TaxTMI 
TaxTMI 
2008 (12) TMI 3
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an assessee in default. II. The provisions of Section 195 have no extra territorial application. In an offshore transaction involving two non residents in respect of a capital asset (i.e. share capital) and payment outside the country, even assuming that such transaction is chargeable to tax, there is no obligation to withhold tax under Section 195. III. The 2008 amendment to the extent that they purport to be retrospective are unconstitutional. Under the unamended Sections 191 and 201 the Show Cause Notice is clearly without jurisdiction. IV. In any view of the matter the transaction in question is not chargeable to tax in India and the Petitioner accordingly was under no obligation to withhold tax as required under Section 195. I. Non-applicability of Section 201 2. With regard to the first proposition, Mr. Chagla, the learned Senior Counsel, very comprehensively submitted that the Income tax is a tax on the income payable by the recipient. Income tax of the recipient is payable by the payer only in certain limited circumstances, including when the legislature deems the payer to be an "assessee in default" ("AID for short). 3. Mr.Chagla, further submitted that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....end the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation. To us, there appears no justification to depart from the normal rule of construction according to which the intention of the legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt J.in Cape Brandy Syndicate Vs. Inland Revenue Commissioners (1921) 1 KB 64 (KB) at page 71, that: . ".....in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. 6. The learned Senior Counsel further relied on a Division Bench judgment of our High Court in the case of Commissioner of Income Tax Vs. Khimji Nenshi 194 ITR 192 (Bom.), wherein our High Court had held that; Moreover, section 64(2)(b) contains a deeming provisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er, is the counter-part of Section 201: for the removal of doubts it declares that in the special cases of Sections 194 and 200, the defaulting persons shall be deemed to be AID as referred to in Section 201. (NB: Prior to its amendment in 2002 Section 201 did not define "such person". The words "referred to in section 200" were inserted after "such person". A consequent amendment was made in 2003 by the addition of the Explanation to Section 191). iii. Failure to deduct or to withhold tax is visited with the penal consequences as provided in Section 271C, and by virtue of Section 273B no penalty shall be imposed if it is proved that "there was reasonable cause for the said failure". iv. Therefore, by reason of failure to deduct or withhold tax other than under Section 194, the payer is liable to be penalized under Section 271C but he does not become liable for the tax. That liability is and remains that of the payee who is the assessee, a position that is clarified by Section 191. v. A person who fails to deduct or withhold tax an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x, the Petitioner is liable to be penalized under Section 271C but his liability to pay the tax arises only when the payee fails to pay the tax. e. It is the admitted position in the present case that the payee has not been called upon to pay the tax and the payee cannot be said to have failed to pay the tax, in which case the condition precedent to the applicability of the deeming provision is not fulfilled and the Petitioner cannot be deemed to be an assessee in default for the tax liability of the payee. f. The impugned Show Cause Notice, therefore, purporting to be under Section 201, asking the Petitioner why it should not be deemed to be an AID for failing to withhold the tax allegedly due by the payee is ex-facie without jurisdiction. II. Section 195 has no extra territorial operation: 10. With regard to second proposition that section 195 has no extra territorial operation, Mr.Chagla, the learned Senior Counsel submitted as under: 11. Although the Indian Parliament is competent to enact legislation which may have extra-territorial operation (Article 245 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the question, we think it desirable to refer these cases to a Constitution Bench, and we do so order. 13. Alternatively, if it is held that Parliament's competence to legislate is plenary then, unless the language of the provision permits only one construction giving such provision extra territorial operation, there would be a presumption or a rule of construction that Parliament did not intend to exceed its territorial jurisdiction or violate the rules of international law. This presumption or rule of construction would apply more so in the case of a provision in respect of which a default thereunder entails penal consequences. To support this contention, Mr. Chagla, the learned Senior Counsel relied on a judgment in the case of Clarke (Inspector of Taxes) Vs. Oceanic Contractors Inc - (1983) 1 ALL ER 133,, wherein, it is held that; Put into the language of today, the general principle being there stated is simply that, unless the contrary is expressly enacted or so plainly implied that the courts must give effect to it, United Kingdom legislation is applicable only to British subjects or to foreigners who by coming to the United Kingdom, whether for a short or long time, have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le of India" and does not purport to give the Act extra-territorial operation unlike other statutes like FERA, FEMA, Foreign Contribution Regulation Act, Official Secrets Act, Information Technology Act, Indian Passport Act, etc. 18. In view of Section 1(2), provisions of the Income Tax Act must be assumed to operate territorially except where such provision permits only one construction that it is to operate beyond the boundaries of India or in respect of a person not resident within India. The learned Counsel for the Petitioner referred to Section 9, which deems certain income earned by a non-resident to be income earned within India. 19. The learned Senior Counsel submitted that the definition of "person" ex-facie includes a foreign company. In this behalf he referred to Section 2(31) r/w.2(17) which reads as under: 2[(17) "company" means - (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India, or (iii) any institution, association or body which is or was assessable or was assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubject or context. In view of this qualification, the court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words under the circumstances. 23. In that behalf, Mr. Chagla also relied on a decision of the Hon'ble Supreme Court in the case of Indian Handicrafts Emporium Vs. Union of India (2003) 7 SCC 569 especially paragraphs; 105. The words which are used in declaring the meaning of other words may also need interpretation and the legislature may use a word in the same statute in several different senses. In that view of the matter, it would not be correct to contend that the expression as defined in the interpretation clause would necessarily carry the same meaning throughout the statute. 107. The question which arose for consideration was as to whether the State Government would come within the purview of the said Act. This Court answered the said question in the negative, holding that the expression "management" must be read contextually in the following terms: (SCC P.599 Para 8) "We are therefore, of the opinion that....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is stated as follows: "Where tax cannot be deducted at source- 29. The provisions of this section, obviously, cannot apply to cases where the payments are made outside British India as, for example, the payment of 'interest on securities' in Indian States or in foreign countries, or the payment of 'salaries' by foreign employers to residents in British India. It is for this reason that section 19 of the Act specifies that in any case where income-tax has not been deducted in accordance with the provisions of section 18, the tax is payable by the assessee direct. This provision covers, not only cases where the employer or the person paying 'interest on securities' does not reside in British India but also cases where owing to an assessee's salary being less than Rs.1000/- income-tax has not been deducted (Income tax Manual, para 59). 30. Mr.Chagla submitted that if Section 195 is to apply to a non-resident having no presence in India, the machinery of deduction and collection of tax as provided in Section 203A and Rules 30 and 31A would be unworkable. Provisions of law should be interpreted in a manner to make them workable. Mr. Chagla, the learned Senior Counsel referred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te of this, if the impugned legislation cannot be saved the courts shall not hesitate to strike it down. Similarly, for upholding any provision, if it could be saved by reading it down, it should be done, unless plain words are so clear to be in definace of the Constitution. These interpretations spring out because of concern of the Courts to salvage a legislation to achieve its objective and not to let it fall merely because of a possible ingenious interpretation. The words are not static but dynamic. This infuses fertility in the field of interpretation. This equality helps to save an Act but also the cause of attack on the Act. Here the courts have to play a cautious role of weeding out the wild from the crop, of course, without infringing the Constitution. For doing this, the Courts have taken help from the preamble, Objects, the scheme of the Act, its historical background, the purpose for enacting such a provision, the mischief, if any which existed, which is sought to be eliminated...... This principle of reading down, however, will not be available where the plain and literal meaning from a bare reading of any impugned provisions clearly shows that it confers arbitrary, unc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of legislation must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional. In this behalf, Mr. Chagla relied on Ujagar Prints Vs. Union of India 179 ITR 317 (SC) 347. There is really no substance in the grievance that the retroactivity imparted to the amendments is violative of article 19(1)(g). A competent Legislature can always validate a law which has been declared by courts to be invalid, provided the infirmities and vitiating factors noticed in the declaratory-judgment are removed or cured. Such a validating law can also be made retrospective. If, in the light of such validating and curative exercise made by the Legislature - granting legislative competence - the earlier judgment becomes irrelevant and unenforceable, that cannot be called an impermissible legislative overruling of the judicial decision. All that the Legislature does is to usher in a valid law with retrospective effect in the light of which the earlier judgment becomes irrelevant. (See Shri Prithvi Cotton Mills Ltd. Vs. Broach Borough Municipality (1971) 79 ITR 136 (SC); (1970) 1 SCR 388. Such legislative expedience of validation of laws is of part....