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TMI Blog2016 (5) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... m the transfer of a long-term capital asset, `other than capital gain arising to a non-resident from the transfer of shares in an Indian company referred to in the first proviso’ , then the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted. As capital gain in the instant case has arisen to a non-resident from transfer of shares in an Indian company, it is clear that the mandate of second proviso becomes inapplicable and the case gets restricted in the first proviso to section 48 alone. Again reverting to the main issue of the applicability or otherwise of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal:- "1. The assessee had applied tax rate of 10% in the terms of the proviso to section 112(1) of the Income Tax Act. However, the AO has applied tax rate of 20% as the proviso below section 112(1)(c) was not applicable in the case of non-residents. 2. Whether on the facts stated and in laws the Hon'ble DRP has erred in holding the assessee entitled to the benefit of proviso to section 112(1) of the Act on sale of the equity shares in question." 3. Briefly stated, the facts of the case are that the assessee is a company incorporated under the laws of Japan with its head office in Tokyo. It is engaged in the business of development, design, manufacture, assembly, sales and purchase, importing and other transactions relating to auto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r gave effect to the direction of the DRP in applying tax rate of 10%. The instant appeal has been filed by the Revenue on such application of 10% tax rate as against its claim of correct tax rate of 20%. 4. We have heard the ld. DR and perused the relevant material on record. There is no appearance from the side of the assessee despite notice. The short controversy before us is to decide the rate at which income from transfer of shares held as long-term capital assets, be taxed. The case of the assessee is that it is covered by the proviso below section 112(1), whereas the AO has held that such proviso is not applicable and going by the mandate of sub-section (1), tax rate of 20% is chargeable. In order to appreciate these conflicting vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls the condition set out in the opening part of sub-section (1). As these pre-requisites are satisfied, sub-clause (ii) of section 112(1)(c) comes into play, which provides that the amount of income-tax calculated on such long-term capital gain shall be charged @ 20%. It is not the end of the matter. Proviso at the end of sub-section (1) of section 112 states that where the tax payable in respect of any income arising from the transfer of a long-term capital asset exceeds ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee. When we read clause c(ii) in juxtaposition to the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of any improvement thereto: Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in terms of the first proviso. Second proviso, which is material for our purpose, provides that where long-term capital gain arises from the transfer of a long-term capital asset, `other than capital gain arising to a non-resident from the transfer of shares in an Indian company referred to in the first proviso' , then the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted. As capital gain in the instant case has arisen to a non-resident from transfer of shares in an Indian company, it is clear that the mandate of second pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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