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TMI Blog2020 (6) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of income on 15.10.2010 of loss of Rs. 25,45,732/-. During the year Vectex Limited , Cyprus company has sold 416686 shares of Unitech Info Park Ltd to Narrmil Info solutions private limited (assessee) for Rs. 7 09999609/-. Unitech Info Park Ltd was incorporated on 17 October 2005 with the main objects of real estate development. It is the developer of an information technology software-exporting zone proposed to be developed on a parcel of land admeasuring 25.66 acres situated in Chennai. Vectex Ltd is holding more than 95% shares in that company. 3. The learned AO is of the opinion that a. Unitech Park Ltd owns the land admeasuring 25.66 acres in Chennai; the Cyprus Company is holding more than 95% shares in the Unitech Ltd. The value of the shares of Unitech was arrived solely based on value of land owned by Unitech Ltd. Therefore, transfer of shares of Unitech Ltd from the Cyprus Company to the Indian company resulted into effective transfer of the rights over the land. Therefore, the capital gain derived by Cyprus Company is from the alienation of an immovable property of land situated in the India and thus it is chargeable to tax in India according to article 14 of Indo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, precisely in the valuation report the value of the land was substituted by the fair market value of the land as on the date the shares were transferred and adjusted by the book assets and liabilities. Assessee submitted that there is nothing wrong in it. That does not mean that immovable property is purchased by assessee. 6. The learned assessing officer noted that on the perusal of the above valuation of shares it is apparent that the value of the shares has been solely calculated based on the land admeasuring 25.66 acres in Chennai and therefore by transfer of shares, it resulted in effective change in controlling interest in ownership of the land. Therefore as per article 14 of the DTAA between India and Cyprus the capital gain are liable to taxed in India. Admittedly assessee did not deduct tax at any source and, therefore, he held that assessee company is clearly in default for non-deduction of tax under Section 195 of the Act. He further held that assessee has stepped into the shoes of the Cyprus Company, therefore, assessee is held in default under Section 201(1) of the Act and as an agent under Section 163(1) of the Act. Accordingly the total income of the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to a non-resident for acquisition of shares which derive its value from 25.66 acre of land located in India was not covered u/s 195(1) of the Income Tax Act 1961 (the Act)? 2. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) was justified in holding that income/gain Rs. 70,99,99,609/- derived by the non-resident directly from the land located in India was not taxable in India ignoring Explanation 4 and 5 to section 9(1 )(i) of the Act read with Article 6(1) and 1491) of the agreement between the Republic of India and the Republic of Cyprus for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on Income and on capital (the DTAA)? 3. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) was justified in holding that payment made by the assessee to the non-resident in violation to the provisions of section 195 of the Act would require order u/s 163(2) of the Act even when the payer was resident in India? 4 That the order of the Ld.CIT (Appeals) is erroneous and is not tenable on facts and in law." 9. The learned Departmental Representative vehemently supported the order of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in 311 ITR 266 (P&H). He submitted that no such orders have been passed by the Assessing Officer and for reason alone the order of the ld. AO does not stand. He therefore submitted that, the learned and CIT - A has also rightly quashed the order of the assessing officer that before making the assessee as the representative assessee under the provisions of section 163 of the income tax act, he should have passed an order holding the assessee so, after granting proper opportunity of hearing. Thus, according to him the order passed by the learned assessing officer under section 143 (3) of the act without passing such an order under section 163 of the income tax act is not sustainable. 12. He further resident the new dimension to the argument and submitted that in the present case the assessment has been made by the learned assessing officer on the assessee by making the addition of the above sum. He submitted that such addition is not warranted because it is not the income of the assessee and therefore the order passed in the name of the assessee is not valid. He submitted that the AO should have passed a separate order assessing the income of the non-resident treating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. 4. Gains from the alienation of any property other than that mentioned in paragraphs 1, 2 and 3 shall be taxable only in the Contracting State of which the alienator is a resident. 16. The Cyprus Company has sold the shares of an Indian company. The impugned asset sold by the assessee does not fall under the article 6 (2) of the Double Taxation Avoidance Agreement as 'immovable property', therefore article 14 (1) does not apply to the transaction. Further, as the Cyprus entity does not have any permanent establishment or fixed base, the provisions of article 14 (2) does not apply. Further it is not the alienation of any ship or aircraft or movable property pertaining to that, therefore article 14 (3) also do not apply. For this reason that the transaction falls under article 14 (4) of the double taxation avoidance agreement as the impugned property from which the capital gain has arose is shares of an Indian company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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