Case nº A.A.R. No. 740 of 2006 of Authority for Advance Rulings, November 16, 2007 (case Triniti Corporation Vs Commissioner of Income Tax)

JudgeFor Appellant: K.C. Devdas, C.A. and Ananth Padmanabhan, Adv. and For Respondents: None
PresidentP.V. Reddi, J. (Chairman), A. Sinha and Rao Ranvijay Singh, Members
Resolution DateNovember 16, 2007


Rao Ranvijay Singh, Member

1. The present application has been filed in the prescribed form by M/s. Trinity Corporation USA, under Section 245Q(1) of the Income-tax Act, 1961 (in short the Act) on 1.12.2006, seeking advance ruling from the Authority on the questions mentioned therein.

2. Before adverting to the precise questions on which rulings of the Authority are sought, we think it quite proper to hark back to the factual matrix.

3. Briefly stated, the facts of the case are that one M/s. Triniti Advance Software Labs (P) Ltd. ( in short M/s. TASL(P) Ltd.), S.P. Road, Hyderabad is an Indian company registered with the Registrar of the companies, Andhra Pradesh, having the following share holding pattern of the share holders:

  1. Srinath Alamela 17500 Shares of Rs.10 each 1. Jeff Slosar 17500 Shares of Rs. 10 each 2. Issa Elkhoury 17500 Shares of Rs. 10 each 3. A.S. Arun Kumar 150 Shares of Rs. 10 each e) Vasantha Srinivasan 150 Shares of Rs.10 each

4. In fact, the first three shareholders are non-residents and the remaining shareholders are resident Indians. It has further emerged that one shareholder Mr.Jeff Slosar, a USA resident, entered into an agreement with the applicant, M/s. Triniti Corporation, USA, on 13.9.2006, to transfer his shares in a phased manner. To be more eloquent, 25% of the shares, held by Mr.Jeff Slosar have been transferred on 1.11.2006 and the remaining shares are to be transferred in 44 (forty four) equal monthly instalments beginning from March '07.

5. Placed in the above factual matrix, the applicant, M/s. Triniti Corporation U.S.A., the purchaser of the shares from Mr.Jeff Slosar, has sought ruling, on the following questions:

1. Whether Mr. Jeff Slosar, US Resident, transferor of 17500 Equity shares of Triniti Advanced Software Labs Private Limited, an Indian Company is liable for capital gains tax on transfer of such shares to Triniti Corporation, a US company.

2. Whether Triniti Corporation, an US Company, transferee of 17500 Equity shares of Triniti Advanced Software Labs Private Limited, an Indian Company is liable for capital gains tax on purchase of such shares as an agent/representative assessee of the Non-resident transferor, i.e. Mr. Jeff Slosar as per provisions of Sections 160, 161 read with Section 163 of the Act.

3. Whether the fact that the share transfer agreement was entered and executed in the United States of America would affect the tax liability in India.

4. Without prejudice to the above three questions, what is the tax rate applicable including surcharge and educational cess, if any and due dates for payment thereof.

6. In addition, as per the Annexure-II attached to the aforesaid Form No. 34C, the ruling of the Authority has been sought on the following two questions only:

1. Whether on the facts and circumstances of the case the transfer of shares by Jeff Slosar, a US citizen, and a US resident, to Trinity Corporation, a US company and both being non residents is liable for capital gains tax in India.

2. If the answer to the first question is in the affirmative, who will be treated as an agent in India for the payment.

7. The application under Section 245Q(1) of the Act was, allowed under Section 245R(2) of the Act as per the order dated 13.4.2007 and was posted for hearing on 28th May'07.

8. When called upon to furnish the comments on the applicant's petition, the Revenue (Commissioner of Income Tax, Hyderabad-II) has, as per his letter dated 4.5.07, submitted that since the capital asset i.e. shares of TASL, is situated in India, the income accruing on the transfer of the shares is clearly exigible to capital gains tax in view of the provisions of Section 9(1) of the Act. The revenue has further submitted that there is a 'business connection' between Mr. Jeff Slosar, the non-resident and T.A.S.L., the Indian resident company, as per Section 163(1)(b) of the Act and it must be, deemed that the non-resident is in receipt of income through T.A.S.L. [Section 163(1) (c)]. As such, in the opinion of the revenue, T.A.S.L. is an agent of Mr.Jeff Slosar, who has transferred the shares to the applicant. According to Revenue, the...

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