Case Note & Summary
The Commissioner of Income Tax, Goa, filed a writ petition challenging two orders dated 12.03.2010 and 15.06.2010 passed by the Additional Commissioner of Income Tax (AAR) in respect of M/s Umicore Finance Luxemborg, a non-resident company incorporated under Luxembourg law. The respondent was the holding company of its wholly owned Indian subsidiary, M/s Anandeya Zinc Oxides Pvt. Ltd. (Anandeya). The respondent had purchased 15,49,500 shares (99.96%) of Anandeya, and the balance 500 shares were also purchased by the respondent. Anandeya was originally a partnership firm that was converted into a private limited company under Part IX of the Companies Act, 1956 on 13.09.2005. The firm had set up a plant for manufacturing high purity zinc oxide, which commenced production in April 1995 and became a 100% export-oriented unit in 1996. The assets of the partnership were revalued at Rs. 5 crores against a net worth of Rs. 3,05,896, and the excess revaluation of Rs. 4,96,94,104 was credited to the partners' accounts. The firm continued to claim depreciation on the original cost for income tax purposes. The petitioner contended that the respondent's acquisition of shares violated Section 47(xiii)(d) read with Section 45 of the Income Tax Act, 1961, and that the transfer of shares by a non-resident to another non-resident outside India was taxable in India. The respondent sought an advance ruling from the AAR, which held that the transfer was not taxable. The High Court examined the provisions of Section 9(1)(i) of the Act, which provides that income accruing or arising from the transfer of a capital asset situated in India is deemed to accrue or arise in India. The court noted that shares of an Indian company are generally situated in India, but for non-residents, the transfer of shares outside India does not attract tax under Section 9(1)(i) as the income does not accrue or arise in India. The court also considered the DTAA between India and Luxembourg, but found it unnecessary to delve into it as the domestic law was clear. The court held that the AAR's orders were correct and dismissed the petition, upholding the ruling that the transfer of shares by a non-resident to another non-resident outside India is not taxable in India.
Headnote
A) Income Tax - Capital Gains - Non-Resident Share Transfer - Section 9(1)(i), Section 45, Section 2(14), Section 2(47) Income Tax Act, 1961 - Transfer of shares of an Indian company by a non-resident to another non-resident outside India does not attract capital gains tax in India as the shares are not situated in India under Section 9(1)(i) - Held that the situs of shares is where the company is registered, but for non-residents, the transfer outside India is not taxable (Paras 5-10). B) Income Tax - Revaluation of Assets - Depreciation - Section 47(xiii)(d) Income Tax Act, 1961 - Revaluation of assets by a firm before conversion into a company does not affect the cost of acquisition for capital gains computation - Held that the revaluation surplus credited to partners' accounts is not taxable as income (Paras 3-4). C) Income Tax - Advance Ruling - Jurisdiction of AAR - Sections 245N, 245R Income Tax Act, 1961 - The Authority for Advance Rulings (AAR) has jurisdiction to rule on taxability of transactions proposed by non-residents - Held that the AAR's order is valid and not subject to challenge on grounds of lack of jurisdiction (Paras 2, 11).
Issue of Consideration
Whether the transfer of shares of an Indian company by a non-resident to another non-resident outside India gives rise to capital gains taxable in India under the Income Tax Act, 1961, and whether the provisions of Section 47(xiii)(d) are applicable.
Final Decision
The High Court dismissed the writ petition, upholding the orders of the Additional Commissioner of Income Tax (AAR) and holding that the transfer of shares by a non-resident to another non-resident outside India is not taxable in India under the Income Tax Act, 1961.
Law Points
- Capital gains tax
- Non-resident
- Share transfer
- Section 9(1)(i) Income Tax Act
- 1961
- Section 47(xiii)(d) Income Tax Act
- Section 45 Income Tax Act
- Section 2(14) Income Tax Act
- Section 2(47) Income Tax Act
- DTAA India-Luxembourg
- Article 13(4) DTAA
- Revaluation of assets
- Depreciation
- Part IX Companies Act
- 1956
