In a decision that may boost the income-tax departmentâ€™s chances of
bringing the $11.1-billion deal between Hutchison International and
Vodafone into the tax net, the Authority for Advance Rulings (AAR) has
held in a similar case that transaction of Indian shares between two
foreign entities is liable for capital gains tax in the country. AAR is
a quasi-judicial authority deciding on tax disputes.
AARâ€™s ruling pertains to dealing of shares in the Hyderabad-based Trinity Corporation. In this case, the buyer and seller of Trinity shares were both US entities. AAR ruled that the buyer of the shares will be taken as an `agentâ€™ under Section 163 of the Income-Tax Act. It also ruled that the onus of TDS is also on the buyer under Section 195 of the Act.
In other words, AAR ruled that the buyer of the shares is liable to pay capital gains tax on the transfer of shares of an Indian company even if the transaction is offshore and between two non-residents.
The decision, though binding only on the case that came up before it, has persuasive value on similar cases. Non-residents are charged long-term capital gains at the rate of 20% for off-market transactions. AAR has upheld the I-T departmentâ€™s stand on the ground that since the capital gains are generated in India, they are liable to be taxed here.
Every time an offender stealthily leaves India to take refuge in another country, the Government of India starts all over again with its strategy of bringing him back to the nation to make him stan More
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