TaxTMI 
TaxTMI 
2017 (3) TMI 1469
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.... called for hearing on 15/10/2016 the Ld. authorized representative of the appellant submitted a letter dated 15/10/2016 requesting for adjournment of hearing. It was submitted that appellant along with its holding company Cairn Energy PLC is currently engaged in the arbitration under article 9 of the agreement between government of the United Kingdom of Great Britain and Northern Ireland and the government of the Republic of India for the promotion and protection of the investment and proceedings are in progress. Therefore, it was argued that the issue is already sub-judice before the International Court of Justice. Therefore, it was argued that considering the importance of the matter under appeal and its significant impact, appellant must necessarily consult its international counsel and due to the short extension previously given it is not been possible to liaise between Indian and international counsel in the time allowed. Therefore, the requests said that appeal might be adjourned until January 2017. 03. This adjournment application was vehemently objected to by the Ld. departmental representative stating that that the statement made in the application that the issue ....
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....essee for arbitration proceedings, which is pending since 11/03/2014, is not proper. Hence, we directed both the parties to argue the matter before us and we have ensured that enough opportunity would be available to both the parties for putting their case forward. Consequently, on 15/11/2016, the matter was partly heard and the revenue was directed to produce the original records and hearing was adjourned to 18/11/2016. Further, on 18/11/2016, hearing was further adjourned to 14/12/2016. On 14/12/2016, there was a further adjournment request, which was acceded to, and the matter was finally adjourned to 19/12/2016. On 19/12/2016, matter was argued by both the parties and heard. 05. In this appeal following grounds of appeal are raised by appellant:- Grounds of Appeal Without prejudice to ongoing international arbitration proceedings involving Cairn Energy PLC, Cairn UK Holdings Limited and the Government of India and all its claims, rights and remedies therein, Cairn UK Holdings Limited (hereinafter referred to as the "Appellant") craves leave to prefer appeal against the order dated 25 January 2016 issued by the Learned Deputy Commissioner of Income Tax (I....
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.... to tax in India. 3.5. The AO has erred in and the DRP has further erred in not appreciating the fact that the transaction which gives rise to the assessment order at dispute is purely an internal group restructuring, prior to the listing of CIL's shares on stock exchanges in India. It is submitted that the above referenced reorganisation resulted in new subsidiaries in the corporate group but did not generate any real income or crystallise any new value and is, therefore, not chargeable to tax in India. 3.6. The AO has erred in and the DRP has further erred in not considering the various decisions of the Hon'ble Supreme Court of India on the computation of real income and in not appreciating the contention of the Appellant that no real income or gain has accrued to the Appellant on account of the transfer of shares to CIL and a mere accounting entry cannot be income, unless real income has actually been earned. Clearly, there was no commercial transaction with any outside third party and no gain \sas derived from any outside third party. Accordingly, there was no real income or gain realized by the Appellant in connection with these transactions. The AO and....
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....in a foreign company based on the location of the underlying assets. 3.11. Based on the facts and in the circumstances of this case and on the premise of the grounds mentioned above, the order under Section 147 of the Act dated 25th January 2016, levying income-tax on alleged capital gains amounting to Rs. 24,504 Crore in the hands of the Appellant, is patently illegal and thus liable to be quashed. 4. Erroneous findings of the AO 4.1. The AO has erred in concluding that "the money was remitted out of the country bypassing or circumventing all procedural requirements". The AO failed to appreciate that all regulatory requirements were complied with, and that it was these very requirements that dictated the structuring of the transaction. The AO erred in concluding that the structuring of the transaction was to avoid paying tax. 4.2. The AO has erred in concluding that the final tranche of transfer of CIHL shares for cash was not disclosed in the application to the Foreign Investment Promotion Board, nor was any approval taken for this. The AO failed to appreciate that this final tranche is specifically referred to in the above referenced application and no se....
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.... or advancement of ground no (2) of the memorandum of appeal (Pg. No. 4) which the Hon'ble Tribunal is otherwise competent to do, in view of the principles of the Hon'ble Supreme Court in the case of National Thermal Power Corporation Limited 229 ITR 383 (SC). Further, the Appellant believes that the existing grounds are wide enough to cover these grounds, however, as a matter of good order it is filing these as additional grounds. Below Ground No. 2.2, the following grounds are added: "2.3 On the facts and in the circumstances of the case, the learned AO has erred in completing reassessment proceedings under section 147 / 148 of the Act based on the incorrect approval obtained under section 151 (2) of the Act; 2.4 On the facts and in the circumstances of the case, the learned AO has erred in completing reassessment proceedings under section 147 / 148 of the Act based on the issue of an invalid notice under section 143(2) of the Act which is the primary requirement for initiation of any assessment proceedings;" Below Ground No. 3.11, the following grounds are added; "3.12 On the facts and in the circumstances of the case, the learned ....
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....hich assessee further submitted adjournment applications on these occasions for additional time for 4 weeks. As the information was not forthcoming from the assessee. The Ld. assessing officer exercised powers under section 133 (6) of the act and asked details from Cairn India Limited , purchaser of the shares of Cairn India Holdings Limited. 08. The facts of the impugned transaction, undisputedly are noted by the Ld. assessing officer in para No. 7 of his order as under:- "7. Analysis of the transaction of sale of shares of CIHL by Assessee (CUHL) to CIL. 7.1 Transfer of the Indian Assets from Cairn Energy Plc to CUHL Cairn UK Holdings Ltd. (CUHL in short) was incorporated on 26.06.2006 in the United Kingdom as a 100% subsidiary of Cairn Energy PLC (CEP). Cairn Energy PLC, a company incorporated in Scotland was holding various oil and gas assets in India through its direct/indirect foreign subsidiaries. In the year 1995, CEP acquired participating interest in the underlying Indian assets. On 30.06.2006, Cairn UK Holdings Ltd. (CUHL) issued 22,14,44,034 ordinary shares of face value of 1GBP each to Cairn Energy PLC (CEP) in exchange for the entire is....
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.... Limited and Cairn India Holdings Limited (both subsidiaries of Cairn UK Holdings Ltd) with Cairn Energy PLC as the Guarantor. The Subscription and Share Purchase Agreement provided for Cairn India Limited to acquire approximately 21.85% of share capital of Cairn India Holdings Limited in two tranches. Subsequently a new Share Purchase Deed was signed on 12.10.2006 and the entire share holding of Cairn India Holdings Ltd was acquired by Cairn India Ltd, from CUHL. By virtue of purchase of 100% shares of CIHL from CUHL, CIL acquired the entire Indian business of the group. CIL acquired (purchased) 25,12,24,744 shares of CIHL from CUHL for a total consideration of Rs. 26,681,87,10,140. This transaction was carried out in the following manner: Date Mode From Number of shares of CIHL Total Value (Rs.) 12 Oct 2006 Share Purchase Cairn UK Holdings Limited 4,14,93,659 50,37,39,87,924 22 Nov 2006 Share Purchase Cairn UK Holdings Limited 1,33,90,789 17,55,42,39,705 20 Dec 2006 Share Swap Cairn UK Holdings Limited 13,52,67,264 1,37,88,23,82,880 29 Dec 2006 Share Purchase Cairn UK Holdings Limited 6,10,73,032 61,00,80,99,631 Total 25,12,24,744 26,681,....
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....ubsidiary as the disposal is exempt from tax under Schedule 7AC of the Taxation of Chargeable Gains Act, 1992. 7.2.5 Financial Statement of Cairn UK Holdings Ltd (as on 31 Dec 2007) states that during the period an exceptional gain of $ 47.8 m has been recognized as part of the transaction between the company and Cairn India Ltd. in 2006. The gain represents additional consideration received from Cairn India Ltd. under the sale and purchase agreement dated 12 Oct 2006 whereby Cairn India Ltd acquired the entire share capital of Cairn India Holdings Ltd from the company. The additional consideration arose as a result of the price stabilization mechanism which required the issue by CIL of 130,85,041 new shares for total consideration of Rs. 209,36,06,560 on 08.02.2007. There was a consequent reduction in the Company's percentage holding of CIL from 69.5% to 69%. 7.2.6 As per the Financial statement of Cairn UK Holdings Ltd, no tax was payable in UK on the gains arising from sale of shares of Cairn India Holdings Ltd. to CIL. 7.3 As per Notes to Accounts No. 7 to the Income Statement as on 31.12.2006, the details of investments of CUHL are as given below:  ....
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....at Dec. 31, 2006 SOURCES OF FUNDS Shareholder's funds Share Capital 17,65,31,43,790 Stock options outstanding 34,50,58,813 Reserves and surplus 275,01,78,36,642 293,01,60,39,245 Loan Funds Unsecured Loans 20,47,07,562 Total 293,220,746,807 APPLICATION OF FUNDS Investments 26,681,87,10,140' The investments are qualified with the following remarks: "Long-term investments (at cost) - unquoted and non-trade 251224744 ordinary shares of GBP 1 each, in Cairn India Holdings Limited, subsidiary company (refer note 9(b) under schedule 13) 266818710140' 7.4.4 The Balance Sheet also mentions the following Related Party Transactions; Reimbursements of expenses incurred on behalf of the Company by: Cairn Energy Plc 2,50,00,200 Investment made during the period Cairn India Holdings Limited 26,681,87,10,140 Shares issued during the period (share capital and securities premium) Cairn UK Holdings Limited 20,723,78,73,500 (Investment made in CIL by CUHL) 7.4.5 Further, in the Notes to the accounts forming part of the auditor's report, Schedule-13 provides the foll....
