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2016 (1) TMI 791 - AAR - Income TaxInvestment in equity shares of Dow Agrosciences India Private Limited - whether would be considered as capital asset under section 2(14) of the Act? - whether capital gains arising from the proposed transfer of shares of DAS India by the Applicant to DAS Singapore (a company proposed to be incorporated in Singapore), would be subject to tax in India? - Held that - There is no material before us to hold that the applicant has a PE in India and therefore, the income arising out of the transfer of shares should be treated as business income. We are unable to accept the claim of the Revenue regarding the PE. Once that objection is rejected, then the only relevant clause which remains for our consideration is Article 13(4) which is clear in itself. We have already recorded a finding on the PE that the applicant does not have any office, employees or agents in India nor does it have a permanent place from where it operates from India. These assertions of the fact have not been traversed by the Revenue even at the cost of repetition that there is no material before us to hold that the applicant has any PE in India. In that view even if the gains that the applicant makes from the proposed transfer are treated as business income, even then there will be no question of taxation on those gains. Application of Section 115JB - Held that - With effect from 1.4.2015, the provisions of section 115JB would not be applicable to foreign company if the foreign company is a resident of a country having DTAA with India and such foreign company does not have a PE within the definition of the term in relevant DTAA or to the foreign company which is a resident of a country which does not have a DTAA with India and such foreign company is not required to seek registration under section 592 of the Companies Act, 1956 or section 380 of the Companies Act, 1956. It is clear that the present applicant is clearly covered as it is a company in Mauritius, which country has DTAA or as the case may be DTAC with India. Again we have already given a finding that the applicant does not have a PE in India. As such we answer this question in favour of the applicant holding that there will be no applicability of section 115JB to the applicant. Applicability of the provisions of Section 92 to 92F - - Held that - Unless the transaction is taxable in India, there would be no application of Sections 92 to 95. Section 92 is not an independent charging section and would be applicable only if there is any chargeable income arising from the international transaction. In the present case even though the proposed transfer of shares could result in income/capital gain from the international transaction since this income is not chargeable to tax in India in accordance with Article 13, there will be no question of the applicability of section 92 to 92F. Applicability of section 195 - Held that - The capital gains earned out of proposed transaction are not taxable there will be no question of the applicability of section 195 of the Act. As per the Ruling of the Hon ble Supreme Court in Transmission Corporation of AP Ltd. vs. CIT 1999 (8) TMI 2 - SUPREME Court . Requirement to file return of income under section 139 - Held that - No applicability of section 139(1) of the Act to the present applicant
Issues Involved:
1. Whether the investment held by the Applicant in equity shares of DAS India would be considered as 'capital asset' under section 2(14) of the Act. 2. Whether capital gains arising from the proposed transfer of shares of DAS India by the Applicant to DAS Singapore would be subject to tax in India. 3. Whether the gains arising to the Applicant from the proposed transfer of equity shares of DAS India will be taxable in India in the absence of a Permanent Establishment (PE) of the Applicant in India. 4. Whether the Applicant would be liable to pay minimum alternate tax under the provisions of section 115JB of the Act. 5. Whether the provisions of section 92 to section 92F of the Act relating to transfer pricing would be applicable. 6. Whether the sale consideration receivable by the Applicant should suffer any withholding tax as per section 195 of the Act. 7. Whether the Applicant is required to file any return of income under section 139 of the Act if the proposed transfer of shares of DAS India is not taxable in India. Detailed Analysis: Issue 1: Capital Asset Classification The Applicant contended that its investment in DAS India should be considered as a 'capital asset' under section 2(14) of the Act. The Applicant relied on various CBDT instructions and judicial precedents, including G. Venkata Swami Naidu and Company vs. CIT and Raja Bahadur Kamakhya Narain Singh vs. CIT, to argue that the shares were held as a long-term investment and not as stock in trade. The Authority agreed with the Applicant, classifying the shares as capital assets based on the accounting, intention, and quantum tests. Issue 2: Taxability of Capital Gains in India The Applicant argued that capital gains from the proposed transfer of shares to DAS Singapore would not be taxable in India due to the India-Mauritius DTAA, specifically Article 13(4). The Applicant relied on judicial precedents, including UOI vs. Azadi Bachao Andolan and CIT vs. Paul Kulangal Chettiyar, which support the application of DTAA provisions over domestic law when more beneficial. The Authority concurred, ruling that the capital gains would not be taxable in India due to the DTAA. Issue 3: Permanent Establishment (PE) The Applicant claimed it had no PE in India, supported by a Tax Residency Certificate and declarations of no office, employees, or agents in India. The Revenue failed to provide evidence to the contrary. The Authority accepted the Applicant's position, ruling that there was no PE in India, and thus, the gains would not be taxable as business income. Issue 4: Minimum Alternate Tax (MAT) The Applicant argued that section 115JB, which imposes MAT, would not apply. The Authority referenced a Supreme Court ruling and a government circular clarifying that section 115JB does not apply to foreign companies without a PE in India. The Authority ruled in favor of the Applicant, stating that MAT provisions would not apply. Issue 5: Transfer Pricing Provisions The Applicant contended that sections 92 to 92F would not apply if the transaction was not taxable in India. The Authority agreed, stating that transfer pricing provisions are not independent charging sections and would not apply in the absence of taxable income in India. The Authority relied on rulings in Dana Corporation, Praxair Pacific Limited, and Vanenburg Group B.V. vs. CIT. Issue 6: Withholding Tax under Section 195 Given the ruling that the capital gains were not taxable in India, the Authority held that there would be no requirement for withholding tax under section 195, referencing the Supreme Court ruling in Transmission Corporation of AP Ltd. vs. CIT. Issue 7: Filing Return of Income under Section 139 The Revenue argued that the Applicant would be required to file a return under section 139. The Applicant relied on rulings in FactSet Research Systems Inc. and Vanenburg Group B.V. vs. CIT, which held that there would be no obligation to file a return if there was no tax liability. The Authority agreed with the Applicant, ruling that there was no requirement to file a return under section 139. Conclusion: The Authority ruled in favor of the Applicant on all issues, concluding that the proposed transfer of shares would not be taxable in India, there would be no MAT liability, transfer pricing provisions would not apply, no withholding tax would be required, and the Applicant would not need to file a return of income.
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