By Dhishat B. Mehta | Bhaumik Goda
Chartered Accountants
5. [2020]
120 taxmann.com 325 (Del.)(Trib.) Augustus
Capital (P) Ltd. vs. DCIT ITA
No: 8084/Del/2018 A.Y.:
2015-16 Date
of order: 15th October, 2020
Explanation
7 to section 9(1)(i) – Small shareholder exemption introduced by this
Explanation inserted by Finance Act, 2015 is retrospective in nature
FACTS
The
assessee, a non-resident company, held shares in Singapore Company (SCO) which
in turn held shares in Indian company1. The assessee sold shares of
SCO to the Indian company. The Indian company withheld tax on the consideration
amount which was claimed as refund by the assessee.
During the
course of assessment proceedings, the assessee claimed that income is not
taxable in view of Explanation 7 to section 9(1)(i) which exempts the seller
from indirect transfer provisions if its interest in foreign company (which
derives substantial value from India) does not exceed 5%. The A.O. was of the
view that Explanation 7 inserted by Finance Act, 2015 is prospective, being
effective from 1st April, 2016 and, therefore, not applicable in the
year under consideration. The DRP upheld the view of the A.O.
1 Decision
does not mention total stake held by assessee in SCO. However, decision
proceeds on the basis that SCO derives substantial value from India and
aggregate stake of assessee is less than 5% in SCO
Being
aggrieved, the assessee appealed before the Tribunal.
HELD
- Explanation 5 to section
9(1)(i) was introduced by the Finance Act of 2012 with retrospective effect
from 1st April, 1962 to tax indirect transfers. The said provisions
were inserted to obviate the decision of the Supreme Court in the case of Vodafone
International Holdings B.V. 341 ITR 1 (SC).
- After the insertion of
Explanation 5, the stakeholders were apprehensive about ambiguities surrounding
the said Explanation and, therefore, representations were made to the
Government of India which constituted the Shome Committee to look into the apprehensions
/ grievances of the stakeholders.
- On the recommendations of
the Shome Committee, Explanations 6 and 7 were inserted by the Finance Act,
2015. Explanations 6 and 7 have to be read with Explanation 5 to understand the
provisions of section 9(1)(i). Since Explanation 5 has been given retrospective
effect, Explanations 6 and 7, which further the object of the insertion of
Explanation 5, have to be given retrospective effect.
