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2011 (5) TMI 561 - AAR - Income TaxAdvance ruling - transfer of shares would be voluntarily and without any consideration, the applicants, GTRC and GOCPL desire to know their tax liabilities under the Income Tax Act, 1961 - The possibility of applicant Held that - The transferor improving its overall business by virtue of re-organization and the mere possibility or chance of the applicant making better returns in the near or distant future as a consequence of reorganization can hardly be regarded as a consideration accruing or arising to the transferor when he has no right to receive a definite or an ascertainable amount or benefit from the transferee - As GIL is a company in which public is substantially interested and its shares are listed on BSE, any income arising from the transfer of the shares (long-term capital asset) are otherwise exempt under section 10(38) of the Act. The revenue has not challenged the averments made on behalf of the applicant and its application on the facts of the case - As there is no income liable to tax in the hands of the applicant, the provision of section 92 to 92F of the Act will not be applicable and the transfer pricing provision in Chapter X are not attracted - When the income is not chargeable to tax as per the finding recorded above, the question of withholding of tax does not arise - All questions are answered in the affirmative, and ruled accordingly
Issues Involved:
1. Tax liability under Section 45 read with Section 48 of the Income Tax Act, 1961. 2. Applicability of transfer pricing provisions under Sections 92 to 92F of the Act. 3. Obligation to deduct tax under Section 195 of the Act. 4. Tax liability under Section 56 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Tax Liability under Section 45 read with Section 48 of the Income Tax Act, 1961: The applicant, Goodyear Tire & Rubber Company (GTRC), proposed to transfer its 74% shares in Goodyear India Limited (GIL) to Goodyear Orient Company (Private) Limited (GOCPL) without any consideration. The ruling examined whether this transfer would attract tax under Section 45 read with Section 48 of the Income Tax Act, 1961. The applicant argued that since the transfer was voluntary and without consideration, it should not amount to a "transfer" under Section 45, especially when read with Section 47(iii) of the Act, which excludes gifts from the definition of transfer. The ruling referenced previous cases such as Amiantit International Holding Ltd and Dana Corporation, concluding that no profit or gain would accrue from the transfer as no consideration was received. Consequently, the mechanism to charge capital gains tax under Section 48 fails, and the transfer does not attract tax under Section 45. 2. Applicability of Transfer Pricing Provisions under Sections 92 to 92F of the Act: The ruling determined that since no consideration was involved in the transfer of shares, no income would arise, and thus, the transfer pricing provisions under Sections 92 to 92F would not be applicable. The absence of a tax liability negates the applicability of these provisions. 3. Obligation to Deduct Tax under Section 195 of the Act: Given that no income arises from the transfer of shares, the ruling concluded that GTRC is not required to withhold tax under Section 195 of the Act. This conclusion also applies to GOCPL, as the recipient of the shares, which is not obliged to withhold tax under the same section. 4. Tax Liability under Section 56 of the Income Tax Act, 1961: The ruling addressed whether GOCPL would be liable to tax under Section 56(2)(viia) of the Act, which pertains to income from other sources. It was established that GIL is a publicly traded company on the Bombay Stock Exchange, and thus, the shares received by GOCPL do not fall under the purview of Section 56(2)(viia). The ruling held that there is no income liable to tax in India within the meaning of this provision. Conclusion: The ruling answered all questions in the affirmative, concluding that no tax liability arises from the proposed transfer of shares by GTRC to GOCPL. The provisions under Sections 45, 48, 92 to 92F, and 195 of the Income Tax Act, 1961, are not applicable to this transaction. The ruling was pronounced on 2nd May 2011.
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