Re: Double taxation relief- Protective assessment .
Consider a case – Assessee was a US resident which had invested in Indian company through a Mauritia’s based company (SPV). The SPV sold shares of Indian company and claimed treaty benefit. In assessment, treaty benefit was denied on the grounds that SPV is not the beneficial owner and income is to be taxed in the hands of principal investor ie US resident.
A) If the Mauritius company settles under the scheme, whether the US resident investor will get protection under the scheme ie will the proceedings in case of US investor be dropped? Will the the treatment be on similar lines as protective assessessment – Refer Q35 of the FAQ dt 4 March 2020?
Q35 of the FAQ dt 4 March 2020 states that if substantive additions are covered under VSV , then on settlement of disputes related to substantive addition, the AO shall pass rectification order deleting the protective additions made on same issue in case of assessee or in case of another assessee.
Accordingly, in the given case, where the Mauritius company settles under the scheme, then proceedings in hands of US resident investor should be dropped. Since this issue is fact specific, the case should be discussed with the jurisdictional AO/CIT to get clarifications from CBDT.
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