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2020 (3) TMI 634 - AT - Income TaxIncome accrued in India - transaction of transfer of shares under consideration - addition of STCG India-Belgium tax treaty - A.O held a conviction that as the assessee by transferring the shares of the aforesaid company viz. Accelyst Pte Ltd, Singapore, had indirectly transferred the shares of its subsidiary Indian company viz. M/s Accelyst Solutions Pvt., therefore, the gain arising from the said fact pattern of transaction of transfer of shares was exigible to tax in India, both as per ‘Explanation 5’ to Sec. 9(1)(i) of the Act and also Article 13(5) of the India-Belgium tax treaty - HELD THAT:- On a perusal of the aforesaid definition of the term “Contracting state”, it can safely or rather inescapably be gathered that the same in context of India-Belgium tax treaty would take within the sweep of its meaning either “India” or “Belgium”. For the purpose of applying Article 13(5) of the India-Belgium tax treaty two fold conditions are required to be cumulatively satisfied viz. (i). that, the transfer of shares should represent participation of at least 10% in the capital stock of company; and (ii). that, the company whose shares are transferred should be a resident of a contracting state. Accordingly, for the purpose of applying Article 13(5) of the tax treaty, one of the pre-condition that has to be satisfied is that the company whose shares are transferred should be a resident of a Contracting State viz. India or Belgium. As such, it is only if the shares transferred are of a company which is a resident of India and the same forms part of a participation of at least 10 per cent of the capital stock of the company, that the gains arising from alienation of such shares would be taxable in India as per Article 13(5) of the tax treaty. However, as the shares transferred by the assessee in the present case are of Accelyst Pte. Ltd., i.e a Singapore based company, therefore, in the absence of satisfaction of the pre-condition that the shares transferred should form part of the capital stock of a company which is a resident of a Contracting State, the application of Article 13(5) stands excluded to the current fact pattern of the transaction of transfer of shares under consideration. Article 13(5) of the India-Belgium tax treaty does not permit a see through approach. Unlike Article 13(4) which is the only provision in the Article 13 of India- Belgium tax treaty that provides for a see-through approach, the Article 13(5) of the tax treaty in the absence of usage of words “directly or indirectly” does not provide for a see-through approach. Accordingly, in the absence of a see-through approach in Article 13(5), the transfer of shares of Accelyst Pte. Ltd., Singapore cannot be regarded as a transfer of shares of its Indian subsidiary viz. Accelyst Solutions Pvt. Ltd. Our aforesaid view is supported by the judgment of Sanofi Pasteur Holding SA [2013 (2) TMI 589 - HIGH COURT OF ANDHRA PRADESH] while adjudicating upon the scope of applicability of Article 14(5) of India France tax treaty (similarly worded as Article 13(5) of India-Belgium tax treaty), had ruled out a see-through approach in Article 14(5) of the India-France tax treaty, and had concluded that transfer of shares of the holding company could not be regarded as a transfer of shares of its subsidiary entity. Unilateral amendment made available in the I.T Act as ‘Explanation 5’ to Sec. 9(1)(i) of the Act, cannot be read into the India-Belgium tax treaty. Accordingly, in the absence of any such corresponding provision in the India-Belgium tax treaty, both the A.O/DRP were in error in concluding that the shares of Accelyst Pte. Ltd., Singapore were to be deemed to be situated in India. Both the A.O and the DRP are in error in concluding that the gains on the transfer of the shares of Accelyst Pte. Ltd., Singapore by the assessee company would be exigible to tax in India as per Article 13(5) of the India-Belgium tax treaty. As observed by us hereinabove, as the current fact pattern of the transaction of transfer of shares is assessable under the residuary provisions i.e Article 13(6) of the India-Belgium tax treaty, therefore, the gain, if any arising therefrom would only be taxable in Belgium i.e the Contracting State of which the alienator of the shares i.e the assessee company is a resident of. Before parting, we may herein observe that as we have concluded that the gains arising from the transaction of transfer of shares of Accelyst Pte. Ltd., Singapore by the assessee company are not chargeable to tax in India as per the India-Belgium tax treaty, therefore, we refrain from adverting to chargeability of the same under the provisions of the Income-tax Act, 1961, which having been rendered as academic in nature are thus left open. Accordingly, we ‘set aside’ the order passed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 15.10.2018 and vacate the addition of STCG made in the hands of the assessee. - Decided in favour of assessee.
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