9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (3) TMI 738 - AAR - Income TaxEntitlement to the benefit of proviso to Section 112 (1) - concessional rate of tax at 10.506 % (inclusive of surcharge and cess) - non-resident assessee - tax on the long-term capital gains earned by the Applicant on sale of shares of Andhra Pradesh Paper Mills Ltd. an Indian listed company, pursuant to an open offer - Applicant is a Company registered in Finland - Held that - Following the decision Cairn UK 2013 (10) TMI 430 - DELHI HIGH COURT we conclude that the benefit under the proviso to section 112(1) of the Act could not be denied to the Applicant. Yes, the tax payable by the Applicant on the long term capital gains arising on the sale of equity shares of Andhra Pradesh Paper Mills Limited, an Indian listed company, are required to be computed at 10.506% (inclusive of surcharge and cess) of the amount of capital gains, as per the proviso to section 112(1) of the Income tax Act, 1961.
Issues Involved:
1. Applicability of the concessional tax rate under the proviso to Section 112(1) of the Income Tax Act, 1961 for a non-resident. 2. Interplay between Sections 48 and 112 of the Income Tax Act, 1961. Detailed Analysis: 1. Applicability of the Concessional Tax Rate under the Proviso to Section 112(1): The primary issue was whether the tax on the long-term capital gains earned by the Applicant, a non-resident company, on the sale of shares of an Indian listed company should be computed at 10.506% as per the proviso to Section 112(1) of the Income Tax Act, 1961. The Applicant argued that it is entitled to the benefit of the proviso to Section 112(1) which provides a concessional rate of tax at 10.506% for any income arising to a non-resident from the transfer of long-term capital assets, being listed securities. The Applicant contended that the equity shares qualify as a ‘Long-term Capital Asset’ as they have been held for more than 12 months, and thus, the LTCG should be taxable at 10.506%. The Revenue, however, argued that the computation of capital gains should be decided as per Section 48, and the computation of tax should be decided as per Section 112. The Revenue contended that the first and second provisos to Section 48 are mutually exclusive, and since the second proviso is not applicable to non-residents, the tax should be deducted at 21.012% instead of 10.506%. The Applicant relied heavily on the case of Cairn UK Holdings Ltd vs. Director of Income-Tax (Delhi) [359 ITR 268], where the Hon’ble High Court of Delhi held that the benefit of the proviso to Section 112(1) is available to a non-resident on the sale of equity shares. 2. Interplay between Sections 48 and 112 of the Income Tax Act, 1961: The Revenue submitted that the expression "before giving effect to the provisions of second proviso to Section 48" pre-supposes the existence of a case where computation of long-term capital gains could be made in accordance with the formula contained therein. The Revenue argued that the first and second provisos to Section 48 provide distinct modes of computation of capital gains for two different sets of persons and are mutually exclusive. The Applicant countered that the proviso to Section 112(1) applies to all clauses of sub-section (1) and the applicability of the second proviso to Section 48 is not a condition precedent for availing the benefit of a lower rate of taxation at 10%. The Applicant contended that the words "before giving effect to the provisions of second proviso to Section 48" mean before giving effect to the second proviso wherever it is applicable; but the non-applicability of the second proviso will not preclude the applicant from availing the relief of a lower rate of tax of 10%. Judgment: The Authority considered the submissions of both the Applicant and the Revenue. It was noted that the Hon’ble High Court of Delhi in Cairn UK Holdings Ltd had exhaustively dealt with the legislative intent, circulars, and explanatory memoranda to the Finance Act, 1999, and held that the benefit of the proviso to Section 112(1) is available to a non-resident on the sale of equity shares. The Authority found that the facts of the case in Cairn UK were similar to the present case and concluded that the benefit under the proviso to Section 112(1) of the Act could not be denied to the Applicant. Conclusion: The Authority ruled that the tax payable by the Applicant on the long-term capital gains arising on the sale of equity shares of Andhra Pradesh Paper Mills Limited, an Indian listed company, should be computed at 10.506% (inclusive of surcharge and cess) of the amount of capital gains, as per the proviso to Section 112(1) of the Income Tax Act, 1961.
|