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....and wholly owned subsidiary on December 29, 2006. All other above mentioned subsidiaries are direct or indirect wholly owned subsidiaries of CIHL. Accordingly, these financial statements include the result of these subsidiaries for the period December 20, 2006 to December 31, 2006. (b) During the period, the Company has acquired 25,12,24,744 shares in Cairn India Holdings Limited for total purchase consideration of Rs. 26681,87,10,140 including Rs. 3276,30,69,551 for which purchase consideration was payable to Cairn UK Holdings Limited at December 31, 2006. The purchase consideration for this investment was finalized in February 2007 after considering the final amount payable on exercise of Green Shoe Option. The above transactions (except for the initial share capital) are based on the terms and conditions prescribed by the Share Purchase Agreement executed between Cairn Energy PLC, Cairn UK Holdings Limited, Cairn India Holdings Limited and the Company dated October 12, 2006 and in accordance with the approvals in this behalf received from the Foreign Investment Promotion Board, Government of India and from other relevant regulatory authorities in India and as per....
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....ws: Cairn India Limited Group Capricorn Energy Limited Group Other Group 2006 $000 $000 $000 $000 Revenue from sale of oil, gas and condensate 221956 63753 -- 285709 Tariff Income 595 --- --- 595 Total Revenue 222551 63753 --- 286304 Cost of sales 143751 78685 -- 222436 Gross Profit 78800 14.932 63868 Segmental Operating Profit/(Loss) 119725 143675 40620 64570 Cost of sales in the segmental Results above includes; Production costs 38585 18346 -- 56931 Unsuccessful exploration costs 56650 5368 -- 62018 Depletion and decommissioning charge 48516 54971 --- 103487 Other segmental items included in the income statements are; Impairment of oil and Gas assets -- 71455 -- 71455 Depreciation 2393 3 749 3145 Amortization 2242 -- 1620 3862 The segment assets and liabilities as at 31 December 2006 and capital expenditure for the year then ended are follows: Cairn India Limited Group Capricorn Energy Limited Group Other Group 2006 $000 $000 $00....
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....f cairn India Ltd to support his contention. In para No. 8.6 of his order he further referred that none of the employees of the subsidiaries, which were subject to transfer, was employed outside India and, therefore the entire workforce of the PE of Cairn Group , was employed in India only. Therefore, he further held that workforce is also located in India. In para No. 8.8 of his order he referred to the certificate of incorporation of cairn India Holdings Ltd issued by Jersey financial services commission which shows that the company will act as a holding company for a number of companies within the cairn group, which in turn hold Indian oil and gas assets. Therefore he held that that the shares of cairn India Holdings Ltd, which were acquired by cairn India Ltd from appellant derive their value solely from the assets located in India and, therefore, in accordance with the provisions of section 9 (1) (i) of the Income Tax Act, it shall be deemed to have been situated in India and consequently any capital gain arising from the transfer of such shares are chargeable to tax under the Indian Income Tax Act, 1961. He further held that on transfer of shares of cairn India Holdings Ltd f....
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....d into between appellant , the seller of the shares, Cairn India Ltd, the purchaser of the shares, along with the guarantor of the transactions and the company, whose shares are transacted . He further analysed the share purchase deed dated 12/10/2006 and the red Herring prospectus of cairn India Ltd, through book building process. Therefore, he held that all these agreements analysed with chronological event of transactions, It resulted in changing the cairn group structure. He also demonstrated that the whole transaction is for transferring assets in India through various subsidiaries - holding corporate structure. He further analyzed the business operation, nature of income and location of country of operation of the 26 intermediaries companies whose assets are dealt with in this transaction and held that the country of operation of the most of the companies who are in operation is in India. He further referred to the fact of initial public offering and held that the shareholding of the appellant in the Indian company i.e. cairn India Ltd got reduced to 68.98% post-IPO as 31.02% is held by public post IPO. However, the number of equity shares of appellant's in the cairn In....
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....erefore there was no disclosure made by the assessee as no return of income was filed for the impugned assessment year. He further referred to the disclosure of the transaction made by the Indian entity in the Red Herring prospectus and approval obtained from Foreign Investment Promotion Board and held that there is no concept of 'group taxation' under the Indian Income Tax Act and Indian entity and the appellant are two different assesses. Hence, it cannot be said to be a disclosure at all. He further referred to the provisions of section 47 (iv) rws 47A of the act and held that same are not applicable to the impugned transaction, as the appellant or its nominee did not hold the whole of the share capital of the Indian subsidiaries companies on the date of transfer of capital asset on 29/12/2006. According to him the conditions prescribed under section 47A of the Income Tax Act of holding of the whole of the share capital of the subsidiary company for a period of at least 8 years from the date of the transfer of the capital asset is not satisfied and therefore the exemption under section 47 (iv) does not apply to the appellant. Further, vide para No. 9.2, he analysed the various l....
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.... the resulting capital gains for taxable in the hands of the appellant. The Ld. assessing officer further drawing support from the decision of the Hon'ble Supreme Court in CIT versus Vatika Township private limited and held that the language of the expiration for an expression 5 which is been inserted w.r.e.f. 01/04/1962, amendments are clarificatory in nature and the operation is retrospective. 13. After holding that the capital gain arising in the hands of the appellant on account of sale of 100% shares of Cairn India holding Ltd which derive their value solely from the assets located in India, is taxable in India as per the provisions of section 9 (1) (i) of the Income Tax Act, he also applying the provisions of section 48 of the Income Tax Act determined the actual 'cost of acquisition' of those assets. As appellant acquired 100 % shareholding of Cairn India holding Ltd, Jersey for GBP 251224444, from cairn energy plc, Scotland by issue of shares @at UK pound 1/-. Applying the rate of Rs. 86.71 for UK pound, total investment of Rs. 21783697552/- was determined. The date of acquisition was also determined at 07/08/2006. Therefore, he worked out the cost of acquisit....
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....equested to keep the proceedings pending was rejected. It was further objected before the Ld. Dispute Resolution Panel that interest under section 234A, 234B and 234C and 234D of the Income Tax Act is not chargeable because taxes required to be deducted by the Indian entity who paid such sum u/s 195 of the Act. Ld. DRP rejected the contention of the assessee with respect to interest under section 234A and 234C, whereas for the purpose of interest under section 234B Ld. AO is directed to reconsider the issue with clear-cut finding in his order. Therefore, in nutshell all the objections raised by the assessee were rejected by ld DRP approving the draft assessment order confirmed in toto by the Ld. Dispute Resolution Panel. 16. Consequently, ld AO framed order under section 143 (3) rws section 148 and section 144C (13) of the Income Tax Act final assessment order on 25th January 2016 determining the total income of the assessee at Rs. 245035012588/- as short-term capital gain chargeable to tax in the hands of appellant taxable at the rate of 40%. Subject to chargeability of surcharge and cess as applicable. Further, with respect to chargeability of interest under section....
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....ee are legal in nature and no further facts are required to be investigated, therefore, in the interest of Justice these are admitted. 20. Now we come to the main grounds of appeal on which submission made by the assessee. Ground No. 1 of the appeal of the assessee is general in nature, arguing that the order passed by the Ld. assessing officer pursuant to the direction of the Ld. Dispute Resolution Panel is bad in law and facts and is liable to be set-aside on the ground set forth below. No specific argument were led on this ground and as it is a preamble to the other grounds of the appeal, it is general in nature, hence, dismissed. 21. Ground No. 2 of the appeal of the assessee is with respect to the assumption of jurisdiction u/s 148 of the Act. The main contention of the assessee is that the Ld. assessing officer has erred and Ld. Dispute Resolution Panel has compounded that error by confirming the action of the Ld. assessing officer in assuming jurisdiction under section 147 of the act, even when there is no income chargeable to tax of the appellant and which is the condition precedent for initiation of reassessment proceedings and various applicable time....
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.... sanction / approval of the higher authorities as required under section 151(2) of the Act (refer page no. 7 of the Paper Book}. Further, on 25 July 2014, when copy of the recorded reasons for reopening of assessment was provided by the AO to the Appellant, the said reasons were neither signed nor was containing any sanction / approval of the higher authorities as contemplated under Section 151(2) of the Act (refer page no. 22 to 30 of the Paper Book). 1.2. During the course of DRP proceedings, vide submission dated 29 September 2016 the Authorized Representative ('AR') raised an objection that the required approval under section 151(2) of the Act is not obtained by the AO. To the above, DRP Members referred the matter back to the file of the AO and asked the AO to submit the required approvals. 1.3. Further, since this approval was one of the important documents, Appellant also wanted to see the records and ensure that due process of law is followed and the reassessment proceedings are not without jurisdiction. In view of the same, during the course of DRP proceedings, the Appellant, vide its letter dated 2 November 2015 and 15 December 2015, also filed a r....