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional Rai Ramkrishna V. State of Bihar (1963) 50 ITR 171 (SC); (1964) 1 SCR 897, 915 ; Jawaharmal Vs. State of Rajasthan, AIR 1966 SC 764; (1966) 1 SCR 890; Supreme Court Employees Welfare Association Vs. Union of India, AIR 1990 SC 334; (1989) 3 SCC 488, 517. The third is apposite where the legislation is introduced to overcome a judicial decision. Here the power cannot be used to subvert the decision without removing the statutory basis of the decision Shri.Prithvi Cotton Mills Ltd. V. Broach Borough Municipality (1971) 79 ITR 136 (SC), (1969) 2 SCC 283; Lalitaben V. Gordhanbhai Bhaichandbai (1987) Supp. SCC 750; Janapada Sabha, Chhindwara V. Central Provinces Syndicate Ltd. AIR 1971 SC 57; (1970) 1 SCC 509 and Indian Aluminium Co. V. State of Kerala (1996) 7 SCC 637; AIR 1996 SC 1431. There is no fixed formula for the expression of legislative intent to give retrospectivity to an enactment. "Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Some times this is done by re-enacting retrospect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orders of courts and Tribunals or other authorities, which required to be neutralised by the validation clause. We can only assume that the judgments, decree or orders etc. had in fact, held that persons situate like the appellants were not liable as service providers. This is also clear from the Explanation to the valuation section which says that no act or acts on the part of any person shall be punishable as an offence which would not have been so punishable if the section had not come into force. The liability to pay interest would only arise on default and is really in the nature of a quasi punishment. Such liability although created retrospectively could not entail the punishment of payment of interest with retrospective effect. 40. He also relied on a decision of the Hon'ble Supreme Court in the case of C.I.T. Vs. Hindustan Elector Graphites Ltd. (2000) 3 SCC 595, wherein it is observed that; The decision of the Calcutta High Court in Modern Fibotex India Ltd (1992) 2 SCC 514: (1992) 195 ITR 1 squarely covers the issue involved in the present appeal. Then we have to see the law on the date of filing of the return. To attract penal provisions there has been same (sic ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Article 14. Mr.Chagla, the learned Senior Counsel relied on a decision in the case of Rai Ramkrishna Vs. State of Bihar 50 ITR 171 (SC), wherein it is held that, We do not think that such a mechanical test can be applied in determining the validity of the retrospective operation of the Act. It is conceivable that cases may arise in which the retrospective operation of a taxing or other statute may introduce such an element of unresonableness that the restrictions imposed by it may be open to serious challenge as unconstitutional; but the test of the length of time covered by the retrospective operation cannot, by itself, necessarily be a decisive test. 45. He also relied on D.Cawasji & Co. Vs. State of Mysore 150 ITR 648 (SC) 661, wherein it is observed by the Hon'ble Supreme Court, that; In our opinion, this is not a proper ground for imposing the levy at a higher rate with retrospective effect. It may be open to the Legislature to impose the levy at a higher rate with prospective operation but the levy of taxation at higher rate which really amounts to imposition of tax with retrospective operation has to be justified on proper and cogent grounds. 46. He further relied on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n cannot be upheld. In fact, the High Court did not elaborate as to how the impugned legislation is merely clarificatory. In that view of the matter, although we recognise the fact that the State has enormous powers in the matter of legislation, both prospectively and retrospectively, and can evolve its own policy, we do not think that in the present cases any material has been placed before the Court as to why the amendments were confined only to a period of eight years and no either before or subsequently and, therefore, we are of the view that the impugned provision, namely, Section 26 deserves to be quashed by striking down the words "not being waste goods or scrap goods or by-products" occurring in the said Section 26 of Maharashtra Act 9 of 1989 and the authorities concerned shall rework assessments as if that law had not been passed and give appropriate benefits according to law to the parties concerned. 47. Mr.Chagla contended that in the present case no reasons whatsoever have been supplied for the retrospective imposition of penalty. The facts disclose that only after the present Petition was filed and admitted and it was contended on behalf of the Petitioner that Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the Petitioner is a sum chargeable to tax in the hands of the payee; (b) that Section 195 has no territorial limitation and that the Petitioner was obliged to deduct tax before making payment; and (c) that the 2008 amendments, including their retrospective operation, are constitutionally valid and binding. 49. Mr.Chagla submitted that the provisions of Section 195 have no extra territorial application. In an offshore transaction involving two non-residents in respect of property and payment outside the country, even assuming that such transaction is chargeable to tax, there is no obligation to withhold tax under Section 195. Note : This proposition is based on the assumptions that; (a) the sum paid by the Petitioner is a sum chargeable to tax in the hands of the payee; (b) that a default in making a deduction of tax under Section 195 is within the scope of Section 201; c) that there is no violation of the condition precedent that the payee must ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d having regard to the scope of total income contemplated in section 5(2) of the Act. iii. As admittedly, the payee is a non-resident it is chargeable to tax in India only in respect of income that accrues or arises or is deemed to accrue or arise in India or income that is received or deemed to be received in India. It is an undisputed position that the gain arising on the transfer of shares is chargeable to tax only if it is deemed to accrue or arise in India within the meaning of section 9. iv. Under Section 9 (which is a deeming provision) income accruing or arising "through the transfer of a capital asset situate in India" is deemed to accrue or arise in India. v. The transaction in the present case is the transfer of share capital of a non-resident company and is not a transfer of a capital asset situate in India. In this behalf, the learned Senior Counsel relied on a decision in the case of C.I.T. Vs.Qantas Airways Ltd. 256 ITR 84 (Del-DB). vi. The share capital in question ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansferred. The price paid by the vendee for acquisition of such shares remains the price of those shares though the price so paid is higher than the market price. Controlling interest is but an incidence of the shareholding and has no independent existence. Similar view was taken by the Madhya Pradesh High Court in the case of Smt.Maharani Ushadevi V. CIT (1981) 131 ITR 445, wherein also it was pointed out that the controlling interest in a company is an incident arising from holding of a particular number of shares in the company and that such controlling interest cannot be transferred without transferring shares. 55. Mr.Chagla, the learned Senior Counsel submitted that there is an indirect acquisition of the controlling interest in VEL the same has been achieved by acquiring control of CGP by the acquisition of its share capital outside India. There is, therefore, no transfer of a capital asset within India. In this behalf the learned Senior Counsel relied on Bacha F.Guzdar V. C.I.T. AIR 1955 SC 74, wherein it is observed that; The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The divi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in India, hence section 9 can have no application whatsoever. 60. Mr.Chagla then submitted that it is well settled that a taxing statute must be construed strictly and there is no room for intendment. (In this behalf the learned Senior Counsel referred to the cases cited in Proposition-I). 61. Mr.Chagla contended that in the event it is contended that the gain from the present transaction is chargeable to tax as amounting to income accruing or arising through or from a business connection in India, such contention would be untenable and without any basis. 