CAIRN U.K. HOLDINGS LTD Vs. DIRECTOR OF INCOME TAX

JUDGEMENT

(1.) THE applicant, Cairn UK Holding Ltd. (CUHL), is a private limited company registered in Scotland. It acquired the equity shares of Cairns India Limited (CIL) in 3 trenches: 50,000 equity shares were acquired by way of initial subscription in August, 2006; 365,028,898 equity shares by way of allotment as fully paid up equity shares and Anr. 861,764,893 equity shares pursuant to a share purchase agreement on 12.10.2006. As per this share purchase agreement, 135,267,264 equity shares of Cairn India Holdings Limited (CIHL) were transferred by the applicant to CIL and as a consideration, CIL issued 861,764,893 equity shares to the applicant. Accordingly, these equity shares of CIL were allotted to the applicant under a swap of share arrangement. Approval of the Foreign Investment Promotion Board of India was also obtained. On 12th October 2009, Patrons Corporation Intl. Limited (PCIL) acquired 2.29% equity shares in CIL from the applicant through an agreement dated 14th October 2009, pursuant to which the applicant transferred 4,36,00,000 equity shares to PCIL for a consideration of USD 241,426,379.

(2.) AS per the application, the following question has been framed for a ruling from this Authority:

(3.) THE applicant submits that proviso to Section 112 provides that where the tax payable in respect of any income arising from the transfer of a long - term capital asset, being listed securities or units or zero coupon bond, exceeds 10% of the amount of capital gains before giving effect to the provisions of the second proviso to Section 48 of the Act, then, such excess shall be ignored for the purposes of computing the tax payable by the Assessee. The proviso to Section 112 was enacted with a view to provide lower rate of tax of 10% on long -term capital gains in respect of listed securities or units or zero coupon bonds. The applicant is of the view that what is relevant is the capital gains arising from transfer of the above mentioned specified securities and it is immaterial whether the Assessee who has earned the capital gain is a resident or non -resident.