P.V. Reddi, J. (Chairman) -
(1.) IN this application, filed Under Section 245Q(1) of the Income -tax Act, 1961 (hereinafter referred to as 'IT Act'), the following facts are stated:
The applicant is a company incorporated in the Netherlands, with its registered office in Amsterdam. The copy of certificate of incorporation of the applicant shows that it was incorporated on 11th August, 2008.
PG India is a private limited company (Pierburg India) incorporated in India under the Companies Act, 1956 on 26th October, 2006 and is the wholly owned subsidiary of the applicant.
The applicant and PG India are part of the Kolbenschmidt Pierburg group which has extensive manufacturing operations in Europe, North America, South America and Asia catering to the global market for superior automobile components. In order to meet the increased capital requirements connected with PG India's expansion plans, the applicant has made significant investments into PG India.
The applicant expects to receive income in the form of dividends declared and distributed by PG India.
The applicant may also realize capital gains through a sale of portion or all of its shares in PG India to another non -resident company.
PG India may also consider a buy -back of its shares by the applicant. Consequent to the buy back, PG India would continue to be the wholly owned subsidiary of the applicant.
1.1. Initially, Pierburg GmbH was the holding company of Pierburg India in November, 2008. It sold the entire shareholding in Pierburg India to the applicant for a valuable consideration of Rs. 10 crores. Consequentially, the applicant which is a Netherlands company became 100 per cent shareholder and the holding company of Pierburg India. The applicant made substantial investments in Pierburg India. The applicant seeks advance ruling on the following four questions"
1. Whether, on the facts and in the circumstances of the case, KSPG Netherlands Holding B.V (hereinafter referred to as the 'applicant) would be liable to tax in India on the dividends received by it from its wholly owned subsidiary, Pierburg India Private Limited (hereinafter referred to as "PG India") as per the provisions of the Income -tax Act, 1961 (hereinafter referred to as "IT A")?
(2.) WHETHER , on the facts and in the circumstances of the case, the applicant would be liable to tax in India on the capital gains that may accrue from the transfer of shares in PG India to another non -resident as per the provisions of the Convention between the Government of Republic of India and the Kingdom of the Netherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (hereinafter referred to as "India -Netherlands Treaty")? Whether, on the facts and in the circumstances of the case, the transferor would be liable to tax in India on the capital gains that may accrue from a buyback of shares by its wholly owned Indian subsidiary, PG India as per the provisions of the ITA?
(3.) WHETHER , on the facts and in the circumstances of the case, the applicant would be liable to tax in India on the capital gains that may accrue from a buyback of shares by its wholly owned Indian subsidiary, PG India as per the provisions of the India -Netherlands Treaty?
1.2. In the course of hearing, the learned Counsel for the applicant has stated that question No. 4 need not be decided and it may be treated as not pressed.
Question No. 1
2. It relates to exigiblity of tax under the Income -tax Act in respect of dividends received by the applicant from its wholly owned subsidiary Pierburg India Pvt. Ltd. By virtue of Section 9(1 )(iv) of the IT Act, a dividend paid by an Indian company outside India is deemed to be taxable income. However, in view of Section 10(34) of the Act, the income by way of dividends referred to in Section 115 -O of the Act is liable to be excluded from the total income of the previous year of any person. Section 115 -O reads thus:
(1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income -tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003 whether out of current or accumulated profits shall be charged to additional Income -tax (hereafter referred to as tax on distributed profits) at the rate of fifteen percent.
2.1. Thus, as contended by the applicant, under Section 115 -O, PG India would be liable to pay tax on the distribution of profits by way of dividends to the applicant @ 15 per cent. However, such dividends received by the applicant (shareholder of PG India) would not be taxable in its hands under the IT Act. This legal position admits of no doubt and in fact it has not been disputed by the Revenue in its comments. In the comments furnished by the Revenue, it has been fairly stated as follows:
4.1.3. Further, once the Indian company PG India Pvt. Ltd. has paid the dividend Distribution Tax, the dividend received either by the Netherlands company KSPG Netherlands Holding B.V., or the ultimate holding company in Germany, Kolbenschmidt Pierburg A.G., would not be liable to tax in India in terms of the express provisions of Section 10(34) of the Income -tax Act.
4.1.4. This position, however, is subject to change in case any amendments are made in the relevant provisions of the Income -tax Act.
2.2. The first question is, therefore, answered in the negative. Question No. 2
3. The applicant seeks to invoke para 5 of Article 13 of the India - Netherlands Treaty Convention in support of its contention that capital gains tax cannot be levied and collected by the Indian Tax authorities under the Income -tax Act, 1961. Article13 of the Treaty provides for taxation of gains from the alienation of capital assets. Para 5 of Article13 which is relevant for our purpose is extracted below:;