TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 233
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....mpromise, the petitioner planned to purchase its own shares under Sections 391 to 393 of the Companies Act for the following reasons:- (i) to increase earnings per share and return on equity over a period of time and enhance long-term value creation; (ii) to streamline ownership structure by purchasing its own shares from minority shareholders holding less than 25% of the issued, subscribed and paid up share capital; (iii) to serve the shareholders more efficiently and optimize the overall capital structure; and (iv) to reduce foreign currency fluctuation risk in respect of rupee funds in India. 3. The petitioner filed C.P.No.102 of 2016 before this Court for approval of the Scheme to buy back a maximum of 94,00,534 equity shares from its shareholders for a total consideration of Rs. 19,080.26 Crores and the Scheme got approved by an order dated 18.04.2016. It is a case of the petitioner that the consideration for such buy-back was paid to the shareholders in May 2016. The gain arising to the shareholders in the course of buy-back was offered to taxation as capital gain subject to applicability of treaty relief and a total of Rs. 898.01 Crores was paid as capital gain to ....
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....ht time. Since no proper response was forthcoming from the Company, the final show-cause notice dated 22.03.2018 was issued. It is stated that the Department has clearly explained and communicated to the assessee regarding the tax liability under Section 115 O of the Act, provided ample opportunity, and proceeded with necessary action, by observing requisite formalities. 7. It is further stated in the counter that a letter dated 21.11.2017 was issued to the assessee calling for various details regarding remittances made to the shareholders of the petitioner Company during FY 2015-16 and 2016-17 and their tax payment. It is a case of the respondent that by virtue of first proviso to Section 245R (2) of the Act, the Authority for Advance Rulings shall not take cognizance on the application filed under Section 245Q of the Act as the issue raised in the application is already pending before the Income Tax Authority and the application was filed only to circumvent the proceedings. 8. The respondent has further stated that the buy-back of share under Section 391 of the Indian Companies Act is nothing but the distribution of accumulated profit and it has to be treated as dividend under ....
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....e made. The explanation to Section 115QA of the Act was amended with effect from 01.06.2016. Post amendment, the Companies, which purchase their own share are liable to pay the additional income tax at the rate of 20% on the distributed income. It is urged by the learned Senior Counsel that prior to the amendment, the petitioner bought back its own shares under the Scheme of Arrangement and Compromise under Sections 391 to 393 of the Companies Act. As per Section 46A of the Act, the buy-back of shares shall be deemed to be capital gain and the shares purchased by the petitioner would not come under Distribution of Dividend under Section 2(22) of the Act. Hence, the demand of tax under Section 115QA of the Act retrospectively is not permissible in law. 12. It is next contended that admittedly the petitioner filed an application under Section 245Q of the Act before the Authority for Advance Rulings for quantitative judicial pronouncement and during the pendency of the application, the respondent is barred from issuing the impugned notice in view of Section 245 RR of the Act. It is further contended that the impugned order was passed without any notice and enquiry and in gross viola....
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....ove said rival contentions, the following points arise for consideration:- (i) Whether Section 115 O of the Act mandates issuance of show-cause notice, enquiry before passing a final order? (ii) Whether there is any breach of principles of natural justice? (iii) Whether the Assessing Officer is prohibited from issuing the impugned order in the light of the bar prescribed in Section 245 RR of the Act? (iv) Whether the Writ Petition is maintainable? Point No.(i) 18. This is purely a question of law and for better appreciation, the relevant provisions are extracted hereunder:- Section 115-O - Tax on distributed profits of domestic companies. "[(1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the....
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....e with the provisions of section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply." S ection 1 15QA - Tax on distributed income to shareholders:- "(1) Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares (not being shares listed on a recognised stock exchange) from a shareholder shall be charged to tax and such company shall be liable to pay additional incometax at the rate of twenty per cent on the distributed income. ...... " 19. From a plain reading of the above provisions, it is seen that Section 115 O is a charging section on its own. These Sections are self contained codes in themselves and they do not demand for issuing any show-cause notice and then passing any order. Chapter XIV of the Act prescribes procedure for assessment. Section 139 deals with filing of returns of income. Section 142 describes pro....
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....remittance made to the shareholders of the petitioner-Company during the financial year 2015-16 and 2016-2017. It is an admitted fact that no provision of law has been quoted in the letter particularly Section 2(22) of the Act, but a cursory perusal of the letter would show that the respondent had sought for payment details to ascertain the tax liability of the petitioner. 23. It is equally not disputed that the petitioner approached the Authority for Advance Rulings only on 20.03.2018, when the issue was pending before the Assessing Officer. It can be reasonably presumed that the multinational company like the petitioner is not expected to plead ignorance in regard to the purpose of the notice dated 21.11.2017. Otherwise, there was no necessity for the top officials of the petitioner to attend the meetings conducted by the respondent. Section 245R of the Act makes it clear that if the enquiry is already pending before the Assessing Officer, the Authority for Advance Rulings has no jurisdiction to entertain the application. Hence, I find no force in the argument of the learned Senior Counsel for the petitioner that the impugned order does not stand in view of the bar under Section....
