Taxability of share transfer gains in India upheld for non-residents; transferee treated as representative assessee.
Capital gains from transfer of shares in an Indian company by one non-resident to another non-resident were held taxable in India because the shares were capital assets situated in India and the deeming provision treated the gains as accruing or arising in India. The execution of the transfer agreement outside India and the non-resident status of both parties did not displace domestic taxability, and the treaty position did not exclude it. The transferee was also treated as an agent and representative assessee of the transferor because the statutory inclusive definition of agent covered a person in India acquiring by transfer a capital asset in India.
Issues: (i) Whether the capital gains arising from transfer of shares in an Indian company by a non-resident to another non-resident were chargeable to tax in India. (ii) Whether the transferee could be treated as an agent or representative assessee of the non-resident transferor under the Act.
Issue (i): Whether the capital gains arising from transfer of shares in an Indian company by a non-resident to another non-resident were chargeable to tax in India.
Analysis: The transfer involved shares of an Indian company, and the capital asset was situated in India. Income arising from transfer of a capital asset situate in India falls within the deeming provision for income accruing or arising in India. The fact that the transfer agreement was executed outside India, and the fact that both parties were non-residents, did not alter the operation of the statutory deeming provision. The treaty position also did not exclude domestic law taxation of capital gains.
Conclusion: The capital gains were chargeable to tax in India and the answer was in the affirmative.
Issue (ii): Whether the transferee could be treated as an agent or representative assessee of the non-resident transferor under the Act.
Analysis: The definition of representative assessee includes an agent of a non-resident, and the inclusive part of the definition of agent extends to a person in India who acquires by transfer a capital asset in India. On these facts, the transferee had purchased the shares and paid the consideration, bringing it within the statutory inclusive definition. That enabled assessment of the transferee as representative assessee for the transferor's income.
Conclusion: The transferee was held to be an agent and representative assessee of the non-resident transferor, and the answer was in the affirmative.
Final Conclusion: The ruling determined that the gains from transfer of shares of an Indian company by the non-resident transferor were taxable in India and that the transferee could be assessed as the non-resident's agent or representative assessee for that liability.
Ratio Decidendi: Where a capital asset is situated in India, gains from its transfer are deemed to accrue or arise in India, and the transferee of such asset may fall within the inclusive statutory definition of agent for assessment as representative assessee.
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