SERCO BPO (P) LTD. vs AUTHORITY FOR ADVANCE RULINGS & ORS.

Whether the Authority for Advance Rulings (AAR) was justified in rejecting an application under Section 245R(2)(iii) of the Income Tax Act, 1961, on the ground that the transaction was prima facie designed for avoidance of income tax, thereby declining to rule on the applicability of the India-Mauritius DTAA to capital gains from the sale of shares and the consequent obligation to deduct tax at source under Section 195 --- Held No. Whether the capital gains arising to Mauritius-based sellers from the sale of shares of an Indian company are taxable in India under the India-Mauritius DTAA and whether the Indian purchaser was required to withhold tax under Section 195 --- Held No, as the sellers are residents of Mauritius entitled to the benefits of the DTAA, making the capital gains taxable only in Mauritius.