TaxTMI 
TaxTMI 
2021 (4) TMI 495
X X X X Extracts X X X X
X X X X Extracts X X X X
....in terms of a diagram, seems to be as follows: 3. A plain look at the above diagram shows that the impugned demand is raised on the basis of at least three critical assumptions, namely, (a) that the allotment of new shares by the resulting new company, coming into existence on account of demerger of an undertaking of the assessee, to the shareholders of the assessee, constitutes a distribution of accumulated profits by the applicant assessee- under section 2(22)(a); (b) that the value of such distribution of accumulated profits, by way of allocation of shares of the resulting new company, is to be computed on the basis of the market value of shares; and (c) that the assessee was under an obligation, under section 115 'O', to pay dividend distribution tax in respect of the said deemed dividends in the hands of the shareholders of the assessee applicant company. 4. Let us take a quick look at some material facts, as culled out from material on record, in some more detail. The assessee before us is a widely held public listed company. On 11th August 2016, the Board of Directors of the assessee company approved a 'composite scheme of arrangements' between the assessee company, Ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee was held to be an assessee in default under section 115 Q of the Act. The Assessing Officer further raised a demand for interest, beyond the 14 days from the record date) under section 115P, which, at that point in time, worked out to Rs. 978,68,88,044 (Rs. 978.68 crores). It was in this backdrop that a demand of Rs. 5872,13,28,292 (Rs. 5,872.13 crores) was raised on the assessee. Aggrieved, the assessee carried the matter in appeal before the CIT(A), but without much success. While the learned CIT(A) upheld the demand in principle, he modified the quantum of valuation of shares @ Rs. 145.40 per share, as against the valuation @ Rs. 261.20 per share. The demand recomputed, in the proceedings giving effect to the appellate order of the CIT(A) and inclusive of interest under section 115P, is stated to be at Rs. 3786,34,91,500 (i.e. Rs. 3,786.34 crores). The assessee is still not satisfied and is in further appeal before us. The appeals so filed by the assessee is currently under hearing. In the meantime, the assessee has also filed this application seeking a stay on collection/ recovery of the disputed demands till the related appeal is disposed of, and the order thereon ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reafter. (ii) In the unprecedented circumstances arising from covid pandemic, hearing in High Court could not take place in WP 3367 of 2019 for a period of several months and therefore technically stay granted by Hon'ble Bombay High Court was also extended. (iii) Now, in this situation, if we look at substance of matter, it can be concluded that stay is not operational. However, at same time, there exists an order dtd: 12-12-2019, 10-1-2020 and 31-1-2020 in WP 3367 of 2019 which continues because hearing could not be take place in High Court. (iv) In view of the above circumstances, department has taken a conscious decision not to take coercive actions and to proceed for filing Interim Application in Bombay High Court for vacating technical stay on recovery of demand arising out of aforementioned orders in WP 3367 of 2019. Interim Application (No 8806 of 2020) in WP 3367 of 2019 has already been filed in Hon'ble High Court and Department is looking forward to mention it before Bombay High Court at earliest. (v) On the other hand, it may also be pointed out that assessee is also aware that stay granted by Hon'ble Bombay High Court can&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the field authorities, infructuous and must be dismissed as such. 9. We must, however, take this paradigm shift in the approach of the field authorities, with a reasonable degree of circumspection, and, therefore, just in case the field officers change their mind on continuing with such a considerate approach, and to make sure that the assessee is not subjected to coercive recovery measures, without any warning, and thus pre- empting the exercise of powers to grant the stay, if so deemed fit and subject to such conditions as deemed fit, by this Tribunal, we make it clear that before resorting to any coercive measures the Assessing Officer will give at least one week's notice to the assessee, so that, if so advised, the assessee can avail of the opportunity of approaching this Tribunal. 6. The above order also came up for consideration in the course of proceedings before Their Lordships of Hon'ble jurisdictional High Court, and Their Lordships were pleased to inter alia observe, in the order dated 20th January 2021, as follows: 8. After considering learned counsel for the parties, and on due consideration, we are of the view that since the Tribunal itself ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it is a condition precedent to invoking section 2(22)(a) that there is "distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company". He further points out that the accumulated profits of the assessee company have not been even remotely touched, and that there is no release of company assets or part thereof. Without prejudice to this line of argument, he has further contended that rule 11UA, which provides for computation method to arrive at fair market value of shares, will apply for finding out the market value, and, based on 11UA formula, the value of assets released at can best be Rs. 1,721.61 crores- and not Rs. 13,380.69 crores as held by the learned CIT(A). It is pointed out that the assessee was not given fair opportunity of hearing at any stage, and the matter was proceeded with in undue hurry and without proper and unbiased application of mind. It is pointed out that financial services business is an undertaking in terms of the provisions of Section 2(19AA) of the Act. It is also pointed out that the National Company Law Tribunal ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onsideration