2012 (8) TMI 465 - AAR - Income Tax

India-Mauritius DTAA chargeability to tax of the proposed transaction of sale of shares of GSKAPL, the Indian company, to GSK Pte. Singapore by applicant company being Mauritius resident and part of GSK group Held that - It is observed that shares were held by the applicant from the year 1996 and were held as an investment. Hence, it is ruled that the shares held would be considered as capital asset Taxability of capital gains arising from transfer of shares in India Held that - Proposed sale will generate a gain that would qualify to be capital gains under the Act. However, capital gains that would arise would not be chargeable to tax in India in view of paragraph 4 of Article 13 of the DTAC between India and Mauritius. Applicability of transfer pricing provisions from Section 92 to Section 92F Held that - Section 92 to section 92F will be attracted since there is an international transaction between related parties. Whether that exercise is needed or would be fruitful is a different matter. Hence, Sections 92 to 92F would apply if the transaction is one coming within those provisions. Liability to withhold taxes u/s 195 Held that - Since there is no chargeability to tax in India there will be no obligation on the applicant to withhold tax u/s 195 Requirement to file return of income u/s 139 Held that - Since the income is not taxable in this country, under the Act, there is no obligation on the applicant to file a return of income u/s 139 Applicability of provisions of Section115JB Held that - Section 115JB overrides section 34 to 48 of the Act. Application of Section 115JB(1) is not confined to domestic companies alone, it would equally apply to a foreign company

Summary

Issues:
1. Whether the investment in equity shares of an Indian company is considered a capital asset under the Income-tax Act?
2. Whether capital gains from the transfer of shares to a Singapore company are subject to tax in India?
3. If the transfer is not taxable in India, would transfer pricing provisions apply?
4. Whether withholding tax is applicable on the sale consideration?
5. Is filing a return of income required if the transfer is not taxable in India?
6. Applicability of section 115JB of the Act.

Analysis:
1. The applicant, a Mauritius company, held shares of an Indian company as a capital asset. The Authority ruled that the shares were indeed a capital asset based on the facts presented, despite no serious challenge from the Revenue.

2. The Authority considered whether the capital gains from the proposed share transfer to a Singapore company would be taxable in India. The applicant acknowledged tax liability but invoked the Double Taxation Avoidance Convention (DTAC) between India and Mauritius to claim exemption under paragraph 4 of Article 13 of the DTAC.

3. The Authority addressed the applicability of transfer pricing provisions if the share transfer was not taxable. It was noted that even though the income was chargeable under the Act, the DTAC exemption prevented taxation in India, but transfer pricing provisions would still apply due to the international transaction between related parties.

4. As there was no tax liability in India, the obligation to withhold tax under section 195 of the Act did not arise.

5. The Authority ruled that despite claiming DTAC benefits, the applicant must file a return of income under section 139 of the Act if there is chargeability to tax.

6. Regarding the applicability of section 115JB of the Act, the Authority held that it would apply based on previous rulings related to associate enterprises under similar schemes.

Overall, the Authority considered the nature of the investment, tax implications of the proposed transaction, applicability of DTAC benefits, transfer pricing provisions, withholding tax obligations, return filing requirements, and the application of section 115JB of the Act in this comprehensive ruling.