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Long Term Capital Gain Tax is not applicable to indirect transfer of Indian Assets: ITAT [Read Order]

Long Term Capital Gain Tax - indirect transfer - Indian Assets - ITAT - Taxscan

The Delhi bench of Income Tax Appellate Tribunal (ITAT) has held that indirect transfer of Indian assets will not attract Long Term Capital Gains Tax (LTCG).

The appellant company, Augustus Capital PTE Ltd. is in the business of incubation of companies i.e. providing new businesses, with necessary financial support and technical services. During the course of its business, the appellant made investments in Accelyst Pte Ltd, is a company incorporated in and resident of Singapore.

The Assessing Officer asked the assessee to explain as to why capital gains arising from the sale of shares from Accelyst to Jasper Infotech Private Limited should not be brought to tax in India under section 9(1)(i) of the Act.

The Assessing Officer disregarded the submissions of the assessee as the Assessing Officer was of the firm belief that operation of Explanation 7 to section 9(1)(i) of the Act is prospective, since it has been inserted by the Finance Act, 2015 and made effective from April 1, 2016 and, therefore, not applicable in the year under consideration.

Accordingly, AO proposed the addition of Rs. 36,33,15,969.

The issue revolves around the sale of Singapore-based Accelyst Pte Ltd (Freecharge) by Singapore startup incubator Augustus Capital PTE Ltd to Snapdeal’s holding company Jasper Infotech Pvt Ltd (JIPL) in the Financial Year 2016.

As per Section 9(1)(i) of the Act was amended and Explanation 5 was inserted by the Finance Act, 2012 giving retrospective effect from April 1, 1962 because of apprehensions and ambiguities in the said Explanation Shome Committee was constituted and on the recommendations of Shome Committee, Explanations 6 and 7 were inserted by the Finance Act, 2015.

The two-member bench of Amit Shukla and N.K. Billaiya while providing relief to foreign funds and entities being subjected to tax demands for earlier years directed the Assessing Officer to read Explanation 7 as applicable for the year under consideration and delete the impugned addition.

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