as in the present case, a requirement of pre-deposit would itself be a matter of hardship, the assessee is not inclined to make any payment. He then hastens to add that, in any case, it is not possible to pay the outstanding taxes on account of the huge amounts of demands, the financial position of the assessee in the light of his other unavoidable commitments as also the fact that delay in disposal of appeal is only on account of issues in the income tax department. Learned counsel submits that the demands are wholly unsustainable in law and frivolous in nature, and we must not, therefore, ask the assessee to pay these demands, in full or in part, at this stage. Once again he points out that the assessee is doing everything possible to make sure that the appeal is disposed of as soon as possible. There has not been a single occasion, according to him, when the assessee sought the adjournment for any reason whatsoever. Whatever delay is taking place in disposal of appeal is due to factors beyond the control of the assessee, and, at best, on account of non-availability of learned Additional Solicitor General who is to argue the matter. Under these circumstances, the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....placed on the legal nuances about the amendment in Section 254(2A), but, as we have noted a short while ago as well, it is not really necessary to deal with those things at this stage. We are thus urged to direct the assessee to pay at least 20% of the disputed demands. In brief rejoinder, learned senior counsel submits that no issues have been raised about lack of strong prima facie merits, that learned senior counsel as also the learned CIT(DR) have not met the points raised by the assessee on merits. He once again reiterated his elaborate submissions on the point that even after the amendments in the scheme of Section 254 by the Finance Act 2020, the Tribunal is not denuded of the powers to grant blanket stay in deserving cases. Elaborate submissions were then made on the question as to what would constitute a reasonable security, which could range from a plan personal bond to pledge of assets or even bank guarantees in appropriate cases. In response to our question whether any security was offered to the Assessing Officer, he replies in negative. Learned senior counsel, however, fairly submits that the assessee is now willing to give reasonable security of net value of more tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceive a payment, whether in cash or in kind, could also be said to be an asset of the company, and, looking to the overall arrangements in question, it cannot be categorically concluded out the demerger scheme does not constitute, directly or indirectly, distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of al l or any part of the assets of the company. A call will also have to be taken whether the shares allotted to the assessee's shareholders must come "out of" the accumulated profits, or as long as distribution is "of" accumulated profits- directly or indirectly, the foundational requirements of Section 2(22)(a) will suffice. On the other hand, there are serious legal question as to whether the liability under section 115 'O' can be ascertained during the pendency of regular assessment under section 143(3), and whether it can be open to the income tax authorities to rewrite the demerger scheme approved by the National Company Law Tribunal- particularly when the income tax authorities did not question the same when they were provided of an opportunity to object to the same, and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elay in appointment of, and availability of, counsel by the income tax department, and the assessee has not been evasive or wanting in compliance or in conduct- at least so far as the appellate proceedings before this Tribunal are concerned. The demand in question is on account of genuine differences about tax implications of a wholly internal business restructuring transaction. Considering all these factors, while we have declined an unconditional stay on collection/ recovery of disputed demands, we also consider it fit and proper to permit the assessee to furnish a reasonable security of the value of Rs. 760 crores or more, in lieu of making payment of the aforesaid amount, to the satisfaction of the Assessing Officer, and we also deem it fit and proper to direct the Assessing Officer to accept such a security for the time being and keep all the coercive recovery proceedings in abeyance till the disposal of this appeal. As to what will constitute reasonable security is something which is in the exclusive domain of the Assessing Officer, and unless his decision is perverse or grossly unreasonable, obviously there is no occasion for any other authority to interfere in the matter. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lanket unconditional stay which is not the case here, and, therefore, so far as the impact of amendment in Section 254(2A) by the Finance Act 2020 is concerned, that is wholly academic in the present context. 10. In view of the above discussions, and bearing in mind entirety of the case, we grant a stay on collection/ recovery of the disputed impugned demands on account of dividend distribution tax, and interest thereon, aggregating to Rs. 3786.34 crores on the following conditions: a) The assessee shall provide a reasonable security for an amount of Rs. 760 crores or more, to the satisfaction of the Assessing Officer, at the earliest possible, and, in no case, not later than two weeks from today; Provided, however, in case the Assessing Officer is, for any reasons whatsoever, not satisfied with the security offered by the assessee, the Assessing Officer shall pass a detailed speaking order in respect of the same, and will give a two week notice to the assessee, on the same lines as was directed by Hon'ble jurisdictional High Court in assesee's own case (supra), before initiating any coercive recovery proceedings, so that the assessee can pursue appropriate legal remedi....