62. The learned Senior Counsel also pointed out that there are 3 requirements for income arising through or from a business connection in India to be chargeable to tax under Section 9 (1)(i) they are; (i) The non-resident assessee must have a business connection in India: ii) The income must arise through or from the business connection; and (iii) The non-resident assessee earning such income must have business operations in India. If no business operations are carried out in India....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonable attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing therefrom shall be deemed to have accrued in India. If, however, all the operations are not carried out in the taxable territories, the profits and gains of business deemed to accrue in India through and from business connection in India shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories. If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. (See C.I.T. Vs. R.D.Aggarwal & Co. and M/s.Carborandum Co. V. C.I.T., which are decided on the basis of Section 42 of the Indian Income Tax Act, 1922, which corresponds to Section 9(1)(i) of the Act. 66. He also pointed out Ishikawajima-Harima Heavy Industries Ltd. Vs. Director of Income Tax 288 ITR 408 (SC), wherein it is observed by the Hon'ble Supre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reements/documents alone can aid this Court to find out the true nature of the transaction and appreciate the controversy involved in the Writ Petition. 71. The learned Additional Solicitor General also submitted that the Constitutional validity of the provisions of the I.T. Act cannot be determined in the absence of the said agreement and merely on hypothetical considerations. 72. The learned Senior Counsel submitted that the matter involves complex questions arising out of disputed facts, lot of which are still un-disclosed and the same cannot be made the subject matter of a Writ Petition under Article 226 of the Constitution of India. 73. Mr.Parasaran submitted that the transaction in question is prima-facie chargeable to tax in India since it amounts to transfer of a Capital Asset in India. The transaction involved in the present case is prima facie liable to Capital Gains Tax and the Petitioner is prima facie liable for withholding Tax and that there was sufficient justification founded upon facts and law for the issuance of the impugned show cause notice. Both Section 195 and the impugned show cause notice are not extra-territorial in its operation, as the income is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry notice initially, before the aggrieved could approach the Court. Further, when the Court passes an interim order it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition is accorded to the writ petitioner even at the threshold by the interim protection, granted. 75. He also relied on Kunisetty Sathyanarayana AIR 2007 SC 906, wherein it is held that; 13. It is well settled by a series of decisions of this Court that ordinarily no writ lies against a charge sheet or show-cause notice vide Executive Engineer, Bihar State Housing Board Vs. Ramdesh Kumar Singh and others JT 1995 (8) SC 331, Special Director and another Vs. Mohd. Ghulam Ghouse and another AIR 2004 SC 1467, Ulagappa and others Vs. Divisional Commissioner, Mysore and others 2001 (10) SCC 639, State of U.P. Vs. Brahm Datt Sharma and another AIR 1987 SC 943 etc. 14. The reason why ordinarily a writ petition should not be entertained against a mere show-cause notice or charge-sheet is that at th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be correct no case has been made out against the noticee. If a prima facie case has been made out in the show cause notice, it is for the adjudicating authority to finally decide all the questions including the questions of fact. It has also been laid down in series of cases by the Supreme Court that the High Court should not interfere at the stage of show cause notice to take over the fact finding investigation which is to be resolved by fact finding authorities constituted under the relevant statute. In a series of recent cases, the Supreme Court has taken the aforesaid view. Some reported cases are : State of Goa Vs. Leukoplast (India) Ltd. 1997 (92) E.L.T. 19 (SC) = AIR 1997 SC 1875 ; Union of India Vs. Polar Marmo Aglomerates Ltd. - 1997 (96) E.L.T. 21 (SC) and Union of India Vs. Bajaj Tempo Ltd. - 1997 (94) E.L.T. 285 (S.C.). In State of U.P. Vs. Labh Chand - AIR 1994 SC 754, the Supreme Court befittingly illuminated the power as under: "When a statutory Forum or Tribunal is specially created by a statute for redressal of specified grievances of persons on certain matters, the High Court should not normally permit such persons to ventilate their specified grievances befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n (1997) 105 STC 318 (SC). hence, we are not able to take a view different than the one taken by the learned single judge. Re Proposition 1(b) : Writ Petition is premature. 78. Mr.Parasaran submitted that the Petitioner has been asked to show cause as to why it should not be treated as an assessee in default, for not withholding tax at the time of payment made to HTIL. It is submitted that as per the scheme of Chapter XVII of the I.T.Act, deductions are required to be made at the time of payment and all adjustments are to be made finally at the time of regular assessment of the recipient of the income. The ultimate assessment resulting in payment of any lesser or bigger amount as Income Tax in accordance with law in force, would not affect the duty to deduct tax at the time of payment in any manner. It has been categorically held by the Hon'ble Supreme Court in the case of Aggarwal Chamber of Commerce Ltd. Vs. Ganpat Rai Hira Lal AIR 1958 SC 269, that those persons who are bound under the act to make deduction at the time of payment of any income, profits or gains are not concerned with the ultimate result of the assessment. (Emphasis supplied) 79. Mr.Parasaran pointed out....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Gujarat High Court in the case of CIT Vs. Vijay Ship Breaking Corporation 261 ITR 113 (Guj.) The buyer, therefore, does not get absolved from his contractual liabilities under the contract of sale or from his statutory liabilities, such as, of making deduction of tax at source under section 195(1) of the Act while making payment by the mode of a letter of credit. Re. Proposition 1 (c) : Petitioner has an efficacious alternate remedy. 82. Mr.Parasaran submitted that the Courts have refused to entertain the Writ Petitions challenging the show cause notice seeking to by-pass the statutory mechanism provided and in particular, notice issued alleging incomes taxable under Section 9 of the Income Tax Act. The Income Tax Act itself is a self-contained code and in cases like this, the Act provides sufficient safeguards to persons like the Petitioner, who have an effective and efficacious alternative remedy. in fact the Petitioner itself has availed such efficacious alternative remedies in the past. Under the Income Tax Act, the petitioner, apart from responding to the show cause notice, can seek for a determination as to whether any income is at all chargeable and as to wheth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....endency of this appeal, taking advantage of the Voluntary Disclosure Scheme, Asahi Glass Co.Ltd. Japan, had filed returns of income in respect of the four employees in question and had paid the entire amount of income-tax payable in respect of what was paid to these four employees in Yen currency. This and the other facts cannot be taken up for consideration by this Court for the first time. In our opinion, the High Court was right in coming to the conclusion that it is appropriate for the appellants to file a reply to the show cause notice and take whatever defence is open to them. While affirming the decision of the High Court, we, therefore, grant ten weeks' time to the appellants to file a reply to the aforesaid show-cause notice dated May 16, 1996. On the reply being so filed, the Income-tax Officer will take a decision, after giving an opportunity of hearing to the Appellants. The decision should be taken within four months of the reply being so filed. It will be open to the appellants to place on record the subsequent facts the effect of which will be for the Income Tax Officer to decide. b) Titaghur Paper Mills Co.Ltd. &....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s come forward with a writ petition challenging issuance of a show cause notice dated 19th September,2007, wherein the Petitioner has been requested to only show cause as to why it should not be treated as an assessee in default. The Petitioner was also requested to produce certain documents for adjudication in the matter. One of the crucial documents required by the 2nd Respondent for determining the question in dispute is the main/primary agreement dated 11th February,2007, entered into between the Petitioner and HTIL. The said agreement has not been produced by the Petitioner either before the department or before this Court. Mr.Parasaran strongly contended that the said agreement alone can aid this Court in finding out the true nature of the transaction and appreciate the controversy involved in the Writ Petition. Without producing this agreement and other relevant documents, the Petitioner cannot expect this Court to decide the merits of the matter. 