Capital Gain on Transfer of Shares within Firm Outside India not to be brought to Tax: ITAT Mumbai [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that Capital Gain on transfer of shares within a firm but outside India cannot be brought to tax and therefore ruled out the applicability of section 9 in such share transfers.

The Appellant, Supermax Personal Care Pvt. Ltd. is engaged in the business of manufacturing and selling of shaving products and systems. During the assessment proceedings, the Assessing Officer(AO) found that, the assessee had entered into the two Business Transfer Agreement (BTA), with RCC Sales Pvt. Ltd. (RCC)and Vidyut Metallics Pvt.Ltd. (VMPL)for acquisition of business operations of said companies and then issued fresh equity shares to Supermax Singapore Pte. Ltd.(SSPL).  The AO further observed that M/s. Actis Consumer Grooming Products Ltd., Mauritius subscribed to 29.17% shares of Super Max Offshore Holdings, Cayman Islands for Rs.1002.50 crores, that remaining 70.83% stake was transferred to M/s. Super Max Mauritius, that sale of stock to M/s. Actis was to be taken as basis of valuing the stake of remaining 70.83% shares. The AO inferred that the assess had transferred the stake outside India to Singapore and proposed and addition with reference to section 9.

Aggrieved by the order of AO, the assessee went for an appeal before the First Appellate Authority(FAA) but was in vain as the authority upheld the findings of the AO.

The Tribunal bench comprising of Judicial Member Sandeep Gossain and Accountant Member Rajendra held that there was no transfer of capital asset under Section 45 – assessee had transferred the Interest/(stake)in itself outside India to SSPL – thus the concept of ‘creating of interest in any assets in any manner’ and transferring ‘interest/stake’ was not part of the word ‘transfer’ and were quoted adjudging, “. . A citizen is perfectly entitled to exercise his ingenuity so to arrange his affairs as may make it possible for him legally and lawfully not to pay tax – thus for not extending cooperation the assessee should be dealt with relevant provisions of the Act. But, for that tax liability cannot be fastened to it without establishing the basic fact of existence and transfer of capital asset – hence we reverse the order of the FAA and decide effective ground in favour of the assessee..”