TaxTMI 
TaxTMI 
2011 (7) TMI 60
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....ated 28th September 2005. Hence, all these four writ petitions are heard together and disposed off by this common judgment. 2. Writ Petition No.730 of 2009 is filed by Aditya Birla Nuvo Limited, formerly known as Indian Rayon and Industries Limited ('Indian Rayon' for short) to challenge the order dated 25th March 2009, whereby the Deputy Director of Income Tax (International Taxation) - 4(1), Mumbai ('DDIT' for short) has held that Indian Rayon is liable to be assessed as a representative assessee (agent) of NCWS under Section 163(1) of the Income Tax Act, 1961 ('1961 Act' for short) in respect of the capital gains accrued to NCWS on transfer of shares of Idea Cellular Limited in favour of Indian Rayon under Sale and Purchase Agreement dated 28th September, 2005. Writ Petition No.345 of 2010, is filed by Indian Rayon to challenge the order dated 22nd January 2010 passed by DDIT holding that Indian Rayon is liable to be assessed as the representative assessee (agent) of MMMH. By amending the Writ Petition, Indian Rayon has also challenged the notice dated 12th February 2010 issued under Section 148 of the 1961 Act whereby Indian Rayon was called upon to file return of inc....
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....he Joint Venture was to provide wireless telecommunication services in India by obtaining a licence from the DoT, Government of India. [See Article 1.01] c) The founders were vested with the control, namely power to direct the management and policies, whether through the ownership of voting securities or by agreement or otherwise. [Article 1.01] d) AT&T USA was to subscribe to and pay for the number of common shares constituting 49% of the issued equity capital and the remaining 51% were to be subscribed by the Birla Group. [Article 2.01, 2.03 and 2.03]. e) Owner of the equity capital of the JVC who are parties to the JVA (AT&T USA and Birla Group) would be party shareholders [see definitions] f) The 'founders were to exercise their rights as members / shareholders of the Company and ensure that the Articles of Association of the JVC are amended so as to incorporate the provisions of the JVA to the extent possible under the laws of India [Article 2.05]. g) Each of the party shareholders who are founders agree that it will vote or cause to be voted all shares of equity capital owned by it. The shares of the JVC shall be held by the '....
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.... a manner so as to comply with and to fully and effectively implement the terms of the JVA. 'Founders' undertake to ensure that their representatives or agents who represents them at the Annual General Meeting of the company to implement the agreement. Entire obligation rests on 'founders' and the 'permitted transferee' is no more than a representative of the 'founder'. [Article 6.02]. m) The 'closing' shall take place within 60 days of receipt of all approvals from Government of India and RBI. Further, at the time of closing, the company shall take steps to allot the shares to the representatives of the 'founders'. [Article 8.01]. n) It is further stipulated that the approval of the Government of India and RBI shall be, "for offer, allotment and subscription of equity shares of the company to the founders as per Section 2.02 of the agreement". [Article 8.01] o) After 'closing' Birla and AT&T USA, shall allot shares as stated in Article 2.02 [Article 2.02 contemplates allotment to Birla Group and AT&T USA, being the founders in the ratio of 51% : 49%. [Article 8.03]. p) AT&T USA represents and warrants to Birla Group that AT&TUSA has full pow....
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....ssued in the name of a permitted transferee which is a 100% subsidiary of the founder. AT&T Cellular Private Limited, Mauritius ('AT&T Mauritius' for short), being a 100% subsidiary of AT&T USA was eligible to hold 49% equity shares of JVC as a permitted transferee of the AT&T USA. Accordingly, AT&T USA subscribed to the shares of the JVC and equity shares of the JVC were allotted in the name of AT&T Mauritius, as a permitted transferee of AT&T USA. As noted above, though the equity shares were issued in the name of AT&T Mauritius under the JVA as a permitted transferee of AT&T USA, all rights in respect of the said equity shares of the JVC, like voting rights, rights of management, right of sale or alienation etc absolutely vested in AT&T USA. 7. On 12th December 1995, the DoT granted a licence to the JVC (Birla Communications Limited) to provide the telecommunication services in the Maharashtra and Gujarat Telecom Circle. 8. With effect from 30th May 1996, the name of Birla Communications Limited was changed to Birla AT &T Communications Limited ('BACL' for short). The change in the name was effected to take advantage of the worldwide brand equity of the Joint....
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....Group 31.69 per cent. AT&T Group 32.91 per cent. Financial Institutions 1.70 per cent. The Shareholders Agreement specifically records that AT&T Wireless Services Inc. (signatory to the JVA dated 5th December 1995) is operating Cellular Services in Maharashtra and Gujarat telecom through its wholly owned subsidiary AT&T Mauritius. The Shareholders Agreement further records that AT&T Corp controls AT&T Wireless Services Inc, USA. The Shareholders Agreement records that AT&T USA, the joint venture partner under the JVA would, under the Shareholders Agreement, represent the AT&T Wirel....
