Transfer of capital asset situated in India has been brought within the purview of the deemed income under section 9 and rule 10(2), it is clear that the intention of the Parliament was not to bring within its purview any income derived out of sale or purchase of a capital asset effected outside India. The profits therefore, arising from the sale of capital assets located outside India were to be excluded from the income of the assessee. Thus, profits arising to the assessee from the sale of capital assets outside India were to be excluded from the assessee’s income.
Transfer of shares of a foreign company which has an Indian Company as its subsidiary does not amount to transfer of any capital asset situated in India.Legal fiction in section 9(1)(i) does not mean that if a foreign company has a subsidiary in India, shares of foreign company are deemed to be situated in India. Section 9(1)(i) is not a ‘look through’ provision and, thus, it cannot by a process of interpretation be extended to cover indirect transfers of capital assets/property situated in India. Source in relation to an income is construed to be where transaction of sale takes place and not where item of value, which was subject of transaction, was acquired or derived from. Even otherwise, since there was an offshore transaction between two non-resident companies, and, subject-matter of transaction was transfer of another non-resident company, Indian tax authorities had no territorial tax jurisdiction under section 9(1)(i) to tax said offshore transaction. (Vodafone International Holdings B.V v. UOI  341 ITR 1 SC)