GOLDMAN SACHS (INDIA) SECURITIES P.LTD, MUMBAI V. ITO (IT) TDS 3, MUMBAI

ITA 3726/MUM/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4008 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 02-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 17-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHAUHANDR
• Assessee Lawyers: PERCY PARDIWALASMT AARTI SATHE
• Keywords: Double taxation relief; Cost of acquisition; Wholly owned subsidiary; Fair market value; Deemed dividend
• Section: 201(1); 68; 11

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI L BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAM LAL NEGI,JUDICIAL MEMBER /.ITA NO.3726/MUM/2015, /ASSESSMENT YEAR-2011-12 GOLDMAN SACHS(INDIA) SECURITIES PVT. LTD.,951A, RATIONAL HOUSE APPASAHEB MARATHE MARG PRABHADEVI,MUMBAI-400 025. PAN:AAFCA 6819 F VS. INCOME TAX OFFICER-(INTL. TAXATION) TDS-3, ROOM NO.137, 1 ST FLOOR SCINDIA HOUSE, BALLARD PEIR, MUMBAI-400 001. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : SHRI PERCY PARDIWALA/SMT. AARTI SATHE / REVENUE BY : SHRI JASBIR CHAUHAN-DR / DATE OF HEARING : 02.02.2016 / DATE OF PRONOUNCEMENT : 12.02.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 16.3.2014 OF THE CIT(A )-56, MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.EFFECTIVE GROUND OF APPEAL IS ABOUT TREATING THE APPELLANT AN ASSESSEE IN DEFAULT(A-I-D)UNDER SECTION 201(1) OF THE ACT AND C HARGING OF INTEREST UNDER SECTION 201 (1A) OF THE ACT; BRIEF FACTS: THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF GOLDMA N SACHS (MAURITIUS) LLC(GS-M).IT WAS SET UP TO UNDERTAKE MERCHANT BANKING AND SECURITY BUSIN ESS IN INDIA.REGISTERED UNDER THE STPI SCHEME,THE IT HAD SET UP A 100% EXPORT ORIENTED UNI T IN BANGALORE TO SERVE AS A GLOBAL SUPPORT CENTRE FOR THE GOLDMAN SACHS GROUP ENTITIES.ON 24.1 1.2010, THE ASSESSEE HAD REMITTED AN AMOUNT RS.1,88,99,97,781/- TO GS-M UNDER A BUYBACK OF SHARES SCHEME,WHEREBY 4,03,93,199/- EQUITY SHARES HAVING FACE VALUE OF RS.10 EACH WERE BOUGHT BACK FROM GS-M BY THE ASSESSEE @RS.46.79/-PER SHARE.TAKING INTO ACCOUNT THE FACE V ALUE OF RS.10 PER SHARE, THE AO IN HIS ORDER, PASSED U/S.201(1) AND 201(1A) R.W.S. 195 OF THE ACT ,ON 27.01.2014 HELD THAT THE EXCESS PAYMENT OF RS.36.79/-PER EQUITY SHARE FOR 4,03,93,199 SHARE S BOUGHT BACK AMOUNTING TO RS.1,48,60, 65,791/-WAS NOTHING BUT ITS DISTRIBUTION OF ITS ACC UMULATED PROFITS TO ITS ULTIMATE BENEFICIARY AND THE ONLY SHAREHOLDER I.E.GS-M,THAT THE BUYBACK OF E QUITY SHARES BY THE ASSESSEE FROM ITS HOLDING COMPANY WAS A COLOURABLE TRANSACTION TO AVOID THE P AYMENT OF DIVIDEND DISTRIBUTION TAX (DDT). THE EXCESS PAYMENT OF RS.1,48,60,65,791/-WAS HELD B Y THE AO TO BE IN THE NATURE OF DIVIDEND AS PER PROVISIONS OF SECTION 2(22)(D) OF THE ACT.AS TH E ASSESSEE HAD NOT DEDUCTED ANY DDT U/S.115 OF THE ACT,SUCH DIVIDEND INCOME WAS FOUND BY THE AO NOT TO QUALIFY FOR EXEMPTION U/S.10(34) OF THE ACT AND THEREFORE,WAS TAXABLE IN THE HANDS OF T HE RECIPIENT GS-M,NAMELY.HE FURTHER HELD THAT ON REMITTANCE OF SUCH AMOUNT TO A NON-RESIDENT REPR ESENTING ITS INCOME BY WAY OF DIVIDEND, TAX DEDUCTION WAS REQUIRED TO BE MADE U/S.195 OF THE AC T. AS THE ASSESSEE COMPANY HAD NOT DEDUCTED ANY TAX WHILE MAKING SUCH REMITTANCE, IT W AS HELD TO BE AN 'ASSESSEE IN DEFAULT' IN TERMS OF THE PROVISIONS OF SECTION 201 OF THE ACT.FURTHER , THE ASSESSEE WAS ALSO FOUND TO BE LIABLE TO PAY SIMPLE INTEREST U/S.201(1A) OF THE ACT. TAX AT THE RATE OF 5% OF THE GROSS AMOUNT OF SUCH ITA3726/M/15,AY.11-12-GOLDMAN 2 DIVIDEND WAS DETERMINED BY THE AO AS PAYABLE BY TH E ASSESSEE IN TERMS OF PARA 2(A) OF ARTICLE 10 OF THE INDIA MAURITIUS TAX-TREATY. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,IT WAS ARGUED THAT A TRA NSACTION OF BUY BACK OF SHARES REFERRED TO SECTION2(22) (IV) OF THE ACT WAS DIFFERENT FROM A T RANSACTION OF CAPITAL REDUCTION DEALT BY SECTION 2(22)(D) OF THE ACT, THAT THE TRANSACTION IN QUESTI ON WAS ONE OF BUY BACK OF SHARES AND NOT A CASE OF CAPITAL REDUCTION.AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE AND THE ORDER OF THE AO,THE FAA HELD THE AO HAD OBTAINED THE ANNUAL REPO RT OF THE ASSESSEE COMPANY FOR THE FIVE PRECEDING YEARS AND FROM SUCH ANNUAL REPORTS HE NOT ICED THAT IT HAD BEEN EARNING PROFITS AFTER TAX FOR EACH OF THOSE YEARS, THAT THE RESERVES AND SURP LUS INCREASED FROM RS.81,01,34,000/-FOR THE YEAR ENDING 31.03.2008 TO RS.3,46,03,20,000/-FOR TH E YEAR ENDING 31.03.2010,THAT INSPITE OF REGULAR PROFITS BEING EARNED BY IT DIRECTORS OF THE ASSESSEE-COMPANY DID NOT RECOMMEND ANY DIVIDEND PAYMENT ON ITS EQUITY SHARES,THAT MONEY HA D A TIME VALUE AND POSTPONEMENT OF GRANT OF A SHARE IN THE PROFITS TO A SHAREHOLDER WOULD BE FO R PURPOSES OF RE-INVESTMENT IN THE BUSINESS FOR THE PURPOSES OF ENHANCING FUTURE PROFITS,THAT THE A SSESSEE HAD NOT SHOWN ANY SUCH REQUIREMENT OR COMPULSION AS A JUSTIFICATION FOR THE NON-GRANT OF DIVIDEND IN THE REGULAR COURSE, INSPITE OF THE CONTINUOUS ACCUMULATION OF PROFITS IN ITS BOOKS,THA T THE AO HAD SPECIFICALLY REQUIRED THE ASSESSEE TO EXPLAIN THE COMMERCIAL REASON, IF ANY, FOR THE N ON ISSUE OF DIVIDEND ALTHOUGH THE PROFITS WERE BEING ACCUMULATED YEAR AFTER YEAR,THAT IT CHOSE TO REMAIN SILENT ON THIS SHOW CAUSE NOTICE ISSUED BY THE AO,THAT BY PERMITTING THE PROFITS TO ACCUMUL ATE IN ITS BOOKS IT HAD AVOIDED THE PAYMENT OF DDT THAT WOULD HAVE BEEN PAYABLE IF SUCH ACCUMULATE D PROFITS HAD BEEN DISTRIBUTED TO ITS SHARE- HOLDERS,THAT A PORTION OF SUCH ACCUMULATED PROFIT W AS FINALLY PASSED ON TO THE SOLE SHAREHOLDER ON 24.11.2010 BY WAY OF PAYMENT ON ACCOUNT OF BUY BACK OF SHARES,THAT IT HAD CLAIMED THE EXEMPTION AVAILABLE U/S.2(22)(IV) OF THE ACT THAT E XCLUDED ANY PAYMENT MADE BY A COMPANY ON THE PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER I N ACCORDANCE WITH THE PROVISIONS OF SECTION 77-A OF THE COMPANIES ACT,1956.THE FAA FURTHER OBSE RVED THAT THE DEFINITION OF DIVIDEND GIVEN IN SECTION 10(22) OF THE ACT WAS AN INCLUSIVE DEFIN ITION THAT SOUGHT TO EXTEND THE SCOPE OF AMOUNTS CHARGEABLE TO TAX AS DEEMED DIVIDEND BUT PA YMENTS IN THE NATURE OF DIVIDEND WOULD ALWAYS BE COMING WITHIN THE AMBIT OF THE TERM DIVID END,THAT THE COMMERCIAL SIGNIFICANCE OF A TRANSACTION OF A BUYBACK OF EQUITY SHARES WAS NORMA LLY FOR THE PURPOSES OF CONSOLIDATING THE SHARE-HOLDING OF THE REMAINING SHARE HOLDERS AND TO ENHANCE THE VALUE OF THE SHARES REMAINING IN THE HANDS OF THE CONTINUING SHARE HOLDERS,THAT GS-M WAS THE SOLE EQUITY SHARE HOLDER OF THE ASSESSEE-COMPANY BOTH PRIOR TO AND AFTER THE BUYBAC K OF SHARES BY THE IT,THAT THE ARRANGEMENT OF BUY-BACK OF SHARES WOULD NOT LEAD TO ANY CONSOLIDAT ION OR A CHANGE IN THE VALUE OF ITS HOLDINGS IN THE ASSESSEE-COMPANY,THAT THERE WAS NO COMMERCIAL P URPOSE WAS SERVED THROUGH THE BUYBACK ARRANGEMENT, THAT THE ASSESSEE WAS A WHOLLY OWNED S UBSIDIARY OF GS-M,THAT THE LATTER WAS IN A POSITION TO ENSURE THAT THE RETURNS OUT OF THE PROF ITS OF THE ASSESSEE-COMPANY WOULD BE GIVEN TO IT NOT THROUGH DIVIDEND,THAT PAYMENT OF DIVIDEND WOULD HAVE BEEN LIABLE TO DDT,THAT THE TRANSACTION OF THE RECEIPT OF ITS SHARE OF PROFITS IN THE ASSESSEE COMPANY WAS GIVEN AN ARTIFICIAL COLOUR OF CAPITAL GAINS,THAT CAPITAL GAIN ON SUCH T RANSACTION WAS EXEMPT FROM TAX IN THE HANDS OF THE RECIPIENT,THAT THE NON-DISTRIBUTION BY WAY OF D IVIDEND OF THE ACCUMULATED PROFITS,THE TRANSACTION OF BUY BACK OF SHARES OFFERED BY IT AND THE EXERCISE OF SUCH OPTION BY ITS SOLE SHARE- HOLDER WAS CARRIED OUT NOT FOR ANY COMMERCIAL REASO NS,THAT WHOLE TRANSACTION WAS ARRANGED FOR THE PURPOSES OF ENABLING AN EVASION OF TAXES DUE ON SUCH DISTRIBUTION OF PROFITS,THAT THE RECEIPT BY GS-M WOULD COME WITHIN THE AMBIT OF INCOME FROM A SHARE-HOLDING OR A PARTICIPATION IN THE ITA3726/M/15,AY.11-12-GOLDMAN 3 PROFITS OF A SUBSIDIARY,THAT THE ASSESSEE THROUGH T HE RECOURSE TO THE