The Indian tax authorities have frequently challenged the applicability of tax treaties that exempt capital gains earned by non-residents from the sale of shares in Indian companies. Typically, the Revenue contends that non-resident entities are mere conduit or shell companies established solely to exploit treaty benefits, disregarding the legitimacy of the Tax Residency Certificate.
A similar challenge was raised against Gagil FDI Ltd. in the context of the India–Cyprus tax treaty. However, the Delhi Bench of the Tribunal upheld the taxpayer’s claim for treaty benefits, citing the absence of substantive evidence to support the Revenue’s allegation of treaty abuse.
