TaxTMI 
TaxTMI 
2026 (5) TMI 837
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.... income u/s 9(1)(i) of the Act or under the relevant DTAA?" 2. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not taking into account that the payments made by the assessee to New Cingular Wireless Services Inc., USA and MMM Holdings LLC, USA are indirect accrual of income of US companies in India and this income is deemed to accrue/arise in India as per section 9(1)(i) of the Act? 3. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that transfer of shares of the foreign company holding immovable property in India would not be covered under "indirect transfer"? 4. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not considering that AT & T Cellular Pvt Ltd/Apex Investments (Mauritius) Holdings Pvt. Ltd had no substance and the US Companies have effectively sold the shares of Idea Celluar Ltd. and not the shares of a company based in Mauritius and the filings before the Securities and Exchange Commission, USA, clearly shows that AT&T Cellular (P) Ltd, Mauritius, had no substance and the US companies have for all practical purposes ....
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....reless telecommunications services in India. The JV company, Birla AT&T Communications Ltd. (BACL) signed "License Agreements" with the Department of Telecommunications, Government of India, on 12th December, 1995 for providing services in the Maharashtra and Gujarat telecom circles. AT&T Communications Ltd. made investments in the joint venture company through a company based in Mauritius, namely AT&T Cellular Pvt. Ltd. 3.2 AT&T Wireless Services Inc., Grasim Industries Ltd. (Birla Group) and Tata Industries Ltd. (Tata Group) entered into a shareholders agreement on 15th December, 2000, pursuant to which the parties agreed to merge Tata Cellular Ltd. with BACL. The merger took place on 17th October, 2001 and the name of the merged entity was changed to Birla Tata AT&T Limited. The new company was a three way joint venture between Birla Group, Tata Group and AT&T Group having equal interest inthe joint venture. With the merger, the company acquired the license issued to Tata Cellular Ltd. for the telecom circle of Andhra Pradesh. In February, 2001, BACL acquired RPL Cellcom Ltd. (renamed as BTA Cellcom Ltd.), the mobile operator in Madhya Pradesh, which became its wholly owned s....
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....icating that business was being carried out in India and not Mauritius. 3.3 The JVA was entered between BIRLA GROUP and AT&T Corporation on 5th December, 1995. The relevant extracts from the Joint Venture Agreement were reproduced in the impugned order elaborately and after deeply analysing the same, the AO concluded that the income of New Cingular Wireless Services Inc., U.S.A. and MMM Holdings LLC, U.S.A. arising from the sale of their stake in Idea Cellular Ltd. was chargeable to tax in India under section 9(1)(i) of the Act. The assessee Tata Industries Ltd. had, therefore, committed a default in making payments to these US companies without deduction of tax at source in India as required under section 195 of the Act and thus was treated as an assessee in default under section 201(1) of the Act and also a defaulter with respect to interest payable under section 201(1A) of the Act. 3.4 The AO further observed that as per Article 13 of the Double Taxation Agreement between India and U.S.A., each contracting state may tax capital gains in accordance with the provisions of its Domestic law. Since, the Capital Gains earned by U.S. companies became taxable as per Indian domesti....
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....ssessee-in-default and levying interest u/s. 201(1A) of the Act were bad in law, void ab initio and liable to be quashed as the appellant had not failed as alleged to have been in compliance of the provisions of Section 195 of the Act in relation to payment made in September 2005 for purchase of shares from New Cingular Wireless Services Inc, USA (NCWS) and MMM holdings LL.C USA (MMMН) (nоn-resident shareholders) of AT&T Cellular Pvt. Ltd. Mauritius (AT&T)based on the well-settled legal propositions in relation to the applicability of Section 195 of the Act as well as Section 9(1)(i) of the Act as it stood before retrospective amendment made by the Finance Act. 2012 by inserting Explanation 4 and Explanation 5 to Section 9(1)(i) ( from 01-04-1962. The provisions of Section 195 relating to Deduct Tax at Source applied only to those sums which are "chargeable under the provisions of the Act Therefore, the obligation arises only when there is a sum chargeable under the provisions of the Act as upheld by the Hon. Supreme Court in the case of GE India Technology, Gentre Private Limited 327 ITR 456 and Engineering Analyse Centre of Excellence vs CIT 432 ITR471. The provisions....