86. Mr.Parasaran submitted that non-production/ non-disclosure of vital documents should result in this Court drawing an adverse inference against the Petitioner since it amounts to withholding of the best evidence, even assumin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; it had not candidly stated all the facts to the Court. The High Court is exercising discretionary and extraordinary jurisdiction under Article 226 of the Constitution. Over and above, a Court of Law is also a Court of Equity. It is, therefore, or utmost necessity that when a party approaches High Court, he must place all the facts before the Court without any reservation. If there is suppression of material facts on the part of the Applicant or twisted facts have been placed before the Court, the Writ Court may refuse to entertain the Petition and dismiss it without entering into merits of the matter." "33. The object underlying the above principle has been succinctly stated by Scrutton, LJ in R.V.Kinsington Income Tax Commissioners (1917) 1 KB 486: 86b LJ KB 257: 116 LT 136, in the following words: "It has been for many years the rule of the Court, and one which it is of the greatest importance to maintain, that when an applicant comes to the Court to obtain relief on an ex parte statement he should make a full and fair disclosure of all the material facts - facts, not law. He must not misstate the law if he can help it - the Court is supposed to know the law. But it kn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vidence in the form of documents on record and not in vacuum or in the abstract. The writ Petitioner is conveniently lacking in particulars as to the nature of the agreement dated 11th February,2007 and all other agreements preceding or following the same entered into by HTIL and/or the Petitioner. The essential facts supported by the necessary documents as proof of such facts, have been conveniently kept away from this Hon'ble Court. In this behalf Mr.Parasaran also referred to Sant Lal Bharti Vs. State of Punjab AIR 1988 SC 485 = (1988) 1 SCC 366. It must, however, be mentioned that the petition is lacking in particulars as to what premises the appellant owned and in respect of which premises the appellant is making the grievances. On this ground it is not possible to decide the question of vires canvassed before the High Court and repeated before us. A petition challenging the constitutional validity of certain provisions must be in the context of certain facts and not in abstract or vacuum. The essential facts necessary to examine the validity of the Act are lacking in this appeal. On this ground the petition was rightly rejected and we are not inclined to interfere with the or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cide in an application under Article 226. 16......................... 17......................... 18......................... 19. Could it be said that the reasons given by the Income Tax Officer for his belief that the interest income is assessable under Section 9(1) and has escaped assessment due to the failure of the assessee to file its return are extraneous or irrelevant? I agree with Mr.Gupta that the question whether the nterest due on the unsecured loan stock is assessable under Section 9(1) of the Act or not is not within the scope of this application. This Court has only to be satisfied that the impugned notices are on their face erroneous and/or that the issuing Income Tax Officer had no material for his belief that any income has escaped assessment due to any omission or failure on the part of the assessee either to file its returns or to disclose the primary material facts necessary for such assessment. in this case there is no dispute that apart from the assessment year 1958-59 no returns were filed by the assessee. Whether the Income Tax Officer should have made enquiries on the basis of the information received in connection with the assessments of the I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sition submitted by the learned Counsel for the Petitioner i.e. Chargeability to Income Tax, Mr.Parasaran, the learned Additional Solicitor General of India submitted as under: a. Like most other taxing jurisdictions, the Indian Income Tax Act follows the twin basis for taxation, (i) based on residence or domicile and (ii) based on source of income. While Indian residents are taxed on global income under Section 5(1), non-residents are taxed only on the income, which has its source in India under Section 5(2). The non-residents should have either received or deemed to have received the income in India or the income should have arisen or accrued in India or should be deemed to have accrued or deemed to have arisen in India. The deeming provision is enumerated in section 9 of the Income Tax Act. It is the submission of the Revenue that the income or capital gains of HTIL is deemed to have accrued or arisen in India and therefore, it squarely falls within the ambit of Section 9 and is hence chargeable to Income Tax. b. It was submitted that the transaction is prima facie, liable to In....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is clearly stated, recognised and affirmed if one looks at the restated term sheet of dated 24th August,2007. Term sheet dated 5th July,2003 and agreement dated 2nd May,2000. the Hutch group was controlling 8 companies in India and operating in joint venture with Essar and others providing cellular service in India. 22nd December,2006: HTIL discloses that it had been approached by potential interested parties regarding a possible sale of the Company's interests in HEL group. January/February,2007 : It is reliably learnt that among several interested buyers two Groups, namely Reliance and Hinduja also offered their bids and these interested buyers were asked to determine the price of its' interests by reference to the enterprise value of Hutch Essar. 11th February,2007: Agreement between Petitioner and HTIL for acquisition of Indian interests of HTIL by the Petitioner. 12th February,2007: Petitioner's disclosure to SEC, USA for acquisition of 67% stock of HTIL in HEL, for a consideration of US$ 11.1 billion, which confirms the total enterprises value of US# 18.8 billion. 20th February,2007: Circular of HTIL to its share holders that the Company was sel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ious entities viz. Interest in Telecom License Jointly held with the Essar Group; use of Brand & Goodwill; non-compete rights given by HTIL; Right to enter into Telecom Business in India; Control Premium et-all. It would be too simplistic to answer away all this merely by a submission that what was transferred was a only share of an unknown Cayman Island Company, which is a shell company and which was not even considered in the Enterprise value of HEL. The courts have been very liberal in interpreting the words 'goods' & 'transfer', especially viz. a viz tax laws. In this behalf, Mr.M.Parasaran, the learned Additional Solicitor General of India relied on the following judgments: CIT Vs. B.C.Srinivas Setty (1981) 128 ITR 294 (SC). Blue Bay Fisheries Pvt. Ltd. Vs. CIT (1987) 166 ITR 1 (Ker). Associated Cement companies Ltd. Vs. Commissioner of Customs AIR 2001 SC 862. Tata Consultancy Services Vs. St. of A.P. air 2005 SC 371 CIT Vs. D.P.Sandu Bros (2005) 273 ITR 1 (SC). Bharat Sanchar Nigam Ltd. Vs. Union of India AIR 2006 SC 1383. Century Finance Corporation Vs. State of Maharashtra AIR 2006 SC 2436. Mr. Parasaran, also referred to the definition of term '....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; Transfer of interest held by one group (Hutch Group) in HEL (India) to the Vodafone Group. This Group Concept, as discernible from one of the conditions of the License, is typical of the way the Cellular Mobile Business is conducted in the Country and can be found to have been pleaded before Hon'ble Courts in the Country. Assuming without admitting that the contention of the Petitioner is correct, then what has happened in effect in the present case is that the shares and all other interest of the 8 Indian Companies controlled by HTIL, stood stapled with shares of CGP, at the time of transfer. Mr.Parasaran referred to the decision of the Company law Board in the case of Air Touch International (Mauritius) Ltd. Vs. RPG Cellular Investments and Holdings P.Ltd. 2004(121) Comp Cas-0647-CLB a) Samayanallur Power Investment Private Ltd. Vs. Coventa Energy India (Balaji) Ltd. (b) 1976 (3) All E.R. 462 DHN Food Distributors Ltd. Vs. London Borough of Tower Hamlets.) d) Transfer of Controlling Interest in Indian Companies: d. &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Narain & Sons Pvt. Ltd. Vs. CIT (1961) 41 ITR 534 (SC), CIT Vs. National Insurance Co.Ltd. (1978) 113 ITR 37 (Cal), CIT Vs. National Finance Ltd. (1962) 44 ITR 788 (SC) The Lakshmi Insurance Co. Vs. CIT (1971) 80 ITR 575 (Del) CIT Vs. New India Assurance Co.Ltd. (1980) 122 ITR 633 94. Mode of transfer of an asset, is not determinative of the nature of the asset; . Shares in themselves may be an asset but in some cases like the present one, shares may be merely a mode or a vehicle to transfer some other asset(s). In the instant case, the subject matter of transfer as contracted between the parties is not actually the shares of a Cayman Island Company, but the assets (as stated supra) situated in India. The choice of the Petitioner in selecting a particular mode of transfer of these right enumerated above will not alter or determine the nature or character of the asset. Mr.Parasaran, the learned Additional Solicitor General of India relied on the decision of Gujarat High Court in the case of Mul Shankar Kunverji Gor Vs. Juvansinhji Shivubha Jadeja AIR 1980 Guj.62. 95. He also relied on the decision of our High Court in the case of Hanuman Vitamins Foods Pvt.Ltd. Vs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....citor General of India, further submitted that the present is a case where the real entities involved in the transaction are apparent and it is clear that what was transferred by HTIL to the Petitioner was its entire interest in the 8 companies in India. This is a case where there is no even a need or necessity for this Court to lift or pierce the corporate veil to find out the real nature of the asset transferred or the real economic entities sought to be transferred. The Petitioner themselves, by their various declarations supra, made it apparent and clear that the purpose of their acquiring shares in CGP was to acquire the controlling interest of 67% in HEL. The Petitioner itself has disregarded the maze of subsidiaries in the matter of ownership, receipt of of sale consideration and signing and execution of agreement for transfer (See Pg.4 of the List of dates). 