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2018 (1) TMI 945

Head Note / Extract:
Income chargeable to tax in India - income derived by the shareholders of Bock GmbH from the sale of shares of Bock GmbH, Germany - India-Germany DTAA - Bock GmbH, Germany holds 100% share capital of Bock India Private Limited - liability to TDS u/s 195 - Held that:- Applicant’s income cannot be brought to tax in India under the provisions of the Income tax Act 1961, as Bock GmbH derives its value substantially from its other companies situated in Germany, China, England, Czech Republic, Singapore, Malaysia, Thailand and Australia etc., whereas its value of assets in Bock India is a mere 5.40%, far lower than the requirement of 50%. Hence, it fails the test of deriving value substantially from the Indian company, as is also conceded by the Revenue, on the available facts.

A similar matter under similar provisions of the DTAA, was decided in the case of Sanofi Pasteur Holding SA (2013 (2) TMI 589 - HIGH COURT OF ANDHRA PRADESH) wherein shares of a French company which held 80% shares in an Indian company were transferred to another French company. It was held that the gain arising from such transfer was taxable in France and not in India. Hence, in spite of a possible contrarian argument, in cases of indirect transfer, the decision in the case Sanofi Pasteur, cited above, stands as of date and has to be respectfully followed.

We come to the conclusion, therefore, that the gains arising from the alienation of shares of Bock GmbH, on account of its acquisition by GEA Refrigeration Technologies GmbH, the Applicant, shall not be taxable in India.

TDS u/s 195 - As per section 195(1), briefly, any person responsible for paying to a non-resident interest or any other sum chargeable under the provisions of the Act shall deduct tax at the time of such credit or remittance. Thus, the liability to deduct arises only if the sum so paid was chargeable to tax. This view was upheld in GE Technology Centre P. Ltd. v. CIT [2010 (9) TMI 7 - SUPREME COURT OF INDIA ] that in cases where income is not chargeable to tax under the Act, as per expressions used in section 195 itself, there will be no obligation to withhold tax. - Decided in favour of assessee


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