GAINS ON SALE OF COMPULSORY CONVERTIBLE DEBENTURES TAXABLE AS INTEREST: AAR
Gains made by a Mauritius company by selling compulsory convertible debentures (CCDs) to an
Indian company are taxable as interest in India.
Taking this stand, the Authority for Advance Rulings (AAR) has said that any gains made by
selling such instruments will not be eligible for capital gains exemption under the India-Mauritius
tax treaty. Simply put, withholding tax obligations would arise on the Indian company making the
payment as consideration for the compulsory convertible debentures (CCDs). According to the experts, the Authority's decision is in line with the rulings of the Supreme Court and High Courts that compulsory convertible debentures (CCDs) are basically debt instruments. By this ruling, the Authority for advance rulings (AAR) has rejected the contention of an applicant that sale of compulsory convertible debentures (CCDs) is sale of assets and the premium received is not interest income, but capital gains.
Indian company are taxable as interest in India.
Taking this stand, the Authority for Advance Rulings (AAR) has said that any gains made by
selling such instruments will not be eligible for capital gains exemption under the India-Mauritius
tax treaty. Simply put, withholding tax obligations would arise on the Indian company making the
payment as consideration for the compulsory convertible debentures (CCDs). According to the experts, the Authority's decision is in line with the rulings of the Supreme Court and High Courts that compulsory convertible debentures (CCDs) are basically debt instruments. By this ruling, the Authority for advance rulings (AAR) has rejected the contention of an applicant that sale of compulsory convertible debentures (CCDs) is sale of assets and the premium received is not interest income, but capital gains.
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