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.... make an application to the AO to determine the appropriate proportion of such sum chargeable, is based on the "Principle of Proportionality" Hence, the said sub-section is attracted only in cases where the payment made is a composite payment in which certain proportion of payment has an element of income chargeable to tax in India as upheld by the Hon. Supreme Court in Engineering Analysis Centre of Excellence Vs. CIT(supra)which is not the case in the impugned transaction of purchase of shares. The contention of the Department that the moment there is remittance, the obligation to deduct tax under Section 195 is to be accepted, it would mean obliteration of the expression sum chargeable under the provisions of the Act in Section 195(1) 4.4 In the additional ground II, it was claimed that the amount deposited by the appellant, under protest on 29 April 2008 of Rs. 45,40,13,138/-, pursuant to the orders under appeal was to be consequently refunded to it and further on account of the Capital Gains being charged to tax on the selling Shareholders, under orders u/s143/3) read with Section 147/144C(13) of the Act on 24 January 2013, which tax has been fully discharged directly by them,....
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....ions of the Act as upheld by the Hon. Supreme Court in the cases of GE India Technology Centre Private Limited, Engineering Analysis Centre of Excellence Vs CIT. The provisions of Section 9(1)(i) of the Act as it stood at the lime fie prior to insertion of Explanation 4 and 5 by the Finance Act. 2012 w.e.f. 01.04.1962 when the assessee purchased shares of AT&T from non-resident shareholders covered only income arising from direсt transfer of capital asset situated in India and it did not purport to cover income arising from the indirect transfer of capital asset in Indian shares in a company incorporated outside India, if the shares derives directly indirectly its value substantially from the assets located in India, as duly held by the Hon Supreme Court in the matter of Vodafone International Holdings BV V/s Union of India and Another (supra).Therefore, if tax is not so assessable, there is no question of tax being deducted. What is made clear by the judgment in GE India Technology Centre Pvt Ltd (supra) is the fact that the person" spoken of in section 195(2) of the Act is liable to make the necessary deductions only if the non-resident is liable to pay tax as an assessee u....
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....ffect of indirect transfer of capital asset situated in India chargeable to tax under the Act, in law the appellant was not required to deduct the tax at source in 2005 in relation to the captioned transaction which were undertaken at a time when the gains arising in relation to captioned transaction were not chargeable to tax in India as held by the Hon. Supreme Court in the matter of Vodafone International Holdings B.V. V/s. Union of India(supra)]. Further, reliance was also placed on several other decisions of various courts of law in this regard i.e. CIT-16 Vs. KPMG in ITA No. 690 of 2017(Bom), CIT-11 Vs. NGC Networks (India) Pvt Ltd. In ITA No. 397 of 2015(Bom), SGS India (P) Ltd Vs ACIT (2020) 114 taxmanm.com 723 (Mumbai-Trib), Channel Guide India Ltd. v. ACIT (2012] 20 ITR(T) 438 (Mumbai) etc. 6. The ld.CIT(A) in a detailed order has duly considered all the relevant facts of the case as also the submissions made by the assessee in respect of original and additional grounds of appeal. Relevant parts of the observations made by him and order passed are extracted as under for brevity and ready reference: "I have perused the orders under appeal under which the AO has....
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....ich needs to be addressed is whether an obligation u/s 195 arose to deduct income-tax when the remittance was made by the appellant. Here the appellant relies on the decisions of the Supreme Court in GE India Technology Centre Private Limited (supra) and Engineering Analysıs Centre of Excellence (supra) which hold that Obligation of the payer u/s 195 to collect tax arises only when payment to the Non Resident is chargeable to tax in Indian Law to be applied as prevalent on the date of payment. Retrospective amendment of 2012, casting a retrospective charge, could not have been foreseen by the Deductor payer. The law does not demand the impossible and impotentiaexcusatlegem ie: when there is a disability that makes it impossible to obey the law. the alleged disobedience of the law is excused. Application u/s. 195(2) not compulsorily required in all cases - to be made only when income chargeable to tax or when a composite payment involved My attention has also been drawn toa decision of the Hon. Mumbai Tribunal in WNS Capital Investment Limited (supra) where the facts also pertain to acquisition shares of an overseas entity, which held in turn held shares in an Indian e....