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....Scheme would circumvent the provisions of Income Tax Act. The High Court of Bombay held that the Regional Director is entitled to object approval of the Scheme and it was his duty to do so. After considering the objections, the Scheme was approved. Relevant paras have been extracted hereunder:- "7. As more particularly set out hereinafter, since it was argued on behalf of the Regional Director that the idea of the petitioners behind propounding the above scheme is inter alia to obtain sanction of this Court to the Scheme with the appointed date of 1st April, 2008, and thereafter to file revised Income Tax Returns in violation of Section 139(5) of the Income Tax Act and the whole purpose of fixing a retrospective appointed date is to defeat the income tax demands and assessment proceedings either in progress or completed and the retrospective appointed date is nothing but a device to defeat the provisions of the Income Tax Act, particularly Section 139 (5), and the scheme therefore needs to be rejected, this Court directed the Regional Director to contact the Income Tax Department and to seek their views on the objections of the Regional Director. The Income Tax Department by its ....
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....power of the Company Court to sanction a Scheme under Section 391 of the Companies Act. It has been categorically held that reduction in the capital can be effected under Sections 77 r/w Sections 100 to 104 and 391 of the Companies Act, even in case of buyback of shares, which would run thus:- "16. Before we take up this question we would briefly refer to the relevant provisions of the Companies Act Section 77 puts restriction on purchase of its own shares by a company. The section reads as follows :- 'Restrictions on purchase by company, or loans by company for purchase, of its own or its holding company's shares. (1) No Company limited by shares, and no company limited by guarantee and having a share capital, shall have power to buy its own shares, unless the consequent reduction of capital is effected and sanctioned in pursuance of Section 110 to 104 or Section 402. ..... 5) Nothing in this section shall affect the right of a company to redeem any shares issued under Section 80 or under any corresponding provision in any previous companies law." 17. The reason for the restriction on purchase of its own shares by a company is that such purchase either amounts ....
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....he reduction. The word arrangement is of wide import and is not restricted to a compulsory purchase or acquisition of shares There is no reason as to why a cancellation of shares and the consequent reduction of capital cannot be covered by Section 391 read with section 100 merely because a shareholder is given an option to cancel or to retain his shares. In view of the foregoing discussions, the objection of the appellants based on Section 77A must be rejected." 28. In the light of the decisions referred supra and the order passed by this Court in C.P.No.102 of 2016, and also the reasons stated for purchasing the shares under the Scheme of Arrangement under Sections 391 to 393 of the Companies Act, prima-facie I find no merit in the contention of the learned Senior Counsel for the petitioner that the shares purchased pursuant to the order of the Company Court would be a capital gain and not to be treated as dividend. 29. Placing the reliance on the following decisions as extracted hereunder, it is argued by the learned Additional Solicitor General that any assessee, who denies his liability, is entitled to file an appeal under Section 246 of the Act:- (i) Central Provinces Mang....
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....r Section 18A of the 1922 Act up to 1st April 1952, was automatic as was noticed by Chagla, C.J. in Ramnath's case : [1955]27ITR192(Bom) , under the Act such levy is not automatic; discretion is vested in the Income-tax Officer to waive or reduce penal interest in the cases and circumstances mentioned in Rule 117A and Rule 40 of the Income-tax Rules, 1962. If the case of the assessee falls within the scope of the said Rules, the Income-tax Officer is bound in law to consider whether the assessee was entitled to waiver or reduction of interest. It is, therefore, clear that levy of penal interest under Sections 139 and 215 is part of assessment. When such penal interest is levied the assessee is "assessed", meaning thereby, he is subjected to the procedure for ascertaining and imposing liability on him. If the assessee denies his liability to be assessed under the Act, he has a right of appeal to the Appellate Assistant Commissioner against the order of assessment. Where penal interest is levied under Section 215 by the order or assessment, the assessee may altogether deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that th....
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.... case and pleads that the members of the association shall be assessed only individually. The expression 'denial of liability' is comprehensive enough to take in not only the total denial of liability but also the liability to tax under particular circumstances. In either case, the denial is a denial of liability to be assessed under the provision of the Act. In one case, the assessee says that he is not liable to be assessed to tax under the Act and in the other case, the assessee denies his liability to tax under provisions of the Act if the option given to the appropriate officer under the provisions of the Act is judicially exercised. We, therefore, hold that such an assessee has a right of appeal under section 30 of the Act against the order of the Income Tax Officer assessing the association of members instead of the members there of individually." 25. It will be seen from the above observation that the expression "denial of liability" is comprehensive enough to take in not only the total denial of liability but also the liability to tax under particular circumstances. In either case, the denial is a denial of liability to be assessed under the provisions of the Act....
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....s income was under one or the other head falling under section 18 of the Act and was outside the purview of section 18A of the Act. In other words, it was a clear case of an assessee "denying its liability to be assessed under this Act" and as such the appeal to the Appellate Assistant Commissioner was competent under section 30(1) of the 1922 Act. The Tribunal's view was, therefore, correct. 27. Having regard to the above discussion, the first question referred to us is answered in the affirmative and in favour of the assessee. Revenue will pay the costs of the reference to the assessee." (iv) Commissioner of Income Tax Vs. Hindusthan Steel Ltd., [(1989) 45 Taxman 273(Calcutta)] " 9. In this case, ultimately, the amount of tax will be paid by Hindusthan Steel Ltd. Hindusthan Steel Ltd. is also the person against whom a proceeding has been taken for assessment of the income of Mr. Nemethy. Although the liability to pay the assessed tax is of the assessee and Hindusthan Steel Ltd. has no liability under the Income Tax Act, the facts of the case are as such that it is Hindusthan Steel Ltd. who will have to pay the tax. In our opinion, under Section 246, any person who rea....