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....uch notice. (3) ... " ('Emphasis added) 1.10. Therefore, on perusal of Section 151(2) of the Act, it is evident that no notice shall be issued by an Assessing Officer who is below the rank of Joint Commissioner of Income-tax ("JCIT"), unless the JCIT is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of notice. 1.11. Hence, Section 151(2) of the Act gives administration powers only to JCIT for sanction / approval for issuance of the notice under Section 148 of the Act. . 1.12. In this regard, the Appellant also refers to the definition of JCIT given in Section 2(28C) of the Act, which reads as under: "(28C) "Joint Commissioner" means a person appointed to be a Joint Commissioner of Income-tax or an Additional Commissioner of Income-tax under sub-section (1) of section 117" 1.13. Based on perusal of the definition of JCIT, it is evident that it does not include the Additional Director of Income-Tax. In fact, Additional Director of Income-Tax has been separately defined under Section 2(1D) of the Act, which reads as under: "(ID) "Additional Director " means a person appointed t....
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....l High Court held as under - "8. The Revenue's argument seems plausible and even logical because the Commissioner or a Chief Commissioner is unarguably ranked higher in authority than a Joint Commissioner. Yet at the same time, this Court has to give effect to plain words of the statute which unambiguously states that the competent authority in such cases is the Joint Commissioner (and not the Chief Commissioner or the Principal Commissioner). The Revenue's submissions that all such cases, are covered under proviso to Section 147(1), the competent authority for prior approval would he four superior officers, renders Section 151(2) superfluous. If anything the Court is clear that it is not its job to render, in the process of interpretation, an entire provision academic or inoperative. This court is of the opinion that accepting the Revenue's position would result in that consequence. The Court also invokes the principle enunciated by the Privy Council in Nazir Ahmad v. Emperor AIR 1936 PC 253 : that if the statute mandates that something be done in a particular manner, should be in that manner or not at all. In this case, since the original assessment was comple....
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....ch the statute mandates of a distinct authority cannot be substituted by the satisfaction of another. We are in respectful agreement with the judgment of the Delhi High Court. " (Emphasis added) Further, the above ratio has also been followed in the following judicial precedents - * DSJ Communication Ltd. vs. DCIT [2014] 41 taxmann.com 151 (Bombay) * Gajinder Singh Chhabra vs. ITO [2014] 50taxmann.com 312 (Delhi - Trib.) * Sunint Investment & Technologies (P.) Ltd. vs. ACIT [2012] 26 taxmann.com 260 (Delhi) * ITO vs. Tirupati Cylinders Ltd. (ITA No. 5084/Del/2012) - .; ' : * M/s Sonotone Electronic P. Ltd. vs. ITO (ITA No. 2493/Del/2010) * Jai Prakash Ahuja vs. ITO [2014] 48 taxmann.com 86 (Lucknow - Trib.) * Sardar Balbir Singh vs. ITO [2015] 61 taxmann.com 320 (Lucknow - Trib.) 1.20. Apart from the above, it is to be noted that the AO vide its letter dated 3 December 2015, has informed Hon'ble DRP that administrative approval of the Addl. CIT for issuance of notice under Section 148 has been taken on 21 January 2014 (refer page no. 50 to 51 of the Paper Book). Based on the perusal of the copy of the approval ....
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....ing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years," (Emphasis added) 2.2 Based on the above, it is evident that notice under Section 143(2) of the Act for proceeding with the assessment can be issued by the AO only after disposal of objections raised by the Appellant. 2.3 In the instant case, since the notice under Section 143(2) of the Act had been issued before disposal of objections raised by the Assessee, the said notice is bad in law and liable to be quashed. Considering this, the Appellant further submits that once the notice issued under Section 143(2) of the Act is invalid, the reassessment framed consequent thereto cannot sustain in the eyes of law and liable to be quashed. 2.4 In this regard, the Appellant wishes to rely on the decision of the Bombay High Court in the case of M/s Premier Limited v. DCIT & Another (Writ Petition No. 2340 of 2008 - dated 22 December 2008). In this writ petition, the Appellant has, inter alia, challenged the validity of notices issued under Section 142(1) and 143(2) of the Act, which had been issued by the Assessing Officer without disposing off the objection....
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....the name and office of a designated Income-tax authority is printed, stamped or written there upon. 3.6 However, in the instant case, the reasons for reopening provided by the AO neither bears the signature of the AO nor is the name and office of the AO is printed, stamped or written thereupon (refer to Page 30 of the Paper Book). 3.7 Thus, in light of provisions of Section 282A, the reasons for reopening provided by the AO are not correctly provided and does not contain any statutory force. b. In this regard, the Appellant would like place reliance on decision of Hon'ble Mumbai Tribunal in case of Mahendra C. Gala v. ACIT (ITA No. 6590/Mum/2013) wherein it was held that supplying of unsigned reasons renders the notice issued under Section 148 of the Act without jurisdictional foundation under Section 147 of the Act and hence the subsequent proceedings were also without jurisdiction. c. Further, reliance is placed on the following judicial precedents in order to highlight the importance given by the judiciary in relation to signature on documents / notices issued by the income-tax authority and whereby such statutory lapses were considered fatal ....
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....rder of assessment is passed in terms of the said subsection (3) of section 143, a presumption can be raised that such an order has been passed on application of mind. It is well-known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of I he Indian Evidence Act the judicial and official acts have been regularly performed If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasi-judicial function to take benefit of its own wrong" 5. Reasons for reopening were contrary to the law laid down by Supreme Court1 decision 5.1 Without prejudice to the above submission in point no. 24 to 75, the Appellant submits that if Section 9(1 )(i) of the Act is to be interpreted without referring to Explanation 5, then the law in relation to Section 9(1)of the Act has been laid down by the decision of Hon'ble Supreme Court in the case of Vodafone International v Union of India [2012] 341 ITR 1 (SC). Indeed, until the Revenue....
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....ered the objections, and examined the draft assessment order as well as the contents of the Report of the Survey u/s 133A carried out by the Investigation Wing on 15.1.2014 and referenced by the Assessing Officer..... " 6.4 Further, the AO himself in his letter dated 3 December 2015 has observed that the case was reopened under Section 148 on the basis of the survey proceedings under Section 133 A conducted on the office premises of CIL on 15 January 2014. 6.5 Based on the above, the Appellant submits that it is beyond doubt that the reassessment in the instant case had been initiated, based on the report of the survey conducted on the premises of CIL on 15 January 2014. However, the Appellant also notes that no new documents were uncovered by the survey proceedings on 15 January 2014 - all of the documents in question had previously been provided to the FIPB (on which Revenue was represented) and other branches of the government during the course of 2006 in connection with the Cairn 2006 reorganisation transactions and the establishment of CIL. 6.6 Given the above background, the Appellant would also like to bring to the notice of your Honors that on 29 Mar....
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....l jurisdiction of the AO over foreign companies under the Act. The Appellant has been challenging-and is challenging - the validity of assumption of jurisdiction for initiating reassessment proceedings without satisfying the various condition precedent for the valid assumption of jurisdiction as enunciated by the Supreme Court in several decisions, 8. Rebuttal to judicial precedents relied upon by the DRP 8.1 The DRP relied on the decisions of CIT v Mehak Finvest P Ltd [2014] 52 Taxmann.com 51 (P&H) and Majinder Singh Kang v CIT [2012] 344 ITR 358 / 25 taxmann.com 124 (P&H) contending that in view of Explanation 3 to Section 147 of the Act. the AO shall be empowered to make additions even to the extent of grounds on which reassessment notice might not have been issued during reassessment proceedings. 8.2 In this regard, the Appellant wishes to submit that the issue in relation to Explanation 3 to Section 147 of the Act was neither contended by the Appellant during the assessment proceedings nor during the DRP proceedings. The reliance placed by the DRP on these decisions, which deal with Explanation 3 to Section 147 of the Act, is totally irrelevant and base....
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....mitted that these 2 authorities are quite different. He further referred to the decision of the Hon'ble Delhi High Court in case of CIT versus Pawan Kumar Garg [2009] 178 Taxman 491 (Delhi)/ [2011] 334 ITR 240 (Delhi)/ [2009] 222 CTR 36 (Delhi) wherein it has been held that manner in which expression 'Joint Director' has been used in section 132(1) requires same to be interpreted in its limited sense as meaning only a Joint Director and not an Additional Director of Income- tax. 24. On the issue of reopening of assessment proceedings the ld departmental representative vehemently contested the submission of the assessee and also submitted on each of the issue as under :- 1) Regarding claim that approval does not meet the requirements laid down u/s 151(2) * The assessee applied for PAN on 8.11.2006. Based on the information provided by the assessee it was assigned to the jurisdiction of Circle 1(2)(1), Delhi, which came under the jurisdiction of Addl DIT(IT), Range 1, Delhi. * Vide notifications no. 263/2001 of 14.09.2001 and 250/2007 dated 28.09.2007 read with order of DIT (IT)-l Delhi dated 11.10.2007 (copies enclosed), the Add DIT (IT), Range 1, Del....
