TaxTMI 
TaxTMI 
2011 (2) TMI 441
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....ng in TGI. The applicant does not dispute that the income arising out of the transfer of shares is income deemed to accrue or arise in India and chargeable to tax under the head "Capital gains". As the shares have been held for a period of more than 12 months and are considered as long-term capital assets the gains on transfer of such shares are subjected to long-term capital gains. An application was preferred by TGI with the TDS officer for determining the rate of tax deduction required on the sale consideration and an order was passed on July 3, 2006, by the Income-tax Officer, International Taxation-II, Chennai, authorizing VVMinerals to deduct tax at the rate equal to 21.115 per cent. on long-term capital gains. 3. The applicant draws attention to section 48 of the Income-tax Act, 1961 (Act) which reads as under : "48. Mode of computation.-The income chargeable under the head 'Capital gains' shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer ; ....
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....he indexed cost of acquisition by taking into account the cost inflation index is not available to non residents on transfer of shares in an Indian company. Explanation (iii) to section 48 defines the indexed cost of acquisition as "an amount which bears to the cost of acquisition the same proportion as the cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later". The applicant further submits that in the capital gain computation mechanism for non-resident assessees, the cost of acquisition of the asset, expenditure incurred for effecting the transfer and consideration for effecting the transfer is required to be converted into the same foreign currency, as was initially utilized in the purchase of shares, using the exchange rates prescribed in this regard. Capital gains (i.e., transfer consideration less cost of acquisition and transfer expenses, if any) computed in foreign currency are thereafter reconverted into Indian currency using the State Bank of India telegraphic transfer....
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....of applicability of the second proviso to section 48 of the Act. Therefore, there arises a situation where Canadian companies (such as TGBC) holding shares in an Indian company are prevented from availing of the benefit of indexation in the computation of capital gains. This treatment is tantamount to discrimination of a Canadian national vis-a-vis an Indian national. The applicant submits that it had incurred expenses wholly and exclusively in connection with transfer of the shares mentioned supra. These expenses are : fees for valuation of business, professional fees for advice in connection with transfer, legal expenses, fees for escrow account, travel and hotel charges. It is contended that section 48 of the Act provides that expenditure incurred wholly and exclusively in connection with transfer will be deducted from the full value of consideration from computation of capital gains. As these expenses are allowable deductions in computing the capital gains under section 48, the same should be reduced in calculating the taxable capital gains. 6. With this background, the applicant seeks the ruling of this Authority on the following questions :  ....
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....nals of other State are subjected to in the same circumstances. Discrimination is understood to be unequal treatment in an identical situation. Different treatment does not constitute discrimination unless it is arbitrary. Article 24 therefore seeks to prevent differentiation solely on the ground of nationality and against nationals as such. A comparison cannot be made between a resident and a national of a State and a national of another State to contend that they must be taxed in the same way. The State is not obliged to extend the same privileges which it accords to its own residents to one who is not. For example residents are taxable on their worldwide income and non-residents are not. Therefore, discrimination on account of nationality other than residence may be prohibited. A foreign national may be resident and an Indian national may be non-resident. Both nationals may be non-residents. But being of different nationalities and being non residents, the nationals cannot be said to be discriminated in terms of article 24 of the DTAA. Such is the view of this Authority in the case of Universities Superannuation Scheme Ltd., A. A. R. No. 636 of 2004 : [2005] 275 ITR 434, wherein....
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....er the second proviso to section 48, FIIs have been extended the benefit of limiting the tax rate to 10 per cent. on the capital gains arising from the transfer of long-term capital assets being securities. Under the scheme of section 115AD which applies to FIIs like the applicant (which does not apply to domestic companies and resident assessees), FIIs are taxed at 10 per cent. of the gains computed under section 48 without indexation, therefore, the proviso puts them on par. Thus, there cannot be said to be any discrimination on that basis. Further, they cannot also be said to be operating in the same circumstances inasmuch as FIIs can undertake only delivery based transactions, they are not subjected to margin requirement ; they have no restrictions on repatriation of profit out of the country and they have overall cap in taking equity possession. It may be pointed out that as defined in section 2(22A) domestic companies are not necessarily Indian companies. Admittedly, FIIs are non-resident and domestic companies and other resident-assessees are Indian residents. The different treatment, if any, is based not on the nationality but on the status as resident, which does not amoun....
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....Inc. [2006] 284 ITR (AT) 196 (Mumbai). In this case the assessee was a non-resident company and engaged in the business of erecting, commissioning and running of HRC project in Gujarat. It claimed deduction in respect of the allocation of overhead expenses incurred by the head office. It was contended that in addition to the deduction of normal business expenditure of a permanent establishment as permitted under the domestic taxation laws, deduction is also required to be allowed for a proportion of overhead expenses incurred by the head office. Referring to article 24 of the DTAA, it was held that by placing a restriction on the deduction of head office expenditure, which was not applicable in the case of resident companies, constituted less favourable tax treatment in India than the taxation levied on Indian enterprises carrying on the same activity in India. Hence the limitation on deduction of head office expenditure as stipulated under section 44C of the Act will be hit by non-discrimination clause in the Indo-Canadian Tax Treaty. It must be remembered that in this case the business profits of a permanent establishment under article 7 of the DTAA were required to be computed. ....
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....dent of any of the Contracting States". From these remarks of the learned Income-tax Appellate Tribunal, it can not rather be said that "nationality is the only criteria for article 24(1) to apply" as averred by the learned advocate. 13. The next case relied upon by the learned advocate is of SMS Demag Pvt. Ltd. [2010] TIOL-135-ITAT-DEL. In this case the appellant made payment to a non-resident company for the purchase of software. The appellant contended that the payment was not an expenditure which would fall under consideration under section 40(a)(i). It was held that as the provision of section 40(a)(i) was not applicable to the appellant for the assessment year 2000-01, it could not be made applicable to a foreign national because of non-discrimination clause 24(1) of the DTAA with India and Germany. The case simply lays down that the law as applicable should be applied. In fact, without reference to the non-discrimination clause under the DTAA the stand of the appellant itself was an acceptable proposition. The reliance placed is therefore of no help to the applicant. 14. The learned advocate further relied on income-tax case No. 1544 decided by the Transv....