Director of Incometax (International Taxation) v. Goodyear Tire & Rubber Company

Case Laws Analysis
Distinguished on Gagan Infraenergy Ltd. v. Dy. CIT 2018 TaxPub(DT) 2970 (Del-Trib)

SUBSCRIBE FOR FULL CONTENT


The Tax PublishersW.P.(C) No. 8295 of 2011 2013 TaxPub(DT) 1592 (Del-HC) : (2014) 059 (I) ITCL 0066 : (2014) 360 ITR 0159 : (2013) 258 CTR 0464 : (2013) 214 TAXMAN 0669 : (2013) 086 DTR 0097 Income -- Accrual --Treaty shopping --Income arising from transfer of a long term capital asset, being equity share kin a listed company. 74% shares of GIL were held by assessee GTR, the US company (holding company) having a 100% subsidiary in Singapore by name GOC. Both holding company of USA as well as its subsidiary company in Singapore had approached the AAR with respect to tax liability of proposed transfer of 74% shareholding of USA company in GIL to its 100% subsidiary in Singapore. The AAR ruled that there would be no tax liability on either the USA company or Singapore company in respect of proposed transfer of 74% shareholding in GIL. *Held :* Neither the assessee, USA company nor its subsidiary, the Singapore company would be liable to any tax in India in respect of the proposed transfer of 74% shareholding of GIL, as held by AAR. As per section 10(38), if income arises out of transfer of long-term capital asset being an equity share in a listed company, the said income would be exempt . The shares of GIL are listed shares and, therefore, even if a consideration had been charged for transfer of 74% share, the income arising therefrom would be exempt by virtue of provisions of s. 10(38). Having regard to double taxation avoidance agreement between India and Singapore, the capital gains would be taxed at Singapore and not in India. The High Court refrained from interfering with ruling given by AAR in kits extraordinary jurisdiction under article 226 of the Constitution of India. Section 5 r/w Section 10(39) INCOME TAX ACT, 1961 --Exemption under section 10(38)Allowability Transfer of 74% shareholding in a company to 100% subsidiary company--74% shares of a company were held by assessee, a USA company, and assessee had a 100% subsidiary in Singapore. Both assessee as well as the Singapore company had approached AAR with respect to the tax liability of the proposed transfer of the said 74% shareholding of assessee to its 100% subsidiary in Singapore. AAR had ruled that there would be no tax liability on either assessee or the Singapore company with a view that the transfer of the 74% shares to the Singapore company without any consideration, even if the same was for consideration, would be exempted from tax in view of the specific provisions of section 10(38) read with Chapter VII of the Finance (No. 2) Act, 2004. Revenue was of view that this transaction was proposed to be entered into to avoid being taxed in India as capital gain on such transaction would be taxed in both countries but, having regard to the double taxation avoidance agreement between India and Singapore, capital gain would only be taxed at Singapore and not in India. Held: AAR was justified in holding that neither assessee nor the Singapore company would be liable to any tax in respect of the proposed transfer of the 74% shareholding in a company, in view of section 10(38). SUBSCRIBE FOR FULL CONTENT

The Tax PublishersW.P.(C) No. 8295 of 2011
2013 TaxPub(DT) 1592 (Del-HC) : (2014) 059 (I) ITCL 0066 : (2014) 360 ITR 0159 : (2013) 258 CTR 0464 : (2013) 214 TAXMAN 0669 : (2013) 086 DTR 0097

Income -- Accrual --Treaty shopping --Income arising from transfer of a long term capital asset, being equity share kin a listed company.

74% shares of GIL were held by assessee GTR, the US company (holding company) having a 100% subsidiary in Singapore by name GOC. Both holding company of USA as well as its subsidiary company in Singapore had approached the AAR with respect to tax liability of proposed transfer of 74% shareholding of USA company in GIL to its 100% subsidiary in Singapore. The AAR ruled that there would be no tax liability on either the USA company or Singapore company in respect of proposed transfer of 74% shareholding in GIL.

Held : Neither the assessee, USA company nor its subsidiary, the Singapore company would be liable to any tax in India in respect of the proposed transfer of 74% shareholding of GIL, as held by AAR. As per section 10(38), if income arises out of transfer of long-term capital asset being an equity share in a listed company, the said income would be exempt . The shares of GIL are listed shares and, therefore, even if a consideration had been charged for transfer of 74% share, the income arising therefrom would be exempt by virtue of provisions of s. 10(38). Having regard to double taxation avoidance agreement between India and Singapore, the capital gains would be taxed at Singapore and not in India. The High Court refrained from interfering with ruling given by AAR in kits extraordinary jurisdiction under article 226 of the Constitution of India.

Section 5 r/w Section 10(39)

INCOME TAX ACT, 1961

--Exemption under section 10(38)Allowability Transfer of 74% shareholding in a company to 100% subsidiary company--74% shares of a company were held by assessee, a USA company, and assessee had a 100% subsidiary in Singapore. Both assessee as well as the Singapore company had approached AAR with respect to the tax liability of the proposed transfer of the said 74% shareholding of assessee to its 100% subsidiary in Singapore. AAR had ruled that there would be no tax liability on either assessee or the Singapore company with a view that the transfer of the 74% shares to the Singapore company without any consideration, even if the same was for consideration, would be exempted from tax in view of the specific provisions of section 10(38) read with Chapter VII of the Finance (No. 2) Act, 2004. Revenue was of view that this transaction was proposed to be entered into to avoid being taxed in India as capital gain on such transaction would be taxed in both countries but, having regard to the double taxation avoidance agreement between India and Singapore, capital gain would only be taxed at Singapore and not in India. Held: AAR was justified in holding that neither assessee nor the Singapore company would be liable to any tax in respect of the proposed transfer of the 74% shareholding in a company, in view of section 10(38).