Recently, the Authority for Advance Ruling (AAR) in the case of M/s Amiantit International Holding Ltd. [2010-TIOL-07-ARA-IT] held that the capital gains is taxable only when the applicant derive any profit or gain in the form of money or money’s worth or which is capable of being turned into money has accrued or arisen to the applicant.
The charging section [section 45 of the Income Tax Act, 1961 (the Act)] relating to capital gains and the computation provisions (section 48 of the Act) must be read harmoniously. When there is a case for which the computation provision cannot be applied, the charging section fails.
Further the AAR, reiterating the principle laid down in Dana Corporation [2009-TIOL-ARA-IT] , held that the transfer pricing provisions in an international transaction can be applied only when income is chargeable to tax in India and since in the present case income was not chargeable to tax in India the question of withholding tax under section 195 of the Act does not arise.
Facts of the case
- The taxpayer, an investment company, is a company incorporated in the Kingdom of Bahrain. The applicant is having investments in various Asian, European as well as Latin American companies. The taxpayer was wholly owned by South Arabian Amiantit Company which is a listed company in Saudi Arabia.
- The applicant holds 70 percent of the equity shares in physical form in an Indian company who is engaged in the production of glass reinforced polyester pipes, storage tanks, etc. The applicant also holds 100 percent shares in an investment company incorporated in Cyprus which held shares of various group entities.
- The applicant proposes to restructure the group and thereby split itself into two companies, one owning the business carried on in Europe and the other owning business carried on in Asia, North Africa and Latin America. As a part of the restructuring process, the applicant proposes to hold all international investments relating to pipe manufacturing through Cyprus company due to some commercial reasons.
- Thus, the applicant proposes to contribute the shares of the Indian company without any consideration along with non-European investments to its Cyprus subsidiary under a ‘Contribution Agreement’ which was executed outside India. Such a contribution akin to a gift is permissible under the Bahrain legislation. Further, such shares transferred to its Cyprus subsidiary would not be re-transferred to the applicant.
Taxpayer’s contentions
