9911796707
TMI Blog2010 (2) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... a and Asia catering to the global market for superior automobile components. In order to meet the increased capital requirements connected with PG India's expansion plans, the applicant has made significant investments into PG India. The applicant expects to receive income in the form of dividends declared and distributed by PG India. The applicant may also realize capital gains through a sale of portion or all of its shares in PG India to another non-resident company. PG India may also consider a buy-back of its shares by the applicant. Consequent to the buy back, PG India would continue to be the wholly owned subsidiary of the applicant. 2. Initially, Pierburg GmbH was the holding company of Pierburg India in November, 2008. It sold the entire shareholding in Pierburg India to the applicant for a valuable consideration of Rs.10 crores. Consequentially, the applicant which is a Netherlands company became 100 per cent shareholder and the holding company of Pierburg India. The applicant made substantial investments in Pierburg India. The applicant seeks advance ruling on the following four questions" 1. Whether, on the facts and in the circumstances of the case, KSPG Netherland ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise) on or after the 1st day of April, 2003 whether out of current or accumulated profits shall be charged to additional Income-tax (hereafter referred to as tax on distributed profits) at the rate of fifteen percent." 5. Thus, as contended by the applicant, under section 115-O, PG India would be liable to pay tax on the distribution of profits by way of dividends to the applicant @ 15 per cent. However, such dividends received by the applicant (shareholder of PG India) would not be taxable in its hands under the IT Act. This legal position admits of no doubt and in fact it has not been disputed by the Revenue in its comments. In the comments furnished by the Revenue, it has been fairly stated as follows: 4.1.3. Further, once the Indian company PG India Pvt. Ltd. has paid the dividend Distribution Tax, the dividend received either by the Netherlands company KSPG Netherlands Holding B.V., or the ultimate holding company in Germany, Kolbenschmidt Pierburg A.G., would not be liable to tax in India in terms of the express provisions of Section 10(34) of the Income-tax Act. 4.1.4. This position, however, is subject to change in case any amendments are made in the relevant provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lienation of any property (other than that referred to in the following paragraphs) are liable to be taxed only in the State of which the alienator is a resident. Property in the form of shares is not excluded from the purview of the above opening provision in para 5. That being the position, the Govt. of India is precluded from subjecting to tax the gains on account of transfer of shares of the Indian company to a non-resident. This clear legal position is not in dispute. However, the Revenue contends that "the beneficial owner of capital gains arising out of the transactions, if and when undertaken, would be the German company" and accordingly the provisions of the India-Germany DTAA would be applicable in which case the capital gains can be taxed in India. It is submitted on behalf of the Revenue that Kolbenschundt Pierburg AG is the ultimate holding Company of the Indian Company and it is that Company which has beneficial ownership in the shares of the Indian Company sought to be transferred. The Revenue further avers that till November 2008, Pierburg GMBH (German Company) was the immediate holding Company, but, the applicant (Netherlands Company) incorporated on 6th November 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities to look to the facts at the time of transfer, but, on principle and in the light of the facts stated and substantiated in this application, we cannot reach the conclusion that the beneficial ownership in the gains resulting from the transfer of shares is vested with the ultimate holding company i.e. German company. As stated earlier, we find no reason and no basis to characterize the proposed transaction as a mere device to avoid the capital gains tax by unlawful means. 10.. In the comments furnished on behalf of the Revenue, it is pointed out that no details are available now and therefore the question cannot be adjudicated at this stage. We do not think that in the absence of details such as the number of shares, the consideration and the name of the non-resident transferee, this Authority shall desist from giving a ruling on the legal issue. Not much turns out from these details. However, we would like to observe that at the time of transfer, the applicant shall furnish information to the Department. Of course, the Revenue is bound by this ruling and observations made herein in making any inquiry at that stage. 11. We are, therefore, of the view that the answer to Ques ..... X X X X Extracts X X X X X X X X Extracts X X X X
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