2007 (11) TMI 256 - AAR - Income Tax

Capital Gains - transfer of shares - capital gains on transfer of shares in question is chargeable to tax under the Act as it is deemed to accrue or arise in view of the fact that the capital asset is situated in India - applicant is held to be an agent of the non-resident (Jeff Slosar) in pursuance of the inclusive provision of section 163 - applicant has to keep in view the provisions of section 195 of the Act relating to tax deduction at source.

Summary

Issues Involved:

1. Liability of capital gains tax on the transfer of shares by a non-resident.
2. Liability of the transferee as an agent/representative assessee for the non-resident transferor.
3. Impact of the share transfer agreement executed in the USA on tax liability in India.
4. Applicable tax rate, surcharge, and educational cess, and due dates for payment.

Issue-Wise Detailed Analysis:

1. Liability of Capital Gains Tax on the Transfer of Shares by a Non-Resident:

The core issue was whether Mr. Jeff Slosar, a US resident, was liable for capital gains tax in India on the transfer of 17,500 equity shares of Triniti Advanced Software Labs Private Limited (TASL), an Indian company, to Triniti Corporation, USA. The judgment emphasized that under section 9(1)(i) of the Income-tax Act, 1961, any income accruing or arising through the transfer of a capital asset situated in India is deemed to accrue or arise in India. The shares of TASL, being a capital asset situated in India, meant that the income from their transfer was taxable in India. The ruling also noted that Article 13 of the DTAA between India and the USA allows each contracting state to tax capital gains as per its domestic laws.

2. Liability of the Transferee as an Agent/Representative Assessee for the Non-Resident Transferor:

The second issue was whether Triniti Corporation, USA, the transferee of the shares, could be treated as an agent/representative assessee of Mr. Jeff Slosar under sections 160, 161, and 163 of the Act. The judgment clarified that under section 163(1) of the Act, a person who has acquired a capital asset in India through a transfer is deemed to be an agent of the non-resident transferor. Thus, Triniti Corporation, as the purchaser of the shares, was held liable as a representative assessee for the capital gains tax arising from the transaction.

3. Impact of the Share Transfer Agreement Executed in the USA on Tax Liability in India:

The applicant contended that since the share transfer agreement was executed in the USA, the tax liability in India should be affected. However, the ruling stated that the situs of the capital asset (shares of TASL) being in India was the determining factor for tax liability under section 9(1)(i) of the Act. Therefore, the location of the agreement's execution did not impact the tax liability in India.

4. Applicable Tax Rate, Surcharge, and Educational Cess, and Due Dates for Payment:

Although the judgment did not explicitly detail the applicable tax rate, surcharge, and educational cess, it implicitly affirmed the taxability of the capital gains under the provisions of the Income-tax Act, 1961. The judgment also highlighted the necessity for the applicant to comply with section 195 of the Act, which pertains to tax deduction at source.

Conclusion:

The ruling concluded that the capital gains arising from the transfer of shares by Mr. Jeff Slosar to Triniti Corporation, USA, were chargeable to tax in India. Furthermore, Triniti Corporation was held to be an agent of the non-resident transferor under section 163 of the Act, thereby liable for the tax on the capital gains. The judgment also reinforced the applicability of the provisions of the DTAA between India and the USA, which did not exempt the transaction from Indian tax laws.

Ruling:

The Authority answered both questions in the affirmative: the capital gains on the transfer of shares were chargeable to tax in India, and Triniti Corporation, USA, was deemed an agent of Mr. Jeff Slosar under section 163 of the Act.

Pronouncement:

The ruling was pronounced by the Authority on November 16, 2007.