TaxTMI 
TaxTMI 
TaxTMI 
2010 (7) TMI 51
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.... India). The applicant is holding 237,286,500 equity shares representing 99.99% of the capital of Praxair India. The nominee of the applicant holds remaining 3 shares representing 0.01% of share capital. The applicant also holds 74% of the equity shares capital in Jindal Praxair Oxygen Company Private Limited (Jindal Praxair) and the balance 26% is held by JSW Steel Limited. The applicant is proposing to transfer 74% of the equity share capital in Jindal Praxair to its wholly owned subsidiary company, Praxair India. The consideration for the proposed transfer is stated to be determined on the basis of cost, unless a higher consideration is required under the pricing guidelines prescribed by the Reserve Bank of India as applicable for the transfer of shares. 3. On the facts stated above, the applicant desires to ascertain whether, based on the nature of the proposed transaction, it can be held to have earned any income taxable in India. It is the contention of the applicant that the shares of Jindal Praxair held by it are capital assets and the proposed transfer of these to Praxair India would not be 'transfer' for the purpose of computing capital gains under section 45 read with s....
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....bsence of Permanent Establishment of the Applicant in India and in light of the provisions of Article 7 read with Article 5 of the Treaty? 6) If the answer to Query 4 or Query 5 is in the negative, whether the Applicant would be liable to tax under the provisions of section 115JB of the Act? 7) Where, on the facts and circumstances of the case, the gains arising to the Applicant on account of the proposed transfer is not taxable in India under the Act or the Treaty, whether Praxair India, the transferee company, is required to withhold tax in accordance with the provisions of section 195 of the Act? 8) On the facts and circumstances of the case, if the gains arising to the Applicant on account of the proposed transfer are not taxable in India, then, whether the Applicant is required to file any return of income under section 139 of the Act? 9) On the facts and circumstances of the case, whether the proposed transfer of equity shares by the Applicant to Praxair India attracts the transfer pricing provisions of section 92 to 92F of the Act? 5. The applicant submits that shares can be held either as stock-in-trade or as capital asset. The shares held by it in Jindal Praxa....
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....115 JB of the Act as the provisions of section 115JB would be applicable only to domestic companies and not to foreign companies. In support it has placed reliance on the Notes on Clauses explaining the provisions of Finance Bill 2002, which provide for some amendments to section 115JB. The Notes explaining the provisions have accepted/clarified the law that section 115JB is a levy of minimum tax on domestic companies. The Legislature itself has recognized that section 115JB is not applicable to foreign companies. Without prejudice, the applicant submits that as the gains from the proposed transfer of shares in Jindal Praxair by the Applicant would not be taxable in India in the light of Article 13 or Article 7 of the treaty read with section 90(2) of the Act, there would not be any liability under section 115JB of the Act. 5.3 Without prejudice to the above, the applicant states that in case the gains arising on account of the proposed transactions are not considered as capital gains then the same would be regarded as business income. In that case Article 7 of the Treaty would come into play which deals with the taxation of business income earned by an enterprise of the Contracti....
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....n merits. 6. It seems to us that whether we consider the transaction under the Act or under the India Mauritius DTAA, in our view, the applicant is not liable to be taxed in India on proposed transfer of its shares in Jindal Praxair to its wholly owned subsidiary company, Praxair India. Let us begin by examining the issue under the Act and start with the definition of capital asset under the Act. The capital asset is defined in section 2(14) as under: 2. In this Act, unless the context otherwise requires,- (14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession. xxxxx xxxxxx" A look at the audited financial statements for the period ending March 2008 shows that the principal activity of the applicant is that of an investment company. The shares in Jindal Praxair have been classified in the books of account under the head, "Non-current assets - investment in subsidiaries". These shares are held since 1995 and were never a subject matter of any transaction till date. T....
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....olly owned subsidiary in India, the conditions under section 47(iv) of the Act are fulfilled. The transfer of equity shares in Jindal Praxair would not be regarded as transfer within the meaning of section 45 read with section 47(iv) of the Act and hence the gains if any arising on transfer would not be taxable in India. 6.1 Let us now address the issue under the India Mauritius DTAA and the related issue. The taxability of Capital Gains under provision of DTAA with Mauritius is governed by Article 13 of the tax treaty. Article 13 reads as under: "Article 13 - Capital Gains: 1. Gains from the alienation of immovable property, as defined in paragraph (2) of article 6, may be taxed in the Contracting State in which such property is situated. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establi....
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.... of total income, to the extent of inconsistency with the terms of the DTAC. 3.1 The contention of the respondents which weighed with the High Court, viz., that the impugned Circular No.789 (see [2000] 243 ITR (St.)57) is inconsistent with the provisions of the Act, is a total non sequitur. As we have pointed out, Circular No.789 is a circular within the meaning of section 90; therefore, it must have the legal consequences contemplated by sub-section (2) of section 90. In other words, the circular shall prevail even if inconsistent with the provisions of the Income-tax Act, 1961, in so far as assessees covered by the provisions of the DTAC are concerned." Applying the above dicta to the case in hand, as the applicant is tax resident of Mauritius and has been issued Tax Residency Certificate by the Mauritius Revenue Authority, it would not be subjected to tax in India on the capital gains arising from the proposed transaction in India. 6.2 We have held that the transaction of sale of shares in Jindal Praxair by the applicant would not attract capital gain. Unlike section 10(38) of the Act where the income by way of long term capital gain of a company is to be taken into a....