ARRANGEMENT OF THE BUYBACK OF SHARES SOUGHT TO GIVE THE COLOUR TO THIS TRANSA CTION AS NOT BEING IN THE NATURE OF A RECEIPT OF DIVIDEND BUT A CAPITAL GAIN OF THE CONCERNED SHARE HOLDER,THAT THE ARRANGEMENT WAS MADE TO USE OF THE PROVISIONS OF SECTION 46A OF THE ACT AND TO CLAIM EXEMPTION FROM TAX IN INDIA ON THE BASIS OF ARTICLE 13(4) OF THE INDIA MAURITIUS TAX TREATY. THE FAA REFERRED TO THE CASE OF A INDIAN COMPANY THAT WAS DECIDED BY THE AAR IN CASE NO. P OF 2010 VIDE ITS ORDER DATED 22.03.2012 AND HELD THAT IT HAD PERSUASIVE VALUE.HE FURTHER HE LD THAT SECTION 100 TO 105 OF THE COMPANIES ACT DEALT WITH REDUCTION OF CAPITAL,THAT THE ANNUAL ACCOUNTS OF THE ASSESSEE SHOWED THAT ITS SHARE- CAPITAL ACTUALLY GOT REDUCED AND WAS SO REFLECTED I N THE BOOKS AFTER THE BUY-BACK OF THE SHARES,THAT BUY-BACK OF SHARES WAS ONE OF THE WAYS OF CAPITAL REDUCTION,THAT RELIANCE BY THE AO ON THE PROVISIONS OF SECTION 2(22)(D) OF THE ACT DE ALING WITH CAPITAL REDUCTION, AS INCLUDING A TRANSACTION OF BUY-BACK OF SHARES WAS JUSTIFIED,THA T THE PROVISIONS OF SECTION 10(34) WOULD APPLY ONLY IF DDT HAD BEEN PAID U/S.115-0 OF THE ACT,THAT NO DDT WAS PAID BY THE ASSESSEE,THAT THE RECIPIENT WOULD NOT BE ENTITLED TO ANY EXEMPTION U/ S. 10(34) OF THE ACT,THAT THE RECEIPT IN ITS HANDS WOULD BE CHARGEABLE TO INCOME TAX,THAT THE TR EATMENT BY THE AO OF THE ASSESSEE AS AN A-I- D AND THE RAISING OF DEMAND U/S.201(1) AND 201(1A) R.W.S. 195 OF THE ACT WAS JUSTIFIED.FINALLY, HE DECIDED THE ISSUE AGAINST THE ASSESSEE. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)ARGUED T HAT THE ASSESSEE HAD BOUGHT BACK THE SHARES AS PER THE RESOLUTION PASSED IN THE GENERAL MEETING IN THE BOARD OF DIRECTORS ON 4.11.2010 (PG 14 OF PB), THAT THE OFFER FOR BUY BACK OPENED O N 5.11.2010 AND CLOSED ON 20.11.2010, THAT THE SHAREHOLDER TENDERED THE SHARES ON 23/.11.2010, THAT AFTER THE AMENDMENT TO SECTION 77A OF THE COMPANYS ACT THERE WAS NO NEED TO APPROACH THE COURTS TO BUY BACK THE SHARES IF THE PERCENTAGE OF BUY BOUGHT SHARES WERE LESS THAT A C ERTAIN LIMIT, THAT CORRESPONDINGLY PROVISIONS OF SEC.2(22)(D) OF THE ACT WERE AMENDED W.E.F 1.6.2001 , THAT SUB CLAUSE OF (IV) OF SECTION 2(22)(D) OF THE ACT DEALT WITH THE DIVIDENDS, THAT THE AMOUN T IN QUESTION WAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS, THAT EVEN AFTER AMENDMENT TO SE CTION 115QA OF THE ACT BURDEN OF PAYMENT OF TAX HAS NOT BEEN SHIFTED TO SHAREHOLDERS , THAT THE AAR HAD NOT CONSIDERED THE PROVISIONS OF SUB CLAUSE (IV) OF SECTION 2(22) OF THE ACT WHILE DECID ING THE APPLICATION FILED BEFORE IT, THAT THE PAYMENT MADE BY THE ASSESSEE WAS FOR THE PURCHASE O F SHARES, THAT THERE WAS NO REDUCTION IN CAPITAL.THE DEPARTMENTAL REPRESENTATIVE(DR)CONTENDE D THAT THE FACTS OF THE CASE DECIDED BY THE AAR WERE APPLICABLE TO THE CASE UNDER APPEAL, THAT THE BUY-BACK WAS NOT GENUINE, THAT IT WAS A CASE OF COLOURABLE DEVICE, THAT THE SCHEME HAD RESU LTED IN REDUCTION IN CAPITAL, THAT THE FAA HAD RIGHTLY HELD THAT PROVISIONS OF SECTION 2(22)(D) OF THE ACT WERE APPLICABLE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE ARE OF THE OPINION THAT FOR DECIDING THE ISSUE BEFORE US,IT WOULD BE U SEFUL TO CONSIDER THE PROVISIONS OF SECTION 77A AND100-105 OF THE COMPANIES ACT(CA) AND SECTION 2(2 2) AND 46A OF THE ACT.SECTION 77A OF THE CA DEALS WITH BUYING BACK OF SHARES IN FOLLOWING MA NNER: (1) NOTWITHSTANDING ANYTHING CONTAINED IN THIS ACT , BUT SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF THIS SECTION AND SECTION 77B, A COMPANY MAY PURCHAS E ITS OWN SHARES OR OTHER SPECIFIED SECURITIES (HEREINAFTER REFERRED TO AS 'BUY-BACK') OUT OF- (I) ITS FREE RESERVES ; OR (II) THE SECURITIES PREMIUM ACCOUNT ; OR (III) THE PROCEEDS OF ANY SHARES OR OTHER SPECIFIED SECURITIES : ITA3726/M/15,AY.11-12-GOLDMAN 4 PROVIDED THAT NO BUY-BACK OF ANY KIND OF SHARES OR OTHER SPECIFIED SECURITIES SHALL BE MADE OUT OF THE PROCEEDS OF AN EARLIER ISSUE OF THE SAME KIND OF SH ARES OR SAME KIND OF OTHER SPECIFIED SECURITIES. (2) NO COMPANY SHALL PURCHASE ITS OWN SHARES OR OTH ER SPECIFIED SECURITIES UNDER SUB-SECTION (1) UNLESS- (A) THE BUY-BACK IS AUTHORISED BY ITS ARTICLES ; (B)A SPECIAL RESOLUTION HAS BEEN PASSED IN GENERAL MEETING OF THE COMPANY AUTHORISING THE BUY-BACK PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHAL L APPLY IN ANY CASE WHERE-(A) THE BUY-BACK IS OR LESS THAN TEN PER CENT. OF THE TOTAL PAID-UP EQUITY CAPITAL AND FREE RESERVES OF THE COMPANY ; AND (B) SUCH BUY-BACK HAS BEEN AUTHORISED BY THE BOARD BY M EANS OF A RESOLUTION PASSED AT ITS MEETING : PROVIDED FURTHER THAT PROVIDED FURTHER THAT NO OFFE R OF BUY-BACK SHALL BE MADE WITHIN A PERIOD OF THREE HUNDRED AND SIXTY-FIVE DAYS RECKONED FROM THE DATE OF THE PRECEDING OFFER OF BUY-BACK, IF ANY. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSION 'OFFER OF BUY-BACK' MEANS THE OFFER OF SUCH BUY-BACK MADE IN PURSUANCE OF THE RESOLUTION O F THE BOARD REFERRED TO IN THE FIRST PROVISO ; (C) THE BUY-BACK IS OF LESS THAN TWENTY-FIVE PER CE NT. OF THE TOTAL PAID-UP CAPITAL AND FREE RESERVES OF THE COMPANY : PROVIDED THAT THE BUY-BACK OF EQUITY SHARES IN ANY FINANCIAL YEAR SHALL NOT EXCEED TWENTY-FIVE PER CENT. OF ITS TOTAL PAID-UP EQUITY CAPITAL IN THAT F INANCIAL YEAR ; (D) THE RATIO OF THE DEBT OWED BY THE COMPANY IS NO T MORE THAN TWICE THE CAPITAL AND ITS FREE RESERVES AFTER SUCH BUY-BACK : PROVIDED THAT THE CENTRAL GOVERNMENT MAY PRESCRIBE A HIGHER RATIO OF THE DEBT THAN THAT SPECIFIED UNDER THIS CLAUSE FOR A CLASS OR CLASSES OF COMPANI ES. XXXXXXX (5) THE BUY-BACK UNDER SUB-SECTION (1) MAY BE- (A) FROM THE EXISTING SECURITY HOLDERS ON A PROPORT IONATE BASIS ; OR (B) FROM THE OPEN MARKET ; OR (C) FROM ODD LOTS, THAT IS TO SAY, WHERE THE LOT OF SECURITIES OF A PUB-LIC COMPANY WHOSE SHARES ARE LISTED ON A RECOGNISED STOCK EXCHANGE, IS SMALLER T HAN SUCH MARKETABLE LOT, AS MAY BE SPECIFIED BY THE STOCK EXCHANGE ; OR (D) BY PURCHASING THE SECURITIES ISSUED TO EMPLOYEE S OF THE COMPANY PURSUANT TO A SCHEME OF STOCK OPTION OR SWEAT EQUITY. SECTION 100-105R.W.S.391OF THE CA DEAL WITH REDUCTI ON OF CAPITAL AND OBTAINING PERMISSION OF THE COURT.CLEARLY,BOTH DEAL WITH DIFFERENT SITUATIO NS.THE HONBLE JURISDICTIONAL HIGH COURT HAS DEALT WITH THE SCHEMES OF BUYBACK OF SHARES AND RED UCTION OF CAPITAL IN THE CASE OF CAPGEMINI INDIA PRIVATE LIMITED (COMPANY SCHEME PETITION NO.4 34 OF 2014 DATED 28.04.2015) AS UNDER: 4.THE ENTIRE CASE OF THE REGIONAL DIRECTOR REVOLVES AROUND HIS CONTENTION THAT THE BUYBACK OF SHARES MUST BE EFFECTED ONLY UNDER SECTION 77 A OF THE COMPANIES ACT, 1956/SECTION 68 OF THE COMPANIES ACT,2013. ACCORDING TO THE REGIONAL DIREC TOR IF A BUYBACK OF SHARES IS EFFECTED UNDER SECTION 77A/SECTION 68, THEN THE DISTRIBUTED INCOME OF THE COMPANY AS DEFINED IN SECTION 115QA OF THE INCOME TAX ACT, WOULD BE CHARGED TO TAX AND IT IS FOR THIS REASON THAT THE COMPANY IS NOT FOLLOWING THE PROCEDURE PRESCRIBED UNDER SECTION 77 A/SECTION 68 AND HAS OPTED FOR THE PROCEDURE UNDER SECTION 391 WHICH WOULD NOT ATTRACT SUCH A TAX UNDER SECTION 115QA OF THE INCOME TAX ACT. ACCORDING TO THE REGIONAL DIRECTOR BY THIS COLOURABLE DEVICE THE COMPANY IS EVADING ITS LIABILITY TO PAY TAX. 5. ONE OF THE CONTENTIONS RAISED BY THE PETITIONER IS THAT A VIEW OF THE CIRCULAR DATED 15 TH JANUARY 2014, THE REGIONAL DIRECTOR HAS NO LOCUS IN RESPECT OF TAX MATTERS, PARTICULARLY WHEN THE INCOME TAX AUTHORITIES HAVE NOT RAISED ANY OBJECTION. THI S ASPECT HAS BEEN CONSIDERED IN DETAIL BY THIS COURT IN THE CASE OF CASBY CFS PVT. LTD. AND IT HA S-BEEN HELD THAT THE REGIONAL DIRECTOR HAS THE REQUISITE LOCUS STANDI TO RAISE ALL OBJECTIONS IN RESPECT OF A SCHEME INCLUDING OBJECTIONS PERTAINING TO TAXATION LAWS. HE CAN DO SO EVEN IF T HE INCOME TAX AUTHORITIES DO NOT RAISE ANY ITA3726/M/15,AY.11-12-GOLDMAN 5 OBJECTION. IT HAS BEEN HELD THAT THIS IS THE DUTY AND OBLIGATION OF THE REGIONAL DIRECTOR. IN VIEW OF THE AFORESAID DECISION OF THIS COURT THE OBJEC TION OF THE PETITIONER WITH REGARD TO THE LOCUS OF THE REGIONAL DIRECTOR IS UNTENABLE AND DESERVES TO BE REJECTED. 