Our Dutch company is moving its Indian subsidiary's shares to another group company in the Netherlands. If the gain is exempt under the treaty, do we still have to withhold, file a return and do a transfer pricing study?
No, on all four counts. The Authority ruled that no taxable capital gain arose in India on Vanenburg Group B.V.'s proposed transfer of its shares in Cordys R&D (India) Pvt Ltd to Cordys Holding B.V., because article 13(5) of the India-Netherlands agreement leaves such gains taxable in the Netherlands where the transfer is part of a corporate reorganisation and the alienator holds at least ten per cent of the transferee. It followed that the transferee need not withhold under section 195, that no return was required under section 139, and that the transfer pricing provisions in sections 92 to 92F did not apply. The ruling binds only Vanenburg.
Pronounced by the Authority for Advance Rulings (Syed Shah Mohammed Quadri, J. (Chairman) and A. Sinha, Member) on 2007-01-31, reported as [2007] 289 ITR 438 (AAR). It bears on section 45, section 195, section 139, section 92, section 9(1)(i), section 90(2), section DTAA art 13 of the Income Tax Act 1961, in Capital Gains and TDS Defaults matters.
This is the ruling cited for the proposition that the machinery follows the charge. Once the treaty allocates the gain away from India, the Authority held there was no occasion to call a machinery section in aid: section 195 bites only where the income is taxable under the Act, the return obligation falls away, and the transfer pricing provisions, which exist to compute income, have nothing to compute. The Supreme Court took the same view of section 195 in GE India Technology Centre P. Ltd v. CIT, decided 9 September 2010, holding that the obligation attaches only to sums chargeable under the Act. Whether the return and transfer pricing conclusions have survived later amendment is much less certain, and a reader should check the current position before acting on those limbs.
Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them.
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Vanenburg Group B.V., a company resident in the Netherlands, proposed to transfer its entire shareholding in Cordys R&D (India) Pvt Ltd, an Indian company, to Cordys Holding B.V., another wholly owned subsidiary within the same group, as part of a group reorganisation. Four questions were put to the Authority: whether the capital gains arising from the transfer of the shares in the Indian company to Cordys Holding B.V. would be taxable in India, having regard to the Income-tax Act 1961 and the double taxation avoidance agreement between India and the Netherlands; whether Cordys Holding B.V. was required to withhold tax under section 195 on the consideration; whether, if the capital gains were not taxable in India, Vanenburg was nevertheless required to file a return of income under section 139; and whether the transfer pricing provisions in sections 92 to 92F applied to the transaction. The transaction was a direct transfer of Indian shares between two Netherlands companies within one group.
The Authority answered all four questions in the applicant's favour. On the first, no taxable capital gain arose in India: article 13(5) of the India-Netherlands agreement leaves the gain taxable in the Netherlands where the alienation forms part of a corporate reorganisation and the alienator holds at least ten per cent of the capital of the transferee, and the resulting capital gains, if any, were accordingly taxable in the Netherlands. On the second, no withholding was required, because tax is to be deducted under Chapter XVII only if the income is taxable under the Act. On the third, no return of income was required under section 139: there would be no occasion to call a machinery section in aid where there is no liability at all. On the fourth, the transfer pricing provisions of sections 92 to 92F did not apply, being dependent on there being income chargeable to tax in the first place.
The Authority began, as it had to, with the charge. Sections 4 and 5 impose the charge and section 9(1)(i) deems income arising from the transfer of a capital asset situate in India to accrue here, so shares in an Indian company would ordinarily bring the gain within the Indian net. Section 90(2) then permits the assessee to be governed by the treaty where that is more beneficial, and article 13 of the India-Netherlands agreement allocates capital gains. Paragraph 5 of that article carves out from India's taxing right gains on the alienation of shares forming part of a corporate reorganisation such as a merger or division where the alienator holds at least ten per cent of the capital of the transferee. The proposed transfer answered that description, so the taxing right lay with the Netherlands and nothing was chargeable in India. Everything else followed from that single conclusion, and the Authority said so in terms: the withholding obligation in Chapter XVII operates only on income taxable under the Act; the return provisions and the transfer pricing provisions are machinery, and machinery presupposes a liability to be worked out. Where there is no liability at all, there is no occasion to call the machinery in aid. That is the proposition the ruling is remembered for, and it is stated as a general principle rather than as a concession on these facts.