99. Mr.Parasaran submitted in relation to a foreigner, jurisdiction can be exercised by the executive, legislature and judiciary in India, if either the foreigner is actually present in the Indian Territory or if any interest in any of his property is within the Indian Territory. A foreigner cannot enter into a trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....range only to unversed in devious ways of tax avoidance. In the present is a case of tax evasion and not tax avoidance. It may noted that the House of Lords rules in favour of the Revenue and against the tax payer. Page 765 reads as under: "I am not sure on which of these high-sounding phrases the Appellant company chiefly reliefs. But I would answer that neither comity nor rule of international law can be invoked to prevent a sovereign state from taking what steps it thinks fit to protect its own revenue laws from gross abuse or to save its on citizens from unjust discrimination in favour of foreigners. To demand that the plain words of the stature should be disregarded in order to do that very thing is an extravagance to which this House will, I hope, give ear." 102. Mr.Parasaran pointed out that the very purpose of entering into agreements between the two foreigners is to acquire the controlling interest which one foreign company held in the Indian company, by other foreign company. This being the dominant purpose of the transaction, the transaction would certainly be subject to municipal laws of India, including the Indian Income Tax Act. The Petitioner has admitted th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s a nexus, then all the provisions of the Income Tax Act would apply. d. Section 1(2) cannot be read in isolation and has necessarily to be read with other provisions of the Act and in particular sections 4(1), 42), 5,9, and a host of other relevant provisions including the machinery provisions like those contained in section 173, 195 and other provisions. The reference to other enactments such as FERA, FEMA , Indian Official Secrets Act, which specifically provide for the applicability of those Acts to persons or entities who are Indian citizens cannot be compared with the provisions of the Income Tax Act. Those Acts deal with the various acts of omissions and commissions i.e. conduct of persons or entities in India as well as outside India. The Indian Income Tax Act on the other hand is concerned with either residence of the person in India or the source of income or the economic activity which has to be carried out in India. Further, the meaning of words used in one section of the IT Act itself, cannot be used to interpret the meaning of words used in another section of the same Act, since the words used derive their meaning fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as been sought to be given to the expression 'person' under the Income Tax Act, the legislature has so provided it clearly and unambiguously in various other parts of the Income Tax Act (Sections 194,194C,194-I, 196A, 196B, 19C refer to Annexure A). Mr.Parasaran submitted that a charging provision cannot be defeated or rendered futile by reading down the machinery provision so as to ineffectuate the charging section. Such a submission is impermissible and misconceived. The lack of machinery for enforcement cannot be a valid ground for holding that law itself is not valid or alterantively that the law is unworkable or that the provisions should be read down. It is further submitted that even the Petitioner had a nexus with India by reason of factors already set out its equity held in Bharti Airtel. i. The moment the Petitioner signed the agreement to acquire interests in India on 11th February, 2007, it automatically acquired nexus to a source of income in India and significantly, the said agreement was conditional upon the approval of the Indian regulatory authorities, only after the grant of which, the payment was made for a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....undaries are becoming redundant and nations are coming together in assisting each other in collection of taxes for their mutual benefit. The argument that the scheme qua non resident is impracticable cannot be accepted. 105. With regard to fourth proposition, Mr.Parasaran submitted that the Petitioners are Assessees in default under Section 201 read with Section 195 of the Act and made his submissions as under; i) Section 4(1) creates a charge of tax on the total income of an assessee. Section 4(2) provides of recovery of such tax by way of tax deduction at source or payment of advance tax in accordance with the provisions contained in the Act. if there is no provision for tax deduction in respect of certain sources of income there will be no TDS on such income and recovery will have to be made through other modes of collection. ii) Section 190(2) falls in Chapter XVII (dealing with TDS) and sub-section (2) thereof provides that the provisions of the said Chapter shall not prejudice the charge of tax on income under section 4(1) thereby ensuring that the assessee who is ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... comparative chart showing how these provisions (section 191, 200 and 201) stood at different points of time is given as Annexure. viii) However, the submission of the Petitioner was that in any event, even going by the law as it stood pre or post 2008 Amendment, they could not be construed to be an assessee in default by reason of the Explanation to section 191. The petitioner has argued that the condition precedent before construing the Petitioner as an assessee n default is that not only the deductor should have failed to deduct the tax but that the assessee (deductee) should have also failed to pay the tax on the income arising to it. According to the Petitioner, Section 191 provides a cumulative test and so long as the second condition viz. the failure of the assessee (deductee) to pay the tax has not arisen, it cannot be construed to be an assessee in default. This submission is unacceptable as the liability of the deductor and deductee are not linked and inter dependent, as held in judicial pronouncements. Even assuming without admitting that the petitioner's submissions are correct, even then condition stands fulfilled as the ded....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection has already provided and created a duty and imposed an obligation on the Petitioner to deduct the tax at the time of payment. Chapter XVII contains only the machinery provision for giving effect to the charging provision. it is well settled by a catena of decisions of the Hon'ble Supreme Court that while a provision in a tax statute containing a charging section should be construed strictly the same principle would not apply to a machinery provision which has to be construed liberally in order to effectuate the machinery provision. The machinery provision should not be so construed to frustrate the operation of the charging provision. The petitioner by its interpretation of Section 195 is only seeking to frustrate the operation of the charging provision, which is impermissible in the eyes of law. The judgments cited by the Petitioner with regard to the intepretation of Section 201 are therefore, inapplicable and distinguishable in the light of the principles of case cited above. xiii) According to the Petitioner, the position pre of deductor and (ii) under Section 200 where there is a deduction of tax as required under any of the provis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o interpret the words differently. The settled position was that the liability under Section 201 arose as soon as the person committed the default on non-deduction of tax. At this juncture, Mr.Parasaran, the learned Additional Solicitor General of India relied on the following judgments; i. Yashpal Sahni Vs. Rekha Hajarnavis ACIT 293 ITR 539 (Bom) ii. ACIT Vs. Om Prakash Gattani (Gau) 242 ITR 638 iii. Aggarwal Chamber of Commerce Ltd. Vs. Ganpat Rai Hiralal 22 ITR 245 (SC) iv. CIT Vs. Meat Products of India Ltd. 244 ITR 1 (Ker) v. Traco Cables Ltd. Vs. CIT (Ker) 166 ITR 278 xvii) If one were to substitute the words of section 200 after the word 'person' used in section 201, the reading goes, "if any such person deducting the tax fails to deduct tax........." and it would not alter the effect. The "person" deducting the tax would necessarily encompass the person obliged to deduct tax. Any other interpretation would lead to absurd consequences and has to be avoided. xviii) Thus, both under the pre-amended provisions of sections 201 and 199 and post the amendment made in 2002 or 2003, the Petitioner....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n ever suggest any change in the substantive law. Reference to 'referred to in Section 200", meant the persons mentioned in that section and not their acts of omission or commission. xxii. In the meantime, the ITAT, Mumbai took the view in case of Associated Cement Co.Ltd. Vs. ITO, TDS (2000) 74 ITD 369 (Mum), that where deductor had failed to deduct the tax, the recovery under Section 201 could not be made from him in view of the provisions of Section 191. Since the order was likely to be followed by the other Coordinate Benches generating a spate of litigation, Parliament took the task of clarifying the position by adding Explanation to section 191. The fact that the amendment was clarificatory was stated in the statute itself through the opening words "for the removal of doubts". The notes on clauses and explanatory memorandum reiterated the same position. xxiii) Any explanation added to the section can only explain what is stated in the main provision. The main provision of Section 191 deals with only two situations (i) where there is no provision of deduction of tax and (ii) where the tax has not been deducted. