(2009) 318 ITR 78 (AAR)
S. 245N(a), Income-tax Act
Dated : 7-7-2009
Issue :
Unlike sub-clause (ii), sub-clause (i) of S. 245N(a) does
not specifically restrict the scope to the tax liability of a non-resident and
hence, advance ruling could also be in relation to a transaction by a
non-resident even if it does not involve determination of tax liability of
non-resident.
Facts :
The applicant was a Luxembourg company. It had entered into
a transaction for purchase of the entire equity capital of an Indian company.
The Indian company was originally formed as a partnership and later registered
itself as a company under Part IX of the Companies Act, 1956. In terms of S.
47(xiii) of the Act, if more than 50% of the voting power in the company
continues to be held by the erstwhile partners of the partnership for a period
of not less than 5 years, no capital gain is chargeable. However, pursuant to
the transfer of shares, the erstwhile partners would not have held more than
50% of the shares for a period of not less than 5 years and therefore, the
relevant condition would be violated.
The AAR observed that, prima facie, the
determination sought by the applicant was in relation to the tax liability of
an Indian company and hence, it was doubtful whether the non-resident
applicant can seek advance ruling on this question. In response to the notice
issued by the AAR, the applicant stated that due to certain stipulations in
the Share Purchase Agreement, unless capital gains tax payable by the acquired
Indian company is determined, purchase consideration payable by the applicant
cannot be determined. Further, its obligation to provide the audited financial
statements of the acquired Indian company was also dependent on the
determination of capital gains tax liability. The applicant contended that the
ruling sought was within the definition of ‘advance ruling’ in sub-clause (i)
of S. 245N(a) of the Act.
Held :
In contrast to the language in sub-clause (ii), the
language in sub-clause (i) of S. 245N(a) of the Act is wider. Unlike
sub-clause (ii), sub-clause (i) does not have any specific requirement that
determination should relate to the tax liability of a non-resident. Due to the
stipulations in the Share Purchase Agreement, capital gains tax arising in
case of the acquired Indian company has a direct and substantial impact on the
applicant, the question raised by the applicant falls within the definition of
‘advance ruling’ in S. 245N(a) of the Act.
