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TMI Blog2009 (3) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... ther energy products having assets in various regions around the world. The applicant states that it owns 1,92,684 equity shares in Tide Water Oil Gas Co.(India) Ltd. (in short Indian Company). The Indian company is a listed public company. The applicant holds 22% of the paid up share capital of the Indian Company. The equity shares held by the applicant consist of original shares, bonus shares and rights shares acquired by or allotted to the applicant over a period of time. The original shares were acquired in US Dollars long back i.e. in 1928. The applicant proposes to sell its equity interest in the Indian Company and for that purpose the applicant has entered into shares sale/purchase agreements with two identified buyers. The proposed transfer of shares will be, as stated, undertaken under a private arrangement and will be 'off market transactions', as permitted by RBI. The applicant has given details of the number and nature of shares proposed to be sold to two identified buyers. 2. On the above facts, the applicant seeks advance ruling from this Authority in respect of the following two questions: (1) Whether the long-term capital gains arising on the proposed sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extending the benefit of 10 per cent rate after giving effect to the first proviso to section 48 would amount to granting double benefits to non-residents and this does not seem to be the intention of the legislature, submits the Director (International Taxation) Chennai. According to the Revenue, while framing the proviso to section 112(1), the intention of the legislature was to include the cases that fall under the second proviso to section 48 and any other interpretation to the proviso to section 112(1) would defeat the intention of the legislature. 6. It has also been contended by the Revenue that the decisions of the Authority for Advance Rulings given in favour of the applicant are likely to be contested before the Apex Court and, for the same, approval from the CBDT have already been obtained. In effect, the Revenue takes the stand that the rulings of this Authority in earlier cases i.e. Timken France (supra) and a few other cases need not be followed. 7. The learned counsel for the applicant has, on the other hand, contended that the lesser rate of 10 per cent is applicable to long-term capital gains derived by non-resident foreign companies as well, and the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be construed as words of exclusion of a category of assesses, i.e. non-residents who cannot avail of indexation benefit. The protection in terms of the first proviso to section 48 made available to a non-resident might be a justification to deny the benefit of cost of indexation but the same cannot be said of the application of lesser rate." 9. Further, it was ruled in Timken France SAS (supra) that the phrase in section 112(1) "…before giving effect to the provisions of second proviso to section 48" means before giving effect to the 2nd proviso wherever it is applicable, but, the non-applicability of the 2nd proviso will not preclude the applicant to avail the relief of lower rate of tax of 10(ten) percent. This Authority also distinguished the decision of the Mumbai Income Tax Tribunal, as referred to above and differed with their view. Thus, the ruling of this Authority in Timken, France, SAS, squarely applies to the present case. Following that Ruling, the first question is answered in the affirmative i.e. in favour of the applicant. 2nd Question 10. The second question relates to the substitution of fair market value as on 1.4.1981 as the cost of acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee - (A) becomes entitled to subscribe to any additional financial asset ; or (B) is allotted any additional financial asset without any payment, then, subject to the provisions of sub-clause (i) and (ii) of clause (b)@ (iiia) In relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee; and (ab) In relation to a capital asset, being equity share or shares allotted to a share- holder of a recognized stock exchange in India under a scheme for demutualisation or corporatisation approved by a Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange. Provided that the cost of a capital asset, being trading or clearing rights of the recognized stock exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extend the benefit of deduction of deemed cost of acquisition in respect of a capital asset of the nature specified in clause (aa), if it was acquired before 1st April, 1981. Otherwise, there is no purpose in ordaining that the operation of clause (aa) is subject to the provisions of sub-clause (i) and (ii) of clause (b). The 'capital asset' referred to in clause (b) takes within its fold the financial assets in the form of shares or other securities as specified in clause (aa). It is clear from clause (b) of Section 55(2) that in the case of a capital asset falling within the ambit of that clause, acquired before 1st April, 1981, the cost of acquisition can be taken as fair market value of the that asset as on 1st April, 1981. This provision prevails over sub-clause (iiia) of clause (aa). The applicant is therefore entitled to the benefit conferred by clause (b)(i) of S.55(2). We are of the opinion that the ruling of this Authority in Kern-Liebers International GmbH, In RE reported in 301 I.T.R. 178 squarely applies to the present case. 15. Accordingly, we answer the 2nd question in the affirmative and hold that the fair market value prevailing on April 1, 1981 ought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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