Tax Treaty Case Law around the Globe 2017

S. 361India: Non-Discrimination Clause Extends Exemption from Capital Gains in case of Foreign Amalgamation involving Indian Assets

Sengupta, D.P.

1. S. 362Introduction

Income tax in India is charged under different heads of income. Each of the heads has a separate charging section and also sections describing how the particular income will be brought to tax. Long ago, the Supreme Court of India rendered a decision in the context of capital gains to the effect that the charging section and the computation sections form a coherent whole and if the computation provisions fail, then the income itself cannot be taxed. Ever since, there has been a cat and mouse game between the revenue and taxpayers in so far as this loophole is exploited then plugged and then some new loophole is found.

As far as Indian transfer pricing legislation is concerned, the courts have laid down the proposition that the transfer pricing rules, being of the nature of anti-avoidance provisions, require there first to be some income and if there is no income in the first place, there can be no question of applying transfer pricing provisions at all.

In the present case, the taxpayer was able to successfully combine the ratio of t...