TaxTMI 
TaxTMI 
2015 (10) TMI 2487
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....aring and final disposal. Once the appeal itself is disposed of, we wish to clarify, the application for stay will not survive. 2 This appeal of the appellant-assessee challenges the order passed by the Income Tax Appellate Tribunal, Bench at Mumbai, dated 10th December, 2014, in Income Tax Appeal No.7514/Mum/2013. The assessment year is 2008-09. The appeal invokes section 260-A of the Income Tax Act, 1961 (for short "IT Act") and raises the following substantial questions of law : (1) Whether the Tribunal had the jurisdiction to arrive at a finding that there was transfer of rights, on a basis that was neither set out in the draft order of assessment, the order of the TPO, or the order of the DRP -thereby negating the entire scheme of assessment created by law in respect of assessees subjected to transfer pricing assessment? (2) Whether the Tribunal misread and mischaracterized the issues decided by the Hon'ble Supreme Court in VIH BV vs. Union of India & Anr. (2012) 341 ITR 1, and thereby erred in law in holding that it is not bound by that judgment? (3) In the alternative, even assuming that the issue of transfer of rights did not directly arise before the Hon....
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....n when the Respondent did not invite the Tribunal's judgment on the TII Shareholders' Agreement? (11) Whether the Tribunal was misconceived in law in admitting the TII Shareholders' Agreement without considering its relevance in view of the directions of this Hon'ble Court in 359 ITR 133? (12) Whether the Tribunal failed to appreciate that the call and put options under the TII Shareholders' Agreement were contingent upon the exercise of the rights vested with the appellant in the 2007 FWAs and, therefore, the rights remained inchoate and unexercised pending actual exercise under the 2007 FWAs? (13) Whether the Tribunal erred in law in holding that the grant of call option under 2007 FWAs against consideration is an international transaction as per section 92B read with Section 92F(v) when the Tribunal itself held that there has This Order is modified/corrected by Speaking to Minutes Order dated 23/12/2015 not been any assignment under the 2007 FWAs? (14) Whether the Impugned Order is erroneous in law as even though it has held that the assignment is from the appellant to CGP India Investments Limited it holds that the international transaction is between the appellant ....
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....us was incorporated as a private limited company on 16th March, 1999 under the name and style of 3 Global Services Private Limited (for short "3GSPL") as a wholly owned subsidiary of a Mauritian entity, namely, Hutchison Teleservices (India) Holdings Limited. The said HTIL was in turn a wholly owned subsidiary of CGP Investment Holdings Limited, Cayman Islands (CGPC). 5 Until 8th May 2007, CGPC was held by HTI (BVI) Holdings Limited, a company incorporated in British Virgin Islands which in turn was ultimately controlled by Hutchison Telecommunication International Limited, Cayman Island (for short "HTIL"). Accordingly, the appellant was an entity of the Hutchison group of companies, which was carrying on business of telecommunication in India through its subsidiary since 1992. A copy of the shareholding structure chart of HTIL i.e. Hutchison Telecommunication Limited, Cayman Islands is annexed as Annexure B to the Memo of Appeal. The claim of the appellant is that until 8th May, 2007, it was an indirect subsidiary of HTIL, a company whose shares were listed in the Stock Exchange in Hongkong in 2007. Further, HTIL was an indirect subsidiary of Hutchison Whampoa Limited (for shor....
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....Limited (for short "HEL"). Under the 2006 Framework Agreements, the appellant was also conferred an option to subscribe itself or to assign and affiliate the rights to subscribe to equity in certain identified group companies of AS and AG which companies held directly or indirectly, equity shares in the Indian telecom operating company VIL. In addition to the call option rights in favour of the appellant, AS and AG had the put option right which obligated the appellant to purchase the shares of AS and AG group company upon exercise of such put option rights by AS and AG. Annexures C and D to the appeal paper-book are copies of these Framework Agreements with the AS and AG group of companies. 7 On the same date, a Shareholders Agreement was executed between the shareholders in Telecom Investments India Private Limited (for short "TII") i.e. Nadal Trading Company Pvt. Ltd. (for short "Nadal") , ND Callus Info Services Private Limited (for short "ND Callus") and CGP India Investments Limited (for short "CGP India"). TII was an Indian company holding directly or indirectly 19.54% stake in VIL. This agreement granted call option rights to CGP India and put options to Nadal and ND Cal....
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....ions under the call options were retained entirely. They were thus intact. The further plea is that the reason for the Framework Agreements with Asim Ghosh and Analjit Singh being re-drawn in July, 2007 was that following the course of the Foreign Investment Promotion Board (for short "FIPB") process undergone by VIH BV in connection with the SPA, a new consideration was agreed between the parties. The appellant, by letter dated 9th April, 2007, had confirmed to the FIPB regarding the revision of the consideration to be paid under the revised Framework Agreement. Annexures H, I and J are the copies of the above referred documents. 10 The appellant, in paragraph 23 of the Memo of Appeal states that the re-writing of the 2007 Framework Agreements and particularly the amended clause 4.4 relating to call options are relevant for the purpose of the present statutory appeal. Under this amended clause 4.4, prospective nominee was included and the appellant retained the sole discretion to appoint a nominee to acquire the shares held by AS and AG in their group companies that indirectly held stake in the operating company, namely, VIL. 11 The TII share holders agreement dated 1st Marc....
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....d thus proceeded to treat VIH BV as an assessee-in-default under Section 201(1) of the Act for (alleged) non-deduction of tax at source under Section 195 of the Act. Against the said order dated 31st May 2010 of ADIT, VIH BV filed a Writ Petition No. 1325 of 2010 before this Hon'ble Court. The Income tax Department's case was that HTIL transferred 66.98% equity interest in the Indian telecommunications company in India and was therefore, liable to capital gains tax and that the said 66.98% included, 15.03% interest through call options held by the appellant. This Hon'ble Court vide its order and judgment dated 8th September, 2010, held that the transfer of the share capital of CGPC and the related controlling rights was a transfer of a capital asset outside India, but that some rights and entitlements, particularly, the call and put options under the Framework Agreements with AS, AG and IDFC Group were transferred in India and were part of the consideration paid by VIH BV to HTIL and therefore, constituted capital assets situate in India, and thus upheld the jurisdiction of the Income Tax Department to proceed against VIH BV. A copy of the judgment of this Hon'ble Court dated 8th S....
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....uded the Valuation Reports obtained from two independent valuers namely, KPMG and S.R. Dinodia in relation to valuation of options under the Framework Agreements, the Share Purchase Agreement in relation to the purchase of shares of AS and AG group companies by CGP India Investments Ltd, pursuant to the exercise of put option by AS and AG in 2009 and the approvals obtained from FIPB in relation to the same, were all filed before the Hon'ble Supreme Court and a specific pleading in relation to the subsequent exercise of put option was made before the Supreme Court in the amended SLP. Also, filed before the Hon'ble Supreme Court was a presentation of Goldman Sachs which was presented before the FIPB at the time of seeking approval to the transaction under the SPA, wherein VIH BV had specifically undertaken to revise the Framework Agreements based on the fair market value determined in the Goldman Sachs presentation. Copies of VIH BV's submissions dated 19th October, 2010 alongwith the FIPB approvals and the Share Purchase Agreements, Assessing Officer's quantification order dated 22nd October, 2010, Hon'ble Supreme Court's order dated 26th November, 2010, VIH BV's Application for urg....
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.... submitted that under clause 4.4 of the 2007 Framework Agreements, the right of call option remained with the appellant and therefore, since there was no assignment of the call option right by the appellant, there was no question of proving arm's length in respect of the alleged transaction and/or valuation of the rights of the appellant allegedly transferred by the appellant. The TPO, rejecting the submissions of the appellant and without providing any opportunity to the appellant of the comparable it sought to rely on for computing the arm's length price of the alleged transaction, passed the transfer pricing order on 31st October, 2011, holding that in the 2007 Framework Agreements, VIH BV became a party and Clause 4.4. was also changed and any wholly owned subsidiary of Vodafone Group Plc was added, which clearly shows that the rights for call options have been assigned to appellant's associated enterprise. The TPO used the valuation of options under the assignment of cashless option by IDFC Investors to the appellant (whereby the appellant acquired the right over 0.1234% of VIL shares) for a consideration of Rs. 62.24 Crores as the internal CUP for valuation of alleged assignm....
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....the appellant, i.e., VIH BV became a party to the 2007 Framework Agreements and the call option clause 4.4 was also changed and any wholly owned subsidiary of Vodafone Group Plc was added in the new framework agreement of 2007, the appellant has clearly assigned its right to call option to its AE for no consideration. Further, the AO took the value of alleged consideration as computed by the TPO. The TPO had taken a 'nil' cost of acquisition while computing the ALP. However, the AO took the cost of acquisition at US$ 16.5 million (=Rs. 73,44,15,000), the amount paid by VIH BV towards option fee under clause 4.4 of the 2007 Framework Agreement and thereby computed short capital gain of Rs. 6105,44,11,177/-. It is important to note here that the case of the AO was also restricted to the mere re-writing of the 2007 FWAs and the fact of exercise of the put options by AS and AG was specifically brought to the notice of the AO. Copies of the show cause notice dated 16th November, 2011, appellant's submissions dated 28th November 2011, 15th December, 2011 and 19th December, 2011 and the AO's draft assessment order dated 29th December, 2011 are Annexures CC, DD, EE, FF, and GG, respectivel....
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....ed transaction of assignment of call options under the 2007 Framework Agreements but this order was not served on the appellants in view of the directions of this Court in its order passed in writ petition No.488 of 2012. This Court eventually passed its order on 6th September, 2013 and that disposed of Writ Petition No.488 of 2012. This Court relegated the appellants to exercise of its statutory remedy of appeal before the Income Tax Appellate Tribunal but made certain prima facie observations. We shall make a reference to the same when noting the arguments of the learned senior counsel appearing on behalf of the appellants. 24 After disposal of the writ petition, the appellants were served with the final assessment order dated 31st October, 2012, and which they received on 18th December, 2013. In the light of the orders passed by this Court, the appellants filed their appeal to the Tribunal. 25 Then, the following events took place during the pendency of the said appeal: 26 Before the Tribunal, the respondent filed three sets of additional evidence on 20th February, 2014 (running into 930 pages), 24th February, 2014 (running into 945 pages) and 3rd March, 2014 (running i....
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.... documents filed by the Revenue, inter alia, on the ground that the same were neither new [in any case that they were within the knowledge of the Revenue] nor were they relevant to the present issue of the alleged assignment of call option by rewriting of Framework Agreements in the AY 2008-09. A copy of appellant's reply dated 13th March, 2014 is Annexure III to the appeal paper-book. 29 During the course of hearing on 8th April, 2014, the counsel for the Revenue for the first time alleged that the judgment of Hon'ble Supreme Court in the case of VIH BV v. Union of India (2012) 341 ITR 1 and that of this Hon'ble Court in the case of VISPL v. Union of India (2013) 359 ITR 133 have been obtained by fraud since the material facts of put options had not been disclosed before either of the Courts. The appellant vide its application dated 9th April, 2014 requested the Tribunal to direct the Revenue to file a detailed application/affidavit describing the nature of fraud and how such fraud had been committed. In response thereto the Revenue filed a response dated 15th April, 2014, reiterating the allegation that the factum of subsequent exercise of put options had not been disclosed be....
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....estments India Ltd., however, no arguments were advanced by the Revenue in support of the same and the case of the Revenue throughout was that upon rewriting of the Framework Agreements in 2007, the appellant had assigned its call option rights to it's A.E. under Clause 4.4. Revenue's reliance on the fact of subsequent exercise of put option was restricted to contend that such fact was not placed before the Hon'ble Supreme Court and hence, the finding of the Hon'ble Supreme Court that the call options continued to vest with the appellant was not conclusive. Detailed submissions and arguments were advanced by both the appellant and Revenue before the Tribunal on the issue of assignment of call option and the valuation of the call option allegedly assigned and the Tribunal concluded the hearing and reserved its order on the appeal on 13th August, 2014. Copies of list of dates and detailed submissions advanced by the appellant on 20th March, 2014, 24th March, 2014, 23rd to 25th June 2014, 7th August, 2014, 8th August, 2014, 9th August, 2014 and 14th August, 2014 are Annexures PPP (Colly). Further, copies of detailed submissions advanced by the Respondent on 5th May, 2014, 6th May, 201....
