AI Drafter 
TaxTMI 
TaxTMI 
2007 (1) TMI 109
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.... R&D (India) Private Limited [for short "the Cordys India"] which is incorporated under the Companies Act, 1956. The applicant proposes to reorganize its holding pattern in its group companies. In the process of reorganization, the applicant would transfer its entire share holding in the Cordys India to the Cordys. As a result of this, the Cordys India would come under the direct control of the Cordys. In the aforementioned factual background, the applicant has sought advance ruling on the following questions: i) On the facts and in the circumstances of the case, whether the capital gain arising to the Applicant in the course of corporate reorganization at group level, from the proposed transfer of shares held in the Cordys R&D (India) Pvt. Ltd., an Indian Subsidiary of Vanenburg Group B.V. to Cordys Holding B.V., another 100% subsidiary of Vanenburg Group B.V., is liable to tax in India having regard to the provisions of the Income-tax Act, 1961 ('the Act") and the Double Taxation Avoidance Agreement between India and the Netherlands ("the DTAA")? ii) On the facts and circumstances of the case, whether Cordys Holding B.V., the transferee company, is required to withhold tax ....
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....er in this case (for short " the commissioner"), has furnished comments vide his letter dated 11.08.2006. He has stated that though the transaction would be taxable as per the provisions of the Act, no tax would actually be payable in India because of clause (5) of article 13 of DTAA, as the share transfer would be taking place in pursuance of reorganization of the group companies. So far as the section 195 is concerned, deduction of tax at source should be made if any sum chargeable under the provisions of the Act is paid or credited to the account of the payee. The DTAA does not contain any specific provision with regard to this aspect, in the absence of which tax should be required to be deducted at source. The commissioner has further stated that, in case, it is decided that the income is not taxable and TDS is not required to be made, there would be no need to file Income-tax return. As regards applicability of section 92 to 92F, it would depend on the decision taken in respect of question no.1 of the application. In case, this question is decided in favour of the applicant, determining the arm's length price for the shares under sections 92 to 92F would not be required. 4.....
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....come accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India." ** ** ** ** ** ** ** ** ** The applicant is a non-resident. It proposes to transfer its capital assets in India. The resulting income, therefore, would be deemed to accrue or arise to it in India in terms of section 9(1)(i) of the Act. As such, this income should have been included in its total income, and should have been chargeable to income-tax in India, but for the provisions of the DTAA. 7. The Central Government has entered into the DTAA with the Govt. of the Kingdom of the Netherlands under sub-section (1) of section 90 of the Act. Article 13 of this agreement deals with capital gains. Clause (5) of this article which is most relevant for the present consideration, is extracted below: "Gains from the alienation of any property other than that referred to in paragraphs 1,2,3 and 4, shall be taxable only in the State of which the alienator is a resident. However, gains from the alienation of s....
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....h the said clause is to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAs which would automatically override the provisions of the Income-tax Act in the matter of ascertainment of chargeability to income-tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC." The Supreme Court subsequently reiterated the above views in Commissioner of Income-tax vs P.V.A.L Kulandagan Chettiar 267 ITR 654 case. In view of the well settled legal position on the subject, we have no hesitation in holding that the resulting capital gains, if any, shall be taxable in the Netherlands. 8. We may now turn to the question of deduction of tax at source. Sub-section (2) of section 4 reads as under : "(2) In respect of income chargeable under sub-section(1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act." Further, section 195, inter alia, states that a person responsible for paying to a foreign company any interest or any other sum chargeable under the provisions of this Act shall deduct income-tax at the....
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....e of the questions put before the Authority was whether in the event of the transaction not been taxable in India, the assignee company will still be liable to withhold tax under section 195. The Authority held that as the consideration payable under the deed of assignment was not chargeable to tax under the provisions of the Act, section 195 would not be attracted. In the light of the foregoing discussion, we are of the view that no taxes need be deducted at source in this case, since the capital gains in question would not be liable to tax under the provisions of the Act read with the aforementioned provision of the DTAA. 9. So far as filing of income-tax return is concerned, it may be mentioned that the liability to pay tax is founded upon sections 4 and 5 of the Act, which are the charging sections. Section 139 and other sections are merely machinery sections to determine the amount of tax. There would be no occasion to call a machinery section in aid where there is no liability at all. Reference in this connection may be made to Chatturam vs CIT 15 ITR 302. We are, therefore, of the view that the applicant will not be required in this case to file any tax returns. ....