilt in Article 13 and if so, what are the connotations of beneficial ownership in this context.


The requirement of fulfilling the beneficial ownership test along with the tax residency is grounded on which tax authorities have denied treaty benefits to the taxpayers. Supreme Court in Azadi Bachao Andolan4 case has held that Tax Residency Certificate (TRC) is sufficient for claiming DTAA benefits. With India ratifying the Multilateral Instrument (MLI) one will have to read the DTAA in the light of the MLI. It is pertinent to note that MLI provides that the benefit of DTAA can be granted only if the taxpayer is holding the securities for at least 12 months.


1 Blackstone FP Capital Partners Mauritius V Ltd. [2022] 138 328]

2 Supreme Court decision – McDowell & Co Ltd v. CTO [(1985) 154 ITR 148 (SC)] and Jiyajeerao Cotton Mills Ltd v. CIT (34 ITR 888)

3 Bombay High Court decision – Navantara G Agarwal v. CIT [(1994) 207 ITR 639 (Bom)], CIT v. Akshav Textile Trading Agencies Ltd [(2007) 304 ITR 401 (Bom)] and Aditya Birla Nuvo Limited v. DDIT [(2011) 12 141 (Bom)]

4 Supreme Court decision – Union Of India And Anr v. Azadi Bachao Andolan And Anr [(2004) 10 SCC 1]

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