Facts of the case
Few NRIs have invested in an Indian Private Limited company based in Delhi. Their investment is 55% of the company’s share capital with an original investment value of Rs.11 million. The remaining 45% of the company’s share capital is held by Indian residents.
All monies towards this investment were remitted from funds earned in Oman.
The investments were made in 2006 and 2007.
The entire company is being sold to a European company based in India.
- The total value of sale proceeds to the NRIs is expected to be Rs.100 million. The foreign company has been requested to remit the proceeds directly to Oman into the bank account of the NRIs, if permitted.
We require advice on the following issues:
- Is it legally allowed for the foreign company to remit funds to Oman for acquiring stakes in an Indian company?
- In case the foreign company remits the funds directly to Oman, it is obvious that the foreign company will not withhold tax. In such a situation, at what point in time should the NRIs pay the Indian Income Tax? At the time of filing their assessments?
- Taxability of the gains arising on the transaction and avenues available to save either the full or part of such tax.
- From the Indian company’s perspective, what tax and other regulatory issues could arise the above transactions.
- Issues arising out of Double Taxation Avoidance Treaty between India and Oman.