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.... The Tribunal held that the inclusion of a prospective nominee does not amount to assignment/ transfer of the call option rights by the appellant. The Tribunal also rightly held that an assignment / transfer cannot take place until an actual nomination is made. In addition, the Tribunal also examined in detail the applicability of the amended provisions of Section 2(47) of the Act and held that the essence of transfer even in the amended provisions remains that actual disposal or actual creation or parting with an interest in an asset. Accordingly, since no actual disposal or actual creation / parting in an interest occurred as no nomination was made, the Tribunal held in favour of the appellant. 36 However, even after rendering the above finding in law that no transfer can take place unless an actual nomination happens, the Tribunal held that the call option rights have been transferred and vested in CGP India Investments Limited by virtue of the TII Shareholders' Agreement. Further the Tribunal held that the Hon'ble Supreme Court judgment is not binding on the issue of assignment of call options as the issue whether call options were assigned by VISPL to VIH BV was not an issu....
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....ialize and HWP India was, therefore, a clean HWL-owned company that was readily available to acquire the Call Centre business; hence for good commercial, regulatory and legal reasons, the Call Centre business was transferred to HWP India. 41 In view of the above, on 8th May, 2007, the appellant executed the Business Transfer Agreement (hereinafter referred to as "BTA") between the appellant (3GSPL at the relevant time) and HWP India (both associated enterprises ('AE') by virtue of being part of the HWL Group) and subsequently, the transaction of sale of the Call Centre business was completed on 4th December, 2007 upon receipt of the statutory approvals/licenses. A copy of the said BTA dated 8th May, 2007, is Annexure VVV to the appeal paper-book. 42 In order to avoid market speculation, notwithstanding the fact that the sale of Call Centre business was approved on 18th April, 2007 in Board of Directors' meeting of the appellant, the parties wished to delay signing the BTA until just prior to completion of the SPA, so that the execution of BTA and completion of SPA could be announced to the public at the same time in accordance with stock exchange requirements. 43 In the in....
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....tation of income, a long- term capital loss in respect of the sale of the Call Centre business was computed in the following manner: Sale Consideration (Rs.) 64,00,00,000/- Less: Net worth of the undertaking (Rs.) 86,49,50,364/- Long Term Capital Loss (Rs.) 22,49,50,364/- 47 However, during the course of assessment proceedings, the TPO treated the transaction of sale the of Call Centre business, which was admittedly between two domestic entities, as an 'international transaction' under section 92B(2) of the Act. The TPO disregarded the valuation report of Dalal & Shah and valued the Call Centre business based on an average Price Earnings Multiple method and arrived at an arm's length price of Rs. 2414 crores in his order dated 31st October, 2011. The Assessing Officer accepted the valuation adopted by the TPO and passed a draft assessment order dated 29th December, 2011. 48 Since in the opinion of the appellant, the transaction of sale of the Call Centre business between the two resident entities was not an international transaction, accordingly, the appellant challenged the jurisdiction of the TPO vide writ petition No. 488 of 2012 before this Hon'ble Court....
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....prises, but, however, upheld the alternative contention of the revenue that transaction of sale of Call Centre business was an "international transaction" under section 92B(1) of the Act. History of the Appellant's case regarding ITeS Services : 51 The first year of the appellant's operations was AY 2004-05. The Tribunal in appeal for AY 2004-05 gave a categorical finding at page 9 of its order that the appellant was engaged in the "customer care BPO" segment and that the TPO had selected data of companies which functioned in an entirely different segment and which was not comparable with the appellant's case. A copy of the Tribunal's order dated 18th February, 2010 passed in the appellant's case for AY 2004- 05 is Annexure ZZZ to this appeal paper-book. 52 To the best of appellant's knowledge, the said decision of the Tribunal for AY 2004-05 has been accepted by the Department and no appeal has been filed in this Hon'ble Court. It is also pertinent to note that there is no change in the business model of the appellant as well as nature of services in the subsequent years. 53 Further in the subsequent years, the Tribunal passed a common order dated 22nd July, 2011 for A....
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....Method ("TNMM") and computed the arithmetic mean of the PBIT: operating cost of the said 11 companies at 3.51%. The appellant computed its own effective PBIT as a percentage of operating cost at 7.12% (Annexure V of this note). As the appellant's PBIT to operating cost was higher than that of the comparables, the appellant concluded that the price charged by it of 7% plus cost qualified as an arm's length price for transfer pricing purposes. 57 During the course of transfer pricing proceedings, the appellant was asked by the TPO to update the margin of the comparable companies selected in the TP study using financial data for the FY 2007-08. The arithmetic mean for the FY 2007-08 for the 11 comparable companies worked out to 1.04 percent. Since the appellant's Net Cost Plus ('NCP') mark-up was 7.12 percent, it was submitted that the NCP mark-up earned from international transactions was at arm's length. Thereafter, the appellant was further asked by the TPO to conduct a fresh search based on the data available on the PROWESS database, pursuant to which the NCP mark-up earned by the comparables for the contact centre services was 0.99 percent. Accordingly, a computation was submi....
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....l vide its order dated 10th December, 2014. The Tribunal while solely relying on the order of the Tribunal for AY 2007-08 and in complete disregard of the Hon'ble Special Bench ruling in the case of Maersk Global Services Centres (India) Private Limited [ITA No. 7466/M/12(Special Bench)] held that the following companies are comparable to the appellant: a) Infosys BPO Ltd. b) WIPRO Ltd. (seg) c) HCL Comnet Systems and Services Ltd. (seg) d) E4e Healthcare Solutions Ltd. 65 It may be pertinent to mention here that while the TPO had used segmental financial information of Wipro Ltd. and HCL Comnet Systems and Services Ltd. called upon by issuing notice under section 133(6) of the Act, this information was not made available to the appellant inspite of request for the same. This fact that TPO did not provide information obtained under section 133(6) of the Act to the appellant has been noted by DRP in second para under para 12.5(iv), page 52. 66 The Tribunal after having duly noted the contentions of the appellant in para 135 of the order (Page Nos 157-158) inadvertently omitted to dispose of Ground of appeal no. 16 pertaining to (a) working capital adjustment and (b....
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....vices Private Limited became a subsidiary (direct of VIH BV). 3GSPL is now known as the appellant. The appellant had entered into three Framework Agreements under which it had call options and obligations by way of put options. Two of the call options were with the AG and AS group companies. The target of these call options was a downstream company called TII Pvt. Ltd. (which company in turn held directly and indirectly shares in Hutchison Essar Limited / Vodafone India Limited). At the time when these transactions took place, another set of Framework Agreements were signed (with revised consideration) for the call options and put options. VIH BV was made a confirming party to these revised Framework Agreements. Mr. Salve then extensively referred to the first case in which this transaction was the subject matter. He submitted that the Revenue contended in this first case that the revised Framework Agreements were a part of the overall transaction and the consideration for these revised Framework Agreements was also inbuilt into the amount paid by Vodafone to Hutchison for acquisition of the CGP share. Mr. Salve submits that the Revenue's stand and which was accepted by this....
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....Salve, therefore, submits that the Tribunal seriously erred in law in taking into consideration a case which was not set up by the Revenue. He contended that the Revenue never urged that the shareholders agreement of 2007 to which CGP was a party and to which the appellant was not a party resulted in any assignment of the appellants' call options. Had such a case been put to the appellant, it would have pointed out that even in 2006 prior to the Vodafore taking over there was always in place a similar shareholders agreement. Mr. Salve contended that the Tribunal rendered contradictory finding and while it accepted the case that a revised Framework Agreement recognising same options did not constitute a transfer, it was not open to it to then hold to the contrary and by referring to the 2007 shareholders agreement. Therefore, acceptance of the Revenue's case that this shareholders agreement constituted an assignment of the call options has resulted in grave and serious prejudice. Mr. Salve, therefore, heavily criticised this approach of the Tribunal. Mr. Salve submitted that the matter should go back to the Tribunal so as to render complete justice. 72 Alternatively, Mr. ....
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....ppellants are not a party to the July 2007 agreement and the subject matter of the two Framework Agreements and the shareholders agreement is different, then, the Tribunal should not have relied on the same to the detriment of the assessee's interests. Had it intended to rely on it, it should have in the course of prolonged hearing put it to the assessee and then the assessee would have met it squarely. In such circumstances, Mr. Salve would submit that even if the matter does not go back and this Court is not inclined to adopt that course, still it should not allow the Revenue to raise the plea noted by us hereinabove. This Court, therefore, should hold that the matter is squarely covered in favour of the assessee by the judgment of the Hon'ble Supreme Court. 73 Mr. Salve then submits that even on merits there are alternate pleas and which proceed as follows. The options are not interest in property. The Tribunal would conclude that an important aspect of the case has been missed by the Hon'ble Supreme Court but a binding judgment of the Hon'ble Supreme Court cannot be ignored or brushed aside by a subordinate Court or Tribunal on such specious ground. The manda....
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.... 299 of Volume 1. (B) The FWA of 2006 conferred upon Goldspot ("Tier 1 company") the right to require 3GSPL/appellant or its nominee to purchase all the Plustech shares ("Tier 2 company"). The 'put' option was contained in Clause 4.3 of the FWA. The 'put' option could be exercised in 2 situations : (a) 3GSPL/appellant or CGP India Investment Limited ("CGPM") acquired or became eligible to acquire "subscription shares" (present appeal does not relate to this - it never happened); (b) The financial institutions, who had advanced monies for the acquisition of TII shares to Centrino issued a notice of default. (C) There was a 'call' option, whereby 3SGPL/appellant could acquire the entirety of Plustech shares (Tier 2 company) held by Goldspot (Tier 1 company). (D) This 'call' option was exercisable if any of the following circumstances came into existence : (a) 3SGPL/CGPM acquired shares under the subscription option; or (b) 3SGPL/appellant became eligible under Indian laws to hold sufficient shares under the subscription route, whereby it could have more than 50% effective control of either Centrino or TII. On account of the second ....
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.... FWAs were recast in 2007. The revised agreement with the AG group of companies is at page 567, Volume 2. In this FWA there was a 'call' option and a 'put' option. (I) Both these options were at one lever higher : a) Instead of the Tier 1 company of the AG group, it was now AG who was given the 'put' option and made subject to the 'call' option. AG thus had the right to require 3GSPL/appellant or its nominated person to buy Goldspot (renamed AG Mercantile) shares i.e. the Tier 1 company shares. b) There were 3 situations in which this 'put' option could be exercised : i) when the sectoral cap was eased, and to the extent of the increase of the sectoral cap; ii) even if the sectoral cap was not eased, after the 5th anniversary of the FWA; iii) if there was a default notice from the financing institution who had paid for the TII shares (there was a mechanism provided for identifying a suitable Indian person, in case the shares were sold without the sectoral cap being relaxed or in excess of the sectoral cap). c) The call option continued with 3GSPL/appellant. This call option entitled 3GSPL/appellant to purchase or nominate....
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....xercised. 76 Thus, Mr. Salve emphasised that the Tribunal proceeded on an erroneous assumption that for the first time an option was exercised in favour of CPGM by way of 2007 TII SHA. Mr. Salve submits that the Tribunal's order fails to note as to how the option contained in the document referred by the Tribunal could confer the right and as concluded by the Tribunal. Mr. Salve submits that the Tribunal confuses between 'call' options and their limitations and 'put' options. As already stated, the FWAs of 2006 & 2007 contained a provision that a buyer could be nominated to honor a put option. Nominating a buyer in relation to a put option is not an assignment for the reason that an obligation simplicitor cannot be assigned. AS and AG had put options under the FWAs which they were entitled to, as and when the regulatory regime allowed the appellant to acquire more shares indirectly. The appellant nominated CGPM to discharge the obligation on its behalf and it was pursuant to that nomination that CGPM acquired these shares. The call options under the FWA 2007 which could have been assigned were never actually assigned. (A) Finally the Tribunal overlooked th....
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....ian company. A direct acquisition of a call centre would require a special permission from the RBI. (C) Owing to difficulties in obtaining regulatory approval to run a Call Centre business in India by an Indian branch of non-resident company, together with the legal and practical difficulties of doing so even if such approval could be obtained, it was decided that the Call Centre business would be acquired by an Indian subsidiary of the HWL group. It is common practice for most multinational companies to do business in India through an Indian subsidiary rather than a branch of a foreign company. Merely because such a business arrangement does not fall in Chapter X as an international transaction (at the material time) does not for that reason render it a sham or a fraud. (D) Furthermore, wholly owned subsidiaries enjoy: (a) greater flexibility of operations (e.g. it is easier for an Indian entity to lease office space as compared to a foreign entity) (b) ring fencing of risk, (c) limitation of liabilities, (d) preferential tax regime and so on, as compared to branch of a non-Indian company. Had HWP India not existed, HWL would have incorporated a new Indian wholly owned su....
