TaxTMI 
TaxTMI 
2026 (3) TMI 1486
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....porated in Netherlands and is the holding company of Huntsman International [India] Private Limited [HIIPL]. HIIPL has two business units (a) Polyurethane products and (b) textiles effects. The assessee holds 99.98% of HIIPL. 4. In Assessment Year 2009-10, the assessee sold the shares held by it in HIIPL pursuant to an offer of buy-back made by HIIPL. Under the scheme of buy-back, the assessee sold 2,14,00,000 equity shares, which is 24%, @ Rs. 23.10 per share for a consideration of Rs. 49,43,40,000/-. The capital gains arising on sale of shares was offered to tax by the assessee in its return of income. 5. During the assessment proceedings, the assessee referred this international transaction to the Transfer Pricing Officer [TPO] for determination of Arm's Length Price [ALP]. The TPO determined the ALP of each share at Rs. 80.77 and proposed an upward adjustment of Rs.1,23,41,38,000/-. 6. The assessee raised objections before the DRP. The assessee also raised an additional ground of objection which reads as under: "It is submitted in this regard that there has been an error on the part of the assessee in offering the same amount to capital gains tax on the follow....
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.... 12. Before proceeding further, let us consider Article 13 of India-Netherlands DTAA which reads as under: "1. Gains derived by a resident of one of the States from the alienation of immovable property referred to in Article 6 and situated in the other State may be taxed in that other State. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of one of the States has in the other State or of movable property pertaining to a fixed base available to a resident of one of the States in the other State for (the purpose of performing independent personal services, including such gains from the alienation of such permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State. 3. Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the State in which the place of effective management of the enterprise is situated. For the purposes of this paragraph. the provisions of paragraph 3 of Article 8A shall ap....
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.... 14. The undisputed facts are that all the conditions mentioned herein are fully satisfied by the assessee. Only cause of concern is whether buyback is a form of corporate re-organization. The judicial diction dictionary of P. Ramanatha Aiyar Advanced Law Lexicon defines "Reorganization of a Company" as: "Reorganization of a company is amalgamation or readjustment when one company acquires another by way of merger or a single company divides into two or more entities or a company makes a substantial change in its capital structure". 15. The Hon'ble Bombay High Court in the case of S.E B.I Sterlite Industries 53 CLA 41 has held that: "a company could buy back its own shares as a part of reorganization scheme under section 391 r.w.s 100 to 104 of the Companies Act 1956." 16. Similar view was taken by the Hon'ble Andhra Pradesh High Court in the case of Shareholders of TCI Industries Limited Vs TCI Industries Limited 60 CLA 382. These decisions of the Hon'ble High Court show that the scheme of buy-back of shares by a company has been recognized as a scheme of reorganization. 17. At this point, it would be pertinent to mention that buy back can ....
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....ased divisionalisation, matrix structure etc.) (3) Amalgamation, absorption or external reconstruction. Asset-based Restructuring (i) Mergers and Acquisitions (M & A) In the Indian context the term merger is used to denote consolidation of separate legal entities, not necessarily of similar sizes, into one through a statutory process of amalgamation. The motives oi merger or acquisition are the same and both involve transfer of ownership and control of assets and the right to manage corporate cash flows For Example-Reliance Natural and Reliance Power Merger (ii) Divestitures and Asset Swaps Divestiture refers to disposal (in favour of third party) of business units, subsidiary companies or significant holdings in associates, often for cash. Asset swap, on other hand, entails simultaneous divesting and acquisition of each others' business by two companies, settling the difference in valuation, if any in cash. iii) Demergers or Spin-offs Demerger involves spinning off (profitable or robust) parts of a diversified company into a new company and undertaking free distribution of the shares of the new (s....
