TMI Blog2018 (3) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... the Applicant : Mr. Dhanesh Bafna, CA Mr. Nimesh Shan, CA For the Department : Ms. Kavita Pandey, CIT (DR), AAR Mr. G.N. Makwana, Addl. CIT (IT) RULING ( By Ashutosh Chandra) The present Application for Advance Ruling has been filed by the Applicant under Section 245Q(1) of the Income Tax Act, 1961 (the Act ) on 27.09.2012, and the same was admitted on 21.01.2015. The Applicant is a Company registered in Finland. It is stated that the control and management of affairs of the Applicant is situated outside India and therefore, it qualifies as a non- resident company under the provisions of the Act. 2. The Applicant is a development finance company, which provides long-term risk capital for private projects. It is owned by the Government of Finland, Finnvera Plc and the Confederation of Finnish Industries. It is stated by the applicant that it does not actively trade in public / private stocks of companies in the Indian capital markets, but pursues a long- term, growth oriented strategy with respect to investments. The applicant had acquired 21,25,005 shares of Andhra Pradesh Paper Mills Limited (APPML), an Indian listed company, under the Foreign Direct Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, pursuant to an open offer, required to be computed at 10.506% as per the proviso to section112(1) of the Income tax Act, 1961 4. The Applicant submits that it is entitled to the benefit of proviso to Section 112 (1) read with section 112(1)(c) of the Act which provides a concessional rate of tax at 10.506 % (inclusive of surcharge and cess) for any income arising to a non-resident assessee from transfer of long term capital asset, being listed securities or unit or zero coupon bond. It is further submitted that the equity shares qualify as a Long-term Capital Asset (as defined under section 2(29A) read with proviso to section 2(42A) of the Act), as they have been held for a period of more than 12 months in terms of Section 112(1) read with Section 48 of the Act. It is contended that the LTCG accruing to the Applicant from sale of equity shares held in APPML would be taxable at 10.506% (inclusive of surcharge and cess) as per the proviso to section 112(1) since it is a non resident; the equity shares sold by it are listed in the NSE and BSE; and the equity shares of APPML were held as investment for more than 12 months. 4.1 It is submitted that the expression before gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion of first proviso to Section 48 is discernible from the explanatory notes on the Direct Tax Laws (Second Amendment) Act, 1989. She submitted that this was done to overcome the difficulty faced by non-resident Indians who invest in shares and debentures of Indian companies and who were adversely affected by the fall in the value of the Indian rupee vis-a-vis the foreign currency in which the investment is made by them, when they sell such shares or debentures. The current first proviso to Sec 48 of the Income-tax Act,1961 was inserted by the Finance Act,1992, which re-casted the system of taxation of long-term capital gains, when the concept of cost inflation index was brought about. Relevant extract of the Circular No. 636, dated 31-8-1992 explaining the amendment has been quoted to clarify this. It is stated that the intention of the legislature in bringing the current version of proviso to Sec 48 was to extend the relief from non resident Indians to all non residents. However, it was explicitly mentioned that no further benefit of indexation would be made available to those non residents, i.e the earlier benefit of deduction under Sec 48(2) was withdrawn from the Non residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rule of Harmonious Construction needs to be adopted. The Rule follows a very simple premise that every Statute has a purpose and intent as per law and should be read as a whole. At this point, mention has also been made of the decision of the Hon ble Supreme Court in the case of Rameshwar Lal Sanwarmal 1980 AIR 372. 5.7 In conclusion it is submitted that the intent of the Legislature in inserting the proviso to Section 112 was to give an option to resident investors towards rate of taxation, if they chose to compute their LTCG without taking the benefit of second proviso to Section 48. If they chose to take advantage of cost inflation index, then the provisions of Section 112(1)(a)/(b)/(d) would apply. To include the class of non-residents within the ambit of proviso to Section 112 will tantamount to rendering Section 112(1)(c) infructuous. Further, while inserting the proviso to Section 112, the Legislature has not omitted or amended Section 112(1)(c) of the Act, which is a significant fact to be borne in mind. 5.7.1 The proviso to Section 112 envisages a situation where the tax payable on the long term capital gains exceeds 10% of the amount of such capital gains before g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to s. 48 means before giving effect to the second proviso wherever it is applicable; but the non- applicability of the second proviso will not preclude the applicant to avail the relief of lower rate of tax of 10 per cent. 6.2 It is contended that in the case of non-residents, the proviso to section 112(1) only limits the rate of tax on the gains from the transfer of listed securities to 10 per cent, with a pre-condition that the quantum of capital gain is to be arrived at without taking into account the formula laid down in the second proviso to section 48 based on the indexed cost of a acquisition. It does not deny the concessional rate of tax to the category of assesses who are not eligible to have the benefit of indexed cost of acquisition under the second proviso. The words before giving effect to the provisions of second proviso to s. 48 cannot be construed as the words of exclusion of a category of assesses, i.e. non-resident who cannot avail of indexation benefit. If it is interpreted that these words pre- suppose the eligibility to avail the benefit of indexed cost of acquisition, then this interpretation renders the provision otiose. 6.3 The Applicant reiterate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Timken France SAS in detail, wherein also many of the arguments made by the Revenue were taken into account, and not agreed to. In fact, the Hon ble High Court observed that in Cairn UK this Authority had adopted the intent or purposive interpretation of the provisions contained in sections 48 and 112, whereas in Timken France SAS the literal interpretation rule was applied. After examining the provisions and the two Rulings, the Hon ble High Court endorsed the literal interpretation adopted by us in Timken France SAS, and categorically stated at para 20 that the language of the section syntactically and grammatically mandates only one interpretation and therefore, there is no need to go into the purposive interpretation or intention of the legislature. 7.3 The Hon ble High Court of Delhi further observed that similar contention of the Revenue by relying on the Circular of CBDT or the Explanatory Memoranda were made in the case of Timken France SAS (supra). In this regard, paras 27 and 28, read as under: 27. Similar contention was raised on behalf of the Revenue in the case of Timken France SAS (supra) but was rejected observing that the circular of the Central Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity shares of APPML will be 10.506% (including cess and surcharge) of the amount of capital gains as per the proviso to Section 112(1) of the Act. The decision in Cairn UK is squarely applicable. 7.6 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 provisions i.e. section 48 and section 112(1) of the Act, the reasoning given in the case of the petitioner and in Timken France SAS (Supra), we are inclined to accept the legal position approved and accepted in Timken France SAS. Our reasons are elucidated below. 20. Language of proviso to section 112(1) syntactically and grammatically mandates one interpretation. If one squarely focuses and orates the words used in the proviso and interprets them without extracting or subtracting any phrase or word, 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 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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