TaxTMI 
TaxTMI 
2013 (9) TMI 680
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the extent that it relates to the addition of Rs.84,34,39,52,555/- on account of two unreported international transactions and a Draft Assessment Order dated 29th December, 2011, passed by respondent No.3-Assistant Commissioner of Income-tax (hereinafter referred to as the "AO" or "Assessing Officer"). The petitioner has also sought a writ of mandamus directing respondent No.3 - the AO to revise the Draft Assessment Order, after excluding the said transfer price adjustment. Lastly, the petitioner seeks a writ of prohibition, prohibiting the respondents from taking any steps pursuant to the impugned orders. 2. The two unreported transactions are the sale of the call centre business by the petitioner to Hutchison Whampoa Properties (India) Pvt. Ltd. and an alleged assignment of call options by the petitioner to Vodafone International Holdings B.V. The TPO determined the arm's length price of these two unreported transactions suo moto in exercise of powers under sections 92CA(2A) and/or (2B) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The petitioner has challenged the jurisdiction of the TPO to determine the arm's length price of these transactions on vario....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the one hand and one Asim Ghosh and three companies controlled by him on the other. An identical agreement also dated 1st March, 2006, was entered into between the petitioner on the one hand and one Analjit Singh and his group of companies on the other. Analjit Singh and Asim Ghosh acquired shares in Telecom Investments India Private Limited, an Indian company with credit support provided by HTIL. TII, in turn, held shares in Hutchison Essar Limited (earlier known as Hutchison Max Telecom Limited (HMTL) and subsequently re-named Vodafone Essar Limited). In consideration of the credit support, the framework agreements were entered into under which a call option was given to the petitioner, a subsidiary of HTIL to buy from the respective group companies, their entire share holdings in TII. The petitioner was also granted a right to subscribe to the shares in respect of the group companies. 6. On 11th February, 2007, a share purchase agreement (hereinafter referred to as the "SPA") was entered into between HTIL and Vodafone International Holdings BV (hereinafter referred to as "VIH BV") under which HTIL agreed to procure the sale of the entire share capital of CGP. Under the agree....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emands made by the respondents upon the petitioner and the proceedings pursuant thereto. (A) The proceedings pertain to the Assessment Year 2008-09. Under cover of its Chartered Accountant's letter dated 8th January, 2009, the petitioner submitted Form No.3CEB in which it disclosed two international transactions during the assessment year 2008-09. The AO, with the approval of the Commissioner of Income-tax, by a letter dated 25th January, 2010, referred the same to the TPO under section 92CA(1) for the determination of the arm's length price thereof. These disclosed / reported transactions are not the subject matter of this petition. (B) We will set out the relevant provisions of the Act later. Suffice it to note at this stage that on 1st June, 2011, sub-section 2(A) of Section 92CA of the Act came into effect. (C) Hearings were held before the TPO. In the course of the correspondence with the petitioner, the TPO sought various documents and particulars and contended that the petitioner had not disclosed two international transactions viz. the BTA - the transaction relating to the sale of the call centre business by the petitioner to HWP (India) and the assignment of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....submitted to his jurisdiction in this regard. (E) The TPO issued notices calling upon the petitioner to show cause why it had not disclosed the said unreported international transactions. The petitioner submitted a detailed reply to the show cause notice. Once again, no objection was raised to the jurisdiction of the TPO to consider the unreported international transactions. The petitioner dealt with all the issues raised in the show cause notice on merits. It did contend that the Framework agreements were not international transactions and that there was, therefore, no question of proving any arm's length nature of a transaction and/or any valuation of the rights as no rights were conferred as alleged by the TPO or at all. The petitioner, however, did not contend that respondent No.2 did not have jurisdiction to consider the said transactions on the ground that they were not international transactions. The petitioner, in fact, went a step further and construed the agreements contending that there was no change between the 1st March, 2006 and the 5th July, 2007 Framework agreements. The petitioner also dealt with the show cause notice insofar as it related to the BTA. It answ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n to determine the ALP in respect of the said non-reported transactions inasmuch as he had no power to suo moto assume jurisdiction pursuant to section 92CA(2A) with respect thereto. The petitioner also dealt with the case on merits, including that the said transactions were not international transactions. 15. On 29th December, 2011, the AO passed a Draft Assessment Order under section 144C of the Act. The AO held that he was bound by the TPO's order and that an AO, under no circumstances, can differ with the TPO. The AO, accordingly, held that he was unable to uphold the assessee's objection with regard to the quantification of the ALP of the sale of the call centre business. The Advocate General, however, contended that the AO had even otherwise, independent of the TPO's order, found the transactions to be international transactions and computed the ALP in respect thereof himself. Mr. Salve denied that the AO had done so. It is clear that the AO has, independent of the TPO's order, on his own come to the same conclusion. However, as we have upheld Mr. Salve's submission that the AO is bound by the order of the TPO on both issues viz. whether the transaction is an interna....
X X X X Extracts X X X X
X X X X Extracts X X X X
....144C being issued by the DRP at least till 30th September, 2012. It was further observed that as the Court was not entertaining the application for interim reliefs, the petitioner would be at liberty to appear before the DRP without prejudice to its rights and contentions including those raised in this Writ Petition. (D) The DRP subsequently passed orders / directions under section 144C(5), inter-alia, upholding the findings of the TPO. The same was recorded in an order dated 8th October, 2012. (E) The matter thereafter appeared before another Division Bench on 8th October, 2012. By an order dated 8th October, 2012, the Division Bench recorded that on 24th September, 2012, it was agreed that the petition would be heard finally at the stage of admission; that on 24th September, 2012, the Court, while adjourning the matter to 5th October, 2012, orally directed that the DRP may continue with the proceeding but that the order, if any, that may be passed shall not be communicated to the petitioner till the next date of hearing; that on 5th October, 2012, the respondent's counsel raised a preliminary objection on the ground that the DRP had already passed an order upholding the dec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....turn filed which disclosed some international transactions. (B) The TPO lacked any jurisdiction to go into the valuation of the sale of the call centre business pursuant to the BTA by the petitioner to HWP (India) as the same is a domestic transaction and cannot be deemed to be an international transaction. (C) The rewriting of the call options in July, 2007 did not constitute an assignment of options and thus there is no international transaction of the kind alleged. This issue stands settled by the judgment of the Supreme Court in the case of Vodafone International Holdings B.V. v. Union of India & Anr., (2012) 341 ITR 1. 21(A). Apart from contesting these submissions, the Advocate General raised several preliminary objections to the maintainability of the Writ Petition. He firstly contended that the petitioner has alternate remedies under the Act. He also submitted that the petition ought not be entertained as (i) the petitioner had filed objections and had appeared before the DRP; (ii) the petitioner is not entitled to maintain parallel proceedings viz. this Writ Petition and the proceedings before the authorities under the Act and (iii) the impugned order of the TP....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a notice issued under sub-section (3) of Section 92-D. the Assessing Officer may proceed to determine the arm's length price in relation to the said [international transaction or specified domestic transaction] in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him: Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm's length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer. (4) Where an arm's length price is determined by the Assessing Officer under sub-section (3), the Assessing Officer may compute the total income of the assessee having regard to the arm's length price so determined: Provided that no deduction under [Section 10-A or Section 10-AA or Section 10-B] or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section: Provided further that where the total income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder to the Assessing Officer and to the assessee. (2-B) Where in respect of an international transaction, the assessee has not furnished the report under Section 92-E and such transaction comes to the notice of the Transfer Pricing Officer during the course of the proceeding before him, the provisions of this chapter shall apply as if such transaction is an international transaction referred to him under sub-section (1). (2-C) Nothing contained in sub-section (2-B) shall empower the Assessing Officer either to assess or reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year, proceedings for which have been completed before the 1st day of July, 2012. (3-A) Where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the course of any proceeding under this Act, require any person who has entered into an [international transaction or specified domestic transaction] to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard: Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days; 92-E. Report from an accountant to be furnished by persons entering into [international transaction or specified domestic transaction].-Every person who has entered into an [international transaction or specified domestic transaction] during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed." ......... 144-C - (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. [Explanation.- For the removal of doubts, it hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee.] (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or action is intended to be enforceable by legal proceeding." 24. The Advocate General submitted that the TPO had jurisdiction to consider the two unreported transactions suo moto in view of sub-sections (2A) and (2B) of section 92CA. As we mentioned earlier, sub-section (2A) of Section 92CA was introduced by the Finance Act, 2011 with effect from 1st June, 2011. Sub-section (2B) was introduced by the Finance Act, 2012 with retrospective effect from 1st June, 2002. Mr. Salve, on the other hand, submitted that the case ought to be considered without reference to sub-sections (2A) and (2B). He submitted that the present case pertains to the assessment year 2008-2009, whereas sub-section (2A) would apply only prospectively to cases relating to the assessment year 01.04.2012 onwards. According to him, sub-section (2A) does not have retrospective effect. He submitted that the case does not fall within the ambit of sub-section (2B). According to him, sub-section (2B) applies only where an assessee does not file Form 3CEB to wit in cases where the assessee does not disclose any international transaction. 