TaxTMI 
TaxTMI 
2019 (11) TMI 1585
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....d receipt of equity shares of MTIN under the Double Tax Avoidance Agreement entered into between India and Switzerland ? 2. Based on the facts and circumstances of the case, whether MTH-Swiss is required to deduct any tax under section 195 of the Act in relation to the proposed contribution of shares of MTIN to the applicant ? 3. Based on the facts and circumstances of the case, whether the applicant, the recipient of shares, is required to withhold tax in accordance with the provisions of section 195 of the Act ?" 3. The facts of the case in brief are that the applicant is an operating company engaged in the business of developing, manufacturing and globally marketing scales, instruments, measurement devices and systems. Further the applicant provides support to affiliated companies, especially financial support and is having investments in various countries like Bermuda, Hong Kong, Brazil, etc. The applicant claims not to have a permanent establishment in India within the meaning of article 5 of India-Swiss Tax Treaty. 4. Mettler Toledo Holding AG (MTH-Swiss), an MT Group company, is a company incorporated in Switzerland and is having investments in German....
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....ares) as income arising in terms of section 56(2)(vii)(a) of the Act from the proposed receipt of equity shares of MTIN would be taxable as income from other sources but as per section 90, the taxpayer is permitted to choose between the provisions of the Act or applicable tax treaty whichever is more beneficial and as the income stated above is not covered by any specific article of the India-Swiss tax treaty and it shall be covered by article 22 relating to other income. As per article 22(1) the income of the resident wherever arising and not dealt with in other articles of tax treaty are taxable only in Switzerland. So the income arising in terms of section 56(2)(vii)(a) of the Act would not be taxable in India in the hands of the applicant in terms of article 22(1) of the India-Swiss Tax Treaty. 6.2. Vide letter dated September 11, 2017, learned authorised representative had mentioned that since the filing of the application there were changes in the Income-tax Act, i. e., section 50CA was inserted by the Finance Act, 2017 which provides for levy of capital gains on transfer of unquoted shares by substituting the agreed consideration by fair market value (FMV) in cases ....
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....ion provision also fails there would be no liability in the hands of MTH-Swiss. Reliance is placed on the following decisions in this regard : -Amiantit International Holding Ltd., In re [2010] 322 ITR 678 (AAR) ; 230 CTR (AAR) 19; -Goodyear Tire and Rubber Company, In re [2011] 334 ITR 69 (AAR) (AAR No. 1006 and 1031 of 2010) ; -Dana Corporation, In re [2010] 321 ITR 178 (AAR) (AAR No. 788 of 2008). 6.6. It is also contended that the transfer of shares from MTH-Swiss to the applicant is without any consideration and in the nature of gift and is thus covered under section 47(iii) of the Income-tax Act and therefore there is no liability of tax in the hands of the MTH-Swiss. 6.7. Another plea taken by the learned authorised representative is that sections 92 to 92F dealing with transfer pricing (TP) provisions are not applicable to the impugned transaction as these sections are machinery sections and moreover the computation of arm's length price (ALP) is dependent on the income arising from an international transaction and as shares are transferred by way of gift no income arises to the applicant and the transferor and therefore the ....
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.... the gift transaction. Thus the transaction is couched in this form only to eliminate tax implications. The transaction is not a gift and in any event, it is null and void. The genuineness and validity of the transaction is not proved from the document submitted by the applicants. In any case gift by a corporation to another corporation is not a genuine transaction as human element is not involved in such transactions. 9. The Revenue has relied upon a similar case of AAR, i. e., Orient Green Power Pte. Ltd., In re [2012] 346 ITR 557 (AAR) AAR No. 973 of 2010, in which the authority has declined to give ruling with the following observations (page 565 of 346 ITR) : "Before parting with the case, it appears to be proper to observe that in the context of section 47(i) and (iii) this gift referred to therein, is a gift by an individual or a Joint Hindu Family or a Human Agency. Section 47(iii) speaks of 'any transfer of a capital asset under a gift, or will or an irrecoverable trust'. Execution of a will involves a human agency. Cannot the expression gift take its colour from a will with which it is juxtaposed, especially in the background of clause (i) of section 4....
