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TMI Blog2007 (11) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... are sought, we think it quite proper to hark back to the factual matrix. 3. Briefly stated, the facts of the case are that one M/s. Triniti Advance Software Labs (P) Ltd. ( in short M/s. TASL(P) Ltd.), S.P.Road, Hyderabad is an Indian company registered with the Registrar of the companies, Andhra Pradesh, having the following share holding pattern of the share holders: a) Srinath Alamela 17500 Shares of Rs.10 each b) Jeff Slosar 17500 Shares of Rs. 10 each c) Issa Elkhoury 17500 Shares of Rs. 10 each d) A.S.Arun Kumar 150 Shares of Rs. 10 each e) Vasantha Srinivasan 150 Shares of Rs.10 each 4. In fact, the first three shareholders are non-residents and the remaining shareholders are resident Indians. It has further emerged that one shareholder Mr.Jeff Slosar, a USA resident, entered into an agreement with the applicant, M/s. Triniti Corporation, USA, on 13.9.2006, to transfer his shares in a phased manner. To be more eloquent, 25% of the shares, held by Mr.Jeff Slosar have been transferred on 1.11.2006 and the remaining shares are to be transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident and T.A.S.L., the Indian resident company, as per section 163(1)(b) of the Act and it must be, deemed that the non-resident is in receipt of income through T.A.S.L. [Section 163(1) (c)]. As such, in the opinion of the revenue, T.A.S.L. is an agent of Mr.Jeff Slosar, who has transferred the shares to the applicant. According to Revenue, the capital gains did arise in the hands of Mr.Slosar and has to be assessed in the hands of M/s.T.A.S.L. as an agent for the transferor i.e. Jeff Slosar. 9. Countering the comments of the Revenue, the applicant's representative has, in his written arguments dated 24.5.2007, emphasized the fact that M/s. T.A.S.L., Hyderabad can't be regarded as an agent of Mr.Jeff Slosar and the capital gains tax is also not chargeable under section 9(1) of the Act, as the transfer of the shares had taken place outside India and the transaction was between two non-residents. 10. When the case was taken up for hearing on 28.5.2007, certain clarifications were sought from the applicant's Authorised Representative, Shri Anantha Padmanabhan and he sought time to consult and to make further submissions on the points raised. 11. At the further hearing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. AND (ii) Under Article 13 of the Tax Treaty between India and USA - Each contracting state may tax capital gains in accordance with the provisions of it's domestic laws. Therefore, both under the provisions of Indian Income-tax Act and under the TREATY, the Capital gains arising on the transfer of shares by Jeff Slosar a non-resident to Triniti Corporation USA in respect of shares held in Triniti Advanced Software Labs (P) Ltd., a company Registered in India is Taxable and the Applicant could be held as an Agent under the inclusive definition contained in Section 163(1) of the I.T.Act, 1961." 14. Further, the authorized representative has, as per the revised Annexure II to Form No.34C, required advance rulings from the Authority in regard to the following two questions only: "1. Whether on the facts and circumstances of the case the transfer of shares by Jeff Slosar, a US citizen and a US resident, to Triniti Corporation, a US company and both being non-residents is liable for capital gains tax in India in respect of shares in Triniti Advance Software Labs (P) Ltd - An Indian Company. 2. If the answer to the first question is in the affirmative, whether the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) of the Act and the phraseology 'transfer' is defined in section 2(47) of the Act. In the generality of cases, the sale price is paid outside India and accordingly, any capital gains will escape charge on 'receipt basis'. Nevertheless, as per the existing provision of the Act, the capital gains becomes chargeable on an alternative basis viz. accrual or arisal basis in India, as the capital asset is or happens to be situated in India. 21. The insertion of the clause, i.e. the situs of the capital asset being in India, has been ushered in the statute to take care of the situations like transactions between two non-residents taking place outside India. In simple words, even if the transaction relating to a capital assets takes place outside India but if the capital asset is situated in India, the profits or gains thereon, is accruing or arising in India in consonance with the provisions of section 9(1)(i) of the Act and is thus assessable under the head 'capital gains' under the relevant provisions of Income Tax Act. 22. As such, inescapable inference is that the income under the head Capital Gains is deemed to have accrued or arisen in the hands of the non-resident tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - General provisions Representative assessee. 160. (1) For the purposes of this Act, "representative assessee" means- (i) in respect of the income of a non-resident specified in sub-section (1) of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163; (ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt of such income on behalf of such minor, lunatic or idiot; (iii) in respect of income which the Court of Wards, the Administrator-General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under any order of a court, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator-General, Official Trustee, receiver or manager; (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] receives or ..... 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