{"id":19524,"date":"2020-11-15T15:30:16","date_gmt":"2020-11-15T10:00:16","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=19524"},"modified":"2020-11-12T15:53:17","modified_gmt":"2020-11-12T10:23:17","slug":"now-long-term-capital-gains-tax-does-not-apply-to-indirect-transfer-of-indian-assets","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/now-long-term-capital-gains-tax-does-not-apply-to-indirect-transfer-of-indian-assets\/","title":{"rendered":"Now Long Term Capital Gains Tax does not apply to indirect transfer of Indian Assets"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Delhi bench of (ITAT) Income Tax Appellate Tribunal has ruled\nthat long term capital gains tax will be not imposed on an indirect transfer of\nIndian assets. This matter came up with the sale of Singapore-based Accelyst\nstartup Augustus Capital PTE Ltd to Jasper Infotech Pvt Ltd (JIPL) in a\nFinancial Year 2016. The decision comes as a relief to the foreign funds and\ninstitutions for the tax demands for earlier years. <\/p>\n\n\n\n<p>The root of a problem was an imposed amount of \u20b936.3 crores\nin the form of long-term capital gains (LTCG) by an Assessing Officer (AO),\nagainst the claim of zero or nil income by Augustus Capital, stating that a\ntransaction was not taxable in India.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What are the Facts of the case?<\/h2>\n\n\n\n<ul><li>An appellant company, Augustus Capital PTE Ltd. is in a business of incubation of companies that provides new businesses, with a necessary financial support and also technical services. During the course of its business, an appellant made investments in the Accelyst Pte Ltd, a company which was incorporated in and resident of Singapore.<\/li><li>The Assessing Officer asked an assessee to explain as to why long term capital gains tax arising from a sale of shares from the Accelyst to Jasper Infotech Private Limited must not be brought to tax in India under section 9(1)(i) of Act.<\/li><li>An Assessing Officer further disregarded all submissions of an assessee as the Assessing Officer was of a firm belief that an operation of Explanation 7 to section 9(1)(i) of Act is prospective. It was inserted in 2015 in the Finance Act and made effective from 1st April 2016 and, therefore, not applicable in that year under consideration.<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/abolishing-of-tax-on-long-term-capital-gains\/\">Abolishing of tax on Long Term Capital Gains<\/a><\/mark><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What is held by the ITAT?<\/h3>\n\n\n\n<p> The Section 9(1)(i) of a Act was amended and <em><strong>Finance Act<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Finance_Act_(India)\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> inserted explanation 5, 2012 giving retrospective effect from 1st April 1962. The Shome Committee was constituted because of apprehensions and ambiguities in the said Explanation and on the recommendations of the Shome Committee, Explanations 6 &amp; 7 were inserted by Finance Act, 2015.&nbsp; <\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/What-is-held-by-the-ITAT.png\" alt=\"What is held by the ITAT\" class=\"wp-image-19542\" width=\"550\" height=\"550\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/What-is-held-by-the-ITAT.png 1000w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/What-is-held-by-the-ITAT-150x150.png 150w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/What-is-held-by-the-ITAT-300x300.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/What-is-held-by-the-ITAT-768x768.png 768w\" sizes=\"(max-width: 550px) 100vw, 550px\" \/><\/figure><\/div>\n\n\n\n<ul><li>A<strong><em>mendment in the Section 9 of Income Tax Act <\/em><\/strong>in\n2012 clarifies that if the share or interest in a foreign entity is\nsubstantially derived from assets located in India, such share or interest is\ndeemed to be located in India. Also, any Income arises from a transfer of such\nshares or interest deemed to have arisen in India.<\/li><li><strong><em>Explanation 6 later included in Finance Act<\/em><\/strong>,\nand it clarifies that the term &#8216;substantial&#8217; means the fair market value (FMV)\nof assets located in India exceeds \u20b910 crores and that the FMV of assets or\nproperty located in India is represented at least 50% of the FMV total assets\nof the foreign entity.<\/li><li><strong><em>Explanation 7 exempted from Section 9<\/em><\/strong>:-\nSmall investors who do not own the management right or control of such an\nentity and hold less than 5% of the total voting power.<\/li><\/ul>\n\n\n\n<p>The order stated that the Assessing Officer (AO) rejected\nthe assessee&#8217;s claims stating that Explanations 6 &amp; 7 were effective from\nFinancial Year in 2017 while a transaction was conducted in Financial Year\n2016. With the new ruling, <strong><em>the tribunal directed the income tax\ndepartment to remove the addition of LTCG (long term capital gains tax).<\/em><\/strong>\nIt was articulated that this would provide a breather to foreign funds and\nentities which are being subjected to tax demands for earlier years where\nsubstantial investments otherwise may not have been made by them.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>The two-member bench of Amit Shukla &amp; N.K. Billaiya while providing relief to the foreign funds and entities being subjected to tax demands for earlier years directed an Assessing Officer to read Explanation 7 as applicable for a year under consideration and delete the impugned addition. According to new ruling, the tribunal directed the income tax department to remove the addition of long term capital gains tax, as it does not apply to indirect transfer of Indian Assets.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/capital-gain-tax-and-difference-between-ltcg-stcg\/\">What is Capital Gain Tax and Difference between LTCG &amp; STCG<\/a><\/mark><\/p>\n\n\n\n<p> <\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Delhi bench of (ITAT) Income Tax Appellate Tribunal has ruled that long term capital gains tax will be not imposed on an indirect transfer of Indian assets. This matter came up with the sale of Singapore-based Accelyst startup Augustus Capital PTE Ltd to Jasper Infotech Pvt Ltd (JIPL) in a Financial Year 2016. The [&hellip;]<\/p>\n","protected":false},"author":10,"featured_media":19575,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[152],"tags":[1211],"acf":{"service_id":"50"},"authorName":"Soumya Bajpai","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/01\/0.jpg","authorDescription":"Soumya has done LLB (Hons) and has a 2+years experience in writing. Her main interest is in reading judgments, new enactments and amendments taking around in law. She always strives to bring the best to work that she does.","postViews":2766,"readingTime":3,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19524"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=19524"}],"version-history":[{"count":7,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19524\/revisions"}],"predecessor-version":[{"id":19543,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19524\/revisions\/19543"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/19575"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=19524"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=19524"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=19524"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}