TaxTMI 
TaxTMI 
2023 (9) TMI 947
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....equity and natural justice, and is prejudicial to the interest of the Appellant on the grounds, inter alia, set out below. The grounds of appeal listed below are without prejudice to each other. 2. The order under section 115-O of the Act passed by the learned AO, and upheld by the learned CIT(A), treating the Scheme of Arrangement and Compromise ('the Scheme') approved by the Hon'ble Madras High Court in C.P. 102 of 2016 under section 391 to section 393 of the Companies Act, 1956 in the Appellant's case for purchase of own shares, as a Scheme for 'capital reduction' is violative of the Scheme itself as also the order of the Hon'ble High Court. 3. The order under section 115-O of the Act passed by the learned AO, and upheld by the learned CIT(A), erroneously treats the consideration paid by the Appellant for purchase of its own shares from its shareholders in accordance with the Scheme as dividend as per section 2(22) of the Act. 4. The learned CIT(A) has erred in holding that "what is excluded from the definition of dividend us 2(22) and brought into the purview of Sec. 46A is the 77A buy-back of shares and not any other '....
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....Mauritius and the principles laid down by the Hon'ble Supreme Court in UOI vs Azadi Bachao Andolan [2003] 263 ITR 706 (SC). 12. Without prejudice, the learned CIT(A) has erred in stating that the credit for INR 495 crores deposited under protest during the pendency of the proceedings shall be given effect to only from April 2020 whereas the amount was moved to the regular account (Head of Account No. 106) of the Income-tax department in March 2019 itself. 3. The brief facts of the case are that the assessee, M/s. Cognizanat Technology Solutions India Pvt. Ltd., (in short "M/s.CTS India Pvt. Ltd.") is a Private Ltd. Co., and is engaged in the business of software development and related services/solutions. The assessee is operating in India since 1994 and has grown to be one of the largest Software Development Company in India. The assessee clients predominantly are in the USA. The assessee was originally a wholly owned subsidiary of CTS, USA. Thereafter, in FY 2011-12, there was a restructuring of various businesses directly or indirectly under the control of CTS, USA. Through a Court approved scheme, the Appellant Company was amalgamated with M/s. Cognizant India P....
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....8,521 484,12,60,737 483,88,75,527 52,33,24,388 Cognizant (Mauritius) Limited, Mauritius 53,01,788 10,761,03,91,036 10,748,63,57,379 Nil (Not chargeable to tax under the India-Mauritius DTAA) CSS Investments LLC, Delaware, USA 1,59,478 323,69,24,966 323,16,36,873 34,95,01,528 Total 94,00,534 1,90,80,26,38,598 1,90,52,06,92,264 8,98,01,63,318 5. The assessee deducted TDS on consideration paid to non-resident shareholders, M/s. Cognizant Technology Solutions Corporation, USA, M/s. MarketRx Inc. USA, and M/s. CSS Investments LLC, Delaware, USA, because, treaty benefit is not available to non-resident shareholders of USA. The assessee did not withheld tax on consideration paid to M/s. Cognizant (Mauritius) Ltd., Mauritius, because, capital gain is not chargeable to tax in the hands of Mauritius shareholders in India under India Mauritius DTAA. The assessee has remitted consideration paid to shareholders for purchase of its own shares and also complied with relevant provisions of FEMA & RBI and also filed Form No.15CA after obtaining a Certificate from Chartered Accountant in Form No.15CB furnishing the details of remittances made ....
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....order of single judge of the Hon'ble High Court of Madras before the Division Bench of the Hon'ble High Court of Madras in Writ Appeal No.2063 of 2019. The Division Bench of the Hon'ble High Court of Madras vide its judgment and order dated 06.09.2019 allowed the Writ Appeal in part by setting aside the remarks of the Ld.Single Judge on merits. The Division Bench upheld the directions of the Ld.Single Judge with respect to filing an appeal before the Ld.CIT(A). The Division Bench had also held that all issues to be raised before the Ld.CIT(A). The assessee preferred an SLP against the order of the Division Bench before the Hon'ble Supreme Court on the ground that order dated 22.03.2018 was passed in violation of principles of natural justice without granting the assessee an opportunity of being heard and such order cannot be considered as appealable order. After hearing the assessee and the Department, the Hon'ble Supreme Court has disposed SLP filed by the assessee on 04.03.2020 in Civil Appeal No.1992 of 2020 arising from SLP (C) No.23705 of 2019 with certain directions. As per the judgments of the Hon'ble Supreme Court, the recovery letter dated 22.03.2018 shall be regarded as a....
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....judicial precedents and held that consideration paid by the assessee to its shareholders for purchase of its own shares under the 'Scheme of Arrangement & Compromise' u/s. 391 to 393 of the Companies Act, 1956, is nothing but dividend within the meaning of Sections 2(22)(a) / 2(22)(d) of the Act. The AO further held that if you go through the scheme documents submitted by the assessee, it is clear that the assessee has specifically excluded the provisions of Sec. 77A of the Companies Act, 1956, and claimed which is not a buyback of shares as contemplated u/s. 77A of the Companies Act, 1956. Therefore, purchase of own shares through any scheme/method available u/s. 391 to 393 of the Companies Act, 1956, should invariably fulfill the statutory requirements stipulated u/s. 100-104 and 402 of the Companies Act, 1956. To put it in simple words, when purchase of own shares is contemplated under the provisions of Sections 391 to 393 of the Companies Act, 1956, it should be invariably to be r.w.s.100-104/402 of the Companies Act, 1956, or u/s. 77A of the Companies Act, 1956, and thus, without invoking provisions of Sections 100-104/402 of the Companies Act, 1956, the provisions of Sections....
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....of Sec. 100-104/402 of the Companies Act, 1956. The Ld.CIT(A) after considering relevant submissions of the assessee and also by taking note of various facts brought on record by the AO, discussed the issue at length and held that consideration paid by the assessee to its shareholders for purchase of its own shares through the 'Scheme of Arrangement & Compromise' sanctioned by the Hon'ble High Court of Madras involves capital reduction and is deemed dividend within the purview of Sections 2(22)(a) / 2(22)(d) of the Act, and thus, there is no error in the reasons given by the AO to determine DDT u/s. 115-O of the Act. The relevant findings of the Ld.CIT(A) in nutshell to sum up as under: 9.27 In nutshell to sum up: * Assessee's impugned transaction of "purchase of its own shares" from its NR shareholders involved mandatory 'capital reduction' to the extent of reducing 54.7% of the total paid-up share capital. Capital reduction to this extent in the transaction is an indisputable fact. * In the transaction, the assessee distributed over Rs. 19,099/- crores of its accumulated profits to its NR shareholders. Such payment from accumulated profits t....