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....respectively and informed NCWS about their willingness to purchase the shares of ICL offered by NCWS. As both the Groups, namely the Birla Group and the Tata Group were interested in purchasing the entire 74,35,61,480 equity shares of ICL offered by NCWS for US$ 300 million, each Group could get 37,17,80,740 equity shares of ICL on payment of US$ 150 million. 17. Before entering into an agreement for purchase of 37,17,80,740 equity shares of Idea Cellular Limited (ICL) offered by NCWS, Indian Rayon representing the Birla Group applied to the Director of Income Tax (Intl Taxn), Mumbai on 29th August 2005 seeking noobjection certificate under Section 195 of the 1961 Act to remit US$ 150 million to AT&T Mauritius towards the purchase price of 37,17,80,740 equity shares of ICL. In the said application, it was inter alia stated that they were purchasing ICL shares from AT&T Mauritius and as per the provisions of Article 13 of the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius as also Circular No.682 dated 30th March 1994 and Circular No.789 dated 13th April 2000, capital gains derived by a resident of Mauritius on alienation of shares in an Indian Compa....
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....Intl Taxn), Mumbai addressed a letter to the Director of Income Tax (Intl Taxn), Mumbai enclosing a copy of the order dated 28th March 2008 passed by him in the case of TIL under Section 201(1) / (1A) of the 1961 Act. In that letter, it was stated that since the income by way of capital gains is chargeable in the hands of NCWS and MMMH, the Additional Director (Intl Taxn), Range 4, Mumbai may be requested to examine the matter and carry out regular assessment in the hands of the above two US companies. 22. The Deputy Director of Income Tax (Intl Taxn), Mumbai, thereupon, issued a showcause notice dated 8th December 2008 calling upon Indian Rayon to show cause as to why Indian Rayon should not be assessed as a representative - assessee (Agent) of NCWS under Section 163 of the 1961 Act in respect of the gains arising to NCWS pursuant to the transaction under the Sale and Purchase Agreement dated 28th September 2005. 23. Indian Rayon by its reply dated 2nd March 2009 and 17th March 2009 objected to the initiation of proceedings under Section 163 of the 1961 Act inter alia on the ground that : (a) Section 163 cannot be invoked in the present case, as the income has ....
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....h Sections 9(1) and 5(2) as interpreted by the Hon'ble Supreme Court in Eli Lilly and Company (India) P. Limited reported in 312 ITR 225 (S.C.). C) ICL being an approved industrial undertaking under Section 10(23G) of the 1961 Act, capital gains arising on sale of the shares of ICL to a resident or nonresident would be exempt from payment of tax. D) Once certificate under Section 195(2) is issued by the Revenue authorising payment of the sale proceeds for the purchase of Idea Cellular Limited shares without deduction of tax at source and based on such certificate Indian Rayon has remitted the money to the nonresident, the Revenue cannot now go back on the certificate and seek to recover the tax allegedly due by the nonresident, from Indian Rayon as the nonresident's agent. E) Having taken steps against NCWS / MMMH for bringing to tax capital gains arising on the transfer of shares of Idea Cellular Limited by (wrongly) piercing the corporate veil, the Revenue cannot continue with the proceedings initiated against Indian Rayon. (A) Whether Capital gains arising on transfer of shares of Idea Cellular Limited are not taxable in India. 27. Acco....
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....issioner of Income Tax in the Republic of Mauritius and the same was valid till the date of transfer of shares as is evident from the certificate issued by the Commissioner of Income Tax, Republic of Mauritius on 18th August 2005. Therefore, capital gains accrued to AT&T Mauritius on transfer of shares of ICL is taxable only in Mauritius and cannot be taxed in India as per Article 13(4) of the DTAA between India and Mauritius. (c) Section 90(2) of the 1961 Act provides that when the Central Government enters into an Agreement with the Government of any country outside India for granting relief of tax, then in relation to an assessee, the DTAA would prevail except where the provisions of the 1961 Act are more beneficial to the assessee. This position is also made clear by the Central Board of Direct Taxes ('CBDT' for short) Circular No.333 dated 2nd April 1982 {137 ITR (st) 1} and upheld by the Apex Court in the case of Commissioner of Income Tax V/s. Azadi Bachao Andolan reported in 263 ITR 706 (SC). In the present case, Article 13(4) of the DTAA being more beneficial to AT&T Mauritius, the DTAA would apply and not the 1961 Act. (d) In the present case, the Reve....
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....ct the Review Petition as well as the Curative Petition filed against the decision of the Apex Court in the case of Azadi Bachao Andolan (supra) have been dismissed by the Apex Court. Moreover, the decision in the case of Azadi Bachao Andolan (supra) has been followed subsequently by the Authority for Advance Ruling (AAR) in the case of E Trade Mauritius Limited (324 ITR 1), Emirates Fertilizers Trading Company (272 ITR 84) and an unreported judgment of the AAR in the case of D.B. Zwirn Mauritius Trading No.3 Limited. (h) The Apex Court in the case of Carew & Co. Limited V/s. Union of India reported in 46 Comp. Cases 121 (SC) and Mrs.Bacha F. Guzdar V/s. Commissioner of Income Tax reported in 27 ITR 1 (SC) has laid down that the assets held by a wholly owned subsidiary cannot be regarded as the assets of the parent company. As per Section 47(iv) and 47(v) of the 1961 Act, the holding company and its wholly owned subsidiary company are two different entities and the assets owned by a subsidiary cannot be regarded as owned by the holding company. (i) Under Section 2(a), 3 and 4 of the Benami Transactions (Prohibition) Act, 1988 it is not open to NCWS (assuming without ad....
