Exceptions to indirect share transfer provisions introduced in 2015 applicable retrospectively: ITAT Delhi

MUMBAI: In what is set to impact several tax litigation between investors and the tax department, a Delhi bench of Income Tax Appellate Tribunal ruled that the exceptions provided under the indirect transfer of shares regulations should also be applicable retrospectively.

Indirect transfer of share regulations; brought in after Vodafone won a transfer-pricing tax dispute with the government in 2012; provides for taxing overseas transactions of shares of Indian companies, provided the shares constitute more than 50 per cent of the foreign fund total assets (exceeding Rs 10 crore). Many Asian funds that also invest in other countries have more than 50 per cent weightage in terms of valuation to India, and would now face this tax.

“This ruling lays down an important principle that the provisions of explanation 6 and 7 to section 9(1)(i) of the ITA have to be tagged along with explanation 5 to section 9(1)(i) of the TIA and have to be given a retrospective effect. Taxpayers with indirect transfer transactions prior to assessment years 2016-17, may want to evaluate the impact of this ruling to the facts of their case,” a Deloitte research said.

As per the details of the case Singapore company is engaged in the business of incubation of companies i.e. providing new businesses, with financial support and technical services. The company had made investment in a Singapore Company (S Co) in the form of equity and preference shares of the said company. The Singapore company held certain investments in India, a Deloitte research said. The taxpayer was of the view that the transaction of sale of shares of S Co was not taxable in India.