TMI Blog2020 (3) TMI 1313X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in India, whether the income arising to the persons specified in Annexure III from the trans for of shares in AIS to the applicant would be subject to tax in India ? - HELD THAT:- In agreement with the view of learned authorised representative that Explanation 6 is clarificatory in nature and would apply retrospectively. Similarly, Explanation 7 inserted to address the genuine concerns of small shareholders would also apply retrospectively to give meaning in true sense and to render indirect transfer provisions contained in Explanation 5 to section 9(1)(i) of the Income-tax Act workable. AR has indicated that as per the valuation report obtained from the independent valuer the value of shares of AIS derived directly or indirectly from assets located in India is 26.38 per cent., i. e., less than 50 per cent. In view thereof the income from transfer of shares in the hands of transferors is not subject to tax in India. Applicants and Seowyan Investments are based in Cayman Islands with whom India does not have comprehensive DTAA. Also, in the case of Pacific Ace Development Limited, a resident of Hong Kong with whom the comprehensive DTAA came into force in respect of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no liability under section 195 of the Income-tax Act of the Moody's Analytics Knowledge Services (Jersey) Limited to withhold taxes in respect to the payment made to transferor of shares. - A. A. R. Nos. 1555, 1556, 1557, 1558, 1559, 1560, 1561, 1562, 1563 and 1564 of 2013. - - - Dated:- 18-3-2020 - G. Chockalingam J. (Vice-Chairman), Kishore Kumar Vyawahare Member Revenue And Inder Kumar Member Law For the Applicant : Rajan Vora and Rishab Jalan , Chartered Accountants For the Department : Smt. S. Padmaja , Commissioner of Income-tax, Departmental representative, and K. V. Aravind , Special Counsel RULING 1. Applicant No. 1 is buyer and applicant Nos. 2 to 10 are sellers of the shares of Amba Investment Services Limited ( AIS ), a private limited company, under the laws of the British Virgin Islands ( BVI ) and being part of same transactions, the Ruling is pronounced by way of combined order. 2. Moody's Analytics Knowledge Services (Jersey) Limited (earlier known as Copal Partners Limited and called buyer here), is a company incorporated under the laws of Jersey with its registered office at Ogier House, the Esplanade, St. Helier, Jerse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 Mary Gerard Berner 163,214 2.89 per cent. 3.01 per cent. Individual USA 6 Michael John Millar 6,780 0.12 per cent. 0.13 per cent. Individual UK 7 Pacific Ace Development Limited 28,571 0.51 per cent. 0.53 per cent. Foreign company Hong Kong 8 Seowyan Investments 91,035 1.61 per cent. 1.68 per cent. Foreign company Cayman Islands 9 Shirley Renwick 43,705 0.77 per cent. 0.81 per cent. Individual UK * At the beginning of the 12 months prior to the date of transfer, Michael Joseph Moriarty was holding 6.02 per cent. in Amba BVI (as shown in the table above). However, as on the date of transfer (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. In AAR/1556/2013 to AAR/1564/2013 ruling is initially sought below mentioned two questions : I. As the shares of AIS directly arid indirectly derive less than 50 per cent. of their value from assets located in India, whether the income arising to the applicant upon transfer of shares in AIS would be subject to tax in India ? II. If the answer to question No. 1 is in the affirmative, what is the rate at which the income arising to the applicant upon transfer of shares in AIS would be subject to tax in India ? 6. After filing of applications in December 2013, the Finance Act, 2015 introduced Explanations 6 and 7 to section 9(1)(i) of the Income-tax Act, 1961 ( Act ) to clarify the particular situations to which Explanation 5 to section 9(1)(i) of the Act would apply. In the light of the aforesaid amendments, the sellers and the buyer filed two additional questions to the application on September 4, 2015. The two additional questions are : I. Whether, having regard to Explanation 7(a) to section 9(1)(i) of the Act, the income arising to the applicant upon transfer of shares of AIS would be taxable in India where the applicant- (i) Along with her associated en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, whether the income arising upon trans fer of shares in AIS would be subject to tax in India ? III. If the answer to question No. 2 is in the affirmative, what is the rate at which the income arising to the applicant upon transfer of shares in AIS would be subject to tax in India ? IV. Whether, having regard to Explanation 7(a) to section 9(1)(i) of the Act, the income arising to the seller applicant upon transfer of shares of AIS would be taxable in India where the seller applicant- (i) Along with her associated enterprises, did not hold voting power, share capital or interest in AIS, AHI or ARI in excess of five per cent. at any time during the 12 months preceding the date of transfer of shares of AIS ; and (ii) Along with her associated enterprises has not held the right of management or control in, or in relation to, AIS or AHI or ARI, at any time during the 12 months preceding the date of transfer of shares of AIS. V. Without prejudice to other questions whether in terms of Explanation 7(b) to section 9(1)(i) of the Act, only such part of income as is attributable to assets located in India would be taxable in the hands of the applicant upon transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recommendations. These amendments were introduced in the form of Explanations to section 9(1)(i), explaining the scope and impact of the indirect transfer provisions. 12. It is argued that since these amendments provided the necessary machinery provisions in the absence of which implementation of the indirect transfer provisions as set out in Explanation 4 and 5 to Explanation 7 to section 9(1)(i) they should be applied with retrospective effect. 