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....though its shareholders viz. NCWS and MMMH are US residents. (m) The argument of the Revenue that they are not lifting the Corporate Veil but simply determining as to who should be regarded as the owner of the shares of ICL is not acceptable, because, while accepting that AT&T Mauritius is the legal owner of the shares of ICL (as a registered shareholder) to find out as to whether NCWS is the real owner of the said shares itself amounts to lifting the corporate veil which is not permissible in view of the decision of the Apex Court in the case of Azadi Bachao Andolan (supra). (n) The transaction of purchasing the shares of ICL from AT&T Mauritius by Indian Rayon in the year 2005 was based on the Share Purchase Agreement dated 28th September 2005 and not on the basis of JVA dated 5th December 1995. Perusal of the Share Purchase Agreement dated 28th September 2005 shows that AT&T Mauritius was the vendor and sole owner of the shares of ICL and AT&T Mauritius was to instruct the depository for transfer of shares of ICL to Indian Rayon. NCWS had become party to the Sale Agreement, because, NCWS had provided certain warranties under the agreement to the effect that t....
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....res upon completion of transfer. (r) Filings by AT&T Corp, Cingular Wireless LLC and NCWS before the Securities Exchange Commission (SEC) of USA regarding the receipt of sale proceeds do not support the case of the Revenue because, US law requires the companies to reflect a consolidated position of the group as a whole and AT&T Mauritius being a subsidiary, the sale proceeds realised by AT&T Mauritius on sale of shares of ICL had to be disclosed before the SEC. Therefore, the fact that disclosures have been made before the SEC by NCWS regarding the sale proceeds received by AT&T Mauritius, it cannot be assumed that the said sale proceeds belonged to NCWS. (s) The fact that AT&T Mauritius immediately on receipt of the sale proceeds amounting to US$ 150,000,000 on 29th September 2005 transferred on the same day US$ 150,000,475 in favour of NCWS, cannot be a ground to infer that the shares of ICL belonged to NCWS and that the NCWS has received the sale proceeds through AT&T Mauritius. From the cash flow statement of AT&T Mauritius furnished by the Revenue, it is seen that the amount of US$ 150,000,475 paid by AT&T Mauritius to NCWS comprised of dividend amounting to US$ 4....
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.... also arguments to the contrary advanced by Mr.Parasharan, learned Additional Solicitor General appearing on behalf of the Revenue. 29. In the present case, Indian Rayon pursuant to a Sale and Purchase Agreement dated 28th September, 2005 has purchased 37,17,80,740 equity shares of ICL from AT&T Mauritius and NCWS (USA) for US$ 150,000,000. The dispute is, whether the ICL shares were owned by AT&T Mauritius or by NCWS (USA). According to the Revenue, the said shares were owned by NCWS (USA) and the capital gains arising or accruing to NCWS (USA) from the above transaction is taxable in India either in the hands of NCWS (USA) or taxable in the hands of Indian Rayon as an agent of NCWS (USA) under Section 163(1) of the Income Tax Act, 1961. 30. Admittedly, the shares of ICL were registered in the name of AT&T Mauritius. However, the Sale and Purchase Agreement was executed jointly by AT&T Mauritius and NCWS on 28th September 2005 and on 29th September, 2005, Indian Rayon paid the sale consideration of US$ 150,000,000 to AT&T Mauritius. On the same day that is 29th September 2005 itself AT&T Mauritius transmitted an amount of US$ 150,000,475/to NCWS, USA. The question, th....
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....older" means any owner of Equity Capital who is a party to this Agreement. "Permitted Transferee" has the meaning set forth in Section 12.04(a). Article 12.04 of the JVA (to the extent relevant) reads thus :" 12.04 'Permitted Transfers'. (a) For purposes of this Article XII, a "Permitted Transferee" is, in the case of shares of Equity Capital owned by a Founder, any corporation of which that Founder directly or indirectly owns all of the shares of voting stock. (b) Subject to the provisions of this Section 12.04(b), each Founder shall be entitled, upon prior written notice to the Company and the other Founders, to transfer all but not less than all, of its Shares to any Permitted Transferee. No such transfer shall be or become effective, however, until such Permitted Transferee executes and delivers to the Company a counterpart copy of this Agreement thereby agreeing to be bound by the terms and conditions hereof theretofore applicable to the transferor of such shares. The Founder and the Permitted Transferee shall be jointly and severally liable for all of the obligations of the transferor hereunder. Upon meeting the requirements for transfer under th....
