2014 (5) TMI 316 - AT - Income Tax

Withhodlign Tax / TDS u/s 195 on LTCG Benefit of proviso to section 112 of the Act Applicability on Non-resident assessee or not - Rate of deduction 10% Surcharge OR 20% Surcharge Held that - Following Cairn UK Holdings Limited Versus Director of Income-Tax 2013 (10) TMI 430 - DELHI HIGH COURT - The proviso is applicable to listed securities or units or zero coupon bonds - Long-term capital gains tax is not payable on listed securities sold through stock exchanges as securities transaction tax is payable - The first proviso to section 48 is applicable on sale of shares or debentures in an Indian company, whether or not the shares or debentures are listed - the proviso to section 112(1) is more restrictive and will not necessarily apply in all cases covered by the first proviso to section 48 - the proviso to section 112(1) is not applicable to debentures - the proviso to section 112(1) is applicable to units and zero coupon bonds, which are not covered by the first proviso to section 48 of the Act - The second proviso to section 48 is not applicable on transfer of a long-term capital asset being bond, debenture other than the capital index bond - Zero coupon bonds are specifically made eligible for the benefit under the proviso to section 112(1). The purpose and object behind the proviso to section 112(1) itself is somewhat debatable, except that the legislative intention was to tax long-term capital gains on listed shares, bonds and units at 10 per cent., without the benefit of indexation under the second proviso to section 48 of the Act - Legislative policy and object is nothing more, and it is impermissible to read into the provision an affirmative legislative intention on assumption and guess work and this would be beyond the acceptable principles of interpretation - the assessee is entitled to benefit of lower rate of tax @ 10% while computing the tax under the head long term capital gain Decided against Revenue.

Summary

Issues:
1. Interpretation of proviso to section 112 for non-resident assessee.
2. Applicability of lower tax rate on long-term capital gain for non-resident.

Analysis:

Issue 1: Interpretation of proviso to section 112 for non-resident assessee
The case involved a non-resident company purchasing shares of an Indian company and seeking a lower tax deduction rate under section 112 of the Income Tax Act, 1961. The Assessing Officer initially rejected the claim, stating that the proviso was not applicable to non-residents. However, the Commissioner (Appeals) allowed the claim, emphasizing that the benefit of the proviso should be extended to non-residents as well. The Commissioner relied on various decisions and highlighted that the proviso should be interpreted to allow the tax payable in excess of 10% to be ignored. The Tribunal, after considering the arguments and the Delhi High Court decision in Cairm U.K. Holdings Ltd. v/s DIT, concluded that the proviso indeed applied to non-residents, allowing for a concessional tax rate of 10% on long-term capital gains.

Issue 2: Applicability of lower tax rate on long-term capital gain for non-resident
The Tribunal analyzed the provisions of section 48 and 112 in detail to determine the applicability of the lower tax rate on long-term capital gains for non-residents. The Tribunal cited the Delhi High Court decision, which explained that the proviso to section 112 allows taxpayers to pay tax at 10% on capital gains without indexation benefits. The Tribunal highlighted that the legislative intention was to tax long-term capital gains on listed shares at 10%, irrespective of the benefits under other provisions. Therefore, the Tribunal upheld the assessee's entitlement to the lower tax rate of 10% on long-term capital gains, dismissing the Revenue's appeal and allowing the assessee's appeal based on the Delhi High Court decision.

In conclusion, the Tribunal's judgment clarified the interpretation of the proviso to section 112 for non-resident assessees and affirmed the applicability of the lower tax rate of 10% on long-term capital gains for non-residents, in line with the Delhi High Court decision.