13. Further, it is submitted that whenever there is any ambiguity in interpretation of law and to remove the said ambiguity, any amendment is proposed by Parliament, even if prospectively, then the same should be treated as remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to taxpayers, the same should be construed as retrospective in operation. In this regard, reliance is placed on the hon'ble Supreme Court decision in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 (SC) and the decision of the apex court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC). 14. It is urged that applying the above principle to the facts of the case under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare capital or interest in Amba Mauritius or Amba India in excess of 5 per cent. nor any right of management or control in Amba BVI, Amba Mauritius and Amba India during the twelve months preceding the date of transfer, i. e., December 10, 2013 along with copy of extract of the register of members of Amba BVI along with summary of shareholding was filed. 18. In continuation of his arguments, learned authorised representative has prayed that Explanation 7(b) (which was also introduced into the statute by the Finance Act, 2015 under the same category of being clarification relating to indirect transfer provisions as Explanation 6) is also to be applied retrospectively. 19. Without prejudice to what is stated above, it is submitted that Explanation 7(b) addresses the concern of taxpayers to clarify that, where the foreign company holds other assets outside India besides assets located in India, only reasonably attributable to asset located in India will be taxable in India. It is pleaded that there does not seem to be a reason why Legislature would have wanted taxation of the whole of the gains (rather than gains reasonably attributable to asset located in India). In similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t since the conditions discussed above are not met in the case of both Pacific Ace Development Limited and Seowyan Investments, income arising to both Pacific Ace Development Limited and Seowyan Investments being foreign companies cannot be assessed to tax under section 115JB of the Act. Revenue's contentions 24. The learned Departmental representative has mentioned that it is evident that the assessee has no objection that the receipt accrues or arises in India in the hands of the transferors. The only contention of the assessee is that the sum would not be taxable since the shares of AIS do not derive their value substantially from asset located in India. 25. Drawing attention to the valuation report submitted by the applicant, it is submitted that from the valuation report (page No. 6, in section 2 background of overview on ARI submitted by the applicant) furnished by the applicant, it can be inferred that, the revenue Growth of the Moody's Analytics Knowledge Services (India) Private Limited (formerly known as Amba Research India Private Limited, from the financial years 2014-15 to 2017-18, was projected to be on a reducing trajectory, from 24 per cent. in 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m April 1, 2016 and thus are not applicable to the applicants. 28. Referring to Explanation 7 to section 9(1)(i) of the Act it is stated that the applicant has not submitted any document to the effect that the shareholding of any of the non-resident along with its associated enterprise is below 5 per cent. For application of this clause, the shareholding pattern of individuals along with associated enterprises as per section 92A should be less than 5 per cent. 29. It is also submitted in the report of the Revenue that the Finance Act, 2016 inserted Explanation 4 to section 115JB, which is with effect from April 1, 2001 and from Explanation 4 to section 115JB, it is very much clear that section 115JB is applicable to the foreign company which have a permanent establishment in India. From the material available on record and submissions made by the applicant, the Assessing Officer is not in a position to determine whether the above mentioned foreign companies are having permanent establishment or not. Permanent establishment depends on various factors and a detailed study of the activity of the foreign companies in connection of India is required to arrive at any conclusion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutes. As stated in Craies and approved by the Supreme Court : 'For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In deter mining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 115JB are satisfied and there is no applicability of section 115 to the above referred foreign companies. Consequently, there is no liability, the buyer applicant is not required to withhold taxes in respect to the payment made to transferor of shares. 38. Considering that the Revenue had questioned the valuation methodology, the Revenue may verify the computation furnished by the applicant as per rule 11UB and rule 11UC. It is reiterated that the ruling is given on matter of principle, i. e., retrospective/prospective application of Explanations 6 and 7 and based on the figures presented before us by learned authorised representative. If subsequently it is found that the figures are at variance and the actual percentage exceeds 50 per cent., the ruling would not apply and the Revenue would not be bound by such ruling. If it is found that the actual percentage is more than 50 per cent. then the Revenue may also ascertain the shareholding of each of the seller applicants at any time in 12 months preceding the date of transfer and/or the right of management or control in relation to AIS and thereafter if need be ascertain the income reasonably attributable to non-resident transf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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