The latest circular issued by the Central Board of Direct Taxes (CBDT) saying that companies incorporated in Mauritius will have to pay tax in India if the company is effectively controlled in India, has evoked mixed responses from leading tax practitioners.
Suresh Talwar, senior partner, Crawford Bayley &Co said, "The new circular if implemented will definitely lead to a lot of litigation. Although the circular has been issued, implementation will be difficult since since the key issue of determining control will be impossible."
"I do not know whether the CBDT has the resources to determine where the management of a company is being conducted and how would it be possible to prove that a company is being managed in India? In any case a circular cannot overrule the provisions of the treaty and ultimately the treaty will prevail," he added.
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Kanu H Doshi, partner, Kanu Doshi & Associates, also said, "The latest circular seems to be somewhat odd given the fact that the board itself is defending its own earlier circular in the Supreme Court. In the earlier circular, it had said that residence certificate is all that is necessary to prove the Mauritius connection. The latest circular attempts to cover the CBDT against possible strictures by the Supreme Court."
However Dinesh Kanabar, managing partner, RSM & Co said, "The latest circular would in any case not impact overseas entities using the Mauritius route. The current circular to an extent circumscribes the ambit of the earlier circular which said that a tax residence certificate issued by the Mauritius authorities is final and binding on Indian tax authorities. If an Indian tax authority comes to a conclusion that a Mauritian company is managed in India, he can enquire further in the matter and if it comes to the conclusion that the effective management is in India, the treaty benefits would not be available."
The latest CBDT circular comes at a time when there is an ongoing dispute over the Indo- Mauritius Double Taxation Avoidance Convention (DTAC) with the matter being heard by the Supreme Court.
The latest circular also appears to have been issued so as to clarify doubts over the stance to be adopted in cases where an entity is both a resident of India and Mauritius.