25. The first question, therefore, is whether the TPO had jurisdiction to d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(2A) does not arise. The power to tax all transactions is with the AO and the TPO merely computes the arm's length price to facilitate the same. An assessee, including the petitioner, has no vested right to compel the AO to refer the matter to the TPO for determining the arm's length price. Section 92CA(2A) is, therefore, merely a procedural provision and, accordingly, operates retrospectively. 27. Two questions arise with regard to section 92CA(2A). The first question is whether the provisions of sub-section (2A) are substantive or merely procedural. This, in turn, raises a question as to whether sub-section (2A) confers fresh jurisdiction upon or expands the jurisdiction of the TPO. Secondly, assuming that sub-section (2A) is substantive, whether it applies to proceedings pending as on 1st June, 2011. We have answered both the questions in the affirmative. Accordingly, we have held that the TPO had jurisdiction under sub-section (2A) as the proceedings were admittedly pending before him on 1st June, 2011. 28. Sub-section (2A) undoubtedly confers fresh jurisdiction upon and extends the jurisdiction of the TPO. Prior thereto, the TPO was not entitled to deal with or con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AO in the determination of these issues. He does so pursuant to the power conferred upon him by the statute independent of and without any reference to the AO. 32. It would be convenient at this stage to analyze the two schemes leading to the making of the assessment order by the AO viz. where the AO decides the arm's length price himself and makes the assessment order and where the AO makes the assessment order in cases where the TPO determines the arm's length price. The difference in the two schemes also indicate that the provisions of section 92CA(2A) are substantive. (A) Under section 92(1) the AO is bound to compute any income arising from an international transaction having regard to the arm's length price. There is no compulsion on him to refer the computation of the arm's length price in relation to an international transaction to the TPO. Section 92CA(1) merely entitles him to do so with the previous approval of the Commissioner. Where the AO determines the arm's length price himself in accordance with the provisions of Chapter X and in particular Section 92C thereof he may compute the assessee's total income having regard to the arm's length price determined by hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the variation or if no objections are received within the period of thirty days prescribed by sub-section (2). Sub-section (11) requires the DRP to afford the assessee and the AO, an opportunity of being heard before passing any directions under sub-section (5) which may be prejudicial to the interest of the assessee or of the revenue. We will consider the ambit of sub-sections (5) to (8) and (10) later while considering the powers of the DRP. The DRP is entitled under sub-section (5) to issue directions for the guidance of the AO to enable him to complete the assessment, but only after considering the aspects referred to in clauses (a) to (g) which include the draft order, the objections filed by the assessee, the evidence furnished by the assessee, the report, if any, of the AO, Valuation Officer, TPO or any other authority, the records relating to the draft order, the evidence and the result of any enquiry made. Under sub-section (8), the DRP may confirm, reduce or enhance the variations proposed in the draft order. Sub-section (10) provides that every direction issued by the DRP shall be binding on the AO. Finally, under sub-section (13), the AO is bound to complete the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....held that sub-section (2A) is substantive and not procedural it must follow that it operates only prospectively and not retrospectively as a sub-section (2A) has not been given retrospective effect. 37. Mr. Salve relied upon the judgment of the Supreme Court in Bharat Singh v. Management of New Delhi Tuberculosis Centre, New Delhi & Ors. (1986) 2 SCC 614. It is necessary, however, to first deal with the judgment of the Supreme Court in The Workmen of M/s.Firestone Tyre & Rubber Company of India (Pvt.) Ltd. v. The Management & Ors. (1973) 1 SCC 813, which was relied upon in Bharat Singh's case. 38. In The Workmen of M/s. Firestone Tyre & Rubber Company of India (Pvt.) Ltd. v. The Management & Ors. (1973) 1 SCC 813, the question that arose for consideration was whether section 11-A of the Industrial Disputes Act applied to industrial disputes which had already been referred for adjudication and were pending as on 15th December, 1971. Section 11-A was introduced by an amendment to the Industrial Disputes Act and came into force with effect from 15th December, 1971. Section 11-A reads as under :- "11-A. Powers of Labour Courts, Tribunals and National Tribunals to give appropri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 11-A applies only to disputes which are referred for adjudication after the section has come into force. ................ 61. It is clear from the above observations that the expression "has been" was interpreted having regard to the scheme of the enactment and it was not construed in isolation. That decision makes it clear that the question whether those expressions relate to past or future events, have to be gathered from the context in which they appear as well as the scheme of the particular legislation. ............... 65. We have already expressed our view regarding the interpretation of Section 11-A. We have held that the previous law, according to the decisions of this Court, in cases where a proper domestic enquiry had been held, was that the Tribunal had no jurisdiction to interfere with the finding of misconduct except under certain circumstances. The position further was that the Tribunal had no jurisdiction to interfere with the punishment imposed by an employer both in cases where the misconduct is established in a proper domestic enquiry as also in cases where the Tribunal finds such misconduct proved on the basis of evidence adduced before it. These l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s no such indication in the section. The section had been brought into effect some time after the Act had been passed. More important, however, was the fact that the proviso to section 11-A contained the words "proceeding under this section". The Supreme Court held that these words indicated that the proceeding under the section can only be after the section was introduced i.e. after 15th December, 1971 as there obviously could not be a proceeding under the section prior to it's introduction. 39. The question before us, therefore, is whether the scheme of the Act and the context of the amendments make the provisions of sub-section (2A) operate in respect of proceedings prior to 1st June, 2011 i.e. the date from effect with which it was introduced. 40. In Bharat Singh v. Management of New Delhi Tuberculosis Centre, New Delhi & Ors. (1986) 2 SCC 614, the question that fell for consideration was whether section 17-B of the Industrial Disputes Act applied to awards passed prior to 21st August, 1984 i.e. the date on which section 17-B came into force. Section 17-B reads as under :- "17-B. Payment of full wages to workman pending proceedings in higher courts.-Where in any case a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he rights of the workmen but going against the spirit of the enactment. A rigid interpretation of this section as is attempted by the learned counsel for the respondents would be rendering the workman worse off after the coming into force of this section. This section has in effect only codified the rights of the workmen to get their wages which they could not get in time because of the long drawn out process caused by the methods employed by the management. This section, in other words, gives a mandate to the courts to award wages if the conditions in the section are satisfied. 11. In interpretation of statutes, courts have steered clear of the rigid stand of looking into the words of the section alone but have attempted to make the object of the enactment effective and to render its benefits into the person in whose favour it is made. The legislators are entrusted with the task of only making laws. Interpretation has to come from the courts. Section 17-B on its terms does not say that it would bind awards passed before the date when it came into force. The respondents' contention is that a section which imposes an obligation for the first time, cannot be made retrospective. Su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....section". This can only mean something relatable to a stage after the section came into being. That is not the case with Section 17-B. Here it is not the conferment of a new jurisdiction but the codification in statutory form of a right available to the workmen to get back wages when certain given conditions are satisfied. There are no words in the section to compel the court to hold that it cannot operate retrospectively. Before Section 17-B was introduced there was no bar for courts for awarding wages. Of course the workmen had no right to claim it. This section recognizes such a right. To construe it in a manner detrimental to workmen would be to defeat its object. 41. It is true that in paragraph 16, the Supreme Court noted that section 17-B did not confer a new jurisdiction but codified a right available to the workmen to get back wages when certain given conditions were satisfied. It is, however, important to note that the Supreme Court held in paragraph 16 that a conferment of a new jurisdiction can take effect only prospectively "except when a contrary intention appears on the face of the statute". In other words, it is not an absolute rule that where a provision confers....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er international transactions, which are noticed by him subsequently, in the course of proceedings before him. These international transactions would be in addition to the international transactions referred to the TPO by the Assessing Officer. " The Advocate General relied upon the fact that clause (B) does not contain a provision similar to clause (A) which referred to the proposed amendment to section 92C stating that the same will take effect from 1st April, 2012. While the absence of such a provision in clause (B) which relates to section 92CA is not determinative of the question as to whether it is retrospective or not, it certainly is a factor to be taken into consideration. Although it does not by itself establish, it supports the Advocate General's submission that the amendments to section 92CA apply to proceedings which were pending before the TPO on 1st June, 2011. Section 14 of The Finance Act, 2011, inserted sub-section (2A) in section 92CA with effect from 1st day of June, 2011. 44. The phrase "during the course of the proceedings" in section 92CA(2A) does not restrict the source to be the material already on record. The phrase refers to the point of time as is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....report in Form 3CEB along with its return. 50. The submission is not well founded. The error is apparent from the plain language of sub-section (2B). The opening words of sub-section (2B) viz. "Where in respect of an international transaction the assessee has furnished the report under section 92E ...." (emphasis supplied) indicate the type of the international transaction that the TPO is entitled to consider. The words "an international transaction" belie the petitioner's submission. The requirement is not the failure of the assessee to furnish the report under section 92E, but to furnish the report under section 92E in respect of "an" international transaction. In other words, the section also includes cases where the assessee has filed Form 3CEB pursuant to section 92E but does not include therein "an international transaction" or international transactions and such transaction or transactions come to the notice of the TPO. The words "an" and "such" are crucial in determining the ambit of sub-section (2B). Were it otherwise, the section would have been worded entirely differently. It would have included generally international transactions in cases where the assessee had fail....