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....tially issued a notice dated 07.09.2010 u/s. 143(2) of the Income Tax Act 1961 (in short "the Act") and thereafter notice u/s. 142(1) of the Act along with questionnaire, to the Appellant. In response, the Appellant claimed that it was not engaged in any operation/activities in India during the aforesaid assessment year, however, it had tendered 2,14,00,000 equity shares of its holding company i.e. Huntsman International (India) Private Limited (in short "HIIPL") in response to the buy-back offer made by 'HIIPL'. Accordingly, HIIPL paid Rs.48,13,08,792/- after deducting TDS of Rs.1,30,31,208/- to the Appellant as consideration. 2.2 The Appellant also submitted its computation of capital gains, wherein, the long-term capital gain of Rs.6,17,15,404/- was claimed. 2.3 Considering the claim of the Appellant, the Id. AO made a reference to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price qua international transactions entered into by the Appellant during the financial year 2008-09 relevant to the assessment year under consideration. The TPO, by passing an order u/s. 92CA of the. Act on dated 30.01.2013 calculated the FMV of the shares at Rs.80.77 ....
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.... case of the Appellant is not covered by said beneficial provision in Article 13(5) of the Treaty. The Id. DRP further directed the Assessing Officer to complete the assessment as per the directions of the Panel. 5. Consequently, the Assessing Officer passed the impugned order dated 30.12.2013. 6. The Appellant being aggrieved with the assessment Order dated 30.12.2013, preferred the instant appeal under consideration on the following grounds of appeal. "1. The order passed by the Ld. AO passed u/s 143(3) read with Section 1140(13) is erroneous and bad in law on the facts and circumstances of the case. 2. The Ld. AO and the Ld. DRP have erred in holding that buy-back of equity shares by the Appellant's Indian subsidiary from the Appellant is not covered by Section 47(iv) of the Act. 3. The Ld. AO and the Ld. DRP have erred in rejecting the Appellant's claim that any capital gain arising from the aforesaid buyback transaction is not taxable in India in terms of Double Tax Avoidance Agreement entered into between India and the Netherlands. 4. The Ld. A.O, Ld. Transfer Pricing Officer ("TPO") and the Ld. DRP erred in determining the ar....
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....is. Further, the Ld. DRP erred in fact in observing that no objections to the comparable companies selected by the TPO has been filed by the Appellant. 7. The Ld. AO, Ld. TPO and the Ld. DRP erred in determining the FMV of the shares under the buy-back transaction at Rs 80/-,as against Rs 23.10 adopted by the appellant as per the regulations of the Reserve Bank of India and the applicable provisions of the Companies Act. 8. The learned AO erred in initiating penalty proceeding u/s 271(1)(c) of the Act. 9. The learned AO erred in initiating penalty proceeding u/s 271G of the Act. The Appellant submits that each grounds of appeal are without prejudice to one another. The Appellant craves leave to add, to alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal." 7. The Ld. AR at the outset contended that the buy-back of shares by HIIPL qualifies to be a tax-neutral transaction as the requirements of Section 47(iv) are fulfilled, consequently the said transaction is not liable for any tax in India, though offered for taxation in India by the Appel....
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.... Holding BV, 342 ITR 200, which, in fact, has been overruled by the Hon'ble Delhi High Court in the case of Perfetti Van Melle Holding BV vs. Authority for Advance Ruling, (2014) 52 taxmann.com 161 (Delhi). 7.6 At last, the Id. AR submitted that the Id. DRP has given narrow interpretation in a restrictive manner to the expression used in Article 13(5) of the Treaty between India and Netherlands, therefore the order impugned, which is based on directions of the Id. DRP is perverse and liable to be set aside. 8. The Id. DR, on the other hand, vehemently supported the impugned order as well as the directions of the Id. DRP given u/s. 144C(5) of the Act on dated 27.11.2013, by submitting that the case of the Appellant is neither covered under section 47(iv) of the Act nor under article 13(5) of the Treaty. Even the directions of the Id. DRP are not only based on the factual aspects of the case, but also based on thorough analysis of the clauses of the Treaty under consideration and the laws applicable thereto. Hence, the order under challenge does not require any interference as the same is neither perverse nor suffers from any perversity or impropriety. Consequently, the app....