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....e case of Premier Ltd v DCIT& Ors (WP No. 2340 of 2008) of Bombay HC is concerned, the facts of that case are completely at variance with the case in hand. In that case, the AO had issued notices u/s 148,143(2) and 142(1) altogether. It was in these circumstances that the High Court quashed notices issued u/s 143(2)/142(1) and directed the AO to proceed with the matter afresh. The cited case-law does not apply here. 3) Regarding claim of assesses that Reasons Recorded by the AO were not signed * This contention has never been raised before at any stage. Not only that the assessee through letter dated 16.10.2014 responded to the reasons conveyed, but continued to participate in the proceedings even after that without raising any disagreement about the same, till now. * Nevertheless, the fact that the AO not only recorded reasons (and, of course, signed those) for reopening of assessment, but also obtained approval of the competent authority for issue of notice u/s 148 is undeniable. * Moreover, the AO conveyed the 'reasons' for issue of notice u/s 148 to the assessee on 25.07.2014 through a duly signed covering letter of the same date. The off....
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....and the capital gains accruing to the assessee from transfer of CIHL shares which derived all their value from the assets situated in India, was taxable in India. 6) Regarding issue on Survey Report * The insinuation, that while the notice u/s 148 was issued on 21.01.2014, the 'Survey Report', based on which it was purportedly issued, was received by the AO in the month of February 2014, is completely unsupported by the facts on record. As per the assessment records, a report marked 'URGENT MATTERS' was received from DDIT(lnv)-U-IV(2), New Delhi on 16.01.2014. Based on the information provided in that report, the AO recorded his reasons and obtained approval of Addl.DIT(IT)-Range-l, Delhi on 21.01.2014 for issue of notice u/s 148 * In any case, and more importantly, that the assessee did not file the tax return voluntarily is a fact. In such a scenario, whether the survey brought out any new facts for the purposes of reopening is not material. That there was income chargeable to tax in India and the assessee had not even filed the tax return was sufficient reason to believe that the income had escaped assessment. The survey only confirmed the....
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....of such person or class of person of such income or class of income or of such class of classes of the cases specified in the corresponding entries in that notification. He therefore submitted that Additional Directors of the income tax are equivalent to the Joint Commissioners of the income tax therefore there is no infirmity in the sanction provided under section 151 (2) of the Income Tax Act. He further referred to the notification dated 11/10/2007 issued by the office of the director of income tax, international taxation and notification dated 14/09/2001. 26. In rejoinder, Ld. authorized representative submitted that the notification submitted by the Ld. departmental representative does not specify that the powers of Joint Commissioner with respect to the provisions of section 151 (2) are also with the Additional Commissioner or the Additional Director of the Income Tax Act. He therefore further relied upon his written submission made in this behalf. 27. We have carefully considered the rival contentions. The assessee appellant has challenged validity of reopening of assessment t on several counts before us, including the two additional grounds raised and we dea....
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....the Central board of direct taxes wherein it is provided as under:- "(b the Directors of Income-tax referred to in this notification to issue orders in writing empowering the Additional Directors of income-tax or Joint Directors of Income-tax, who are subordinate to them to exercise the powers and perform the functions of Additional Commissioners of Income-tax or Joint Commissioner of Income-tax, in respect of such territorial areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases specified in the corresponding entries in column (4) of the Schedule;" Therefore, the Central board of direct taxes has validly exercises power conferred upon it as provisions of section 120 of the Income Tax Act wherein they have also provided that that the functions performed by Additional Commissioner of income tax or Joint Commissioner of income tax may also be performed by the Additional Director of income tax or joint directors of the income tax. Further, the Ld. departmental representative contested that the assessee has applied for permanent account number on 08/11/2006 which was provided by the revenue, which is assign....
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....he contention of the Ld. authorized representative that the non-statutory format provided by the Central Board of Direct Taxes clearly provides that there has to be mention about the notice is being issued after obtaining the necessary satisfaction of the higher authorities prescribed therein. It is also apparent that the notice issued to the assessee on 21st. January 2014 under section 148 of the Income Tax Act does not contain any such statement with respect to obtaining approval under section 151 of the Income Tax Act. Undisputedly, in this case proper approval of Ld. Additional Director of income tax (international taxation) has been taken by the Ld. assessing officer under section 151 of the Income Tax Act. Merely if the notice issued does not mention some facts that are prescribed in a non-statutory form when substantially the procedure laid down by the Income Tax Act has been complied with cannot make the notice invalid. In view of this we also rejected the contention of the Ld. authorized representative of the assessee that the notice is not in the prescribed format, it should be held to be invalid. c. The 3rd contention of the assessee is that the notice unde....
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....t only on 10/06/2014, therefore, apparently there is no objections pending before the Ld. assessing officer to dispose before the issue of notice under section 143 (2) of the act. Furthermore, there is specific time limit applicable with respect to the issue of notice under section 143 (2) of the Income Tax Act, as per proviso contained therein. It is the prerogative of the assessee to obtain benefit of the guidelines laid down by Hon'ble Supreme Court in case of reopened assessment. However, when the assessee does not care to safeguard its own interest, it cannot hide behind his inefficiency and claim that there is a flaw in assessment proceedings. In the present case, the notice under section 148 was issued on 21/01/2014 where the Ld. assessing officer granted time of 30 days from the date of service of the notice to file a return. In response to that notice, assessee filed return only on 03/04/2014, beyond the time limits provided by the Ld. assessing officer. The assessee sought the reasons only on 10/06/2014, which were supplied on 25th July 2014 and assessee filed its objection only on 16/10/2014. Therefore, we do not agree with the contention of the Ld. authorized repr....
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....under section 148 of the Income Tax Act was issued. We have carefully considered the rival contentions and we reject the argument of the Ld. authorized representative of the assessee as well as the reliance upon the decision of the Hon'ble Supreme Court in case of CIT versus Kelvinator of India Ltd (supra). The reasons for the same is that it cannot be argued that if assessment in the case of some another assessee has been made who was also a party to the contract, reassessment proceedings in the hands of the other party cannot be initiated. Here, the argument of the assessee is that that the information could have been passed on to the Ld. assessing officer of the appellant from the assessing officer of the Cairn India Ltd, and such information has not been passed by the Ld. assessing officer of the Cairn India Ltd to the Ld. assessing officer of the appellant and therefore the reopening is invalid. Such an argument is required to be rejected at the threshold only because the assessment proceeding of one person is quite different from the assessment proceedings of another person and the provisions of the Income Tax Act should be applied fully with respect to the records and ....
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.... indirectly result in transfer of assets situated In India. It situated in India, hence the condition laid down in section 9 (1) (i) of the Indian Income Tax Act are satisfied thereby making the capital gain taxable in India, as per the domestic tax law. The argument of the Ld. authorized representative is correct that ld AO ha not referred to the explanation 5 while recording the reasons however he has referred to provisions of section 9 (1) (i) of the act and explanation 5 is part of that section. Therefore, merely because no reference is made to explanation 5, reasons recorded by the Ld. assessing officer cannot become invalid when he has referred the overall section. Therefore this contention of the Ld. authorized representative is rejected. f. The sixth contention of the assessee is that the recorded reasons provided by the Ld. assessing officer were not signed. During the course of hearing the assessment records were called for and reasons recorded by the Ld. assessing officer were examined. We found them duly signed by the assessing officer. The same documents were also shown to the Ld. authorized representative,Where he could not say that the reasons recorded ....
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....nergy PLC ("CPLC") is a tax resident of United Kingdom under Article 4 of Double Taxation Avoidance Agreement between India and United Kingdom ("India - UK DTAA"). In the year 2006, the CPLC Group undertook an internal reorganisation ("internal reorganisation") to simplify the group structure for both operational and strategic reasons, to achieve more effective local management, to access Indian capital market, and to allow equity participation by Indian and Foreign investors in their Indian business. 1.2. Step-wise implementation of the reorganisation has been detailed hereunder: Step 1 - Share Exchange Agreement dated 30 June 2006 between CPLC and Cairn UK Holdings Limited ('CUHL' or 'Appellant') (refer Page No. 60 to 66 of Paper Book] a) As part of the internal reorganisation, the Appellant was incorporated on 26 June 2006. Thereafter, a Share Exchange Agreement dated 30 June 2006 was entered into between CPLC and CUHL, a company incorporated in United Kingdom, whereby the entire issued share capital of nine (9) wholly owned subsidiaries of CPLC ("the Subsidiaries'") were exchanged with the CUHL. B In consideration for the afores....
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....p; 1.5. With regard to the above transaction. Assessing Officer ('AO'), in the Draft Assessment Order ('DRO') dated 09 March 2015, alleged the gains arising from the sale of shares of CIHL by the CUHL to CIL are short term capital gains and hence chargeable to tax in India at the rate of 40 percent. 1.6. Against the above DRO, CUHL filed objections before the Hon'ble Dispute Resolution Panel ('DRP') vide application dated 6 April 2015. 1.7. After series of hearings and filing of various submissions, Hon'ble DRP issued its directions vide order dated 31 December 2015. In the said directions, Hon'ble DRP agreed with almost all the allegations of the AO and confirmed the DRO. Pursuant to the directions of Hon'ble DRP, AO issued Final Assessment Order ('FAO') dated 25 January 2016. 1.8. Against the above FAO, the Appellant has filed captioned appeal before the Hon'ble Income-tax Appellate Tribunal ('ITAT'), Delhi and now the Appellant is placing all the arguments before your Honors. 2. AO and DRP contentions and Appellants submission against the said contentions 2.1. The AO and DRP have both ra....
