TMI Blog2010 (7) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... se such income in the Act while determining the book profit. - the view that the provision of section 115JB of the Act is not attracted in the case of the applicant in view of decision in "The Timken Company - 2010 TMI - 77013 - AUTHORITY FOR ADVANCE RULINGS" - the proposed transfer of equity shares by the applicant to Praxair India would not attract the transfer pricing provisions of section 92 to 92F of the Act - AAR/855/2009 - - - Dated:- 23-7-2010 - Mr.Justice P.V. Reddi (Chairman) Mr. V.K.Shridhar (Member) Name address of M/s. Praxair Pacific Limited the applicant Level-6, One Cathedral Square, Jules Koenig Street, Port Louis, Mauritius Commissioner concerned Director of Income Tax (International Taxation), Bangalore . Present for the applicant M/s.Rajan Vora, Manmeet Dalal, CAs from S.R.Batliboi Co. Present for the department Ms. Meera Srivastava, Jt.CIT (International Taxation), Bangalore Mr.Pankaj Kumar Dy.DIT(International Taxation) Bangalore RULING (By Shri V.K.Shridhar) This application for advance ruling has been filed by a non-resident company under section 245Q(1) of the Income-tax Act, 1961(hereinafter r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has framed following nine questions for seeking advance ruling from this Authority: 1) Whether on the facts and circumstances of the case, the investment held by Praxair Pacific Limited (hereinafter referred to as the "Applicant"), in equity shares of Jindal Praxair Oxygen Company Private Limited ("JPOCPL") would be considered as "capital asset" under section 2(14) of the Income-tax Act, 1961 ("the Act")? 2) If the answer to Query 1 is in the affirmative, based on the facts of the Applicant, would the transfer of equity shares of JPOCPL from the Applicant to its wholly owned subsidiary Praxair India Private Limited ("Praxair India"), be liable to tax in India in view of the exemption from capital gains and subject to conditions provided under section 47(iv) of the Act? 3) Whether, on the facts and circumstances of the case, the Applicant will be entitled to the benefits of the Agreement for avoidance of double taxation and prevention of fiscal evasion entered into between the Government of the Republic of India and the Government of Mauritius ("Treaty")? 4) If the answers to Query 1 and Query 3 are in the affirmative, on the facts and circumstances of the case, whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submits that the income accruing or arising on the transfer of equity shares in Jindal Praxair would normally be taxable in its hands in India in view of the provisions of section 5 read with section 9 of the Act. Under section 45 of the Act, any profits or gains arising from the transfer of a capital asset, would be chargeable to income-tax under the head "Capital gains". However in relation to transfer of a capital asset by a holding company to its Indian subsidiary company, section 47(iv) of the Act provides that such a transfer of a capital asset by a holding company to its Indian subsidiary company shall not be regarded as transfer for the purpose of section 45 of the Act. As the applicant proposes to transfer its equity shareholding in Jindal Praxair to Praxair India, which is its wholly owned subsidiary in India, the key conditions under section 47(iv) of the Act are fulfilled. The gains, if any, on the transfer of equity shares in Jindal Praxair would not be taxable in India. In all fairness, the applicant states that in the event the provisions of section 47A of the Act is found to be attracted on the occurrence of any of the events stated therein, it will offer to tax any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax in India. Then the CBDT in circular No.789, dated April 13, 2000, has also clarified that "wherever a certificate of residence is issued by the Mauritius tax authorities, such certificate would constitute sufficient evidence for accepting the status of residence, as well as beneficial ownership, for applying the provisions of the DTAC accordingly". In the case of DLJMB Mauritius Investment Company (228 ITR 268) this Authority had ruled that the applicant being a resident in Mauritius was entitled to the benefits that flow under the treaty, including the benefits relating to capital gains. The applicant submits that by virtue of being a tax resident of Mauritius, section 90 of the Act also entitles the applicant to the provisions of the treaty to the extent they are more beneficial than the provisions of the Act. 5.5 To sum up, the applicant contends that: transfer of shares to the holding company is not exigible to tax by virtue of section 47(iv) read with section 45 of the Act. provision of section 115JB are not attracted as the applicant, a foreign company, has no place of business or PE in India. by virtue of being a resident of Mauritius and having no PE in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est his capital in shares with the intention to resell them if in future their sale may bring in higher price. Such an investment, though motivated by a possibility of enhanced value, does not render the investment a transaction in the nature of trade. The test often applied is, has the assessee made his shares and securities the stock-in-trade of a business." As the shares were not held as stock in trade, the nature of the investment in these shares is held to be a capital asset as defined in section 2(14) of the Act. This brings us to the issue whether the transaction of transfer of these shares is to be regarded as transfer within the meaning of section 45 read with section 47(iv) of the Act? Section 47(iv) reads as under: 47(iv). "Transactions not regarded as transfer. (i) to (iii) xxx xxx xxx (iv) Any transfer of a capital asset by a company to its subsidiary company, if (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian company;" Under this section any transfer of a capital asset by a parent company to its subsidiary company shall not be regarded as transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that capital asset is located in India is of no consequence. Under section 90of the Act the taxpayer is entitled in law to seek the benefits under the DTAA if the provision therein is more beneficial than the corresponding provision in the domestic law. This well settled principle has been re-stated by the Supreme Court in the case of Azadi Bachao Andolan in the following words: "A survey of the aforesaid cases makes it clear that the judicial consensus in India has been that section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens, the provisions of such an agreement, with respect of cases to which where they apply, would operate even if inconsistent with the provisions of the Income-tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the Legislature to make a departure from the general principle of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making those sections "subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to section 115JB(2) in respect of the world income and laid before the company at its AGM in accordance with the provision of Section 210 of the Companies Act. It was held that section 115JB is not designed to be applicable to a foreign company who has no presence or PE in India. Moreover, in the case in hand where there would be a solitary transaction, the purport of maintenance of accounts does not appeal to any logic. We are therefore of the view that the provision of section 115JB of the Act is not attracted in the case of the applicant. 7. On the facts presented by the applicant and in the light of legal position discussed, the applicant has no liability to pay capital gains tax under section 45 and minimum alternate tax under section 115JB of the Act. Question nos. 1 to 7 are therefore answered in favour of the applicant. Regarding answer to Question no.9, the proposed transfer of equity shares by the applicant to Praxair India would not attract the transfer pricing provisions of section 92 to 92F of the Act in the absence of liability to pay tax on the capital gain. Ques. No.8 need not be answered, as stated by the learned Authorized Representative in the course of argum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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