There would be no occasion to call a machinery Section in aid where there is no liability at all.
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Handle my notice → Ask a CA on WhatsAppNo, on all four counts. The Authority ruled that no taxable capital gain arose in India on Vanenburg Group B.V.'s proposed transfer of its shares in Cordys R&D (India) Pvt Ltd to Cordys Holding B.V., because article 13(5) of the India-Netherlands agreement leaves such gains taxable in the Netherlands where the transfer is part of a corporate reorganisation and the alienator holds at least ten per cent of the transferee. It followed that the transferee need not withhold under section 195, that no return was required under section 139, and that the transfer pricing provisions in sections 92 to 92F did not apply. The ruling binds only Vanenburg. This was decided by the Advance Ruling (Syed Shah Mohammed Quadri, J. (Chairman) and A. Sinha, Member) and bears on section 45, section 195, section 139, section 92, section 9(1)(i), section 90(2), section DTAA art 13 of the Income Tax Act 1961. It is reported as [2007] 289 ITR 438 (AAR). This is the ruling cited for the proposition that the machinery follows the charge. Once the treaty allocates the gain away from India, the Authority held there was no occasion to call a machinery section in aid: section 195 bites only where the income is taxable under the Act, the return obligation falls away, and the transfer pricing provisions, which exist to compute income, have nothing to compute. The Supreme Court took the same view of section 195 in GE India Technology Centre P. Ltd v. CIT, decided 9 September 2010, holding that the obligation attaches only to sums chargeable under the Act. Whether the return and transfer pricing conclusions have survived later amendment is much less certain, and a reader should check the current position before acting on those limbs. If it applies to you, the first step is this: Settle chargeability before you argue about withholding; the section 195 obligation only arises on a sum chargeable under the Act.
Vanenburg Group B.V., a company resident in the Netherlands, proposed to transfer its entire shareholding in Cordys R&D (India) Pvt Ltd, an Indian company, to Cordys Holding B.V., another wholly owned subsidiary within the same group, as part of a group reorganisation. Four questions were put to the Authority: whether the capital gains arising from the transfer of the shares in the Indian company to Cordys Holding B.V. would be taxable in India, having regard to the Income-tax Act 1961 and the double taxation avoidance agreement between India and the Netherlands; whether Cordys Holding B.V. was required to withhold tax under section 195 on the consideration; whether, if the capital gains were not taxable in India, Vanenburg was nevertheless required to file a return of income under section 139; and whether the transfer pricing provisions in sections 92 to 92F applied to the transaction. The transaction was a direct transfer of Indian shares between two Netherlands companies within one group. The matter was decided on 2007-01-31 by the Advance Ruling (Syed Shah Mohammed Quadri, J. (Chairman) and A. Sinha, Member). On those facts the Advance Ruling held as follows. The Authority answered all four questions in the applicant's favour. On the first, no taxable capital gain arose in India: article 13(5) of the India-Netherlands agreement leaves the gain taxable in the Netherlands where the alienation forms part of a corporate reorganisation and the alienator holds at least ten per cent of the capital of the transferee, and the resulting capital gains, if any, were accordingly taxable in the Netherlands. On the second, no withholding was required, because tax is to be deducted under Chapter XVII only if the income is taxable under the Act. On the third, no return of income was required under section 139: there would be no occasion to call a machinery section in aid where there is no liability at all. On the fourth, the transfer pricing provisions of sections 92 to 92F did not apply, being dependent on there being income chargeable to tax in the first place.
The Authority began, as it had to, with the charge. Sections 4 and 5 impose the charge and section 9(1)(i) deems income arising from the transfer of a capital asset situate in India to accrue here, so shares in an Indian company would ordinarily bring the gain within the Indian net. Section 90(2) then permits the assessee to be governed by the treaty where that is more beneficial, and article 13 of the India-Netherlands agreement allocates capital gains. Paragraph 5 of that article carves out from India's taxing right gains on the alienation of shares forming part of a corporate reorganisation such as a merger or division where the alienator holds at least ten per cent of the capital of the transferee. The proposed transfer answered that description, so the taxing right lay with the Netherlands and nothing was chargeable in India. Everything else followed from that single conclusion, and the Authority said so in terms: the withholding obligation in Chapter XVII operates only on income taxable under the Act; the return provisions and the transfer pricing provisions are machinery, and machinery presupposes a liability to be worked out. Where there is no liability at all, there is no occasion to call the machinery in aid. That is the proposition the ruling is remembered for, and it is stated as a general principle rather than as a concession on these facts. In the words reproduced by the source cited on this page: "There would be no occasion to call a machinery Section in aid where there is no liability at all."
