The Authority for Advance Ruling (AAR) has held that capital gains of Mauritius-based foreign institutional investors will be treated as business profits.
The significant ruling has dashed hopes of taxing the gains arising out of the Indian operations of these FIIs, should the government consider renegotiating the double tax avoidance treaty with Mauritius.
Sources told Business Standard that the ruling, if implied as a general principle, would kill the possibilities of taxing the FIIs here for the capital gains arising from their Indian operations.
The government is now contemplating corrective actions to keep the option open for making capital gains of the FIIs taxable in India through renegotiation of DTATs.
The AAR, in its ruling, held that gains arising out of sale of shares cannot be regarded as capital gains since it does not arise in a one-off transaction from the sale of investments, but because the FIIs regularly engage in the purchase and sale of shares in Indian companies. Hence, the gains arising for the funds from such a sale can be regarded as