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.... HIIPL, has fulfilled the requirement of Section 47(iv) of the Act and therefore is entitled to get the benefit of same. 9.3.1 I observe that the Id. DRP while considering the claim of the Appellant with regard to the fulfilling of requirement of section 47(iv) of the Act, analysed the provisions of section 46A and 47(iv) of the Act, Section 77A of the Companies Act 1956 (in short 'Companies Act) and Explanatory Circular No. 779 dated 14.09.1999 issued by the Central Board of Direct Taxes (In short "CBDT"), while introducing section 46A of the Act. For ready reference, the Explanatory Circular No. 779 (relevant part) is reproduced herein below: "Clarification of tax issues arising out of the provision to allow buyback of shares by the companies 28.1 The Companies (Amendment) Ordinance, subsequently enacted as the Companies (Amendment) Act, 1999), inserted section 77A in the Companies Act, 1956, which allows a company to purchase its own shares subject to certain conditions. The shares bought back have to be extinguished and physically destroyed and the company is precluded from making any further issue of securities within a period of 24 months from such bu....
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.... applicable and that the provisions of section 47(iv) would not be applicable. 9.3.4 I have given thoughtful consideration to the determination made by the Id. DRP and observe that for getting benefit under section 47(iv) of the Act on account of transfer of a capital asset to its subsidiary company, the Appellant was supposed to follow following 02 conditions as enshrined u/s 47(iv) of the Act. First condition is that the parent company or its nominees hold the whole of the share capital of the subsidiary company and Second condition is that the subsidiary company should be an Indian Company. 9.3.5 No doubt, the subsidiary company (HIIPL) to whom the Appellant sold its shares, is an Indian Company and therefore second condition of section 47(iv) of the Act was fulfilled, however, for claiming the benefit of Section 47(iv) of the Act, the provision also mandates that the Appellant company or its nominees hold the whole of the share capital of the subsidiary company in case of any transfer of capital asset by a company to its subsidiary company. Since the Appellant or its nominee(s) was admittedly holding only 99.98% of share capital of its subsidiary company (HIIPL) and no....
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.... Id. AR further emphasised that re-organisation has nowhere been defined, therefore, the inference could have been drawn by the Ld. DRP, from Article 13 (page 150 of the paper book) of the Treaty between Kingdom of Netherlands and Federal Republic of Nigeria, wherein it is prescribed "it is understood that the terms corporate organisation, re-organisation, amalgamation, division or similar transactions refer to a transfer of share within a group of Associated Enterprises. In that case, the shares will be evaluated for transferee at the book value of the transferor". 9.4.4 The Id. AR further contended that the expression "or similar transactions" appearing immediately after the terms like" corporate organisation, reorganisation, amalgamation and division" which have a common genus implies that buy-back would be covered there under on the principles of ejusdem generis. 9.5 On the contrary, the Ld. DR refuted the claim of the Appellant and submitted that the case of the Appellant is not covered under proviso to Article 13(5) of the Treaty. 9.6 I have given thoughtful consideration to the aforesaid contentions raised by the Id. AR and Ld. DR. I observe that the Id. DRP also co....
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....ook profits." Buy-back of shares by an Indian company of its own shares is governed by the provisions of section 77A of the Companies Act. It is evident that the buy-back of shares by a company of its own shares is governed by several statutory restrictions and observance of various conditions given in the above section. One of the conditions prescribed in the proviso below section 77A(1) is that buy-back of any kind of shares shall not be made out of the proceeds of an earlier issue of the same kind of shares. The purchase consideration to the extent of Rs. 28.03 crores paid by the Indian company is out of the proceeds of the issue of same kind of shares in the year 2006 and on this account, it appears that the buy-back of shares by the Indian company from the Appellant company is in contravention of the provisions of the Companies Act. "It is to be understood what is meaning of the entire expression "corporate organisation, re-organisation, amalgamation, division or similar transaction". The said expressions or its components cannot be seen in isolation to the relevant statutory provisions either under the Income-tax Act or the Companies Act because any action c....