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....of its own shares" was done u/s. 391 simpliciter, even then, what happened in reality in the transaction is capital reduction [to the extent of 54.7% of total paid-up share capital], which the assessee has been unable to controvert. * Almost all the court decisions available on the subject invariably hold that 'purchase of own shares' (other than 77A buybacks) done u/s. 391 should always be read with section 100. None of these decisions hold that such transaction does not involve capital reduction. This has been elaborated under para 9.9.2 above. * Assessee tried to argue that its 'purchase of own shares' is not possible u/s. 77 r.w.s 100, as purchase of own shares from its related shareholders was not made in proportionate basis and option has to be given to the shareholders, which are not possible u/s. 100 and hence, it had to resort to section 391. The argument of the assessee is patently wrong in view of the explicit provisions of law. 'Capital reduction' can by effected in any way/ in any manner as per section 100 of the Companies Act 1956 {as explained already in paras 9.3.3, 9.3.4 and 9.3.5)for the purposes of 'purchase of own sh....
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....pital' and it does not even refer to any section of the Companies Act. Only clause (iv) of Sec. 2(22) stipulates that it should not be buy-back u/s. 77A. What is to be seen is whether there is capital reduction or not. 'Capital reduction' happened in the transaction is an undeniable fact; it is not buy-back u/s. 77A is also an undeniable fact. Then, section 2(22)(d) comes into play automatically. * Even if for argument sake, it is taken that 'capital reduction' is not the transaction, even then, the payments to the shareholders gets covered u/s. 2(22la), as the accumulated profits were distributed to the shareholders entailing part of the assets of the company and the transaction not being u/s. 77A and thus the assessee is liable to pay DDT u/s. 115-O. * In fact, assessee's May 2013 transaction was 'buy-back' of shares u/s. 77 and hence, it was exempt from section 2(22)(a) in view of clause (iv) of section 2(22) and the assessee rightly applied section 46A as it was buyback u/s. 77A. The present impugned May 2016 transaction of 'purchase of own shares' is admittedly not a buy-back' u/s. 77A; so, even if the assessee clai....
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.... has to be seen independently by the concerned Income tax authorities under the Income tax Act. Hence, this argument of the assessee is not acceptable. * The assessee again argued that as per RBI intimation made by the assessee, the transaction is transfer of shares and not dividend. RBI intimation made by the assessee is for _FEMA purposes and not for Income tax Act purposes. Therefore, RBI intimation made by the assessee cannot govern or determine the tax liability under the Income tax Act. Hence, reliance cannot be placed on RBI intimation for income tax liability. The impugned transaction of 'purchase of own shares' involved capital reduction accompanied by payment of accumulated profits to the shareholders and so, it is dividend u/s 2(22)(d) of the Income tax Act. * Assessee admits that payments from accumulated profits have been made to the shareholders in the impugned transaction of purchase of own shares involving capital reduction, but it tries to argue that it is only 'payment' and not 'distribution' and so, it does not qualify as dividend u/s. 2(22)(d). The fact that this argument is not tenable has been discussed elaborately und....
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....t applicable read with Explanation to section 46A section_ 46A, Finance Act comment for section 46A and Circular Memorandum for No.3/2016 [F.No.225/19/2016/I7A.II] dated 26.2.2016. Section 46A does not have any role on the impugned transaction of the assessee. This has been amply demonstrated in detail in paragraphs 9.3.9, 9.12 and 9.13 above. lt may also be noted that non-obstante section 115-O takes primacy over section 46A. Therefore, the argument of the assessee that the shareholders paid (barring the major Mauritius shareholder under DTAA) capital gains tax u/s. 46A and assessee is not liable u/s. 115-O, 15 not at all correct and not tenable in the eyes of law. * Even for argument sake, if the assessee had thought that provisions of section 46A along with deduction in terms of section 195 would need to be considered as payments were made to NR shareholders, then the inescapable course for it is to go under the process stipulated in the second proviso to Section 195(1) which clearly states that "provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. Thus, the assessee ought to have first ruled out the applicabili....
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....t 1956 or u/s. 67 r.w.s 66 or u/s. 230 r.w.s 67 &66 of Companies Act 2013] continues to attract DDT u/s. 115-O.There is absolutely no ambiguity in it. This has been amply demonstrated in detail in paragraphs 9.3.10, 9.14, 9.15 and 9.16 above. * The assessee again tried to take shelter under the Court's approval for its Scheme, for not paying the due tax u/s. 115-O. This is not possible and not acceptable, as the Hon'ble Court in its approval clearly stated "this Court having also observed that "this order will not be construed as an order granting exemption from payment of stamp duty or, taxes or, any other charges, if any, payable, as per the relevant provisions 2I law or, from any applicable permissions that may have to be obtained or. even compliances that ma have to be made as per the mandate of law. "This shows that the court approval has not exempted the assessee from any mandatory compliances as per Companies Act itself and has not given any exemption to the due taxes payable by the assessee as per Income tax Act also. Therefore, approval of the Court for the Scheme has no impact on determination of the tax liabilities under the Income tax Act. * As....
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....crued or arisen or deemed to have accrued or arisen to them in India and the applicability of DTAA benefits on such income are separate issues relevant for consideration in the assessment of the respective NR shareholders. The issue on hand is only the DDT liability u/s 115-O on the assessee company. Therefore, the plea that the AO of the assessee has contravened the provisions of the DTAAs has no merit. * Thus, in view of the above facts, the assessee's transaction of "purchase of own shares" through the 'scheme of arrangement and compromise' is not a 'buy-back' of shares u/s. 77A or u/s. 391 r.w.s 77A of the Companies Act 1956, and hence, the provisions of section 46A of the Income tax Act have no application. On the other hand, the assessee's transaction of 'purchase of own shares' through the 'scheme of arrangement and compromise' u/s 391 is to be invariably read with section 100 of the Companies Act 1956 and involves capital reduction. Even otherwise also, assessee's purchase of own shares' has actually involved 'capital reduction' since the 'paid-up share capital' was utilized for payment for shares and ....
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....f Sec. 100 of the Companies Act, 1956, or buyback under the provisions of Sec. 68 of the Companies Act, 2013. The purchase of equity shares and the payment of consideration shall not be treated as distribution of assets or distribution of accumulated profits of the company to its shareholders. The company complied with all statutory provisions, including Foreign Exchange Management Act, 1999, and the regulations and notifications thereunder and also deducted TDS as per the provisions of the Act, wherever applicable. The ld. Counsel for the assessee further referring to various documents submitted that tax has been withheld out of the payment of consideration to the US resident shareholders aggregating to Rs. 898.01 Crs. In so far as payment made to M/s. Cognizant (Mauritius) Ltd., tax has not been withheld, because, the same is exempt from the tax in the hands of the non-resident shareholders under Article-13 of the India Mauritius DTAA. The return filed by the US shareholders and the Mauritius shareholders reflecting capital gains on purchase of own shares by the assessee company was processed u/s. 143(1) of the Act, and further, no proceedings have been initiated, thereafter in t....
