I am buying the shares of a foreign holding company from another non-resident, and that company's subsidiaries hold shares in an Indian company — must I withhold tax under section 195?
No, on the law as it stood. The Supreme Court held on 20 January 2012 that what was sold was a single share in a Cayman Islands company, which is property situated outside India, in an outright sale between two non-residents on a principal to principal basis. Shares are a bundle of rights and a transfer lock, stock and barrel cannot be broken into components — control premium, non-compete, brand licence, call options — and taxed piecemeal, particularly where the parties fixed one lump sum of US$11.08 billion with no split. The Revenue established no connection with section 9(1)(i), so section 195 did not apply.
Decided by the Supreme Court (Supreme Court of India; S.H. Kapadia CJI, K.S. Radhakrishnan and Swatanter Kumar JJ, judgment delivered by S.H. Kapadia CJI) on 2012-01-20, reported as Civil Appeal No. 733 of 2012 (arising out of S.L.P.(C) No. 26529 of 2010), Supreme Court of India, decided 20 January 2012. It bears on section 9(1)(i), section 195, section 163, section 2(14), section 201 of the Income Tax Act 1961, in Capital Gains and TDS Defaults matters.
This is the judgment that set out the look at approach to a holding structure: where a parent has invested through a chain of subsidiaries over many years, the transaction is examined holistically as a single consolidated bargain, not dissected asset by asset. Two consequences are used constantly. First, the fact that no capital gains tax falls due on exit does not by itself make a share sale a sham or a tax avoidance device. Second, where the parties agreed one price without values for the individual rights, the Revenue cannot split the consideration and assign values itself; indications given in correspondence with the FIPB do not amount to an agreed allocation. The judgment also separates withholding from assessment — section 195 bites only if the sum paid is chargeable to tax — and holds that being treatable as a representative assessee under section 163 does not by itself create liability.
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The Hutchison group first invested in Indian telecom in 1992, in a vehicle later named Hutchison Essar Limited. CGP Investments (Holdings) Ltd was incorporated in the Cayman Islands in January 1998 and by 2004 was held through HTI (BVI) Holdings, an indirect subsidiary of Hutchison Telecommunications International Ltd. In February 2005 the Indian operating companies were consolidated under HEL, owned through tier I Mauritius companies. Under framework agreements of 2006 the Indian partners Analjit Singh, Asim Ghosh and later IDFC held stakes with credit support from HTIL, and a group company GSPL held call options over those holdings. In December 2006 Vodafone bid; after revised offers, on 11 February 2007 Vodafone International Holdings BV, a Netherlands resident, and HTIL signed an agreement under which HTIL would procure the sale of the entire share capital of CGP — a single share — for US$11.08 billion. Completion was on 8 May 2007. Before the FIPB, VIH confirmed its effective shareholding in HEL would be 51.96 per cent, the Indian partners retaining their 15 per cent. The Revenue sought to tax the gain and treated VIH as in default under section 195; the Bombay High Court decided against VIH.
On the harvested text, the Court held that section 195 was not applicable. Shareholding in a company incorporated outside India is property located outside India, and where such shares are the subject of an offshore transfer between two non-residents there is no liability to capital gains tax, so no question of withholding arises. The Revenue failed to establish any connection with section 9(1)(i). The options under the 2006 framework agreements remained unencashed with GSPL and had never been transferred, so even on the High Court's own view that they were capital assets, section 9(1)(i) was not attracted. The High Court's reading that VIH acquired 67 per cent of the equity capital was an error: 67 per cent of the economic value of HEL is not 67 per cent of the equity, and such an acquisition would have breached the FDI sectoral cap. The acquisition of the CGP share evidenced a straightforward share sale, not an asset sale.
