Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: VAT Audit :: empanelment :: VAT RATES :: ACCOUNTING STANDARD :: TAX RATES - GOODS TAXABLE @ 4% :: form 3cd :: Central Excise rule to resale the machines to a new company :: list of goods taxed at 4% :: ACCOUNTING STANDARDS :: due date for vat payment :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TDS :: articles on VAT and GST in India :: ARTICLES ON INPUT TAX CREDIT IN VAT :: cpt
 
 
News Headlines »
 Seven things you must do before 31st March
 Income Tax saving investments: Top 5 options available for high-income individuals
 How to use zero tax rule on long term capital gains on stocks
 GST Returns - Furnishing details of inward supplies
 5 ways to maximise you income tax return
 Income-tax (2nd Amendment) Rules, 2017
 Soon, Faster PAN, An App For Filing Tax Returns
 Changes in income tax return filing process
 New Income Tax Rates And Deductions Applicable From April 1, 2017
 Tax and transparencya
 No decision yet on imposing tax on cash transactions

Capital gains tax payable in India
December, 19th 2007
It is quite common these days that foreign companies, which hold shares in Indian companies (whether as holding companies or otherwise), transfer the Indian shares to other group companies or other non-residents outside India.
 
When the transaction of sale and purchase takes place outside India between the two non-residents, a question arises as to whether any capital gains tax would be chargeable in India or not. In such a situation, does the transaction has any nexus with India?
 
The above issue has been recently examined by Authority for Advance Rulings in case of Trinity Corporation, (2007) 165 Taxman, 272. In the said case, a non-resident was a shareholder in an Indian company. He entered into an agreement with a USA-based company, to transfer his aforesaid shares to the US company in a phased manner.
 
The share transfer agreement was entered and executed in the USA. The US company filed an application seeking advance ruling on the questions: (i) Whether transfer of shares by the non-resident to the US company is liable for capital gains tax in India and (ii) whether the applicant, transferee of shares in question, is liable for capital gains tax on purchase of such shares as an agent/representative assessee of transferor as per provisions of Income Tax Act.
 
Section 9(1)(i) of the Income Tax Act specifically provides that income through the transfer of a capital asset situated in India will be deemed to accrue or arise in India.
 
The Authority therefore observed that: The insertion of the clause, i.e., the situs of the capital asset being in India, has been ushered in the statute to take care of the situations like transactions between two non-residents taking place outside India. In simple words, even if the transaction relating to a capital asset takes place outside India, but if the capital asset is situated in India, the profits or gains thereon is accruing or arising in India in consonance with the provisions of section 9(1)(i) of the Act and is thus assessable under the head Capital gains under the relevant provisions of Income-tax Act.
 
When a transaction of sale and purchase is made amongst non-residents wholly outside India, no consideration will be remitted to India or from India.
 
Therefore, there may be practical difficulties in collection of tax by Indian authorities. Tax is basically payable by the seller of shares. But where the capital gains arise to the non-resident by reason of transfer of capital assets situated in India, the transferee may be assessed as a representative assessee of the transferor.
 
In the above case, the Authority observed that the US company, the transferee, has purchased the asset and has also paid the sale-consideration. Such transferee, as the provision of the section 163 of the Act stipulates, may either be a resident or non-resident. The Indian Parliament has devised the method of deeming the capital gains as having accrued or arisen in India so that on the basis of such deeming fiction, the tax authorities are entitled to levy tax on the transferee (purchaser), as a representative assessee, and the tax can be realised from him.
 
Interpretation of Indian law as discussed above, is of course subject to specific provision, if any, in the relevant tax treaty.
 
Therefore, unless the tax treaty provides otherwise, capital gains arising on sale of an Indian companys shares will be liable to tax in India even if the transaction takes place between non-residents wholly outside India.

H P Aggarwal
 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - About Us

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions