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THE DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION Vs. GOODYEAR TIRE AND RUBBER COMPANY
March, 07th 2013
       THE HIGH COURT OF DELHI AT NEW DELHI
%                                      Judgment delivered on: 27.02.2013

+      W.P.(C) 8295/2011

THE DIRECTOR OF INCOME TAX (INTERNATIONAL
TAXATION), DELHI                      ... Petitioner

                                        versus

GOODYEAR TIRE AND RUBBER COMPANY                               ... Respondent
Advocates who appeared in this case:
For the Petitioner           : Mr Abhishek Maratha, Ms Anshul Sharma
For the Respondent           : Mr Percy J. Paradiwalla, Sr. Adv. with
                               Mr H.R. Rao, Mr Mukesh Bhutani,
                               Mr Rahul Yadav, Advs.


CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR

                                  JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

1.     This writ petition has been filed by the department against the
advance ruling order dated 02.05.2011 given by the Authority for
Advance Rulings (A.A.R). The crux of the matter is that 74% shares of
Goodyear India Limited were held by a USA company by the name of
Goodyear Tire & Rubber Company. The said USA company has a 100%
subsidiary in Singapore by the name of Goodyear Orient Company (Pte)
Limited. Both the USA company as well as the Singapore company had
approached the A.A.R. with respect to the tax liability of the proposed







WP(C)8295.2011                                                          Page 1 of 4
transfer of the said 74% share-holding of the USA company in Goodyear
India Limited Company to its 100% subsidiary in Singapore. The A.A.R.
after examining the various provisions of the Income-tax Act, 1961
(hereinafter referred to as the `said Act') has ruled that there would be no
tax liability on either the USA company or the Singapore company.

2.     One of the points considered by the A.A.R. was that the transfer of
the 74% shares to the Singapore company, which was without any
consideration, even if the same was for consideration would be exempted
from income-tax in view of the specific provisions of section 10(38) read
with Chapter VII of the Finance (No.2) Act, 2004 . We may point out
that Chapter VII of the said Finance (No.2) Act, 2004 pertains to
securities transaction tax. Section 97(13) of the said Finance Act defines
`taxable securities transaction' in the following manner:-

       "(13) "taxable securities     transaction"   means    a
       transaction of ­
           (a) purchase or sale of an equity share in a
              company or a derivative or a unit of an equity
              oriented fund, entered into in a recognized stock
              exchange; or

           (b) sale of a unit of an equity oriented fund to the
              Mutual Fund."
3.     The charge of `securities transaction tax' is given in section 98 of
Chapter VII of Finance (No.2) Act, 2004, which, to the extent relevant, is
quoted hereunder:-

       "98. On and from the commencement of this
       Chapter, there shall be charged a securities transaction



WP(C)8295.2011                                                    Page 2 of 4
       tax in respect of the taxable securities transaction
       specified in column (2) of the Table below, at the rate
       specified in the corresponding entry in column in
       column (3) of the said Table, on the value of such
       transaction and such tax shall be payable by the
       purchaser or the seller, specified in the corresponding
       entry in column (4) of the said Table:"
4.     Reading the said provisions together with section 10(38) of the said
Act, it is apparent that income arising from the transfer of a long term
capital asset, if it is an equity share in a company or a unit of an equity
oriented fund, where the transaction of sale of such equity share is
chargeable to securities transaction tax, then such income would be
exempt. To put it in plain language, if income arises out of the transfer of
a long term capital asset being an equity share in a listed company, the
said income would be exempt under section 10(38) of the said Act. There
is no doubt that the shares of Goodyear India Limited are listed shares
and therefore even if a consideration had been charged for the transfer of
the 74% share, the income arising therefrom would be exempt by virtue
of the provisions of section 10(38) of the said Act.

5.     This is the approach which has been taken by the A.A.R. to hold
that neither the USA company nor the Singapore company would be
liable to any tax in respect of the proposed transfer of the 74% share-
holding in Goodyear India Limited. The A.A.R. also observed that for
the same reason this was a complete answer to the revenue's argument
that the transactions were part of a design of `treaty shopping'. The
argument of the revenue was that if the share-holding remained with the
USA company and, subsequently, at some point of time the shares were




WP(C)8295.2011                                                   Page 3 of 4
transferred, the income arising there from would be liable to taxation in
terms of the said Act as well as the double taxation avoidance agreement
between India and USA. Thus, according to the revenue, the transaction
resulting in such capital gain would be taxed in both countries, that is,
India and USA. But, having regard to the double taxation avoidance
agreement between India and Singapore, the capital gain would only be
taxed at Singapore and not in India. Thus, according to the revenue, the
transaction was proposed to be entered into to avoid being taxed in India.
As the A.A.R. has observed, a complete answer is provided by section
10(38) of the said Act.




6.     For the forgoing reasons, we are of the view that no interference is
called for with the ruling given by the A.A.R. We may also observe that
we are not exercising any appellate jurisdiction and it is only our extra-
ordinary jurisdiction under Article 226 of the Constitution of India which
has been invoked by the revenue. We are, therefore, not required to
examine the matter in all respects, as if it was an appeal before us. No
illegality has been pointed out in the impugned ruling and for that reason
also we refrain from interfering with the same.

7.     The writ petition is dismissed.


                                         BADAR DURREZ AHMED, J



                                               R.V.EASWAR, J
FEBRUARY 27, 2013
kb


WP(C)8295.2011                                                   Page 4 of 4
 
 
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