10 per cent tax on capital gains to Holdings Co on sale of shares

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10 per cent tax on capital gains to Holdings Co on sale of shares

AIT News Network

NEW DELHI. Authority for Advance Rulings vide a significant ruling dated 28^th February 2008 AIT-2008-79-AAR has ruled that a resident applicant who is directly concerned with the issue of tax deduction at source in respect of payments made to the non- resident, is specified as one of the eligible applicants.

The tax payable on a long-term capital gains arisen to Moron Holdings PLC on the sale of originally acquired shares of Moron Tea Company (India) Ltd. will be @ 10% in consonance with the proviso to section 112(1) of the Income Tax Act of India.

Even in respect of sale consideration arising out of the bonus shares, the tax liability of the non-resident foreign company will be @ 10% only as per the proviso to section 112(1) of the Act.

Applicant purchased 15,20,000 equity shares of Moron Tea Company (India) Ltd. from Moron Holdings PLC, U.K. a non-resident company as per the sale & purchase agreement (in short SPA) executed between the purchaser (the applicant) and seller(Moron Holdings PLC, U.K.) on 18th January, 2007, wherein the purchaser agreed to purchase the said shares of Moron Tea Company held by the seller @ RS.273 per share. Out of the said shares, the original 5,18,000 shares were acquired by the seller in lieu of all the assets of the Moron Tea Ltd. (a U.K. company that was previously trading directly in India) on 6th April, 1979, after obtaining permission from RBI. Subsequently, as the facts bear out, Moron Tea Company issued 10,28,000 fully paid up equity shares of RS.101- each as bonus shares during the year 1990 and 1998. Thus, 15,20,000 shares (listed securities) sold by Moron Holding PLC U.K. to the applicant consisted of original as well as bonus shares acquired from Moron Tea Company. It is further stated that the effective date of agreement was extended till 7^th October 2007,and the sale consideration payable for the transfer of shares, was to the tune of Rs.41,49,60,000/-. As stated, the transfer of aforesaid shares could not be effected through the stock exchange. As such, the applicant authorized ICICI Bank Ltd. for arranging and remitting the sale proceeds amounting to Rs.33,24,06,160/- after deducting tax @ 20%, inclusive of the surcharge, on the long term capital gains. Accordingly, the sale proceeds were remitted to the seller on 1.10.2007 through 'Swift' (inter bank transfer). The shares were then credited through off market transaction in the Demat account of the purchaser after the transaction of sale was completed.

The applicant sought ruling from Authority on the following questions:

"1. Whether on the stated facts and in law, the tax payable on long term capital again arisen to Moran Holdings PLC on sale of originally acquired shares of Moran Tea Company (India) Limited will be 10% of the amount of capital gain as per Proviso to Section 112(1) of the Income Tax Act, 1961?

2. Whether on the stated facts and in law, the tax payable on long term capital gain arisen to Moran Holdings PLC on sale of bonus shares of Moran Tea Company (India) Limited will be 10% of the amount of capital gain as per Proviso to Section 112(1) of the Income-tax Act?

3. Whether on the stated facts and in law, the long term capital gain arisen to Morgan Holdings PLC on sale of originally acquired shares and bonus shares of Moran Tea Company (India) Limited are to be computed by applying Section 48 of the Income-tax Act without having regard to either the first or the second proviso to the Section?"

(Click here for full text of Ruling AIT-2008-79-AAR)

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· Company’s Name cannot be substituted under Rule 20:Advance Ruling

· Holding Shares as investment not stock-in-trade

· No capital gains in assessee’s hand on sale of shares by lender: ITAT

· Loss on sale of shares held as investment is “capital loss”: ITAT

· Transfer of exchange card exigible to capital gains tax

· Redemption of stock appreciation rights Amount is income: Special Bench

· Admission fee & infra dev paid to exchange is Revenue Expenditure