9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (3) TMI 1325 - AAR - Income TaxIncome deemed to accrue or arise in India - Capital gain on sale of shares - can section 9(1)(i) at all be applied and tax charged on the transaction in the absence of the requisite rules having been framed for the purposes of implementing section 9(1)(i) of the Income-tax Act 1961 as on the closing date ? - withhold tax u/s 195 on acquisition of shares - HELD THAT - 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. 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 Tax) v. Copal Research Ltd. 2014 (8) TMI 606 - DELHI HIGH COURT GEA Refrigeration Technologies GmbH 2018 (1) TMI 945 - AUTHORITY FOR ADVANCE RULINGS NEW DELHI and Banca Sella S.P.A. In re 2016 (9) TMI 163 - AUTHORITY FOR ADVANCE RULINGS NEW DELHI and it was uniformly held that substantially will mean at least 50 per cent. This position was also clarified by Explanation 6 which was brought in to the statute after recommendation of Expert Committee under Dr. Shome on this issue was accepted by Government and Circular No. 19 of 2015 dated November 11 2015 affirmed this position. AR 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. 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. The transfer of shares of STC by STG is not chargeable to tax in India under the provisions of section 9(1)(i) of the Income-tax Act. The buyer is not required to withhold tax u/s 195 of the Act on acquisition of shares of STC from STG.
Issues Involved:
1. Applicability of Section 9(1)(i) of the Income-tax Act, 1961. 2. Determination of whether the transfer of shares of Symphony Teleca Corporation (STC) constitutes an indirect transfer of shares under Section 9(1)(i). 3. Obligation of the buyer to withhold tax under Section 195 of the Income-tax Act. Issue-wise Detailed Analysis: 1. Applicability of Section 9(1)(i) of the Income-tax Act, 1961: The applicant contended that Section 9(1)(i) of the Income-tax Act, 1961, amended retrospectively by the Finance Act, 2012, and further clarified by Explanation 5, deems a share of a foreign company as an asset situated in India if it derives substantial value from assets located in India. The applicant argued that the retrospective amendment is not applicable as there was no mechanism in the Act or Rules to compute the fair market value of the Indian assets at the time of the transaction, rendering the provisions of Section 9(1)(i) impractical. The applicant cited Supreme Court decisions (CIT v. B. C. Srinivasa Setty, PNB Finance Ltd. v. CIT, and CIT v. H. H. Lokendra Singh) to support the argument that if the computation provision is absent, the case should not fall within the charging section. However, the applicant did not press this argument further after the notification of rules 11UB and 11UC. 2. Determination of whether the transfer of shares of STC constitutes an indirect transfer of shares under Section 9(1)(i): The applicant argued that even if Explanation 5 to Section 9(1)(i) is applicable, the value of the Indian assets is only 29.3% to 31% of the total assets, which is less than the 50% threshold required for the transaction to be taxable in India. The applicant relied on the case law (CIT v. Amrutanjan Ltd. and DIT (International Tax) v. Copal Research Ltd.) to assert that "substantial interest" means at least 51% of the voting power. The applicant also referenced the ruling in GEA Refrigeration Technologies GmbH, where the Authority for Advance Rulings held that a share transfer did not give rise to a capital gain taxable in India as the value of Indian assets was less than 50% of the global assets. The Revenue, however, questioned the valuation report's assumptions and requested the liberty to take action if discrepancies were found later. 3. Obligation of the buyer to withhold tax under Section 195 of the Income-tax Act: The applicant contended that if the transfer of shares is not taxable in India, the provisions of Section 195 would not apply, and the buyer should not be required to withhold any taxes. The Revenue argued that the Finance Act, 2012, introduced provisions to tax indirect transfers of Indian assets, deeming shares or interests in foreign companies as situated in India if they derive substantial value from Indian assets. The Revenue highlighted that the valuation report did not provide the basis for assumptions, making it inconclusive whether the value of Indian assets was less than 50%. Judgment: The Authority for Advance Rulings concluded that the capital gain arising from the transfer of STC shares is not taxable in India under Section 9(1)(i) as the value of Indian assets is less than 50% of the global assets. The ruling is based on the facts and figures presented, and if subsequent verification reveals that the actual percentage exceeds 50%, the ruling would not apply, and the Revenue would not be bound by it. Consequently, the buyer is not required to withhold tax under Section 195 on the acquisition of shares of STC from STG. Summary of Answers to Questions: 1. Not pressed. 2. The transfer of shares of STC by STG is not chargeable to tax in India under Section 9(1)(i). 3. The buyer is not required to withhold tax under Section 195 on the acquisition of shares of STC from STG.
|