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....s quashed as in view of the following reasonings (A Tax Collection and Chargeability (one integral whole) (a) The provisions of Section 195 of the Act relating to deduction of Tax at Source (TAS) applies only when the sum which is to be paid to the non-resident is chargeable to tax in India as upheld by the Hon. Supreme Court in the following cases GE India Technology Centre Private Limited 327 ITR 456, more particularly at Page No. 463 Engineering Analysis Centre of Excellence Vs. CIT 432 ITR 471 more particularly Page Nos 533 and 534 (b) (0 Applicability of Section 9(1)(i) of the Act. In adjudicating this Ground, I rely upon the decision of the Hon. Supreme Court in the matter of Vodafone International Holdings B. V 341 ITR 1 wherein on identical facts as applicable in the case of the appellant and based on Section 9(1)(i) as in force prior to the retrospective amendment made by the Finance Act. 2012 has upheld that the provisions of Section 9(1)) covered only income ansing from the direct transfer of capital asset situated in India and it did not purport to cover income arising from the indirect transfer of capital asset in India, ie. shares of a company incorporated outside Ind....
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....pital Investment Limited, Mauritius[ITA No. 3851/Mum/18 - Assessment Year 2009-10- Order dated 26th March 2021 of Hon. ITAT Mumbai Bench] holding as under by placing reliance on the decision of the Hon. Supreme Court in the case of Engineering Analysis Centre of Excellence (supra) Page No. 7 "There is no omission on the part of the assessee if explicit provision of law is considered at the time of payment Page No 10. Para 9 "For a person to perform the tax withholding obligations on the basis of an amendment in law which was enacted on a date later than the date on which the tax withholding obligations were required to be performed is expecting that person to do the impossible. The assessee therefore cannot be faulted for not deducting tax at source from payments made to. (C) Application u/s 195(2): (a) I hold that (i) The provisions of Section 195(2), providing interalia that the person responsible for paying any sum chargeable under the Act to make an application to the AO to determine the appropriate proportion of such sum chargeable, is based on "the Principle of Proportionality". Hence, the said sub-section is attracted only in cases where the payment made is a compos....
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....at the issue is covered by the decisions of Hon'ble Supreme Court(supra) as cited above and considered by the ld.CIT(A). 8. We have carefully considered all the relevant facts of the case, perused the relevant orders, the legal citation relied upon and the rival submissions. Facts of the case are that the assessee purchased equity shares of AT & T Cellular Pvt. Ltd., (Mauritius Company) from its USA resident shareholders (non-resident shareholders) on 28.09.2005 for an agreed consideration. No tax was withheld by it, upon remittance in September 2005. The Mauritius Company held shares of "Birla Tata AT&T Ltd." (BTAL), a company registered in India. Orders dated 28.03.2008 u/s 201(1) and 201(1A) of the Act are passed, holding the appellant as an assessee in default on the premise that the gains in the hands non-resident shareholders are chargeable to tax in India as the Mauritius Company derived its value from shares held in BTAL. 8.1 In the various grounds of appeal, the Revenue before us has contested the appellate order whereby the assessee was allowed the relief sought for before him. It is inter alia claimed that the ld.CIT(A) was not justified in holding that payments NC....
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....upreme Court, in a 3-judge bench, passed a unanimous judgment in favour of Vodafone. Its main observations were: * Holistic "Look-At" Test: The Court used a holistic method ("look-at" test) to identify the real nature of the transaction. It declined to break up the transaction by spinning off the side arrangements or middle steps. It was considered a composite offshore sale of shares of CGP by HTIL (Cayman) to Vodafone (Netherlands). The subject matter (CGP) was a foreign company organized in the Cayman Islands. The Court therefore held that "the Indian Tax Authority had no territorial tax jurisdiction to tax the said Offshore Transaction". That is, the whole transaction fell outside India's tax jurisdiction. * Literal Interpretation of Section 9(1)(i): The Court interpreted Section 9(1)(i) literally. It found three necessary limbs for tax to be levied: (i) the presence of a capital asset, (ii) that the asset is located in India, and (iii) the transfer of the asset. The Court observed that Section 9(1)(i) is effectively a restricted legal fiction creating a nexus of taxation only when a non-resident outside India transfers an asset located in India. It emphasized ....