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....ed is whether, AT&T Mauritius paid the amount for acquiring the equity shares of the JVC in its own name or paid the amount for and on behalf of AT&T USA and whether sale of shares of ICL jointly by AT&T Mauritius and NCWS (successor to AT&T USA) amounts to sale by AT&T Mauritius alone. 36. Apart from the JVA there is no other document on record to show that AT&T Mauritius had independently entered into any transaction for acquiring the equity shares of the JVC. The obligation under the JVA to pay for the equity shares of the JVC was on AT&T USA. 74,35,61,480 equity shares of the JVC allotted in the name of AT&T Mauritius corresponds to the shares subscribed by AT&T USA under the JVA and the Shareholders Agreement. Out of 74,35,61,480 shares allotted to AT&T Mauritius, 43,82,81,480 shares were allotted prior to the execution of the Shareholders Agreement. Obviously, the said 43,82,81,480 equity shares were allotted in the name of AT&T Mauritius in terms of the JVA. Under the JVA, AT&T USA as a founder and party shareholder was entitled to seek allotment of shares in the name of its permitted transferee. Under the JVA the permitted transferee was bound by the JVA and could not in....
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....t on record to suggest that the AT&T Mauritius had agreed to subscribe / purchase the shares of JVC. In these circumstances, the payments made by AT&T Mauritius cannot be said to be payments for subscribing / purchasing the shares of the JVC in the name of AT&T Mauritius. Therefore, it is evident that the payments made by AT&T Mauritius to the JVC was obviously for and on behalf of AT&T USA, because, under the JVA, the obligation to subscribe and own the shares of the JVC was on AT&T USA. 38. The payments made by AT&T Mauritius towards the equity shares of the JVC was for and on behalf of the joint venture partner / founder - AT&T USA is further supported by the Shareholders Agreement dated 15th December 2000. It is AT&T USA (not AT&T Mauritius) which has entered into the Shareholders Agreement with the Birla Group and the Tata Group. Admittedly, on the date of the Shareholders Agreement allotment of 43,82,81,480 (see page 58 of the petition) equity shares of the JVC in favour of AT&T Mauritius was approved by RBI. Thus, in spite of the fact that 43,82,81,480 equity shares of the JVC were allotted in the name of AT&T Mauritius, it is AT&T USA which has entered into the Sh....
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....ed in the joint venture partners under the JVA on account of inducting the Tata Group into the joint venture, the Shareholders Agreement does not in any way impair or obliterate the ownership rights in the shares of the JVC vested in the joint venture partners whether allotted prior to or subsequent to the Shareholders Agreement. 40. The argument of Indian Rayon is that since the shares of the JVC purchased by Indian Rayon stood in the name of AT&T Mauritius, the legal owner of the said shares would be AT&T Mauritius and, therefore, on sale of the said shares, capital gains would accrue to AT&T Mauritius which as per DTAA between India and Mauritius cannot be taxed in India and consequently the tax on capital gains arising from the transfer of shares of JVC cannot be recovered from Indian Rayon as a representative assessee. As noted earlier, out of 74,35,61,480 equity shares of the JVC allotted to AT&T Mauritius, 43,82,81,480 equity shares were allotted to AT&T Mauritius prior to the execution of the Shareholders Agreement. As per the JVA, 100% shares of the JVC were to be subscribed by the joint venture partners, viz. AT&T USA and the Birla Group. AT&T Mauritius was not a joint....
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.... allotment of shares in the name of AT&T Mauritius, the RBI recorded (see page 60 of the petition) that AT&T Mauritius is the wholly owned subsidiary of AT&T USA and that the allotment of equity shares of the JVC in favour of AT&T Mauritius shall not exceed 49% (later on reduced to 32.91% under the Shareholders Agreement) of the paid up capital of the JVC. These facts noted by RBI clearly suggests that the RBI approval was in terms of the JVA, wherein the ownership of the shares allotted in the name of AT&T Mauritius was to vest in AT&T USA. Thus, the approval granted by RBI for allotment of shares in the name of AT&T Mauritius support the contention of the Revenue that the equity shares of the JVC were issued in the name of AT&T Mauritius under the JVA as a permitted transferee of AT&T USA. 42. Similarly, the approval granted by RBI to the effect that the allotment of shares of the JVC in the name of AT&T Mauritius was in accordance with the provisions of FERA does not make AT&T Mauritius legal owner of the said shares, because, the said approval simply means that according to RBI the allotment of shares in the name of AT&T Mauritius as permitted transferee does not viol....
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....hareholders Agreement dated 15th December 2000 records that the understanding arrived at between the three parties therein in respect of the subject matter of the Shareholders Agreement shall be final and any understanding to the contrary under any other agreement between the parties shall stand superseded. Obviously, clause 12.07 of the Shareholders Agreement seeks to supersede the terms of the JVA to the extent they are in conflict with the Shareholders Agreement. The Shareholders Agreement does not deal with the rights vested in AT&T USA in respect of the 43,82,81,480 equity shares of JVC already subscribed and owned by AT&T USA but allotted in the name of the permitted transferee - AT&T Mauritius. The Shareholders Agreement does not envisage that the ownership of the shares of the JVC to be issued after the Shareholders Agreement shall vest in the member of the AT&T Wireless Group who is authorized to pay for the equity shares of the JVC. In fact, the Shareholders Agreement makes it clear that AT&T USA shall continue to exercise all rights flowing from the shares of the JVC already issued under the JVA or to be issued after the Shareholders Agreement. Therefore, the argument of....
