India-Spain DTAA share transfer gains not taxable in India where immovable property test was not satisfied.

Article 14(4) of the India-Spain DTAA was held inapplicable because the share transfer did not involve a controlling or significant interest and the company's immovable property in India did not exceed 50% of total assets on either book value or fair market value. The provision was treated as an anti-avoidance rule targeting indirect transfers of Indian immovable property through share sales, and those conditions were not met on the stated facts. Accordingly, the capital gains from the share transfer were not taxable in India and remained taxable only in the residence State.

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Issues: Whether gains arising from transfer of shares were taxable in India under Article 14(4) of the India-Spain DTAA on the footing that the company's property consisted principally of immovable property situated in India.

Analysis: The shareholding in the company was only 9.65 per cent, so the transfer did not represent a controlling or significant interest of the kind contemplated by Article 14(4). On the valuation material, the value of immovable property did not exceed 50 per cent of total assets either on book value or on fair market value. The provision was understood as an anti-avoidance rule aimed at indirect transfer of immovable property through share transfers, and its application was found inappropriate on these facts.

Conclusion: Article 14(4) of the India-Spain DTAA did not apply, and the capital gains from transfer of shares were not taxable in India.

Ratio Decidendi: Article 14(4) applies only where the company's property consists principally of immovable property in the source State and the share transfer effectively answers to that economic reality; absent such predominance, the gains remain taxable only in the residence State.

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