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r's submissions, the Respondents have submitted that; i) the writ petition is not maintainable as it purports to challenge a show cause notice and the discretion under Article 226 should not be exercised. ii) the transaction of sale of the share capital of CGP Investment (Holdings) Ltd. (CGP) would give rise to a charge to tax in India. iii) the provisions of section 195 of the Income Tax Act, 1961 (the Act) and the impugned show cause notice are not extra-territorial in their operation; iv) the Petitioner would be an assessee in default even in accordance with the language prior to the amendments made by the Finance Act,2008; and v) the amendments made by the Finance Act,2008 are not violative of Article 14 of the Constitution. Rejoinder to submission (i) of the Respondents 108. It is submitted by the learned Senior Counsel for the Petitioner, that having submissions already made in the course of the hearing, this is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tive of Article 14 and the Petitioner is also challenging the validity of the retrospective amendments inserted by the Finance Act,2008 in sections 191 and 201 of the Act, the writ petition is clearly maintainable as it would not be open to the Petitioner to challenge the vires of the aforesaid provisions in the course of the regular assessment proceedings. 111. The argument that the Petitioner has an efficacious remedy inasmuch as it could have approached the Assessing Officer under section 195(2) or under section 197 of the Act or an application could have been furnished to the Authority for Advance Ruling has no relevance in the present situation. These alternative (assuming that they were efficacious) remedies may have been availed of it there was an obligation to deduct tax at source but as according to the Petitioner it was not obliged to deduct tax at source, the question of invoking one of these remedies does not arise. In any event the failure to opt for such an alternative would not enable the Respondents to urge that the Petitioner should be precluded from invoking jurisdiction under Article 226 at this stage. Availing of an alternative remedy is not a condition prece....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction and/or copies of the same. before the present Division Bench as also the Division Bench which issued rule in the Writ Petition, Counsel for the petitioner offered to furnish copies of the agreement dated 11th February,2007 to the Court and the Respondents if a request for the same was made by the Respondents in the present proceedings before this Hon'ble Court. To date no such request has been made in the proceedings before this Hon'ble court inspite of the fact that the Petitioner has repeatedly drawn the attention of the Respondents to this course of action. Therefore, it is not open to the Respondents to urge that the Petitioner has suppressed any documents or that this Hon'ble Court should draw an adverse inference against the Petitioner as a consequence thereof. 114. Further, the argument that the challenge to the constitutional validity of the amendments made to sections 191 and 201 of the Act by the Finance Act,2008 is not maintainable in the absence of any facts which are pleaded and proved by evidence in the form of documents on record, is unsustainable. The only fact required to be pleaded and proved in the present case to entitle the Petitioner to challenge the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... person who has no presence in India would be subject to the various procedural requirements that have to be complied with in India by a person deducting tax at source such as application for a Tax Deduction Account Number, issuance of certificates, filing of quarterly and annual returns etc. 118. All that the Respondents have urged in paragraph 6 is that neither the payments nor the residential status of the payer or the payee are relevant; and that where a restrictive meaning has been sought to be given to the meaning of the expression "person", the Legislature has provided so clearly and unambiguously in various parts of the Act. In other words, the Respondents urge that this Hon'ble Court should prefer the statutory definition in preference to the contextual interpretation of the expression "person". In so contending, the Respondents have relied only upon their ipse dixit and have ignored the judgment cited by the Petitioner in this regard. 119. Mr.Chagla for the Petitioner submitted that the Respondents have completely ignored the decision of the Hon'ble Supreme Court in the case of Kapurchand V. Tax Recovery Officer (AIR 1969 SC 682), where, in the absence of any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on a ruling of the Authority for Advance Ruling reported in 228 ITR 487 which ruling would have no precedential value as section 245S of the Act makes it clear that the ruling has a binding effect only inter parties and may only be of persuative value as observed by the Supreme Court in Union of India Vs. Azadi Bachao Andolan (2004) 10 SCC 1 page 43. It is further submitted that in the case before the AAR the non-resident payer was required to maintain two offices in India to supervise the execution of the contract. As such, admittedly, it had a presence in India. In the present case the Petitioner is a non-resident having no presence in India at the time when it entered into the Agreement for purchase of the share capital of CGp. The only "nexus" it had with India was that it owned 5.61% of the equity share capital in an Indian company and a mere financial investment in an Indian company would not constitute a "presence", taxable or otherwise, which would give rise to an obligation to deduct tax at source in terms of section 195 of the Act. Neither the signing of the agreement on 11th February,2007 nor the Foreign Investment Promotion Board (FIPB) approval is indicative of any nex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n through or from a business connection or through a property or a source of income in India is tenuous and accordingly was not pressed, and, therefore, it is proposed to rejoin only to the sole argument that was urged viz., that income has accrued or arisen through or from the transfer of a capital asset situated in India. 126. Mr.Chagla for the Petitioner contended that the Respondents accept that if it was a simple sale of share capital of a foreign company there would have been no obligation to deduct tax at source as the amount would not be chargeable to Tax in India even though the price at which such sale of the share capital takes place is determined having regard to the value of certain assets in India. However, accordingly to the Respondents, the present is a case of a transfer of a valuable property/asset in India. The Respondents, however, have not categorically asserted as to what is the specific asset situated in India which stands transferred to the Petitioner. According to the Respondents what is transferred is the interest, tangible and intangible, in Indian operating companies of the "Hutchison Group" in favour of the petitioner, a nebulous term to say the leas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it was only "controlling interest" that would be considered a "capital asset". This contention, apart from what has been submitted above, would lead to the further absurdity that a non-resident would be entitled to indirectly acquire 49.99% of the shares of an Indian company without there being any chargeability to tax under section 9(1)(i) of the Act. In such a scenario, tax would be chargeable only on the one share that would give such a non-resident control of the Indian company. 129. The decisions relied upon by the Respondents with regard to "controlling interest" are either cases where there was a transfer of a managing agency. The learned Senior Counsel for the Petitioner relied on CIT Vs. Ram Narain Kapur & Co. Pvt. Ltd. 69 ITR 719 and Rama Narain & Sons Pvt. Ltd. Vs. CIT 41 ITR 534, which was recognized by the Companies Act as a separate right by itself independent of the shares in such company, or where the right of shareholders of a company to manage its affairs was taken over by the Government, which case emphasize that "controlling interest" is an incidence e of shareholding and can only be separated therefrom by express legislation. In this behalf, the learned Seni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te and hence they are not being dealt with individually. The question that this Hon'ble Court has to consider is whether there has been a direct transfer of any capital asset in India, and the reply thereto can only be in the negative. 