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The Tax Publishers Citicorp International Finance v. Dy. Director of Income Corporation Tax [ITA No. 8513/Mum/2010, dt. 6-4-2016] : 2016 TaxPub(DT) 2021 (Mum-Trib) Non-resident whether eligible for proviso 2 to section 48 (i.e. indexation benefit) *Facts:* Assessee a non-resident investor had sold shares of Indian companies which were invested in INR thus claimed indexation benefit on the computation of long term capital gains which was negated by assessing officer/Commissioner (Appeals) on plea that proviso 2 to section 48 is not applicable to non-resident and only proviso 1 is applicable. On further appeal: Held in favour of the assessee that they were eligible for indexation benefit for computation of long-term capital gains as their investment was in INR. Cairn UK Holdings Ltd. (359 ITR 268) Delhi high court upheld. Proviso 1 and 2 of the section 48 operate in different spheres. Proviso 1 is applicable to non-residents who invest in foreign currency, thus they are not concerned about inflation or currency appreciation arising out of inflation hence no indexation is applied but computation of CG is done by converting the sale consideration into foreign currency and then gains are taxed, benefit of proviso 1 to section 112 is applicable to them as the computation is without indexation. So he gets best of worlds, no indexation and calculation in foreign currency + benefit of proviso 1 to section 112 at 10% concessional rate. For non-residents who invest in INR they are definitely impacted by the inflationary factors, thus in the absence of any restriction proviso 2 of section 48 will apply to them and once this is done concessional rate of 10% under section 112 proviso 1 cannot be applied. It is difficult to say in what pertinence section 112 proviso 1 has been enacted or in what manner the legislature intended, but this being already a topic of res integra by the Delhi high court judgment also followed in a number of AAR rulings subsequently need not be disturbed.

The Tax Publishers

Citicorp International Finance v. Dy. Director of Income Corporation Tax [ITA No. 8513/Mum/2010, dt. 6-4-2016] : 2016 TaxPub(DT) 2021 (Mum-Trib)

Non-resident whether eligible for proviso 2 to section 48 (i.e. indexation benefit)

Facts:

Assessee a non-resident investor had sold shares of Indian companies which were invested in INR thus claimed indexation benefit on the computation of long term capital gains which was negated by assessing officer/Commissioner (Appeals) on plea that proviso 2 to section 48 is not applicable to non-resident and only proviso 1 is applicable. On further appeal:

Held in favour of the assessee that they were eligible for indexation benefit for computation of long-term capital gains as their investment was in INR.

Cairn UK Holdings Ltd. (359 ITR 268) Delhi high court upheld.

Proviso 1 and 2 of the section 48 operate in different spheres. Proviso 1 is applicable to non-residents who invest in foreign currency, thus they are not concerned about inflation or currency appreciation arising out of inflation hence no indexation is applied but computation of CG is done by converting the sale consideration into foreign currency and then gains are taxed, benefit of proviso 1 to section 112 is applicable to them as the computation is without indexation. So he gets best of worlds, no indexation and calculation in foreign currency + benefit of proviso 1 to section 112 at 10% concessional rate.

For non-residents who invest in INR they are definitely impacted by the inflationary factors, thus in the absence of any restriction proviso 2 of section 48 will apply to them and once this is done concessional rate of 10% under section 112 proviso 1 cannot be applied.

It is difficult to say in what pertinence section 112 proviso 1 has been enacted or in what manner the legislature intended, but this being already a topic of res integra by the Delhi high court judgment also followed in a number of AAR rulings subsequently need not be disturbed.