The Income Tax Appellate Tribunal (ITAT) Delhi Bench has ruled that indirect transfer of Indian assets will not attract Long Term Capital Gains Tax (LTCG).

Augustus Capital PTE Ltd. is the appellant company in this case, which is involved in the business of incubation of companies which means that it provides new businesses with necessary financial support and technical services. During the course of its business, the appellant made investments in Accelyst Pte Ltd which is a company incorporated in and resident of Singapore.

It was asked from the assessee by the Assessing Officer (AO) to explain as to why capital gains arising from the sale of shares from Accelyst to Jasper Infotech Private Limited should not be brought to tax in India under section 9(1)(i) of the Act.

Earlier the Assessing Officer has dismissed the submissions of the assessee as he was of the firm belief that operation of Explanation 7 to section 9(1)(i) of the Act is prospective since it has been inserted by the Finance Act, 2015 and made effective from April 1, 2016, and, therefore, not applicable in the year under consideration.

Subsequently, AO proposed the addition of Rs.36,33,15,969 in the total taxable income of the assessee. This issue revolves around the sale of Singapore-based Accelyst Pte Ltd (Freecharge) by Singapore startup incubator Augustus Capital PTE Ltd to Snapdeal’s holding company Jasper Infotech Pvt Ltd (JIPL) in the Financial Year 2016.

According to Section 9(1)(i) of the Act which was amended and Explanation 5 was inserted by the Finance Act, 2012 giving retrospective effect from April 1, 1962, because of apprehensions and ambiguities in the said Explanation Shome Committee was constituted and on the recommendations of Shome Committee, Explanations 6 and 7 were inserted by the Finance Act, 2015.

Amit Shukla and N.K. Billaiya’s two-member bench ordered the Assessing Officer to read Explanation 7 as applicable for the year under consideration and delete the impugned addition while it was providing relief to foreign funds and entities being subjected to tax demands for earlier years.

With Warm Regards,

CL Bureau.

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