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of <h1>Tax Authority: Buyback capital gains not taxable under India-Mauritius DTAC, but transfer not exempt; transfer pricing rules apply.</h1> <h3>Armstrong World Industries Mauritius Multiconsult Limited Versus Director of Income-tax (International Taxation)</h3> Armstrong World Industries Mauritius Multiconsult Limited Versus Director of Income-tax (International Taxation) - [2012] 349 ITR 303 (AAR) Issues involved:1. Tax liability on capital gains arising from the buyback of shares by the Indian subsidiary under the Income-tax Act and the Double Taxation Avoidance Convention (DTAC) between India and Mauritius.2. Exemption from tax in India on the transfer of shares of the Indian subsidiary in the course of the proposed buyback in view of the provisions of section 47(iv) of the Income-tax Act.3. Applicability of transfer pricing provisions of sections 92 to 92F of the Income-tax Act to the proposed buyback of shares.Detailed Analysis:1. The case involved the applicant, a subsidiary of Armstrong World Industries Limited, Mauritius, holding shares in Armstrong India. The applicant intended to buy back shares from the Indian subsidiary, leading to potential capital gains taxable under the Income-tax Act. The applicant sought the benefit of the India Mauritius DTAC, claiming that the capital gains should be taxed only in Mauritius. The Authority allowed the application and ruled that the capital gains from the buyback were not taxable in India under paragraph 4 of Article 13 of the DTAC between India and Mauritius.2. The second issue revolved around whether the transfer of shares by the applicant to its Indian subsidiary during the buyback would be exempt from tax in India under section 47(iv) of the Income-tax Act. The Authority ruled that the transaction was not exempt under section 47(iv) based on the interpretation and precedent set by a previous ruling (Re RST, AAR No.1067 of 2011).3. The third issue concerned the applicability of transfer pricing provisions (sections 92 to 92F) of the Income-tax Act to the proposed buyback of shares. The Authority ruled that these provisions were indeed attracted to the transaction as it involved an international transaction between related parties, resulting in income, thus falling under the purview of sections 92 to 92F.In conclusion, the Authority's ruling addressed the tax liability on capital gains, exemption under section 47(iv) of the Income-tax Act, and the applicability of transfer pricing provisions to the proposed buyback of shares, providing a comprehensive analysis of each issue based on the facts and legal provisions presented during the proceedings.
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