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....01 of the Act, wherein it was submitted that the amendment of section 9(1 )(i) of the Act created new law and new obligations. It was submitted that the legislature though while amending the law has mentioned that the amendments are being made for removal of doubts, however, in view of the settled law in the favorable Supreme Court1 judgment, this attempt is nothing but to create substantive rights to tax a class of persons and accordingly can only be prospective in nature (refer Para 9.4 - Page 270 of Appeal Documents). *:'-.. 4 2.5. Further, the learned AO has upheld the validity of retrospective amendment by placing reliance oti the following (refer Para 9.5 to 9.6 from Page 271 to 280 of Appeal Document): 4 a. Memorandum to Finance Act, 2012 and interpretation on the first principles which provides that the insertion of Explanation 4 and 5 to section 9(1) will be applicable with retrospective effect from 01 April 1962; b. Reliance is placed on the decision of DTT v Copal Research Ltd., Mauritius [2014] 49 taxmann.com 125 (Delhi) c. Reliance is placed on the decision of CIT v Vatika Township (P) Ltd., Civil Appeal No. 8750 of 2....
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....Such an observation^ of Hon'ble Delhi High Court is presented by the AO in such a manner that Hon'ble Delhi High Court has stated that Explanation 5 is for removal of any doubts and hence applicable with retrospective effect. The Appellant submits that the observations of the Hon'ble Delhi High Court are not at all approving the retrospective application of Explanation 5. 2.10. Without prejudice to the submission in Para 2.9 above, the Appellant would also like to submit that even if for the time being one agrees with the observation of the learned AO that Hon'ble Delhi High Court has approved the retrospective application of Explanation 5 to Section 9(l)(i) of the Act, the said observations should not have any binding force of law. The Appellant would like to point out that the main issue before the Hon'ble Delhi High Court was the interpretation of the word "substantially" appearing in Explanation 5. For the purpose of this interpretation, there was no requirement of making any comment on the retrospective applicability of Explanation 5. In view of the same, the said observations are obiter dictum and does not have the binding force of law. 2.1....
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.... to a taxing statute can be said to be intended to remove 'hardships' only of the assessee, not of the Department. On the contrary, imposing a retrospective levy on the assessee would have caused undue hardship and for that reason Parliament specifically chose to make the proviso effective from 1.6.2002." In view of the above, the decision of Vatika Township (supra) is supporting the case of thii Appellant and not the case of the revenue. *.i 2.13. Tn the case of National Agri Coop Mkg Federation (supra), the main issue before the Hon'bHJ Supreme Court ('SC') was validity of the retrospective amendment introduced in sectior) 80P(2)(a)(iii) of the Act. While dealing with the entire issue, learned DRP has very conveniently picked up one statement which was favorable to the Revenue. The Appellant would like to bring following observation of Hon'ble Apex Court to the notice of your Honors: * "the retrospectivity must he reasonable and not excessive or harsh, otherwise it runs the risk ofbelns struck down as unconstitutional" * "In real terms therefore there was hardly any retrospectivity, but a continuation of the st....
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....n ('AMP') expenditure incurred by the assessee for its foreign counterpart. The concept of adopting Bright Line Test ('BLT') as a legitimate means of determining the arm's length price of the international transaction has been discussed at length. However while dealing with this issue in greater detail, the Hon'ble Court also made an observation on the issue of retrospective amendment of section 92CA introduced by the Finance Act, 2012. The learned DRP, abruptly quoted those findings without considering that the main issue raised by assessee. 2.16. In the said ruling, the assessee itself considered the excess AMP expenditure as an international transaction and accordingly this question was not dealt in by the Hon'ble Delhi High Court and remained unanswered. This indicates that the decision of Sony Ericson (supra) cannot be considered as an authority for interpretation of retrospective amendment. Further, various subsequent rulings, discussed in subsequent paragraphs, by the Hon'ble High Court, have also not considered the decision of Sony Ericson (supra) to determine the basic question of whether the excess AMP expenditure incurred would con....
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....de under the first proviso to clause (a) of sub-section (1) exceed the total income. In this case, reduction of loss was not specifically covered in the provisions of section 143(1 A). In the case of the Assessee, where on account of adjustments there was reduction of the losses, it was alleged that since reduction of loss is not covered by the express provisions of the section 143(1 A) additional tax of 20 percent should not be applied in the case of the Assessee. Thereafter, by Finance Act, 1993 provisions of section 143(1 A) of the Act were retrospectively amended to include even the reduction of loss. 2.21. To the above, Hon'ble Supreme Court concluded that the provisions of section 143(1 A) of the Act are for punishing the assessee. Ultimately, taking a clue from Varghese3 case, Hon'ble SC concluded that section 143(1 A) of the Act can only be invoked where it is found on facts that thGBP lesser amount stated in the return filed by the Assessee is a result of an attempt to evade tax lawfully payable by the assessee. ;; 2.22. From the above, your Honors will appreciate that the decision of Hon'ble SC was driven by the nature of the amendment wa....
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....refore the claim of the Appellant that these transactions were part of the internal reorganisation of the group and are revenue neutral is not correct, (refer Para 9.1.7.2-Page 253 of the Appeal Documents) 2.27. Further, learned DRP has also agreed with the above observations of the AO (refer observations of the DRP at Page No. 137to 140 of the Appeal Documents] 2.28. In this regard, we would like to bring to the notice the flow of transactions as described in Page No. 294 and 295 of the Paper Book. As already explained above, vide subscription and share purchase agreement dated 15 September 2006 and share purchase deed dated 12 October 2006, the Appellant has infused funds into CIL and the same funds are used by CIL to purchase shares of CIHL. The same is very evident from the dates of funds infused by the Appellant in CIL and on the same day CIL has purchased shares of CIHL and remitted back the same funds to the Appellant. 2.29. Attention of your Honors is also invited to the table provided at Page 295 of the Paper Book. wherein in all the transactions of purchase of shares till 20 Dec 2006 are mentioned. Your Honors will appreciate that funds are i....
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....which followed that the first two tranches of the proposed transactions. According to the AO, there was no mention of the approval of the 4th tranche in the application by the Appellant (refer Para 9.1.10 - Page 255 and 256 of Appeal Documents}. 2.33. Further, learned DRP has also agreed with the above observation of the AO and further observed that "// is our considered view that the assessee company >s statement to FIPB were inaccurate / misleading by inter alia suppressing its intention to remit the IPO and pre-IPO proceeds of the equity floatation of Cairn India Limited"' (refer Last Para - Page 128 of Appeal Documents). 2.34. The Appellant most respectfully submits that the above issue of seeking an approval from RBI for share swap arrangement does not have any bearing on taxability of transfer of shares of CIHL to CIL. However, since it is alleged that the Appellant has furnished inaccurate / misleading information, the Appellant is rebutting all above observations of the learned AO and DRP in the subsequent paragraphs. 2.35. At the outset, the Appellant would like to inform your Honors about the purpose of filing of the Application before FI....
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....tted before the FIPB: a. Subsequent to completion of the IPO - The Appellant clearly mentioned about the transactions to occur after completion of IPO. / b. CJL would acquire the balance equity shares fat least 10%) of CIHL from CUHL - The Appellant clearly mentioned that CIL would acquire balance eguitv shares of CIHL from CUHL. c. for a cash consideration - The Appellant clearly mentioned that CIL will acquire the shares for a cash consideration d. under the automatic route of the Reserve Bank of India - The said shares will be acquired undet automatic route. Since, these shares were acquired under automatic route, there was nd requirement of mentioning anything additional in the application. 2.38. Further, approval was not required for acquisition of shares in CIL for cash. Approval was sought only for shares acquired by the Appellant in exchange of shares. This is also evident from the following extract of the FIPB Application (refer Para 2.7-Page 205 ofthe Paper Book}: ' 2.7.7 As per current Indian legal requirements, the inward leg of a swap transaction, i.e., the investment in an Indian Company by a foreign company re....
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....Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially the Assessing Officer is required to be pragmatic and not pedantic." 2.41. All the above judicial precedents are distinguished by the learned DRP with the observation that ill the case under consideration the Appellant has received full market consideration for the same* which inter alia has been funded by the pre-IPO private placement as well as the IPO funds raised from the public during the course of the public issue by the CIL. . .j 2.42. The Appellant, most humbly submits that the above analysis of the learned DRP is incorrect. While observing the fact that the Appellant has eventually (post-IPO) received full market consideration, as discussed in Para 2.29 to Para 2.32 above, DRP has lost sight of the fact that out of the total consideration received more than 75 percent of the consideration is received from the funds which are infused by the Appellant or by way of share swap arrangement. From the above, it is evidently clear that due to the corporate reorganization itself, there was neither any increase in the wealth of the Appellant nor any additional gain....
