The assessee-petitioner, a company incorporated under the laws of Cyprus, holds 60% of the shares in a UK company called Finsider International Company Ltd (Finsider, UK). The assessee purchased shares in a FI from another UK company (100% together with another company). Finsider, UK was holding 51% shares of Sesa Goa Ltd, an Indian company. The AO took the view that the 51% shares in Sesa Goa held by Finsider, UK, constituted a capital asset under s 2(14) and that the transfer of the shares of Finsider amounted to a transfer of the said 51% shares of Sesa Goa and that the assessee was liable to deduct tax at source under s 195 when it bought the shares of Finsider, UK. The AO accordingly issued a notice under s 201(1) and 201(1A) alleging indirect acquisition of 51% shares in Sesa Goa Ltd without deduction of tax at source. Being aggrieved, the assessee has filed the present writ petition challenging the notice on the ground that as one non-resident had sold shares of a foreign company to another non-resident, there was no liability under Indian law.
The issue is whether it is necessary for the fact finding authority to lift the corporate veil to look into the real nature of the transaction to ascertain vital facts, where under an agreement a non-resident company acquired 100% shares of another non-resident company, which held majority shares in an Indian company, but claimed that the same did not amount to the transfer of capital asset. From the agreement itself, it was not sufficient to know what the transaction between seller and Indian company was.
What is under challenge is only the show cause notice issued as per s 195. It is for the petitioner to urge all contentions before the respondent authority pursuant to such a show cause notice issued to contend that the purchase of 51% of the shares does not amount to the transfer of capital asset. Though the petitioner contends that the agreement entered into is produced, that itself is not sufficient to know as to the nature of the transaction between Finsider International Company Ltd and Sesa Goa Ltd which is an Indian company. It is premature at this stage to arrive at a conclusion that there is no avoidance of tax obligations and the petitioner is not liable to tax on capital gains as the transfer of shares does not amount to the transfer of capital assets. It may be necessary for the fact finding authority to lift the corporate veil to look into the real nature of transaction to ascertain vital facts. It is also to be ascertained whether the petitioner, as a majority share holder, enjoys the power by way of interest and capital gains in the assets of the company and whether the transfer of shares in the case on hand includes the indirect transfer of assets and interest in the company.
Lifting of corporate veil is necessary to look into real nature of transaction to ascertain the vital facts and liability to tax, wherein a non-resident company claims that purchase of shares from another non-resident company holding shares in Indian co. does not amounts to transfer of capital asset as held by KarHC in Richter Holding Ltd. v ADIT and Others In favour of: Others; Writ Petition No. 7716/2011
Decided on: 24 March 2011
The issue is whether it is necessary for the fact finding authority to lift the corporate veil to look into the real nature of the transaction to ascertain vital facts, where under an agreement a non-resident company acquired 100% shares of another non-resident company, which held majority shares in an Indian company, but claimed that the same did not amount to the transfer of capital asset. From the agreement itself, it was not sufficient to know what the transaction between seller and Indian company was.
What is under challenge is only the show cause notice issued as per s 195. It is for the petitioner to urge all contentions before the respondent authority pursuant to such a show cause notice issued to contend that the purchase of 51% of the shares does not amount to the transfer of capital asset. Though the petitioner contends that the agreement entered into is produced, that itself is not sufficient to know as to the nature of the transaction between Finsider International Company Ltd and Sesa Goa Ltd which is an Indian company. It is premature at this stage to arrive at a conclusion that there is no avoidance of tax obligations and the petitioner is not liable to tax on capital gains as the transfer of shares does not amount to the transfer of capital assets. It may be necessary for the fact finding authority to lift the corporate veil to look into the real nature of transaction to ascertain vital facts. It is also to be ascertained whether the petitioner, as a majority share holder, enjoys the power by way of interest and capital gains in the assets of the company and whether the transfer of shares in the case on hand includes the indirect transfer of assets and interest in the company.
Lifting of corporate veil is necessary to look into real nature of transaction to ascertain the vital facts and liability to tax, wherein a non-resident company claims that purchase of shares from another non-resident company holding shares in Indian co. does not amounts to transfer of capital asset as held by KarHC in Richter Holding Ltd. v ADIT and Others In favour of: Others; Writ Petition No. 7716/2011
Decided on: 24 March 2011
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