Home Case Index All Cases Income Tax Income Tax + AAR Income Tax - 2020 (3) TMI AAR This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (3) TMI 1325 - AAR - Income TaxIncome deemed to accrue or arise in India - Capital gain on sale of shares - can section 9(1)(i) at all be applied and tax charged on the transaction, in the absence of the requisite rules having been framed for the purposes of implementing section 9(1)(i) of the Income-tax Act, 1961 as on the closing date ? - withhold tax u/s 195 on acquisition of shares - HELD THAT:- In this case, the shares of STC (USA) held by the THLPV, solely as representative for the holders of securities of STC (including certain members of the applicant), have entered into an agreement and plan of merger for the transfer of its entire shareholding to STC, Harman International Industries Incorporated, the buyer. The share transaction, in this case is between two non-resident entities STC USA and STG Group involving the shares of STC. The said transaction between two foreign entities is primarily not liable for any taxation in India. However, in this shares of (STC USA) are transacted, which had a presence in India in the form of a subsidiary, M/s. Symphony Teleca Corporation India Private Limited (STCIPL). STCIPL is the wholly owned subsidiary of Global Symphony Technology Group Private Limited, Mauritius. The ultimate holding company of the Indian entity is STC(USA), whose shares are transacted. It is a fact that during 2012 to 2016, the word "substantially" appearing in Explanation 5 to section 9(1)(i) of the Income-tax Act was not defined in the Act and it was subject matter of scrutiny of the courts in number of cases, i. e., DIT (International Tax) v. Copal Research Ltd. [2014 (8) TMI 606 - DELHI HIGH COURT], GEA Refrigeration Technologies GmbH [2018 (1) TMI 945 - AUTHORITY FOR ADVANCE RULINGS, NEW DELHI] and Banca Sella S.P.A., In re [2016 (9) TMI 163 - AUTHORITY FOR ADVANCE RULINGS NEW DELHI] and it was uniformly held that "substantially" will mean at least 50 per cent. This position was also clarified by Explanation 6 which was brought in to the statute after recommendation of Expert Committee under Dr. Shome on this issue was accepted by Government and Circular No. 19 of 2015, dated November 11, 2015 affirmed this position. AR has averred that STC's Indian assets are less than 31 per cent. of its world assets, we are of the view that the capital gain arising on the transfer of the STC shares is not taxable in India under section 9(1)(i) of the Income-tax Act. Revenue may however, verify the computation furnished by the applicant as per rule 11B and rule 11UC. It is reiterated that the ruling is given based on the facts and figures presented before us and if sub-sequently 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. The transfer of shares of STC by STG is not chargeable to tax in India under the provisions of section 9(1)(i) of the Income-tax Act. The buyer is not required to withhold tax u/s 195 of the Act on acquisition of shares of STC from STG.
|