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.... the Call Centre business would be acquired by an Indian subsidiary of the HWL group. It should be noted that it is common practice for most multinational companies to do business in India through an Indian subsidiary rather than a branch of a foreign company. (I) The Tribunal, at para 126, concluded that HWP India was interposed to avoid chargeability to tax, by giving a different colour to the transaction, with the motive to circumvent the transfer pricing provisions and consequently, applied the doctrine of substance over form solely on the argument that the payment of Rs. 64 crores was made by a HWL group company and was received by HWP India in its bank account and paid out of the same bank account on the same day 30th April 2007. The Tribunal has completely disregarded the fact that HWP India raised the Rs. 64 crores for acquisition of the Call Centre business by way of issuance of preference shares to its immediate parent company HWP Investments Holdings (India) Limited, Mauritius. A copy of a preference share certificate issued by HWP India and Foreign Inward Remittance Certificate ("FIRC") is at pages 4741 to 4743. This FIRC was in fact filed by the income tax departmen....
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....e International Holding B.V. vs. Union of India & Anr. (2012) 341 ITR 1(SC) (ii) Vodafone India Services Pvt. Ltd. vs. Union of India (2013) 359 ITR 133 (Bom) (iii) Vodafone India Services Pvt. Ltd. vs. Unionof India & Ors. (2014) 368 ITR (Bom) (iv) Rambaran Prosad vs. Ram Mohit Hazra & Ors. (1967) 1 SCR 293. (v) J. Saisbury Plc. vs. O'Connor (Inspector of Taxes) (1991) 1 W.L.R. 963. (vi) PNB Finance Ltd. vs. Commissioner of Income-tax (2008) 307 ITR 75(SC) (vii) Mrs. Bacha F. Guzdar vs. Commissioner of Income-tax, Bombay 1955 27 ITR 1. 79 On the other hand, Mr. Setalvad, the learned senior counsel appearing on behalf of the Revenue submits that the arguments of Mr. Salve overlook the basic fact that the judgment in the first Vodafone case led to several amendments to the Income Tax Act. He relies upon the definition of the term 'capital asset' [section 2(14)]. He submits that the definition is very wide and emphasized the words "or any other right whatsoever". He then relies upon the definition of the term transfer appearing in section 2(47) and particularly explanation 2 to the same. He would submit that the option rights have been transferred to ....
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.... in relation to an Indian Company, including rights of management or control or any other rights whatsoever" (C) A reading of the said explanation makes it amply clear that any right in the options is property for the purpose of section 2(14). The Options relate to shares of an Indian company i.e. Scorpios Beverages (P) Ltd. and AG Mercantile Co. Pvt. Ltd. This in turn entitles the option holder to a 12.25% equity interest in Vodafone India Ltd., (HEL). Thus the right of the appellant to subscribe to the shares of AS and AG group company, is in the nature of a capital asset as defined in section 2(14) of the IT Act 1961. Once it is established that the option rights held by the assessee is property, any interest created therein is also in the nature of property and falls within the ambit of section 2(14) read with Explanation thereto, which was introduced by virtue of amendment to the I. T. Act after the Supreme Court judgment. (D) The contention of the appellant relying upon the decision of the Hon'ble Supreme Court is that the option rights are in the nature of contractual rights and contractual rights do not constitute property. However, the retrospective amendment to ....
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....ere a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State or b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly. 82. The Indian TP provisions are based on the OECD model and the essence of the same is that transactions between related parties of an MNC group should be undertaken at the same price at which a similar transaction is undertaken by unrelated parties under similar conditions. 83. Reverting to the options, Mr. Setalvad submits that the call and put options in this case are actually not in the nature of an opti....
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....ised by AS/AG are different from Call options referred by the Supreme Court. 85. The arguments of the appellant are not tenable in view of the facts of the case and terms of the FWA's of 2007 detailed herein: (a) The term 'Option' has been defined to mean Put Option or Call Option. Thus, even as per the appellant's FWA, both options are included in the term 'Options' which clearly demonstrates that they are the two sides of the same coin. (b) As per clause 3.1 of the FWA 2007, AS/AG have to ensure that the entire issued and paid up capital of the Group companies are held by them respectively. Thus, it is ensured that AS and AG cannot bring new shareholders into their company. As per clause 4.1 of this agreement, there is a complete embargo on AG and AS from issuing any further shares in their companies which would alter the issued share capital of those companies. The combined effect of these two clauses is that both AS and AG have been completely restrained from making any changes in the shareholding of their companies through which they hold 12.25% stake in VIL. When the restrictions contained in para 3.1 and 4.1 of the FWA's of 2007 as discus....
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....t options but only an exit route provided to AS/AG. iii. It is seen that there is no expiration date of Call Options in the FWA. Therefore, one of the essential conditions of Call Option is missing. Similarly, for Put Option, on expiry of 5 years, another party can step into the shoes of AS/AG [Clause 4.3 b(iii) and the Put Option gets revived for further 5 years, therefore, there is no expiration date for Put Option as well. Thus, under both Call and Put Option under FWA, there is no expiry date which is an essential condition for Options. iv. In classic Call/Put Options, the Call/Put Option expires on the expiration date if the triggering event does not take place, and there is no obligation to buy/sell shares under Call/Put Option. But, in this present case, under both Call and Put options, the delivery of shares is mandatory to VISPL. Thus, both so called Call and Put Options are not option contracts as per the definition of Forward or Future contract discussed above, the call and put option in the Framework Agreement are more akin to forward contract as delivery of shares to VISPL is mandatory in both the cases of Put/Call option. 88. Thus it may be seen that AS an....
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....cally stands assigned/extinguished. 89 As far as the transfer pricing provision and the order of the Transfer Pricing Officer so also the Tribunal, Mr. Setalvad submits that the essential ingredients to invoke the Transfer Pricing Provision are : (i) There must be a "transaction". The term transaction is defined in section 92F(v) and Rule 10A(d). (ii) The transaction should be between 2 or more persons who are Associated Enterprise of one another. The relationship of associated enterprise is defined in Section 92A. (iii) The transactions between these two persons should be in the nature of an international transaction. To qualify as international transaction, the transaction should be between one or more associated enterprises of which at least one is a non-resident (Section 92B). (iv) The transaction should have impact on income, profit, loss or asset of the company. (v) Once a transaction is held to be an international transaction, then any income arising from such transaction should be determined in accordance with the Arm's Length Price. Arm's Length price is the price paid by persons other than associated enterprise under uncontrolled conditions. (....
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.... or assets of such enterprise. The term 'associated enterprises' has been defined in section 92A. 94 All the conditions contained in section 92B(1) are fulfilled in this case. 95 The section requires that there should be a transaction between two or more associate enterprises out of which, at least one is nonresident. In this case, the arrangement and undertaking described in the above paragraphs is the transaction between the assessee, TII, VIH BV and CGP Mauritius out of which, VIH BV and CGP Mauritius are both non-residents. 96 Any other transaction having a bearing on the income, profits, losses or assets of the enterprise is an international transaction. Hence the arrangement, understanding or action in concert resulting in the creation of interest in favour of CGP Mauritius in the option rights held by the assessee under the 2007 FWA by virtue of 2007 TII SHA, falls in the category of any other transaction having a bearing on the income, profits, losses or assets of the enterprise. The creation of interest in the option rights has an impact on the income as well as assets of the assessee. 97 SALE OF CALL CENTRE : As far as the sale of the call centre bu....
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....ion 92(1) starts with 'any income from an International Transaction....'. Thus, in the TP proceedings, one has to see firstly whether there is a 'transaction', if yes, whether it is entered into between 'associated enterprise'. The words 'at any time during the year' were introduced in the Act to overcome a situation where the assessee would contend that although it was an AE at the time when the transaction was entered into, but was not an AE either at the beginning of the year or at the end of the year, and hence the TP provision would not apply. The relationship of associated enterprise should be considered at the time when the relevant international transaction was entered into. If the interpretation adopted by the ITAT that once two enterprises are associated enterprise at any time during the previous year they shall be deemed to be the associated enterprise for the entire year is upheld, it would lead to anomalous and unacceptable situations. 101 The significance of these words 'at any time during the year' is explained diagrammatically as Annexure A-1. In the example depicted therein A Ltd., is an Indian company which has purchased ....
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....lant paper book. Further the term completion is defined as part of the definition clause in the SPA. 103 Clause 8.8 refers to events that have to be undertaken after the completion of share sale whereas the ITAT has incorrectly assumed that these conditions are required to be fulfilled prior to the completion. The Revenue's argument in this regard is further supported by the following clauses in the SPA as well as the BTA which clearly evidence the fact that the call centre transfer took place on 04.12.2007 long after the execution of SPA on 08.05.2007. 104 The following clauses of the SPA are relevant for this purpose. (Vol.II / Pgs. 447 to 566 of the appellant):- a. Clauses 1.1 - Definition of Call Centre Disposal (Pg. No.451) which shows that the transaction contemplated is disposal and the disposal occurred on 4th December, 2007. b. Clauses 1.1 - Definition of Completion (Pg. No.452) - Completion means sale and purchase of share and the loans. c. Clause 1.1 - Closing Period (Pg. No.452) is the period from the date of the SPA to the date of completion of termination. d. Clause 1.1 - Completion Date (Pg No. 452) means the date when Completion tak....
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....1 are satisfied. Thus, the transfer could only take place on 4th December, 2007. vi. It was the responsibility of the appellant to submit a certificate to the purchaser on the closing date certifying that the Board of Directors have passed resolution authorising the sale of the business, the execution of BTA and consummation of BTA (refer to Clause 6.2.1 on Pg.4513/Vol.XIII). Similarly, the purchaser also will provide similar certificate under Clause 6.3.1 (Pg.4514/Vol.XIII). The requirement of the Board resolutions and other formalities as of the closing date, shows that the parties to BTA must have obtained these near about 4th December, 2007 and at that time, the seller (appellant) was a Vodafone group company. This conclusively proves that the transaction was completed between two unrelated parties. vii. As per Clause 6.4(Pg.4514/Vol.XIII) the receipt for payment and the closing memorandum will be issued on completion of actions mentioned in Clause 6, viii. Clause 8 (Pg.4515/Vol.XIII) shows that the persons working in the call centre were the employees of VISPL (appellant) till the closing date. This also proves that the transfer took place on the closing date. ix. ....
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....g.No.498). This shows that it was not possible to sign the BTA before the share transfer. Hence, the contention of the appellant that the parties to the BTA are associated enterprises is incorrect. 106 In the financials of the Appellant, it is set out as : "Pursuant to the aforementioned BTA and completion of statutory formalities, the transfer was effective December 4, 2007". Another strong and irrefutably positive evidence of call centre being part of Vodafone Group for the period from 11.2.2007 to 4.12.2007 is the fact that in its financials for the year ended 31.3.2008, the appellant has not only shown its business being running of call centre (ITES) and holding of investment in call options but has also included the income from call centre business in its hands till the date of transfer. This proves that the transfer took place on 4 December, 2007. 107 After examining the above clauses of the BTA, it is submitted that the transfer call centre was always intended to take place only upon completion of conditions precedent and the same happened only on 4th December 2007. The appellant's return of income also supports the same conclusion. Hence, the date of the intern....
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.... on income. In that writ petition, the original petitioner lost before a Division Bench of this Court and which in a detailed judgment held that the transaction has a nexus or connection with the Indian tax law and, therefore, can be subjected to Income Tax Act, 1961. Being dissatisfied with this judgment and order, the original petitioner carried the matter to the Hon'ble Supreme Court and by the judgment delivered and reported in Vodafone India Holdings BV vs. Union of India 341 ITR 1, the view taken by this Court was reversed. In other words, this Court's judgment was set aside. The Parliament then amended the Act and the definition of the term 'capital asset' in section 2(14) and 'transfer' in section 2(47) came to be amended. Certain words and expressions and explanations came to be added with retrospective effect. We must further clarify that the parties have proceeded on the basis that these retrospective amendments are constitutionally legal and valid. Their legality and validity is not questioned in these proceedings. Based on the words and expressions earlier used and now employed the parties have addressed us. 111 Now, certain developments and ....
