Treaty taxing rights over India-linked property gains extended to tenancy rights and share transfers backed by immovable property.

Consideration received for release and relinquishment of tenancy rights was treated as gains arising from alienation of immovable property, and because the property was situated in India, the amount was taxable in India under the treaty. Capital gains on sale of unquoted shares of a closely held company were also taxable in India where the share value was derived principally from immovable property in India; the treaty provision for property-linked share transfers applied. Tax deducted at source was allowed as credit on proper verification.

---

---

Issues: (i) Whether the amount received on release and relinquishment of tenancy rights was taxable in India under the Double Taxation Avoidance Agreement. (ii) Whether the capital gains arising on sale of shares of a closely held company, whose value was derived principally from immovable property in India, were taxable in India under the Double Taxation Avoidance Agreement, and whether tax deducted at source was to be credited.

Issue (i): Whether the amount received on release and relinquishment of tenancy rights was taxable in India under the Double Taxation Avoidance Agreement.

Analysis: The admitted question did not involve determination of fair market value. Tenancy rights in respect of real estate were treated as gains arising from alienation of immovable property. Since the immovable property was situated in India, the gains fell within the India taxation article applicable to immovable property.

Conclusion: The amount received for release and relinquishment of tenancy rights was taxable in India under Article 13(1) of the Double Taxation Avoidance Agreement.

Issue (ii): Whether the capital gains arising on sale of shares of a closely held company, whose value was derived principally from immovable property in India, were taxable in India under the Double Taxation Avoidance Agreement, and whether tax deducted at source was to be credited.

Analysis: The question also did not involve determination of fair market value. The shares were not quoted on a recognised stock exchange, and their value was derived principally from immovable property situated in India. On that basis, the gains were held taxable in India under the treaty provision dealing with such property-linked share transfers. The tax already deducted at source was directed to be given credit against any tax demand, on verification.

Conclusion: The capital gains on sale of shares were taxable in India under Article 13(4) of the Double Taxation Avoidance Agreement, and credit for tax deducted at source was allowable on proper verification.

Final Conclusion: The ruling determined that both the tenancy-rights consideration and the share-sale gains were taxable in India under the treaty, while preserving credit for tax already deducted at source.

Ratio Decidendi: Where gains arise from immovable property situated in India, or from shares whose value is derived principally from such immovable property, the treaty allocates taxing rights to India under the relevant capital gains article.

---