10 per cent tax on long term capital gains arising on sale of equity shares

NEW DELHI. Authority for Advance Rulings (Income-Tax) vide a ruling dated 19th November 2008  AIT-2008-416-AAR has ruled that the tax payable on the long term capital gains arising on sale of equity shares of Foseco India Ltd., being listed securities, will be 10 per cent of the amount of capital gains as per the proviso to section 112(1) of the Income-tax Act, 1961.

Further, while calculating the amount of long term capital gain chargeable to tax interest paid by the applicant to the shareholders of Foseco India Limited as per the directives of the Securities Exchange Board of India will also be treated as a part of the cost of acquisition of the shares

The applicant, Burmah Castrol Plc. is a non-resident company incorporated under the laws of England and Wales. The applicant submits that during the financial year 2001-02, as per the directive of SEBI, it acquired 12,77,292 equity shares of Foseco India Limited (hereinafter referred to as “FIL”), an Indian company, for an acquisition price of Rs.221.86 per share and also as per those directives paid a further amount of Rs.49.1429 per share for the delay in making the Open Offer.  The payment of the said cost of acquisition of Rs.271.0029 was made in foreign currency i.e. Sterling Pounds.  The shares have been held by the applicant for more than 12 months. The shares of FIL are listed on the Bombay Stock Exchange and National Stock Exchange.

                The applicant states that The Cookson Group Plc. made a public announcement to the shareholders of FIL pursuant to the Regulations of SEBI to acquire upto 20% of the shares of FIL at a price of Rs.420 per share.  The Applicant tendered its 12,77,292 shares to Cookson plc as a part of this Offer which closed on 22nd January 2008.  Cookson Plc. has accepted to buy 12,75,689 shares of FIL from the applicant at a price of Rs.420 per share – for a total consideration of Rs.53.38 crores.  In respect of capital gain arising therefrom, the applicant seeks advance ruling on the following two questions:

i.              Whether, on the stated facts and in law, the tax payable on the long term capital gains arising on sale of equity shares of Foseco India Ltd., being listed securities, will be 10 per cent of the amount of capital gains as per the proviso to section 112(1) of the Income-tax Act, 1961?

ii.             Whether, on the stated facts and in law, while calculating the amount of long term capital gain chargeable to tax interest paid by the applicant to the shareholders of Foseco India Limited as per the directives of the Securities Exchange Board of India will also be treated as a part of the cost of acquisition of the shares?

(Click here for full text of Ruling AIT-2008-416-AAR)

(Source: Allindiantaxes)

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