The Court's method was to look at the Hutchison structure as it existed, holistically, rather than to dissect it. Applying a nature and character of the transaction test asset by asset creates confusion where a holding company has invested through a maze of subsidiaries over thirteen years; CGP was treated within that structure as an investment vehicle. As a general rule, where a transaction transfers shares lock, stock and barrel it cannot be broken into separate components — voting rights, participation in meetings, management rights, controlling rights, control premium, brand licences — because shares constitute a bundle of rights, and Charanjit Lal, Venkatesh and Maharani Ushadevi were cited for that. The High Court had not examined the character of the non-compete agreement, the control premium, the options, consultancy support, customer base or brand licences at all. On consideration, the parties agreed no separate price for the CGP share and the other rights and entitlements, so it was not open to the Revenue to split the payment; the essential character of an alienation is not altered by the form of the consideration or by its being contingent, and values indicated in answering an FIPB query do not amount to an agreed allocation. That a capital gains charge does not arise on exit does not make the share sale a sham. On section 195, the obligation to deduct arises only where the sum paid carries an element of income chargeable to tax in India, and liability to deduct is distinct from assessment. Absent a permanent establishment no profits were attributable to Indian operations, and the group's unrelated investment in Bharti could not create tax presence. On section 163, a person may be treated as a representative assessee, but that does not of itself make him liable to pay the non-resident's tax.
Shareholding in companies incorporated outside India (CGP) is property located outside India. Where such shares become subject matter of offshore transfer between two non-residents, there is no liability for capital gains tax.
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Handle my notice → Ask a CA on WhatsAppNo, on the law as it stood. The Supreme Court held on 20 January 2012 that what was sold was a single share in a Cayman Islands company, which is property situated outside India, in an outright sale between two non-residents on a principal to principal basis. Shares are a bundle of rights and a transfer lock, stock and barrel cannot be broken into components — control premium, non-compete, brand licence, call options — and taxed piecemeal, particularly where the parties fixed one lump sum of US$11.08 billion with no split. The Revenue established no connection with section 9(1)(i), so section 195 did not apply. This was decided by the Supreme Court (Supreme Court of India; S.H. Kapadia CJI, K.S. Radhakrishnan and Swatanter Kumar JJ, judgment delivered by S.H. Kapadia CJI) and bears on section 9(1)(i), section 195, section 163, section 2(14), section 201 of the Income Tax Act 1961. It is reported as Civil Appeal No. 733 of 2012 (arising out of S.L.P.(C) No. 26529 of 2010), Supreme Court of India, decided 20 January 2012. This is the judgment that set out the look at approach to a holding structure: where a parent has invested through a chain of subsidiaries over many years, the transaction is examined holistically as a single consolidated bargain, not dissected asset by asset. Two consequences are used constantly. First, the fact that no capital gains tax falls due on exit does not by itself make a share sale a sham or a tax avoidance device. Second, where the parties agreed one price without values for the individual rights, the Revenue cannot split the consideration and assign values itself; indications given in correspondence with the FIPB do not amount to an agreed allocation. The judgment also separates withholding from assessment — section 195 bites only if the sum paid is chargeable to tax — and holds that being treatable as a representative assessee under section 163 does not by itself create liability. If it applies to you, the first step is this: Establish where the asset transferred is situated and who the parties are; an offshore share sold between two non-residents on a principal to principal basis is the fact pattern this judgment governs, and it is the first thing to put on record.