6. THE PETITIONER HAS SUBMITTED THAT IT IS OPEN TO THE PETITIONER TO FOLLOW EITHER THE PROCEDURE UNDER SECTION 77A/SECTION 68 OR THE PROCEDURE UNDER SECTION 391 READ WITH SECTIONS 100 TO 104 TO EFFECTUATE THE BUYBACK OF SHARES AND THERE IS NO COMPULSION FOR THE PETITIONER TO FOLLOW ONLY THE PROCEDURE PRESCRIBED BY SECTION 77 A/SECTION 68. I N ANY EVENT, UNDER SECTION 77 /SECTION 68 A COMPANY CAN BUYBACK ONLY 25% OF THE TOTAL PAID UP C APITAL AND FREE RESERVES OF THE COMPANY WHEREAS UNDER THE SCHEME THE COMPANY PROPOSES BUY BACK OF 30% OF ITS PAID UP CAPITAL AND FREE RESERVES, WHICH IS NOT POSSIBLE UNDER SECTION 77 / SECTION 68. CONSEQUENTLY THE ONLY MANNER IN WHICH THE COMPANY CAN BUYBACK THE SAID SHARES IS BY FOLLOWING THE PROCEDURE UNDER SECTION 391 READ WITH SECTIONS 100 - 104 OF THE 1956 ACT. IN SU PPORT OF ITS CONTENTIONS THE PETITIONER HAS RELIED UPON THE DECISION OF THE DIVISION BENCH OF T HIS COURT IN THE CASE OF SEBI V/S. STERILITE INDUSTRIES (INDIA) LIMITED. 7. THE DIVISION BENCH OF THIS COURT IN THE CASE OF STERILITE INDUSTRIES (SUPRA) HAS HELD THAT A COMPANY MAY EITHER FOLLOW THE PROCEDURE UNDER SECTI ON 391 READ WITH SECTIONS 100 TO 104 OF THE 1956 ACT OR THE PROCEDURE UNDER SECTION 77A (NOW S ECTION 68). IT IS NOT MANDATORY FOR A COMPANY TO BUY BACK ITS SHARES ONLY BY FOLLOWING T HE PROCEDURE PRESCRIBED BY SECTION 77 A. IN THIS REGARD PARAGRAPHS 22 AND 23 OF THE STERILITE D ECISION ARE RELEVANT AND THE SAME ARE REPRODUCED BELOW FOR CONVENIENCE: '22. THE OPENING WORDS OF SECTION 77A, VIZ. 'NOTWIT HSTANDING ANYTHING CONTAINED IN THIS ACT,BUT SUBJECT TO THE PROVISIONS OF SUB-SECTION(2) OF THIS SECTION AND SECTION 77B, A COMPANY MAY PURCHASE ITS OWN SHARES OR OTHER SPECIFIED SECURITI ES' SHOWS THAT SECTION 77A IS A FACILITATING PROVISION WHICH ENABLES COMPANIES TO BUY-BACK THE IR SHARES WITHOUT HAVING TO APPROACH THE COURT UNDER SECTION 391 AND SECTION 100 TO 104 SUBJECT T O COMPLIANCE WITH THE PROVISIONS OF SUB- SECTIONS (2), (3) AND (4). PRIOR TO THE INTRODUCTIO N OF SECTION 77 A, THE ONLY MANNER IN WHICH A COMPANY COULD BUY-BACK ITS SHARES WAS BY FOLLOWING THE PROCEDURE SET OUT UNDER SECTIONS 100 TO 104 AND SECTION 391 WHICH REQUIRED THE CALLING OF S EPARATE MEETINGS OF EACH CLASS OF SHAREHOLDERS AND CREDITORS AS WELL AS (IF REQUIRED BY THE COURT ) THE DRAWING UP OF A LIST OF CREDITORS OF THE COMPANY AND OBTAINING OF THEIR CONSENT TO THE SCHE ME FOR REDUCTION. THE LEGISLATIVE INTENTION BEHIND THE INTRODUCTION OF SECTION 77 A IS TO PROVI DE AN ALTERNATIVE METHOD BY WHICH A COMPANY MAY BUY-BACK UPTO 25 PER CENT OF ITS TOTAL PAID- U P EQUITY CAPITAL IN ANY FINANCIAL YEAR SUBJECT TO COMPLIANCE WITH SUB-SECTIONS (2), (3) AND (4). IT DOES NOT SUPPLANT OR TAKE AWAY ANY PART OF THE PRE-EXISTING JURISDICTION OF THE COMPANY COURT TO SANCTION A SCHEME FOR SUCH REDUCTION UNDER SECTIONS 100 TO 104 AND SECTION 391. 23. THE SUBMISSION OF THE APPELLANTS THAT THE NON O BSTANTE CLAUSE IN SECTION 77A GIVES PRECEDENCE TO THAT SECTION OVER PROVISIONS OF SECTIONS 100 TO 104, SECTION 391 IS MISCONCEIVED. THE NON OBSTANTE CLAUSE IN SECTION 77 A NAMELY 'NOTWITHSTAN DING ANYTHING CONTAINED IN THIS ACT .... ' ONLY MEANS THAT NOTWITHSTANDING THE PROVISIONS OF SECTI ON 77 AND SECTIONS WITH THE CONDITIONS MENTIONED IN THAT SECTION WITHOUT APPROACHING THE COURT UNDER SECTIONS 100 TO 104 OR SECTION 77A TO INDICATE THAT THE JURISDICTION OF THE COURT UN DER SECTION 391 OR 394 HAS TAKEN AWAY OR SUBSTITUTED. IT IS WELL SETTLED THAT THE EXCLUSION OF THE JURISDICTION OF THE COURT SHOULD NOT READI LY BE INFERRED, SUCH EXCLUSION SHOULD BE EXPLICITLY OR CLEARLY IMPLIED. THERE IS NOTHING IN THE LANGUAGE OF SECTION 77 