Richter Holding Ltd vs. ADIT (IT) (Karnataka High Court)

DATE: (Date of pronouncement)
DATE: July 5, 2011 (Date of publication)

Click here to download the judgement (richter_sale_of_foreign_co_by_NR_to_NR.pdf)

AO to decide “preliminary issue” whether sale of shares of Foreign Co by Non-Resident to Non-Resident attracts Indian tax

The assessee, a company based in Cyprus, bought shares (100% together with another company) of a UK company called Finsider International, from another UK company. Finsider, UK, held 51% shares of Sesa Goa Ltd, India. The AO took the view that the 51% shares in Sesa Goa held by Finsider, UK, constituted a capital asset u/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 u/s 195 when it bought the shares of Finsider, UK. He accordingly issued a show-cause notice u/s 201 seeking to treat the assessee as a defaulter. The assessee filed a Writ Petition to challenge 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. This was dismissed by the Single Judge (click here) by holding “What is under challenge is only the show-cause notice issued u/s 195 … it may be necessary for the fact finding authority to lift the corporate veil to look into the real nature of transaction to ascertain virtual facts. It is also to be ascertained whether the assessee, as a majority shareholder, enjoys the power by way of interest and capital gains in the assets of Sesa Goa and whether transfer of shares in the case on hand includes indirect transfer of assets and interest in Sesa Goa”. The assessee filed an appeal against the said judgement. HELD, while declining to interfere with the judgement:

While the order passed by the Single Judge is justified and the show-cause notice does not call for interference, in view of the judgement of the Supreme Court in Vodafone International vs. UOI 221 CTR 617, the interest of the assessee is safeguarded by directing that the AO shall record a finding on the preliminary issue relating to jurisdictional fact (as to whether the overseas transaction attracts Indian tax at all). If the assessee is aggrieved by the finding, it is entitled to challenge the same by a Writ Petition.

See also Vodafone International Holdings B.V. vs. UOI 329 ITR 126 (Bom) on the same point

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