The Tax Publishers2012 TaxPub(DT) 0465 (AAR) : (2011) 337 ITR 0277 : (2011) 241 CTR 0497 : (2011) 056 DTR 0242

INCOME TAX ACT, 1961

--Capital gains--ChargeabilityTransfer of shares of Indian company to Foreign company without consideration--Assessee is a foreign company incorporated nder the laws of USA. It has worldwide subsidiaries ad also it has subsidiaries incorporated in India in which the assessee hlods 99.99 per cent of paid up share capital and balance. 01 per cent paid up capital is jointly owned. While boosting its global network it transferred 99.99 per cent shares held in Indian subsidiaires to company in Singapore without consideration and also transferred jointly owed shares withot consideration to Singapore based company. It treated such transfer as a gift and did not pay capital gain tax. As the transfer of shares does not give rise to any gain or profit. So capital gain tax cannot be charged contension of revenue that this was a device to avoid payment of tax was illogical as tax planning within framework of law is legitimate. In absences of any income accruing by the transfer of shares, section 92 to 92F does not apply. Transfer of shares is not taxable ten application of provision of section 195 does not arises when there is chargeability under the Income Tax Act notwithstanding that no tax is payable, return under section 139 is filled. Held: All transactions encompassed by section 45 must fall .under the governance of its computation provisions. Lord Tomlin in IRC vs. Duke of Westminister (1936) has observed 'Everyone is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be if he succeed in ordering them so as to serve this result, however, unappreciative the IRC on his fellow tax gatherer may be of his ingenuity, he cannot be compelled to pay an increased tax'. The income in the sense of profit and gain should be real but not hypothetical income. The profit or gain to the transferor must be a distinctly and clearly identifiable component of the transaction. The consideration for the transfer of shares in terms of money or money's worth is not something which can be implied or assumed. No profit or gain in the form of consideration for transfer can be inferred by a process of deeming or on presumptive basis. There must be a casual nexus between the transfer of capital asset and the profit or gain accruing to or received by the assessee [as pointed out by the Gujarat High Court in CIT v. Vania Silk Mills (P) Ltd. (1977) 107 ITR 300 (Guj). Provisions are aimed at preventing avoidance of tax by certain well-known devices, determination of ALP, computation of income in certain cases, etc., in relation to international transactions. These are again machinery provisions which would not apply in the absence of liability to pay tax.' Praxair Pacific Ltd., In re (2010) 326 ITR 276 (AAR) 'Regarding answer to question No. 9, the transfer of equity shares by the applicant to Praxin India would not attract the transfer pricing provisions of sections . 92 to 92F of the Act in the absence of liability to pay the tax on the capital gain.' Goodyear Tire & Rubber Co., In re (AAR No. 1006 of 2010) and Goodyear Orient Co. (P) Ltd. (AAR No. 1031 of 2010) 'As there is no income liable to tax in the hands of the applicant, the provisions of sections. 92 to 92F of, the Act will not be applicable and the transfer pricing provisions in Chapter X are not attracted.' VNU International BV, In re (AAR No. 871 of 2010) 'The transfer of shares of VNU International to IMS AG is not liable to be taxed in India and also does not attract the transfer pricing provisions of sections 92 to 92F.'

Income Tax Act, 1961 Section 45

Income Tax Act, 1961 Section 92

Income Tax Act, 1961 Section 195 & 139

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