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....or u/s. 77A of the Companies Act, 1956. Therefore, the company has to perforce cancel/extinguish shares purchased from the shareholders due to bar in law. Therefore, the scheme of arrangement for purchase of shares cannot be said to be a scheme for reduction of capital u/s. 100-104/402 of the Companies Act, 1956. Since, purchase of shares and extinguishment thereof does not amount to reduction of capital, payment of consideration to the shareholders for purchase of own shares cannot, therefore, be said to be occasioned on account of reduction of capital, and consequent reduction of capital cannot be said to be a 'causa causans' or proximate/direct cause of the payment to the shareholder but 'causa sine qua non' since the extinguishment/cancellation of shares is a consequence of the purchase of shares. Therefore, the counsel submitted that payment of consideration to shareholders for purchase of own shares by the company are ultimately extinguished/cancelled cannot be said to be reduction of capital and in this regard, he specifically referred to Para No.24 of the decision of the Hon'ble Bombay High Court in the case of SEBI v. Sterlite Industries Ltd., (supra).The Ld.Sr.Counsel for....
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....payment to the shareholders in discharging of the consideration agreed for purchase of shares. Once the company acquired its shares from the shareholders under a completed contract for purchase/sale of shares, the company thereafter, had to necessarily extinguish the shares in view of the bar in law. The payment to the shares was made in pursuance of the contract and not on account of extinguish of shares. Therefore, the interpretation of the AO that upon reduction of capital, the assessee has made payment to the shareholders, and thus, same is in the nature of deemed dividend, is incorrect. The Ld.Sr.Counsel for the assessee, submits that even Sec. 2(22)(a) of the Act, is not applicable, because, said section deals with distribution by a company of accumulated profits, whether capitalized or not, if such distribution entails release by the company to its shareholders of all or any part of the assets of the company to be taxable as dividend. In the facts of the present case, the payment made by the assessee to its shareholders is towards discharge of consideration payable under contract of purchase of shares and thus, same cannot be regarded as distribution, which implies payment b....
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....956. It is also inserted a new provision namely Sec. 46A of the Act, to provide that any consideration received by a shareholder or a holder of other specified securities from any company on purchase of its own shares shall be subject to provision contained in Sec. 48 of the Act. Therefore, from the above it is clear that even assuming that the legislature had been introduced Sec. 46A of the Act, all elements required for charge of tax as capital gains upon purchase of shares, are satisfied. Therefore, any consideration paid by a company for purchase of shares to its shareholders is taxable in terms of provisions of Sec. 46A of the Act, alone. In this regard, he relied upon the decision of the Hon'ble Supreme Court in the case of Anarkali Sarabhai v. CIT reported in [1997] 224 ITR 422 (SC). 16. The Ld.Sr.Counsel for the assessee further referring to section 115QA of the Act, submitted that Sec. 115QA of the Act, originally enacted by the Finance Act, 2013 w.e.f. 01.06.2013 along with explanation. The scope of the said section was enlarged while amendment made by the Finance Act, 2016 w.e.f. 01.06.2016 by amending of definition of buyback in clause and explanation to subsection (....
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....the shareholders u/s. 46A of the Act. Further, additional income tax u/s. 115QA of the Act, is not applicable as the extent provisions of Sec. 115QA of the Act, were applicable only for purchase of own shares u/s. 77A of the Act. From 01.06.2016, company is liable to pay additional income tax under provisions of Sec115QA of the Act. Therefore, the AO and the Ld.CIT(A) are completely erred in invoking provisions of Sec. 2(22)(a) / 2(22)(d) of the Act, and levied tax u/s. 115-O of the Act, towards consideration paid for purchase of own shares in a 'Scheme of Arrangement & Compromise'. 17. The Ld.Sr.Counsel for the assessee submitted that the scheme of arrangement once approved by the Hon'ble High Court operates as judgment in 'rem' because, in terms of provisions of Sec. 394A of the Companies Act, 1956, notice of the scheme of arrangement was required to be given to the central government, which was empowered to rise objection and representation to the Court. It is important to note that the Regional Director, Ministry of Corporate Affairs filed a 'No Objection Report' before the Hon'ble High Court overruling the objections raised by the Registrar of Companies to the proposed sche....
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....priated said taxes against tax liability of shareholders. At the same time, the AO has treated consideration paid by the assessee to its shareholders for purchase of its own shares as deemed dividend u/ss.2(22)(a) / 2(22)(d) of the Act, and levied tax u/s. 115-O of the Act, by taking a different stand for the shareholders on one hand and the company on the other hand. He further referring to certain judicial precedents, including the decision of the Hon'ble Supreme Court in the case of Berger Paints India Ltd. v. CIT reported in [2004] 266 ITR 99 (SC) submitted that, it was not open to the Revenue to adopt conflicting/contrary view in the hands of the different tax payers. 19. The Ld.Sr.Counsel for the assessee had also distinguished various case laws relied upon by the AO in support of their claim. The Ld.Sr.Counsel for the assessee referring to the decision of AAR No.P of 2012 reported in 206 Taxman 631 submitted that in the said ruling a selective buyback of shares was undertaking wherein only Mauritius shareholders participated in the buyback and other shareholders for whom capital gains would lead to tax incidence in India did not participate. Under those peculiar circumsta....
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.... the facts of the assessee's case, because, the assessee had purchased shares from the shareholders as per scheme sanctioned by the Hon'ble High Court of Madras under the provisions of Sec. 391 to 393 of the Companies Act, 1956. Therefore, he submitted that the AO and the Ld.CIT(A) were completely erred in recharacterization of transaction of purchase of own shares as reduction of capital in terms of provisions of Sec. 100-104/402 of the Companies Act, 1956 and invoking provisions of Sections 2(22)(a)/ 2(22)(d) of the Act r.w.s.115-O of the Act. 20. Shri. R. Shankaranarayanan, the Additional Solicitor General of India (in short "the ASG"), for Shri A.P.Srinivas, Sr.Standing Counsel for the Department submitted that the assessee was originally a fully owned subsidiary of CTS, USA.In the FY 2011-12, there was a restructuring of various business directly or indirectly through a Court approved scheme of amalgamation where the assessee amalgamated with M/s. Cognizanat India Pvt. Ltd., (M/s.CIPL) and M/s. Market Rx India Pvt. Ltd., (M/c.MIPL) in a scheme of amalgamation. Interestingly, the shares were allotted on 1:1 swap based on number of shares held by the shareholders of all entit....
