Law:

Section:

Section 112, read with section 48, of the Income-tax Act, 1961 - Capital gains - Tax on long-term capital gains - Whether phrase in section 112(1) '...before giving effect to provisions of second proviso to section 48' means before giving effect to second proviso wherever it is applicable, but non-applicability of second proviso will not preclude a non-resident to avail relief of lower rate of tax of ten per cent as specified in proviso to section 112(1) - Held, yes Section 55(2) of the Income-tax Act, 1961 - Capital gains - Cost of acquisition - Whether in case of a capital asset answering description given in sub-clauses (i) and (ii) of clause (b) of section 55(2), rules of computation of cost of acquisition laid down by those sub-clauses of clause (b) would prevail over rules in preceding clause (aa) of section 55(2) - Held, yes - Whether therefore, in case of a capital asset falling within ambit of clause (b) of section 55(2) acquired before 1-4-1981, cost of acquisition can be taken as fair market value of that asset as on 1-4-1981 - Held, yes FACTS The applicant is a non-resident company holding about 22 per cent of the paid-up share capital of an Indian company. The equity shares held by the applicant consisted of original shares, bonus shares and rights shares acquired by it over a period of time since 1928. The original shares were acquired in US Dollars. The applicant proposes to sell its equity interest in the Indian company and for that purpose, it has entered into shares sale/purchase agreement with two identical buyers. The proposed transfer of shares will be an off market transaction as permitted by the RBI. In the instant application, the applicant has sought advance ruling on the questions : whether the long-term capital gain arising on proposed sale of said shares will be taxable at the rate of 10 per cent as per proviso to section 112(1); and whether it can avail of the option of substituting fair market value on 1-4-1981 as the cost of acquisition of bonus shares allotted to it before April, 1981 as per provisions of section 55(2)(b)( i). In the comments furnished, the revenue contends that the applicant cannot avail of lower rate of 10 per…

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