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.... 10. In view of the finding and considering the facts of the present case the Revenue has requested that the issue may be left with the Assessing Officer to examine the genuineness and validity of the transaction. 11. The Department has further submitted that the shares in MTIN are held by MTH-Swiss as a capital asset and any profits or gains arising from their transfer are chargeable to Income-tax under head "Capital gains". Section 45 of the Act provides that the gains arising from the transfer of a capital asset are chargeable to tax as capital gains. Section 48 of the Act deals with the mechanism for computing income chargeable under the head "Capital gains". Recently a new section 50D was inserted in the Income-tax Act, 1961 so as to provide that where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer. The provision reads as under : 50D. Fair market value deemed to be full value of consideration in ce....
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....e whether the gain is chargeable to tax or not under the Act. Clearly, in cases governed by the Act alone, they would be chargeable to tax. In a case when an option is exercised to opt for benefits under a DTAC, then the question would arise whether the gain is taxable in this country and if yes, to what extent. The question of chargeability to tax would arise only at a later stage. The application of section 92 cannot be kept at bay by jumping to the second stage straight away. I am therefore, of the view that whether ultimately the gain or income is taxable in the country or not, sections 92 to 92F would apply if the transaction is one coming within those provisions, where there is no liability what would be the purpose of undertaking a transfer pricing exercise is not a question that would affect the operation or rigour of a statutory provision on its plain words." 12.1. The above view was further confirmed by the hon'ble Authority in the case of Armstrong World Industries Mauritius Multiconsult Ltd., In re [2012] 349 ITR 303 (AAR) (AAR No. 1044 of 2011). 13. It is stated by the Commissioner of Income-tax (DR) that the Finance Act, 2012 has amended the definition....
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....action. According to the Revenue, the applicant should submit the document which contains scheme of restructuring at group level and the transaction under reference as its part. This document will show purpose, plan and method of implementation of the group restructuring. This document will also show what are the various considerations and benefits in group restructuring, how and in what way various group companies including the applicant will benefit from the group restructuring. In the absence of the above mentioned documents, the Revenue is of the opinion that the applicant has failed to prove with supporting documents that the transaction is not designed to avoid income-tax. 18. Case law relied upon by the applicant are distinguished by the Revenue in following manner : 18.1. In respect of the case of D. P. World Pvt. Ltd. v. Dy. CIT (I. T. A. Nos. 3627 and 3841/Mum/2012 dated October 12, 2012) the Income-tax Appellate Tribunal has rendered a decision of treating gift of shares as not transfer under section 47 of the Act, it is stated that in that case there was proper gift deed made by the transferor which was backed by the Board's resolution and memorandum of ....
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....e. The applicant has placed reliance on the following rulings : -Ikea Trading (Hong Kong) Ltd., In re [2009] 308 ITR 422 (AAR) ; -Hyosung Corporation, In re [2009] 314 ITR 343 (AAR) ; -Factset Research Systems Inc., In re [2009] 317 ITR 169 (AAR) ; -Smithkline Beecham Port Louis Ltd., In re [2012] 348 ITR 556 (AAR). 22. Regarding the final executed version of the contribution agreement as well as the Board resolution is concerned, the applicant has submitted that the transaction for which the answer is being sought for by the applicant has not been entered into. Once it is decided by the applicant to enter into the same, all requisite approvals including the Board approval will be obtained pursuant to which the Contribution agreement will be executed. 23. In response to the Revenue contention that gift from one Corporation to another is not a genuine transaction and as human element is not involved, the reliance is placed on the ruling on the Income-tax Appellate Tribunal, Chennai in the case of Redignton India Ltd wherein it is held that a company can transfer property by way of gift and there is no requirement that the same should be out ....
