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2011 (5) TMI 239 - AAR - Income TaxTransfer of shares - Taxable or not - the applicant, Deere & Company, USA, is a foreign company incorporated under the laws of the USA. It has worldwide subsidiaries -John Deere India Private Limited (JDIPL) is a company incorporated in India and is a subsidiary of the applicant - Hence, unable to perceive as to how any profit or gain has accrued or arisen to the applicant by virtue of the transfer of shares to its subsidiary company - It is not possible to identify or pinpoint anything which has the characteristic of profit or gain or any consideration which is capable of being valued in praesenti - the income in the sense of profit and gain should be real but not hypothetical income - Decided in favour of assessee. Arm s length price - The transfer of share VNU International to IMS AG is not liable to be taxed in India and also does not attract the transfer pricing provisions of sections 92 to 92F of the Act. TDS - transfer of shares is not taxable in India and therefore deduction of tax does not arise. Return - In the recent rulings in VNU International B.V. s case and ABC, 2011 -TMI - 202806 - AAR (INCOME-TAX) NEW DELHI has held that when there is chargeability under the Income-tax Act notwithstanding that no tax may be payable, there is an obligation to file a return under section 139 of the Act - Thus, the applicant is bound to file the return.
Issues Involved:
1. Taxability of the transfer of shares without consideration under the Income-tax Act. 2. Applicability of transfer pricing provisions under sections 92 to 92F of the Income-tax Act. 3. Requirement for the recipient to withhold tax under section 195 of the Income-tax Act. 4. Obligation to file a return of income under section 139 of the Income-tax Act if the transfer is not taxable. Detailed Analysis: Issue 1: Taxability of the Transfer of Shares Without Consideration The applicant, a foreign company, transferred its shares in JDIPL to John Deere Asia (Singapore) without consideration, claiming it as a gift, and argued that no capital gains tax is applicable under section 45 read with section 47(iii) of the Income-tax Act. The applicant contended that the transfer of shares as a gift does not generate any profit or gain, and hence, it falls outside the ambit of section 45. The ruling cited the Supreme Court's decision in CIT v. B.C. Srinivasa Setty, which emphasized that for a transaction to be taxable under section 45, it must result in identifiable profit or gain. The Authority concluded that since the transfer was a gift, no profit or gain arose, and thus, it was not taxable. Issue 2: Applicability of Transfer Pricing Provisions The applicant argued that sections 92 to 92F, which deal with transfer pricing, apply only when income is chargeable to tax. Since the transfer of shares as a gift does not result in any income, these provisions are not applicable. The Authority referred to previous rulings, including Vanenburg Group B.V., Praxair Pacific Ltd., and Goodyear Tire & Rubber Co., which supported the view that transfer pricing provisions do not apply in the absence of taxable income. Consequently, the Authority ruled that sections 92 to 92F were not applicable to the transaction. Issue 3: Requirement for the Recipient to Withhold Tax The applicant argued that since the transfer of shares was not taxable in India, there was no requirement for the recipient to withhold tax under section 195 of the Income-tax Act. The Authority agreed with this argument, citing that without taxability, the withholding provisions do not come into play. Thus, it was ruled that the recipient was not required to withhold tax. Issue 4: Obligation to File a Return of Income The applicant contended that if the transfer of shares is not taxable, there should be no obligation to file a return of income under section 139 of the Income-tax Act. However, the Authority referred to recent rulings, including VNU International B.V. and ABC, which held that there is an obligation to file a return if there is chargeability under the Act, even if no tax is payable. Therefore, the Authority ruled that the applicant is required to file a return of income. Conclusion: The Authority ruled as follows: - Question 1: The transfer of shares without consideration is not taxable under the Income-tax Act. - Question 2: Transfer pricing provisions under sections 92 to 92F do not apply to the transaction. - Question 3: The recipient is not required to withhold tax under section 195. - Question 4: The applicant is obligated to file a return of income under section 139.
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