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.... it cannot be said that the investments in India were made by the permitted transferee viz. AT&T Mauritius. In these circumstances, in the present case since the investments in India were made by AT&T USA and not by AT&T Mauritius, neither, the CBDT circulars nor the DTAA between India and Mauritius are applicable to the facts of the present case. (b) In the case of Azadi Bachao Andolan (supra), investments in India were admittedly made by the Companies incorporated in Mauritius. Income accrued to those Mauritian Companies were governed by the DTAA between India and Mauritius. However, in many cases, the tax authorities sought to treat the shareholders of the Mauritian entities as the real owners and deny the benefit of DTAA between India and Mauritius to the Mauritian entities. In that context, CBDT circulars were issued to the effect that where investments are made by Mauritian entities having tax residence certificate, then the tax authorities cannot go behind the tax residence certificate and deny the benefit of DTAA. Validity of the CBDT circulars were challenged before the Delhi High Court and the Delhi High Court quashed the CBDT circulars. On appeal filed by the U....
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....y NCWS to AT&T Mauritius cannot primafacie be accepted, because, under the JVA the liability to pay for the equity shares was on AT&T USA and if AT&T USA discharges that liability by a device of advancing loan to AT&T Mauritius and paying through AT&T Mauritius, then it is open to the assessing officer to discard the device and take into consideration the real transaction between the parties. 48. Strong reliance was placed by the Counsel for Indian Rayon on the decision of the Apex Court in the case of Carew & Company Limited (supra) and Mrs.Bacha F. Guzdar (supra), wherein it is held that the assets belonging to a wholly owned subsidiary cannot be regarded as belonging to the parent company and the person whose name is entered in the Register of Members is to be regarded as the holder of the said shares. In our opinion, those decisions are distinguishable on facts. In the case of Mrs.Bacha F. Guzdar (supra), the assessee was a shareholder in certain tea companies. 60% income of those tea Companies were exempt from tax as agricultural income. The assessee claimed that 60% of the dividend income received by her on account of holding shares in those tea companies would also....
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.... Court in the case of Howrah Trading Company Limited (supra). In that case, the assessee had purchased shares in a company under a blank transfer, but his name was not registered in the books of the company. The question was whether the assessee was entitled to the dividend income on the said shares purchased by the assessee therein. In that context, it was held by the Apex Court that the person in whose name the shares are registered in the books of the company would be the shareholder and not the purchaser of the shares who may have equitable right to the dividend on account of purchasing the shares. In the present case, no doubt that the shares are registered in the name of AT&T Mauritius and, hence, it would be holder of the said shares. However, holding of the said shares by AT&T Mauritius itself was as a permitted transferee of AT&T USA, with all rights including the right to sell the said shares vested in AT&T USA. In the case before the Apex Court, the purchase of shares was not complete till the shares were actually transferred in the name of the assessee therein. In the present case, acquisition of shares of the JVC by AT&T USA was complete on allotment of shares in the n....
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.... the Revenue is seeking to tax NCWS, because investment in the shares of the JVC made by the predecessor of NCWS viz. AT&T USA by subscribing to the shares of the JVC under the JVA and on sale of the said shares, capital gains have accrued to NCWS. 51. It was contended that if the argument of the Revenue is accepted, then absurd situation would arise, because, under the Benami Transactions (Prohibition) Act, 1988, the US Company would not have any right over the shares that stood in the name of AT&T Mauritius but assessable to capital gains tax under the 1961 Act. There is no merit in the above contention, because under the Benami Transactions Act, 1988, a transaction is considered to be a benami transaction, in which the property is transferred to one person for a consideration paid or provided by another person. In the present case, the shares of the JVC subscribed to and owned by AT&T USA are allotted in the name of AT&T Mauritius as a permitted transferee with all rights attached to those shares vested in AT&T USA. In other words, in the present case, there was only a limited transfer of shares of ICL in the name of AT&T Mauritius, because, the allotment itself was su....
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.... income accruing or arising in India which are deemed to accrue or arise in India. One such category of income set out in Section 9(1)(i) is, the income accruing or arising through the transfer of a capital asset situate in India. 54. The argument of Indian Rayon is that in the present case, the Revenue has admitted that on sale of shares of ICL, income has accrued in India and income is received in India. Once it is accepted that income has accrued or is received in India, then the said income cannot be said to be deemed to accrue or arise in India as contemplated under Section 9 of the Act. Reliance is placed on the decision of the Apex Court in the case of Eli Lilly & Co (India) P. Limited (supra) wherein it is held that Section 9 would not apply in respect of income which actually accrues in India. In the present case, since it is admitted by the Revenue that income has accrued and arisen in India, Section 9 would not apply and consequently the question of recovering tax on the basis of deemed income from Indian Rayon as a representative assessee of the nonresident does not arise at all. It is contended that one has to first consider whether the income can be regarded as acc....
