The issue for consideration is whether Wealth Tax is payable on the shares of foreign companies held by Indian companies or other Indian entities? The existing scheme of Wealth Tax is that the shares of companies are not liable to Wealth Tax, being outside the definition of assets in the Wealth Tax Act. Accordingly, shares of companies whether such companies are Indian companies or foreign companies will be outside the purview of Wealth Tax levy. Until 1992 shares held in a company were liable to wealth tax. However, with a view to channelise investment to productive areas, the definition of the term asset was amended by Finance Act, 1992.
As a result of the afore-said amendment, wealth-tax stood abolished on shares. In fact the memorandum explaining the provisions of Finance Bill, 1992 provided that with a view to stimulating investment in productive assets, it is proposed to abolish wealth-tax on all assets except certain specified assets.
The above position is now sought to be disturbed in respect of shares of foreign companies by introduction of Controlled Foreign Company (CFC) regime. The Income-tax Act as well as the Wealth tax Act is proposed to be substituted by the revised Direct Taxes Code (DTC). The revised DTC contains provision relating to Controlled Foreign Companies (CFC).