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....there is no tax implication for the transferor, i. e., MTH-Swiss as the transfer is without any consideration and is a gift from one company to another and is not a transfer under section 47(iii) of the Income-tax Act and even otherwise the charging section 45 fails when there is no consideration on transfer of capital asset. 27. The Department on the other hand has argued that it is a case of tax avoidance and the transaction is taxable both in the hands of the transferor and the applicant. 28. The only issue to be adjudicated upon is whether the proposed share transfer transaction results in any taxable income. The transaction between non-resident entities is indisputably an international transaction. It is also noticed that the Finance Act, 2012, with retrospective effect from April 1, 2002, has inserted Explanation (ie) below section 92B to clarify that a transaction of business restructuring or reorganization entered into by an enterprise with an associate enterprise irrespective of the fact that it has a bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date is an international transaction. In the instant....
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....ain in the hands of the transferor and as in terms of Indo-Swiss treaty the capital gains can be taxed in the source country, i. e., in India, the treaty would be of no avail to the transferor of the transaction. The other two questions posed before us are only consequential in nature and in case the transaction is taxable in India, section 195 would demand tax deduction at source. 33. On the aforesaid issue, we have the benefit of decisions of the Authority for Advance Rulings in Castleton Investment Ltd., In re [2012] 348 ITR 537 (AAR) ; 24 taxmann.com 150 (AAR-New Delhi) and also decisions of Kolkatta Special Bench of the Income-tax Appellate Tribunal in Instrumentarium Corporation Ltd., Finland v. Asst. DIT (International Taxation) [2016] 49 ITR (Trib) 589 (Kolkata) [SB] ; 71 taxmann.com 193, Income-tax Appellate Tribunal, Delhi Special Bench in L. G. Electronics India P. Ltd. v. Asst. CIT [2013] 22 ITR (Trib) 1 (Delhi) [SB] ; 29 taxmann.com 300 and in Income-tax Appellate Tribunal Ahmedabad, Vodafone India Services (P.) Ltd. v. Dy. CIT [2018] 11 ITR (Trib)-OL 272 (Ahmedabad) ; 89 taxmann.com 299 (Ahmedabad-Trib.). 34. In the case of Castleton Investment Ltd., In re [2012....
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....actions entered into between a resident and a non-resident and between two non-residents. No particular type of international transaction has been kept out of its purview." In Vanenburg Group B.V., In re [2007] 289 ITR 464 (AAR), in which at the hearing, 'none appeared for the Department of Revenue', it was merely stated that 'these provisions are aimed at preventing avoidance of tax by certain well known devises, determination of arm's length price, 'computation of income in certain cases, etc., in relation to international transactions. These are again machinery provisions which would not apply in the absence of liability to pay tax'. There was no reference to the Canoro ruling or an independent discussion on this question. There was no discussion of the aspect here arising. With respect, taxability of a capital gain is broadly determined based on the difference between the investment and the sale price. Even if section 92 to section 92F are machinery provisions, without resort to them, the capital gains from an international transaction cannot be determined. Only on determining whether capital gains have arisen, would the question arise ....
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.... to section 92F of the Act are applicable. The aspect that the exercise may not be fruitful in this case, cannot affect the applicability of the statutory provisions." 35. In the case of Instrumentarium Corporation Ltd., Finland v. Asst. DIT (International Taxation) [2016] 49 ITR (Trib) 589 (Koltaka) ; 71 taxmann.com 193 (Kolkata-Trib.) [SB] it is held that (page 636 of 49 ITR (Trib)) : "In our considered view, the assessee is not really correct in con tending that when the assessee has not reported any income from a particular international transaction, the arm's length price adjustment cannot compute the same. The computation of income on the basis of the arm's length price does not require that the assessee must report some income first, and only then it can be adjusted for the arm's length price. Section 92(1) is not an adjustment mechanism ; it is a computation mechanism. The arm's length price principle requires that an arm's length price is assigned to the transactions between the associated enterprise, and if the income is computed, if any, on the basis of the arm's length price so assigned. As regards reliance on the Vodafone India Servi....