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....mpany was also to be counted towards the ceiling of 74%. According to the Tribunal, since there was a sectoral cap / ceiling on the FDI in the telecom sector, the assessee (GSPL) entered into framework agreements in march, 2006 under which the share holding of HEL was restructured through TII, an Indian company in which Analjit Singh and Asim Ghosh acquired shares through their group companies with the credit support provided by HTIL. In consideration of credit support, the parties entered into framework agreements under which call options were given to GSPL to buy from AG and AS companies, the entire share holding in TII and consequently indirect holding in HEL. The shareholding of HEL underwent a change in August, 2006 through execution of 2006 IDFC framework agreement on similar terms of providing financial assistance by HTIL and assessee and in consideration whereof the assessee would have call option to buy entire equity shares of SMMS thereby its entire holding in HEL. The GSPL was understood as the assessee in the Tribunal's order. The Tribunal in para 23 holds that due to the transfer of the entire share capital (single share) of CGP from HTIL group to VIH BV, the Vodaf....
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....he Act post that decision and with retrospective effect. That changes the nature and colour of the controversy according to the Tribunal. Hence in paragraph 26 the Tribunal holds that the issue of assignment of option rights has to be adjudicated by considering and examining the framework agreements along with any documents or developments subsequent or prior to the framework agreements in the light of the judgment of the Hon'ble Supreme Court, the observations of this Court as well as the amendments in section 2(47) together with transfer pricing provisions of the Act. The Tribunal was also of the view that the new facts and record brought before it are relevant. The argument of the assessee was that there was no transfer or assignment of call option in the present case as no call options were transferred in the framework agreements of 2007. The assessee continued to hold these rights. Reliance was placed, according to the Tribunal, on clause 4.4 of the framework agreements and it was urged that it is identical to or substantially similar to the counterpart clause of the 2006 framework agreement though the language is different. These documents were drafted by different set of....
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....ions of section 2(47) of IT Act in the context of limited facts and documents considered therein and therefore, so far as the applicability of amended provisions of section 2(47) to the facts including new facts of the case are concerned, the judgment of Hon'ble Supreme Court would not be regarded as binding precedent. However if the amended provisions of section 2(47) are not found to be applicable on the facts of the case in hand then, the judgment of the Hon'ble Supreme Court to the extent of interpretation of the agreements and the provisions of section 2(47) would be binding on all the authorities and courts including this Tribunal." 115 Thus, the Tribunal understood that if the amended provisions of section 2(47) are not found to be applicable to the facts of the case in hand, then, the Supreme Court's observations and conclusions with regard to the nature of the agreements, interpretation of their clauses would bind all authorities and others, including the Tribunal. 116 The Tribunal found that it is incumbent upon it to examine the framework agreements, including the additional evidence produced in the light of the amended provisions of section 2(47) of th....
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....e never argued that there was an assignment in favour of CGP Mauritius and in that regard our attention has been invited to the chart at page 6, the framework agreements, the written submissions of the Revenue as are found in Vol. 13 Page 4490, the appellant's written submissions page 4485 at para 1 and an order of the Transfer Pricing Officer Vol. 14 Pg. 1102, 1175, 1270 and 1315(d). Once he has taken us through all these materials, but complained that the Tribunal never put the case noted by it in paragraphs 40, 41 and 42 of its order to the assessee, then, the request that the matter must go back could have been considered favourably. However, Mr. Salve has also addressed us in the alternative on the nature of the options, their implications and consequences in law. Once having addressed us and in this manner, we do not deem it fit and proper to accede to his request of sending the matter back. That will not serve any fruitful purpose. Once the Tribunal has taken pains and an enormous effort and delivered a lengthy order, then, sending the matter back would result in delay in adjudication of the issue by the Tribunal and thereafter by a higher Court. There have been several ....
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....scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. The following item (b) shall be substituted for the existing item (b) of sub-clause (iii) of clause (14) of section 2 by the Finance Act,20123, w.e.f. 1.4.2014 : (b) in any area within the distance, measured aeirally, - (I) not being more than two kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.- For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (iv) 6 &f....
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....emoval of doubts,it is hereby clarified that "transfer" includes 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;" 122 Heavy reliance is placed on both explanations and, therefore, we have reproduced the entire section. The term 'transfer' has been defined in an inclusive manner. It includes the sale, exchange or relinquishment of a capital asset or extinguishment of the rights therein or its compulsory acquisition and various acts and transactions which have the effect of transferring the asset are covered. Explanation -1 is for sub-clauses (v) and (vi) of clause (47) of section 2 and we will not be required to refer to it in any details. 123 For our purpose, the Explanation -....
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....9;ble Supreme Court. The Hon'ble Supreme Court has already held that at best there is transfer of a share but not an asset. That is not a conclusion according to Shri Salve in abstract, but after analysing all the transactions in great depth. Several facets thereof have been noted by the Hon'ble Supreme Court and the controversy has been dealt with from all angles. 126 To appreciate this argument and to the contrary canvassed by Mr. Setalvad we would have to note the facts and circumstances so also the backdrop in which the Hon'ble Supreme Court delivered its judgment. 127 The Tribunal, as far as the merits are concerned, referred to the rival contentions and from paragraph 37 onwards it proceeded to consider them. The Tribunal referred to the shareholder agreement dated 5th July, 2007 but prior thereto, it took note of the shareholding pattern of Analjit Singh and Asim Ghosh group of companies through their 100% subsidiaries in TII as given in the ownership chart. It referred to this ownership chart and from that the Tribunal concluded that Asim Ghosh and Analjit Singh were holding 23.97% and 38.78% shares respectively in TII through their 100% subsidiaries. T....
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.... contains in itself a principle. The underlying principle which thus forms its authoritative element is often termed the ratio decidendi. The concrete decision is binding between the parties to it, but it is the abstract ratio decidendi which alone has the force of law as regards the world at large." JOHN SALMOND, Jurisprudence 191 (GLANVILLE L., WILLAMS ed., 10th ed. 1947) " A binding precedent being applied to the same or similar set of facts and issues and following it ensures and guarantees certainty, finality and discipline all of which are necessary for the proper functioning of judiciary. Not adopting such an approach on the specious plea that a different argument is canvassed and all aspects or facets of the issue involved were not considered or dealt with in the binding precedent though the point or question raised in the subsequent matter is identical, will be counter productive. It will encourage those interested in confusing or creating uncertainties and chaos in the decision making. Eventually, this would be subversive to the rule of law. Since Mr. Salve and Mr. Setalvad were agitated and disturbed and the assessee and Revenue were engaged in a fairly detailed but c....
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....Ors. v. Prabhat Mandal (Regd.), Andheri & Ors. AIR 1986 SC 391). 129 The Supreme Court noted in the first case that there was an acquisition by VIH BV, a company resident for tax purposes in Netherlands of the entire share capital of CGP Investments (Holdings) Limited (for short CGP), a company resident for tax purposes in Cayman Islands by transaction dated 11th February, 2007 and whose aim was acquisition of 67% controlling interest in HEL being a company resident for tax purposes in India. That was disputed by VIH BV saying that it agreed to acquire a company which in turn controlled 67% interest but not controlling interest in HEL. VIH BV contended that CGP held indirectly through other companies 52% shareholding interest in HEL as well as options to acquire further 15% shareholding interest in HEL subject to relaxation of FDI norms. Thus, the Supreme Court was considering the attempt of the Revenue to tax the capital gains arising from the sale of share capital of CGP on the basis that CGP may not be a tax resident in India but it holds underlying Indian assets. 130 That is how from paragraph 3 onwards in its judgment, the Hon'ble Supreme Court set out the relevant f....
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....at by a letter dated 14th March, 2007, addressed by VIH to the FIPB, it stood confirmed that VIH's effective shareholding in HEL would be 51.96%. Following the completion of acquisition of HTIL's shares in HEL, the ownership of HEL is then what is set out by the Hon'ble Supreme Court in paragraph 33. VIH would own 42% direct interest in HEL through its acquisition of 100% CGP. Through CGP, VIH would also own 37.25% in TII which in turn, owns 19.54% in HEL and 38% in Omega which in turn own 5.11% in HEL. These investments combined would give VIH a controlling interest of 52% in HEL. In addition, HTIL's existing Indian partners AG, AS and IDFC who between them held 15% interest in HEL agreed to return their shareholdings with full control, including voting rights and dividend rights. In other words, none of the Indian partners exited and, consequently, there was no change of control. Then there are references made to the settlement agreement between HTIL and the Essar group and in paragraph 38, there is a reference to letter dated 17th March, 2007, by which HTIL confirmed in writing to AS that it had no beneficial or legal or any other right in AS's TII interest o....
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....ncerned with the sale of shares and not with the sale of assets item-wise. Sale of entire investment made by HTIL through a top company viz. CGP in the Hutchison Structure is involved in the case. Therefore, the Supreme Court is required to apply the "look at" test. The Revenue adopted a dissecting approach and, therefore, its stand vacillated. 132 Then, the Hon'ble Supreme Court, in paragraph 74 held as under : "74. Be that as it may, did HTIL possess a legal right to appoint directors onto the board of HEL and as such had some "property right" in HEL? If not, the question of such a right getting "extinguished" will not arise. A legal right is an enforceable right. Enforceable by a legal process. The question is what is the nature of the "control" that a parent company has over its subsidiary. It is not suggested that a parent company never has control over the subsidiary. For example, in a proper case of "lifting of corporate veil", it would be proper to say that the parent company and the subsidiary form one entity. But barring such cases, the legal position of any company incorporated abroad is that its powers, functions and responsibilities are governed by the law of....
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....eria is whether the parent company's management has such steering interference with the subsidiary's core activities that subsidiary can no longer be regarded to perform those activities on the authority of its own executive directors. 133 In paragraphs 75 and 76, the Supreme Court held as under : "75. Before dealing with the submissions advanced on behalf of the Revenue, we need to appreciate the reason for execution of the SPA. Exit is an important right of an investor in every strategic investment. The present case concerns transfer of investment in entirety. As stated above, exit coupled with continuity of business is one of the important tell-tale circumstances which indicates the commercial/business substance of the transaction. Thus, the need for SPA arose to readjust the outstanding loans between the companies; to provide for standstill arrangements in the interregnum between the date of signing of the SPA on February 11, 2007, and its completion on May 8, 2007; to provide for a seamless transfer and to provide for fundamental terms of price, indemnities,warranties etc. As regards the right of HTIL to direct a downstream subsidiary as to the manner in which it....
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....n a manner as directed by it (HTIL). Facts of this case show that both the parent and the subsidiary companies 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 ....
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....e of execution of the SPA and completion of acquisition. Therefore, we have a provision for 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 provisions concerning Vendor's Obligations in relation to the conduct of business of HEL between the date of execution of 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, 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 IDFC Framework Agreement of 2006 and its substitution by a fresh Framework Agreement dated 5.06.2007 in terms of the SPA. The submission of the Revenue before us was that the said Agreement dated 5.06.2007 (which is executed after the completion of acquisition by VIH on 8.05.2007)....
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.... given effect to by clause 5.2 of the SPA which gave Essar the Right to Tag Along with HTIL and exit from HEL. That, the Term Sheet of 5.07.2003 had legal effect because by a specific settlement dated 15.03.2007 between HTIL and Essar, the said Term Sheet stood terminated which was necessary because the Term Sheet bound the parties in the first place. We find no merit in the above arguments of the Revenue. The 2003 Term Sheet was between HTIL, Essar and UMTL. Disputes arose between Essar and HTIL. Essar asserted RoFR rights when bids were received by HTIL, which dispute ultimately came to be settled on 15.03.2007, that is after the SPA dated 11.02.2007. The SPA did not create any rights. The RoFR/TARs existed in the Hutchison structure. Thus, even without SPA, within the Hutchison structure these rights existed. Moreover, the very object of the SPA is to cover the situations which may arise during the transition and those which are capable of being anticipated and dealt with. Essar had 33% stakes in HEL. As stated, the Hutchison structure required the parent and the subsidiary to work together as a group. The said structure required the Indian partners to be kept in the loop. Dispu....
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..... Further, according to the Revenue, the purchase price paid by VIH was based on an enterprise value of 67% of the share capital of HEL; this would never have been so if VIH was to buy only 42.34% of the share capital of HEL and that nobody would pay US $2.5 bn extra without control over 25% in HEL. We find no merit in the above submissions. At the outset, it may be stated that the expression "control" is a mixed question of law and fact. The basic argument of the Revenue is based on the equation of "equity interest" with the word "control". On perusal of Hutchison structure, we find that HTIL had, through its 100% wholly owned subsidiaries, invested in 42.34% of HEL (i.e. direct interest). Similarly, HTIL had invested through its non-100% wholly owned subsidiaries in 9.62% 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% (approx. 52%) in HEL. On the basis of the shareholding test, HTIL could be said to have a 52% control over HEL. By the same test, it could be equally said that the balance 15% stakes in HEL remained with AS, AG and IDFC (Indian partners) who had thr....
