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2010 (7) TMI 50 - AAR - Income TaxMAT - Minimum Alternate Tax - Whether MAT is applicable only to Domestic Companies - Whether MAT is applicable to foreign companies that have a physical business presence in India - Whether MAT is applicable on sale of shares of a listed company on which STT is applicable - If the provisions of MAT are applicable, whether TDS is required to be deducted u/s 195 - Held that - The income, which does not have a source in India, cannot be made part of the book profits. The annual accounts, including the P&L Account, can not be prepared as per the first proviso to section 115JB(2) in respect of the world income and laid before the company at its AGM in accordance with the provision of Section 210 of the Companies Act. The speech of Finance Minister and the memorandum explaining the provision also become out of sync if the meaning of company appearing in section 115JB is adopted as foreign company - as the applicant did not have a place of business in India it was not required to prepare its accounts under section 594 read with section 591 of the Companies Act, 1956. - That being so the applicant could not have prepared its accounts in accordance with the provisions of Part II and III of Schedule VI of the companies Act, 1956 - Section 115JB is not designed to be applicable to the case of the applicant, a foreign company, who has no presence or PE in India. - section 115JB of the Act are not applicable on the sale of shares of a listed company Timken India Limited, by the applicant, which has suffered securities transaction tax and accordingly, tax exempt under section 10(38) of the Act.
Issues Involved:
1. Applicability of Section 115JB of the Income Tax Act, 1961 (Minimum Alternative Tax or MAT) to foreign companies. 2. Applicability of Section 115JB to foreign companies without a physical presence in India. 3. Tax exemption under Section 10(38) of the Income Tax Act, 1961 for the sale of shares. 4. Withholding tax under Section 195 of the Income Tax Act, 1961 on payments made to the applicant on the sale of shares. Issue-wise Detailed Analysis: 1. Applicability of Section 115JB of the Income Tax Act, 1961 (Minimum Alternative Tax or MAT) to foreign companies: The applicant argued that MAT provisions under Section 115JB should not apply to foreign companies without a presence or permanent establishment (PE) in India. The applicant cited various legal interpretations and CBDT Circulars to support this claim. The term "company" in Section 115JB should be interpreted contextually, implying that it refers to domestic companies only. The applicant also referenced Supreme Court rulings and Finance Minister's speeches to underline that MAT was intended for domestic companies. 2. Applicability of Section 115JB to foreign companies without a physical presence in India: The applicant contended that Section 115JB requires companies to prepare their profit and loss accounts in accordance with Part II and III of Schedule VI of the Companies Act, 1956. Foreign companies, especially those without a physical presence in India, cannot comply with this requirement. The applicant argued that the legislative intent and context indicate that Section 115JB should not apply to foreign companies without an established place of business in India. 3. Tax exemption under Section 10(38) of the Income Tax Act, 1961 for the sale of shares: The applicant proposed to transfer equity shares in Timken India to Timken Mauritius Ltd and claimed that the capital gains from this transaction would be exempt under Section 10(38) since the shares have been held for more than 12 months and the transaction would be effected through the Bombay Stock Exchange. The applicant argued that since the income arising from the transfer of long-term equity shares is exempt under Section 10(38), it should not be included in the total income for calculating MAT under Section 115JB. 4. Withholding tax under Section 195 of the Income Tax Act, 1961 on payments made to the applicant on the sale of shares: Given that the provisions of Section 115JB are not applicable to the applicant, a foreign company without a PE in India, the question of withholding tax under Section 195 does not arise. The applicant argued that no tax is deductible under Section 195 as the capital gains from the sale of shares are exempt under Section 10(38). Conclusion: The Authority for Advance Rulings concluded that Section 115JB is not applicable to the applicant, a foreign company without any physical presence or PE in India. Consequently, the capital gains from the transfer of shares, which are exempt under Section 10(38), do not attract MAT. Given this conclusion, the other questions regarding withholding tax under Section 195 were deemed unnecessary to address. Pronouncement: The ruling was pronounced on July 23, 2010, stating that the provisions of Section 115JB do not apply to the applicant, and therefore, the capital gains from the sale of shares are exempt under Section 10(38). The ruling was signed by the members of the Authority for Advance Rulings.
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