By K P C Rao,
LLB., FCMA., FCS.,
Practicing Company Secretary
As a part of the Finance Bill, 2012, the Finance Minister has proposed to introduce the requirement of a Tax Residency Certificate into the tax provisions making it mandatory for every non-resident to obtain a certificate from the Government of the country in which such person is a resident for evidencing such person's residency in that country. This is one such amendment that was adopted out of the proposals in the Direct Taxes Code Bill. The Finance Bill proposes that the benefits contained in the Double Taxation Avoidance Agreements (DTAAs) signed between India and the respective countries would be denied to a person if a tax residency certificate, containing such particulars as may be prescribed, is not obtained from the Government of the respective country.
Now the government has mandated that from April 1, 2013, that all foreign investors desirous of claiming benefits under the Double Taxation Avoidance Agreements (DTAAs) will have to produce Tax Residency Certificates (TRC) of their base country in which they are located, by amending Section 90 and Section 90A of the Income Tax Act dealing with taxation of foreign investment and tax benefits under DTAAs. Under Section 90 (4) of the Act, as amended by the Finance Act, 2013, it is provided that an assessee, not being a resident, to whom an agreement referred to in sub-section (1) of Section 90 applies, shall not be entitled to claim any relief under a DTAA unless a certificate, containing such particulars as may be prescribed, of his being a resident in any country or specified territory outside India is obtained by him from the government of that country or specified territory.
A similar provision has been inserted in sub-Section (4) of Section 90A of the Act and pursuant thereto, the CBDT notification seeks to insert Rule 21BA and Forms 10FA and 10FB specifying the manner in which the TRC should be obtained. Accordingly, the TRC to be obtained by an assessee for availing of tax benefits shall contain the name of the assessee along with status; whether he/it is an individual or a company; the nationality (in case of individual) and the country wherein the company or firm is registered or incorporated. The TRC should also have the Tax Identification Number (TIN) of the assessee, its residential status for the purposes of tax, the period for which the TRC is applicable and the address of the assessee for that period. Further, the certificate shall be duly verified by the government of the country or the specified territory of which the assessee claims to be a resident for the purposes of tax.
India has so far signed DTAAs with 84 countries. Based on the various DTAAs that India has entered into, the assessee can take the advantage of paying capital gains tax in either of the two nations, wherever the rate of the levy is lower. Thus, the interplay of treaty and domestic legislation ensures that a taxpayer, who is resident of one of the contracting countries to the treaty, is entitled to claim applicability of beneficial provisions either of treaty or of the domestic law.
It is significant to note that in the year 2000 though the extant provisions do not contain any specific requirement for obtaining a Tax Residency Certificate ('TRC') in order to claim benefits under the DTAA, the CBDT has issued a Circular in the context of claiming benefits under the DTAA between India and Mauritius which clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAA. Thereafter, the Supreme Court in the year 2003 in its landmark judgment in the case of Azadi Bachao Andolan confirmed the validity of this Circular, holding that the TRC issued by the Mauritian tax Authorities should constitute sufficient evidence for accepting the status of residence for applying the provisions of the India-Mauritius DTAA.
As per the notification issued to this effect by the CBDT, these amendments to the Income Tax Act, 1961, will take effect from April 1, 2013, and apply in relation to assessment year 2013-14 and subsequent years. Let us hope that the proposed changes will not pose any procedural challenges in claiming relief under the DTAAs.
 Notification No.39/ F.No.142 /13/2012–SO (TPL)] of CBDT regarding Format of “Certificate of Tax Residency” for DTAA dated 17th Sep, 2012. [To be Published in the Gazette of India Extraordinary, Part II, Section 3, Sub-Section (ii)]
 Union of India v. Azadi Bachao Andolan;  263 ITR 706 (SC)