X X X X Extracts X X X X
X X X X Extracts X X X X
....section 92CA to empower the TPO retrospectively to determine the arm's length price of such transactions. The jurisdiction is conferred upon the TPO when proceedings are pending before him, inter alia, of international transactions which are not reported by the assessee in the report filed under section 92E. 53. The submission that sub-section (2B) applies only in cases where no report is filed by the assessee under section 92E is rejected. We do not find the reliance upon the judgment in J.K. Synthetics Ltd. v. Commercial Tax Officer (1994) 4 SCC 276 to be of any assistance to the petitioner in this regard. Sub-section (2B) of section 92CA includes cases where an assessee has filed a report under section 92E in Form 3CEB read with Rule 10, but has not included an international transaction therein. The TPO has power and jurisdiction under sub-section (2B) to deal with international transactions not mentioned in the report. 54. The Finance Bill 2012, by itself does not indicate why sub-section (2B) was introduced. The learned Advocate General submitted that it was only clarificatory and possibly to overcome the decision of the Delhi High Court in CIT v. Amedeus (India) Pvt. Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....already before the TPO anyway. The opening words of sub-section (2A) are very wide and include all international transactions. There is nothing in section 92CA that warrants curtailing their ambit. 57. There are two material differences between sub-section (2A) and sub-section (2B) of section 92CA. Firstly, sub-section (2A) entitles the TPO to consider any international transaction whether reported or not by the assessee in Form 3CEB. Sub-section (2B), however, entitles the TPO to consider only unreported international transactions i.e. international transactions not referred in Form 3CEB irrespective of whether or not the Form 3CEB was filed reporting other international transactions. Thus, this retrospective effect of sub-section (2B) is only in respect of certain international transactions viz. unreported transactions and to reported transactions not referred by the AO to the TPO. Secondly, whereas sub-section (2A) applies only to proceedings before the TPO on 1st June, 2011, sub-section (2B) operates with retrospective effect from 1st June, 2002. 58. There is no possibility of conflict of assessment between the AO and the TPO for under section 92CA(3A), the TPO must....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le reliance was placed on behalf of the petitioner : "17. A plain reading of section 92CA makes it clear that the Assessing Officer, if he considers it necessary or expedient so to do, may, with the previous approval of the Commissioner refer the computation of the arm's length price in relation to an international transaction under section 92C to the Transfer Pricing Officer. At this juncture, we may reiterate that it is primarily the duty of the Assessing Officer to compute any income arising from an international transaction having regard to the arm's length price. He may determine the arm's length price of an international transaction himself or, if he feels that it is necessary or expedient so to do, he may seek the approval of the Commissioner and, therefore, refer the computation of the arm's length price in respect of an international transaction to the Transfer Pricing Officer. This makes it clear that it is the Assessing Officer who has to determine, first of all, whether a transaction is an international transaction under section 92B of the said Act. Secondly, if it is an international transaction in his view, he has to proceed to determine the arm's length price in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erefore, did not have retrospective effect. The actual words used by the Supreme Court are as under (page 407 of 68 STC): "9. The contention that the amendment is purely procedural is also misconceived. Assuming the correctness of the contention that a purely procedural amendment should ordinarily be construed to be of such nature. The decision of this court in Kasturi Lal's case [1987] 67 STC 154 had held that an unregistered dealer is not taxable under the proviso. The amendment changes this position and imposes a substantive liability on such a dealer. It is also one which confers jurisdiction on an officer in a particular State to levy a tax which he otherwise cannot. It is thus a substantive provision. That apart, even the question whether a charge to tax can be imposed in one State or another is not a mere question of venue. It may have an impact on the rate of tax in certain cases and it also regulates the rights inter se of States to levy taxes on such inter-state sales. It is, therefore, difficult to accept the contention that the amendment should be treated as purely procedural and hence necessarily retrospective." ............. 20. Similarly, in the case before ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oner. 60. We are in respectful agreement that sub-section (2A) can only have prospective effect from 1st June, 2011. It is, however, prospective qua the proceedings and not qua the assessment year. Thus, if the proceedings had concluded before the TPO prior to 1st June, 2011, sub-section (2A) would not have been applicable. As, however, the proceedings were pending before the TPO on 1st June, 2011, the TPO was entitled to exercise jurisdiction under sub-section (2A). 61. Thus, in the case before us, the TPO had jurisdiction to consider suo moto the two unreported and unreferred transactions under sub-section (2A) as well as under sub-section (2B) of section 92CA. In the result, therefore, the contention that the TPO had no jurisdiction to consider the said international transactions is rejected. MAINTAINABILITY OF THE WRIT PETITION : 62. The Advocate General submitted that the petition ought not to be entertained for four reasons. Firstly, the petitioner has an equally efficacious alternate remedies. Secondly, the petitioner filed objections and appeared before the DRP. Thirdly, the petitioner is not entitled to maintain parallel proceedings viz. this Writ Petition as w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entitled to revisit or to even question any part of the order of the TPO determining the arm's length price, including the question whether the transaction is an international transaction or not. 66. The AO has jurisdiction to consider any international transaction and to determine the arm's length price thereof. This is clear from sections 92C and 92CA. The AO has the power to tax all income under section 4 of the Act. He has the power to determine whether a transaction is an international transaction and to determine the arm's length price thereof under section 92C(1) and (3). He is not bound to refer the computation of the arm's length price in relation to an international transaction under section 92CA(1) to the TPO. He may determine these questions himself. Where the AO determines the arm's length price of an international transaction himself and proceeds to complete the assessment without the intervention of the TPO, either on a reference under section 92CA(1) or suo moto under sub-sections (2A) and (2B) of section 92CA, no complications arise. The exercise of power by the AO on the one hand and the TPO under sections 92C and 92CA on the other are a different matter and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s submission that the AO is entitled to revisit and, in effect, sit in appeal over the TPO's report in any respect, including his finding that a transaction is an international transaction and the computation of the arm's length price thereof. When a TPO determines the arm's length price of an international transaction under sub-sections (2A) and/or (2B) after taking up the same suo moto for consideration, the AO cannot sit in judgment over the same in any respect. In other words, in such a case, the AO is not entitled to go even into the question as to whether the TPO rightly determined or considered the same to be an international transaction. Sub-section (4) of section 92CA stipulates that on receipt of the order of the TPO under sub-section (3) the AO "shall proceed to compute the total income" of the assessee "in conformity with" the arm's length price determined by the TPO. The provision is mandatory. The words "in conformity with" leave no room for doubt. The word conformity is synonymous to the words "compliance" and "obedience". The AO cannot deviate from the TPO's order. For an AO to hold that the transaction dealt with by the TPO was not an international transaction woul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses as if such transaction is an international transaction referred to the TPO under sub-section (1) of section 92CA. Thus, even if there is any conflict on account of the AO and the TPO having determined the arm's length price in respect of a transaction which was not referred to the TPO, the same can be taken care of by the AO in the final assessment order by making the draft assessment order in conformity with the TPO's order and not in accordance with what the AO himself determined in respect of such an international transaction. 73. A view to the contrary would, in fact, be contrary to the legislative intent of expediting the proceedings regarding the determination of the arm's length price of international transactions. The determination of the question as to whether a transaction is an international transaction or not would then go through an additional stage in the litigation before the tax authorities viz. before the TPO as well as before the AO. This was not the legislative intent. 74 (A). There may be a situation where the Commissioner refuses approval to the AO to refer a transaction to the TPO after coming to the conclusion that it is not an international transac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax (Appeals). 79. Where, however, the AO makes a reference under section 92CA(1) and the TPO passes an order under section 92CA(3) and the AO thereafter passes a draft assessment order, as also where an AO makes a reference under section 92CA(1) in respect of a reported international transaction and the TPO during the proceeding before him finds unreported international transactions and determines the arm's length price of the reported as well as the unreported international transactions and the AO passes a draft assessment order, the assessee has two options. He may file objections before the DRP under section 144C(2) against any variation in the income or loss return whether relating to transfer pricing or otherwise made in the draft assessment order. In other words, in such a case the assessee would be entitled to challenge the entire draft assessment order before the DRP. The other option is for the assessee not to file any objections before the DRP or the AO within thirty days of receipt of the draft assessment order. In that event, the AO would pass the final assessment order and the assessee would be entitled to file an appeal against it only before the CIT (Appeal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e a statement that if an assessee chooses the second option i.e. he does not file an objection under section 144C (2) and waits for the final assessment order, it will not be contended by the respondents that he accepts the draft assessment order depriving him of a right to file an appeal under section 253 before the CIT (Appeals). (C) We accept the above statement on behalf of the respondents. However, as it is a question of law and in the unlikely event of it being contended that the above statements are not binding on the department in future as being an erroneous construction of the law, we proceed to consider the same ourselves independently. 81. The statement, according to us, in any event, enunciates the correct position in law as we will now demonstrate. 82. Mr. Salve submitted that the DRP is entitled under section 144C only to "confirm, reduce or enhance" the variations proposed in the draft order. These words, according to him, relate and are germane only to the quantification of the arm's length price. The DRP is, therefore, not entitled to consider whether or not the transactions are international transactions. We are unable to agree. 83. The error in the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 144-C empowers the DRP to confirm, reduce or enhance the variations proposed in the draft order as a whole and not the variations in the arm's length price of the international transactions alone. The DRP, therefore, is entitled to confirm, reduce or enhance any variations in the draft order and the draft order, as we have held, may contain variations in the income or loss return generally. 