The Delhi bench of Income Tax Appellate Tribunal (ITAT) has held that indirect transfer of Indian assets will not face long-term capital gains tax.

The ruling was in the context of the sale of Singapore-based Accelyst Pte Ltd (Freecharge) by Singapore startup incubator Augustus Capital PTE Ltd to Snapdeal’s holding company Jasper Infotech Pvt Ltd (JIPL) in FY16.

The decision comes as a relief to foreign funds and entities being subjected to tax demands for earlier years, according to experts.

The crux of the issue lies in the addition of Rs 36.3 crore as long-term capital gains (LTCG) by the assessing officer (AO) against a claim of nil income by Augustus Capital, stating that the transaction was not taxable in India.

As per an amendment to Section 9 of the IT Act in 2012, if any share or interest in a foreign entity derives its value substantially from the assets located in India, then such share or interest is deemed to be situated in India and any income arising from transfer of such share or interest is deemed to arise in India.

Explanation 6, which was later added to the Finance Act, clarified that the word ‘substantially’ meant the fair market value (FMV) of assets located in India exceed Rs 10 crore and the FMV of assets located in India represent at least 50% of the FMV of total assets of the foreign entity.