Case nº A.A.R. No. 1044 of 2011 of Authority for Advance Rulings, August 22, 2012 (case Armstrong World Industries Mauritius Multiconsult Limited, 10, Frer Felix de Valois Street, Port Louis, Mauritius Vs Director of Income-tax (International Taxation) Delhi)
| President | Mr. P.K. Balasubramanyan, (Chairman) |
| Resolution Date | August 22, 2012 |
Judgment:
Mr. P.K. Balasubramanyan, (Chairman)
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The applicant is a fully owned subsidiary of Armstrong World Industries Limited United Kingdom (Armstrong UK). Armstrong UK in turn is a fully owned subsidiary of Armstrong USA. The applicant was incorporated in Mauritius in the year 1999. It is a tax resident of Mauritius. Armstrong World Industries India (Pvt.) Limited (Armstrong India) was incorporated in India in the year 1999 as a fully owned subsidiary of Inarco Ltd., an Indian company. Inarco Limited was engaged in the business of production of textile machine parts and floorings. Armstrong UK, through the applicant, was holding 50% of the share capital in Inarco Limited. Pursuant to a scheme of amalgamation, approved by the High Court of Bombay, the flooring business of Inarco Limited was transferred to Armstrong-India. In consideration of that transfer of business, Inarco Limited was allotted 3,60,000 shares of the value of Rs. 10/- each in Armstrong India. Subsequently, Inarco Limited's share capital was reduced by resorting to section 100 of the Companies Act, 1956 from Rs. 72,00,000 (divided into 72000 equity shares of the value of Rs. 100 each) to Rs. 36,00,000 (divided into 36000 equity shares of the value of Rs. 100 each). This was by cancelling of 50% of its share capital by Inarco Limited. As consideration, Inarco Limited transferred to the applicant 3,600,000 shares of Rs. 10 each of Armstrong India. This constituted 99.97% of the share capital of Armstrong India. These arrangements were all made after getting the relevant statutory approvals.
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As of now, the applicant is holding 99.97% of the shares in Armstrong India. The other 0.03% of the shares therein are held by Armstrong UK.
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Armstrong India is now proposing to buyback 90,025 shares from the applicant out of the 3,60,000 shares held by it, in terms of Section 77A of the Companies Act. The proposed buyback is for commercial reasons and it was a justified step. By the proposed buyback, capital gains would arise to the applicant which would be taxable under the Income-tax Act. But, the applicant by relying on Section 90(2) of the Act, is entitled to claim the benefit of the India Mauritius Double Taxation Avoidance Convention (DTAC) between India and Mauritius and going by paragraph 4 of Article 13 of the said DTAC, the capital gains can be taxed only in Mauritius. In this context the applicant approached this Authority with the present application seeking Advance...
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