86. We also agree with the Advocate General that if the assessee chooses to file an objection before the DRP, he must do so in respect of the entire draft order and not merely in respect of a part thereof. In other words, once an assessee opts to file objections before the DRP he cannot restrict the same only insofar as it relates to the international transactions. A view to the contrary would render the entire assessment proceedings unworkable. The assessee cannot possibly have a part of the assessment order decided by the DRP and a part of it decided in an appeal before the CIT (Appeals). There is, in any event, no provision for the same in the Act. 87. Moreover, the DRP has wide jurisdiction as is evident, inter-alia, from sub-section (8) of section 144-C. The DRP is required to issu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....DRP lies only to the ITAT. The Legislature could hardly be expected to have intended to deprive an assessee of a valuable right of an appeal without express words to that effect. We do not suggest that the Legislature is not competent to do so. We are not inclined, however, to ascribe to the Legislature an intention to deprive an assessee of such a right in the absence of any provision or even words to that effect. 90. Where a TPO determines the arm's length price of an international transaction, whether suo moto or on a reference by the AO, the assessee has the option of adopting the DRP route under section 144C or the normal route of filing an appeal to the CIT (Appeals). The DRP is entitled to consider whether the transaction of which the arm's length price was computed by the TPO is an international transaction or not. Section 144C(2)(b) does not restrict the nature of objections that an assessee is entitled to raise before the DRP. If the DRP finds that the transaction was not in fact an international transaction, it must issue the necessary consequential directions to the AO to assess the same as a domestic transaction. To this end the DRP can even invoke powers under sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The AO must make the assessment in conformity with the TPO's order. The AO is not entitled to either question the TPO's order in any respect or to make the assessment contrary thereto. However, the assessee is entitled to challenge not merely the determination of the arm's length price, but also the TPO's conclusion that a particular transaction is an international transaction before the DRP. Alternatively, the assessee can wait till the final assessment order is passed without raising any objections upon the receipt of the report from the TPO and challenge the same before the CIT (Appeals). The petitioner, therefore, has an alternate remedy of challenging all aspects of such a matter either before the DRP or before the CIT (Appeals). The alternate remedy is, therefore, clearly there. In fact, from the order of the DRP or the CIT, the petitioner is entitled to file a further appeal before the ITAT. These appellate authorities are entitled to go into all questions of law and of fact. It is not suggested that either the CIT or the ITAT cannot consider the question as to whether a transaction is an international transaction or not. 95. We did not understand Mr. Salve to contend tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....." The judgment certainly indicates that the petitioner is entitled to urge the jurisdictional issue even before the TPO. In any event, the issue can and in fact has been raised before the DRP and it can also be raised before the CIT (Appeals) as observed later. The question, therefore, in each case is whether there was an absolute want of jurisdiction of the authority to even investigate the facts. 98. In M/s. Hindalco Industries Limited v. Addl. CIT - (Transfer Pricing Officer)-I(5), Writ Petition (Lodg) No.2782 of 2011, the AO made a reference to the TPO. The assessee participated in the proceedings before the TPO before whom eight hearings took place. The TPO thereafter passed his order. The petitioner thereafter filed the Writ Petition challenging the validity of the approval granted by the Commissioner to the AO to make a reference to the TPO and the order of the TPO. The Division Bench of this Court by its judgment dated 23rd December, 2012, declined to entertain the Writ Petition observing :- "11............... At this stage, we are of the considered view that it would be inappropriate for this Court to exercise its writ jurisdiction under Article 226 of the Consti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act, there is a hierarchy of authorities before which the petitioners can get adequate redress against the wrongful acts complained of. The petitioners have the right to prefer an appeal before the Prescribed Authority under sub-section (1) of Section 23 of the Act. If the petitioners are dissatisfied with the decision in the appeal, they can prefer a further appeal to the Tribunal under sub-section (3) of Section 23 of the Act, and then ask for a case to be stated upon a question of law for the opinion of the High Court under Section 24 of the Act. The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution. It is now well recognised that where a right of liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Waterworks Co. v. Hawkesford in the following passage : There are three classes of cases in which a liability may be established foun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under section 16-A of the Act. The Writ Petition was disposed of by an order directing the Valuation Officer to make a final valuation of the property after considering the objections already raised by the petitioners. The Valuation Officer prepared the final valuation report which the petitioners challenged by the Writ Petition which was disposed of by the judgment presently under consideration by us. The respondents raised a preliminary objection regarding the maintainability of the Writ Petition and contended that the High Court ought not to exercise its discretionary powers under Article 226 as the petitioners had the alternate remedy of an appeal against the final order which was yet to be passed by the Wealth Tax Officer. The Wealth Tax Officer was bound to make the assessment in conformity with the report of the valuation officer. The learned Judge dismissed the Writ Petition. Paragraphs 9 and 10 of the judgment relied upon by the learned Advocate General read as under :- "9. Sub-s. (6) of s. 16A says that on receipt of the order under sub-s. (3) or sub-s. (5) from the Valuation Officer, the AO shall, so far as the valuation of the asset in question is concerned, proceed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer was not in accordance with law or arbitrary and without jurisdiction. In that case, the appellate authority can set aside the order of assessment and send it back to the WTO for further reference to the Valuation Officer for the purpose of coming to the proper conclusion on the valuation of the premises in question. The appellate authority also can hold that in the facts and circumstances of this case, it was not open to the WTO to refer the valuation matter before the Valuation Officer. Therefore, all the questions that need to be considered against the valuation report or the valuation order can be dealt with by the appellate authority. Therefore, in my view, there is an efficacious alternative remedy to the writ petitioner by way of an appeal against the final order of assessment in which the writ petitioners can very well challenge the valuation report as well as the valuation order of the Valuation Officer. That being the position, I am of the view that there is an efficacious alternative remedy by way of an appeal under s. 23 of the Act and, therefore, the writ Court cannot be approached at this stage. Section 144-C of the Income-tax Act does not permit the DRP to set....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jurisdiction under Article 226 of the Constitution, in the facts of this case, we consider it appropriate to do so only so far as the question relating to the TPO's powers under sub-sections (2A) and (2B) are concerned. 102. In State of Uttar Pradesh v. Mohd. Nooh, (1958) SCR 595 = AIR 1958 SC 86, the Supreme Court held :- "(11) On the authorities referred to above it appears to us that there may conceivably be cases - and the instant case is in point - where the error, irregularity or illegality touching jurisdiction or procedure committed by an inferior court or tribunal of first instance is so patent and loudly obtrusive that it leaves on its decision an indelible stamp of infirmity or vice which cannot be obliterated or cured on appeal or revision. If an inferior Court or tribunal of first instance acts wholly without jurisdiction or patently in excess of jurisdiction or manifestly conducts the proceedings before it in a manner which is contrary to the rules of natural justice and all accepted rules of procedure and which offends the superior court's sense of fair play the superior Court may, we think, quite properly exercise its power to issue the prerogative writ of cer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....istrict 1 & Anr., 1961 (2) SCR 241, the Supreme Court held that the conditions precedent to the exercise of jurisdiction under section 34 of the Indian Income Tax Act, 1922, as amended in 1948, did not exist and that the ITO had, therefore, no jurisdiction to issue the notice impugned therein under section 34. The respondent contended that when the notices were issued, the ITO was not acting judicially or quasi judicially and so a writ of certiorari or prohibition cannot be issued and that the petitioner would have sufficient opportunity to raise the questions before the ITO and if unsuccessful, before the Appellate Officer of the Appellate Tribunal or in the High Court. The Supreme Court, however, held that the High Courts have power to issue in a fit case, an order prohibiting an executive authority from acting without jurisdiction. The Supreme Court further held that where action is taken without jurisdiction and the same subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders or directions to prevent such consequences (Pg. 258). The Advocate General submitted that in Calcutta Discount Company,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the TPO exercised jurisdiction on a reference under section 92CA(1) or suo moto under sub-sections (2A) and (2B) of section 92CA. The DRP derives jurisdiction under section 144-C not on account of whether there is an international transaction or not, not merely on account of the TPO having correctly considered a transaction to be an international transaction or not, but on account of the intervention of the TPO either on a reference under section 92CA(1) or suo moto under sub-section (2A) and/or (2B) thereof. 105. If on the other hand a TPO wrongly assumes jurisdiction although he lacks inherent jurisdiction, a Court may well invoke its writ jurisdiction if the assessee approaches it at the earliest and in any event before the TPO makes the report. This would only be to save the assessee and the Revenue incurring unnecessary expenses and a waste of time on account of the proceedings before the TPO which are demonstrably without jurisdiction. 106. The position, however, would be entirely different once the TPOs passes the order. This is for the reason that the DRP, in any event, would have the jurisdiction to rectify the error and issue the necessary directions to the AO to c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(2A) and (2B) of section 92CA is one of inherent lack of jurisdiction the question whether or not the said two transactions are international transactions does not lead to an inherent lack of jurisdiction in further proceedings. If the TPO has jurisdiction under sub-sections (2A) and (2B) he has the jurisdiction to decide whether or not a transaction is an international transaction. 110. In Whirlpool Corpn. v. Registrar of Trademarks, [1998] 8 SCC 1, the Supreme Court held that inspite of the alternate statutory remedies, the jurisdiction of the High Court in entertaining a Writ Petition is not affected specially in cases where the authority against whom the writ is filed is shown to have no jurisdiction or had purported to usurp jurisdiction without any legal foundation. 