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2020 (1) TMI 1470 - AUTHORITY FOR ADVANCE RULINGS — MUMBAI BENCH (INCOME-TAX)Capital gains earned from transfer of shares of an Indian company by a tax resident of the Netherlands - allocable portion of income earned in India - Benefit of treaty - representative assessee u/s 160(1) - India-Netherlands Double Taxation Avoidance Agreement - proportionate share of income earned by participants assessable in their hands as the transferor (in terms of section 61 read with section 63(a) of the Act) from the sale of shares of the Indian company by PQR and STU and would remain taxable only in the Netherlands as per the provisions of article 13 of the India-Netherlands treaty - whether custodian acts as a trustee of the fund and accordingly, is assessable as a representative assessee of PQR and STU for and on behalf of the participants of these funds? - HELD THAT:- It is a fact that the participants who are tax residents of Netherlands, have not directly invested in India but the investment has come through two funds. These funds are registered entities with Securities and exchange Board of India and income accrues to them on their own. Whether the said income is passed on to the participants in its entirety is a separate issue and stage 2 of transaction and has nothing to do with accrual of income in India. On the one hand we have participants who have not directly invested in India and on the other hand there are funds who are not legal and taxable entities of Netherlands. The treaty benefits are admissible if the stipulations contained in the convention are fulfilled by the entities. For claiming treaty benefits, the entity has to satisfy the definition of person and resident under the treaty articles. In the cases before us, articles 1, 3 and 4 read together clearly point that treaty benefit is not available to fiscally transparent entity as it is not a taxable entity in Netherlands. In order to qualify as "resident of a contracting State" one needs to qualify as "person" as per the definition given in the tax treaty. Here the funds are neither persons nor residents of Netherlands. Secondly India has not concurred with the view in OECD commentary and has elucidated by stating that there is need for enabling provision in treaty to allow the treaty benefit to beneficiaries of transparent entities. It is also relevant to point out that India-US treaty (Art. 4) provides for benefit for firms or trusts if partners or beneficial owners are taxed on same income but similar enabling provision is missing from India-Netherlands treaty. In the alternative India can enter into competent authority agreement with Netherlands to allow treaty benefit to transparent entity. This is in line with similar arrangements Netherlands have with some other countries. Ruling: - (Questions 1 to 5) No, it will be assessed in the hands of PQR and STU and benefit under article 13 of the India-Netherlands Double Taxation Avoidance Agreement is not admissible to these funds. Other queries raised i. e. whether the contribution made by participants to the fund will be considered as revocable transfer under section 61 or whether the funds are assessable under section 161 are in the nature of alternate pleas have become infructuous in view of the specific finding that the income is assessable in the hands of the funds. (Questions 1 to 6) No, JKL cannot be considered as a responsible entity of PQR and STU funds and benefit under article 13 of the India-Netherlands Double Taxation Avoidance Agreement is not admissible to JKL. Other queries without prejudice are thus infructuous.
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