Law:

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Section 112, read with section 48, of the Income-tax Act, 1961 - Capital gains - Tax on long-term capital gains - Whether benefit of proviso to section 112(1) cannot be denied to non-residents/foreign companies even if they are entitled to another relief in terms of proviso to section 48 - Held, yes Section 245N(b) of the Income-tax Act, 1961 - Applicant - Whether a resident applicant, who has entered into a transaction with a non-resident, can file an application under section 245Q(1) in relation to tax liability such non-resident arising out of such transaction - Held, yes FACTS The applicant purchased certain equity shares of 'M Tea Co.' from 'M', a non-resident company. The shares sold by 'M' to the applicant consisted of original as well as bonus shares of 'M Tea Co.' The applicant has sought advance ruling on the question as to whether tax payable on long-term capital gain arisen to 'M' on sale of original as well as bonus shares of 'M Tea Co.' will be 10 per cent of amount of capital gain as per proviso to section 112(1). In the written comments, the revenue has submitted that section 112(1) clearly distinguishes between domestic and foreign companies and defines the rates of taxation of long-term capital gains at 20 per cent for foreign companies and as such, the Indian company cannot avail of lower rate of taxation envisaged by section 112 inasmuch as the second proviso to section 48 is not applicable to the non-resident company. The revenue further states that in terms of section 48, read with section 112(1)(c), 'M' will have to pay the tax at the rate of 20 per cent in respect of both original shares as well as bonus shares and the proviso to section 112(1) will not apply. The applicant contends that the lesser rate of 10 per cent is applicable to long-term capital gains derived by non-resident foreign companies as well, and the benefit of reduced rate is not to be confined to residents only. HELD In the case of Timken France SAS, In re [2007] 294 ITR 513/ 164 Taxman 354 (AAR - New Delhi) on almost similar facts, the Authority took the view that the benefit of the proviso to section 112(1) cannot be denied to non-residents/foreign companies even if…

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