111. The judgment of a Division Bench of the Delhi High Court in Maruti Suzuki (India) Limited v. Addl. CIT/TPO, 2010 (328) ITR 210 is not relevant in the present case. The Division Bench set aside the order of the TPO and remanded the matter to him to determine the arm's length price in terms of section 92C and in the light of the observations made in the judgment. The Division Bench held that as the TPO ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....no power to condone the delay. It is difficult for a litigant to say with any degree of certainty whether a Writ Petition though maintainable would be entertained or not. It would be unfair to compel a litigant to speculate, to take a chance by not availing of the alternate remedy and only filing a Writ Petition. If the Court refuses to exercise the discretion that it has in entertaining a Writ Petition, the litigant would fall between two stools. There is no justification either in law or in equity to drive a litigant to such a situation. Where a litigant avails of an alternate remedy only to avoid such a situation, the doors of the Writ court cannot be closed to him. A view to the contrary, in fact, fetters the discretion of a Court exercising jurisdiction under Article 226 which ought not be the case. If a litigant is compelled to elect between a writ petition and the alternate remedy and he choses the former, it casts an unnecessary burden upon the Court to entertain the Writ Petition even though it may be inclined to exercise its discretion by relegating the party to the alternate remedy for no Court desires to leave a litigant without a remedy on merits. 116. In this regar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he interim order was continued from time to time. On 31st October, 2012, the AO passed the final assessment order but the same has not been served upon the petitioner in view of the earlier orders. 118. The petitioner, therefore, appeared before the DRP not voluntarily, but without prejudice to its rights and contentions in this Writ Petition. When a litigant appears in such proceedings without prejudice to its rights and contentions and the Court expressly permits him to do so, it would be a travesty of justice for the Court to thereafter refuse to entertain the Writ Petition merely on that ground. 119. In view thereof, it follows that the petition ought not to be dismissed merely because the DRP passed its order and the AO has now passed the final assessment order. This was also pursuant to the orders of this Court and without prejudice to the petitioner's rights. Parallel Proceedings : 120. The Advocate General submitted that the Writ Petition ought to be dismissed on the ground that the petitioner is not entitled to maintain parallel proceedings viz. the present Writ Petition and the proceedings before the authorities under the Act. As we noted earlier, the proceedi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urt dismissed the writ petition on the ground that it involved determination of disputed questions of fact. It was also observed that the High Court should not in exercise of its extraordinary jurisdiction grant relief to the appellant when he had an alternative remedy. After hearing Mr. Sobhagmal Jain on behalf of the appellant, we see no cogent ground to take a view different from that taken by the High Court. There cannot, in our opinion, be any doubt on the point that the extent of purity of the gypsum won by the appellant is a question of fact. It has also been brought to our notice that after the dismissal of the writ petition by the High Court, the appellant had filed a suit, in which he has agitated the same question which is the subject-matter of the writ petition. In our opinion, the appellant cannot pursue two parallel remedies in respect of the same matter at the same time." [emphasis supplied] The judgment does not support the Advocate General's submission that even if the alternate remedy is availed of after the filing of the Writ Petition without prejudice to the petition, the Writ Petition ought not to be entertained. That would depend on the facts and circums....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tax Act, there was a provision of an appeal against the order passed by the Sales Tax Tribunal and that the respondent had availed of the same. In the circumstances, the Supreme Court held that the High Court ought not to have entertained the Writ Petition. We would distinguish this judgment from the facts of the present case on the same ground as we did the judgment in Jai Singh v. Union of India [1977] 1 SCC 1 = AIR 1977 SC 898. 125. In Lionbridge Technologies Pvt. Ltd. v. Deputy Commissioner of Income Tax, Writ Petition (Lodg.) 2309 of 2011, a Division Bench of this Court, by an order and judgment dated 21st October, 2011, relegated the petitioner to the alternate remedy that it had already availed of. In that case, the AO had made a reference to the TPO and following the determination of the arm's length price by the TPO, the AO issued a draft assessment order to which the petitioner raised objections before the DRP. The DRP determined the same and the AO passed a final assessment order. The petitioner had challenged the order passed by the Dispute Resolution Panel. The Division Bench dismissed the Writ Petition holding had the petitioner had the remedy of an appeal again....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rules, 1961. Rule 6(2) states: "The conditions of service of a Welfare Officer shall be the same as of other members of the corresponding status in the factory; provided that, in the case of discharge or dismissal, the Welfare Officer shall have a right of appeal to the State Government whose decision thereon shall be final and binding upon the occupier." The appellant was heard by the State Government in support of his appeal and ultimately the State Government dismissed the appeal in its order dated the January 2, 1962. In these circumstances we are of opinion that the order of Respondent 4 dated the March 11, 1960 has merged in the appellate order of the State Government dated the January 2, 1962 and it is the appellate decision alone which subsists and is operative in law and is capable of enforcement. In other words the original decision of Respondent 4 dated the March 11, 1960 no longer subsists for it has merged in the appellate decision of the State Government and unless the appellant is able to establish that the appellate decision of the State Government is defective in law the appellant will not be entitled to the grant of any relief. There can be no doubt that if....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rticle 226 would be justified in entertaining a challenge to such an order even if it has merged in another order where the proceedings were pursued without prejudice to the petitioner's rights and/or pursuant to the orders of the Court granting the petitioner liberty to do so. In such cases, where a party takes recourse to the remedy by way of an appeal, review or revision, without prejudice to its rights and contentions or where the party is expressly permitted to do so by an order of the Court, the mere fact that it adopted such a remedy would not by itself be a ground to reject the challenge. We hasten to add that even in such cases, there is nothing that prevents a court from refusing to exercise its jurisdiction under Article 226 in the facts of a particular case. 130. In this case, we do not decline to exercise jurisdiction because the impugned order of the TPO and the draft order of the AO have merged in the order of the DRP and the final assessment order of the AO respectively. The orders were passed in proceedings the petitioner pursued without prejudice to its rights and pursuant to the orders of this Court. We decline to interfere in view of the fact that the TPO'....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... TPO is made. The inclination to interfere at the initial stage is greater only to avoid unnecessary waste of time and money which is bound to ensue by proceeding before a TPO who lacks inherent jurisdiction to consider international transactions suo moto under section 92CA(2A) and (2B). Once the proceedings before the TPO are concluded, the question of entertaining a Writ Petition even if he lacks inherent jurisdiction cannot arise and the assessee must be relegated to the remedies provided under the said Act. 132. This brings us to Mr. Salve's challenge to the proceedings specifically in respect of the two unreported transactions viz. the sale of the call centre business by the petitioner to HWP (India) and the assignment of the options under the two framework agreements dated 5th July, 2007. 133. The Advocate General firstly submitted that the TPO has jurisdiction to decide whether or not a transaction is an international transaction. Once it is held that the TPO has jurisdiction under section 92CA (2A) and (2B), it must follow that he has the jurisdiction to decide whether a transaction is an international transaction or not. That is so. However, as Mr. Salve rightly s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a transfer of the options. The judgment only identifies and indicates the issues between the parties on merits to establish that the resolution thereof ought to be left to the authorities under the Act - the ITAT - and in the facts and circumstances of the case ought not to be adjudicated in a petition under Article 226. If there is a more elaborate consideration of the respondents case, it is only towards this end and ought not to be construed as our having expressed a view in the respondents favour even prima-facie. There is indeed a lot to be considered in respect of the petitioner's case especially in view of the judgment of the Supreme Court in the Vodafone case. Re : (B) The TPO lacked any jurisdiction to go into the valuation of the sale of the call centre business pursuant to the BTA by the petitioner to HWP (India) as the same is a domestic transaction and cannot be deemed to be an international transaction. 135. We had referred to the SPA dated 11th February, 2007, the MOU dated 25th April, 2007 and the BTA dated 8th May, 2007. The relevant provisions of the SPA dated 11th February, 2007, are as follows :- "WHEREAS: (A) CGP is an indirect wholly-owne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gnments, the Confidentiality Agreement, the IDFC Framework Agreement and the GSPL Transfer Agreement; Vendor Group means the Vendor and its Affiliates from time to time but, for the purpose of this Agreement, shall not include the Wider Group and Vendor Group Company means any of them; Wider Group means CGP, GSPL, the Holding Companies and the Group and Wider Group Company means any one of them. .............. 1.15 Any agreement, covenant, representation, warranty, undertaking, obligation or liability arising under this Agreement on the part of two or more persons shall, unless expressly stated otherwise, be deemed to be made or given by such persons severally. ............... 2. SALE AND PURCHASE OF SHARE AND LOANS 2.1 Upon and subject to the terms and conditions of this Agreement, the Vendor hereby agrees to procure the sale of, and the Purchaser agrees to purchase, the Share free from all Encumbrances and together with all rights attaching or accruing to them at the date hereof (including the right to receive all dividends or distributions declared, made or paid on or after the date hereof). 2.2 Upon and subject to the terms and conditions of this Agreeme....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... TII Shareholders' Agreement or the SMMS Shareholders' Agreement or any of the options granted pursuant to such agreements have been triggered or exercised or if there has been any exercise of any rights or discretions under such agreements. ............... 8. COMPLETION Vendor's Completion Obligations 8.8 On Completion, the Vendor shall deliver or procure the delivery to the Purchaser (or as it may direct in writing) of: ............... (c) a duly executed transfer in respect of the Share in favour of the Purchaser or a nominee of the Purchaser, together with the relative share certificate; (f) written resignations in the Agreed Terms of each of the directors of each Group Company who was nominated for appointment by the Vendor from their respective offices, such resignations to take effect from the end of the next board meeting of the relevant Group Company; (j) the GSPL Transfer Agreement duly executed by the parties thereto. 8.13 If the provisions of Clauses 8.2 to 8.11 are not fully complied with by the Vendor or the Purchaser by or on the date set for Completion, the Purchaser (in the case of non-compliance by the Vendor) or the Vendor (in the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t shall have been completed (other than as may be approved in writing by the Vendor): (i) there shall be no change in the members of the board of directors of GSPL save where a director has to be removed from office because of misconduct; (ii) there shall be no change in the authorised and issued share capital of GSPL, nor any transfer or other disposal of any share capital in GSPL or any interest therein; (iii) there shall be no creation, allotment, issue or grant of any option to subscribe for any share capital or loan capital in GSPL or any other security giving rise to a right over the capital of GSPL; (iv) the power of attorney appointing the purchaser of the Call Centre Business as attorney for GSPL in connection with the Call Centre Disposal pursuant to the GSPL Transfer Agreement shall remain in full force and effect and shall not be revoked; and (v) no action shall be taken for the winding-up or dissolution of GSPL; and..... .............. 