Withholding tax on foreign share transfers depends on chargeability in India, and retrospective amendments did not create past TDS duty.

Payments for acquisition of shares of a Mauritius company from US resident shareholders were discussed in the context of section 195, which applies only where the sum paid is chargeable to tax in India. The note explains that, on the transaction date, the prevailing law after Vodafone did not tax indirect transfer of foreign shares merely because their underlying value was linked to Indian assets. It further states that the retrospective insertion of Explanations 4 and 5 to section 9(1)(i) expanded the chargeability fiction, but did not create a withholding obligation for a past transaction when that fiction was not then on the statute book. On that basis, no section 195(2) application or default under sections 201(1) and 201(1A) arose.

---

---

Issues: Whether the payments made for acquisition of shares of a Mauritius company from US resident shareholders attracted tax deduction at source under section 195 and rendered the payer an assessee in default under section 201 on the footing that the gains were chargeable in India under section 9(1)(i), including after the retrospective insertion of Explanations 4 and 5.

Analysis: The legal position governing the transaction date was applied on the basis that section 195 is triggered only when the sum paid is chargeable to tax under the Act. On the facts, the transfer was of shares of a foreign company, and the then-prevailing law, as interpreted in Vodafone, did not tax indirect transfer of foreign shares merely because the underlying value was derived from Indian assets. The retrospective amendment by Explanations 4 and 5 to section 9(1)(i) altered chargeability for the future legal fiction, but could not create a withholding obligation for a past transaction when that expanded fiction was not on the statute book. The consequence was that no application under section 195(2) was required on these facts and no default under sections 201(1) and 201(1A) arose.

Conclusion: The payments were not liable to tax deduction at source, and the assessee could not be treated as an assessee in default.

---