Abstract
Until recently, the rules of section 9 on the source of capital gains were quite liberal. When it came to capital gains, the sourcing rules in section 9 focused on the situs of the capital asset that was the subject matter of the transfer. A capital gain that arose, whether directly or indirectly, through the transfer of a capital asset situate (sic) in India was deemed to have arisen in India. A provision of this sort was ripe for the plucking; non-resident companies took advantage of this provision when (effectively) transferring the shares of Indian companies owned by them. The best example is the notorious Vodafone case. The modern story of capital gains in the Indian context is the story of the Indian governmen’s response to Vodafone.
The part of this chapter on the post Vodafone amendments has appeared in Nigam Nuggehalli, ‘India’s Implementation of the BEPS Project: A Critical Survey’ in Parthasarathy Shome (ed), Insights into Evolving Issues of Taxation (CCH 2016) Part 6.
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Notes
- 1.
Section 2(45), ITA.
- 2.
Section 9(1)(i).
- 3.
Vodafone International Holdings B.V. v. Union of India and Anr., (2012) 1 SCR 573.
- 4.
Id para 64.
- 5.
Section 2(47), ITA.
- 6.
A capital asset is defined in section 2(14) of the ITA.
- 7.
Agreement between the Republic of India and the Kingdom of the Netherlands for the promotion and protection of investments, Article 4.
- 8.
Ibid, Article 7.
- 9.
Ibid, Article 5.
- 10.
Vodafone seeks a ruling that the Indian government is in ‘breach of its obligations under the BIT, including its obligations under Articles 4(1), 4(2), 4(5) and 5(1) of the BIT’, as quoted in Vodafone’s arbitration claims reproduced in associated litigation before the Delhi High Court. See Union of India v Vodafone Group PLC United Kingdom and Anr, 2017 SCC OnLine Del 9930, para 25.
- 11.
India-Netherlands BIT, Article 4(4).
- 12.
For more information on the Cairns BIT Arbitration, see http://investmentpolicyhub.unctad.org/ISDS/Details/691.
- 13.
Article 2.6(iv) of the Model BIT.
- 14.
Article 14.3 of the Model BIT states: ‘The Investor or Investment must first submit its claim before the relevant domestic courts or administrative bodies of the Host State for the purpose of pursuing domestic remedies.’.
- 15.
The National Companies Law Tribunal (NCLT) has the mandate to sanction scheme of amalgamation on the receipt of an application under section 230–232 of the Companies Act, 2013.
- 16.
CIT v. Grace Collis (Mrs.) and Others, (2001) 3 SCC 430.
- 17.
Section 47(vi) and 47(vii), ITA.
- 18.
CIT v. Gautum Sarabhai Trust, 1988 SCC OnLine Guj 156.
- 19.
Sections 72A, 79, ITA.
- 20.
2016 SCC OnLine AAR 12.
- 21.
Ibid, para 9.
- 22.
Id.
- 23.
Id para 15.
- 24.
CIT v. B. C. Srinivasa Setty, (1981) 2 SCC 460.
- 25.
MANU/IU/1165/2018.
- 26.
Ibid, paras 11 and 12.
- 27.
Ibid, para 17.
- 28.
Id para 16.
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Nuggehalli, N. (2020). Capital Gains. In: International Taxation. SpringerBriefs in Law. Springer, New Delhi. https://doi.org/10.1007/978-81-322-3670-2_6
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DOI: https://doi.org/10.1007/978-81-322-3670-2_6
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