16.1 At any time after the date hereof each party shall, promptly upon being required to do so by the other party (the requesting party), and at the requesting party's expense, do or procure that there shall be done ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....L in CGP pursuant to the SPA. VIH BV, therefore, with effect from 8th May, 2007, directly held 100% of the share capital of the petitioner. The respondents contended that the intention between the contracting parties was that control of the shareholding of the petitioner would pass to the Vodafone Group prior to the transfer of the call centre business. The Advocate General contended that in the written submissions filed before us on 25th September, 2012, and 5th October, 2012, the petitioner for the first time took a stand that was contrary to its pleadings in this petition and before the TPO, the AO and the DRP to the effect that section 92B(2) was not applicable as the petitioner and HWP (India) were associated enterprises. 137. We also referred to the TPO's decision regarding the computation of the arms length price of the sale of the call centre business by the petitioner to HWP (India). The TPO in his order referred to the SPA and the BTA and construed sections 92B and 92F. This is what he held regarding the BTA. In the present case, there was an agreement between the AE (associated enterprise) of the assessee meaning thereby VIH BV and the AE of HWP (India), mean....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en 2 Indian parties happened because of prior agreement between HTIL, CI and Vodafone, BV by virtue of global agreement. Therefore, HWP India acted under the agreement with AE of assessee being affiliate to HTIL, CI." The TPO came to the conclusion that the value of the call centre business hitherto owned by the petitioner was far in excess of the apparent consideration of Rs.64.00 crores paid by HWP (India) to the petitioner. A similar call centre with only 260 employees had been purchased by the petitioner for Rs.160.00 crores. The call centre business transferred by the petitioner under the BTA consisted of 7000 employees. The TPO accordingly determined the arm's length price in excess of Rs.2414.00 crores. The Advocate General submitted that the short fall of Rs.2350.20 crores would have rightly accrued to the petitioner and would have been taxed as a capital gain. The TPO determined the arm's length price per share to be Rs.4,87,797/-. After noting that the sale consideration shown was only Rs.64 crores, he determined the shortfall to be Rs.23,50,20,43,185/- and, accordingly, made an adjustment in that sum in respect of the sale of the call centre business by the petitioner....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. [Explanation.- For the removal of doubts, it is hereby clarified that- (i) the expression "international transaction" shall include- (a) the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....relevant transaction are determined "in substance" between such other person and the associated enterprise it is sufficient. The words "in substance" indicate quite clearly that each transaction would have to be considered on its own facts. In other words, the authorities would have to consider whether the terms and conditions of a particular relevant transaction were determined "in substance" between the other person and the associated enterprise. The decision would depend upon the facts and circumstances of each case. 141. According to the respondents, section 92-B(2) would operate in this case in the following manner. The relevant transaction is the BTA dated 8th May, 2007 for the sale of the call centre business the signatories to which are the petitioner and HWP (India). The petitioner, an Indian company, is the "enterprise". The "person other than an associated enterprise" is the Hutchison group, which includes not merely the signatory to the BTA viz. HWP (India) - an Indian company, but also HTIL, which is a non-resident. The "associated enterprise" is VIH BV, also a non-resident. The SPA dated 11th February, 2007 is the prior agreement in relation to the relevant tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the call centre or even the execution of the BTA. Absent, therefore, in this case are the essential conditions of section 92B (2). Lastly, even assuming these three questions are answered against the petitioner, it would make no difference as the petitioner and HWP (India) were, in any event, associated enterprises when the BTA was entered into/the call centre business was sold. 145. The first two contentions are dealt with together. The petitioner's case is this. The petitioner and HWP (India) are Indian companies. The call centre business was therefore, transferred by the petitioner, an Indian company, to HWP (India), another Indian company. Section 92-B requires at least one of the parties to be a non-resident. As both the parties to the transaction were Indian companies, section 92-B did not apply. There was no agreement between HWP (India) and the associated enterprise of the petitioner viz. VIH BV. The findings to the contrary are perverse and without jurisdiction. The reliance by the TPO upon the doctrine of substance over form and lifting of corporate veil had been negatived by the Supreme Court in Vodafone International Holding BV v. Union of India and another (201....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 149. The petitioner was admittedly a part of Hutchison group. Although it was not a signatory to the SPA so far as the transaction relating to the sale of the call centre is concerned, it may well, therefore have been required to sell the same as per the terms of the SPA itself, including under clause 8.8 and or 10.1 thereof. Upon the sale, it would be entitled to the benefits in respect thereof including the payment of the consideration. 150. The respondents invoked the group of companies doctrine based upon the judgment of the Supreme Court in Chloro Controls (I) P. Ltd. v. Severn Trent Water Purification Inc. (Appeal No.7135-7136 of 2012). The Advocate General also relied upon the judgment in Pankaj Aluminium Industries (P) Ltd. v. Bharat Aluminium Co. Ltd. [2011] 166, Comp. Cas. 64 (Del.) (paragraphs 21 and 26) and Rajesh & Co. v. Ravissant P. Ltd. [2012] 173 Comp. Cas. 451 (Del.), (paragraph 6.) The Supreme Court observed that in the international context, a doctrine had been developed whereby an arbitration agreement entered into by a company being one within a group of companies can bind its non-signatory affiliates or sister or parent concerns if the circumstances....
X X X X Extracts X X X X
X X X X Extracts X X X X
....neral in respect of his contention that the SPA was the prior agreement in relation to the transaction pertaining to the sale of the call centre business i.e. BTA. We will refer to these clauses later. 154. The Advocate General also contended that HTIL, in any event, was an agent of HWP (India) in respect of the SPA as far as it related to the said transaction. Agency is a question of fact and, in any event, a mixed question of law and of fact. Although HWP (India) was not a signatory to the SPA, it would be open to the department to establish that HWP (India) constituted HTIL as its agent and/or authorized HTIL to make representations on its behalf in the SPA regarding all the terms and conditions of the SPA relating to the sale of the call centre business. If that is established, prima-facie at least it would indicate that HWP (India) had, so far as the sale of the call centre business is concerned, entered into the transaction with VIH BV. The requirements of a prior transaction in section 92-B would then be met. 155. For the purposes of section 92-B, it is not necessary that the associated enterprise of the enterprise and the third party are signatories to the prior agree....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the petitioner complies with its obligations under the GSPL Transfer Agreement. Thus the SPA expressly contemplated the possibility of VIH BV being required to ensure that the petitioner would comply with its obligations under the GSPL Transfer Agreement. It would follow that the SPA contemplated the formation of the GSPL agreement for without the formation of the agreement, there would be no question of compliance of the obligations therein. Clause 10.2 goes a step further and requires HTIL to indemnify and hold harmless not merely the purchaser but also the purchaser as an agent for any member of its group against any loss (other than in relation to taxation) incurred or sustained as a direct result of the call centre disposal and any net liability (excluding any liabilities to taxation) arising as a result of the continuation of the business of the petitioner in the ordinary and usual course, save and except to the extent that any such loss or liability arises as a result of any act or omission including any breach of the GSPL Transfer Agreement by GSPL following completion. Such indemnities posit or, in any event, are likely to posit a transaction/agreement. 162. Claus....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Vodafone group. Upon the sale of the CGP share, the petitioner became a part of the Vodafone group. Till then, it was a part of the HTIL group. If the petitioner and HWP (India) were associated enterprises, sub-section (2) of section 92-B would not apply for the BTA, then could not be said to be a transaction entered into between an enterprise with a person other an associated enterprise. 167. The terms and conditions of the SPA and the BTA themselves indicate that the question whether the BTA preceded the SPA or not is arguable and requires consideration not merely as a question of law but as a question of fact as well. It is sufficient to furnish only a few illustrations. 168. Clause 1.1 defines the completion to mean inter-alia completion of the sale and purchase of the share. The share in turn is defined as the one ordinary share of CGP. Clause 8 deals with the completion. The caption to clause 8.8 is "Vendor's Completion Obligations". Clause 8.8 opens with the words "On Completion". Read with the definition of "completion", these words would mean on completion of the sale and purchase of the CGP share. It is arguable therefore, that what follows in clause 8.8 is upon th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egotiated and entered into a definitive independent agreement. The sale of the call centre business was thus negotiated and was not brought about by the BTA. It is, therefore, contended that there was no international transaction. The MOU cannot be attributed to the petitioner acting as a representative of a third party in selling the call centre and therefore, the third party test in section 92-B(2) was never satisfied. Lastly, it is submitted that the department had abandoned the reasonings of the TPO and has adopted/supported the reasonings of the AO. The AO came to the conclusion that the transfer of the call centre business was after the petitioner became a Vodafone group company. This conclusion, it is contended, is patently flawed as it overlooks the sequence of clause 8 of the SPA. 172. The Advocate General however, contended that the MOU is ante dated. He stated that the petitioner had tendered a copy of the unsigned and undated draft MOU to the TPO on 25th October, 2011. On 15th December, 2011, the petitioner along with its submission to the AO submitted a copy of a MOU purported to have been signed on 25th April, 2007. He contended that the terms of the two drafts of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....). (b) In consideration for the grant of the exclusivity under Paragraph 6(a) above and to demonstrate its intention to conclude the negotiation of the Definitive Agreement within the Exclusivity Period, HWP shall pay to 3GSPL within 10 days after the execution of this MoU an amount of Rs. 640,000,000 ("Good Faith Payment"). If this MoU is terminated for whatever reason by either Party other than as a result of the Parties signing the Definitive Agreement, then 3GSPL shall immediately refund or procure that there is refunded to HWP (or as it may direct in writing) the Good Faith Payment. Upon the Parties entering into the Definitive Agreement within the Exclusivity Period, the Good Faith Payment shall be automatically applied and be deemed to satisfy HWP's obligation to pay the Purchase Price for the Business pursuant to the terms of the Definitive Agreement." Clause 6(a) indicates that the parties were yet to agree upon the terms of the BTA. Further this was required to be done within 90 days. Thus even assuming that the MOU was executed on 25th April, 2007, as alleged by the petitioner, the period of 90 days was to expire around 25th July, 2007 i.e. much after the transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1. The Advocate General also relied upon the petitioner's objections contained in its Chartered Accountant's letter dated 15th December, 2011, addressed to the Assistant Commissioner of Income-tax - AO. The Advocate General relied upon grounds F, N, and U(iv) under the caption "OBJECTIONS WITH RESPECT TO CALL CENTRE BUSINESS SALE TRANSACTION". In ground F, the objection was on the basis that the BTA had been entered into between the resident entities. The further contention in this ground was that the BTA was not a transaction between the associated enterprises. In ground N, it was contended that the TPO erred in ignoring the separate existence of VIH BV and the petitioner on the one hand and HTIL and HWP (India) on the other. In ground U(iv), a grievance was raised that it was unclear as to why the TPO had ignored the "independent existence of HWP (India) and VISPL (petitioner) separate and apart from their respective holding companies". 