Article 22 under India Mauritius Tax Treaty: Critical Analysis of Morgan Stanley Case

Author & Designation: Pooja Jiwrajka, Professional Chartered Accountant 


Indian Depository Receipts (IDRs) are financial instruments that are tradable on one or more approved stock exchanges in India. While this financial instrument is issued by an Indian Depository, it derives its value from the underlying assets that are in the form of equity shares of a foreign company.  

Morgan Stanley Mauritius Co. Ltd. (MSMCL) is a company incorporated in, and fiscally domiciled in, Mauritius. MSMCL is a tax resident of Mauritius and holds a valid Tax Residency Certificate issued by the Mauritius Revenue Authorities. The company invested in Indian Depository Receipts (IDR) issued by Standard Chartered Bank India Branch (SCB India), with the underlying asset in the form of shares in Standard Chartered Bank UK Branch (SCB UK) held by the depository’s custodian i.e., Bank of New York Mellon, USA (BNY US) in the assessment year 2015/2016 (equivalent to the financial year 2014/2015). During the relevant financial year, MSMCL had received a dividend of Rs. 9,74,66,595 from SCB India.

The issued IDRs were in accordance with the Companies Rules, 2004, “Issue of Indian Depository Receipts” and the SEBI Regulation 2009 “Issue of Capital and Disclosure Requirements”. Whereas SCB UK is a company listed in London Stock Exchange, and the IDRs issued i.e., in respect of the shares of SCB UK, are listed in India.


As per the Indian Income Tax Appellate (Appellate Tribunal), the dividend income received by MSMCL in respect of shares represented by IDRs of SC Plc, is chargeable to tax in India under section 115(1)(a) at 20% plus applicable surcharge and cess.


  1. SCB India receives a dividend from SCB UK for the shares held by SCB India, and under the applicable arrangement, if the domestic depository receives any cash dividends or any other cash distribution with respect to the deposited shares or deposited property, the amount is to be converted into Indian Rupees and paid by cheque, pay orders and demand drafts and payable at par at the place where the IDR holders reside.  
  2. As per section 9(1)(i) all incomes accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any assets or source of income in India will be deemed to accrue or arise in India.
  3. The dividend physically flows from SCB UK to BYN Mellon, but the latter is only a custodian and the actual recipient is SCB India. As the SCB India has issued IDRs on the basis of the underlying assets, the benefit of those assets goes to the IDR holder.
  4. The assessee pleaded that the IDR holders are not the shareholders and thus they are not eligible for these dividends, they are entitled to the benefits of the shareholding related to the IDR, and entitled to get the proportionate amount of cash dividends, as much as of any other receipts by the depository in respect of the equity shares of the foreign company, received by the SCB India net of “any fees, taxes, duties, charges, cost, and expenses”.
  5. SCB India acts as a bare trustee for the IDR holders, and first receives the dividends through NYB Mellon, UK, and for this reason, the dividends are received outside India, which cannot be taxed in the hands of the non-resident assessee.
  6. Under section 9(1)(iv) dividend paid by an Indian company outside India is deemed to be an income or arising in India but since the dividend is with respect to a UK-based company, this deeming fiction does not come into play. As per section 9(1)(i)1, the dividend paid by the foreign companies, even if such companies have underlying assets in India, cannot be taxed.
  7. Since the assessee is a resident of Mauritius under the terms of article 4(1) of the Indo-Mauritius tax treaty, that the TRC is also placed on record. As per article 10 when dividend paid by a company which is a resident of a contracting states, i.e., residents of India or Mauritius, to a resident of the other contracting state may be taxed in that other State. But SCB India is Indian branch (permanent establishment) of UK tax resident, it is a payment made by UK residents to Mauritius residents, which is not covered by article 10.
  8. Dividend cannot be considered as income, as it does not fulfill article 10 requirements, hence it falls under the residuary head “other income” under article 22 of the India Mauritius Tax Treaty and such income can only be taxed in the residence jurisdiction i.e., Mauritius.


India-Mauritius tax treaty has overruled domestic law, hence dividends received on IDRs cannot be taxed in India. The addition of Rs.9,74,66,600 being IDR dividend received from SCB-India, thus stands deleted.

An amendment in India Mauritius tax treaty has been signed, after which India can tax “other income” not addressed in any other provision of the India Mauritius Tax Treaty w.e.f. 1st April 2017.


  1. CBDT circular#4|2015(F.NO.500\17\2015\-FT&TR-IV dated 26th March 2015
  2. Case link: 

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