Source rule of taxation affirmed: indirect transfer applies to transactions transferring underlying Indian assets, not foreign dividends. The circular clarifies that Explanation 5 applies where a transaction in shares or interests in a foreign entity effects the direct or indirect transfer of underlying assets located in India, thereby creating an Indian economic nexus and rendering gains taxable in India. It further clarifies that declaration and payment of dividends by a foreign company, even if the shares derive substantial value from Indian assets, do not constitute such a transfer and therefore are not deemed to accrue or arise in India under the Explanation.
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Provisions expressly mentioned in the judgment/order text.
Source rule of taxation affirmed: indirect transfer applies to transactions transferring underlying Indian assets, not foreign dividends.
The circular clarifies that Explanation 5 applies where a transaction in shares or interests in a foreign entity effects the direct or indirect transfer of underlying assets located in India, thereby creating an Indian economic nexus and rendering gains taxable in India. It further clarifies that declaration and payment of dividends by a foreign company, even if the shares derive substantial value from Indian assets, do not constitute such a transfer and therefore are not deemed to accrue or arise in India under the Explanation.
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