182. It is unnecessary to refer to the judgments relied upon by the Advocate General in respect of his submission that admissions in pleadings stand on a higher footing than evidentiary admissions, and are binding on the party that makes them a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctured their transaction in the manner in which they actually did. The petitioner and HWP (India) could indeed have entered into a transaction for the sale of the call Centre business much before the SPA was even contemplated. If, however, they did not do so, the Income Tax Authorities are entitled to proceed on the basis of the transactions as they occurred. The relevant question is whether the call centre business was sold before or after the sale of the CGP share. If it was after, the authorities would be entitled to consider the petitioner as being in the Vodafone group. 188. Mr. Salve submitted that in view of clause 13(c) of the SPA, it is irrelevant whether the sale of the CGP share preceded the sale of the call centre business or not. At the point of time when the BTA was signed, HTIL directors were still on the Board of Directors of the petitioner. Thus the petitioner at that point of time viz. when the BTA was signed was still an affiliate of HTIL and not of VIH BV and therefore, the petitioner and HTIL were associated enterprises when the BTA was signed. Thus section 92-B did not apply to the sale of the call centre business, as the transaction was between the two ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ioner and HWP (India) were associated enterprises during the previous assessment year i.e. assessment year 2008-2009, section 92-B (2) would not apply. Section 92-A(2)(a) provides that for the purposes of sub-section (1) of section 92-A(2), enterprises shall be deemed to be associated enterprises, if, at any time during the previous year, one enterprise holds directly or indirectly, shares carrying not less than 26% of the voting power in the other enterprise. During the previous year 2008-2009, HTIL held more than 26% of the voting power in the petitioner and HWP (India). Accordingly, the petitioner and HWP (India) were, for the purpose of section 92-A(2)(a) associated enterprises. This deeming provision of associated enterprises is for the purpose of sub-section (1) of section 92-A, which in turn provides for the meaning of associated enterprise inter-alia for the purpose of section 92-B. Mr. Salve submitted that during the previous year, a company could have been an associated enterprise of a number of companies on account of the change in the share holding or a reconstitution in the Board of Directors. In a year of transition, a company can, therefore, be an associated enterpri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... he "clutched at jurisdiction" or that his decision with respect to the jurisdictional facts was "so patently and loudly obtrusive" that it has left on it "an indelible stamp of infirmity or vice which cannot be obliterated or cured on appeal or revision" and, therefore, warrants interpretation in a writ petition. There are several issues of fact and of law on every material aspect which must be considered by the authorities under the Act. This is not a fit case for invoking the extra-ordinary jurisdiction under Article 226. Re: (C) The rewriting of the call options in July, 2007 did not constitute an assignment of options and thus there is no international transaction of the kind alleged. This issue stands settled by the judgment of the Supreme Court in the case of Vodafone International Holdings B.V. v. Union of India & Anr., [2012] 341 ITR 1. 196. We referred earlier to the two Framework Agreements (FW Agreements) dated 1st March, 2006 and to the subsequent corresponding FW Agreements dated 5th July, 2007. When the SPA was entered into Asim Ghosh and his group of companies and Analjit Singh and his group of companies held 23.97% and 38.78% shares in the Telecom Investme....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at any time after the Subscription Notice is issued, then GSPL shall, in its absolute discretion, have the option to withdraw the Subscription Notice or complete thereunder. 4.9 Assignability or Transfer of Rights The Parties agree that the Subscription Option (all or part only) may be freely assigned or transferred by GSPL without the consent of the other Parties, that the Call Option set out in Clause 4.4 may be assigned or transferred only to an Affiliate of GSPL, without the consent of Goldspot, and that the Put Option set out in Clause 4.3 may not be assigned or transferred without the prior written consent of GSPL." (B) An identical agreement titled "Framework Agreement" also dated 1st March, 2006, was entered into between the petitioner, one Analjit Singh and three companies ultimately controlled by him viz. Scorpios Beverages Private Limited, M.V. Health Services Private Limited and N.D. Callus Info Services Private Limited. The operative clauses, it was agreed, are identical to those of the "Centrino Framework Agreement". 198(A). In the corresponding Centrino Framework agreement dated 5th July, 2007 "Completion date" is defined in clause 1 to mean 8th May, 200....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tly through his interest in TII, any equity interest in HEL, or, if earlier, 7 May 2017. The Option Payment shall be paid by GSPL or any of its Affiliate by wire transfer to AG's bank account in India designated by AG in advance." (B) The Framework Agreement dated 1st March, 2006, with Analjit Singh was also referred to earlier. A new Framework Agreement dated 5th July, 2007, was entered into between the parties to the corresponding 1st March, 2006, Framework Agreement, similar to the Asim Ghosh Framework Agreement dated 5th July, 2007. The amount payable to Analjit Singh, however, was US $ 10.2 million per annum. In this agreement also, VIH BV was an additional party, referred to as a confirming party. 199. We also referred to the TPO having called upon the petitioner to show cause why the assignment of the right of call options by the petitioner to its associated enterprise or subsidiaries of the associated enterprise had not been disclosed as an international transaction and that he requested the petitioner to give the arm's length price in respect thereof. The TPO in the impugned order dated 31st October, 2011, dealt with the FW Agreements with reference to the ones enter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ively to keep the call options alive. The payment of this amount was as per the documents to be made by the petitioner. However, the amounts had in fact been paid by VIH BV. VIH BV had not treated this amount as a debt. This shows that the options were held by the petitioner - assessee for the benefit of its AE viz. VIH BV. The FW Agreements of the year 2007 were entered into pursuant to the SPA. The doctrines of lifting the corporate veil and substance over forms are applicable. The substance of the transaction was for VIH BV to acquire HTIL stake in Hutchison Essar Limited. It follows therefore that the petitioner had assigned its right of call option to VIH BV for no consideration. This was an international transaction which the assessee failed to report. The TPO invoked the provisions of section 92-C(3) and determined the ALP of the transaction. Analjit Singh and his group companies and Asim Ghosh and his group companies held 7.57% and 4.68% of shares in Hutchison Essar Limited. The TPO computed the ALP of the aggregate of 12.25% at Rs.6178,88,26,177/-. 200. The petitioner challenged the findings of the TPO before the AO. The AO by his draft assessment order dated 29th Decem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f this Court by an order and judgment dated 8th September, 2010 dismissed the writ petition (2010) 329 ITR 126 (Bom). Thereafter the notice was issued under section 163 of the said Act, calling upon VIH BV to show case why it should not be treated as an agent/representative assessee of HTIL. The Supreme Court by its order and judgment dated 20th January, 2012 over ruled the judgment of the Division Bench of this Court. 202. The Framework agreements of 1st March, 2006 and 5th July, 2007 were specifically referred to in the judgment. The extent of the shareholding in HEL pertaining to these agreements and the amounts payable to Analjit Singh and Asim Ghosh thereunder were also referred to. The judgment refers to the call options to acquire 15.03% proportionate indirect equity ownership of HEL as call options were also granted under other Framework agreements with which we are not concerned. The nature of the Framework agreements was discussed and clause 4.4 of the 5th July, 2007 Framework agreement was specifically referred to and construed. Mr. Salve relied upon the following observations in the judgment delivered by Chief Justice Kapadia and Justice Swatanter Kumar (as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompanies worked as a group since 1994. That, as a practice, the subsidiaries did comply with the arrangement suggested by the group holding company in the matter of voting, failing which the smooth working of HEL generating huge revenues was not possible. In this case, we are concerned with the expression "capital asset" in the income-tax law. Applying the test of enforceability, influence/persuasion cannot be construed as a right in the legal sense. One more aspect needs to be highlighted. The concept of "de facto" control, which existed in the Hutchison structure, conveys a state of being in control without any legal right to such state. This aspect is important while construing the words "capital asset" under the income-tax law. As stated earlier, enforceability is an important aspect of a legal right. Applying these tests, on the facts of this case and that too in the light of the ownership structure of Hutchison, we hold that HTIL, as a group holding company, had no legal right to direct its downstream companies in the matter of voting, nomination of directors and management rights. As regards continuance of the 2006 shareholders/ framework agreements by SPA is concerned, one ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... standstill in the SPA and so also the provision for transition. But, from that, it does not follow that without SPA, transition could not ensue. Therefore, in the SPA, we find the provisions concerning vendor's obligations in relation to the conduct of business of HEL between the date of execution of the SPA and the closing date, protection of investment during the said period, agreement not to amend, terminate, vary or waive any rights under the framework/ shareholders agreements during the said period, the provisions regarding running of business during the said period, assignment of loans, consequence of imposition of prohibition by way of injunction from any court, payment to be made by VIH to HTIL, giving of warranties by the vendor, use of Hutch Brand, etc. The next point raised by the Revenue concerns termination of the IDFC framework agreement of 2006 and its substitution by a fresh framework agreement dated June 5, 2007, in terms of the SPA. The submission of the Revenue before us was that the said agreement dated June 5, 2007 (which is executed after the completion of acquisition by VIH on May 8, 2007) was necessary to assign the benefits of the earlier agreements of 200....