It was decided by the Advance Ruling on 2007-01-31 and is reported as [2007] 289 ITR 438 (AAR). Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and only the Commissioner and the officers under him in relation to that applicant and that transaction — and only until the law or the facts change. That is section 245S, and it means the ruling is not a precedent and binds nothing in your case. You cite it because the Authority reasoned the point out, often first and most fully, and the Tribunal and the courts treat a considered ruling as persuasive. Check before you rely on one: most of these were pronounced before 2009, and a great deal of cross-border tax has been rewritten since by amendment, protocol and judgment. On section 45, section 195, section 139, section 92, section 9(1)(i), section 90(2), section DTAA art 13, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Authority answered all four questions in the applicant's favour. On the first, no taxable capital gain arose in India: article 13(5) of the India-Netherlands agreement leaves the gain taxable in the Netherlands where the alienation forms part of a corporate reorganisation and the alienator holds at least ten per cent of the capital of the transferee, and the resulting capital gains, if any, were accordingly taxable in the Netherlands. On the second, no withholding was required, because tax is to be deducted under Chapter XVII only if the income is taxable under the Act. On the third, no return of income was required under section 139: there would be no occasion to call a machinery section in aid where there is no liability at all. On the fourth, the transfer pricing provisions of sections 92 to 92F did not apply, being dependent on there being income chargeable to tax in the first place. It arises in Capital Gains and TDS Defaults matters, on section 45, section 195, section 139, section 92, section 9(1)(i), section 90(2), section DTAA art 13 of the Income Tax Act 1961, and was decided by Syed Shah Mohammed Quadri, J. (Chairman) and A. Sinha, Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check the specific conditions of the treaty article you rely on - here, a group reorganisation with a ten per cent holding in the transferee. Do not assume the return-filing and transfer pricing conclusions still hold; verify the current text of section 139 and the transfer pricing provisions for your year. Consider the principal purpose test and the general anti-avoidance rules before relying on a treaty exemption for an intra-group transfer.
Validity check could not be completed. No decision dealing with this ruling was found on Indian Kanoon. The section 195 limb is supported by the Supreme Court in GE India Technology Centre P. Ltd v. CIT (9 September 2010), which held the withholding obligation arises only where the sum is chargeable under the Act - that much can be relied on. The other limbs were not established. The Finance Act 2012 made extensive retrospective changes to section 9(1)(i), including Explanation 5 on shares deriving their value substantially from Indian assets, and the general anti-avoidance rules and the principal purpose test under the Multilateral Instrument now stand in front of any treaty exemption claimed on an intra-group reorganisation. Whether the India-Netherlands agreement is a covered tax agreement under the MLI was not verified. The Authority itself was replaced by the Board for Advance Rulings from 1 September 2021 (Finance Act 2021; Notification 96/2021), whose rulings are appealable to the High Court under section 245W, and the Income-tax Act 1961 was replaced by the Income-tax Act 2025 from 1 April 2026. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Indian Kanoon text does not give the application number. Whether the return-filing conclusion under section 139 survives the later amendments to that section, and whether the transfer pricing conclusion survives the changes made from 2012 onwards, could not be established from the sources reached, and both should be checked for the year in question before the ruling is relied on. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Authority answered all four questions in the applicant's favour. On the first, no taxable capital gain arose in India: article 13(5) of the India-Netherlands agreement leaves the gain taxable in the Netherlands where the alienation forms part of a corporate reorganisation and the alienator holds at least ten per cent of the capital of the transferee, and the resulting capital gains, if any, were accordingly taxable in the Netherlands. On the second, no withholding was required, because tax is to be deducted under Chapter XVII only if the income is taxable under the Act. On the third, no return of income was required under section 139: there would be no occasion to call a machinery section in aid where there is no liability at all. On the fourth, the transfer pricing provisions of sections 92 to 92F did not apply, being dependent on there being income chargeable to tax in the first place.
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