EcoPack Solutions Pvt. Ltd., an Indian company, is engaged in the manufacture of eco-friendly packaging materials, with its manufacturing facility…

CA Final · Direct Tax Laws and International Taxation · MTP · September 2025
EcoPack Solutions Pvt. Ltd., an Indian company, is engaged in the manufacture of eco-friendly packaging materials, with its manufacturing facility located in Gujarat, India. EcoPack Solutions Pvt. Ltd. is a wholly owned subsidiary of GreenCore Global Ltd., a company incorporated in Country Zeta. Ownership Structure of GreenCore Global Ltd.: Lucas Pereira and Daniel Zhang, both citizens and tax residents of Country Omega, each held 50% of the equity share capital of GreenCore Global Ltd.In April 2017, both Lucas and Daniel had invested the equivalent of INR 150 crores each in GreenCore Global Ltd. On 1st June 2024, Lucas and Daniel sold their entire shareholding in GreenCore Global Ltd. to Mr. Arjun Das, a resident of Country Omega, for a consideration equivalent to INR 400 crores each, based on a mutually agreed fair market valuation. GreenCore Global Ltd. follows the calendar year as its accounting period (i.e., January to December). The relevant extract of the balance sheet of GreenCore Global Ltd. as on 31st December 2023, 1st June 2024 and 31st December 2024 are as follows: Particulars As 31st December 2023 (in INR crores) As on 1st June 2024 (in INR crores) As on 31st December 2024 (in INR crores) Details GreenCore Global Ltd. regarding Book value of assets 2,000 2,600 3000 Liabilities 600 500 700 Fair Market Value of assets (without reduction of liabilities) 1600 2200 1900 Details regarding investment in EcoPack Solutions Pvt. Ltd. Cost of acquisition 300 300 300 Book value of assets in balance sheet of EcoPack Solutions Pvt. Ltd. 700 1100 960 Liabilities 300 400 500 Fair market value of assets in balance sheet of EcoPack Solutions Pvt. Ltd. (without reduction of liabilities) 700 1200 1200 Determine whether the income arising from the transfer of shares of GreenCore Global Ltd. is chargeable to tax in India in the hands of Lucas Pereira and Daniel Zhang for the Assessment Year 2025–26. Assume that there is no Double Taxation Avoidance Agreement (DTAA) between India and Country Zeta, and between India and Country Omega.

Suggested Answer and Working Notes:

Capital gain arising in the hands of Lucas Pereira and Daniel Zhang from transfer of a capital asset situated in India would be deemed to accrue or arise in India. Shares of GreenCore Global Ltd., Country Zeta, shall be deemed to be situated in India if those shares derive directly or indirectly, its value substantially from assets located in India. Shares of GreenCore Global Ltd. would be deemed to derive its value substantially from the assets located in India, if on the specified date, the fair market value of Indian assets (without reduction of liabilities) i.e., fair market value of assets of EcoPack Solutions Pvt. Ltd. exceeds 10crores; andrepresents at least 50% of the value of all the assets owned by GreenCore Global Ltd. Specified date would be the date of transfer i.e., 1.6.2024 since book value of the assets of GreenCore Global Ltd. on the date of transfer i.e., 2,600 crores exceed the book value of the assets as on the last balance sheet date preceding the date of transfer i.e., 2,000 crores by at least 15%. Shares of GreenCore Global Ltd. derives its value substantially from assets located in India since the fair market value of assets located in India (without reduction of liabilities) on 1.6.2024, being the specified date i.e., 1200 crores exceed 10crores and represents more than 50% i.e., 54.545% of the fair market value of assets of GreenCore Global Ltd. i.e.,2,200 crores. Hence, the shares of GreenCore Global Ltd. would be deemed to be a capital asset situated in India and the capital gains from the transfer of shares of GreenCore Global Ltd. by Lucas Pereira and Daniel Zhang would be deemed to accrue or arise in India. Accordingly, the capital gains arising from transfer of shares of GreenCore Global Ltd. would be taxable in the hands of Lucas Pereira and Daniel Zhang in India as per Income-tax Act, 1961.

Topics: Non-Resident Taxation

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