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Explanation 7 to Sec. 9 has retro effect as it was inserted in furtherance of object of insertion of Explanation 5

October 21, 2020[2020] 120 325 (Delhi - Trib.)

INTERNATIONAL TAXATION : In view of amended provisions of section 9(1)(i) of the Income-tax Act, 1961, read with Explanation 7, transaction involving sale of shares of foreign company, which held investment in India would not be taxable

• Section 9(1)(i) was amended and Explanation 5 was inserted by Finance Act, 2012 giving retrospective effect from 1-4-1962 and because of apprehensions and ambiguities in said Explanation Shome Committee was constituted and on recommendations of Shome Committee, Explanations 6 and 7 were inserted by Finance Act, 2015.

• Since Explanation 5 had been given retrospective effect and Explanations 6 and 7 had been inserted in furtherance of object of insertion of Explanation 5, these two explanations could not be read in isolation, but had to be tagged alongwith Explanation 5 so that both Explanations had to be given a retrospective effect. Accordingly, Assessing Officer was to be directed to read Explanation 7 as applicable for year under consideration and impugned addition was to be deleted.

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