indirectly, in the FII, including holders of P-notes issued by the FII.
In this regard, the FM’s statement indeed provides that GAAR will also not apply to non-resident investors in FIIs. Possibly, there is no intention to tax P-notes. The Shome committee recommended that gains in the nature of either capital gains or even business income arising from a transfer of equity shares or units of equity-oriented mutual funds, which are subject to securities transaction tax (STT), should be exempt for both residents and non-residents.
Alternatively, until the abolition of tax on listed securities, the government should respect tax residency certificates (TRC) issued by the Mauritius authorities and refrain from taxing gains generated by Mauritian tax residents if a valid TRC is furnished in terms of circular 789 of 2000. Effectively, the committee recommended that where circular 789 is applicable, GAAR provisions shall not apply to examine the genuineness of the residency of an entity set up in Mauritius. In other words, a valid TRC should be sufficient to obtain benefits under the applicable tax treaty and such benefits should not be subject to GAAR examination.
The committee suggested that where the tax treaty itself has anti-avoidance provisions or limitation of benefits (LOB) clauses, such as in the tax treaty with Singapore, GAAR provisions should not override the treaty. To complete the picture, the committee recommended that the amendment in the income tax law providing that GAAR overrides the tax treaties entered by India with various countries should be suitably amended. The press release simply tells us that, where both GAAR and specific anti-avoidance rule (SAAR) are in force (read where both are applicable), then only one of them will apply. It appears that there will be discretion with the tax officer as to which of the two is more beneficial to the revenue and to apply the same. There is a lack of clarity on whether a TRC issued by the Mauritian tax authority will be respected and obviate the need to invoke GAAR. Similarly more information is required on the status of SAAR and LOB clauses in the tax