Indian Tax Tribunal ruling wherein it was held that Dividend income from Indian Depository Receipts (IDRs) in the hands of Mauritian investor though taxable under domestic tax laws, is eligible for exemption under Article 22 of India-Mauritius DTAA.

Key excerpts from the case

• Taxpayer is a tax resident of Mauritius and a foreign institutional investors in IDRs issued by Standard Chartered Bank, India Branch (SCB-India) with underlying assets as shares of Standard Chartered Bank, UK (SCB-UK) for which SCB-India acts as the depository;
• For the disputed tax year, the taxpayer received Rs.3.37 Cr from IDRs issued by SCB-India which was held taxable as dividend by the Revenue on the basis that dividend was received by IDR holders when they were first deposited in their bank accounts in India and accordingly, the dividend will be considered to have been received or deemed to be received in India;
• ITAT relies on coordinate bench ruling in Morgan Stanley Mauritius Co Ltd. and accepts taxpayer’s plea for exemption under beneficial provisions of India-Mauritius DTAA under Article 22 since the receipts do not fall under Article 10 (Dividends) and holds that the dividends were paid by SCB-UK and not by an Indian company to the Mauritian tax resident which is a pre-condition for the applicability of Article 10;
• Dividend income received from IDRs by taxpayer from SCB-UK through Indian depository would be taxable in India but taxpayer being a non-resident would be eligible to treaty benefit and the said income falls within the ambit of Article 22 (other income) of DTAA and accordingly, could not be taxed in India; Also observes that taxability of IDR dividend fails in terms of provisions of India-Mauritius DTAA and the provisions of DTAA being more beneficial to taxpayer will override the provisions of domestic law.