2008 (9) TMI 37 - AAR - Income Tax

Tax ruling favors non-resident company on capital gains from equity shares

The Authority for Advance Rulings allowed the non-resident company's application under the Income-tax Act, 1961, dismissing the Commissioner's objections ... Jurisdiction of AAR - Applicant, non-resident acquired shares of an Indian company – sale of those shares by applicant to another foreign company - appellant sought advance ruling in respect of capital gain arising therefrom – question raised in application for advance ruling not pending before any income tax authority, tribunal or the court - since application was made after expiry of AO’s order, admission of application by AAR is proper – Remedial provisions should be liberally construed Issues:1. Tax payable on long term capital gains from the sale of equity shares.2. Treatment of interest paid to shareholders in calculating long term capital gains.Analysis:1. The applicant, a non-resident company, sought advance rulings on the tax payable on long term capital gains from the sale of equity shares of an Indian company. The applicant acquired the shares as per SEBI directives and later sold them to another entity. The Commissioner raised objections citing a previous order by the assessing authority, which authorized tax deduction at source at a higher rate. The Commissioner argued that the applicant's move to seek an advance ruling was an abuse of the process and aimed at exploiting conflicting judicial opinions. However, the Authority for Advance Rulings found the objection unsustainable as the applicant was within its rights to seek a ruling, and the previous order did not bar the application. The Authority emphasized that its jurisdiction was not fettered by the earlier order, which was a tentative measure pending regular assessment. Therefore, the objection raised by the Commissioner was dismissed.2. The Commissioner's contention that the application would create 'judicial disarray' due to conflicting orders was also rejected by the Authority. The Commissioner's argument that the Authority should decline to entertain the application based on a favorable Tribunal decision was deemed improper. The Authority emphasized that as long as the applicant complied with statutory provisions, seeking a remedy through the Authority was legitimate. The Authority expressed dismay at the language used by the Commissioner and emphasized the importance of upholding the statutory remedies available to eligible applicants. The Authority found no impropriety in the applicant's approach and ruled in favor of allowing the application to proceed for a hearing on merits. Despite the department's intention to file a Special Leave Petition against a previous ruling, the Authority decided to proceed with the application without deferring it based on vague information provided by the Commissioner.In conclusion, the Authority allowed the application under the Income-tax Act, 1961, dismissing the objections raised by the Commissioner and directing the matter to be heard on its merits on a specified date.