The Director Of Income Tax (Internationaltaxation), Delhi v. Goodyear Tire And Rubber Company

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 27.02.2013 +W.P.(C) 8295/2011 THE DIRECTOR OF INCOME TAX (INTERNATIONALTAXATION), DELHI … Petitioner versus GOODYEAR TIRE AND RUBBER COMPANY ... Respondent Advocates who appeared in this case:For the PetitionerFor the Respondent : Mr Abhishek Maratha, Ms Anshul Sharma: Mr Percy J. Paradiwalla, Sr. Adv. withMr H.R. Rao, Mr Mukesh Bhutani,Mr Rahul Yadav, Advs. CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE R.V.EASWAR JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1.This writ petition has been filed by the department against theadvance ruling order dated 02.05.2011 given by the Authority forAdvance Rulings (A.A.R). The crux of the matter is that 74% shares ofGoodyear India Limited were held by a USA company by the name ofGoodyear Tire & Rubber Company. The said USA company has a 100%subsidiary in Singapore by the name of Goodyear Orient Company (Pte)Limited. Both the USA company as well as the Singapore company hadapproached the A.A.R. with respect to the tax liability of the proposed transfer of the said 74% share-holding of the USA company in GoodyearIndia Limited Company to its 100% subsidiary in Singapore. The A.A.R.after examining the various provisions of the Income-tax Act, 1961(hereinafter referred to as the ‘said Act’) has ruled that there would be notax liability on either the USA company or the Singapore company. 2.One of the points considered by the A.A.R. was that the transfer ofthe 74% shares to the Singapore company, which was without anyconsideration, even if the same was for consideration would be exemptedfrom income-tax in view of the specific provisions of section 10(38) readwith Chapter VII of the Finance (No.2) Act, 2004 . We may point outthat Chapter VII of the said Finance (No.2) Act, 2004 pertains tosecurities transaction tax. Section 97(13) of the said Finance Act defines‘taxable securities transaction’ in the following manner:- “(13) “taxablesecuritiestransaction”meansatransaction of – (a) purchase or sale of an equity share in acompany or a derivative or a unit of an equityoriented fund, entered into in a recognized stockexchange; orcompany or a derivative or a unit of an equityoriented fund, entered into in a recognized stockexchange; or (b) sale of a unit of an equity oriented fund to theMutual Fund.”Mutual Fund.” 3.The charge of ‘securities transaction tax’ is given in section 98 ofChapter VII of Finance (No.2) Act, 2004, which, to the extent relevant, isquoted hereunder:- “98.OnandfromthecommencementofthisChapter, there shall be charged a securities transaction tax in respect of the taxable securities transactionspecified in column (2) of the Table below, at the ratespecified in the corresponding entry in column incolumn (3) of the said Table, on the value of suchtransaction and such tax shall be payable by thepurchaser or the seller, specified in the correspondingentry in column (4) of the said Table:” 4.Reading the said provisions together with section 10(38) of the saidAct, it is apparent that income arising from the transfer of a long termcapital asset, if it is an equity share in a company or a unit of an equityoriented fund, where the transaction of sale of such equity share ischargeable to securities transaction tax, then such income would beexempt. To put it in plain language, if income arises out of the transfer ofa long term capital asset being an equity share in a listed company, thesaid income would be exempt under section 10(38) of the said Act. Thereis no doubt that the shares of Goodyear India Limited are listed sharesand therefore even if a consideration had been charged for the transfer ofthe 74% share, the income arising therefrom would be exempt by virtueof the provisions of section 10(38) of the said Act. 5.This is the approach which has been taken by the A.A.R. to holdthat neither the USA company nor the Singapore company would beliable to any tax in respect of the proposed transfer of the 74% share-holding in Goodyear India Limited. The A.A.R. also observed that forthe same reason this was a complete answer to the revenue’s argumentthat the transactions were part of a design of ‘treaty shopping’.Theargument of the revenue was that if the share-holding remained with theUSA company and, subsequently, at some point of time the shares were transferred, the income arising there from would be liable to taxation interms of the said Act as well as the double taxation avoidance agreementbetween India and USA. Thus, according to the revenue, the transactionresulting in such capital gain would be taxed in both countries, that is,India and USA.But, having regard to the double taxation avoidanceagreement between India and Singapore, the capital gain would only betaxed at Singapore and not in India. Thus, according to the revenue, thetransaction was proposed to be entered into to avoid being taxed in India.As the A.A.R. has observed, a complete answer is provided by section10(38) of the said Act. 6.For the forgoing reasons, we are of the view that no interference iscalled for with the ruling given by the A.A.R. We may also observe thatwe are not exercising any appellate jurisdiction and it is only our extra-ordinary jurisdiction under Article 226 of the Constitution of India whichhas been invoked by the revenue.We are, therefore, not required toexamine the matter in all respects, as if it was an appeal before us. Noillegality has been pointed out in the impugned ruling and for that reasonalso we refrain from interfering with the same. 7.The writ petition is dismissed. BADAR DURREZ AHMED, J FEBRUARY 27, 2013 kb R.V.EASWAR, J