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....tions. Two of the call options were with AG and AS. The target of these call options was a downstream company called TII Pvt. Ltd. which, in turn, held directly and indirectly share in HTIL/VIH. At the time when the transaction took place, another set of framework agreements were signed with revised considerations for these options and VIH BV was made a confirming party to these revised framework agreements. The appellants understand the Department's case to be that the revised framework agreements were a part of the overall transaction and the consideration of these revised framework agreements was also inbuilt into the amount paid by Vodafone to Hutchison for acquisition of the CGP share. The appellant urges that this Court in the first case found that there was assignment of call options held by the appellant and that call options were assets located in India. On that count, the payment by Vodafone to Hutchison involved transfer of some assets in India. Therefore, the Tax Department would have jurisdiction to initiate proceedings for failing to withhold tax against Vodafone. However, the Hon'ble Supreme Court reversed this judgment holding that there was no assignment of....
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....ich has the character of a controlling interest in the management of the company. A controlling interest is an incident of ownership of shares in a company, something which flows out of the holding of shares. A controlling interest is, therefore, not an identifiable or distinct capital asset independent of the holding of shares. The control of a company resides in the voting power of its shareholders and shares represent an interest of a shareholder which is made up of various rights contained in the contract embedded in the Articles of Association. The right of a shareholder may assume the character of a controlling interest where the extent of the shareholding enables the shareholder to control the management. Shares, and the rights which emanate from them, flow together and cannot be dissected. In the felicitous phrase of Lord MacMillan in IRC v. Crossman [1936] 1 All ER 762, shares in a company consist of a "congeries of rights and liabilities" which are a creature of the Companies Acts and the Memorandum and Articles of Association of the company. Thus, control and management is a facet of the holding of shares. Applying the above principles governing shares and the rights of ....
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....acquisition was of 51.96%. In its response dated 19.03.2007, VIH stated that it had agreed to acquire from HTIL for US$ 11.08 bn, interest in HEL which included a 52% equity shareholding. According to VIH, the price also included a control premium, use of Hutch brand in India, a non-compete agreement, loan obligations and an entitlement to acquire, subject to the Indian FDI rules, a further 15% indirect interest in HEL. According to the said letter, the above elements together equated to 67% of the economic value of HEL. This sentence has been misconstrued by the High Court to say that the above elements equated to 67% of the equity capital (See para 124). 67% of the economic value of HEL is not 67% of the equity capital. If VIH would have acquired 67% of the equity capital, as held by the High Court, the entire investment would have had breached the FDI norms which had imposed a sectoral cap of 74%. In this connection, it may further be stated that Essar had 33% stakes in HEL out of which 22% was held by Essar Mauritius. Thus, VIH did not acquire 67% of the equity capital of HEL, as held by the High Court. This problem has arisen also because of the reason that this case deals wit....
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.... non-compete, control premium, customer base etc.). Thus, it was not open to the Revenue to split the payment and consider a part of such payments for each of the above items. The essential character of the transaction as an alienation cannot be altered by the form of the consideration, the payment of the consideration in instalments or on the basis that the payment is related to a contingency (`options', in this case), particularly when the transaction does not contemplate such a split up. Where the parties have agreed for a lump sum consideration without placing separate values for each of the above items which go to make up the entire investment in participation, merely because certain values are indicated in the correspondence with FIPB which had raised the query, would not mean that the parties had agreed for the price payable for each of the above items. The transaction remained a contract of outright sale of the entire investment for a lump sum consideration [see: Commentary on Model Tax Convention on Income and Capital dated 28.01.2003 as also the judgment of this Court in the case of CIT (Central), Calcutta v. Mugneeram Bangur and Company (Land Deptt.), (1965) 57 ITR 2....
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....ection in India. The Revenue's argument was that it was to ultimately transfer control over HEL and hence, the source of the gain to HTIL was India. The Hon'ble Judge concluded in paragraph 271 that on transfer of shares of a foreign company to a non-resident offshore, there is no transfer of shares of the Indian company, though held by the foreign company and in such a case, it cannot be contended that the transfer of shares of the foreign holding company results in extinguishment of the foreign company control of the Indian company and it also does not constitute an extinguishment and transfer of an asset situate in India. Transfer of the foreign holding company's share offshore, cannot result in an extinguishment of the holding company right of control of the Indian company nor can it be stated that the same constitutes extinguishment and transfer of an asset/management and control of the property situate in India. It is in these circumstances that it is concluded even in the concurring judgment that the sale of the CGP share of HTIL to Vodafone would amount to a transfer of a capital asset within the meaning of section 2(14) of the Income-tax Act and the rights and ....
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.... AG Mercantile Company Private Limited. This in turn entitles the option holder to a 12.25% equity interest in Vodafone India Limited (HEL). Thus the right of the appellant to subscribe to the shares of AS and AG group company is in the nature of a capital asset as defined in section 2(14) of the IT Act, 1961. Once it is established that the option right held by the assessee is property, any interest created therein is also in the nature of property and falls within the ambit of this section. According to Mr. Setalvad, the argument that option right is a contractual right has no merit because the wording of the explanation is very wide and to include any right whatsoever. Reliance is placed upon certain provisions of similar nature inserted in the tax legislation of some foreign countries. 144 The similarity in the terms and conditions of the IDFC, FWA 2006 and of FWA 2007 of AS and AG group of companies is then emphasized to mean that the appellant's option rights to purchase the shares of AS and AG group of companies are identical to the cashless option under the IDFC FWA. When the IDFC cashless options could be assigned for valuable consideration without actual exercise o....
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....P shares from Analjit Singh and CGP India has accepted the nomination; (iii) 'Supplement to the Framework Agreement' dated 7th April 2009 (Vol.VIII, Pg. 3239/A) amongst others, Analjit Singh, Neelu Analjit Singh, the Appellant as also VIH BV; (iv) Letter dated 7th April 2009 (Vol.IX, Pg. 3518/A) from the Appellant to Analjit Singh and Neelu Analjit Singh notifying of CGP India to purchase the said 4900 shares; (v) Letter dated 21st August 2009 (Vol.X, Pg. 3527/A) addressed by Asim Ghosh to the Appellant and VIH BV issuing a notice to both the Appellant and VIH BV under Clause 4.5 of the Framework Agreement exercising their put option in respect of 1,47,000 equity shares in AG Mercantile constituting 49% of the issued and paid up equity share capital of AG Mercantile; (vi) Letter dated 21st August 2009 (Vol.IX, Pg. 3519/A) wherein the Appellant has nominated CGP India to purchase the AG Mercantile shares from Asim Ghosh and CGP India has accepted the nomination; (vii) Letter dated 21st August 2009 (Vol.IX, Pg. 3521/A) from the Appellant to Asim Ghosh notifying nomination of CGP India to purchase the said 1,47,000 shares; (viii) 'Supplement to the Framew....
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....s referred and to mean that the assessee shall have the right at any time to purchase all of the independent shareholding to the extent of 12.25% in VIL as held by the group companies of AS and AG under call options. The call options under the FWA had to be exercised either by the assessee or its nominee whereas the call option under FWA 2007 had to be exercised either by the assessee or any wholly owned subsidiary of Vodafone PLC. Apart from the assessee or wholly owned subsidiary of Vodafone PLC the third option was also provided under FWA 2007 whereby the assessee could nominate a person other than the wholly owned subsidiary of Vodafone PLC for purchase of all but not part only of the shares held by AS and AG group of companies. The Tribunal in paragraph 33 holds that there is difference between the 2006 and 2007 FWAs regarding call options but the right of exercising the call option by a person other than the assessee is not automatic. It cannot be by inclusion in clause 4.4 of the FWA 2007 of a person other than the assessee. It is subject to assignment or transfer of rights as stipulated in clause 4.10 of the agreement which requires the assignment or transfer by GSPL though....
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....of the relevant clauses of the two FWAs, by change of prospective nominee, it does not amount to transfer or creating any right in favour of the said prospective nominee until the actual nomination is made. 149 In paragraph 35 the Tribunal refers to the shareholder's agreement dated 5th July, 2007 and concludes that a rewriting of the FWA in the year 2007 stand alone does not constitute assignment, transfer or creating any right of call options in favour of the prospective nominee, but the matter does not rest here. That is because the shareholder's agreement dated 5th July, 2007, is equally existing. It is between the shareholders of TII on one hand and CGP India Investment Ltd., TII and VIH BV on the other. This agreement has been filed as an additional evidence by the Revenue. The matter was then postponed so as to enable parties to canvass their arguments on the same. The parties also tendered written submissions. The Revenue reiterated its contention that the assessee-appellant had assigned the call option rights in favour of CGP India Investment Ltd. Mauritius a 100% subsidiary of Vodafone group by rewriting the FWA of 2007. The signing of the shareholder's agr....
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....d AG group companies were holding 12.25% shares in HEL through TII. The option rights in FWA of 2007 were essentially in respect of 12.25% share holding of these two groups in HEL through their subsidiaries and then through their shareholding in TII. The Tribunal once again reiterated that the issue of assignment of call option by the assessee was not before the Hon'ble Supreme Court and, therefore, to the extent of the assignment / transfer of call options by the assessee to its associated enterprise, the judgment of the Hon'ble Supreme Court will have no bearing. Thereafter, the Tribunal refers to the relevant clauses of the FWA 2006, FWA 2007 and shareholder's agreement dated 5th July, 2007. In paragraph 39 of its judgment, the Tribunal concludes that Nadal and ND Callus are common parties to the FWA of 2007 as well as shareholder's agreement. Both set of agreements were assigned by Analjit Singh and Asim Ghosh on their behalf as well as on behalf of Nadal and ND Callus respectively. The call option rights to purchase the shares held by Analjit Singh and Asim Ghosh group of companies in TII were with the assessee under the FWAs of 2006 as well as 2007. Though und....
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....ith intention to keep the 12.25% shareholding in HEL indirectly through AG and AS so that the assessee could acquire the same whenever it is permissible and as per the FDI limit relaxation in telecommunication sector. The mutual intention was to transfer the option rights vested with the assessee in favour of CGP India Investment Limited. Therefore, the option rights, including the call option held by the assessee under the Framework Agreement stand transferred / assigned in favour of CGP India Investment Ltd. by virtue of TII shareholders agreement. 152 We are of the opinion that the above conclusions of the Tribunal do not in any manner indicate that the essential ingredients of section 2(47) as amended are satisfied. If the deal was indirect, circuitous and to take place in future, then, on the basis of the same the Tribunal could not have concluded that the amended definition of the term 'transfer' is attracted, that the matter must be viewed differently and distinctly and not in the manner noted by the Hon'ble Supreme Court. We are of the opinion that all the aspects and which are so extensively referred by the Tribunal and by us were already brought to the noti....
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....precedent as the observation was unnecessary for the decision pronounced, but even though an obiter may not have a binding effect as a precedent, but it cannot be denied that it is of considerable weight. The law which will be binding under Article 141 would, therefore, extend to all observations of points raised and decided by the Court in a given case. So far as constitutional matters are concerned, it is a practice of the Court not to make any pronouncement on points not directly raised for its decision. The decision in a judgment of the Supreme Court cannot be assailed on the ground that certain aspects were not considered or the relevant provisions were not brought to the notice of the Court (See AIR 1970 SC 1002 and AIR 1973 SC 794). When Supreme Court decides a principle it would be the duty of the High Court or a subordinate Court to follow the decision of the Supreme Court. A judgment of the High Court which refuses to follow the decision and directions of the Supreme Court or seeks to revive a decision of the High Court which had been set aside by the Supreme Court is a nullity. (See 1984 (2) SCC 402 and 1984 (2) SCC 324)." 153 In this regard, we have already referred ....
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.... HEL; (vi) Qua management rights, even if the legal owners of HEL's shares (Mauritius entities) could have been directed to vote by HTIL in a particular manner or to nominate a person as a director, such rights existed de hors the CGP share; (vii) Vide clause 6.2 of the SPA, HTIL was required to exercise voting rights in the specified situations on the diktat of VIH ignoring the legal owner of CGP share [HTIHL (BVI)]. Thus, according to the Revenue, HTIL ignored its subsidiaries and was exercising the voting rights qua the CGP and the HEL shares directly, ignoring all the intermediate subsidiaries which are 100 per cent held and which are non-operational. According to the Revenue extinguishment took place de hors the CGP share. It took place by virtue of various clauses of SPA as HTIL itself disregarded the corporate structure it had set up; (viii) As a holder of 100% shares of downstream subsidiaries, HTIL possessed de facto control over such subsidiaries. Such de facto control was the subject matter of the SPA. 154 Thereafter, in paragraph 78, in the context of the role of CGP in the transaction, the Hon'ble Supreme Court considered the main contention of the Reve....