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....nt is vicariously liable even if the income actually accrues in India or is received in India." (emphasis supplied) Thus, the Apex Court in the case of Eli Lilly & Co. (supra) has held that any income which accrues in India or is received in India within the meaning of Section 5 of the Act would be income deemed to accrue or arise in India if such income falls within the categories of income specified under Section 9(1) of the Act. Similarly, this Court in the case of Vodafone International Holdings B.V. V/s. Union of India reported in (2010) 329 ITR 326 (Bom) after construing Section 5 and Section 9 of the Act has held that where an asset or source of income is situated in India, all income which accrues or arises directly or indirectly through or from it shall be treated as income which is deemed to accrue or arise in India. In the present case, transfer of ICL shares constitutes transfer of a capital asset situate in India and income from such transfer of capital asset even if accrues or is received in India within the meaning of Section 5 of the Act, such income being specifically enumerated under Section 9 of the Act, would be income deemed to accrue or arise in Indi....
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....nsfer of ICL shares are exempt under Section 10(23G) of the Act was raised by Indian Rayon in the proceedings initiated under Section 163 of the Act. 60. However, the Assessing Officer while holding that Indian Rayon is liable to be assessed as a representative assessee, observed that the question of exemption under Section 10(23G) would be considered in the assessment proceedings. Even before us, it is contended on behalf of the Revenue that the exemption issue can be considered only after the question as to whether the investee company had the necessary approval for grant of benefit under Section 10(23G) is investigated in the assessment proceedings. In these circumstances, we do not consider it proper to dwell upon an issue which is not adjudicated by the assessing officer and leave it for Indian Rayon to agitate the applicability of Section 10(23G) in the assessment proceedings. D) Impact of Certificate issued under Section 195(2) 61. It is the contention of Indian Rayon that once a Certificate under Section 195(2) of the Act is issued after due application of mind and payments to the nonresident have been made without deducting tax at source on the basis of the....
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....elf not an entirely correct statement, because, Indian Rayon was purchasing the said shares as a representative of the Birla Group in exercise of the rights of first option which NCWS (successor to AT&T USA) had called upon the Birla Group to exercise. In fact, Grasim Industries Limited representing the Birla Group by its letter dated 29th July 2005 (see page 690 of the Petition) informed NCWS (successor to AT&T USA) that the Birla Group intends to purchase the shares of ICL subscribed to by AT&T USA (now NCWS). These facts were suppressed by Indian Rayon in the application seeking Certificate under Section 195 of the Act. 66. Indian Rayon, which represents the Birla Group cannot be said to be an innocent purchaser so as to be unaware of the circumstances under which the shares of the JVC (ICL) were issued in the name of AT&T Mauritius. The JVC (now known as ICL) was formed under the JVA between AT&T USA and the Birla Group. The JVA specifically records that the Birla Group inter alia consists of Indian Rayon and in fact Indian Rayon is a signatory to the JVA. As per the JVA, 100% shares of the JVC were to be held by the joint venture partners viz. AT&T USA and the Birla ....
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....Act, because, as per the DTAA between India and Mauritius, income accrued to AT&T Mauritius on sale of the shares of ICL to Indian Rayon could not be brought to tax in India and consequently recovering the tax on the said income accrued to AT&T Mauritius from Indian Rayon as agent of AT&T Mauritius did not arise. Once the statement that income has accrued to AT&T Mauritius was accepted, there was no scope for considering the applicability of Section 163 of the Act, because, if the income by way of capital gains accrued to AT&T Mauritius was not taxable in India, there was no question of recovering tax from Indian Rayon as agent of AT&T Mauritius under Section 163 of the Act. 69. According to the learned ASG, the proceedings under Sections 163 and 195 of the Act operate in completely different fields and, therefore, Certificate issued under Section 195 of the Act does not preclude the assessing officer from initiating proceedings under Section 163 of the Act, for the following reasons :" (a) Section 195 casts a statutory obligation to deduct tax on the payer. Section 195(2) is a protection against the consequences that may follow out of non deduction, if any. On the oth....
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....above vital documents, the assessing officer could not have come to the conclusion that the income arose to NCWS and that the applicable DTAA was IndoUS DTAA and not IndoMauritius DTAA. " We find merit in the above arguments advanced on behalf of the Revenue. Accordingly, we hold that in the facts of the present case, initiation of proceedings under Section 163 of the Act cannot be faulted. 70. Relying on a decision of the Karnataka High Court in the case of Anusuya Alva V/s. DCIT reported in 278 ITR 206 (Karn), it was contended on behalf of Indian Rayon that while discharging the obligation to deduct tax at source, the payer (in the present case Indian Rayon) acts as agent of the Government. It was contended that as per the directions given by the Government of India contained in the Certificate issued under Section 195(2) of the Act, Indian Rayon had made remittances to the nonresident without deduction of tax at source. It was further contended that having induced Indian Rayon to make the remittance without deduction of tax at source, it was not open to the Revenue subsequently to allege that the transaction of sale of shares by AT&T Mauritius to Indian Rayon....
