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2020 (3) TMI 1313 - AUTHORITY FOR ADVANCE RULINGS — MUMBAI BENCH (INCOME-TAX)Income accrues or arises in India - contention of the assessee is that the sum would not be taxable since the shares of AIS do not derive their value substantially from asset located in India - share in a company incorporated outside India shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its value "substantially" from the assets located in India - As the shares of AIS directly and indirectly derive less that 50 per cent. of their value from assets located in India, whether the income arising to the persons specified in Annexure III from the trans fer of shares in AIS to the applicant would be subject to tax in India ? - whether foreign companies cannot be assessed to tax under section 115JB of the Act? - whether Explanation 6 and Explanation 7 inserted by the Finance Act, 2015 to section 9(1)(i) of the Income-tax Act are retrospective or prospective in nature? - As the shares of AIS directly and indirectly derive less that 50 per cent. of their value from assets located in India, whether the income arising to the persons specified in Annexure III from the trans for of shares in AIS to the applicant would be subject to tax in India ? - HELD THAT:- In agreement with the view of learned authorised representative that Explanation 6 is clarificatory in nature and would apply retrospectively. Similarly, Explanation 7 inserted to address the genuine concerns of small shareholders would also apply retrospectively to give meaning in true sense and to render indirect transfer provisions contained in Explanation 5 to section 9(1)(i) of the Income-tax Act workable. AR has indicated that as per the valuation report obtained from the independent valuer the value of shares of AIS derived directly or indirectly from assets located in India is 26.38 per cent., i. e., less than 50 per cent. In view thereof the income from transfer of shares in the hands of transferors is not subject to tax in India. Applicants and Seowyan Investments are based in Cayman Islands with whom India does not have comprehensive DTAA. Also, in the case of Pacific Ace Development Limited, a resident of Hong Kong with whom the comprehensive DTAA came into force in respect of income derived in India with effect from April 1, 2019. AR had asserted that during the financial year 2013-14 both the foreign companies are not required to seek registration under the Companies Act, 2013, Companies Act, 1956 or any other law for the time being in force relating to companies in India. In view of the said averments by learned authorised representative and also considering the provisions of section 115JB of the Income-tax Act, the conditions laid down in section 115JB are satisfied and there is no applicability of section 115 to the above referred foreign companies. Consequently, there is no liability, the buyer applicant is not required to withhold taxes in respect to the payment made to transferor of shares. Revenue had questioned the valuation methodology, the Revenue may verify the computation furnished by the applicant as per rule 11UB and rule 11UC. It is reiterated that the ruling is given on matter of principle, i. e., retrospective/prospective application of Explanations 6 and 7 and based on the figures presented before us by learned authorised representative. If subsequently it is found that the figures are at variance and the actual percentage exceeds 50 per cent., the ruling would not apply and the Revenue would not be bound by such ruling. If it is found that the actual percentage is more than 50 per cent. then the Revenue may also ascertain the shareholding of each of the seller applicants at any time in 12 months preceding the date of transfer and/or the right of management or control in relation to AIS and thereafter if need be ascertain the income reasonably attributable to non-resident transferors in terms of Explanation 7(a) and 7(b) to section 9(1)(i) of the Income-tax Act. Further, if it is discovered later on that the conditions laid down in 115JB are not satisfied the transferor foreign companies would be subject to section 115JB. Ruling :- - Questions Nos. I and II - Explanations 6 and 7 to section 9(1)(i) of the Income-tax Act are clarificatory in nature and would apply retrospectively and therefore the incomes from transfer of shares in the hands of transferors are not subject to tax in India. - Questions Nos. III to V - Does not arise in view of reply to I and II above - Question No. VI - Section 115JB is not applicable to Seowyan Investments and Pacific Ace Development Limited. - Questions No. VII - There is no liability under section 195 of the Income-tax Act of the Moody's Analytics Knowledge Services (Jersey) Limited to withhold taxes in respect to the payment made to transferor of shares.
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