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In Re : Honda Motor Co Limited

2018 (2) TMI 771 - AUTHORITY FOR ADVANCE RULINGS, NEW DELHI

Entitlement to benefit of proviso to Section 112 (1) - tax payable on the long term capital gains arising on the sale of equity shares of Hero Honda Motors Ltd. - benefit of indexation under Second proviso to Section 48 - Held that:- The benefit of the proviso of Section 112(1) of the Act is applicable in the case of non-resident as well,in spite of section 48. This issue is identical to the above case and the decision in Cairn UK [2013 (10) TMI 430 - DELHI HIGH COURT] is squarely applicable. Fo .....

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e “necessarily”. If the expenses have been incurred in connection with the transfer, they are to be allowed. The words “in connection with” are of wide import and if such expenses have an intimate connection with the transfer, they have to be allowed u/s 48. - In the instant case there is no doubt that the expenses are incurred for effecting the transfer only. Even if it was a mutual decision of the two parties for their convenience, that the shares should be dematerialized and an Escrow ac .....

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Ashutosh Chandra, Member (Revenue) For the Applicant : Mr.TarunGulati, Advocate Mr. Manish Rastogi, Advocate For the Department : Mr. G C Srivastava, Advocate Mr. SukhsagerSyal, CA Mr. A.K.Verma, DCIT, DR Mr. D.K. Srivastava, DCIT(IT), Noida RULING ( By Ashutosh Chandra ) The present Application for Advance Ruling has been filed by the Applicant under Section 245Q of the Income Tax Act, 1961 (Act, for short) on 25.11.2011, and the same was admitted on 30.05.2013. The Applicant is a Corporation .....

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pplicant acquired shares in HHML by direct allotment of shares in the year 1985, right issue of shares in the year 1987 and bonus shares issued in the year 1995 and 1998. This resulted in the Applicant s holding of 1,03,83,750 equity shares [of ₹ 10 each] in the total equity capital of HHML as on 28.09.1998.Thereafter, on 26.03.2001,each share of HHML was sub-divided into 5 equity shares of ₹ 2 each, thereby resulting in Applicant s ownership of 5,19,18,750 equity shares [of ₹ .....

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cordingly were long-term capital asset on the date of the transfer. The resultant capital gain tax applicable would be long-term capital gain tax. 2.3 In the process, on 28.02.2011 it incurred expenses towards Fees for the computerization of share certificates in order to transfer them to the escrow account, amounting to USD 10,000 and further on 04.03.2011 an amount of INR 55,150 as Fees for the computerization of share certificates in order to transfer them to the escrow account. These were in .....

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tal gains arising on the sale of equity shares of the Hero Honda Motors Limited [now known as Hero MotoCorp Limited] (hereinafter referred to as HHML ), being listed securities, will be 10% (plus surcharge and cess) of the amount of capital gains as per the proviso to section 112(1) of the Act? (ii) Whether, on the stated facts and in the circumstances of the case and in law, the Applicant is eligible to claim deduction for expense incurred by the Applicant in connection with the transfer of sha .....

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ovisions of second proviso to Section 48 used in the proviso to Section 112 (1) of the Act requires a taxpayer to compute the capital gains without taking cognizance of or giving effect to the second proviso to Section 48 of the Act. It is further submitted that the applicability of the second proviso to Section 48 of the Act or the eligibility of a taxpayer to actually claim the benefit under the said proviso is not a sine qua non for applying the reduced rate of 10% prescribed by the proviso. .....

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Ltd. vs. DIT, 2013 (359) ITR 268, wherein the Ruling of this Authority in the case of Timken France, In Re (2007) 212 CTR 349 (AAR) was affirmed by the Hon ble High Court of Delhi. This has been followed by this Authority in the case of Pan-Asia iGate Solutions, Mauritius, In Re 2014 SCC Online AAR 13. Further, reliance is placed on the Rulings of this Authority in the following cases: Fujitsu Services Ltd., In re, (2009) 225 CTR 121 (AAR); Four Star Oil & Gas Co., In re, (2009) 223 CTR 121 .....

