TDS on remittance of compensation to non resident shareholders - Income Tax - 524/CBDT

INSTRUCTION NO. 524/CBDT Dated : March 14, 1973 Section(s) Referred: 195 Statute: Income - Tax Act, 1961 Some of the insurance companies carrying on general insurance business have applied for permission to the Reserve Bank of India to remit the amount of compensation payable to their non-resident shareholders as a result of the nationalisation of the general insurance business in India. The Reserve Bank of India has sought clarification from the Board as to the amount of tax to be deducted before permitting the remittance. 2. The amount of compensation payable to the non-resident shareholders will be capital receipts in their hands and will thereby be liable to levy of capital gains tax. In view thereof, the tax has to be withheld under Section 195(1) at the rates in force. However, under the provisions of Sec. 195(2) in case the person responsible for making the payment considers that the whole of such sum would not be income chargeable to tax in the case of the recipient, an application can be made to the Income-tax Officer to determine the appropriate portion of such sum so chargeable and upon such determination tax shall be deducted under Section 195(1) only on that portion of the sum which is so chargeable. 3. The determination of the capital gains in respect of shares of limited companies should not present any difficulty. If the shares were purchased after 1st January, 1954, then the price at which the shares were acquired would be the cost of acquisition and in case the shares were purchased before 1st January, 1954 then the cost of acquisition will be either the cost price or the market value as on 1st January, 1954 at the option of the assessee. The Director of Insurance has been advised to ask the companies concerned to approach the Income-tax Officers for the determination of the amount of capital gains under Sec. 195(2). While approaching the Income-tax Officer, the companies will be furnishing the information that would be required for arriving at the capital gains. 4. Necessary instructions may please be issued to the Income-tax Officers working in your charge to attend to such requests and quantify the amount of tax to be withheld under the provisions of section 195(1) of the Income-tax Act.