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....the case, ultimately declined to accept the claim of the Appellant to the effects that buyback is a form of corporate "re-organization" under the Companies Act, 1956 and the capital gain arisen to the Appellant company in the course of a transaction, is covered by such beneficial provision in Article 13(5) of the Treaty. 9.6.3 Admittedly, the terms 'corporate organisation, re-organisation, amalgamation, division and similar transaction' have not been defined in the Treaty. The Article 3 of the Treaty specifically prescribes as under: "As regards the application of convention by one of the State any term not defined herein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the convention applies". Therefore as per Article 3 of the Treaty, the interpretation to the said terms is required to be given under the law of that State concerning the taxes to which the Convention applies, meaning thereby, the applicable laws of India which are having meaning of the said terms, would be applicable. 9.6.4 The Legislature in its wisdom by inserting Sec. 46A in the Act introduced the speci....
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.... in the rights and interests of security holders; a recapitalization, merger or consolidation. That arrangement entered by the Assessee in selling part of its shareholding to the company in the scheme of buy back does not fall under the definition of "reorganization" given in the dictionary cited above." 9.6.6.1 For ready reference the concluding part of the order is reproduced below: We notice that the assessee, in the instant case, is pleading for relief on the basis of its own interpretation of Article 13(5) of the DTAA. The fact that it has tendered the shares to the M/s Century Enka Ltd under a scheme of arrangement approved by Honble Calcutta High Court is not disputed. Hence we do not see any colourable device in the claim made by the assessee and accordingly we are of the view that the observations made by Ld CIT(A) may not be relevant to the facts prevailing in the instant case. 11. The Ld A.R contended before us that the assessee has transferred the shares under a scheme of arrangement approved by the Hon'ble High Court of Calcutta and the same falls in the category of "reorganization" specified in Article 13(5) of the DTAA entered between India a....
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....all modes of reorganizing the share capital, take over of shares of one company by another including interference with preferential and other special rights attached to shares"....... "Generally where only one company is involved in a scheme and the rights of the shareholders and creditors are varied, it amounts to reconstruction or reorganization or scheme of arrangement"... "The aspects relating to expansion or contraction of a firm's operations or changes in its assets or financial or ownership structure are known as corporate restructuring. While there are many forms or corporate restructuring, mergers, acquisitions and takeovers, financial restructuring and re-organisation, divestitures de-mergers and spin-offs, leveraged buyouts and management buyouts are some of the most common forms of corporate restructuring.".... In our view, these discussions made by the ICAI only explains various forms of financial management. We have already noticed that there is no change in the rights and interests of the shareholders. Only change that occurred on reduction of share capital through writing off of the shares purchased from the assessee is the change in the s....
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....othing to do with the transfer made by the assessee, even though the same has resulted in reduction of paid up share capital of the company, M/s Century Enka Ltd. We agree with the above said observations made by Ld CIT(A). As observed by him, two different activities have been combined with the scheme of arrangement. The first one was to buy back shares belonging to non-resident share holders and the second one was to cancel the shares so purchased. We agree with the view taken by Ld CIT(A) that they are two different actions and both should not be clubbed together, even though M/s Century Enka Ltd has combined the same, for the sake of its convenience, in the scheme of arrangement. The assessee herein, in our view, should in no way concerned by the action of cancellation of share resulting in reduction of share capital. Accordingly, we are of the view that the attempt of the assessee to bring the transferring of shares within the ambit of the term "reorganisation" may not be correct, since the object of the arrangement was not financial restructuring, but to provide an exit route to the non-resident shareholders. 16. In view of the above, we are of the view that the Ld C....