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....lear that the entire scheme was moved in a hurried manner which is evident from the fact that on 29.02.2016, amendment to Sec. 115QA of the Act, was announced and was in the public domain. The assessee was convened a board meeting on 10.03.2016 and on 05.04.2016, the details of the scheme were sent to the Registrar of Companies. The Registrar of Companies on 07.04.2016 has sent their objections to the Regional Direction. The 'scheme of arrangement &compromise' petition filed by the assessee was came up for final hearing before the Hon'ble High Court of Madras on 11.04.2016 and the Hon'ble High Court of Madras has approved the scheme on 18.04.2016. The assessee has implemented the scheme on 18.05.2016 and on 01.06.2016, amendment to Sec. 115QA of the Act, had come into force. Therefore, from the sequence of events, it is abundantly clear that the assessee has designed a scheme in a hurried manner so as to distribute accumulated profits to its shareholders without coming into taxation net as per provisions of the Income Tax Act, 1961. 21. The ld. ASG further referring to the scheme document submitted before the Hon'ble High Court of Madras in terms of Sec. 391 to 393 of the Compan....
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.... is also clear by a reading of the clauses in the Scheme where the assessee specifically states that the Scheme will not attract s.2(22), s.115-O or S.115QA of the Act. Further, Clause-6.7 of Scheme states that purchases of own shares would not amount to reduction of share capital u/s. 100 and also would not amount to buyback of shares u/s. 68 of the Companies Act, 2013. The effect of the scheme is that 54.70% of the total share capital got reduced. Therefore, there are three inescapable conclusions that arise from the present transaction are (i) the entire scheme is a colorable devise to try to avoid payment of tax dues (ii) there is capital reduction & (iii) there is distribution out of accumulated profits. 23. The ld. ASG further submitted that from the above the question that arise for consideration of this bench is whether the amount distributed under the scheme for purchase of own shares would be taxable in the hands of the assessee company as deemed dividend u/s. 2(22)(a) / 2(22)(d) of the Act, and therefore, the assessee is liable to pay DDT u/s. 115-O of the Act, or not. The crux of the case of the Department is that the purchase of shares by the assessee through a 'Sch....
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....Clause-7 of the scheme, the distribution of money will be out of the general reserve and accumulated credit balance in the P & L A/c. Therefore, both conditions are satisfied and thus, the transactions would come within the ambit of s.2(22)(d) of the Act. The ld. ASG had also negated the arguments of the counsel for the assessee that provisions of Sec. 2(22) are not attracted, because, both Sec. 2(22)(a) / 2(22)(d) of the Act, requires distribution which would only imply distribution without any quid pro quo. Since, the scheme is an offer and acceptance, this involves an element of quid pro quo and therefore, there is no distribution. The ld. ASG submitted that the contention of the Ld. Counsel for the assessee that s.2(22)(d) of the Act, requires distribution on reduction of capital is also not satisfied, is incorrect. The word 'distribution' in s.2(6A) of the Income Tax Act, 1922, which is analogous to Sec. 2(22) of the current Income Tax Act, 1961, was considered in the case of Punjab Distilling Industries Ltd. v. CIT reported in [1965] 57 ITR 1 (SC)and the Hon'ble Supreme Court held that the meaning of the word 'distribution' means division/payments between/to several people. T....
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....ity (iii) is just and fair to all members including dissenting members and (iv) just fair and reasonable from the point of view of a prudent man. Therefore, merely the Hon'ble High Court, approving the scheme does not mean that other consequences, including tax implications will not apply to the assessee at all. In this regard, he referred to the decision of the Hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd (1997) 1 SCC 579. 26. The ld. ASG further submitted that the Revenue is not re-characterizing the scheme as alleged by the assessee, because, the AO is fully empowered to analyze the effects of the scheme and to determine whether they attract the provisions of the Income Tax Act, 1961 or not. The assessee cannot take shelter under the self-serving clauses of the scheme and state that certain provisions of the Income Tax Act,1961 have been excluded. The object and purport of the scheme is to operate as a single window system and therefore, such self-serving clauses would not be binding on the AO and the AO is free to examine the effect of the scheme on the touchstone of the Income Tax Act, 1961. The provisions of Sections 391-393 of the....
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....he assessee had also contended that provisions of Sec. 46A of the Income Tax Act, 1961 is applicable to all forms of buyback, and thus, the shareholders are liable to pay capital gains tax on purchase of own shares in accordance with law. The arguments of the assessee is incorrect. Sec. 46A is only applicable to buyback u/s. 77A and not to any other forms of purchase of shares. The words used in Sec. 46A are identical to language in Sec. 77A of the Companies Act, 1956, and a reading of memorandum explaining the provisions of the Finance Act makes it dear that it was done to clarify that buyback u/s. 77A necessitated a clarification. The insertion of Sec. 46A was contemporaneous to the insertion of Sec. 77A in the proviso to Sec. 2(22) excluding to same within ambit of dividends. Further, explanation to Sec. 46A also states that even the words specified securities would have the same meaning attached to it u/s. 77A. Therefore, the arguments of the assessee that even for purchase of own shares under 'Scheme of Arrangement & Compromise' the provisions of Sec. 46A alone is applicable, is incorrect. 28. The ld. ASG on the point of non-obstante clauses in any statues submitted that th....
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....wn wrong. Secondly, the ASG had also distinguished various case laws, including the decision of SEBI v. Sterlite Industries Ltd. (supra), and other judgments and argued that facts of those cases are entirely different and are not applicable to the facts of the assessee's case. 30. Per contra, the counsel for the assessee has filed a rebuttal to the submissions filed by the Revenue and argued that certain facts brought on record by the AO in the assessment order are not forming part of show cause notice dated 22.03.2018, and therefore, the same cannot be considered as necessary without affording an opportunity to the assessee. In any event, the arguments of the Revenue that the scheme of purchase of own shares through arrangement & compromise, is a colourable device for avoidance of tax is devoid of merits, because, the reference to restructuring of shareholding pattern from one shareholder to other shareholder is carried out in accordance with relevant provisions of the Act, and the Revenue has not disputed the same. The contention of the Revenue that the assessee has availed tax exemptions to crores of rupees and has not distributed any dividend, is also not relevant to decide ....
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....olation of principles of natural justice as upheld by the Hon'ble Supreme Court in numerous judgments. Therefore, all such comments and adverse remarks ought to be considered as not proper and, therefore should be expunged and deleted. 1.4. The Appellant submits that the transactions mentioned by the Revenue (i.e., merger of group entities in FY 2011-12, tax exemptions claimed by the Appellant, buyback of shares under section 77A of the 1956 Act in AY 2014-15) do not in any manner impact the taxability of the purchase of shares under section 391-393 of the 1956 Act undertaken in the AY 2017-18 which is the subject matter of the appeal before this Hon'ble Bench. The only limited issue to be decided in this appeal is whether the purchase of shares by the Appellant under the Scheme is taxable as capital gains or dividend. 1.5. Without prejudice to the above, the Appellant has provided its submission in response to the contentions of the Revenue. i) Scheme of Amalgamation of group entities with the Appellant in FY 2011-12 1.6. The Revenue's contention that the entire profit base of the Appellant has shifted from USA to Mauritius through c....