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tated that during the course of hearing in its case, the Department did not dispute that the Applicant s case is covered by the aforesaid judgment of the Hon ble Delhi High Court. 5. Opposing the contentions of the Applicant, the Revenue submitted that the expression before giving effect to the 2nd proviso to section 48 pre- supposes the existence of a case where computation of long-term capital gains could be made in accordance with the formula contained in the 2nd proviso to section 48. Occasi .....

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introducing the 1st proviso to section 48 is also clear from explanatory notes to the Finance Act 1992 issued vide CBDT s Circular No.636 dated 31.8.1992. It would not be a logical interpretation that legislature s intention could be that while the persons falling under the 2nd proviso have to forego the benefit of indexation to avail the lower rate of 10%, the persons falling under the 1st proviso would be granted the benefit of lower rate of 10% after having availed the benefit of 1st proviso, .....

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to be given a second benefit. The disadvantage lay with the resident assessee regarding bonds and debentures, they being excluded from the benefit of the first proviso and the second proviso. The level playing field has been provided to the resident assessees and that is what is done by the proviso in Section 112 in respect of listed securities units and zero coupon bonds. The proviso explicitly mentions that the calculation of the 10% of the Capital Gain shall be before resorting to indexation .....

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hose assets is kept out of the benefit of the second proviso. A set of securities of those to whom the second proviso to section 48 applied that had been kept out of the purview of the second proviso by the third proviso, have been brought in for relief. This does not justify an interpretation that what is covered by the first proviso to Section 48 of the Act is also brought in for a second line of protection. 5.4 It is submitted that Before giving effect to connotes that effect has otherwise to .....

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overed by the first proviso to Section 48 and the assets specified in the proviso to Section 112 itself. 6. We have considered the submissions of both the Applicant and the Revenue. 6.1 It is seen from the submissions of the Revenue that, though it has raised objections to the arguments taken by the Applicant in support of its case for a lower rate of tax, the Revenue acceptsin its written submissions as well as during the course of these proceedings, that this issue was covered by the case of C .....

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that the benefit of proviso 112(1) is available to a non-resident on sale of equity shares in question. We have also considered the rejoinder filed by the Applicant to the objections taken by the Revenue, and it is seen that the thrust of its argument hinges largely upon the decision of the Hon ble High Court of Delhi in the case of Cairn UK. 6.2 In Cairn UK Holding Limited vs. DIT, (Supra), the Hon ble High Court of Delhi had, on similar facts, held as follows: 19. Having considered the two pr .....

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ord, a non-resident assessee is entitled to benefit of the said provision. The proviso to section 112(1) of the Act does not state that an assessee, who avails benefits of the first proviso to section 48, is not entitled to benefit of lower rate of tax @ 10%. The said benefit cannot be denied because the second proviso to section 48 is not applicable. The stipulation for taking advantage of the proviso to section 112(1) is that the aggregate of long-term capital gains to the extent it exceeds 10 .....

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to pay lower rate of tax @10%. Legislature had a far easier and simpler way to deny benefit of the proviso to section 112(1) by using different words and phrases had thus been the intention. The legislature in fact did not intend to deny the said benefit. In fact it is seen that in Cairn UK case, the Hon ble High Court of Delhi also referred to in detail, and agreed with the case of Timkin France SAS (2007), 249 ITR 513 (AAR), where this Authority had agreed with the contention of the Applicant .....

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the case of non-resident as well,in spite of section 48. This issue is identical to the above case and the decision in Cairn UK is squarely applicable. Following the above decision we conclude that the benefit under Section 112(1) of the Act could not be denied to the Applicant. We have been following this line in several cases and more recently in the case of Pan-Asia iGate Solutions, Mauritius, In Re 2014 SCC Online AAR 13. 7. On the second question, the Applicant has submitted that the expen .....

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the transfer and therefore, the deduction of the same ought to be granted to the Applicant in terms of Section 48 of the Act. In this connection, reliance has been placed on the following judgments: Sassoon J David & Co. Pvt. Ltd. vs. CIT, 1979 (3) SCC 524 (SC); CIT vs. ShakuntalaKantilal, (1991) 190 ITR 56 (BHC); CIT vs. P. Rajendran (1981) 127 ITR 810 (Ker); S.M. Wahi vs. DIT, (2010) 324 ITR 269 (DHC); CIT vs. Bradford Trading Co. Pvt. Ltd. vs. DCIT (2003) 261 ITR 222; and VA Vasumathi vs .....

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