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....stly, as stated the term sheet was entered into in order to regulate the affairs of HEL and to regulate the relationship of the shareholders of HEL. It was necessary to enter into such an agreement for smooth running of the business post acquisition. Secondly, we find from the letter addressed by HEL to FIPB dated March 14, 2007, that articles of association of HEL did not grant any specific person or entity a right to appoint directors. The said directors were appointed by the shareholders of HEL in accordance with the provisions of the Indian company law. The letter further states that in practice the directors were appointed pro rata to their respective shareholdings which resulted in four directors being appointed from Essar group, six directors being appointed by HTIL and two directors were appointed by TII. One such director was AS, the other director was AG. This was the practice even before the term sheet. The term sheet continues this practice by guaranteeing or assuring Essar that four directors would be appointed from its group. The above facts indicate that the object of the SPA was to continue the "practice" concerning nomination of directors on the board of sirectors ....
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.... CGP. In the present case, the valuation done was on the basis of enterprise value. The price paid as a percentage of the enterprise value had to be 67 per cent not because the figure of 67 per cent was available in praesenti to VIH, but on account of the fact that the competing Indian bidders would have had de facto access to the entire 67 per cent, as they were not subject to the limitation of sectoral cap, and, therefore, would have immediately encashed the call options. The question still remains as to from where did this figure/expression of 67 per cent of equity interest come ? The expression "equity interest" came from US GAAP. In this connection, we have examined the notes to the accounts annexed to the annual report 2006 of HTIL. According to note 1, the ordinary shares of HTIL stood listed on the Hong Kong Stock Exchange as well as on the New York Stock Exchange. In Note No. 36, a list of principal subsidiaries of HTIL as on December 31, 2006, has been attached. This list shows the names of HEL (India) and some of its subsidiaries. In the said annual report, there is an annexure to the said notes to the accounts under the caption "Information for US Investors". It refers ....
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....estion of transfer between HTIL and VIH BV by virtue of the share transfer agreement and not in the context of transfer of option rights by the assessee to its affiliate. It is unfortunate that the Tribunal makes a casual remark in paragraph 31 that the judgment of the Supreme Court is not based on the finding of facts as examined and investigated by any of the fact finding authority and consequently, it is binding on the subordinate courts only to a limited extent. The Tribunal has completely lost sight of the elementary principle that the final judgment of the Hon'ble Supreme Court and analyzing the legal provisions in the backdrop of certain undisputed facts binds the parties as also the courts subordinate to the Supreme Court of India particularly in further litigation pending between these parties on same issues. It is one thing to say that the judgment of the Hon'ble Supreme Court is not based on the facts now noted and another to hold that after the Supreme Court judgment, the Parliament has amended the law and has altered the basis of the judgment itself. The latter may permit the course charted by the Tribunal, but the former does not. The binding force of the judg....
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....tion rights to acquire 12.25% shares of HEL / VIL through AG and AS FWAs would also enable obtaining such control. 160 For a closer look and scrutiny of these conclusions we will have to look at the agreements themselves. This will have to be looked at in the backdrop of the ownership chart tendered and which is undisputed. 161 The Centrino Framework Agreement, copy of which is at Annexure-C page 299 of the paper-book, is dated 1st March, 2006. It is among AG and Goldspot and Plustech and 3 GSPL and Centrino Trading Pvt. Ltd. The recitals are that AG is an Indian based professional with wide experience in the management of various businesses world wide, including the telecom business in India for more than eight years and has been instrumental in building HEL. AG was offered an investment in Telecom Investments India Limited (TII), an Indian company which, in turn, will hold beneficial direct or indirect interest of 19.54% interest in the issued share capital of HEL and offered AG the opportunity to make such an investment. AG declined such offer unless AG could be assisted in obtaining the finances necessary to make such investment. GSPL agreed to assist or procure assistanc....
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....aybe, available under the TII Shareholders Agreement ("TII Option") which would result in CGP or its nominee holding more than 50% of the issued share capital of TII. CGP shall procure a copy of the aforesaid notice shall be sent to Goldspot simultaneous with exercise of the TII Option. After issue of the aforesaid notice but prior to subscription to/purchase of any shares in TII by CGP, in the event Goldspot exercises the Put Option, GSPL shall (unless the Parties agree otherwise) complete the purchase of the Put Shares at fair market value determined in accordance with Clause 4.6 below prior to the aforesaid subscription to/purchase of the shares in TII; or (c) GSPL becomes eligible under all applicable Indian laws and regulations to hold all of the Subscription Shares; or (d) GSPL transfers the Subscription Option to a party eligible under all applicable Indian laws and regulations to hold all of the Subscription Shares; or (e) Receipt of a notice of default under the Centrino Financing. GSPL hereby agrees to abide by the directions of Goldspot in connection with the Transfer of the Put Shares to GSPL or its nominee and undertakes to do or procure all necessary....
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.... GSPL agreed to assist or procure assistance for AS in obtaining such financing and to provide guarantees required by any lenders providing such financing. Since in the past AS has been associated with a joint venture partner with the Hutchison Group in HEL and with a view to enter into strategic alliances with the Hutchison Group in other sectors such as real estate etc. where foreign direct investment is being liberalized, AS agreed to invest in TII. That is how the 2063250 ordinary shares of par value of Rs. 10/- per share amounting to 38.78% of the TII shares were acquired by AS through ND Callus. SBP which is wholly owned by AS currently holds 100% of the issued equity share capital of MV Healthcare Services Pvt. Ltd. which in turn owns 100% of the issued equity share capital of ND Callus. In consideration of GSPL procuring credit support for the financing obtained by ND Callus to finance its acquisition of TII shares, NDC was desirous of granting GSPL an option to purchase equity shares of MV Healthcare Services Pvt. Ltd. That is how the recitals in the agreement read and which we find contains similar clauses and subclauses viz. put option and call option - clauses 4.3 and 4....
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....(c) or such other extended time which may be required for any determination under Clause 4.5 or to comply with applicable laws (including the obtaining of requisite approvals). (b) Any notice with respect to the Subscription Option or Call Option or Default Option) given by CGP (or response to any such notice by NDC and/or Centrino) shall stipulate the name of any third party nominated to purchase or take a transfer of the Subscription Shares, NDC Shares and/or the Centrino Shares. (c) Any issuance of Subscription Shares or Transfer of the Put Shares or Call Shares or Default Shares and payments in consideration thereof shall, subject to any agreement in writing between the Parties to the contrary and Clause 4.4(a), be completed simultaneously within a period of 90 days from the Transfer Notice in question." Clause 4.9 deals with assignability of transfer of rights and that reads as under : "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 CGP without the consent of the other Parties, that the Call Options set out in Clause 4.3 may be assigned or transferred only to an A....
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....ransfer or assignment of options by GSPL till today. The Revenue submits that these two conclusions have also been arrived at by examining the SPA and the 2006 Framework Agreements. After the amendment brought in to the definition, it is not necessary that options become property when they are exercised. Since definition of property has also been amended with retrospective effect to include option rights, it is no longer necessary for the options to be encashed in order to constitute property. Further, in the 2007 Framework Agreements HTIL was not a party. While examining the issue whether 3GSPL has transferred or assigned the options under the Framework Agreements, the Hon'ble Supreme Court was guided by the definition of the terms 'property' and 'transfer' as they then existed. Both these terms have been amended and the scope has been widened through the retrospective amendment. Therefore, whether 3GSPL has transferred or assigned the options will have to be examined in the light of the amended law. Alternative to this it is submitted that the decision of the Hon'ble Supreme Court was rendered on 20th January, 2012. However, various documents were placed o....
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....ing from the transfer of a share or shares of a company registered or incorporated outside India. 168 The Tribunal in paragraph 34 had before it the amended definition of the word "transfer" and without explanation. The Tribunal held that without going into the means and methods a disposal or parting with or creating any interest in an asset must exist and be borne out from the arrangement or transfer. Making the provision of one of the prospective nominees would not amount to creating any interest in the asset in the shape of right to acquire the shares held under call option. Analyzing the Framework Agreement and particularly clause 4.4 read with clause 4.10, the Tribunal concluded that the right to acquire shares remains with the assessee till the assessee exercises its right to nominate a pre mentioned wholly owned subsidiary of Vodafone PLC. If the right of the assessee to acquire or purchase through a wholly owned subsidiary of Vodafone PLC the shares held under the call option is spelt out but what has transpired is that change of prospective nominee will not bring about the transfer or create any right in favour of the prospective nominee until the actual nomination is m....
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....Investment by virtue of TII shareholders agreement. This round about or circuitous mode may be depicting a intention of the parties but whether the ingredients of section 2(47) are satisfied or not cannot be determined in this manner. Thus, the conclusions reached in paragraphs 36 to 42 of the impugned order demonstrate that by the mode adopted they could not have been reached in law. Else, something more than that is expressly provided stands incorporated in the amended provisions. 169 We had to undertake the above exercise because of the detailed submissions canvassed by Mr. Setalvad orally and in writing. The submissions to a great extent overlap and in the foregoing paragraphs we have noted the same. 170 Mr. Setalvad has disputed the above position and by urging that from a reading of the Framework Agreements and the definition of the term "option" therein, the position as noted in the Supreme Court judgment has undergone substantial change. He has relied heavily upon certain documents and which are referred in the written note V at pages 4 and 5. This written note is on the applicability of the Supreme Court decision. The argument is that the options have been exercised ....
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....e parties at the time of Framework Agreements and thereafter the Shareholders Agreement dated 5th July, 2007, that the option rights held by the assessee were to be transferred / assigned only to CGP India and none other. This finding is rendered after concluding that the role of the assessee ceased to exist the moment the shareholders agreement was signed. It was then held that it is manifest from these agreements that the intention of the parties to the Framework Agreements was that the option rights held by the assessee were to be transferred / assigned only to CGP India and none other. These findings in paragraphs 40 and 41 of the impugned order are now being questioned and by the above process by the Revenue itself. The Revenue urges that from a reading of the Framework Agreements of 2007 it would be apparent whether put option is exercised by AS / AG or call option is exercised by the appellant, it is one and the same and can be said to be two sides of the same coin. In this case, the appellant had a call option to ask AS /AG to sell shares of SBP / AG Mercantile while AS and AG had so called put option to ask VISPL to buy the same shares of SBP / AG Mercantile. Therefore, in....
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....luntarily or involuntarily, by way of an agreement (whether entered into in India or outside India or otherwise). Notwithstanding such transfer of the rights have been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. Nonetheless, it would have to be a transfer in relation to a capital asset. That includes the acts in section 2(47) sub-clauses (i) to (iv). The explanation 2 clarifies that transfer would also include and shall be deemed to have included the acts specified in explanation 2. Even there it must be a disposal or parting with an asset or any interest therein or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely voluntarily or involuntarily, by way of an agreement or otherwise. The character that is given to the transfer of rights contemplated by explanation 2 may be effected in the manner further indicated by that explanation or may be dependent upon or flowing from the same. Thus, this transfer may be characterized as being effected or dependent upon or flowing from the transfer or shares of a company which may be register....
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....rights of management or control or any other rights whatsoever. Therefore, option and which is relation to shares of an Indian company namely Scorpios Beverages Private Limited and AG Mercantile Company Pvt. Ltd. are referred to by the Revenue. According to it, these options in turn entitle the option holder to a 12.25% equity interest in VIL(HEL). Thus, the right of the appellant to subscribe to the shares of AS and AG group companies is in the nature of a capital asset as defined in section 2(14) of the Income-tax Act,1961. It is in that context that it is alleged that the option rights held by the assessee is property and any interest created therein is also in the nature of property and falls within the ambit of section 2(14) read with the explanation thereto. Now, this is too far fetched a situation and to accept that it is falling within the explanation one would have to assume that the option rights are held by the assessee. The options without being exercised would become property because they relate to shares of an Indian company and the holder thereof is entitled to an equity interest in HEL. At the same time, the argument is that this is a right of the appellant to subsc....
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....s not resulted in any assignment of the appellant's call options was never the case of the Revenue. The Tribunal, therefore, considered it and even in relation thereto rendered inconsistent and somewhat contrary findings. In the first place, the Tribunal should have noted that it had already held in the earlier paragraph that a revised Framework agreement which recognised the same options did not constitute a transfer. Therefore, the case that the Shareholders Agreement of 2007 constituted an assignment of the call options is a case put to the assessee by the Tribunal. Even in relation to that we have found that the Tribunal does not conclude that section 2(14) and section 2(47) of the IT Act as amended would be attracted. We have found from a reading of the Tribunal's order that it held that in order to consider the issue of assignment / transfer of call option rights held by the assessee under the Framework Agreements of 2006 as well as the Framework Agreements of 2007 by virtue of the Shareholders Agreement dated 5th July, 2007, it is necessary to analyze various clauses of the TII Shareholders Agreement. The relevant clauses of the same have been reproduced in paragraph....
