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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 ..... , 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. Therefore any gain arising from the alienation of property i.e. shares of an Indian company, shall be chargeable to tax only in the contracting state in which the alienator is resident. Here the alienator is a Cyprus resident. Therefore such gain is chargeable to tax only in Cyprus. Thus, the new double taxation avoidance agreement has come into force much letter then the transaction took the place. In the new double taxation, avoidance agreement there is a provision as per article 13 (4) wherein now such transaction, probably is chargeable to tax in India. However, as the amended double taxation avoidance agreement is subsequent to the date of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Cyprus DTAA. b. Capital gain arising in the hands of Cyprus Company was liable to be taxed in India according to the provisions of section 5 (2) and section 9 (1) of the act. c. Assessee Company was required to deduct tax at source while making payments to vectex Limited under section 195 of the income tax act as according to her the transaction was chargeable to tax in India under section 4, 5 and 9 of The Income Tax Act. d. Therefore, Assessee Company was required to deduct tax at source while making payment of sales consideration of shares to Cyprus Company. e. As the assessee company has entered into a transaction by making payment of sale consideration of those shares, assessee is an agent of the Cyprus company under section 163 (1) of the act. 4. Before AO, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 determined at ₹ 7,07,453/- , assessment was framed on 22.03.2013 under Section 143(3) of the Act. 7. The assessee preferred an appeal before the learned CIT (Appeals). He held that capital gain on sale of shares in the light of provision of Double Taxation Avoidance Agreement [DTAA] between India and Cyprus as per Article 14(4) could be taxed in Cyprus only and not in India. He held that appellant is a tax resident of Cyprus and, therefore, the capital gain is not chargeable to tax in India and assessee is not supposed to deduct the tax at source. Therefore, he deleted the addition. The Assessing Officer also raised an issue that the impugned shares of that company derived their value from immovable property situated in India, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 Assessing Officer submitting that the article 14 (4) of the DTAA does not apply to the facts of the case but article 14 (1) applies in the particular case as the gain are from the alienation of immovable property. It was further submitted that what has been transferred by the foreign company is not the shares of an Indian company but the underlying immovable property, which is situated in India. He therefore submitted that assessee should have deducted tax at source under the provisions of section 195 of the income tax act as the profit or gain arising from such alienation of immovable property is chargeable to tax in India. 10. The learned authorized representative referred to the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stainable. 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 the assessee as a representative assessee after crossing the threshold provided under section 163 of the act. He submitted that there is a basic difference between the income of the assessee as a company and the income being assessed in the hands of the assessee as a representative assessee of a non-resident. Therefore, he also submitted that the order as such is invalid on that count also. 13. We have carefully considered the rival contention and perused the orders of the lower authorities. The brief facts of the case have already been succinctly mentioned herein above. The only issue before us is whether the sale of shares by a Cyprus company to the assessee of an Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty , 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. Therefore any gain arising from the alienation of property i.e. shares of an Indian company, shall be chargeable to tax only in the contracting state in which the alienator is resident. Here the alienator is a Cyprus resident. Therefore such gain is chargeable to tax only in Cyprus. 17. Subsequently new double taxation avoidance agreement between India and Cyprus has been entered into as per NO. SO 64(E) [NO.3/2017 (F.NO.504/05/2003-FTD-I)], DATED 10-1-2017 where in article 14 provides as under ARTICLE 13 CAPITAL GAINS 1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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