The Hutchison group first invested in Indian telecom in 1992, in a vehicle later named Hutchison Essar Limited. CGP Investments (Holdings) Ltd was incorporated in the Cayman Islands in January 1998 and by 2004 was held through HTI (BVI) Holdings, an indirect subsidiary of Hutchison Telecommunications International Ltd. In February 2005 the Indian operating companies were consolidated under HEL, owned through tier I Mauritius companies. Under framework agreements of 2006 the Indian partners Analjit Singh, Asim Ghosh and later IDFC held stakes with credit support from HTIL, and a group company GSPL held call options over those holdings. In December 2006 Vodafone bid; after revised offers, on 11 February 2007 Vodafone International Holdings BV, a Netherlands resident, and HTIL signed an agreement under which HTIL would procure the sale of the entire share capital of CGP — a single share — for US$11.08 billion. Completion was on 8 May 2007. Before the FIPB, VIH confirmed its effective shareholding in HEL would be 51.96 per cent, the Indian partners retaining their 15 per cent. The Revenue sought to tax the gain and treated VIH as in default under section 195; the Bombay High Court decided against VIH. The matter was decided on 2012-01-20 by the Supreme Court (Supreme Court of India; S.H. Kapadia CJI, K.S. Radhakrishnan and Swatanter Kumar JJ, judgment delivered by S.H. Kapadia CJI). On those facts the Supreme Court held as follows. On the harvested text, the Court held that section 195 was not applicable. Shareholding in a company incorporated outside India is property located outside India, and where such shares are the subject of an offshore transfer between two non-residents there is no liability to capital gains tax, so no question of withholding arises. The Revenue failed to establish any connection with section 9(1)(i). The options under the 2006 framework agreements remained unencashed with GSPL and had never been transferred, so even on the High Court's own view that they were capital assets, section 9(1)(i) was not attracted. The High Court's reading that VIH acquired 67 per cent of the equity capital was an error: 67 per cent of the economic value of HEL is not 67 per cent of the equity, and such an acquisition would have breached the FDI sectoral cap. The acquisition of the CGP share evidenced a straightforward share sale, not an asset sale.
The Court's method was to look at the Hutchison structure as it existed, holistically, rather than to dissect it. Applying a nature and character of the transaction test asset by asset creates confusion where a holding company has invested through a maze of subsidiaries over thirteen years; CGP was treated within that structure as an investment vehicle. As a general rule, where a transaction transfers shares lock, stock and barrel it cannot be broken into separate components — voting rights, participation in meetings, management rights, controlling rights, control premium, brand licences — because shares constitute a bundle of rights, and Charanjit Lal, Venkatesh and Maharani Ushadevi were cited for that. The High Court had not examined the character of the non-compete agreement, the control premium, the options, consultancy support, customer base or brand licences at all. On consideration, the parties agreed no separate price for the CGP share and the other rights and entitlements, so it was not open to the Revenue to split the payment; the essential character of an alienation is not altered by the form of the consideration or by its being contingent, and values indicated in answering an FIPB query do not amount to an agreed allocation. That a capital gains charge does not arise on exit does not make the share sale a sham. On section 195, the obligation to deduct arises only where the sum paid carries an element of income chargeable to tax in India, and liability to deduct is distinct from assessment. Absent a permanent establishment no profits were attributable to Indian operations, and the group's unrelated investment in Bharti could not create tax presence. On section 163, a person may be treated as a representative assessee, but that does not of itself make him liable to pay the non-resident's tax. In the words reproduced by the source cited on this page: "Shareholding in companies incorporated outside India (CGP) is property located outside India. Where such shares become subject matter of offshore transfer between two non-residents, there is no liability for capital gains tax."
It was decided by the Supreme Court on 2012-01-20 and is reported as Civil Appeal No. 733 of 2012 (arising out of S.L.P.(C) No. 26529 of 2010), Supreme Court of India, decided 20 January 2012. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 9(1)(i), section 195, section 163, section 2(14), section 201, 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. On the harvested text, the Court held that section 195 was not applicable. Shareholding in a company incorporated outside India is property located outside India, and where such shares are the subject of an offshore transfer between two non-residents there is no liability to capital gains tax, so no question of withholding arises. The Revenue failed to establish any connection with section 9(1)(i). The options under the 2006 framework agreements remained unencashed with GSPL and had never been transferred, so even on the High Court's own view that they were capital assets, section 9(1)(i) was not attracted. The High Court's reading that VIH acquired 67 per cent of the equity capital was an error: 67 per cent of the economic value of HEL is not 67 per cent of the equity, and such an acquisition would have breached the FDI sectoral cap. The acquisition of the CGP share evidenced a straightforward share sale, not an asset sale. It arises in Capital Gains and TDS Defaults matters, on section 9(1)(i), section 195, section 163, section 2(14), section 201 of the Income Tax Act 1961, and was decided by Supreme Court of India; S.H. Kapadia CJI, K.S. Radhakrishnan and Swatanter Kumar JJ, judgment delivered by S.H. Kapadia CJI. 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. Keep the consideration as a single lump sum for the whole investment if that is the commercial reality, and resist any invitation — including from a regulator's questionnaire — to allocate values across control premium, non-compete or options, because an allocation on paper is what lets the Revenue split the payment. When a withholding demand is raised, take the chargeability point first: section 195 applies only where the sum paid carries an element of income chargeable to tax in India. Read this against the current text of section 9(1)(i) before relying on it for the charge — the judgment states the law as it stood in January 2012 and cannot tell you what Parliament did afterwards.