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....er book Volume II) held that once the scheme of arrangement was sanctioned by the Court under section 391 of the 1956 Act, the Court was not authorized to recall or rescind/cancel the scheme. The Court observed as under (Page No. 111 of Paper book Volume II): "13. It is therefore well settled by the above decisions of the Hon'ble Supreme Court, that once a scheme is sanctioned and effected, the changes allowed therein should be minor ones and not "wholesale changes" which would tamper with the essence of the scheme and that if a Company desires to modify a scheme though not necessary to do so for the proper working thereof it is required to follow the procedure prescribed under Section 391 of the Act. In view thereof, allowing the prayers sought by the Applicants to recall/rescind/cancel the scheme in the garb of exercising inherent powers would not only amount to exercising powers not vested in this Court but would also amount to overreaching the law laid down by the Hon'ble Supreme Court. In view thereof I hold that this Court is not only not vested with power to abrogate/rescind/cancel the scheme or to even modify the scheme if it is not necessary for the proper....
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.... allegations about the fundamental nature and the genuineness of the amalgamation undertaken by the Appellant in FY 2011-12 which was duly sanctioned by the Hon'ble Madras High Court and seek to have adverse inference therefrom. ii) Appellant's entitlement to income-tax exemptions 1.15. The Appellant submits that it has been operating in India since 1994 and has grown to be one of the largest investors and employers in India. The Appellant has invested billions of dollars in India and directly employs around 2 lakh professionals across 12 cities in India. The Appellant has paid direct taxes of around Rs. 10,000/- crores over the last one decade and had paid Rs. 2,054 crores as direct taxes in the relevant AY 201718. 1.16. While the tax exemptions enjoyed by the Appellant over the years have no bearing to the issue on hand (i.e., taxability of the purchase of own shares by the Appellant under the Scheme), the Appellant submits that the tax exemptions claimed by the Appellant are on account of the incentives provided by the Government (i.e., tax holiday under section 10A, section 10AA, section 80-IAB etc of the Act) as part of its fiscal initiatives....
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.... exemptions claimed by the Appellant are subject to satisfaction of prescribed conditions laid down in the relevant provisions of the Act and such tax exemption has been granted after detailed scrutiny by the Revenue. In light of the above, the Revenue's efforts to taint the Appellant's Scheme on account of the tax exemptions enjoyed by the Appellant is completely unjustifiable and without any basis in law. iii) The Scheme for purchase of own shares is not a colorable device for avoidance of tax 1.19. The Appellant submits that the rationale for purchase of own shares was to streamline the shareholding of the Appellant by purchasing shares from the minority shareholders of the Appellant and also to improve earnings per share. The rationale and objective of the Scheme have been duly considered by the respective authorities i.e., the Central Government, represented by the Regional Director and the Hon'ble Madras High Court. 1.20. The Appellant submits that the purchase of own shares by the Appellant has to be seen in light of the prevailing economic situation. The IT services industry, which the Appellant is a part of, had witnessed a rapid grow....
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...., after due deliberation, the Central Government, represented by the Regional Director, accepted the Scheme (the Report of the Central Government, represented by the Regional Director, is at Page Nos 15 to 18 of the Paper book Volume IJ. 1.25. The said Report of the Central Government, represented by the Regional Director, will satisfy this Hon'ble Tribunal on the following two aspects: (a) There was no such facade or sham, as is now being contended by the Revenue, Rather, the Scheme was for genuine corporate purposes. (b) There was no hurry, as is contended. The record does not reflect that the Revenue or the Central Government had sought for further time to submit their response under Section 394A. Everything has been done in the ordinary course, and the approval was granted, only after the Central Government and the High Court found the Scheme to be in order. 1.26. As per General Circular No. 1/ 2014 dated 15 January 2014 issued by the Ministry of Corporate Affairs, the Income-tax department is required to provide its objections to the Regional Director in relation to a scheme of arrangement under section 391 to section 394. The Circular f....
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....tax avoidance. This principle has been upheld by the Hon'ble Supreme Court in Vodafone International Holdings B.V. v Union of India (341 ITR 1) and Union of India v AzadiBachaoAndolan (132 Taxman 373). 1.31. The Hon'ble Bombay High Court while sanctioning scheme of arrangement for purchase of own shares under section 391 of the 1956 Act in the case of Capgemini India Private Limited (Company Scheme Petition No. 434 of 2014) has clearly held that purchase of own shares under a scheme cannot amount to avoidance of tax: "6. According to the Regional Director if the Scheme is sanctioned it will amount to evasion of income tax and outflow of foreign exchange to the tune of Rs. 248 crores and therefore on this ground the Scheme should be rejected. The Regional Director has not furnished any particulars in support of the aforesaid contention. Be that as it may. if the law permits a company to buy back its shares in more than one way. the company cannot be compelled to follow only the method that results in payment of income tax. It is well settled that an assessee can always manage his affairs in a manner so as to avoid payment of tax." 1.32. Without pre....
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....ed under GAAR. 1.34. The Revenue's contention that the Scheme was moved in a hurried manner is without any basis since the entire procedure as provided for in section 391 to section 393 of the 1956 Act (i.e., approval of the board of directors and shareholders for the Scheme, issue of public advertisements as required, obtaining no-objection report from the Central Government represented by the Regional Director, Ministry of Corporate Affairs) was duly followed by the Appellant for obtaining the sanction of the Hon'ble Madras High Court. 1.35. The Hon'ble Supreme Court judgement in the case of Walfort Share &Stock Brokers (P.) Ltd (326 ITR 1) has held as follows with respect to timing of a transaction: "The fact that the dividend received was tax-free is the position recognized under section 10(33) of the Act. The assessee had made use of the said provision of the Act. That such use cannot be called "abuse of law". Even assuming that the transaction was pre-planned there is nothing to "impeach the genuineness of the transaction.." 1.36. In summary, based on the settled legal position and principles laid down by the Hon'ble Supreme....
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.... the attention of the Hon'ble Tribunal to Para 4 to Para 7 its written submission which clearly bring out the legal position that the purchase of own shares by the Appellant under the Scheme cannot be treated as dividend as per section 2(22) of the Act. 2.3. The Appellant submits that sections 2(22)(a)/ 2(22)(d) of the Act are deeming provisions seeking to enlarge the definition of the term 'dividend' and are therefore to_be_strictly construed as held by the Hon'ble Supreme Court in CIT vs C.P. SarathyMudaliar [1972] 83 ITR 170 (SC) and by the Hon'ble Delhi High Court in C.R. Dass [2012] 204 Taxmann 227 (Delhi). Meaning of distribution 2.4. The contention of the Revenue at Para 29 and Para 30 of their submission is that every payment to shareholder amounts to distribution even if such payment is not without any quid pro quo but towards satisfaction of the liability due by the company equivalent to the amount of consideration due for purchase of own shares. This contention of the Revenue is completely contrary to the principles laid down in the case of Punjab Distilling Industries vs CIT [1965] 57 ITR 1 (SC) wherein the Hon'ble Supr....