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....relevant statutory provisions thereby making the entire procedure and instructions non-existent. The Companies Act permits any new arrangement or reorganisation to be approved by the High Court as prescribed in the relevant Rules. Admittedly, the Appellant has not followed any of these rules or sought approval of the High Court for the new arrangement and on this account also, the case of the Appellant is not covered by the expressions under consideration. The reorganization of the group shall be the reference to some court appointed mechanism and/or statutory scheme. No such compliance is seen in the case of buy-back of shares in the instant case. In the instant case, there is no 'reorganisation' of the group either. 9.7 The Ld. AR also raised the contention that expression "or similar transactions" appearing immediately after the terms like" corporate organisation, reorganisation, amalgamation and division" which have a common genus implies that buy-back would be covered there under on the principles of ejusdem generis. The Ld. AR further claimed that for defining the term "reorganization" inference could have been drawn from external factors or the Treaty between Neth....
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....winding up" have been defined under Companies Act. Admittedly the actions of buy-back of own shares by a company are not included in the scheme of amalgamation or demerger or arrangement or winding up etc., therefore the expression contained in the Treaty cannot be allowed to interpret in vacuum, isolation and contraventions to the relevant statutory provisions of the Acts, thus I do not find any merit of the contention raised by the Ld. AR that to the effects that 'doctrine of ejusdem generis' is applicable in the instant case for interpreting the term "similar transaction" and for defining the term "reorganization", inference could have been drawn by the Ld. DRP or can be drawn by this Court from the Treaty between Kingdom of Netherlands and Federal Republic of Nigeria or the Guidance Notes of ICAI or the SEBI guidelines, referred to. The Id. DRP also categorically held "that the arguments of the Assessee that the buy-back of shares is included in the SEBI guidelines on restructuring cannot entitle the Assessee the benefits it is seeking for the reason that the restructuring in the perspective of the SEBI cannot be equated with the term used in the taxing statutes and the....
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.... 9.8.1 I am of the considered view that the art of correct Interpretation would depend on the ability to read, what is stated in plain language, between the lines, through the provision(s), examining the intent of the Legislature and case laws and internal and external aids to interpretation. Rules of interpretation are applied only to resolve the ambiguities. The object and purpose of Interpretation is to ascertain the intention of the law, as exhibited in the statute. Wherever it is possible to do so, the provision must be harmoniously constructed by avoiding a conflict. A construction which reduces the statute to a futility has to be avoided. A statute or any enabling provision therein must be so construed as to make it effective and operative. The provisions of two enactments must be read harmoniously so as not to subject them to any strained construction giving rise to an artificial inconsistency or repugnance. No doubt as per Article 26 of the Vienna Convention (supra), every Treaty or Convention in force is binding upon the parties to it and must be performed by them in good faith. Further, as per Article 31, a Treaty or Convention is required to be interpreted in good fai....
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....dered by the AAR, set aside the said Ruling and remitted back the matter to the AAR to consider the entire matter afresh uninfluenced by any observation made in the impugned Ruling. In the instant case, the Id. DRP not only relied on the judgment referred to above by the AAR, but also taken into consideration many other aspects of the case and the laws applicable, therefore the conclusion of the Id. DRP cannot be set aside or faulted with on the overruling of judgement alone. Consequently in my considered view, the said contention of the Ld. AR is untenable. 9.10 At last, it was submitted by the id. AR that the Id. DRP has given narrow interpretation in a restrictive manner to the expression used in Article 13(5) of the Treaty between India and Netherlands, therefore the order impugned, which is based on directions of the Id. DRP is perverse and liable to be set aside. I observe that the Ld. DRP thoroughly considered all the aspects of the case and laws applicable thereto and then only interpreted the terms used in Article 13(5) of the Treaty by applying the relevant provisions of the Acts therefore can not be said that the Ld. DRP interpreted the said terms in narrow and restri....
