The Mumbai bench of the Income Tax Appellate Tribunal recently ruled that no tax can be levied on capital gain arisen on sale of Idea Cellular shares by a Mauritius subsidiary of the Tata’s to Birla Group Company during the financial year 2006-07.
The Assessee -company, in the instant case, engaged in the promotion of new business ventures offering consultancy services, web based services etc, filed its return of income pertains to taxability of capital gains of Rs. 10, 09, 44, 44,33,898/- in the hands of the assessee on sale of shares of IDEA by its wholly owned subsidiary (WOS), namely Apex Investment (Mauritius)Holdings Pvt. Ltd.(Apex).
However, the capital gains arising on sale of Idea Cellular shares held by Apex were not offered to tax in India since, according to the assesse, there would be no tax incidence in India as per the provisions of the India-Mauritius tax treaty.
The AO, however, held that capital gain arising out of sale of the shares of IDEA Cellular Ltd. By Apex, was taxable in the hands of the assessee amounted to 1L.crore.
Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA and made elaborate submissions. The FAA referred to the provisions of section 93 and sub section -3 of the section and held that where there was a transfer of asset resulting into accrual of income the same would be taxable in India that the income in form of STCG had accrued to WOS of the assessee.
The AR relied upon the case of Azadi Bacho and contended that the entire capital gain invoking the section under Article 13 (4) of the India Mauritius treaty can claim an exemption and also added that Apex was a tax resident of Mauritius, capital gain earned by a tax resident of Mauritius was not chargeable to tax in India
The ITAT pointed out that provisions of section 93 will not apply in this case. For this section to apply there must be a transfer of assets by a tax resident of India (for example, an Indian company) to a non-resident.
The bench comprising of Shri Rajendra, Accountant Member and Ram Lal Negi, Judicial Member observed that section 93 can be considered as a charging section. But, there is no doubt that it is a deeming provision.
Finally the tribunal held that FAA was not justified in confirming the order of the AO with regard to applicability of the provisions of section 93 of the Act and dismissed the action of the lower I-T authorities to tax capital gains of around Rs 1 lakh crore in the hands of Tata Industries.
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