INCOME TAX ACT, 1961

Section 90

Double taxation relief - Agreement between India and Netherlands - Taxability of capital gain on sale of shares in the hands of assessee acting as representative of tax transparent entities -

Assessee, an AOP based at Netherlands, was a SEBI registered Foreign Institutional Investor (FII). It earned short-term capital gain on sale of shares. In India and claimed it to be protected from taxation in India, under article 13 of 'Indo-Dutch DTAA) treaty'. It was emphasized that assessee was a trust (AOP), taxable in the capacity of representative assessee, and as beneficiaries were taxable entities in Netherlands and eligible for benefit under article 13(5) of DTAA, assessee was eligible for the same treaty protection as well and eligible for benefit under article 13(5) of DTAA, assessee was eligible for the same treaty protection as well. and no capital gain could not be taxed in its hands. Held: When assessee was a representative assessee of a tax transparent entity, it was the status of beneficiareis or constituents of tax transparent entities which was relevant for the purpose of determining treaty protection. Viewed thus, it was beyond doubt that income in question had actually accrued to the taxable entities in the Netherlands. It was also not the case of AO that exception clause contained under articles 13(1) to 13(4) of concerned DTAA were applicable to assessee's case. This being the position, capital gains, on sale of shares in the hands of assessee, and the investors it represented as trustee, were treaty protected from taxation in India and treaty protection had indeed been wrongly declined to the assessee. AO was directed to grant the benefit of Indo-Dutch tax treaty.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2007-08

SUBSCRIBE FOR FULL CONTENT