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....tion on reduction of capital 2.10. The Revenue in Para 31 of their submission contends that provisions of section 2(22)(d) of the Act applies as long as there is reduction of share capital; the said section does not distinguish as to whether reduction of capital is the intended result of/ consequence of the Scheme. 2.11. The Appellant submits that the shares purchased by the company from its shareholders under section 391 are necessarily to be extinguished as section 77(1) of the 1956 Act provides that a company cannot hold its own shares. 2.12. The payment to the shareholders was made in pursuance of the contract of purchase of shares and not on account of extinguishment / cancellation of shares, which was a step subsequent to acquisition of shares and compelled by law. The extinguishment / cancellation of shares is a step subsequent to the Appellant having acquired the shares from the shareholders and made payment therefore, at the first instance. 2.13. In the case of a scheme of arrangement where shares are bought back, the reduction of capital is a separate legal consequence of the transfer of tender I repurchase of stock. Therefore, the paym....
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....i) The Hon'ble Supreme Court in the case Anarkali Sarabhai (supra) had held that redemption of preference shares would tantamount to a sale/ extinguishment of a capital asset and is chargeable to tax under the head 'capital gains'. (ii) In the case of CIT v. G. Narasimhan (236 ITR 327) (SC), the Hon'ble Supreme Court dealt with the taxability of an admitted case of capital reduction where only the face value of the shares was reduced and the shareholder held the same number of shares after the capital reduction 2.17. The Appellant submits that there is no conflict between the ratio laid down in the case of Anarkali Sarabhai (supra), on the one hand, and the view expressed by the Hon'ble Apex Court in the later decision in the case of G. Narasimhan (supra). It has nowhere been held in the later judgment (in the case of G. Narasimhan) that the earlier decision of Anarkali Sarabhai (supra) was per incuriamand, therefore, no longer good law. 2.18. The position of law laid down by the Hon'ble Supreme Court in the case of Anarkali Sarabhai (supra) is applicable to the facts of the case and hence the purchase of own shares by the Appellan....
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....'ble High Court, overruling the objections raised by the Registrar of Companies (which are similar to the contentions of the Revenue) to the proposed scheme under section 391 of the 1956 Act. Having received no objection from the Regional Director, the Hon'ble High Court proceeded to sanction the scheme as framed and presented for purchase of the shares from the shareholders in the manner and as provided in the Scheme. 3.5. The Revenue at Para 34 of their submission has contended that the Scheme itself clearly provides that the sanction shall not exempt the Appellant from payment of taxes. It is important to point out that it is not the case of the Appellant that payment made to the shareholders for purchase of shares is exempt under the provisions of the Act. The Appellant re-iterates that applicable taxes were withheld at source out of the payment of consideration to the US resident shareholder companies aggregating to Rs. 898.01 Crores (thereby resulting in payment of maximum possible tax on the purchase of its own shares). In so far as the payment to the Mauritian shareholder was concerned, the same was not liable to tax in India by virtue of the exemption prov....
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....s as per section 77 A of the 1956 Act is erroneous and without any basis. 4.4. It is trite law of interpretation of statutes that an Explanation cannot enlarge or limit the principal provision to which it is attached. Its role is merely clarificatory, to the extent of the term that it seeks to explain- in this case, it is an explanation of "specified securities" and not the type of transactions or purchase by a company of its own shares which are to be covered by the principal section. 4.5. The principle of GeneraliaSpecialibus Non Derogantclearly provides that special provisions prevail over general provisions. This position has been affirmed by the in the cases of CIT v. ShahzadaNand and Sons 60 ITR 392 (SC) and UOI v. Indian Fisheries (P.) Ltd. AIR 1966 SC 35. The Appellant submits that section 46A of the Act, being a special provision for bringing to tax capital gains arising to a shareholder on purchase of its shares by the company must be given full effect to. 4.6. The Revenue has stated that the exclusion in sub-clause (iv) of section 2(22) of the Act applies only in respect of a buy-back of shares undertaken in accordance with section 77 A of the ....
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....g to companies;" 4.11. The above amendment clearly establishes that buy-back includes purchase of own shares in any form i.e., buy-back includes both purchase of own shares under section 77A and also purchase of own shares under section 391 to section 393 of the 1956 Act. 4.12. Section 115QA of the Act read with section 10(34A) of the Act merely shifts the incidence of taxation of buy-back of shares from the hands of the shareholder to the company undertaking the purchase of shares / buy-back. 4.13. The amendment of section 115QA of the Act with effect from 1 June 2016 levying additional income-tax in the hands of the Company on purchase of its own shares under a scheme clearly indicates that prior to 1 June 2016, such purchase of own shares by the Company can be charged to tax only under the head "Capital Gains" in terms of provisions of section 46A of the Act in the hands of the shareholders. The provisions of section 2(22) were never applicable to such purchase of own shares. 4.14. If the purchase of own shares under section 391 to 393 of the Companies Act was to be treated as dividend and tax was payable under section 115-O by the company pur....
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....43(3) of the Act for the subject AY has also expired. 5.3. In the case of Genpact vs DCIT [2019] 419 ITR 370 (Delhi) and [2019] 419 ITR 440 (SC) [@ Pages 25 to 46 of the Paper book Volume Ill], the Revenue has sought to levy tax under section 115QA of the Act on buyback/ purchase of shares under section 391 of the 1956 Act. 5.4. The Revenue has in Para 50 of their submission has sought to contend that the facts in the case of Genpact (supra) is distinguishable from the facts of the Appellant's case. However, the purchase of shares in the case of Genpact was also not in accordance with section 77 A of the 1956 Act and Genpact's factual matrix is identical to the Appellant's case as captured below for this Hon'ble Tribunal's reference (relevant extracts from the scheme of arrangement of Genpact is provided below). 5.5. The above relevant clauses from the scheme of arrangement of Genpact make it amply clear that: (a) The purchase of own shares by Genpact was undertaken under the provisions of section 391 of the 1956 Act and was not a buy-back/ purchase of own shares under section 77 A of the 1956 Act. (b) As per the clau....
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....capital as on the date of implementation of the scheme) from its shareholder at price of Rs. 20,297/- per share and paid total consideration of Rs. 19,080.26 Crs. As per scheme document submitted and approved by the Hon'ble High Court of Madras, in clause-5, the assessee has specified the manner in which shares can be purchased from each shareholder. Firstly, as per Clause-5.2(a), all shares held by shareholders owning less than 1% would be purchased by the company from its shareholders other than 10,000 equity shares of Rs. 10/- each. Secondly, as per Clause-5.2(b),all equity shares held by the shareholders holding more than 1%, but less than 25% would be purchased by the company. Lastly, as per Clause-5.2(c),the balance equity shares were proposed to be purchased from shareholders holding more than 25% shareholding in proportionate to their inter se holding in the company. Admittedly, the share capital of the assessee company was held by four non-resident shareholders, and out of which, three shareholders are residents of USA and one shareholder is tax resident of Mauritius. The net effect of the scheme was that post sanction of the scheme, the entire shareholding of CTS-USA and ....
