Recently the AAR in the case of Banca Sella SPA ("the
Assessee"), dealt with the issue of tax implications arising
on amalgamation of two Italian companies, which resulted in
transfer of a branch office in India to the amalgamated company,
under the Income-tax Act, 1961 ("the Act") and the
India-Italy Double Taxation Avoidance Agreement ("Tax
Treaty") and held that in the absence of consideration flowing
to the amalgamating company, the transfer cannot be taxed as
capital gains in India.
The Assessee together with its Holding company and other Group
companies, holds another Italian company, SSBS. The Assessee
holds 15% in SSBS (prior to its amalgamation) and the balance is
held by other Group entities. The Group was carrying out business
in India through one of its subsidiaries (SSIPL) incorporated in
India. On 15 February 2010, SSIPL transferred the information
technology business to the Indian branch of SSBS (set up in January
2010) on a going concern basis, for a fair consideration.
The Assessee approached the AAR for a ruling on tax implications
that may arise from the amalgamation.
Under the Act, "transfer" cannot be taxed as capital
gains in the absence of any consideration flowing to the
amalgamating company i.e., SSBS. Applying the non-discrimination
clause of the Tax Treaty in the present case, AAR held that the
exemption in respect of amalgamation available under the Act shall
be available to SBBS.
Further, on the issue "whether BSS and other shareholders
would be liable to tax on extinguishment of 15% holding in
SSBS", AAR held that in the present case, "transfer"
is in the hands of the Assessee, and since the Assessee has not
received any consideration, there would be no taxability in their
hands. In respect of other shareholders, though they have received
consideration in the form of shares of BSS, what these shareholders
have transferred are shares in SSBS, an Italian company, and not
assets in the PE of SSBS. Since gains arising on transfer of shares
of an Italian company would be taxable only in Italy, the same is
not taxable in India.
This favorable ruling reiterates the settled principles of tax
in the case of amalgamations under overseas restructuring within a
group, that capital gain tax exemption available to Indian
companies under the Act shall be available to foreign companies
under the provisions of the non-discrimination clause of the Tax
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Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
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