THAT GIVES RISE TO SUCH AN INFERENCE. WE ARE, THEREFORE, INCLINED TO HOLD THA T SECTION 77 A IS MERELY AN ENABLING PROVISION AND T HE COURTS POWERS UNDER SECTIONS 100 TO 104 AND SECTION 391 ARE NOT IN ANY WAY AFFECTED. THE CONDIT IONS PROVIDED IN SECTION 77A ARE APPLICABLE ONLY TO BUY-BACK OF SHARES UNDER SECTION 77A. THE C ONDITIONS APPLICABLE TO SECTIONS 100 TO 104 AND SECTION 391 CANNOT BE IMPORTED INTO OR MADE APPLICA BLE TO A BUY-BACK UNDER SECTION 77A. SIMILARLY THE CONDITIONS FOR A BUY-BACK UNDER SECTI ON 77A CANNOT BE APPLIED TO A SCHEME UNDER SECTIONS 100 TO 104 AND SECTION 391. THE TWO OPERAT E IN INDEPENDENT FIELDS. ITA3726/M/15,AY.11-12-GOLDMAN 6 4. HOWEVER,IT IS NECESSARY TO NOTE THAT THE ABOVE W AS THE POSITION IN LAW UNDER THE1956 ACT IN VIEW OF THE LANGUAGE OF THE PROVISIONS OF SECTION 3 91 AND SECTION 77 A OF THAT ACT. IN THE 2013 ACT SUB-SECTION 10 OF SECTION 230 PROVIDES AS FOL LOWS :- '10. NO COMPROMISE OR ARRANGEMENT IN RESPECT OF ANY BUY-BACK OF SECURITIES UNDER THIS SECTION SHALL BE SANCTIONED BY THE TRIBUNAL UNLESS SUCH BU Y-BACK IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 68.' THIS PROVISION MAY HAVE AN IMPACT ON THE LAW AS LAI D DOWN BY THIS COURT IN THE STERILITE CASE. HOWEVER, AT PRESENT SECTION 230 HAS NOT COME INTO F ORCE AND HENCE THIS QUESTION DOES NOT ARISE FOR CONSIDERATION IN THIS QUESTION DOES NOT ARISE F OR CONSIDERATION IN THIS CASE AND HENCE THE SAME NEED NOT TO BE CONSIDERED. AT PRESENT THE LAW AS LA ID DOWN IN STERILITE INDUSTRIES PREVAILS AND WILL BE APPLICABLE TO THE PRESENT CASE. 5.IN THE CIRCUMSTANCES IT IS OPEN TO A COMPANY TO B UY BACK ITS OWN SHARES BY FOLLOWING THE PROCEDURE PRESCRIBED UNDER SECTION 77A/SECTION 68 O R BY FOLLOWING THE PROCEDURE PRESCRIBED UNDER SECTION 391 READ WITH SECTIONS 100 TO 104 OF THE 1956,ACT.THE CONTENTIONS OF THE REGIONAL DIRECTOR ARE THEREFORE CLEARLY CONTRARY TO THE PRE VAILING LEGA1 POSITION. THE ABOVE OBSERVATIONS OF THE HONBLE COURT DOES NO T LEAVE ANY DOUBT THAT BUYBACK OF SHARES CANNOT BE EQUATED WITH REDUCTION OF CAPITAL. 5.1. WE FIND THAT WHILE AMENDING THE CA,BY INTRODUCTION OF SECTION 77A OF THE ACT,LEGISLATURE HAD MADE AMENDMENTS TO THE INCOME TAX ACT TOO.WE WO ULD LIKE TO REPRODUCE SECTION 2(22)(D) AND SECTION 46A OF THE ACT AND SAME READ AS UNDER: (22) 'DIVIDEND' INCLUDES- (A) . (B) . (C) .. (D) ANY DISTRIBUTION TO ITS SHAREHOLDERS BY A COMPA NY ON THE REDUCTION OF ITS CAPITAL, TO THE EXTENT TO WHICH THE COMPANY POSSESSES ACCUMULATED PROFITS WHICH AROSE AFTER THE END OF THE PREVIOUS YEAR ENDING NEXT BEFORE THE 1ST DAY OF APRIL, 1933, WHETHER SUCH ACCUMULATED PROFITS HAVE BEEN CAPITALISED OR NOT ; 46A. WHERE A SHAREHOLDER OR A HOLDER OF OTHER SPECIFIED SECURITIES RECEIVES ANY CONSIDERATION FROM ANY COMPANY FOR PURCHASE OF ITS OWN SHARES OR OTHER SPECIFIED SECURITIES HELD BY SUCH SHAREHOLDER OR HOLDER OF OTHER SPECIFIED SECURITIES , THEN, SUBJECT TO THE PROVISIONS OF SECTION 48 , THE DIFFERENCE BETWEEN THE COST OF ACQUISITION AND THE VALUE OF CONSIDERATION RECEIVED BY THE SHAREHOLDER OR THE HOLDER OF OTHER SPECIFIED SECURI TIES, AS THE CASE MAY BE, SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING TO SUCH SHAREHOLDER OR TH E HOLDER OF OTHER SPECIFIED SECURITIES, AS THE CASE MAY BE, IN THE YEAR IN WHICH SUCH SHARES OR OT HER SPECIFIED SECURITIES WERE PURCHASED BY THE COMPANY . EXPLANATION.FOR THE PURPOSES OF THIS SECTION, 'SPE CIFIED SECURITIES' SHALL HAVE THE MEANING ASSIGNED TO IT IN EXPLANATION TO SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956). THE REASONABLE CONCLUSIONS THAT CAN BE DRAWN FROM T HE SCRUTINY OF THE ABOVE SECTIONS ARE THAT BUY BACK OF SHARES AND REDUCTION OF SHARE-CAPITAL A RE DIFFERENT CONCEPTS,THAT BUYBACK OF SHARES OF A CORPORATE ENTITY CANNOT TO BE CHARACTERISED AS DE EMED DIVIDEND,THAT PROFIT ARISING OUT OF THE BUYBACK SCHEMES HAD TO TAXED UNDER THE HEAD CAPITAL GAINS. HERE,IT WOULD BE USEFUL