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....ture has always been to tax the income arising out of any real commercial transaction. The use of word "indirectly" in section 9(l)(i) makes the legislative intent regarding inclusion of the income accruing or arising to any person, in the income liable to be taxed in India, very clear. 2.47. With the above judgment, learned AO has explained the intention of legislature has always been to tax the income arising out of any real commercial transaction. The Appellant hereby submits that the said case more than supporting the case of the revenue is supporting the case of the Appellant. In the case of the Appellant, as already discussed above, it is merely corporate reorganisation of the holding structure and no real gain has accrued to the Appellant because the internal reorganisation did not result in a change of control. Hence, there should not be any taxability irt the case of the Appellant. > 2.48. Further, learned AO has distinguished the decision of Vodafone International Holdings B. V V UOI& Another [2012] 341 ITR 1 (SC) on account of following reasons: a. In case of Vodafone, it was payment from non-resident to non-resident. But in present case, ....
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....f Vodafone International Holdings B.V. Vs. UOI& Another, 341 ITR P. This indicates the self-contradictory and patently incorrect position of the law stated in the FAO which forms the basis of the assessment under challenge. While computation capital gain in the hands of Appellant, cost of acquisition stepped up to the fair value of the shares of CIHL on the date of acquisition Without prejudice to the above, assuming but not admitting, that indirect transfer of shares of Company with Indian assets is otherwise taxable in India, no capital gain has arisen in the hands of the Appellant on transfer of shares of CIHL to CIL. This is on account of the fact that, while computing capital gains, cost of acquisition should be stepped up to the fair market value of the shares of CIHL on the date of acquisition by the Appellant. The said argument is explained in the subsequent paragraphs. In the above internal reorganisation, following transactions have taken place: a) Vide^Sfr^sxcThange agreement dated 3(KJiine-2006 (refer Page No. 60 to 66 of the Paper Book)lC?LC exchanged shares of nine subsidiaries with the CUHL in lieu of 22,14,44,034 shares of CtJHL at GBP ....
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....d as full value of consideration, 2.56. The above principle is supported and explained by the Hon'ble SC in the case of CITv. Gillanders P Arbuthnot & Co /1973J 87ITR 407 (SC) and CIT v George Henderson and Co. Ltd[1967] 66 Ih ITR 622 (SC). Ratio of these judicial precedents is explained in the subsequent paragraphs. // 2.57. In the case of Gillanders Arbuthnot & Co (supra), the assessee firm through its partners entered into an agreement for sale of some of the shares and securities held by it in favour of Gillanders Arbuthnot & Co for a sum of Rs. 75 Lacs. The Income-tax officer was of the view that the market value of the shares and securities sold was much more than Rs. 75 Lacs. According to him, the Company secured those shares and securities at below market value and on that basis he computed capital gains at a higher amount in the hands of firm. The issue raised before the Hon'ble SC was ' * whether the transaction entered into is a sale or exchange or merely a readjustment. 2.58. It was in light of this fact, that Hon'ble SC was of the view that the transaction under consideration was of sale and not of exchange it held that the sale ....
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....Act, 1922. 2.62. As observed in this case the dispute was whether the capital gain should be computed at INR 13$ i.e. the price fixed in the agreement or at INR 620 which is the fair market value. In which case, the Hon'ble SC concluded that the transaction under consideration is a transaction of sale and further observed that "In case of a sale, [he full value of the consideration is the full sale price actually paid. The legislature had to use the words "full value of the consideration " because it * was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money^ If it is therefore held in the present case that the actual price received by the respondent was at the rate of Rs. 136 per share the full value of the consideration must be taken at the rate ofRs. 136per share." 2.63. The above observation of the Hon'ble SC gives a dictum that in the case of transfer of capital asset, when transfer is in the nature of sale, full value of consideration should be taken to be the fixed amount of consideration agreed between both the parties. Whereas in the case transfer of capital assets is in l....
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....ember 2006 and 12 October 2006, is considered for the purpose of fair value of shares. (b) Though the capital gain has accrued in the hands of CPLC and was covered under the provision of section 9(1 )(i) of the Act. dealing with indirect transfers, in the assessment proceedings of CPLC, the AO has not alleged to tax the same in the hands of the CPLC. 2.67. In the case of 2nd transfer, Relevant clauses of the "Share Exchange Agreement" dated 07 August 2006, are as under: -§ 'WHEREAS the parties hereto have agreed that the Vendor shall sell to the Purchaser and the Purchaser shall purchase from the Vendor the Sale Shares (as hereinafter defined) and that the consideration for the Sale Shares shall be the Consideration Shares (as hereinafter defined), upon the terms and conditions specified and contained in this agreement - Refer Page 68 of the Paper Book. Consideration: 3.1 The total consideration for the sale and purchase of the Sale Shares shall be the Consideration. 3.2 The Consideration Shares shall be allotted and issued at par (credited as fully paid) to the Vendor at Completion. 3.3 The subscriber shares sh....
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....sferred. In view of the same, it was argued that cost of acquisition of the CIHL shares in the hands of the Appellant should be deemed to be the fair market value of the shares of CIHL on the date of acquisition. . 2.72. However, both the transactions at Sr. No. 2.53(a) and 2.53(b) (i.e. transfer of shares of nine subsidiaries by CPLC to Appellant and Appellant to CIHL) were not sought to be taxed by the tax authorities. This, in the humble submission of the Appellant, does not prevent the step up of cost of acquisition in The hands of the Appellant-namely, the cost basis of the shares of CIHL-from being deemed to be the fair market value of the shares of CIHL in determining whether Appellant enjoyed any capital gains. 2.73. Since, the capital gains for transactions at Sr. No. 2.53(a) and 2.53(b) will be computed by applying fair market value, consequential cost of acquisition of shares of CIHL in transaction at Sr. No. 2.53(d) should also be deemed to be the fair market value of the shares of CIHL. - 2.74. Hon'ble Members will appreciate that, for the purpose of computation of said capital gains, cost of acquisition is incorrectly considered by the AO a....
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...., except for making a generic statement, no specific provision of the Act is pointed by the learned DRP. 2.79. Decision of Gillanders Arbuthnot (supra) is discarded on account of the following reasons: a. Ratio decindendi deals with whether the sale of an agency business and whether the consideration was essentially a revenue receipt or a capital receipt; b. Facts in this case were different from the case of the Appellant. In the case of the Appellant, it is not the contention of the Appellant to tax the sum received by the UK entity from CIL as revenue receipt; c. Judgement is an expression of interpretation of law as it stood on that date; d. Apex court laid down was that in case of sale of an asset what is material is the actual price realized rather than a notional market value. Undoubtedly provisions have been introduced by the legislature since then with a view to prevent evasion of Income-tax by undervaluing the sales consideration particularly in relation of immovable property. In the instant case, neither the quantum of the sales consideration not its divergence from the notional sale price is in dispute. e. When the sale pri....
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....rein it was that "// is true that this Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice." 31. During the course of hearing Ld. counsel further referred to the additional ground raised vide ground No. 3.12 contesting that Ld. assessing officer has erred in taxing the appellant by invoking the retrospective amendment to section 9 (1) (i) of the act introduced by The Finance Act, 2012, which was not on the statute, when the India and United Kingdom tax treaty entered into force. Therefore it was submitted that the taxability of the appellant should have been determined under the provisions of section 9 (1) (i) of the act, which were applicable when the India United Kingdom tax treaty was entered into force. For this, the Ld. authorized representative took us to the article 14 related to capital gains of Double Taxation Avoidance Agre....
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....round No 3 and 4 of the appeal, ld Departmental representative vehemently contested the arguments of the assessee and supported that the Income of the appellant is chargeable to tax in India in view of the clear-cut provision of section 4, 5 and 9 of the Income tax Act 1961. His main arguments were as under :- "Abbreviations CUHL Cairn UK Holdings Ltd [the Assesses] - company incorporated on 26 February 2006 in UK as a wholly owned subsidiary of CEP CEP Cairn Energy PLC - company incorporated in Scotland, UK and a tax resident of UK CIHL Cairn India Holdings Ltd - Company incorporated on 2 August 2006 in Jersey, the Channel Islands, as a wholly owned subsidiary of CUHL CEHL Cairn Energy Hydrocarbon Ltd-A subsidiary of CEP incorporated in Scotland, UK CIL Cairn India Ltd - Company incorporated in India on 21 August 2006 Preliminary submission ' 1. The issue to be decided in this case is, whether any gain accrued to CUHL in the financial year 2006-07 by acquiring and selling 'CIHL shares'? If yes, whether such gain was taxable in India? 2. On the basis of admitted facts and position of the law, the Revenue's case....
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....ely, CUHL sold to CIHL a debt of GBP29,780,710 (which was due from CEHL)9. In consideration, CIHL issued 29,780,710 of its own shares of GBP1 face value each to CUHL. 7. The shares of CIHL derived their value substantially from the assets situate in India as being a holding company of the nine (9) subsidiaries it was specifically incorporated "within the Cairn group" to "hold Indian oil and gas assets". Part-11: BRIEF HISTORY 8. Since 1996 CEP has been acquiring oil and gas assets situated in India through its subsidiaries, and as on 30th June 2006 it was holding Indian oil and gas assets through nine (9) wholly owned foreign subsidiary companies11. 9. On 30th June 2006, pursuant to a Share Exchange Agreement12 the entire share capital of nine (9) wholly owned subsidiaries of CEP having "an aggregate book value off 221,444,034"13 was transferred to CUHL In exchange, CUHL issued 221,444,034 of its shares of GBP1 each to CEP. 10. On 7th August 2006, through yet another Share Exchange Agreement14, CUHL transferred the shares of aforementioned nine (9) subsidiary companies having an aggregate book value of GBP221,444,034 to CIHL. In lieu thereof ....
