1998 (9) TMI 71 - HC - Income Tax

Summary

Issues:
1. Interpretation of rule 115 of the Income-tax Rules, 1962 in the context of capital gains taxation for a non-resident company.
2. Application of previous court judgments on similar cases to determine the eligibility of rule 115 in the current scenario.

Interpretation of Rule 115:
The case involved a non-resident company acquiring and selling shares in India, leading to a dispute over the application of rule 115 of the Income-tax Rules, 1962. The company claimed the benefit of rule 115 for computing capital gains, considering the conversion of foreign currency into Indian currency. However, the Income-tax Officer and the Commissioner of Income-tax (Appeals) rejected this claim, asserting that the income accrued in Indian currency and rule 115 was not applicable. The High Court concurred with this view, emphasizing that the sale occurred in India in Indian currency, necessitating the computation of capital gains based on the cost of shares in Indian currency.

Application of Precedents:
The court referred to previous judgments to support its decision. In the case of Asbestos Cement Ltd. v. CIT, the court held that rule 115 cannot apply when transactions occur in Indian rupees, even if the parties involved are non-residents. Similarly, in CIT v. Pfizer Corporation, it was established that income arising in Indian rupees does not fall under the purview of rule 115. Despite the assessee's reliance on CIT v. Chowgule and Company Ltd., the court distinguished the present case from the cited judgment and aligned its decision with the precedents set by Asbestos Ltd.'s case and CIT v. Pfizer Corporation.

Conclusion:
Ultimately, the High Court ruled against the assessee, upholding the decisions of the lower authorities and rejecting the application of rule 115 of the Rules. The court emphasized that the income generated from the sale of shares was in Indian currency, and the conversion into U.S. dollars did not warrant the application of rule 115. Consequently, the Income-tax Appellate Tribunal's acceptance of the assessee's claim was deemed erroneous, leading to a judgment in favor of the Revenue. The reference was disposed of with no costs, settling the dispute regarding the taxation of capital gains for the non-resident company in question.