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....Rs. 33,801Crs. of accumulated profits. However, there has been no dividend distribution to shareholders in any year except for declaration of interim dividend in the AY 2006-07 for Rs. 237 Crs. on which DDT of around Rs. 33 Crs. has been paid. The only other time profits were distributed to the shareholders was in AY 2013-14 by way of buyback of shares for Rs. 2,878Crs. and this was done just prior to the introduction of Sec. 115-QA of the Income Tax Act, 1961. 32. In light of above stated facts, we need to analyze the existing 'Scheme of Arrangement & Compromise' for purchase of its own shares as sanctioned by the Hon'ble High Court of Madras in terms of provisions of Sec. 391-393 of the Act. As per the scheme sanctioned by the Hon'ble High Court of Madras, the appellant had bought back 94,00,534 numbers of equity shares of face value of Rs. 10/- each from its shareholders at a price of Rs. 20,297/- per equity share and paid total consideration of Rs. 19,080.26 Crs. to its non-resident shareholders. There is no dispute with regard to the fact that the assessee has withheld tax wherever it is applicable and remitted to the government account. In fact, TDS has been deducted on co....
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.... to shift the profit base to Mauritius so as to get the tax advantage. The term 'buyback' is not used anywhere in the scheme. The transaction is always described only as purchase of equity shares. In fact, Clause 6.7 of the scheme clearly states that the purchase of equity shares shall not be treated as 'buyback' u/s. 68 of the Companies Act, 2013. The real object and purpose of the scheme is also clear by a reading of some of the clauses in the scheme. In Clause 6.6, it was specifically stated that the purchase of its own shares in pursuant to the scheme will not attract Sec. 2(22), Sec. 115-O or Sec. 115-QA of the Act. It was further stated in Clause 6.7 that the purchase of its own shares would not amount to reduction of share capital in terms of Sec. 100 and further, would not amount to buyback u/s. 68 of the Companies Act, 1956. The scheme is also provides for payment of consideration for purchase of shares. As per Clause-7.2(a), the issued, subscribed and paid up share capital shall be adjusted to the extent of face value of equity shares purchased by the company. As per Clause 7.2(b), the difference between the face value and total consideration shall be first paid out of th....
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....through different channels in order to avoid payment of tax. Sec. 2(22)(a) covers any distribution by a company of accumulated profits which entails the release by the company to its shareholders of all or any of the assets of the company. Sec. 2(22)(d) covers distribution made to the shareholders by a company on the reduction of its share capital to the extent the company possess accumulated profits. The term 'dividend' has been judicially recognized as well by various Courts, including the Hon'ble Supreme Court in the case of Shashibala Navnitlal v. CIT (supra), wherein the Hon'ble Gujarat High Court has discussed the term 'dividend' in light of Sec. 2(6A) of the Income tax Act, 1922, and held that distribution of capitalized accumulated profits entailing release of assets of a company amounts to dividend contained in Sec. 2(6A)of the Income tax Act, 1922. A similar view has been expressed by the Hon'ble Supreme Court in the case of Punjab Distilling Industries Ltd. v. CIT reported in [1965] 57 ITR 1 (SC), where it was held that divided with which we are concerned is not that which we ordinarily understand by that expression, but dividend by definition. Undersection 2(6A)(d) of t....
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.... time when the provisions of Sec. 46A of the Act, specific to a transaction of purchase of shares was not in existence in the statute and further, it was a case of redemption of preference was held to fall under the definition of 'dividend' under the provisions of the Income Tax Act, 1922. We find that the judgement in Anarkali Sarabhai v. CIT which followed in Karthikeya V. Sarabhai v. CIT [1997] 228 ITR was impliedly held per incuriam by the Hon'ble Supreme Court in CIT v. G.Narasimhan (supra)as the said judgement did not consider the scope of Sec. 2(22)(d) of the Act. Therefore, the case law relied upon by the counsel for the assessee does not help the case of the assessee. Therefore, two essential pre-requisites must be satisfied in order to come within the ambit of Sec. 2(22)(d) of the Act, i.e. there must be a distribution to the shareholders on the reduction of the capital and further, it must be to the extent that the company possess accumulated profits. In the present case, which is evident from the audited financial statement that the share capital has been reduced by around Rs. 9.4 Crs. which is equivalent to 54.70% of the total paid up share capital. The Hon'ble Sup....
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....he assessee is that there is no distribution on reduction of share capital. At the outset, it must be clarified that the definition of dividend in Sec. 2(22) is an inclusive definition. The intent, as borne out from the case laws, is to cover all scenarios whereby a company distributes its accumulated profits without strictly coming within the term 'dividend' as understood in common commercial parlance. Therefore, a literal and hyper technical reading of the term on the 'reduction of share capital' would be contrary to the legislative intent. In simple words, key essentials that are required to be seen in order to attract provisions of Sec. 2(22)(d) are that, there must be reduction of share capital and distribution of accumulated profits to the shareholders. Therefore, in our considered view, Sec. 2(22)(d) does not make a distinction as to whether reduction of share capital is the intended result of the resultant consequence to the scheme, as long as there is reduction of share capital. Further, a reading of the relevant clauses of the scheme documents would show that there has been distribution on reduction. The payment of consideration and transfer of title to goods gets complet....
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....Income Tax Act, 1961. If you go by the arguments of the Ld. Counsel for the assessee that once, the scheme is approved by the Hon'ble High Court, is operates in 'rem' and binding on the Revenue, then the AO would be rendered functus officio and the assessment itself would be finalized under the scheme, and in this regard, it is relevant to refer to the judgement of the Hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd., reported in [1997] 1 SCC. Further, as alleged by the assessee, the Revenue is not recharacterizing the scheme. The AO is fully empowered to analyze the effects of the scheme and to determine whether they attract the provisions of the Income Tax Act, 1961 or not. The AO has taken the facts from the scheme and applied in light of relevant provisions of the Income Tax Act, 1961, which is, in our considered view perfectly valid and this view is supported by the decision of the ITAT Mumbai Benches in the case of Grasim Industries v. DCIT in ITA No.1935/MUM/2020. Further, the determination of the tax liability on the basis of the 'Scheme of Arrangement & Compromise' as sanctioned by the Hon'ble High Court of Madras looking into all the....