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....Dec'06 CUHL was allotted 861,764,893 CIL shares (worth Rs. 13788 cr) in the swap transaction as a consideration for 135,267,264 shares of CIHL. There were other investors also, including general public, who subscribed for CIL shares. Details of these share subscriptions are as follows: For Cash consideration Date Shares Issued to No of Shares @(Rs) Price (Rs) Cr 12-0ct-06 CUHL 365,028,898 190 6935 23-Nov-06 Petronas 176,531,438 160 2825 23-Nov-OB Others 33,139,475 160 531 29-Dec-06 Public 328,799,675 160 5261 As a consideration for 135,267,264 CIHL shares 20-Dec-06 CUHL 861,764,893 160 13788 TOTALS 29340 Thus, CIL had sufficient funds to pay the sale consideration of Rs. 26681 cr to CUHL for acquiring 251,224,744 CIHL shares Part-Ill: LEGAL POSITION 14. CUHL being a non-resident, any income accruing or arising to it, whether directly or indirectly, through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India u/s 9(l}(i). 15. CIHL Shares' being the capital asse....
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....ey was paid or received in the transactions of sale of shares to CIL is fallacious and incorrect, considering that: * Of the four transaction enumerated in para 12 above, at least one transaction of sale of 61,073,032 CIHL shares was for hard cash of Rs. 6101 cr. * The book entries of 5037 cr and 1755 cr of cash received from CIL, for sale of 41,493,659 and 13,390,789 CIHL shares respectively, were out of the amounts received by CIL as subscription money for its 365,028,898shares. * Even in the swap transaction, CUHL received 861,664,893 shares of CILhaving market value of 13,788 cr for selling 135,267,264 CIHL shares to CIL That the consideration received in the form of CIL shares was of some value is also evident from the fact that when CIL shares were sold later in 2011-12 to Vedanta Group @ Rs. 355, the cost of their acquisition was claimed as Rs. 160/19026 per share and not zero, which would have been the case if receipt of these shares was a mere paper transaction having no money value. This clearly shows that even in a swap transaction the valuable asset was parted with and the equivalent value received in the form of shares having money worth of Rs. 13788 cr Th....
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....s to run till 31st December 2016. The Department has also not pursued the demand till now27, to allow the assessee to avail the benefit of the Scheme.' 34. Ld. departmental representative submitted a printout of presentation made during the hearing. He further made a reference to page No. 106 of the paper book which is a debt assignment agreement dated 01/09/2006 amongst cairn energy plc, Cairn UK Holdings Ltd, Cairn India Holdings Ltd and Cairn energy hydrocarbons Ltd. He referred that by this agreement debt of GBP 29780710 was assigned/transferred by which Cairn energy plc, the vendor and Cairn energy hydrocarbons Ltd,the debtor, have agreed to sell it to Cairn UK Holdings Ltd, the appellant. He further referred to the letter placed at page No. 158 of the paper book submitted by assessee before Ld. Dispute Resolution Panel wherein while describing step 3, being subscription and share purchase agreement between cairn energy plc, Cairn UK Holdings Ltd, appellant, Cairn India Holdings Ltd and Cairn India Ltd, the assessee himself has stated that the consideration for the transfer was settled partly in cash and partly in shares of Cairn India Ltd. He further referred fo....
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....so refers to exchange and merely because reference to the 'vendor' and 'purchaser' is mentioned in those agreements it does not become the transaction of sale. He further stated that in all these share transfer agreements there is no mention of any value and therefore these transactions are merely for exchange of shares. With respect of exchange of the debt, he submitted that the debt is also exchanged by way of allotment of shares and therefore it is still an agreement of exchange. With respect to the reliance placed by the Ld. departmental representative on the decision of the privy Council in Rohdesia metal Ltd versus Commissioner of taxes, he submitted that the facts of that case are not applicable in the present case as in that particular case, the only issue was where the source of mining rights are situated, in the present case the issue is shares are situated where they are registered. As the shares are registered in Jersey they are not situated in India but in Jersey. 36. We have carefully considered the rival contentions. To put the facts very simply in a narrow compass , the assessee company is a tax resident of United Kingdom which was incorporated on 26th....
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....on 9 (1) (i) of the act and is therefore, chargeable to tax in India. The argument of the assessee is that retrospective amendment to section 9 (1) (i) of the act by The Finance Act, 2012 is bad in law and ultra vires. In view of the decision of the Hon'ble Supreme Court in L. Chandra Kumar V Union of India 2002-TIOL-159-SC-CB this is not the right forum to challenge validity of provisions of the Income Tax Act. In view of this contention of the assessee rejected. ii. The 2nd contention raised before us by the assessee is that it is an internal reorganization of the group, as there is no change in controlling interest as a result of these internal or reorganization. The contention of the assessee is that the reason for the internal reorganization was with a view to bring entire Indian business operations of Cairn group under one Indian company. This was followed by listing the shares of this Cairn India Ltd on various Stock exchanges in India. It is further contended that there is no 3rd party involved in the whole transaction except the group itself and there can be no tax, which can be levied on the internal reorganization when there is no increase in the wealth of ....
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.... assets located in India and part of IPO proceeds app. Rs. 6101/- Crore paid to the appellant in U K. Therefore, we are not convinced that these series of transactions entered in to by the group is merely a business reorganization process in consolidation of its oil and gas business India. Furthermore arguments of the assess also do not have any rational that there is no increase in the wealth of appellant as the value of the holdings of the appellant in Cairn India Limited has been unlocked due to IPO and value is derived by the book building process. iii. The third arguments of the assessee is that there is no real income accruing to the assessee and only real income can be taxed . Relying on the decision of Honourable Calcutta High court in case CIT V Kusum products Limited [2014] 49 taxmann.com 403 ( Calcutta) it was submitted that post these internal organization is no real income has accrued to the appellant as al the steps mentioned of internal reorganization all the assets which the appellant was holding in India are now available in different form. Whether assessee has earned any gain or not to arrive at that decision one has to look at the financial statemen....
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....capital gain in the hands of the appellant is made, the cost of acquisition should be stepped up to the fair value of the shares of cairn India holding Ltd on the date of acquisition. Claim of the assessee is that share exchange agreement dated 30 08/06/2006, share exchange agreement dated 07/08/2006 are both transaction of exchange of share for the shares. Further, the assignment of debt was also with respect to exchange of the shares in lieu of debt. In the last impugned transaction, which is, subject matter of dispute is also share purchase agreement dated 15/09/2006 and share purchase deed dated 12/10/2006. By this agreement shareholding in Cairn India holding Ltd was transferred by appellant to Cairn India Ltd in for trenches for a consideration of Rs. 2266,81,87,10,140/- which was paid partly in cash by Cairn India Ltd and partly by issue of equity shares in Cairn India Ltd., Therefore, it is submitted that 1st and 2nd transfer is by way of exchange and 3rd transfer is by way of sale. The main thrust of the argument of the assessee is that when any asset is transferred in lieu of another asset and no specific amount for consideration is agreed between the parties that i....
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....olding Ltd were transferred by the agreement dated 15/09/2006 and 12/10/2006, since there is insignificant timing difference between the two transfers the valuation of the shares which is received on transfer of shares of Cairn India holding Ltd is considered for the purpose of fair value of the shares by the assessee. 3. Further, the 3rd transfer of shares where the shares of Cairn India holding Ltd were transferred by appellant to Cairn India Ltd, the computation of the capital gain should be by taking the full value of consideration of Rs. 266818710140/-and the cost of acquisition should also be taken at the same value in absence of any timing difference between acquitsion and disposal and therefore the capital gain chargeable to tax in the hands of the appellant is Nil. Against this, the Ld. departmental representative submitted that it is not transaction of exchange, but it is a transaction of sale. He referred to the sale purchase deed and subscription and share purchase agreement according to which the appellant sold the 100 % investment in Cairn India Holdings Ltd, of 25122474 for shares of cairne India holding Ltd, to cairn India Ltd for Rs. 266818710....
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....Revenue has determined it at Rs. 21783697552/-whereas the assessee has stated the it should be taken at Rs. 266818710410/-only. According to the provisions of the Income Tax Act, the Capital gain is required to be computed as per method provided under section 48 wherein it is to be computed by deducting from the full value of consideration received accruing as a result of the transfer of the capital asset by the cost of acquisition of the assets and cost of improvement thereto. Section 55 (2) and (3) provides that for the purpose of section 48 and section 49, what the cost of acquisition with respect to certain transactions as is under :- (2) For the purposes of sections 48 and 49, "cost of acquisition",-- (a) in relation to a capital asset, being goodwill of a business, or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours, - (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case not being a cas....
