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2020 (6) TMI 166 - AT - Income TaxIncome accrued in India - Capital gain chargeable to tax in India - income of the Cyprus entity chargeable to tax in India - whether the sale of shares by a Cyprus company to the assessee of an Indian company, who was holding a technology Park [immovable property] as only asset, is taxable in India in view of the Double Taxation Avoidance Agreement between India and Cyprus? - HELD THAT:- There is no dispute that the seller of the share is a resident of Cyprus, holding necessary tax residency certificate, therefore, the recipient of the income is entitled to take the benefit of the Double Taxation Avoidance Agreement between India and Cyprus. AO and the assessee both agree that under the Indian income tax act, the transaction is taxable in India by virtue of the provisions of section 5 (2) and 9, but taxability is to be determined as per DTAA. The Cyprus Company has sold the shares of an Indian company. The impugned asset sold by the assessee does not fall under the article 6 (2) of the Double Taxation Avoidance Agreement as ‘immovable property’, therefore article 14 (1) does not apply to the transaction. Further, as the Cyprus entity does not have any permanent establishment or fixed base, the provisions of article 14 (2) does not apply. Further it is not the alienation of any ship or aircraft or movable property pertaining to that, therefore article 14 (3) also do not apply. For this reason that the transaction falls under article 14 (4) of the double taxation avoidance agreement as the impugned property from which the capital gain has arose is shares of an Indian company. Therefore any gain arising from the alienation of property i.e. shares of an Indian company, shall be chargeable to tax only in the contracting state in which the alienator is resident. Here the alienator is a Cyprus resident. Therefore such gain is chargeable to tax only in Cyprus. Thus, the new double taxation avoidance agreement has come into force much letter then the transaction took the place. In the new double taxation, avoidance agreement there is a provision as per article 13 (4) wherein now such transaction, probably is chargeable to tax in India. However, as the amended double taxation avoidance agreement is subsequent to the date of transaction it does not apply. No infirmity in the order of the learned that CIT – A in holding that the income of the Cyprus resident seller is not chargeable to tax in India, as per the double taxation avoidance agreement prevailing at that time, no tax was required to be withheld by the assessee. - Decided against revenue As already held that the income of the Cyprus entity is not chargeable to tax in India, applicability of the provisions of section 163 of the income tax act becomes merely academic in nature
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