INCOME TAX ACT, 1961

Section 9(1)(i), Expln. 5, 6 & 7

Income deemed to accrue or arise in India - Sale of shares - Applicability of explanation 7 -

Assessee, non-resident, gold its entire shareholding in Accelyst Pte. Ltd., a company based at singapore, to an Indian Company. J Ltd. AO required assessee to explain as to why capital gains arising from sale of shares of Accelyst Pte. Ltd. should not be brought to tax in India under section 9(1)(i). Assessee contended that in view of Explanation 7 to section 9(1)(i) impugned transaction was not taxable. AO held that operation of Explanation 7 to section 9(1)(i) was prospective and since it had been inserted by Finance Act, 2015 and made effective from 1-4-2016, therefore, was not applicable in the year under consideration.Held: Section 9(1)(i) was amended and Explanation 5 was inserted by the Finance Act, 2012 giving retrospective effect from 1-4-1962 because of apprehensions and ambiguities in said Explanation Shome Committee was constituted and on the recommendations of Shome Committee, Explanations 6 and 7 were inserted by the Finance Act, 2015. Both the Explanations 6 and 7 start with 'For the purposes of this clause'. the reference to 'this clause' is to section 9(1)(i) and Explanation 5 starts with 'For removal of doubts'. In our understanding of the law, Explanations 6 and 7 were to be read with Explanation 5 to understand the provisions of section 9(1)(i). Since Explanation 5 had been given retrospective effect and Explanations 6 and 7 had been inserted in furtherance of object of insertion of Explanation 5, these two Explanations could not be read in isolation, but had to be tagged along with Explanation 5 so that both the Explanations had to be given a retrospective effect. Accordingly, AO was directed to read Explanation 7 as applicable for the year under consideration and delete impugned addition.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

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