133. The next plank of the Respondent's argument was that the Petitioner has acquired the Joint Venture interest of the Hutchison Group in Hutchison Eessar Ltd. and it subsidiaries. This argument is also fallacious. If the Respondents' case was that the Petitioner has stepped into the shoes of "Hutchison Group" by "Huthison Group" having allegedly transferred its interest in the Joint Venture to the Petitioner, then, the question of the Petitioner having entered into any fresh Shareholder's Agreement with Essar would not have arisen. In any event is submitted that as one is testing the validity of the show cause notice and there has been no reference in the show cause notice to a transfer of a Joint Venture interest, the question of going into it at this stage would not arise. From the agreements relied on by the Respondents, it is evident that it is only the direct shareholders of Hutchison Essar Ltd. who have a right to nominate the directors, C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot parties to the said agreement, in view of the Petitioner's own pleadings that such Respondents constituted a single economic entity and were different limbs of one organization. The observation of the Company law Board relied upon by the Respondents must, therefore, be considered having regard to the background in which they were made. Likewise in Samayanallur Power Investments Pvt. Ltd. Vs. Covanta Energy India (Balaji) Ltd. (130 Comp. Cases 21), the question that arose was whether the sale by a holding company of its shares in a subsidiary company would invite the rights of preemption pursuant to a shareholders agreement between the subsidiary and another shareholder. In view of the claim by the holding company that the business carried on by the subsidiary was that of the holding company, the Court was of the view that the holding company and the subsidiary constituted a single economic unit. This was a case where the Court was of the view that the Company was seeking to resile from its obligation under the shareholders agreement by adopting a device. This decision has not considered the judgment of the Division Bench of this Court in CDS Financial Services (Mauri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the person referred to in section 194 of the Act has failed to deduct tax at source. As the Petitioner did not fall under either of these categories the question of initiating proceedings under section 201 of the Act did not arise. The Respondent's argument is that this would not be a correct manner of interpreting section 201 of the Act because a person who is guilty of a gross failure to deduct tax could not be considered as an assessee in default whist a person who has deducted tax at source but not remitted it (which according to the Respondents is a lesser default) would be so considered. Accordingly, the Respondents contend that the Court should embark on an impermissible exercise of adding words to section, which words were in fact added by the 2008 amendments. That apart, it is submitted that a person who has failed to deduct tax at source, assuming that he was obliged to do so, would be visited with penal consequences as provided for under section 271C of the Act but a person who has failed to pay over the tax after deducting the same would be visited with prosecution as provided for in section 276B of the Act. it is thus apparent that a failure to remit tax deducted at so....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n recover the TDS amount with interest once again from the Petitioner? (emphasis supplied). The Court ultimately upheld the contention of the assessee that no recovery could be made from him in view of the clear mandate of section 205 of the Act. This decision, therefore, in no manner whatsoever militates against the interpretation placed by the Petitioner on the provisions of section 201 of the Act as they stood after its amendment in 2002 but before the amendments made by the Finance Act,2008. 143. The argument that the amendment made in section 201 of the Act by the Finance Act,2002 was as a consequence of the amendments made in section 192(1A) and section 200(2) of the Act, and the same was only clarified by the 2008 amendment is unsustainable. The amendments made in section 201 of the Act by the Finance Act, 2002 made it absolutely clear that proceedings under Section 201 of the Act could only be taken against the two classes of persons referred to in paragraph 35 hereinbefore. On a literal reading of these penal provisions, therefore, a person who has failed to deduct tax at source as required in terms of a section other than section 194 of the Act could not be proce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of the income. Assuming the payer is required to, but does not deduct tax at source, then, logically, proceedings to recover the tax from him should be taken only after the Revenue has established, at least by an assessment order, that the amount paid is chargeable to tax in India, and the payee has thereafter failed to pay the tax, as there is no mechanism available in the Act to refund such tax to the payer if the payee subsequently does pay the tax. In the absence of any such mechanism an interpretation should be placed on sections 191 and 201 of the Act which make the provisions workable and it is only the interpretation canvassed by the Petitioner that would have the desired effect. 146. The Petitioner submits that the argument of the Respondents that the Petitioner has no vested rights and hence the "clarificatory" amendments made by the Finance Act 2008 are not violative of Article 14 is without any substance. It is submitted that as explained hereinbefore on a plain construction of section 201 of the Act, as it stood before the 2008 amendments, no proceedings could be taken against the Petitioner to treat it as an assessee in default. it is only by virtue of the amen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndian Income Tax Act follows the twin basis for taxation, (i) based on residence or domicile and (ii) based on source of income. While Indian residents are taxed on global income under Section 5(1), non-residents are taxed only on the income, which has its source in India under Section 5(2). The non-residents should have either received or deemed to have received the income in India or the income should have arisen or accrued in India or should be deemed to have accrued or deemed to have arisen in India. The deeming provision is enumerated in section 9 of the Income Tax Act. It is the submission of the Revenue that the income or capital gains of HTIL is deemed to have accrued or arisen in India and therefore, it squarely falls within the ambit of Section 9 and is hence chargeable to Income Tax. 152. Prima facie, HTIL, by reason of this transaction, has earned income liable for Capital Gains Tax in India as the income was earned towards sole consideration of transfer of its business/economic interests as a group, in favour of the Petitioner. 153. Under Section 9(1)(i), income is deemed to accrue or arise in India whether directly or indirectly, through or from (a) busine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h February,2007: . Petitioner's application to the FIPB for approval of direct acquisition of 51.96% stock in HEL. . 15th March,2007: Settlement agreement between HTIL and Essar Group disclosing HTIL's agreement to dispose off its "HTIL interests" to the Petitioner. "HTIL's interests" has been defined as HTIL's direct and indirect equity, loan and other interests and rights in and related to HEL, which HTIL has agreed to sell to the Petitioner. 27th March,2007. . Petitioner files certain details with FIPB in reply to FIPB's letter dated 22nd March,2007. 7 th May,2007 . Conditional approval by the FIPB stipulating that there should be compliance and observance of applicable laws and regulations of India, which would naturally include tax obligations under Income Tax Act. 8th May,2007: Petitioner enters into an agreement with HTIL to provide for the retention of US$ 352 million out of total consideration payable by it to HTIL to meet certain specific liabilities which the Petitioner may incur for a period of up to 10 years. June/July,2007 . The names of 8 operating companies undergo change. 13th June,2007. HTIL announces a special dividend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s consistent with its shareholding, including proportionate Board representation. Ravi Ruia will be appointed by Vodafone as Chairman of Vodafone Essar and Arun Sarin will be appointed by Essar as Vice Chairman. Essar will have certain liquidity rights including, between the third and fourth anniversaries of completion, and subject to regulatory requirements, an option to sell its 33% shareholding in Vodafone Essar to Vodafone for US$5 billion or an option to sell between US$1 billion and US$5 billion worth of Vodafone Essar shares to Vodafone at an independently appraised fair market trading value. Vodafone expects to complete the acquisition of HTIL's interest in Hutchison Essar in the coming weeks. 14th June, 2007/Annueal Report Acquisition of Hutchison Essar: On 8 May 2007, the Group completed its acquisition of 100% of the share capital in CGP Investments (Holdings) Limited ("CGP") for US$10.9 billion from Hutchison Telecommunications International Limited. CGP owns a 51.95 indirect shareholding in Hutchison Essar Limited ("Hutchison Essar"), a mobile telecommunications operator in the Indian market. As part of its acquisition of CGP, Vodafone acquired a less....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the fact that the interest in Telecom License is jointly held with the Essar Group complied with the use of Brand & Goodwill and non-complete rights given by HTIL. There is a right to enter into Telecom Business in India, with a control premium. 