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TMI Blog2020 (3) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh Cay Tel is a limited partnership formed in the Cayman Islands and tax resident of Cayman Islands. Certain USA trusts (together referred to as the "Wadhwani Trusts") held 22.10 per cent. of the share capital of STC in the aggregate. STG, STG II, STG III, Cay Tel and the Wadhwani Trusts are (hereinafter referred to as the "STG Group" or the "applicant"). 2. STC is the holding company of Symphony Teleca Services Inc., a company incorporated in the USA (hereinafter referred to as "STSI"). 3. Symphony Teleca Corporation India Private Ltd. (STCIPL), a company incorporated under the Companies Act, 1956 is a wholly owned subsidiary of Global Symphony Technology Private Limited, Mauritius (SSC Mauritius), which in turn is a wholly owned subsidiary of STSI. STCIPL is a limited risk captive software development unit of STSI and is compensated on a cost plus appropriate mark up for the services rendered. 4. During the financial year 2014-15 STCIPL has entered into share purchase agreement to acquire 99.63 per cent. of the shares of Aditi Technologies Private Limited (Aditi) an Indian company from its existing shareholders. STCIPL has received an in-principle approval from the Reserve Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares or interest derives, directly or indirectly, its value substantially from the assets located in India. Accordingly, post amendment a share of a foreign company will be deemed as an asset situated in India if it derives substantial value from assets located in India, transfer for such shares will be chargeable to tax as "capital gains" in India. "9. Income deemed to accrue or arise in India.-(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 : Explanation 5.-For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India : The following Explanations 6 and 7 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation 5 to section 9(1)(i) of the Income-tax Act, the asset value of the Indian is only 29.3 per cent. to 31 per cent. of the total assets, as such the transaction would not be taxable in India. The applicant had relied on the following case law to drive home the point that the term "substantial interest" means 51 per cent. of the voting power (CIT v. Amrutanjan Ltd. [1964] 53 ITR 218 (SC) and DIT (International Tax) v. Copal Research Ltd. [2015] 371 ITR 114 (Delhi). 12. It is submitted that though the full details and particulars of these calculations have been given to the Revenue, the same have not been in any way disputed or challenged by the Revenue. 13. The applicant submits that, however, the matter has been overtaken by the recent ruling of this hon'ble authority in the case of GEA Refrigeration Technologies GmbH, In re [2018] 401 ITR 115 (AAR) (AAR No. 1232 of 2012), which squarely covers the present case in favour of the applicant. GEA Refrigeration was a case where the shares of a foreign company were transferred in 2010, and the very same issue arose, viz., whether the transfer gave rise to a capital gain taxable in India. On the unchallenged assumption that ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act. 18. In this case, the shares of STC (USA) held by the THLPV, solely as representative for the holders of securities of STC (including certain members of the applicant), have entered into an agreement and plan of merger for the transfer of its entire shareholding to STC, Harman International Industries Incorporated, the buyer. The share transaction, in this case is between two non-resident entities STC USA and STG Group involving the shares of STC. The said transaction between two foreign entities is primarily not liable for any taxation in India. However, in this shares of (STC USA) are transacted, which had a presence in India in the form of a subsidiary, M/s. Symphony Teleca Corporation India Private Limited (STCIPL). STCIPL is the wholly owned subsidiary of Global Symphony Technology Group Private Limited, Mauritius. The ultimate holding company of the Indian entity is STC(USA), whose shares are transacted. 19. It is a fact that during 2012 to 2016, the word "substantially" appearing in Explanation 5 to section 9(1)(i) of the Income-tax Act was not defined in the Act and it was subject matter of scrutiny of the courts in number of cases, i. e., DIT (International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the amending Act is declaratory, it would not be so construed when the preamended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law when the Constitution came into force, the amending Act also will be part of the existing law." 21. In view of above and the fact that the learned authorised representative has averred that STC's Indian assets are less than 31 per cent. of its world assets, we are of the view that the capital gain arising on the transfer of the STC shares is not taxable in India under section 9(1)(i) of the Income-tax Act. 22. The Revenue may however, verify the computation furnished by the applicant as per rule 11B and rule 11UC. It is reiterated that the ruling is given based on the facts and figures presented before us and if sub-sequently 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. 23. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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