Niko Resources Limited vs. UOI (Gujarat High Court)
S. 80-IB(9): The Explanation to Section 80-IB(9) inserted by Finance (No. 2) Act 2009 w.r.e.f. 1.4.2000 is ultra vires to Article 14 of the Constitution of India.It is true that legislature is entitled to depart from this meaning and can define it the way it chooses to do so. While doing so, it has to resort to the process known to and approved by law. The explanation introduced by Finance Act (No.2) of 2009 is a departure from the settled interpretative meaning given by Courts to the expression 'Undertaking". Any departure, therefore, has to be through the process of validation which has to be notwithstanding any law or decision
Important CBDT Circular On Taxation Of Foreign Dividend From Indian Assets
The CBDT has issued Circular No. 4 of 2015 dated 26th March 2015 to deal with the controversial question as to whether dividends paid by a foreign company would be taxable in India under Explanation 5 to section 9 (1) (i) of the Act if the shares derive their value substantially from assets situated in India.
The CBDT has accepted that such an extended application of the provisions of the Explanation may result in taxation of dividend income declared by a foreign company outside India and that this may cause unintended double taxation and would be contrary to the generally accepted principles of source rule as well as the object and purpose of the amendment made by the Finance Act 2012.
The CBDT has accordingly clarified that the purpose of the amendment of section 9(1) (i) was to tax gains having economic nexus with India. It is stated that the as the declaration of dividend by a foreign company outside India does not have the effect of transfer of any underlying assets located in India, the said dividends would not be deemed to be income accruing or arising in India by virtue of the provisions of Explanation 5 to section 9 (1) (i) of the Act. Even if the shares derive their value substantially from assets situated in India
Regards,
Editor,
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