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Tax Treatment on Capital Gains for Non Residents


In a significant ruling, the Authority for Advance Rulings ("AAR") has held in the case of Cairn UK Holdings Ltd ("the Applicant") that non-residents are not entitled to the benefit of lower rate of tax of 10 percent on capital gains arising from sale of shares of a listed company under the proviso to of the of the Income-tax Act, 1961 ("the Act"). Taxand India looks at the ruling.

For the details of the case, please click here.

Taxand's Take

This decision has several far reaching implications. This ruling unsettles a position of law which was consistently followed by the AAR in the past. This ruling is also inconsistent with others rulings of the AAR in cases of Fujitsu Services Limited, Four Star Oil and Mcleod Russel where it was held that foreign companies could claim the benefit of the lower rate of 10 percent under the Act.

Therefore, apart from laying down a canon of taxation against the taxpayer, a reversal of such a settled position could create concern to taxpayers regarding consistency. This ruling will also add to the uncertainty in withholding taxes involving a non-resident selling shares of a listed company in a private arrangement.
The appeal of the Revenue against an earlier favourable ruling of the AAR on the same issue is pending before the Supreme Court, which assumes greater significance in the light of this ruling.

Your Taxand contacts for further queries are:
Sriram Seshadri
T. +91 124 339 5010

Varsha Ramdas
T. +91 124 339 5010

Taxand's Take Author