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....ween the AEs for a transaction is not a decisive factor to have influence over its nature. Payment of consideration has not been made as a condition precedent for inclusion of any transaction within the ambit of section 92B. The transfer pricing pro visions should be seen in the backdrop of the fact that these are special provisions for avoidance of tax on the transactions structured between two associated enterprises. The simple fact that the foreign AE did not pay any consideration to the Indian AE will not take the transaction out of the purview of the transfer pricing provisions, if it is otherwise an international transaction." 37. In Vodafone India Services (P.) Ltd. v. Dy. CIT [2018] 11 ITR (Trib)-OL 272 (Ahmedabad) ; 89 taxmann.com 299 (Ahmedabad -Trib.) it is held that (page 478 of 11 ITR (Trib)-OL) : "The next point made by the assessee is that there is no consideration for the transfer and, for this reason, the computation of capital gains in not possible. It is true that the consideration in this case is zero but then that precisely is a zero consideration for transfer of this valuable right in an arm's length situation, and, therefore, while co....
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..... In our view, given the facts of the case, transfer pricing provisions are attracted and arm's length price has to be determined. Once arm's length price is determined which would certainly be having some value as it is in connection with shares of running Indian concern, the capital gain liability would arise in the hands of transferor, i. e., MTH-Swiss. 40. Now let us examine the capital gains treaty provisions which are contained in article 13 of the treaty and the relevant clause is 13(5). "Article 13 Capital gains 1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in article 6 and situated in the other Contracting State may be taxed in that other State. 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 other Contracting State for the purpose of independent personal services, including such gains from the alienation of such a perm....
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.... note appended with the application to this effect is extracted below : Appendix 3 - Note on Internal restructuring and contribution of shares 1. Mettler-Toledo International, Inc. is a group holding company of the Mettler-Toledo group ("MT Group") and its shares are listed on the New York Stock Exchange. The MT Group is a global manufacturer and marketer of precision instruments for use in laboratory ; industrial and food retailing applications. 2. MTH-Swiss, an MT Group company, is a company incorporated in Switzerland and tax resident of Switzerland. Amongst others, MTH-Swiss currently holds investments in MTIN. 3. MTG-Swiss, an MT Group company, is a company incorporated and tax resident of Switzerland. MTG-Swiss is an operating company engaged in the business of developing, manufacturing and globally marketing scales, instruments, measurement devices and systems. Further, MTG-Swiss provides support to affiliated companies, especially financial support and is having investments in various countries like Bermuda, Hong Kong, Brazil, etc. 4. MTG-Swiss has in excess of 20 subsidiaries globally. These entities are in expansion mo....
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.... j StG, transfers of title in tax able securities in exchange for consideration are exempt from the securities transfer tax if these transfers relate to a group internal transfer of a participation of at least 20 per cent. to a Swiss or foreign subsidiary. In the case at hand the contemplated contribution of the 100% participation held by MTH in MT-IN to MTG does not trigger the securities transfer tax due to the lack of consideration exchanges (and the exemption is not needed). The Swiss withholding tax is not affected by this transaction." 46. From the above, it is noticed that the transaction is exempt from securities transfer tax in Switzerland if the transfer of securities is for lack of consideration. Thus by proposed transfer at no consideration avoids payment of taxes in India as well as in Switzerland. It is also observed that despite having more than 20 subsidiaries globally, the Mettler-Toledo group has proposed only single share transfer transaction from MTH-Swiss to MT-AG and there is no other changes in the group structure, allocation or movement of assets and other intangibles and that too the shares of an Indian entity MTIN and that too for no c....