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....a shareholder who has been allotted equity share or shares under such scheme of demutualization or corporatization, shall be deemed to be nil ; (b) in relation to any other capital asset,-- (i) where the capital asset became the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee ; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 11981, at the option of the assessee ; (iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head "Capital gains" in respect of that asset under section 46, means the fair market value of the asset on the date of distribution ;  ....
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.... the assessee, as the case may be. Explanation In this sub-section the expression "previous owner of the property" in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub-section. (2) Where the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company. (2A) Where the capital asset, being a share or debenture of a company, became the property of the assessee in consideration of a transfer referred to in clause (x) or clause (xa) of section 47, the cost of acquisition of the asset to the assessee shall be deemed to be that part of the cost of debenture, debenture-stock, bond or deposit certificate in relation to which such asset is acquired by the assessee. (2AA) Where the capital gain arises fr....
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.... (1), where the capital gain arising from the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47 is deemed to be income chargeable under the head "Capital gains" by virtue of the provisions contained in section 47A, the cost of acquisition of such asset to the transferee company shall be the cost for which such asset was acquired by it. (4) Where the capital gain arises from the transfer of a property, the value of which has been subject to income-tax under clause (vii) or clause (viia) of sub-section (2) of section 56, the cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of the said clause (vii) 3or clause (viia). The property on transfer of which capital Gain is required to be computed are the shares of Cairn India Holdings Ltd, which is incorporated in Jersey and therefore shares transferred are not of an Indian company but Jerseey Company. On conjoint reading of provisions of section 48, 49 and 55 of the Act it is apparently clear that property held by the assessee and its mode of acquisition do not fall in any of the clauses which provides....
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....ticle 40 has simply provided that capital gain are required to be dealt with in accordance with the domestic tax law. He submitted that transaction has taken place of sale of share by the appellant to Cairn India Ltd in 2006 then how the domestic law prevailing for chargeability of capital gain as on 1994 can be applied to that transaction. With respect to the decision of Hon'ble Delhi High Court in case of DIT Vs. New Sky Satellite BV ( supra) he submitted that the law laid down by that decision with respect to chargeability of fees for technical services with respect to definition in DTAA as well as in the domestic state law. There Hon'ble Delhi High Court has held that unless there is an amendment in the treaty the amended definition of royalty and fees for technical services in Finance Act by The Finance Act, 2012 cannot be applied where the assessee is eligible for DTAA. We have carefully considered the rival contentions and we reject the argument of assessee for the reason that (i) provision in the Double Taxation Avoidance Agreement cannot make the domestic law static with respect to taxability of a particular income when unequivocally both sates have left it t....
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....of the Act. No specific arguments were made before us by both the parties on these issues and we also find them irrelevant to decide the issue in appeal. Hence, we dismiss ground No. 4 of the appeal. 39. Ground No 5 of the appeal of the assessee is against the levy of interest u/s 234A and 234 B of the Act. The LD AR submitted on this issue as under :- 2. Appellants submission against the said contentions Levy of interest under section 234A and 234B of the Act is bad in law 2.1. As discussed in the earlier submissions, it is only on account of the retrospective amendment introduced by the Finance Act. 2012 in section 9(1 )(i) of the Act vide Explanation 4 and 5 Thai the transfer of shares of foreign company incorporated outside India is chargeable to tax in India. 2.2. However in the instant case, the Appellant had undertaken the internal reorganization in AY 2007-08 and Section 9(1 )(i) of The Act then prevailing, provided that income deemed to accrue or arise in India shall be ...income accruing or arising, whether directly or indirectly, through ..... transfer of a capital asset situate in India. As per the law prevailing at that point in ti....
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....anything other than to estimate the liability to pay advance tax on the basis of existing provisions. We are oj the considered opinion that in such situation, it cannot he said that the assessee was liable to pay advance tax. Once we come to the conclusion that the assessee was not liable to pay advance tax, there is no question of charging tax under sections 234B and 234C. In similar circumstances in the case of Priyanka Overseas Ltd. v. Deputy CIT [2001] 79 ITD 353 (Delhi) where the assessee had treated the receipt of cash assistance as capital receipts, which was subsequently amended to be business receipt by the Finance Act, 1990, it was held that in such cases interest under sections 234B and 234C was not chargeable. In these circumstances, we think that the assessee was not liable to pay advance tax and therefore levy of interest under sections 234B and 234C is not justified. Further, it is pertinent to note that the assessee by way of abundant caution deposited a sum ofRs. 90,00,000 on August 6, 2001. i.e.. much before the due date of filing of the return, which also proves the bonafide credentials of the assessee. In these circumstances, we set aside the order of the learne....
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....following judicial precedents have also upheld that where it is not possible for the Appellant to foresee the retrospective amendment, it was not possible for the Appellant to pay advance tax for the relevant previous year against the demand of tax that would arise in future. Considering the same, interest under section 234A and 234B cannot be levied: * JWS Steel Limited v. AC1T [2010] 5 ITR (Trib.) 31 (Bang.) . - * United Helicharters (P.) Ltd. v. ACIT [2013] 37 taxmann.com 343 (Mum-Trib) * Sivagami Holdings (P.) Ltd. v. ACIT [2012] 20 taxamm.com 166 (Chennai) d. From the above judicial precedents, it is very clear that when any tax liability imposed on the Assessees on account of retrospective amendment which cannot be foreseen at the time of filing of return of income, interest under section 234A and 234B of the Act cannot be levied on the Appellant. 2.5. Without prejudice to above, the Appellant submits that interest under section 234A cannot bd levied for the period during which it was not possible on Appellant's part to file return of income. Which means, the interest, if any, could be levied only for the period for which the Appell....
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....re no return has been furnished. In such a case the period prescribed is ending on the date of completion of the assessment under section 144 of the Act. In the present case the assessments under section 144 were not completed. As such, section 234A(l)(b) cannot be applied. 12. The aforesaid two conditions deals with the period for which interest is to be charged. Once the period is ascertained, the amount is to be fixed. The section prescribes the modus of computation. It is to be computed on the amount of the tax on the total income as determined under subsection (I) of section 143 or on regular assessment as reduced by the advance tax. if any, paid and any tax deducted or collected at source. Explanation 3 is inserted for the sake of clarification. An Explanation may cover a word, a phrase or a concept. It brings out what is implicit in a word or phrase. Nothing more. Therefore, it cannot be said that Explanation 3 hasgot anything to do with the computation of period for the calculation of interest. It is relatable to the computation part of the interest. 13. Since the learned counsel for the assessees conceded his liability to pay interest under section 234A of ....
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....nce levied, which is not a satisfactory compliance of the directions provided by the DRP. 2.10. Considering the above facts, the Appellant humbly submits before your Honors members to direct the learned AO to delete the interest under section 234B as directed even by the DRP as well. 2.11. Without prejudice of the above, interest under section 234B is payable on account of short fall and default in payment of Advance tax. Under section 209(l)(d) of the Act, the Income-tax calculated on the estimated current income of the Appellant is to be reduced by the Income-tax which would be 'deductible' at source. The Appellant submits that as it is a non-resident, under the provisions of section 195 of the Act, its entire income is subject to deduction of tax at source and the person responsible for making payment to the Appellant is obliged to deduct tax there from. In view of the same, entire income of the Appellant is tax deductible in India. Hence, there would be no liability, on the part of the Appellant to pay advance tax and, consequently, interest under section 234B of the Act are not applicable to the Appellant. 2.12. In this regard, reliance is place....
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.... "7. Although the above observations were in the context of levy of additional tax under section 143(1A), the same reasoning would apply in the matter of waiver of interest under section 234B of the Act. On the date when the assessee was required to pay advance tax and even on the date of filing of the return, the assessee could not have been expected to pay tax on the Export Cash Assistance received by him in the year ended 31-3-1989 nor to show the same as income in the return filed on 29-12-1989. It was after expiry of the assessment year that there was a statutory amendment with retrospective effect making Export Cash^ Assistance as taxable with effect from 1-4-1967, Under the circumstances, the notification dated 23-5-1996. particularly para (d) thereof, issued under section 119(2) (a) would be applicable. We are, therefore, clearly of the view that the present case would squarely fall under clause (d) of the aforesaid notification. Since the petitioner's tax liability arose subsequently after filing of the return and after expiry of the assessment year on account of retrospective amendment of law. consequential levy of interest under section 234B was clear....
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....ant liable to pay advance tax and consequential levy of interest under Section 234A and 234B of the Act. 3. Prayer: Based on the above submissions and judicial precedents, the Appellant respectfully prayers before your Honors that interest levied under section 234 A and 234B of the Act is not applicable in the case of the Appellant and should be deleted.' 40. The ld Departmental Representative relied upon the orders of the ld Assessing Officer. 41. We have carefully considered the rival contentions. In the present case the interest has been charged on the tax payable by the assessee which has arisen because of retrospective amendment made by The Finance Act, 2012. Therefore, it is correct on the part of the assessee to submit that it could not have visualize its liability for payment of advance in the year of transaction therefore, there cannot be any interest payable by the assessee u/s 234A and 234B of the Act. the chargeable of the interest in the present case squarely covered in favour of the assessee by the decision of Hon'ble Madras High Court in case of CIT Vs. Rewati Equipment Ltd (2008) 298 ITR 67 and M/s. MRF Ltd Vs. DCIT TC(Appea....