Superseded by amendment. The operative holding has been displaced by statute. The Finance Act, 2012 amended section 9(1)(i) with effect from 1 April 1962 by inserting Explanation 5, which provides that an asset or capital asset being any share or interest in a company or entity registered or incorporated outside India 'shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India', and Explanation 4, which gives 'through' the meaning 'by means of', 'in consequence of' or 'by reason of'. That text was read for this check on the Income-tax Department's own published copy of the Finance Act, 2012. The judgment's conclusion that a single offshore share is property situated outside India therefore no longer states the charging provision. What Parliament did afterwards about demands already raised under that retrospective amendment is a separate matter and was not examined here. Judicially the decision stands: a citator search returns 559 later decisions citing it, the Bombay High Court applied it in Bid Services Division (Mauritius) v Authority for Advance Ruling (8 March 2023), and the Delhi Bench in Essar Communications v ACIT (30 June 2025) and Superb Mind Holding Ltd (5 March 2024) apply its reasoning on substance over form, lifting the corporate veil and what is and is not a colourable device. Nothing judicially overruling or doubting it was found. 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.
Two separate cuts have been made to this text and the reader should treat the record accordingly. The harvest was first truncated at 110,000 characters, and then about 65,000 characters of the middle were dropped. What survives is the narrative of facts and the transaction documents down to March 2007, and then a stretch of the Court's analysis covering the look at approach, the treatment of the options, the single consolidated bargain, and sections 195 and 163. Missing are the Court's discussion of the parties' arguments, its treatment of McDowell and the tax avoidance authorities, its analysis of sections 2(14) and 9(1)(i) in terms, the separate opinion of Radhakrishnan J, and — because of the 110,000 character truncation — the formal order disposing of the appeal. So the operative directions, including anything said about the deposit and refund, are not before me; the holding recorded here is taken from the Court's own statements in the surviving reasoning. The source printed no reporter citations, so the case number is used. The batch line also listed sections 45, 2(47), 201(1) and 201(1A); these are part of the statutory background but the surviving text does not analyse them separately. 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.
On the harvested text, the Court held that section 195 was not applicable. Shareholding in a company incorporated outside India is property located outside India, and where such shares are the subject of an offshore transfer between two non-residents there is no liability to capital gains tax, so no question of withholding arises. The Revenue failed to establish any connection with section 9(1)(i). The options under the 2006 framework agreements remained unencashed with GSPL and had never been transferred, so even on the High Court's own view that they were capital assets, section 9(1)(i) was not attracted. The High Court's reading that VIH acquired 67 per cent of the equity capital was an error: 67 per cent of the economic value of HEL is not 67 per cent of the equity, and such an acquisition would have breached the FDI sectoral cap. The acquisition of the CGP share evidenced a straightforward share sale, not an asset sale.
TaxSphere, “Vodafone International Holdings BV v Union of India”, https://taxnotice.vittsphere.com/caselaw/case/vodafone-international-holdings-bv-v-union-of-india/ (validity last checked 2026-08-29)
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