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....res or purchase of share, no major and substantive change has been occurred in the status of Appellant or HIIPL and even not resulted into any alteration in the rights and interest of security holders. It is also clear that in the transaction of buy back of share, there was contravention of the provisions of section 47(iv) of the Act and section 77A of the Companies Act and it is a fact that the said provisions were applicable to the Appellant's case. The interpretation to the terms can not be given in contravention of the provisions of laws applicable and interpretation if any necessitate then it should be in harmony with the provisions applicable to the subject in issue as given by the Id. DRP in this case. Therefore, in my considered view, the Ld. DRP rightly interpreted the provisions of Article 13(5) of the Treaty in its right perspective by considering and referring the relevant provisions of Treaty, the Income-tax Act the Companies Act and Case laws as applicable to the case in hand. I find that the case laws referred to by the Appellant are factually dissimilar and hence not applicable to the instant case. Hence in cumulative effects on the foregoing discussions, ....
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....e precise point of difference in the two dissenting orders:- "Whether or not the gains arising to the assessee company in the instant case from the buy-back of shares by 'HIIPL' is covered by Article 13(5) of the DTAA between India and Netherland?" 5. Brief facts of the case are that the assessee, a Company incorporated in the Netherlands, holds 99.98% shareholding of its subsidiary, Huntsman International (India) Private Limited (hereinafter referred to as 'HIIPL'). During the period under consideration, assessee sold a part of its shareholding in Indian subsidiary in pursuance to an offer of buy-back by 'HIIPL'. Under the scheme of buy-back, assessee sold 2,14,00,000equity shares @Rs.23.10 per share for a total consideration Rs.49,43,40, 000/- and the resultant capital gains was offered to tax in the return of income. The Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) for determination of Arms Length Price (ALP) of the transaction, which was computed by the TPO at Rs.80.77 per share as against the stated consideration of Rs. 23.10 per share, thereby leading to an adjustment of Rs.123,41, 38,000/- to the returned income....
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....e present proceeding was the applicability of Article 13(5) of the India-Netherlands DTAA to the buy-back of shares carried by HIIPL during the relevant assessment year 2009-10. Ld. Counsel for the assessee stated the facts that the proceeds from issuance of equity shares by HIIPL to the assessee were utilized by HIIPL to acquire the Textile Effects (herein after "TE") business of Ciba Specialities Chemicals (India) Limited and its subsidiary Diamond Dye-Chem Limited for a total consideration of Rs. 166,05,00,000/- as on 30.06.2006. He narrated the entire history of transactions and stated the fact that HIIPL in the financial year 2006-07 received a sum of Rs. 18 crores as proceeds from long term and other borrowings. Further, HIIPL received a sum of Rs. 168 crores from financing activities i.e. equity shares issued to the assessee undertaken during financial year 2006- 07 and assessee also drew my attention towards cash flow statement enclosed at page no. 1 of the audited financial statements. He further stated that in the same financial year, HIIPL utilized the cash flow generated from its financing activities for acquiring the Textile Effects (TE) business from Ciba Specialities....
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.... (iii) ITO vs. Amit Verma 2012 (12) TMI 1210 (ITAT, Delhi), (iv) CIT vs. Amit Kumar and Co. [2016] 386 ITR 702 [Karnataka HC) and (v) RamjiwanLal vs. CIT [1980] 123 ITR 319 (Allahabad HC). 8 Ld. Counsel for the assessee stated that assessee's case is covered by Article 13(5) of the India-Netherlands DTAA and benefit u/s. 13(5) of the DTAA is available to the assessee as the present buyback of shares falls within the scope of expression 'corporate reorganisation'. Ld. Counsel for the assessee, at this stage referred to the context in which the expression 'reorganisation' has been used under the Act. He explained that while the expression 'reorganisation' has not been defined under the Act, however, this expression has been utilized in the context of 'business reorganisation' in the various provisions of the Act such as Sections 35DDA (4), 35DDA (4A), 72A (6) of the Act]. 9. It was contended that the aforementioned sections, clearly laid down that when a partnership firm is converted into a company and vice-versa, while there is a change in the form of ownership, there is no change in the actual ownership of the entity, because the same persons who were the partners in the firm....
