Explanations 6 & 7 to Sec. 9(1)(i) Are To Be Given Retro Effect As They Have To Be Read Along With Expl. 5 | HC

Case Details: CIT vs. Augustus Capital (PTE) Ltd. - [2023] 157 taxmann.com 88 (Delhi)

Judiciary and Counsel Details

• • Rajiv Shakdher & Girish Kathpalia, JJ.
  • Aseem Chawla & Ms Pratishtha Chaudhary, Advs. for the Appellant.
  • Mayank Nagi, Tarun Singh & Sandeep Singh, Advs. for the Respondent.

Facts of the Case

The issue before the Delhi High Court was:

“Whether Explanations 6 and 7 appended to Section 9(1)(i), which was inserted by the Finance Act 2015 with effect from 01.04.2016, can operate retrospectively?”

High Court Held

The Delhi High Court held that section 9(1)(i) inter alia seeks to impose tax albeit via a deeming fiction qua all income accruing or arising, whether directly or indirectly, through or from any property in India or through or from any asset or through transfer of asset situated in India, or the transfer of a capital asset situated in India.

The judgment of the Supreme Court rendered in the case of Vodafone International Holdings BV v. Union of India excluded from the scope and ambit of section 9(1)(i) gain or income arising from the transfer of shares of a company located outside India. However, the value of the shares was dependent on assets situated in India. Explanations 4 and 5 were introduced via the Finance Act 2012, which was effected from 1-4-1962 to cure this gap in the legislation.

Explanations 4 and 5 presented difficulties in that the expressions ‘share and interest’ and ‘substantially’ found in the explanations were vague, resulting in undue hardship for transferors where the percentage of share or interest transferred was insignificant. Explanations 6 and 7 alone would have no meaning if they were not read along with Explanation 5. Therefore, if Explanations 6 and 7 have to be read along with Explanation 5, which concededly operates from 1-4-1962, they would have to be construed as clarificatory and curative.

Accordingly, it was concluded that although Explanations 6 and 7 were indicated in the Finance Act 2015 to take effect from 1-4-2016, they could be treated as retrospective having regard to the legislative history that led to the insertion of Explanations 6 and 7.
Accordingly, the appeal was dismissed.