2009 (11) TMI 32 - AAR - Income Tax

Merger of two companies transfer of shares levy of income in India held that - If by application of the provisions of Section 45 read with Section 48 which are integrally connected with each other, the income cannot be said to arise, Section 92 of the Act does not come to the aid of Revenue, eventhough it is an international transaction. The expression income in Section 92 is not used in a sense wider than or different from its scope and connotation elsewhere in the Act. Section 92 obviously is not intended to bring in a new head of income or to charge the tax on income which is not otherwise chargeable under the Act. - the transfer of shares of the three Indian companies by Dana Corporation to US Dana WC and Dana Global is not chargeable to tax as capital gains under the Income-tax Act, 1961. The first question is accordingly answered in the affirmative. The second question is answered by observing that the applicant can seek appropriate remedies under the Act for the refund of advance tax paid.

Summary

Issues Involved:
1. Taxability of the transfer of shares of Indian companies by Dana Corporation under the Income-tax Act, 1961.
2. Refund of advance tax paid if the transfer is not taxable.

Issue-wise Detailed Analysis:

1. Taxability of the Transfer of Shares:

The applicant, Dana Corporation (DC), underwent bankruptcy proceedings under Chapter 11 of the US Bankruptcy Code, leading to a reorganization plan approved by the Bankruptcy Court. As part of this plan, DC transferred its shares in three Indian companies to two US subsidiaries, Dana World Trade Corporation (Dana WTC) and Dana Global Products Inc. (Dana Global), without consideration.

The applicant sought a ruling on whether this transfer is taxable under the Income-tax Act, 1961. The Revenue argued that the transfer involved consideration, as DHC (Dana Holding Corporation) took over DC's liabilities, which should be treated as consideration for the transfer of shares. The Revenue also suggested applying transfer pricing provisions to determine the arm's length price of the shares.

The Authority examined whether profits or gains arose from the transfer under Section 45 of the Income-tax Act and whether consideration was received or accrued as per Section 48. It was concluded that no profit or gain arose from the transfer, and no consideration was received or accrued. The liabilities taken over by DHC could not be treated as consideration for the transfer of shares. The Authority also rejected the application of transfer pricing provisions, as no income arose from the transfer.

2. Refund of Advance Tax Paid:

The applicant requested a refund of advance tax paid if the transfer was not taxable. The Authority ruled that the applicant could seek appropriate remedies under the Act for the refund of advance tax paid.

Conclusion:

The Authority ruled that the transfer of shares of the three Indian companies by Dana Corporation to Dana WTC and Dana Global is not chargeable to tax as capital gains under the Income-tax Act, 1961. The applicant can seek appropriate remedies for the refund of advance tax paid.