X X X X Extracts X X X X
X X X X Extracts X X X X
....we find that HTIL had, through its 100 per cent. wholly owned subsidiaries, invested in 42.34 per cent. of HEL (i.e., direct interest). Similarly, HTIL had invested through its non-100 per cent. wholly owned subsidiaries in 9.62 per cent. of HEL (through the pro rata route). Thus, in the sense of shareholding, one can say that HTIL had an effective shareholding (direct and indirect interest) of 51.96 per cent. (approx. 52 per cent.) in HEL. On the basis of the shareholding test, HTIL could be said to have a 52 per cent. control over HEL. By the same test, it could be equally said that the balance 15 per cent. stakes in HEL remained with AS, AG and IDFC (Indian partners) who had through their respective group companies invested 15 per cent. in HEL through TII and Omega and, consequently, HTIL had no control over 15 per cent. stakes in HEL. At this stage, we may state that under the Hutchison structure shares of Plustech in the AG group, shares of Scorpios in the AS group and shares of SMMS came under the options held by GSPL. Pending exercise, options are not management rights. At the highest, options could be treated as potential shares and till exercised they cannot provide right ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....34 per cent. ; CGP India (Ms), which in turn held shares in TII and Omega and which on a pro rata basis (the FDI principle), totalled up to 9.62 per cent. in HEL and an indirect control over Hutchison Tele-Services (India) Holdings Ltd. (Ms), which in turn owned shares in GSPL, which held call and put options. Although the High Court has analysed the transactional documents in detail, it has missed out this aspect of the case. It has failed to notice that till date options have remained unencashed with GSPL. Therefore, even if it be assumed that the options under the framework agreements 2006 could be considered to be property rights, there has been no transfer or assignment of options by GSPL till today. Even if it be assumed that the High Court was right in holding that the options constituted capital assets even then section 9(1)(i) was not applicable as these options have not been transferred till date. Call and put options were not transferred, vide SPA dated February 11, 2007, or under any other document whatsoever .............. ......................Further, the High Court has failed to examine the nature of the following items, namely, non-compete agreement, control pre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re set up by Hutchison as a single consolidated bargain and interpret the transactional documents, while examining the offshore transaction of the nature involved in this case, in that light." Mr. Salve also placed considerable reliance upon the following paragraphs in the concurring judgment delivered by Radhakrishnan, J. "229. HTIL had 15 per cent. interest in HEL by virtue of FWAs, SHAs call and put option agreements and subscription agreements and not controlling interest as such in HEL. HTIL, by virtue of those agreements, had the following interests : (i) Rights (and options) by providing finance and guarantee to Asim Ghosh group of companies to exercise control over TII and indirectly over HEL through TII shareholders agreement and the Centrino framework agreement dated March 1, 2006 ; (ii) Rights (and options) by providing finance and guarantee to Analjit Singh group of companies to exercise control over TII and indirectly over HEL through various TII shareholders agreements and the N.D. Callus framework agreement dated March 1, 2006................ ............ 235. Vodafone, on acquisition of CGP, is in a position to replace the directors of holding comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and Vodafone have, of course, had the interest to see the SHAs and FWAs, be put in proper place but that interest cannot be termed as property rights, attracting capital gains tax. 238. We have dealt with the legal effect of exercising call option, put option, tag along rights, RoFR, subscription rights and so on and all those rights and obligations we have indicated fall within the realm of contract between various shareholders and interested parties and in any view, are not binding on HTIL or Vodafone. Rights (and options) by providing finance and guarantee to AG Group of Companies to exercise control over TII and indirectly over HEL through TII SHA and Centrino FWA dated March 1, 2006, were only contractual rights, as also the revised SHAs and FWAs entered into on the basis of SPA. Rights (and options) by providing finance and guarantee to AS group of companies to exercise control over TII and indirectly over HEL through various TII SHAs and N. D. Callus FWA dated March 1, 2006, were also contractual rights, and continue to be so on entry of Vodafone. ............ 241. Fresh set of agreements of 2007 as already referred to were entered into between IDFC, AG, AS, 3GSPL ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se") (2012) 341 ITR 1 and are even otherwise perverse. The Supreme Court rejected the argument on behalf of the Revenue that the options vested in HTIL under the 2006 FW Agreements and were transferred in favour of VIH BV by the 2007 FW Agreements. Mr. Salve submitted that when VIH BV was before the FIPB it had become necessary to review the fair market value in a manner that the Indian shareholders got a higher price at the time of exit. Accordingly, the new FW Agreements of 5th July, 2007 were executed. The rewriting of the agreements was due to the regulatory requirements and were not transactions at all, much less were they international transactions. Thus, the findings of the TPO that the options were assigned to and vested in VIH BV by virtue of the 2007 Framework agreements are contrary to the findings of the Supreme Court. The Supreme Court also rejected the application of the doctrines of lifting the corporate veil and substance over form in that case. Thus, even the basis of the findings viz. by lifting the corporate veil and invoking the doctrine of substance over form was contrary to the judgment of the Supreme Court. The difference between clause 4.4 in the 2006 Framew....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h respect to the Framework agreements constituted findings on a question of law. It cannot, therefore, be suggested that they were casual observations as suggested on behalf of the respondents. The contention that Vodafone obtained something valuable under the Framework agreements are contrary to the judgment of the Supreme Court and cannot be revisited. Although the statutory principles of estoppel do not apply to tax proceedings, the Court ought not to encourage re-opening issues settled by the Supreme Court (M/s. Radhasoami Satsang, Saomi Bagh, Agra v. Commissioner of Income Tax [1992] 1 SCC 659). It is improper and unfair of the department to raise the same question despite the same having been considered and answered by the Supreme Court in the Vodafone case. 204. Mr. Salve did not deny that the call options were very valuable. He admitted that Vodafone indirectly obtained a degree of persuasive control over these call options consistent with a holding - subsidiary relationship. He, however, submitted that this was achieved by the transfer of the CGP share which shifted the persuasive control from HTIL to Vodafone. The same did not lead to a taxable transaction in India ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rty and whether such rights stood transferred/assigned to VIH BV upon the execution of the SPA or upon the transfer of the CGP share to VIH BV by HTIL so as to constitute a taxable transfer of the assets of VIH BV in India. The Advocate General submitted that there was, therefore, no issue before the Supreme Court as to whether apart from the SPA or the transfer of the CGP share any rights were conferred upon VIH BV under the 2007 Framework agreements. He contended that this was not relevant to the issues before the Supreme Court which is evident from the fact that the 2007 Framework agreements were executed after the SPA and after the CGP share was transferred. 207. As Mr. Salve rightly submitted, the Supreme Court did consider the Framework agreements. One of the reasons it was necessary for us to refer to the relevant portions of the judgment of the Supreme Court in detail was to indicate that the provisions of the Framework agreements were not only considered but were not only considered but were also construed by the Supreme Court in detail. We cannot accept the respondents suggestion. It is not possible for a High Court to come to the conclusion that the Supreme Court d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt proceedings. That, however, can and in the facts of this case ought to be done by the authorities under the Act. It could have been done even by the TPO and the AO. Their orders were, however, passed prior to the judgment of the Supreme Court and the occasion for them to consider this judgment does not arise at this stage. It will, however, be necessary for the ITAT to do so. We see no reason to short-circuit the proceedings in this regard as there are or are likely to be other aspects including facts which will also require consideration. 210. The matter regarding the petitioner's assessment, however, does not end there. It does not end there although the judgment in Vodafone's case assists it to a considerable degree. There are other additional aspects which require consideration. 211. We observed earlier that we are not entitled to restrict the ambit of the observations of the Supreme Court in paragraph 88 of the judgment and in particular the words "or any other document whatsoever". That would not, however, prevent the respondents in proceedings pertaining to the petitioner who was not a party to the proceedings before the Supreme Court from relying upon any other fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India." Explanation 2 was introduced with retrospective effect from 1st April, 1962. 213. The amendment to section 2(47) raises several important questions of fact and of law. Whether or not it affects the proceedings which were the subject matter before the Supreme Court is not relevant for the purpose of this Writ Petition. But, whether it is relevant or not for the purpose of the assessment proceedings in respect of the petitioner which are the subject matter of this Writ Petition, is relevant. The effect of the amendment would have to be considered. It cannot be brushed aside. 214. Section 2(47), as amended, even on a cursory glance ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lusion whether the terms and conditions of the Framework agreement constituted a transfer or assignment of the call options by one party to another. 217. At the cost of repetition, we are not concerned here with whether the amendment is valid or not. One of the issues, however, that does arise is whether the amendment, albeit clarificatory, would make a difference in the construction of the provisions of the Framework agreements themselves, to wit as regards the construction of the clauses thereof without the aid of any other material for interpreting them. Vodafone's case obviously considered the ambit of the term "transfer" prior to the amendment. In the present assessment proceedings, it is the amended definition which would have to be considered. 218. We do not find it either necessary or proper to indicate the application of section 2(47) as amended to the present proceedings. The application would depend upon the facts on record or those may be permitted to be brought on record. 219. There is another aspect. The petitioner may well contend that the amended definition makes no difference it being clarificatory in nature. The provisions thereof must, therefore, be deem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce between the Vodafone case and the case before us. We have already referred to the proceedings that led to Vodafone challenging the order under sections 195, 201(1) and 201(1A). In the Vodafone case, the Revenue proceeded on the basis of a concession and on a demurer. The Revenue did not raise the defence of an alternative remedy that was available to VIH BV even in that case. It was agreed by both the learned counsel that even in that case, VIH BV had an alternate remedy of challenging the notices before the CIT (Appeals). The Revenue, however, invited the Supreme Court to proceed on the basis of the record available in the Writ Petition. It is not open to this Court to speculate or even try and speculate the decision, had the defence of an alternate remedy been taken. However, in the case before us, the defence of an alternate remedy has not only been taken, but has been taken in a very substantial manner and we have found the same to be well founded. In other words, the Revenue in the case before us has not invited a decision on the merits of the matter alone. That they defended the contentions on the merits is irrelevant. 224. We are conscious of the fact that in the earl....