Dhruv Tiwari and Anand Swaroop comment on the DIT v. Copal Research Limited case.


The Delhi High Court, in a path breaking pronouncement recently, held that the profits arising from the sale of shares of overseas entities which derive a majority of their value from Indian assets shall fall beyond the scope of taxation under the Indian taxation laws. The High Court, while delivering its watershed judgment on taxation of indirect transfer of assets, touched upon the issues of interpretation given to Explanation 5 to Section 9(1)(i) of the Income Tax Act, recourse taken to non-binding international instruments and tax avoidance. The order of the Delhi High Court comes as a much needed relief for the international investor community. In the light of the aforementioned aspects, the present case commentary critically analyzes the judgment of the Delhi High Court on the offshore transfer of Indian assets. The commentary begins with the background of the entire case which includes appreciation of the facts of the case; the issues involved therein, the contentions of the parties and the order passed by the Court. The authors then move on to a critical and multi-dimensional analysis of the order, taking into account the hits and misses of the Court while delivering the same. In conclusion, the authors deal with the implications of the said pronouncement within the context of future transactions and arrangements to be entered into by overseas corporations. More specifically, the authors discuss how this decision of the Delhi High Court has contributed in solving the dubitable problem of tax avoidance by giving a background of the same.