2018 (3) TMI 738

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....on of Finnish Industries. It is stated by the applicant that it does not actively trade in public / private stocks of companies in the Indian capital markets, but pursues a long- term, growth oriented strategy with respect to investments. The applicant had acquired 21,25,005 shares of Andhra Pradesh Paper Mills Limited (APPML), an Indian listed company, under the Foreign Direct Investment ('FDI') route. 2.1 Subsequently, the applicant sold 6,52,000 equity shares on a recognized stock exchange in India during the period from 29th July 2011 to 30th August, 2011. The applicant again sold 7,48,608 shares, pursuant to an open offer vide Offer Document issued by IP Holding Asia Singapore Pte. Ltd. ('IP' Holding). The balance 7,24,397 shares were sold on a recognized stock exchange. The details of quantity of acquisitions and sales, as stated by the applicant, are as under: Sr. no. Purchase details Sale details   Date of purchase Quantity / (Cost of acquisition) Sale description Date of sale Quantity 1. 09-09-05 13,75,003 (USD 29,99,950) Sold on the stock exchange 29-07-11 to 30-0....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....that the expression "before giving effect to the provisions of second proviso to Section 48" used in the proviso to Section 112 (1) of the Act requires a taxpayer to compute the capital gains without taking cognizance of or giving effect to the second proviso to Section 48 of the Act. It is further submitted that the applicability of the second proviso to Section 48 of the Act or the eligibility of a taxpayer to actually claim the benefit under the said proviso is not a sine qua non for applying the reduced rate of 10% prescribed by the proviso. Therefore, irrespective of whether or not the Applicant is entitled to claim benefit of second proviso to Section 48 of the Act, the benefit under the proviso to Section 112 (1) of the Act should be allowed to the Applicant. 5. The Revenue has submitted that the computation of capital gains in the case of the Applicant is to decided as per section 48 whereas the computation of tax is to be decided by section 112, as against the Applicant's contention that it is covered by the proviso to section 112(1). It is the Revenue's contention that wherever the first proviso to section 48 is applied in the case of a non-resident, the second proviso....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....withdrawn from the Non residents and no further benefit of indexation was mandated (even though the concept of cost inflation index was introduced). 5.3 Further, the Finance Act, 1993 inserted Sec 115AD in the Income- tax Act, 1961, which mandated taxation of FIIs at 10% with reference to Long Term Capital Gains and 30% with reference to Short Term Capital Gains on specified assets. However, the application of 1st and 2nd provisos to Sec 48 was explicitly barred through Sec 115AD(3). This was explained by Circular No. 657 dated 30.08.1993. 5.4 It is further submitted that Section 112 was inserted by the Finance Act, 1992 prescribing rates on long term capital gains. Sec 112(c) was inserted by Finance Act, 1994. The Circular no. 684 dated 10.06.1994 has been cited to explain the intent with reference to this insertion, that in the case of foreign companies and the non-resident non-corporate assessees, section 112 would provide for income-tax rate on long-term capital gains at twenty per cent. 5.5 The Revenue further submitted that the Finance Act, 1999 inserted proviso to Sec 112, and the Explanatory Memorandum to the Finance Act, 1999 explains the rationale of insertion of....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....of such capital gains before giving effect to provisions of second proviso to Section 48. Thus, for the application of this proviso, in a particular case, the applicability of second proviso to Section 48 is a sine qua non. Otherwise, the phrase 'before giving effect' will be rendered meaningless. A situation of 'before giving effect' can only arise if the act of 'giving effect' is a possibility. In the case of non residents, the effect of the second proviso to Section 48 cannot be given at all with reference to capital gains arising from transfer of shares or debentures. 5.8 It is submitted that in the case of B.C. Srinivasa Shetty, 128 ITR 294, the Hon'ble Apex Court had held that the charging section and the computation provisions together constitute an integrated code. When there is a case to which computation provisions can not apply at all, it is evident that such a case was not intended to fall within the charging section. 6. In response, the Applicant has submitted that though Revenue has raised objections against a lower rate of tax, the Revenue accepts that this issue was covered by the case of Cairn UK Holdings Limited vs. DIT (Supra), as mentio....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... 6.3 The Applicant reiterates that its case is now squarely covered by the decision of the Hon'ble High Court of Delhi in the case of Cairn UK Holdings Ltd., 2013 (Supra) and various rulings of the Authority, such as Timken France SAS [294 ITR 513 (AAR)] and the latest being Pan-Asia iGate Solutions, Mauritius, In Re 2014 SCC Online AAR 13 where on this identical issue, this Authority has agreed with the contentions as put forth by the Applicant in the instant case. The Hon'ble High Court of Delhi in the case Cairn UK Holdings Ltd. (supra) has exhaustively dealt with the Legislative intent, Circulars and the Explanatory Memorandum to the Finance Act, 1999. Hence, the Applicant does not agree with the Revenue that the case of Cairn UK may not be relied upon as its arguments made during the course of these proceedings were not fully argued or taken up by the Hon'ble High Court of Delhi. 7. We have considered the submissions of both the Applicant and the Revenue. 7.1 The basic contention of the Applicant is that the tax payable on the long term capital gains arising on the sale of acquired shares of M/s Andhra Pradesh Paper Mills Limited will be 10.506% of the amount of capita....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....t the circular of the Central Board of Direct Taxes or explanatory memoranda were not equivocal and clear enough to throw light on the rationale of extending or not extending the benefit of reduced rate of tax in terms of the proviso to Section 112(1). The expression 'level playing field' was flexible and capable of being understood in more than one way. The argument of double benefit was not a taboo under law and protection against exchange rate fluctuation under the first proviso to Section 48 does not go against the concept of lower rate of tax. It has been further observed that enquiry to delve into legislative intent and purpose would be a hazardous guess. 28. Argument of the Revenue on the surface is plausible, but on deeper scrutiny, we do not think that contextual interpretation underscoring contention of the Revenue is applicable and the contention or plea is in fact reflective of the true intention of the legislature." 7.4 Thus we find that the Hon'ble High Court of Delhi has fully considered the issue of intent of legislature as against the literal meaning as appearing in the Act, and also considered Revenue's argument of the amendments being made to provide ....