Recently, the Authority for Advance Ruling (AAR) in the case Goodyear Tire and Rubber Company [2011] 11 taxmann.com 43 (AAR) and Goodyear Orient Company (Private) Limited, relying upon the principle laid down in Dana Corporation [2010] 186 Taxman 187 (AAR) and Amiantit International Holding Ltd [2010] 189 Taxman 149 (AAR)., held that capital gains provisions are not attracted in case of transfer of shares without consideration.
Further, the AAR 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 no income was chargeable to tax in India the question of applicability of Transfer Pricing provisions and withholding tax under Section 195 of the Income-tax Act, 1961 (the Act) does not arise.
Facts of the Case
- The Taxpayer, a company incorporated under the laws of USA, was holding 74 percent of the total paid up share capital of an Indian listed company, Goodyear India Limited (GIL).
- The Taxpayer has a wholly owned subsidiary in Singapore, namely, Goodyear Orient Company (Private) Limited (GOCPL).
- The Taxpayer as a part of its global corporate strategy is contemplating a reorganization of its investment in its Indian arm, GIL.
- The Taxpayer intends to expand the role of GOCPL, for the benefit of other group entities within Asia-Pacific Region by making it financially strong and independent entity.
- GOCPL is an operating entity and there exists commonality of the business interests of the group with GIL.
- Therefore, the Taxpayer is proposing to enter into a Share Contribution Deed to voluntarily contribute its entire 74 percent stake in GIL to GOCPL, without consideration.
Issues for Consideration