TO TAKE NOTICE OF THE SPEEC H OF THE FINANCE MINISTER WHILE INTRODUCING THE AMENDMENT TO THE ACT WITH REGARD TO THE BUYBACK OF SHARES.RELEVANT PART OF THE SPEECH OF THE FM READS AS FOLLOW: 95.VERY RECENTLY, THE COMPANIES ACT, 1956 HAS BEE N AMENDED TO PERMIT TRANSACTIONS RELATING TO BUY-BACK OF SHARES. THERE IS SOME AMBIGUITY IN THE INTERPRETATION OF THE LAW AS TO WHETHER SUCH TRANSACTIONS WOULD BE TREATED AS SUBJECT TO DIVIDEN D TAX IN ADDITION TO CAPITAL GAINS. IN VIEW OF ITA3726/M/15,AY.11-12-GOLDMAN 7 THIS, I PROPOSE TO AMEND THE LAW TO PUT IT BEYOND DOUBT THAT ON BUY-BACK OF SHARES, THE SHAREHOLDERS WILL NOT BE SUBJECT TO DIVIDEND TAX, A ND WOULD ONLY BE LIABLE TO CAPITAL GAINS TAX. CENTRAL BOARD OF DIRECT TAXES HAD ISSUED A CIRCULAR (CIRCULAR NO.779,DATED 14.09.2099) WITH REGARD TO TAXABILITY ARISING OUT OF THE BUYBACK OF SHARES AND CIRCULAR READS AS UNDER: 28 CLARIFICATION OF TAX ISSUES ARISING OUT OF THE P ROVISION TO ALLOW BUY-BACK OF SHARES BY THE COMPANIES 28.1 THE COMPANIES (AMENDMENT) ORDINANCE, 1998 [SUB SEQUENTLY 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 CERTA IN 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 M ONTHS FROM SUCH BUY-BACK. 28.2 THE ABOVE NEWLY INTRODUCED PROVISIONS OF BUY-B ACK OF SHARES THREW UP CERTAIN ISSUES IN RELATION TO THE EXISTING PROVISIONS OF THE INCOME-T AX ACT. THE TWO PRINCIPAL ISSUES ARE WHETHER IT WOULD GIVE RISE TO DEEMED DIVIDEND UNDER SECTION 2( 22) OF THE INCOME-TAX ACT AND WHETHER ANY CAPITAL GAINS WOULD ARISE IN THE HANDS OF THE SHAR EHOLDER. THE LEGAL POSITION ON BOTH THE ISSUES WERE FAR FROM CLEAR AND SETTLED AND THERE WAS APPR EHENSION THAT THERE WILL BE UNNECESSARY LITIGATION UNLESS THE ISSUES ARE CLARIFIED WITH FIN ALITY. 28.3 THE ACT, THEREFORE, HAS AMENDED CLAUSE (22) OF SECTION 2 OF THE INCOME-TAX ACT BY INSERTING A NEW CLAUSE TO PROVIDE THAT DIVIDEND DOES NOT INCL UDE ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES IN ACCORDANCE WITH THE P ROVISIONS CONTAINED IN SECTION 77A OF THE COMPANIES ACT, 1956. IT HAS ALSO INSERTED A NEW SEC TION, NAMELY, SECTION 46A IN THE INCOME-TAX 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 OR OTHER SPECIFIED SECURITIES SHALL BE, SUBJECT TO PROVISIONS CONTAINED IN SECTION 48, DE EMED TO BE THE CAPITAL GAINS. 28.4 THIS AMENDMENT WILL TAKE EFFECT FROM 1ST DAY O F APRIL, 2000 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2000-2001 AND SUBSE QUENT YEARS. IT IS WORTH MENTIONING THAT PROVISIONS OF SECTION 1 15Q HAVE BEEN AMENDED W.E.F.01.04.2013 AND PROFIT ARISING OUT OF BUYBACK OF SHARES IS TO TAXED AT A PARTICULAR TAX RATE.BUT,THE AY.,BEFORE US, IS PRIOR TO THE APRIL,1 ST ,2013.THEREFORE,WE HAVE TO DECIDE THE ISSUE AS PER THE PREVAILING LAW APPLICABLE ON THE DATE OF THE TRANSACTION IN QUESTI ON.THERE IS NO AMBIGUITY ABOUT THE PROVISIONS THAT WOULD GOVERN THE BUYBACK OF SHARES.SECTION 2(2 2)(D)(IV)R.W.S.46A OF THE ACT WOULD BE APPLICABLE TO THE BUYBACK SCHEME.ACCORDINGLY, THE T RANSACTION CANNOT BE TREATED DEEMED DIVIDEND. 5.2. NOW,WE WOULD DEAL WITH THE ISSUE OF TREATING THE AS SESSEE AS A-I-D FOR NOT DEDUCTING TAX AT SOURCE.ONCE IT HAS BEEN DECIDED THAT THE PROFIT ARI SING OUT OF BUYBACK WOULD BE TAXED AS CAPITAL GAINS THE NEXT STEP IS TO DETERMINE AS TO WHETHER T HE CAPITAL GAINS ARE TAXABLE IN THE HANDS OF PARENT COMPANY OF THE ASSESSEE IN LIGHT THE INDO-MA URITIUS TAX TREATY.ARTICLE 13 OF THE SAID DTAA PROVIDES THAT CAPITAL GAINS WOULD NOT BE TAXAB LE IN THE HANDS OF GS-M.IF THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAXES AS PER THE PROVISIONS OF SECTION 195 OF THE ACT, IT CANNOT BE HELD A-I- D.FOR INVOKING THE PROVISIONS OF SECTION 201 OF THE ACT,NON DEDUCTION OF TAXES AT SOURCE IS A PRE- CONDITION.WE ALSO FIND FORCE IN THE ALTERNATE ARGUM ENT RAISED BY THE ASSESSEE.EVEN IF THE PAYMENT TO GSM IS CONSIDERED AS DIVIDEND U/S.2(22)(D) OF TH E ACT,THEN THE TAXES ON THE SAME HAVE TO BE CHARGED