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....vices or lending or borrowing money or any other transaction having a bearing on the profits, income, losses or asset of such enterprise. The same also includes a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of or any contribution to any cost, expenses incurred or to be incurred in connection with benefit, service or facility provided to anyone or more of such enterprises. Therefore, in paragraph 54 it concludes that for an international transaction and as contemplated by the afore-referred legal provision it does not necessarily require a transfer or assignment of a property or creating any right or interest in the property but even an arrangement, understanding of the nature specified above would make the transaction an international transaction. It then concludes that even if was accepted that VIH BV is only a confirming / consenting party to the Framework Agreement, the said agreement is a mutual agreement under which the call options were granted by Asim Ghosh and Analjit Singh to the assessee against the consideration to be paid by the assessee or an affiliate for an aggregate amount of US $ 10.2 million and US....
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....TIL was the sole beneficial owner of CGP share. The transaction of sale and purchase of CGP share under SPA took place on 08/05/2007. Therefore during the year under consideration both HTIL and VIH BV are the associate enterprise of the assessee as per section 92A(2) of IT Act. SPA and FWAs constitute an arrangement, understanding or action in concert among the assessee, HTIL and VIH BV for grant of Call Option by Asim Ghosh and Analjit Singh to assessee against the agreed consideration paid by the VIHBV. This mutual understanding and arrangement as well as action in concert between the assessee and its AEs for securing the Option Rights against the consideration paid by VIH BV to HTIL and AG and AS certainly having a bearing on the profits, income, losses or asset of the associated enterprises." 180 Mr. Salve has assailed this conclusion by inviting our attention to the definition of the terms "capital asset" and "transfer" to submit that if these definitions and essential ingredients thereof are not satisfied, then, the machinery provision in Chapter X will not be attracted and applicable. His argument is that assignment of the call option cannot lead to a taxable capital gain....
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....Shareholders Agreement and hence the property rights under the Framework Agreements were effectively assigned in favour of CGP Mauritius by TII Shareholders Agreement. Mr. Setalvad supported all these conclusions of the Tribunal. He submitted that Framework Agreements, SPA and all related documents constitute arrangement or understanding between the parties forming closely linked transactions. These transactions are international transactions as they are entered into between the assessee and its associated enterprise who are non residents. Further, the understanding or arrangement has resulted in creation of an interest in the option rights held by the assessee in favour of VIH BV an associated enterprise of the assessee. The Revenue also submitted before the Tribunal that the ultimate beneficiaries of the option rights was CGP Mauritius another associated enterprise of the assessee. The conclusions of the Revenue are sought to be supported by documents and facts on record. In that regard, our attention is invited to the 2007 TII Shareholders Agreement and once again it is urged that in the TII Shareholders Agreement dated 5th July, 2007 between Nadal, ND Callus, CGP, TII and VIH B....
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....prise. (2) A transaction entered into by an enterprise 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 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, licencees, franchises, customer list,marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any ot....
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....alue; (k) methods, programmes, systems, procedures, campaigns, surveys, studies,forecasts, estimates, customer lists, or technical date; (l) any other similar item that derives value from the intellectual content rather than its physical attributes." 184 A bare perusal thereof would indicate as to how the same has been incorporated so as to take care of avoidance of tax. This provision appears in Chapter X entitled "Special Provisions Relating to Avoidance of Tax". Section 92B defines "international transaction" and for the purposes of section 92B, the prior section 92 and the following sections 92C and 92D and 92E to mean a transaction between two or more associated enterprises, either or both of whom are non residents in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income etc. and thereafter follows the inclusive part. The explanation has been incorporated so as to remove doubt and clarify that the expression "international transaction" shall include all that is covered by clause (I) sub-clauses (a) to (e). By sub-section (2) of ....
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....the assignor to at least one other party who is the assignee. If the Department is unable to point out any such volitional act save and except the 2007 Framework Agreements, then, that argument or stand has been rejected Hon'ble Supreme Court and equally by this Court. 186 In the first place, one cannot ignore the heading or title of Chapter X. That contains special provisions relating to avoidance of tax. Section 92(1) states that any income arising from an international transaction shall be computed having regard to the arm's length price. Therefore, the avoidance of tax results because the income from international transaction is not computed as above. It is for such computation that the further sections would come into play. If any income arising from an international transaction is to be computed and not otherwise. In our view, the transaction that the Tribunal refers to in section 92B means a transaction between two or more associated enterprises either or both of whom are non residents in the nature of purchase, sale or lease of tangible or intangible property. In the present case, there is definitely no provision of service nor is it held to be one of lending or ....
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.... that there is no dispute that the said consideration has been paid by VIH BV an affiliate of the assessee for retaining the call options by AG and AS. In the ultimate analysis, the requirements of section 92B read with section 92F are fulfilled according to the Tribunal because the 2007 Framework Agreement is an arrangement, understanding or action in concert between the assessee and VIH BV for grant of call option by AG and AS to the assessee against the agreed consideration paid by VIH BV. If that is how the matter is approached, then, we do not see any basis for the subsequent observations. These are on the footing that consideration for purchase of single share of CGP was determined on the basis of 67% of the enterprise value of VIH / HEL and while computing the value of this single share, the equity interest of 15.03% through assessee under the Framework Agreements was very much part of the economic value of the transaction under the SPA between VIH BV and HTIL. That is how the Tribunal records that it is undisputed that Framework Agreements of 2007 were executed in pursuance of and to give effect to the SPA. It then concludes that as per the terms of the SPA all group com....
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....he 2007 Framework Agreement, the appellant had agreed that any wholly owned subsidiary of Vodafone group PLC can exercise a right by virtue of the interest created in the option. The words "at its sole discretion" in clause 4.4 of the 2007 Framework Agreement are relied upon. It is, therefore, urged that the appellant is the downstream subsidiary of Vodafone group PLC and some other subsidiaries are higher in the hierarchy. Therefore, these words "at its sole discretion" cannot be attributed to the appellant and these are attributable only to Vodafone group PLC. Hence the new Framework Agreement of 2007 has effectively created an interest in the option rights in favour of the Vodafone group subsidiary company. The shares have been purchased by CGP Mauritius subsequently which is a Mauritius based subsidiary company of Vodagone group PLC at the instance of VIH BV. We do not see any basis for this and then the reliance on the retention deed dated 8th May, 2007, between HTIL and VIH BV. That is not something which was relied upon before the Tribunal. The conditions of section 92B(1) are said to be satisfied by relying on the creation of interest in the option rights under the 2007 Fra....
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....d as under: (a) That the Tribunal accepted the appellant's contention that section 92B(2) is not applicable to the instant case (paragraph 128 of the impugned order). (b) However, the Tribunal upheld the alternate contention of the Revenue as noted by the Dispute Resolution Panel that transaction of call centre business was an international transaction under section 92B(1) of the Income Tax Act, 1961. Thus, Mr. Salve's contention is that the Tribunal firstly considered whether the transaction of sale of call centre business by the assessee to HWP (India) would fall under the explanation "international transaction" as per the provisions of section 92B(1). HWP (India) was incorporated with the object of doing real estate business in India in January, 2006. In December, 2006, the process of divesting telecom business in India by HWL Group started and it was decided to sell the telecom business in India through the sale of downstream subsidiaries except call centre business of the assessee. HWP (India) did not do any business till execution of the business transfer agreement on 8th May, 2007. Even subsequent to the business transfer agreement HWP (India) did not run th....
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....icipate directly or indirectly or indirectly or through one or more intermediaries in the management of capital of the other enterprise. Our attention is invited to the fact whether section 92B(1) which defines international transaction for the purpose of application of Transfer Pricing Regulations (Chapter X) can be applied to a transaction entered into between two resident entities on the specious ground that the transaction was entered into with an Indian company to avoid applicability of Chapter X. Secondly, whether the finding that the transfer of an asset from one Indian subsidiary of Hutch to another Indian subsidiary of Hutch can be considered to be a device to evade tax because had the transfer been made to a foreign company, the Department could have availed of the Chapter X machinery to arrive at an arm's length price, overlooking that the transfer of an Indian call centre owned by an Indian company to a foreign company would create serious regulatory hurdles and problems in relation to Indian Exchange Control Regulations. 192 On the other hand, the argument of the Revenue is based on the fact that the appellant is an Indian company incorporated as 3GSPL and it wa....
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....irst time and it could not have looked into it as there were only five days left before the order of the DRP would have become timebarred. Hence this draft was not admitted as additional evidence. The copy of the SPA was also filed after two months that too after issuance of the summons under section 131 of the Income Tax Act,1961, Further, the assessee did not file the signed and dated copy of the MOU before the TPO. The details of the number of employees working in the call centre and exact and accurate were not filed. That is how the number of employees earlier mentioned as 5483 was later changed to 3640. In all this, it was urged, that the essential ingredients of section 92B(1) and 92B(2) are satisfied. The Tribunal, from paragraph 100 onwards dealt with the primary and the alternate argument and concluded that the transaction of sale of call centre business by the assessee to HWP (India) is an international transaction in terms of section 92B(1). In reaching that conclusion the Tribunal held that the transaction in substance is between the assessee and HTIL / HWL group, the associated enterprises of the assessee and HWP (India) is merely an interpose to give a different colou....
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....at different contentions. He did not support the Tribunal's conclusions as recorded in paragraph 128 of the impugned order. He would submit that the appellant was operating a call centre which was catering to the customers of Hutchison in Australia, UK and Ireland. This business had approximately 7000 employees. At the time of transfer of 67% stake in the telecom business by HTI to VIH BV, it was decided that the call centre business alone will be retained by Hutchison Group. That is why it was sold off as a running business or a going concern by the appellant to Hutchison Whampoa Properties Limited [HWP (India)] by the business transfer agreement dated 8th May, 2007 and the consideration was determined at Rs. 64 crores. This transaction was claimed to be a domestic transaction. The business transfer agreement was entered into on 8th May, 2007, and the call centre business was transferred by the appellant to HWP (India) on 4th December, 2007. The Transfer Pricing Officer treated this transaction as a deemed international transaction under section 92B(2) and determined the value of the call centre at Rs. 2413 crores by applying a PE multiple of Rs. 34.96. The DRP upheld....
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....e completion of the share sale and they have been incorrectly assumed to be conditions required to be fulfilled prior to the completion. Mr. Setalvad submits that the call centre transfer was to take place on 4th December,2007 and long after the execution of the SPA and relied upon clause 1.1 containing definitions of the terms call centre disposal, completion, closing period and submitted that GSPL transfer agreement has been defined as the BTA to be entered into between GSPL and affiliate of HWL relating to the call centre disposal substantially in the form attached to the disclosure letter. Mr. Setalvad, therefore, emphasised that completion took place on 8th May, 2007, when the CGP share was transferred to VIH BV and clause 8.8 provides that BTA will be executed only after completion. If completion has been defined as completion of transfer of CGP share to VIH BV, then, it is obvious that BTA is signed only after this transfer. Mr. Setalvad then relied upon the clause of the BTA and as set out in paragraph 13 of his written note. After relying upon it, he would submit that the date of international transaction is 4th December, 2007 and the associated enterprise relationship is ....
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....e transaction is between associated enterprises and one of them is a non-resident, the condition specified in section 92B(1) is satisfied. Further, the transaction involves sale of call centre business which is a capital asset. The capital asset of the assessee is getting transferred which in turn affects the income or profits and assets of the appellant. Hence this transaction of sale of call centre satisfies the condition specified in section 92B(1) and constitutes an international transaction even if the assessee's contention that the BTA was signed before the implementation of the SPA is assumed to be correct for the sake of argument. 196 With all this, he still relies on the doctrine of lifting of corporate veil. In that regard, the written note from paragraphs 34 to 43 has been perused by us as also paragraph 45. We have also perused the further paragraphs 46 to 48. 197 Mr. Salve has submitted that the argument of the Revenue and the conclusions of the Tribunal to the extent assailed by the appellant- assessee fail to note the difference between the two sub-sections (1) and(2) of section 92B. He would submit that section 92B(2) cannot be re-written. HWP (India) was ....
