Capital Gain arising out of Transfer of shares of an Indian entity cannot be Taxed at Hands of Foreign Entity in India: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that capital gains arising from the transfer of shares of an Indian entity cannot be taxed in India if the foreign entity holds less than 10% shareholding. This ruling came in the case of India Opportunity Fund I F.C.R, where the ITAT directed the Assessing Officer to delete the additions of capital gains made in the hands of the assessee. The tribunal emphasized that the taxability of capital gains should align with international tax treaties and the principle of significant economic presence, ensuring that foreign entities are not unfairly taxed on transactions involving minimal shareholding in Indian companies.