The Delhi High Court, in DIT v. Copal Research Mauritius Limited, et al., has concluded that gain arising from a sale between nonresidents of shares in an overseas company is not taxable in India unless the company derives at least 50 percent of its value from assets situated in India. Absent meeting this 50-percent threshold, the value of the shares could not be said to be derived “substantially” from assets in India under section 9(1)(i) of the Income Tax Act, 1961, as clarified by Explanation 5, the court said.
In the case, decided August 14, the court concluded that gain from the sale of shares in overseas entities were not taxable in India, disagreeing with the tax authority’s contention that the taxpayer engaged in a series of transactions only to avoid tax. DIT v. Copal Research Limited, Mauritius, et al. For further analysis, see Shipra Padhi & Shreya Rao, Nishith Desai Associates; Kian Ganz, Legally India.
