AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (5) TMI 1666
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....): 1.1. The learned ACIT, under the directions of the Hon'ble Dispute Resolution Panel ('DRP"), erred in classifying the Rights Entitlement (RE) as akin to right shares and thereby taxing them under Article 13(5) of the India-Saudi Arabia DTAA. 1.2 The learned ACIT erred in not recognizing that RE represents rights granted to existing shareholders to subscribe to new shares, and are not shares per se 1.3. The learned ACIT erred in rejecting the classification of RE as a separate security, distinct from the shares of the company. 1.4. The learned ACIT failed to consider that the sale of RE is covered under this Article 13(6) of the of India-Saudi Arabia DTAA and should be taxable only in Saudi Arabia and not India. 1.5. The Appellant respectfully submits that the learned ACIT be directed to treat capital gains arising from the renunciation of RE as taxable only in the country of residence of the Appellant i.e. Saudi-Arabia, in accordance with the provisions of Article 13(6) of the India- Saudi Arabia DTAA. 2. Re.: Erred in granting short credit of advance tax paid amounting to Rs. 6,20,21,241/-: 2.1. The learned ....
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....r taxation by the assessee, claiming that the rights entitlement are not shares and the capital gains arising therefrom are not taxable in India in view of the provisions of Article 13 of the India-Saudi Arabia DTAA. Accordingly, during the assessment proceedings, the assessee was asked to show cause as to why the said capital gains should not be brought to tax in India under the head "Income from Capital Gains". In response, the assessee submitted that as per the Companies Act, 2013, "share" means a share in the share capital of a company and includes stock. The assessee further submitted that rights entitlement is the right issued to buy additional shares in a company and is made to the company's existing shareholders, and the same is not shares per se. It is further submitted that such entitlement is allowed to be renounced to a third party for a consideration, and therefore, the rights entitlement is the right or any interest in a security. Thus, the assessee submitted that the rights entitlement is considered as a security separate from that of shares and cannot be construed to be the same as the shares of the company. By referring to the provisions of Article 13(6) of the Ind....
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....s are shares and intrinsically and inextricably linked to shares. Therefore, the transfer of rights entitlement would not fall under Article 13(6) of the India-Saudi Arabia DTAA. 7. In conformity with the directions issued by the learned DRP, the AO vide impugned final assessment order dated 24/12/2024, assessed the total income of the assessee after including the capital gains earned by the assessee on the sale of rights entitlement. Being aggrieved, the assessee is in appeal before us. 8. During the hearing, the learned Authorised Representative ("learned AR") submitted that rights entitlement may be inextricably linked to the shares held by the assessee in the company, but the same is not shares. Accordingly, it was submitted that gains accrued to the assessee from the sale of rights entitlement are only taxable in the resident country, i.e. Saudi Arabia. 9. On the other hand, the learned Departmental Representative ("learned DR"), by vehemently relying upon the order passed by the lower authorities, submitted that since rights entitlement is inextricably linked to the shares held in a company, they are akin to shares. Thus, the learned DR submitted that any gains arisi....
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....ch fixed base, may be taxed in that other Contracting State. 3. Gains from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State of which the alienator is a resident. 4. Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State. 5. Gains from the alienation of shares other then those mentioned in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State. 6. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3, 4 and 5, shall be taxable only in the Contracting State of which the alienator is a resident." 12. From a plain reading of Article 13 of the India-Saudi Arabia DTAA, it is evident that the gains arising from the alienation of the following categories of assets fall within the ambit of this Article: - (a) Immovable property (Paragraph 1) (b) Movable prope....
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....before the coordinate bench of the Tribunal in Vanguard Emerging Markets Stock Index Fund vs. ACIT, reported in [2025] 172 taxmann.com 515 (Mumbai - Trib.). While deciding that the rights entitlement to the shares is distinct from the shares, the coordinate bench vide its order dated 18/03/2025 in the aforesaid decision, observed as follows:- "7. First of all, our attention was drawn to Section 62 of the Companies Act, 2013 which for the sake of ready reference is reproduced hereunder:- "62. Further issue of share capital (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares such shares shall be offered 1. (a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion. as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely (1) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days 1 for such lesser number of days as may be prescribed) and not exceeding thirty days from the date of t....
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....ue at which such rights entitlements are traded). Thus, rights entitlements have been treated differently from shares by the SEBI and NSE. 11. It has been further brought to our notice that as per the Finance Act, 2004 "option in securities" has been defined to have the same meaning assigned to it in clause (d) of section 2 of the Securities Contracts (Regulation) Act. 1956 (SCRA). Clause (d) of section 2 of the SCRA defines "option in securities to mean purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a taji mandi, a galli, a put, a call or a put and call in securities. Accordingly, it has been submitted that rights entitlement is an option to purchase a security (which could be shares of an Indian company) in the future. Further, the prescribed rate of STT on purchase of equity shares is different, which clearly evidences that rights, entitlement is not the same as shares. 12. In support of the contention that rights entitlement are different from the shares, Ld. Counsel for the assessee had strongly placed reliance on the judgment of the Hon'ble Supreme Court in the case of Navin Jin....