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....was essentially an exit given by the Indian promoters to the Dutch investors under a court sanctioned scheme of buy-back. Relying on Accordis Beheer, Ld. Counsel for the assessee submitted that the Assessing Officer/DRP in this case observed that the buy-back of shares by HIIPL did not result in an alternation in the rights and interests of the Assessee, and thus, the buy-back cannot be characterized as 'reorganisation'. 11. Ld. Counsel further stated that the term 'Reorganisation of a company' provided in the judicial dictionary of P. RamanathaAiyar's Major Law Lexicon can be considered for the interpretation of this term and the guidance issued by the ICAI to its fellow members, which states that the definition of capital and financial restructuring includes buy back of shares. Similarly, the guidance issued by the ICSI also provides that buy back is a part of corporate restructuring of a company. Ld. Counsel also relied upon the decision of the Hon'ble Supreme Court in the case of Punjab Stainless Industries (SC) [2014] 15 SCC 129 wherein, it has been held that when a recognized body of Accountants, after due deliberations and consideration publishes certain material for its ....
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.... of "Capital and Financial Restructuring" includes buy-back of shares be considered. Similarly, the guidance issued by the Institute of Company Secretaries of India (ICSI) for its fellow also provides that buy-back is a part of corporate restructuring of a company. 15. Ld. Counsel further submitted that the intention of the contracting parties i.e., India and the Netherlands with respect to Article 13(5) of the India-Netherlands DTAA is to provide taxation rights to the home country in relation to gains arising in the course of a corporate reorganisation wherein there is a transfer of shares within the same corporate group. In the present case as well, since the transaction of buy back-back by HIIPL from the assessee results in transfer of shares within the same corporate group, this transaction of buy-back should qualify as a corporate reorganization that is eligible to claim the benefit of Article 13 (5) of the India-Netherlands DTAA. 16. Ld. Counsel placed reliance in this respect on Klaus Vogel's commentary on Double Tax Conventions (5thEdn.) where the "importance of parallel treaties" has been explained. The learned author has cited instances of international practice wh....
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.... necessarily imply that the person should actually be liable to tax in that contracting state and it is enough if that contracting state has the right to tax such person, whether or not such a right is exercised. Consequently, in the present case, in determining the availability of the beneficial provisions of Article 13 (5) of the India-Netherlands DTAA to the Assessee, it is irrelevant whether tax was actually paid by the assessee on the buyback of shares by HIIPL in the Netherlands. 20. Ld. Counsel for the assessee stated that the buy back of shares was vide Special Resolution dated 5.6.2008 and Revenue wrongly noted that the HIIPL did not highlight any reason for buy back of shares. Further, he stated that the HIIPL was not required to take approval of any High Court for it to be a valid buy back. For this, he argued that the provision of section 77A of the Companies Act nowhere states that the approval from High Court is required. He further clarified that section 77A was introduced by Companies Amendment Act, 1999 as an alternate procedure devoid of the requirement to take sanction from the High Court for such a scheme of arrangement, when the shares brought back are equal....
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.... rise to such income. It would mean that the intent is to cover gains arising from corporate reorganization at the group level or at the level of the entity which realises the gains and not merely at the level of the subsidiary company buying the shares on a standalone basis. There would be no rationale for the negotiators to grant exemption from taxation to the resident from source state taxation if the activities during the course of which gains are realised are confined to source state (which further strengthens the economic nexus of the transaction with the source state). 22. Ld. Special Counsel submitted that the expression 'corporate reorganization' is not defined in the DTAA. By virtue of Article 3(2) of the DTAA and Explanation 4 below Sub-section (5) of Section 90 of the Act, this term will derive its meaning from the tax laws of India. If the term is not explained in the tax laws, support can be had from other applicable laws of India. In this regard, it is submitted that while the terms 'amalgamation' and 'demerger' have been defined in the Act, the terms 'corporate organization, reorganization or division have not been defined either under the Act or even the Compani....
