TMI Blog2007 (1) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... on its operations through various subsidiaries across the globe. The applicant has a wholly owned subsidiary company, namely Cordys Holding B.V. [for short "the Cordys"] which is also incorporated in the Netherlands. The Cordys is also the holding company for a number of other information technology related group companies. The applicant has another wholly owned subsidiary company, namely Cordys R D (India) Private Limited [for short "the Cordys India"] which is incorporated under the Companies Act, 1956. The applicant proposes to reorganize its holding pattern in its group companies. In the process of reorganization, the applicant would transfer its entire share holding in the Cordys India to the Cordys. As a result of this, the Cordys India would come under the direct control of the Cordys. In the aforementioned factual background, the applicant has sought advance ruling on the following questions: i) On the facts and in the circumstances of the case, whether the capital gain arising to the Applicant in the course of corporate reorganization at group level, from the proposed transfer of shares held in the Cordys R D (India) Pvt. Ltd., an Indian Subsidiary of Vanenburg Group B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be required to withhold any tax under section 195 of the Act. For the same reason, the applicant would also not be required to file any tax return in India under section 139 of the Act. According to the applicant, the provisions of sections 92 to 92F of the Act would also not be attracted in this case. 3. The Commissioner of Income-tax-II, Hyderabad who is the jurisdictional Commissioner in this case (for short " the commissioner"), has furnished comments vide his letter dated 11.08.2006. He has stated that though the transaction would be taxable as per the provisions of the Act, no tax would actually be payable in India because of clause (5) of article 13 of DTAA, as the share transfer would be taking place in pursuance of reorganization of the group companies. So far as the section 195 is concerned, deduction of tax at source should be made if any sum chargeable under the provisions of the Act is paid or credited to the account of the payee. The DTAA does not contain any specific provision with regard to this aspect, in the absence of which tax should be required to be deducted at source. The commissioner has further stated that, in case, it is decided that the income is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n specifies the scope of total income and makes it subject to the provisions of the Act. As per sub-section (2), the total income of a non-resident includes all income from whatever source derived which accrues or arises; deemed to accrue or arise in India. Further, section 9(1)(i) reads as follows : "9(1) The following incomes shall be deemed to accrue or arise in India: (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India." ** ** ** ** ** ** ** ** ** The applicant is a non-resident. It proposes to transfer its capital assets in India. The resulting income, therefore, would be deemed to accrue or arise to it in India in terms of section 9(1)(i) of the Act. As such, this income should have been included in its total income, and should have been chargeable to income-tax in India, but for the provisions of the DTAA. 7. The Central Government has entered into the DTAA with the Govt. of the Kingdom of the Netherlands under sub-section (1) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the provisions" of the Act. The very object of grafting the said two sections with the said clause is to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAs which would automatically override the provisions of the Income-tax Act in the matter of ascertainment of chargeability to income-tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC." The Supreme Court subsequently reiterated the above views in Commissioner of Income-tax vs P.V.A.L Kulandagan Chettiar 267 ITR 654 case. In view of the well settled legal position on the subject, we have no hesitation in holding that the resulting capital gains, if any, shall be taxable in the Netherlands. 8. We may now turn to the question of deduction of tax at source. Sub-section (2) of section 4 reads as under : "(2) In respect of income chargeable under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, there was no obligation to deduct tax at source from its remittance. In Honeywell Technologies SARL AAR No.667 of 2005, the Authority was considering the tax liability of a non-resident company in respect of an assignment proposed to be made by it to its Indian subsidiary, of a contract of supply of certain equipments to an Indian company. One of the questions put before the Authority was whether in the event of the transaction not been taxable in India, the assignee company will still be liable to withhold tax under section 195. The Authority held that as the consideration payable under the deed of assignment was not chargeable to tax under the provisions of the Act, section 195 would not be attracted. In the light of the foregoing discussion, we are of the view that no taxes need be deducted at source in this case, since the capital gains in question would not be liable to tax under the provisions of the Act read with the aforementioned provision of the DTAA. 9. So far as filing of income-tax return is concerned, it may be mentioned that the liability to pay tax is founded upon sections 4 and 5 of the Act, which are the charging sections. Section 139 and other section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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