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....gh the assessee therein while seeking Certificate under Section 197(3) did not mention the profit for the relevant previous year in its letter dated 17th July 1962, the assessee had enclosed a statement along with the said letter which indicated the profits earned in the previous year and the same was considered by the Income Tax Officer while issuing the Certificate. In that context, it was held by the Rajasthan High Court that the failure to mention the profit in the letter would not be a very material difference so as to invalidate the Certificate. In the present case, the basic facts disclosed in the application itself was inaccurate,if not false and the same was compounded by making incorrect statement to the effect that the shares were purchased by AT&T Mauritius directly from ICL. Neither before the assessing officer nor before us, it is contended by Indian Rayon that the JVA was not acted upon or implemented. If the JVA was implemented, then there was no question of issuing the shares of the JVC to AT&T Mauritius, because, as per the JVA 100% shares of the JVC were to be owned by the joint venture partners only. Admittedly, AT&T Mauritius was not the joint venture partner a....
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.... the Act and confers powers on the assessing officer to assess either the representative assessee or the principal assessee to whom the income has accrued. Thus, Section 166 provides that initiation of proceedings to assess the income deemed to accrue or arise in India to a nonresident in the hands of a representative assessee shall not bar direct assessment in the hands of the nonresident. Though the Section contemplates one assessment either in the hands of the nonresident or in the hands of the representative assessee, the Section does not provide any clue to the effect that once the assessment proceedings are initiated against the nonresident, the proceedings initiated to assess the income of the nonresident in the hands of the representative assessee must be dropped. In other words, there is nothing in Section 166 or any other provision of the Act to suggest that the option to assess either in the hands of the representative assessee or in the hands of the nonresident must be exercised at the threshold itself and not at the end of the assessment proceedings. 75. In our opinion, the observations made by the Apex Court in the case of Mrs.Arundhati Balkrishna (supra) do....
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....g officer must not proceed against the representative assessee once the assessment proceedings are initiated against the nonresident but in exceptional cases like the present one, where complex issues are involved relating to the computation of capital gains and the assessing officer is unable to make up his mind on account of suppression of material facts, then, it would be open to the assessing officer to continue with the assessment proceedings against the representative assessee and the nonresident simultaneously till he decides to assess either of them. 77. In the present case, AT&T Corp / AT&T Wireless Services Inc (AT&T USA) carried on business in India as a joint venture partner of JVC by subscribing to and owning the shares of JVC. Admittedly in October 2004 Cingular Wireless LLC USA acquired AT&T Wireless Services Inc, USA (AT&T USA) and renamed it as New Cingular Wireless Services Inc, USA (NCWS). Thus, from October 2004, NCWS stepped in to the shoes of AT&T USA and all rights and obligations of AT&T USA vested in NCWS. It is neither the case of Indian Rayon nor the case of NCWS that after October 2004 any of the rights and obligations of AT&T USA in the joint ....
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....led by NCWS to challenge two notices issued under Section 148 of the Act both dated 31st March 2009, whereby NCWS and the erstwhile MMM Holdings LLC (which has merged with NCWS with effect from 31st December 2006) are called upon to file return of income for assessment year 200607 so as to assess the income which according to the assessing officer has escaped assessment in the said assessment year. 81. The argument of Mr.Chinoy, learned Senior Advocate appearing on behalf of NCWS can be summed up as follows : a) Once proceedings are initiated to assess the income allegedly accrued to the nonresident in the hands of the representative - assessee, notice under Section 148 cannot be issued so as to assess the very same income in the hands of the nonresident (NCWS) b) NCWS is a company incorporated in USA and has no presence whatsoever in India. NCWS does not have a representative or liaison office in India nor does it have even a branch or subsidiary in India and, therefore, NCWS cannot be taxed in India. c) the transaction referred to in the reasons recorded for reopening of the assessment do not amount to transfer of capital asset situated in India and, the....
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....the shareholders (NCWS & MMMH) of the Company are situate outside India. Even after the purchase of the shares of AT&T Mauritius by TIL, the Company (AT&T Mauritius) continues to exist at Mauritius and TIL became shareholder of AT&T Mauritius situate at Mauritius. Therefore, acquisition of shares of AT&T Mauritius by TIL from NCWS and MMMH cannot constitute transfer of a capital asset situate in India and consequently NCWS and MMMH cannot be held liable to pay tax in India on any gains accruing or arising from the above transaction. In support of the above contention, reliance was placed on two decisions of the Delhi High Court in the case of Carrasco Investments Limited V/s. Special Director, Enforcement Directorate reported in 79 Comp. Cases 631 (Del) & Commissioner of Income Tax V/s. Quantas Airways Limited reported in 256 ITR 84 (Del), and a decision of this Court in the case of Commissioner of Income Tax V/s. Framji reported in 54 ITR 588. 82. We have carefully considered the arguments advanced by the Counsel for NCWS. 83. The basic question to be considered in this Writ Petition is, whether initiation of proceedings under Section 148 of the Act is in accordance w....
