Tax ruling: Share transfer by Goodyear exempt from tax under Income Tax Act

The ruling determined that the proposed transfer of shares by Goodyear Tire & Rubber Company to Goodyear Orient Company (Private) Limited without consideration does not attract tax liability under Section 45 read with Section 48 of the Income Tax Act, 1961. Additionally, the transfer pricing provisions under Sections 92 to 92F are deemed inapplicable due to the absence of income from the transfer. Consequently, there is no obligation to deduct tax under Section 195 of the Act, and Goodyear Orient Company is not liable to tax under Section 56(2)(viia).

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Issues Involved:
1. Tax liability under Section 45 read with Section 48 of the Income Tax Act, 1961.
2. Applicability of transfer pricing provisions under Sections 92 to 92F of the Act.
3. Obligation to deduct tax under Section 195 of the Act.
4. Tax liability under Section 56 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Tax Liability under Section 45 read with Section 48 of the Income Tax Act, 1961:
The applicant, Goodyear Tire & Rubber Company (GTRC), proposed to transfer its 74% shares in Goodyear India Limited (GIL) to Goodyear Orient Company (Private) Limited (GOCPL) without any consideration. The ruling examined whether this transfer would attract tax under Section 45 read with Section 48 of the Income Tax Act, 1961. The applicant argued that since the transfer was voluntary and without consideration, it should not amount to a "transfer" under Section 45, especially when read with Section 47(iii) of the Act, which excludes gifts from the definition of transfer. The ruling referenced previous cases such as Amiantit International Holding Ltd and Dana Corporation, concluding that no profit or gain would accrue from the transfer as no consideration was received. Consequently, the mechanism to charge capital gains tax under Section 48 fails, and the transfer does not attract tax under Section 45.

2. Applicability of Transfer Pricing Provisions under Sections 92 to 92F of the Act:
The ruling determined that since no consideration was involved in the transfer of shares, no income would arise, and thus, the transfer pricing provisions under Sections 92 to 92F would not be applicable. The absence of a tax liability negates the applicability of these provisions.

3. Obligation to Deduct Tax under Section 195 of the Act:
Given that no income arises from the transfer of shares, the ruling concluded that GTRC is not required to withhold tax under Section 195 of the Act. This conclusion also applies to GOCPL, as the recipient of the shares, which is not obliged to withhold tax under the same section.

4. Tax Liability under Section 56 of the Income Tax Act, 1961:
The ruling addressed whether GOCPL would be liable to tax under Section 56(2)(viia) of the Act, which pertains to income from other sources. It was established that GIL is a publicly traded company on the Bombay Stock Exchange, and thus, the shares received by GOCPL do not fall under the purview of Section 56(2)(viia). The ruling held that there is no income liable to tax in India within the meaning of this provision.

Conclusion:
The ruling answered all questions in the affirmative, concluding that no tax liability arises from the proposed transfer of shares by GTRC to GOCPL. The provisions under Sections 45, 48, 92 to 92F, and 195 of the Income Tax Act, 1961, are not applicable to this transaction. The ruling was pronounced on 2nd May 2011.

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