In the following independent circumstances, discuss whether the provisions of GAAR would be applicable: (i) Right Inc., a company incorporated in…
CA Final · Direct Tax Laws and International Taxation · MTP · May 2024
In the following independent circumstances, discuss whether the provisions of GAAR would be applicable: (i) Right Inc., a company incorporated in Country M, holds 1200 equity shares in PS Ltd., an Indian listed entity since 1.4.2016. On 1.5.2023, PS Ltd. issued 1200 bonus shares to Right Inc. As per the treaty between India and Country M, the capital gain is taxable in the country where the transferor of shares is a resident. The tax laws of Country M, exempt capital gains. Right Inc. sells all the shareholding in PS Ltd. on 1.1.2024 and earned a capital gain of 5 crores.
Suggested Answer and Working Notes:
Applicability of GAAR (i) In case of investment made prior to 1.4.2017, income arising from transfer thereof would not be subject to GAAR. Accordingly, income from transfer of shares acquired on 1.4.2016 by Right Inc. would not attract GAAR. If the original shares are acquired before 1.4.2017, but bonus shares are issued after that date, GAAR provisions would not be attracted on transfer of such bonus shares also.
Topics: Tax Planning, Tax Avoidance & Tax Evasion
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