ISSUE:
Whether Indian Tax Authorities have the jurisdiction to tax a transaction between two non-resident entities, which took place outside India but involved underlying assets in India?
Whether a transaction involving a transfer of shares of a foreign company, which indirectly possesses assets in India, can be taxed in the country?
RULE:
Section 9(1) of the Income Tax Act, 1961 talks about the income arising directly or indirectly from any business connection situated in India or through the transfer of capital assets situated in India to be considered taxable.
Section 195 of the Income Tax Act, 1961 mandates the person who is responsible for paying a non-resident or a foreign company shall deduct income tax rates thereon at the rates in force.
Section 163 of the Income Tax Act, 1961 mentions who exactly can be treated as an agent. It lays out certain conditions for an individual to become so.
Section 2(14) of the Income Tax Act, 1961 mentions what assets can be treated as capital assets. Exceptions are stock in trade, ornaments used for personal purposes, agricultural land, gold bonds, and special bearer bonds.