BY WAY OF DDT AS PER SECTION 115-O OF THE A CT.AS PER SECTION 10(34) OF THE ACT, ANY INCOME BY WAY OF DIVIDEND REFERRED TO IN SECTION 11 5-O OF THE ACT DOES NOT FORM PART OF TOTAL INCOME IN THE HANDS OF THE RECIPIENT AND COMPANY DE CLARING DIVIDEND WILL BE IN DEFAULT AS PER SECTION 115Q.SO,THE PROVISIONS OF TDS WOULD NOT BE APPLICABLE FOR DIVIDEND COVERED UNDER SECTION 2(22)(D) OF THE ACT. ITA3726/M/15,AY.11-12-GOLDMAN 8 5.3. WE WOULD ALSO LIKE TO DISCUSS THE ISSUE OF THE ALLE GED COLOURABILITY OF THE TRANSACTION. WE FIND THAT IN THE MATTER OF CAPGEMINI INDIA PRIVATE LIMITED(SUPRA),THE HONBLE BOMBAY HIGH COURT HAS DELIBERATED UPON THE ALMOST IDENTICAL FAC TS AND CIRCUMSTANCES AND HAS HELD AS UNDER: 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 T UNE 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 A S IT MAY, IF THE LAW PERMITS A COMPANY TO BUY BACK BACK ITS SHARES IN MORE THAN ONE WAY; THE COMP ANY 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 PAYME NT OF TAX. IN THE PRESENT CASE SINCE IT IS LEGALLY PERMISSIBLE FOR THE COMPANY TO BUY BACK ITS SHARES BY FOLLOWING THE PROCEDURE UNDER SECTION 391 READ WITH SECTIONS 100 TO 104 OF THE 19 56 ACT, THE FACT THAT THE SAME MAY NOT ATTRACT INCOME TAX WILL NOT AMOUNT TO IT BEING A DEVICE TO EVADE TAX. 7. EVEN THE ARGUMENT OF THE REGIONAL DIRECTOR THAT FOREIGN EXCHANGE AMOUNTING TO RS.248 CRORES WILL BE DRAINED AWAY IF THE SCHEME IS SANCTIONED, IS OF NO AVAIL ONCE IT IS HELD THAT THE PROCEDURE ADOPTED BY THE COMPANY IS PERMISSIBLE IN LAW. MORE OVER, THE REGIONAL DIRECTOR HAS NOT SHOWN THAT THE LAW PROHIBITS THE TRANSFER OF SHARES BY A NON-RESIDENT TO RESIDENT. IN FACT, HE DOES NOT DISPUTE THAT THE SAME IS PERMISSIBLE. THE PETITIONE R HAS PLACED ON RECORD RBI'S CIRCULAR NO.49 DATED 4TH MAY 2010 WHICH PROVIDES THAT SHARES OF AN UNLISTED INDIAN COMPANY CAN BE TRANSFERRED BY A NON-RESIDENT TO A RESIDENT UNDER THE GENERAL PERMISSION OF THE RBI IF THE TRANSFER PRICE DOES NOT EXCEED THE FAIR MARKET VALUE AS DETERMINED BY A CHARTERED ACCOUNTANT OR A SEBL REGISTERED MERCHANT BANKER AS PER THE DCF METHOD. IN THE PRESE NT CASE THE TRANSFER PRICE HAS BEEN ARRIVED AT IN ACCORDANCE WITH THE AFORESAID CIRCULAR OF T HE RBI. THE REGIONAL DIRECTOR HAS NOT DISPUTED THE FAIR MARKET VALUE OF THE SHARES SO DETERMINED. IN THESE CIRCUMSTANCES IT IS CLEAR THAT THE BUYBACK OF SHARES UNDER THE SCHEME IS IN ACCORDANC E WITH THE RBI GUIDELINES AND THAT BEING SO, THERE IS NO QUESTION OF THERE BEING ANY DRAINING AW AY OF FOREIGN EXCHANGE. 8. IN VIEW OF THE ABOVE AND PARTICULARLY THE FACT T HAT IN LAW THE PETITIONER IS ENTITLED TO BUY BACK ITS OWN SHARES BY MEANS OF A SCHEME UNDER SECTION 3 91 READ WITH SECTIONS 100-104OF THE 1956 ACT, THE SCHEME CANNOT BE SAID TO BE A COLORABLE DE VICE TO EVADE INCOME TAX. IT IS A LEGALLY PERMISSIBLE PROCEDURE WHICH THE PETITIONER IS ENTIT LED TO FOLLOW TO BUY BACK ITS SHARES. FOLLOWING THE ABOVE ORDER,WE HOLD THAT TRANSACTION IN QUESTION WOULD NOT FALL UNDER THE CATEGORY OF COLOURABLE DEVICE.IF AN ASSESSEE ENTERS INTO A D EAL WHICH DOES NOT VIOLATE ANY PROVISION OF THE ACT OF APPLICABLE TO A PARTICULAR AY.THE DEAL CANNO T BE TERMED A COLOURABLE DEVICE,IF IT RESULT IN NON-PAYMENT OR LESSER PAYMENT OF TAXES IN THAT YEAR .THE WHOLE EXERCISE SHOULD NOT LEAD TO TAX EVASION.NON-PAYMENT OF TAXES BY AN ASSESSEE IN GIVE N CIRCUMSTANCES COULD BE A MORAL OR ETHICAL ISSUE.BUT,FOR THAT THE ASSESSEE CANNOT BE PENALISED .IN LIGHT OF THE ABOVE DISCUSSION,WE ARE REVERSING THE DECISION OF THE FAA AND DECIDING THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FI LED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRONOU NCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2016. 12 ,2016 SD/- SD/- ( /RAM LAL NEGI) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 12.02.2016 . . . JV.SR.PS. ITA3726/M/15,AY.11-12-GOLDMAN 9 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.