2001 (3) TMI 250 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of capital gains on transfer of shares.
2. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Netherlands.
3. Validity of the assessment order and related procedural issues.

Summary:

1. Deletion of Addition on Account of Capital Gains on Transfer of Shares:
The Revenue's appeals were against the deletion of additions made by the AO on account of capital gains from the transfer of shares held by the assessee-companies (General Electric Company Plc., UK, English Electric Company Ltd., UK, and Associated Electrical Industries Ltd., UK) to GEC Alsthom N.V., a Netherlands-based company. The AO had computed taxable capital gains based on stock exchange quotations, as the assessee-companies did not disclose the precise consideration for the transfer. The CIT(A) deleted these additions, accepting the assessee's arguments that the transfer did not result in taxable capital gains under s. 45(3) and was exempt under various judicial precedents and the DTAA between India and Netherlands. However, the ITAT held that the transfer of shares constituted a taxable event under s. 45(1), and the consideration received (shares in GEC Alsthom NV) was indeed subject to capital gains tax. The ITAT restored the AO's order, rejecting the CIT(A)'s reliance on judicial precedents and the argument that the transaction was exempt under s. 45(3).

2. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Netherlands:
The assessee-companies argued that the capital gains from the transfer of shares were exempt from Indian taxation under Art. 13 of the Indo-Netherlands DTAA, claiming they were residents of the Netherlands due to their business operations and tax liabilities there. The ITAT examined the provisions of the Indo-UK DTAA and Indo-Netherlands DTAA, concluding that the assessee-companies were residents of the UK for tax purposes, as their place of effective management was in the UK. The ITAT held that the capital gains were taxable in India under the domestic law, as the provisions of the Indo-UK DTAA did not protect the capital gains from Indian taxation.

3. Validity of the Assessment Order and Related Procedural Issues:
The assessee-companies raised cross-objections, arguing that the assessment orders were time-barred and that the AO had erred in determining the previous year as the calendar year 1991 instead of the financial year ending 31st March 1991. The ITAT found no merit in these objections, noting that the assessment orders were passed within the statutory time limit and that the mention of 31st December 1991 was an inadvertent typing error, which did not invalidate the assessment under s. 292B. The ITAT dismissed the cross-objections, upholding the validity of the assessment orders.

Conclusion:
The ITAT allowed the Revenue's appeals, restoring the AO's additions on account of capital gains, and dismissed the assessee-companies' cross-objections, affirming the validity of the assessment orders.