Cartier Shipping Co. Ltd. v.
DDIT
(2010) 131 TTJ (Mum.) 129
Article 13 of
India-Mauritius DTAA
S. 9(1)(i) of Income-tax Act
A.Y. : 1998-99. Dated :
7-6-2010
4. Capital gains arising
from sale of movable property of a PE are chargeable to tax u/s.9(1)(i) of
Income-tax Act as well as under Article 13(2) of India-Mauritius DTAA. Mere
deferral of either receipt of sale consideration or even the sale transaction
itself would have no bearing on the taxability of the transaction.
Facts :
The assessee was a Cypriot
company, which was registered in Mauritius. The Mauritius tax authority had
issued a tax residency certificate to the assessee, based on which the assessee
claimed benefits under India-Mauritius DTAA.
The assesse owned a rig used
for offshore oil exploration, which it had chartered to an Indian company. While
computing its income, the assessee had claimed depreciation on the rig.
On 24th April 1997, the
assessee executed agreement to sell the rig. The assessee issued sale bill dated
19th September 1997 and finally delivered the rig to the buyer on 6th October
1997. The agreement was executed outside India and the rig was also delivered
outside India.
The assessee intimated to
the Tax Authority that its charter agreement was terminated on 3rd October 1997
and it had moved its rig from Indian waters to international waters and it would
continue doing business in international waters.
However, the fact of sale of
rig was not disclosed by the assessee to the Tax Authority. Upon the Tax
Authority reopening the assessment u/s.147 of Income-tax Act for charging to tax
the capital gains arising from the sale, the assessee challenged the reopening.
Apart from the issue of
reopening, the Tribunal also considered the issue : the assessee being a
non-resident; the operations of PE having come to an end; sale having been
effected outside Indian territory (beyond 200 nautical miles), whether the
capital gain arising from the sale was chargeable to tax in India ?
Held :
On the issue of
chargeability of capital gains arising from sale of assets of a PE, the Tribunal
held as follows :
(i) The rig was owned by
the assessee. It was used for business of the assesee in India. The assessee
had claimed depreciation thereon. Therefore, gains on sale of rig were also
deemed to have accrued or arisen in India u/s.9(1)(i) of the Income-tax Act.
(ii) In terms of Article
13(2) of India-Mauritius DTAA, gains from alienation of movable property of PE
are taxable in the country in which PE is situated. Hence, gains on the sale
of rig were taxable in India in terms of Article 13(2).
(iii) Mere deferral of
either receipt of sale consideration or even the sale transaction itself would
have no bearing on the taxability of the transaction. Further, on facts, the
contract was terminated as a result of the sale and not otherwise as claimed
by the assessee.