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....') in the case of Perfetti Van Melle Holding B.V., In re (AAR 2011-TII-30-ARA-Intl). The observations of the AAR have not been reversed by the Hon'ble High Court of Delhi, even though the order has been set aside on other grounds. 23. Ld. Special Counsel submitted that the claim of the Assessee is based on the fundamental premise that buy-back is necessarily a part of corporate reorganization and therefore it would be covered under the third limb of Article 13(5) of the DTAA. It is submitted that whether or not a transaction is undertaken in the course of a corporate organisation, reorganization, amalgamation, division or similar transaction, is essentially a matter of fact and would be determined with reference to the facts and circumstances of each case. There is nothing in law to presume that every buy-back of share is necessarily the result of a corporate reorganization. The onus will be on the assessee to establish that the transaction of buy-back of shares was a part of corporate reorganization. Any reference to the definitions of corporate reorganization, would at best establish that buy-back can also be a part of corporate reorganization, but that would not mean that in ....
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....n in the paid-up capital, the assessee still continues to remain the holding company off Indian subsidiary. The rights and obligations of the Assessee has not undergone any change because it still continues to hold more than 99 % shares of its Indian subsidiary. Even otherwise, the Companies Act, 2013 under Section 66(6) specifically provides that reduction in share capital is not applicable in the case of buyback of shares. Thus, even from a company law perspective, a buy-back of shares does not result in any change in the capital structure of the company. The buy-back merely provides for an exit route for the investor/shareholder who held the securities in a particular company and such exit route therefore cannot be termed as corporate organisation, reorganisation, amalgamation, division etc. The payment for buy-back having been made out of share premium account and the profits of the year, also indicates that the transaction was undertaken to transfer the profits to the parent without payment of Dividend Distribution tax/Dividend tax. It is, therefore, submitted that the arrangement entered into by the assessee in selling a part of its shareholding to the Indian subsidiary in th....
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....e fact that HIIPL in the financial year 2006-07 received a sum of Rs. 18 crores as proceeds from long term and other borrowings. It is further noted that HIIPL received a sum of Rs. 168 crores from financing activities i.e. equity shares issued to the assessee undertaken during financial year 2006-07 and assessee also drew my attention towards cash flow statement enclosed at page no. 1 of the audited financial statements. It is noticed that in the same financial year, HIIPL utilized the cash flow generated from its financing activities for acquiring the TE business from Ciba Specialities Chemical (India) Limited and its subsidiary Diamond DyeChem Limited for a total consideration of Rs. 168 crores as on 30.06.2006. He referred to the cash flow statement at page no. 1 and Note No. 12 to the audited financial statements for AY 2006-07. After the purchase of TE business, there was an increase in the profits generated by HIIPL and it generated a profit of Rs. 36,10,99,991/- in the FY 2006-07 as compared to a profit of Rs. 26,78,91,347/- in the FY 2005-06. Perused the financial statement for the FY 2007-08 and 2008-09 and profit generated by HIIPL of Rs. 73,01,61,119/- in FY 2007-08 and....
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.... company acquires another by way of merger or a single company divides into two or more entities or a company makes a substantial change in its capital structure." The guidance issued by ICAI to its fellow members, which states that the definition of "Capital and Financial Restructuring" includes buy-back of shares. Similarly, the guidance issued by the Institute of Company Secretaries of India (ICSI) for its fellow also provides that buy back is a part of corporate restructuring of a company. 28. In view of the above, the intention of the contracting parties i.e., India and the Netherlands with respect to Article 13(5) of the India-Netherlands DTAA is to provide taxation rights to the home country in relation to gains arising in the course of a corporate reorganization wherein there is a transfer of shares within the same corporate group. In the present case as well, since the transaction of buy back by HIIPL from the assessee results in transfer of shares within the same corporate group, this transaction of buy back should qualify as a corporate reorganisastion that is eligible to claim the benefit of Article 13(5) of the India Netherlands DTAAA. 29. Accordingly, I agree....