India - ‘Capital Gains’ Taxation Affair With The Netherlands

Andhra Pradesh High Court has concluded that gains arising from a Dutch company’s sale of shares of an Indian immovable property company to a Singapore company do not amount to a sale of immovable property situated in India since India-Netherlands tax treaty exempts such transaction.


Vanenburg NL, is a company incorporated in the Netherlands and has a wholly owned subsidiary Vanenburg IT Park Limited (VITPL) located in India. VITPL is engaged in the business of developing, operating and maintaining infrastructure facilities in India. Vanenburg NL sold 100% shares of VITPL to Ascendas, a Singapore based company. The gains arising on transfer of shares was in questions as under the India –Netherland Tax Treaty, they should not be taxable as capital gains in India.

The Case

The assessing officer (AO) believed that the gains arising from the transfer of shares of VITPL were taxable in India since the shares of VITPL constituted ‘immovable property’ under India’s domestic tax laws. The claim of the assessee company was that Article 13(4) and Article 13(5) of the DTAA dealt specifically with capital gains arising from transfer of shares and therefore it could not be taxed in India.

The Decision of the High Court

The High Court said the definition could not be held to be the ‘law of the State’ under Article 6 of the DTAA and concluded that the assessee company had not sold immovable property or any rights directly attached to immovable property. Thus, the capital gain on sale of shares of VIPTL fall within the scope of Article 13(5) being the residual provisions and so the capital gains would be taxable only in Netherlands.

Sources: Tax Scan, Tax Sutra

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