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....7 r.w.s.100-104 or Sec. 77A of the Companies Act, 1956. In this regard, reference is made to the decision of the Hon'ble Bombay High Court in the case of PMP Automation reported in [1991] 4 Bom CR 387 and Hognas India Ltd. 148 Comp CAS 70. Therefore, the transaction of the assessee would either to fall under u/s. 391-393 r.w.s.77 and Sec. 100 of the Companies Act,1956 or Sec. 391393 r.w.s.77A of the Companies Act, 1956. The scheme has clearly states that it is not a buyback u/s. 77A of the Act. Therefore, once the assessee itself specifically states that it is not buyback u/s. 77A of the Act, then, it should automatically fall back to Sec. 77 r.w.s Sec. 100-104 of the Companies Act, 1956. If Sec. 100-104 r.w.s.77 of the Companies Act, 1956 are applied, then said transaction is nothing but reduction of capital and distribution of accumulated profits, and thus, comes within the ambit of provisions of Sec. 2(22)(d) and s.115-O of the Act. 38. The assessee contends that the purchase of own shares amounts to buyback but not u/s. 77 of the Companies Act, 1956. It is a sui generis buyback which is facilitated through Sec. 391-393, and therefore, can only be taxed under the amended prov....
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....rangement & Compromise' u/s. 391-393 of the Companies Act, 1956, is taxable u/s. 115QA of the Act, only after amendment to the term 'buyback' by the Finance Act, 2016 w.e.f. 01.06.2016 is in correct. Because, there is no dispute on the law in so far as buyback of shares u/s. 77A of the Act, and therefore, the amendment to Sec. 115QA by the Finance Act, 2016, is nothing to do with the present tax treatment, when the companies Act has amended by insertion of Sec. 77A of the Act, in the year 2016. Simultaneously, a new provision has been inserted under the Income Tax Act, 1961, by way of Sec. 115QA to tax consideration paid for buyback of shares to shareholders in the hands of the company. The provisions of Sec. 115QA has been amended so as to include all forms of buyback of shares under any provisions of the Companies Act, 1956, because, there are some divergent views has been expressed by various Courts & Tribunals on this issue and to overcome such views amendment has been made to extenuation buyback u/s. 115QA. Therefore, the arguments of the Ld. Counsel for the assessee that purchase of own shares u/s. 391-393 is de hors provisions of Sec. 77 r.w.s.100-104 of the Companies Act, 1....
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....he Ld. Counsel for the assessee has raised a contention stating that the non-obstante clause applies only in respect of Sec. 8 and not to Sec. 46A of the I.T. Act, 1961. This argument cannot be accepted for two reasons. First and foremost, there are broadly two types of non-obstante clauses. The first types of non-obstante clauses, which refers to specified provisions of the Act which will be overridden by the concerned provisions. The second types are those clauses which will override all other provisions of the Act. Sec. 115-O is in the second category where the legislature has deliberately taken a decision to give an overriding effect to all other provisions of the Act. Therefore, arguments of the Ld. Counsel for the assessee would amount to overriding the legislative mandate and would render the conscious decision to override the entire Act to be futile, and this cannot be accepted. Secondly, the scope of Sec. 8 and Sec. 115-O operate in different spheres and does not need non-obstante clause for reconciliation. 42. The assessee had also contended that Sec. 115QA was amended in 2016 and the present transaction would only be taxable as per the amended provision. Since, the Ho....
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....al with specific transactions, then, no person can take an alternative route via general provisions or single window system to defeat the other provisions of the Act. For example, under the Companies Act, a specific provision has been provided by way of Sec. 77to debar the companies to purchase of its own shares up to certain date. The buyback of shares has been allowed by insertion of Sec. 77A from a particular date with certain conditions. Therefore, when the Companies Act specifically provides a separate provision for buyback of shares, in our considered view, the assessee cannot take a general provision for its advantage and carry out buyback of shares which ultimately does not come under the specific provision which deals with buyback of shares only for the purpose of defeating said provision, by very well knowing that if shares are bought back under specific provision, then, it attracts the additional Income Tax under provisions of Sec. 115QA of the Act. Therefore, from the facts of the present case, it is undoubtedly clear that the scheme as such is only a colourable device intended to evade legitimate tax dues. Such colourable devices which do not have any commercial purpos....
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.... facts will be different in all schemes. Therefore, it cannot be said that all schemes of purchase of its own shares in terms of Sec. 391-393 are similar to facts of Genpact (supra). Moreover, there is no estoppel against law. Even if the AO takes a different view in one case upon incorrect appraisal of facts, it cannot disentitle the other AO to take another view, upon appraisal of facts, it come to the knowledge of the AO that the scheme will attract some other provisions of the Income Tax Act, 1961. Therefore, we reject the arguments of the assessee that the AO has taken a different view in the hands of the appellant and shareholders on the very same facts. Further, the case law relied upon by the ld. Counsel for the assessee in Berger Paints India Limited vs. CIT (266 ITR 99) does not applicable to present case, because in this case, the AO did not discriminate appellant and its shareholders and in fact, it was the assessee by mistaken of law has applied incorrect provisions and alleged that the AO had taken different stand and thus, we reject case law relied upon by the assessee. 45. At this stage, it is necessary to consider various case laws relied upon by the assessee in....
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.... not dealt with the issue of applicability of Sec. 2(22) r.w.s.115-O of the Act. Therefore, the reliance placed on the said decision is misplaced. 47. In so far as the case law relied upon by Ld. Counsel for the assessee in the case of Ponny Sugars (Erode) Ltd v. CIT (supra), we find that in the said case, the scheme specifically explained tax implications on account of merger. The Hon'ble High Court taking note of relevant facts approved the scheme and held that once it was specifically stated that it was not a merger as defined under the Income Tax Act, 1961, then, subsequently, the Department cannot call in question the scheme. However, in the present case, the order of the Hon'ble High Court clearly states that it would not be treated as granting any immunity from payment of any taxes. Thus, case law relied upon by the Ld. Counsel for the assessee is not applicable to present case. 48. The Ld. Counsel for the assessee had also relied upon the decision of Hon'ble Supreme Court in Dalmia Power Limited vs. ACIT reported in (2020) 420 ITR 339 (SC) and argued that the scheme sanctioned by the Hon'ble High Court, operates as a judgment in 'rem' and therefore, essence of sanctio....
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.... the Department, because, in the said judgment, it was a case of buyback of shares u/s. 77A which unlike the present case, where the scheme makes it clear that it is not a buyback. In the said decision, the Tribunal categorically held that Sec. 46A applies to the buyback of shares u/s. 77A of the Companies Act, 1956 only. The Ld. Counsel for the assessee argued that the ratio on which the assessee seeks to rely on said judgment was it has distinguished purchase of own shares on the one hand and reduction of share capital on the other hand. We do not find any merit in the arguments of the Ld. Counsel for the assessee for simple reason that the observation of the Court or Tribunal should be read in conjunction with the facts. Even a passing references cannot be read in isolation with the issue before the Court or Tribunal. Therefore, the distinction sought to be made with reference to said observation of the Bench was only made with reference to buyback of shares referred to u/s. 77Aof the Companies Act, 1956, and in that context, it was held that Sec. 46A of the Act is alone applicable. In the present case, the assessee itself clearly states that the scheme approved by the Hon'ble H....