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.... interest and in terms of the added sub-sections has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction or specified domestic transaction was entered into. 200 With all these words appearing in the substantive section 92, then by section 92A comes in the definition of the term "associated enterprise". Section 92B was inserted to define "international transaction" and by sub-section (2) a transaction entered into by an enterprise with a person other than an associated enterprise shall for the purpose 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. 201 Mr. Salve is right in urging that when international transaction is defined by sub-section (1) to mean a transaction between two or more associated enter....
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.... model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights, or the provision of services of any kind, or in carrying out any work in pursuance of a contract or in investment, or providing loan or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, whether such activity or business is carried on, directly or through one or more of its units or divisions or subsidiaries or whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or places; (iiia) "permanent establishment" referred to in clause (iii), includes a fixed place of business through which the business of the enterprise is wholly or partly carried out." 204 Mr. Salve, therefore, emphasises that if any income arises from the international transaction that shall be computed having regard to the arm's length price. He relied upon the fact that the appellant is an Indian company incorporated as 3GSPL and was part of the HTIL group. It operated a capital call centre catering t....
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....r 2009-10. On August 21, 2008, the petitioner issued 2,89,224 equity shares of the face value of Rs. 10/- each at a premium of 8509 per share to its holding company. This resulted in the petitioner receiving a total consideration of Rs. 246.38 crores from its holding company on issue of share between August and November, 2008. The fair market value of the issue of the equity shares at 8509 per share was determined by the petitioner in accordance with the methodology prescribed by the Government of India under the Capital Issue (Control) Act, 1947. However, according to the Assessing Officer and the Transfer Pricing Officer, the petitioner ought to have valued each share at Rs. 53,775/- as against the aforesaid valuation done under the Capital Issue (Control) Act. On that basis a shortfall in premium to the extent of Rs. 45,256/- per share resulted in a total shortfall of Rs. 1308.91 crores. Both the Assessing Officer and the Transfer Pricing Officer on application of the transfer pricing provision in Chapter X of the Income Tax Act held that this amount of Rs. 1308.91 is income. Further, as a consequence of the above, this amount is required to be treated as deemed loan given by th....
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....re summarized as under: a. On a broader and harmonious construction of the term "income" in Section 92(1), Assessing Officer has jurisdiction to invoke Chapter X as share premium is an income arising from issue of shares (para 21) b. Even if the term "income" is not given a broad interpretation, the Assessing Officer has jurisdiction to invoke Chapter X as there is income potentially arising or affected by the short receipt of share premium (para 24)" 206 After that, in paragraph 16, the contentions of the petitioner's senior counsel and in paragraph 17, the contentions and submissions of the Revenue have been noted. Thereafter, in paragraph 21, all the relevant provisions, including section 92, sections 92B, 92F are reproduced and in paragraphs 22, 23, 24, 25 and 26, this is what is held : "22 Chapter X of the Act in the present form replaced the erstwhile Section 92 of the Act by Section 92 to 92F of the Act with effect from the assessment year 2002-03. Erstwhile Section 92 of Chapter X of the Act did deal with cross border transactions permitting adjustments of profits made by a resident in case of transactions with non-resident (two entities having close connect....
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.... arm's length price. Any expense or outgoing in an International Transaction is also to be computed having regard to the arms length price. Thus in the case of a manufacturer, for example, the provisions will apply to exports made to the associated enterprise as also to imports from the same or any other associated enterprise. The provision is also applicable in a case where the International Transaction comprises only an outgoing from the Indian assessee. 55.5:- The new section further provides that the cost or expenses allocated or apportioned between two or more associated enterprises under a mutual agreement or arrangement shall be at arm's length price. Examples of such transactions could be where one associated enterprise carries out centralized functions which also benefit one or more other associated enterprises, or two or more associated enterprises agree to carry out a joint activity, such as research and development, for their mutual benefit. 55.6:- The new provision is intended to ensure that profits taxable in India are not understated (or losses are not overstated) by declaring lower receipts or higher outgoings than those which would have been declared ....
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.... Thus, we would examine the provisions of Chapter X of the Act with the aid of the submission made before us. FINDINGS : 24 A plain reading of Section 92(1) of the Act very clearly brings out that income arising from a International Transaction is a condition precedent for application of Chapter X of the Act. This has already been so held by the order dated 29 November 2013 of this Court in Vodafone-III. We could have straight way held that the issue of examining the jurisdiction to apply Chapter X of the Act stands concluded by the order in Vodafone- III. 25 But we have examined the issue afresh. The word income for the purpose of the Act has a well understood meaning as defined in Section 2(24) of the Act. This even when the definition in Section 2(24) of the Act is an inclusive definition. It cannot be disputed that income will not in its normal meaning include capital receipts unless it is so specified, as in Section 2(24) (vi) of the Act. In such a case, Capital Gains chargeable to tax under Section 45 of the Act are, defined to be income. The amounts received on issue of share capital including the premium is undoubtedly on capital account. Share premium have been ma....
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....finition as a whole is inclusive and not exhaustive. In the present case, the words "chargeable under section 45" are very important. They are not being read by the Department. These words cannot be omitted. In fact, the prior history shows that capital gains were not chargeable before 1946. They were not chargeable between 1948 and 1956. Therefore, whenever an amount which is other wise a capital receipt is to be charged to tax, section 2(24) specifically so provides." In view of the above, we find considerable substance in the Petitioner's case that neither the capital receipts received by the Petitioner on issue of equity shares to its holding company, a non-resident entity, nor the alleged short-fall between the so called fair market price of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act. 26 We shall now consider the submissions on behalf of the Revenue in the context of the statutory provisions. At one point of time we were toying with the idea of only dealing with the new grounds in support of the impugned order, as canvassed before us by the learned Solicitor Gene....
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....titioner company to its holding company has nothing to do even remotely with terrorism. In fact, while interpreting a fiscal/taxing statute, the intent or purpose is irrelevant and the words of the taxing statute have to be interpreted strictly. 29 In case of taxing statutes, in the absence of the provision by itself being susceptible to two or more meanings, it is not permissible to forgo the strict rules of interpretation while construing it. The Supreme Court in Mathuram Agarwal Vs. State of M.P. 1999(8) SCC 667 had laid down the following test for interpreting a taxing statue as under:- " The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more that what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substitut....
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....consideration between associated enterprises. The entire consideration received would not be a subject-matter of taxation. It appears for the above reason that the learned Solicitor General did not seek to defend the conclusion in the impugned order on the basis of the reasons found therein, but sought to support the conclusion with new reasons. 33 Before dealing with the submissions advanced by the learned Solicitor General in his reply, to support the impugned order on grounds different from those found therein, it would be necessary to note that taxing of premium not received as the ground in the impugned order is given up and the jurisdiction to tax a transaction of issue of shares is on the basis of benefit given to the holding company. The basis/justification of the impugned order is based upon Section 92(1) of the Act, while before us the learned Solicitor General places reliance upon Section 92(2) read with 92(1) of the Act to subject the transaction to tax on the basis of the cost of the benefit passed. Therefore, many of the decisions cited by the Petitioner in its opening submissions are no longer relevant and therefore, not dealt with in this order. FINDINGS ON SU....
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.... any benefit, service or facility then the allocation, apportionment or contribution towards the cost or expenditure is to be determined in respect of each associated enterprise having regard to arm's length price. Thus, to illustrate, the cost of research carried on by an associated enterprises for the benefit of three associated enterprises, then the cost will be distributed i.e. allocated, apportioned or contributed depending upon the arm's length price of such benefit to be received by the assessed associated enterprise. It would have no application in the cases like the present one, where there is no occasion to allocate, apportion or contribute any cost and/or expenses between the Petitioner and the holding company. Therefore, we find no substance in the above submission. 37 The learned Solicitor General next contended that the issue is no long res integra as the issue stands covered by the decision of the Apex Court in Mazgaon Dock Ltd. (supra) while interpreting Section 42(2) of 1922 Act. It is submitted that the above Section 42(2) of the 1922 Act dealt with transfer pricing. In the above case, the Apex Court held that under Section 42(2) of the 1922 Act, the ta....
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....rought within the definition of Income, except in cases covered by Section 56(2) (viib) of the Act. Thus such capital account transaction not falling within a statutory exception cannot be brought to tax as already discussed herein above while considering the challenge to the grounds as mentioned in the impugned order. 39 In tax jurisprudence, it is well settled that following four factors are essential ingredients to a taxing statute:- (a) subject of tax; (b) person liable to pay the tax; (c) rate at which tax is to be paid, and (d) measure or value on which the rate is to be applied. Thus, there is difference between a charge to tax and the measure of tax (a) & (d) above. This distinction is brought out by the Supreme Court in Bombay Tyres India Ltd. Vs. Union of India reported in 1984 (1) SCC 467 wherein it was held that the charge of excise duty is on manufacture while the measure of the tax is the selling price of the manufactured goods. In this case also the charge is on income as understood in the Act, and where income arises from an International Transaction, then the measure is to be found on application of arm's length price so far Chapter X of the A....
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....e-hors charging Section. The Act has to be read as an integrated whole. On the aforesaid submission also, there can be no dispute. However, as observed by the Supreme Court in CIT v/s. B. C. Srinivasa Shetti 128 ITR 294, "there is a qualitative difference between the charging provisions and computation provisions and ordinarily the operation of the charging provisions cannot be affected by the construction of computation provisions." In the present case, there is no charging provision to tax capital account transaction in respect of issue of shares at a premium. Computation provisions cannot replace/ substitute the charging provisions. In fact, in B. C. Srinivasa Shetti (supra), there was charging provision but the computation provision failed and in such a case the Court held that the transaction cannot be brought to tax. The present facts are on a higher pedestal as there is no charging provision to tax issue of shares at premium to a non-resident, then the occasion to invoke the computation provisions does not arise. We, therefore, find no substance in the aforesaid submission made on behalf of the Revenue." 209 Mr. Setalvad submitted that this judgment would not be of any as....
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.... and a draft assessment order dated 29th December, 2011, passed by the Assistant Commissioner of Income Tax (for short " the Assessing Officer"). The petitioners sought a writ of mandamus directing Respondent No.3 - the Assessing Officer to revise the draft assessment order, after excluding the transfer price adjustment. 214 This Court, in paragraph 203, on which reliance is placed by Mr. Salve, and the further paragraphs would support the arguments canvassed before us in this case and, therefore, we find that the reliance on paragraphs 203 to 211 of this judgment is well placed. 215 Thereafter this Court referred to the post amendment scenario and this Court clarified that it is neither necessary nor proper to indicate the application of section 2(47) as amended to the proceedings before it. In the circumstances, we do not think that any further reference to this judgment is necessary. 216 As far as the Division Bench judgment in the case of Vodafone India Services Pvt. Ltd. vs. Union of India & Ors., (2014) 368 ITR 1, we have followed and applied it and hence the reliance on this judgment is well placed. Further, the Department has accepted this judgment is also apparent....
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....ansfer was assessable to capital gain tax. The assessee preferred an appeal to the Appellate Assistant Commissioner who rejected the argument of the assessee that the cost of acquisition of assets could not be determined. Then, the assessee approached the Tribunal in further appeal which held that the entire ownership of the property means the ownership of a bundle of rights and a limited interest which can be severed and disposed of for a specified period in the form of lease or mortgage or the like is part of that bundle. Therefore, the Tribunal held that the purchase price paid for the land includes therein a component of purchase price attributable to various counts of interests embedded in the said land. That is how the Tribunal confirmed the orders impugned before it and dismissed the appeal. 222 However, the reference to the High Court for the two questions in paragraph 6 resulted in an answer as noted in paragraph 7. Thus, the finding and essentially was that the rights of the owner of a land included a right to grant the lease for exploiting the land. It is in these circumstances and what should be the cost of acquisition of a right which is of limited enjoyment that th....
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....ue for A.Y. 2008-09. 225 We conclude the judgment by holding that the Tribunal's order contains inconsistent and contradictory findings on the issue discussed above. We have also indicated the contradictions and inconsistencies in these findings in the foregoing paragraphs. We have found that the Tribunal's attempt to get over the binding judgment of the Hon'ble Supreme Court in the manner done also cannot be sustained. We have commented upon the same as well. We have found that there is no substance in the contentions of the Revenue that a fraud was perpetrated by the assessee on the Hon'ble Supreme Court as well as the other authorities by suppressing vital and material facts. Once the Hon'ble Supreme Court judgment was in the field and in which the observations and findings were made on the very issue, then, no attempt by any party to sidetrack the same can be upheld. It is in these circumstances that we find that the Tribunal's order is vitiated by serious errors of law apparent on the face of the record. It is also perverse for it ignores vital materials and which have been noted extensively in the judgment of the Hon'ble Supreme Court. Once the ....