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....ot entered into any agreement with the JVC (ICL) to subscribe / purchase shares of the JVC and the shares allotted to AT&T Mauritius were as a permitted transferee of AT&T USA. (d) Prior to the execution of the Shareholders Agreement dated 15th December 2000, the JVC, as per the JVA had allotted 43,82,81,480 shares in the name of AT&T Mauritius, as a permitted transferee of AT&T USA. (e) The Shareholders Agreement for all the practical purposes was a reconstitution of the Joint Venture which was originally between AT&T USA and the Birla Group and after the Shareholders Agreement the joint venture was between AT&T USA, Birla Group and the Tata Group. As per the JVA, 100% shares of JVC were to be held by and between AT&T USA and the Birla Group. After the Shareholders Agreement, 100% of the shares of the JVC were to be held by and between AT&T USA, Birla Group and the Tata Group. (f) In the Shareholders Agreement, it is recorded that AT&T USA represents the AT&T Wireless Group and that the payments for the balance equity shares would be paid by the members of the AT&T Wireless Group (which includes AT&T Mauritius). However, all rights in the equity shares of the J....
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....S. According to the Revenue, out of US$ 150,000,475 the amount of US$ 150,000,000 represented the sale proceeds of the ICL shares received by AT&T Mauritius as a permitted transferee of the AT&T USA (now NCWS). (l) As regards the balance 50% shares of ICL held by NCWS i.e. 37,17,80,740 equity shares of ICL, TIL was entitled to purchase the same (in exercise of the rights of first refusal) from NCWS on payment of US$ 150,000,000/. However, TIL instead of purchasing balance 50% shares of ICL held by NCWS for US$ 150,000,000/sought to purchase 100% shares of AT&T Mauritius owned by NCWS and MMMH (belonging to the AT&T Group) for US$ 150,000,000/. NCWS & MMMH held 70% and 30% shares of AT&T Mauritius respectively. Accordingly, a Sale and Purchase Agreement was entered into on 28th September 2005 between TIL on the one hand and NCWS and MMMH on the other hand, wherein it is recorded that TIL would purchase entire shares of AT&T Mauritius held by NCWS and MMMH for US$ 150,000,000. The said agreement records that AT&T Mauritius holds 74,35,61,480 shares of ICL and that AT&T Mauritius has agreed to sell 37,17,80,740 shares of ICL to Indian Rayon out of the total 74,35,61,480 shar....
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....ordingly, NCWS as a joint venture partner offered to sell and Indian Rayon / TIL representing the other two joint venture partners accepted the offer to purchase all the shares of ICL in exercise of their right of first refusal under the Shareholders Agreement. As noted earlier, even before the execution of the Shareholders Agreement 43,82,81,480 equity shares of ICL were allotted to AT&T Mauritius as a permitted transferee of AT&T USA with all rights vested in AT&T USA. Thus, shares issued under JVA and thereafter under the Shareholders Agreement could be divested by NCWS by not merely transferring the shares of the JVC but also by relinquishing all rights conferred under the JVA / Shareholders Agreement. By the two Sale and Purchase Agreements, though NCWS has ceased to be the joint venture partner of ICL, it is the contention of NCWS that the amounts received thereunder do not represent the consideration received on relinquishment of right, title and interest including the shares of ICL held by NCWS. 88. It is an admitted fact that the value of 74,35,61,480 equity shares of ICL offered by NCWS to the Birla Group and the Tata Group was US $ 300 million. It is an admitte....
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.... said appeal is pending. Hence, we do not consider it proper to decide the said issue in the present Writ Petition. 91. The challenge to the orders dated 2nd March 2009 passed under Section 163 of the Act is on the ground that TIL had purchased 100% shares of AT&T Mauritius from NCWS and MMMH for US$ 150 million and the capital gains arising from the above transaction is not taxable in India. In the ordinary course, income accrued to a nonresident on account of sale of shares of a foreign Company would not taxable in India. However, in the present case, the argument of the Revenue is that the transaction between TIL and NCWS / MMMH is really a transaction for purchase of 37,17,80,740 equity shares of ICL subscribed and owned by NCWS (successor to AT&T USA) as a joint venture partner of JVC in India and, therefore, income accrued to NCWS and MMMH would be taxable in India. 92. Mr.Dada, learned Senior Advocate appearing on behalf of TIL vehemently contended that the case of TIL cannot be compared with the case of Indian Rayon, because, Indian Rayon has purchased shares of ICL from AT&T Mauritius, whereas TIL has purchased the shares of AT&T Mauritius from NCWS and MMMH. ....
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....ise of its right of first refusal contained in the Shareholders Agreement had agreed to purchase 37,17,80,740 equity shares of ICL from NCWS for US$ 150 million. However, instead of purchasing the said shares of ICL, by a Sale and Purchase Agreement entered into with NCWS and MMMH, TIL agreed to purchase the entire shares of AT&T Mauritius for US$ 150 million. Once we find merit in the contention of the Revenue that primafacie the ICL shares held by AT&T Mauritius belonged to NCWS and the value of the ICL shares remaining with AT&T Mauritius (after selling shares to Indian Rayon) was US$ 150 million, then the question to be considered is, whether TIL paid US$ 150 million for the shares of ICL or for the shares of AT&T Mauritius which had no assets other than ICL shares. These questions would have to be gone into in the assessment proceedings. 96. TIL cannot be said to be unaware of the fact that the shares of ICL held by AT&T Mauritius did not belong to AT&T Mauritius because TIL was party to the Shareholders Agreement, wherein all rights in respect of the shares of JVC to be issued after the Shareholders Agreement was to vest in AT&T USA and not with AT&T Mauritius. In t....