Bray Controls South East Asia Pte Ltd Vs CIT (Delhi High Court)
Delhi High Court has set aside an order by the Commissioner of Income Tax (International Transaction), remanding the case of Bray Controls South East Asia Pte Ltd (BCSAL) for fresh consideration regarding a nil withholding tax certificate. The court’s decision provides clarity on the parameters for assessing capital gains in share transfer transactions, particularly when the taxpayer claims a loss.
Bray Controls South East Asia Pte Ltd, a Singapore-incorporated company, sought to acquire shares of its Indian affiliate, Bray Controls India Pvt. Ltd. (BIND), from Bray International Inc (BII), a U.S. tax resident. BCSAL applied for a nil withholding tax certificate under Section 195(2) of the Income Tax Act, 1961, arguing that the transaction would result in a capital loss, not a gain.
BCSAL contended that BII’s acquisition cost for the BIND shares was US$23,122,670, equivalent to ₹1,41,53,34,245 at the time of acquisition. The proposed sale consideration was fixed at the same Indian rupee amount. However, at the current exchange rate, the sale consideration in US dollars (US$19,139,071) would represent a loss of US$3,983,599 for BII. Therefore, BCSAL argued no tax liability would arise.
Initially, the Assessing Officer (AO) rejected the request, directing a 10% withholding tax, under the assumption that BCSAL was seeking treaty benefits. BCSAL clarified that its request was based on the premise of a capital loss, not treaty benefits.