158. It will be too simplistic to answer away all the above facts and circumstances, by a submission of the Petitioner that what was transferred was only shares of an unknown Caymon Island Company, which is a shell company and the same was not even considered in the enterprise value of HEL. 159. The Petitioner themselves have not disputed that the transaction involves transfer of controlling interest. If any transaction involves a transfer of controlling interest in a company or a group of companies, such a transfer has to be viewed both from the point of view of transferor and transferee. It is inconceivable as to how HTIL can transfer its controlling interest in HEL without extinguishing its rights in the shares of the Indian group and without which, a transferee cannot acquire a controlling interest. A divestment or extinguishment of right, title or interest must necessarily precede the divestment of the controlling interest an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Petitioner in which the Petitioner has acquired 67% interest, was a group company of HTIL and now a group company of the Petitioner. Any profit or gain which arose from the transfer of a group company in India has to be regarded as a profit and gains of the entity or the company which actually controls its, particularly when on facts, the flow of income or gain can be established to such controlling company (HTIL). In the present case, by reason of the transfer, the income accrued not to CGP, but to HTIL and was treated as profits of HTIL and accordingly was distributed to the share holders of HTIL in Hong Kong at the rate of Hong Kong $ 6.15 per share. Therefore, the recipient of the sale consideration was none other than HTIL and this was a consequence of divestment of its Indian interests in Hutchinson Essar Group, liable for capital gains. 164. The Petitioner themselves, by their various declarations supra, made it apparent and clear that the purpose of their acquiring shares in GDP was to acquire the controlling interest of 67% in HEL. 165. Another aspect to be noted is the American principle of "Effects Doctrine" which is as follows: "Any state may impos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s from unjust discrimination in favour of foreigners. To demand that the plain words of the stature should be disregarded in order to do that very thing is an extravagance to which this House will, I hope, give ear." 168. The very purpose of entering into agreements between the two foreigners is to acquire the controlling interest which one foreign company held in the Indian company, by other foreign company. This being the dominant purpose of the transaction, the transaction would certainly be subject to municipal laws of India, including the Indian Income Tax Act. The Petitioner has admitted that HTIL has transferred their 67% interests in HEL qua their shareholders, qua the regulatory authorities in India (FIPB), qua the statutory authorities in USA and Hong Kong and the Petitioner has also admitted acquiring 67% held by HTIL in HEL. This being the case, a different stand cannot be taken before the tax authorities in India and a different stand cannot be put forth by either HTIL or the Petitioner. 169. We are also clearly of the view that the Petitioner has wilfully failed to produce the primary/original agreement dated 11th February, 2007 and other prior and subsequent ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r: 13. It is well settled by a series of decisions of this Court that ordinarily no writ lies against a charge sheet or show-cause notice vide Executive Engineer, Bihar State Housing Board Vs. Ramdesh Kumar Singh and others JT 1995 (8) SC 331, Special Director and another Vs. Mohd. Ghulam Ghouse and another AIR 2004 SC 1467, Ulagappa and others Vs. Divisional Commissioner, Mysore and others 2001 (10) SCC 639, State of U.P. Vs. Brahm Datt Sharma and another AIR 1987 SC 943 etc. 14. The reason why ordinarily a writ petition should not be entertained against a mere show-cause notice or charge-sheet is that at that stage the writ petition may be held to be premature. A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so. It is quite possible that after considering the reply to the show-cause notice or after holding an enquiry the authority concerned may drop the proceedings and/or hold that the charges are not established. It is well settled that a writ lies when some right of any party is in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; the adjudicating authority to finally decide all the questions including the questions of fact. It has also been laid down in series of cases by the Supreme Court that the High Court should not interfere at the stage of show cause notice to take over the fact finding investigation which is to be resolved by fact finding authorities constituted under the relevant statute. In a series of recent cases, the Supreme Court has taken the aforesaid view. Some reported cases are : State of Goa Vs. Leukoplast (India) Ltd. 1997 (92) E.L.T. 19 (SC) = AIR 1997 SC 1875 ; Union of India Vs. Polar Marmo Aglomerates Ltd. -1997 (96) E.L.T. 21 (SC) and Union of India Vs. Bajaj Tempo Ltd. ­1997 (94) E.L.T. 285 (S.C.). In State of U.P. Vs. Labh Chand -AIR 1994 SC 754, the Supreme Court befittingly illuminated the power as under: "When a statutory F....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fidavit in a proceeding under article 226 of the Constitution of India. Useful reference can be had to the judgment of the Supreme Court in the case of State of Goa Vs. Leukoplast (India) Ltd. reported in (1997) 105 STC 318 (SC). hence, we are not able to take a view different than the one taken by the learned single judge. 174. We also find that the Petitioner is fully safeguarded under Section 195(2), 195(3) and Section 197 of Income Tax Act. As held by the Hon'ble Supreme Court in Transmission Corporation case, (1999) 239 ITR 587 (SC), Petitioner's rights are adequately safeguarded under Section 195(2), 195(3) and 197 of the Income Tax Act, and the only thing required to be done is to file an application before the Assessing Officer under those provisions. 175. In this behalf, the following observations of the Hon'ble Supreme Court in the case of Indo Asahi Glass Company Ltd. & Anr. Vs. I.T.O. & Ors., 2002 (254) ITR 210, 2002(10) SCC 444, would be relevant: The aforesaid show-cause notice was issued on the allegation that salary had been paid to four employees who were working with the appellants in India. These employees were Japanese and the salary in ques....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Tribunal under sub-s.(3) of s. 23 of the Act, and then ask for a case to be stated upon a question of law for the opinion of the High Court under s.24 of the Act. The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution. It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes J., in Wolverhampton New Water Works Co. V. Hawkesford (1859) 6 CB (NS) 336 at p.356 in the following passage; "There are three classes of cases in which a liability may be established founded upon statute...... But there is a third class, viz., where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it..... the remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of important documents or information lying by, trusting to the abstract doctrine of the onus of proof, and failing, accordingly, to furnish to the Courts the best material for its decision. With regard to third parties, this may be right enough -they have no responsibility for the conduct of the suit, but with regard to the parties to the suit it is, in their Lordships's opinion, an inversion of sound practice for those desiring to rely upon a certain state of facts to withhold from the Court the written evidence in their possession which would throw light upon the proposition." This passage was cited with approval by this Court in a recent decision - Biltu Ram V. Jainandan Prasad, Civil Appeal No.941 of 1965, D/­ 15-4-1968 (SC). 179. Similarly, the observations of the Hon'ble Supreme court in Prestige Lights Ltd. Vs. State Bank of India (2007) 139 Comp.Cases.169 (SC), would squarely apply in the present case: "32. It is thus clear that though the Appellant-Company had approached the High Court under Article 226 of the C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alidity of the Amendment to Sections 191 and 201 of the I.T.Act by the Finance Act,2008, then the same must be in context of certain facts pleaded and proved by evidence in the form of documents on record and not in vaccum or in the abstract. The present Petition totally lacks particulars as to the nature of agreement dated 11th February, 2007 and all other agreements preceding or following the same entered into by HTIL and/or the Petitioner. The essential facts supported by the necessary documents as proof of such facts, have been conveniently kept away from this Court. 181. In the above context, it is relevant to note the observations of the Hon'ble Supreme Court in Sant Lal Bharti Vs. State of Punjab AIR 1988 SC 485 = (1988) 1 SCC 366, as under: It must, however, be mentioned that the petition is lacking in particulars as to what premises the appellant owned and in respect of which premises the appellant is making the grievances. On this ground it is not possible to decide the question of vires canvassed before the High Court and repeated before us. A petition challenging the constitutional validity of certain provisions must be in the context of certain facts and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uestions as to the scope and effect of Section 9(1) are involved which it is neither convenient nor desirable to decide in an application under Article 226. 16......................... 17......................... 18......................... 19. Could it be said that the reasons given by the Income Tax Officer for his belief that the interest income is assessable under Section 9(1) and has escaped assessment due to the failure of the assessee to file its return are extraneous or irrelevant? I agree with Mr.Gupta that the question whether the interest due on the unsecured loan stock is assessable under Section 9(1) of the Act or not is not within the scope of this application. This Court has only to be satisfied that the impugned notices are on their face erroneous and/or that the issuing Income Tax Officer had no material for his belief that any income has escaped assessment due to any omission or failure on the part of the assessee either to file its returns or to disclose the primary material facts necessary for such assessment. in this ca....