DDIT, New Delhi V. M/s. Mitsubishi Motors Corporation,

ITA 411/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8197 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I1
• Next Hearing Date: 21-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 23-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Capital asset; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM ITA NO.411/DEL/2014 ASSESSMENT YEAR : 2010-11 DDIT, CIRCLE-3(1), NEW DELHI. VS. MITSUBISHI MOTORS CORPORATION, 33-8, SHIBA 5-CHOME, MINATU-KU, TOKYO, JAPAN. PAN: AAGCM4729H (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR DATE OF HEARING : 21.04.2016 DATE OF PRONOUNCEMENT : 28.04.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) ON 26.1 1.2013 U/S 143(3) READ WITH SECTION 144C(15) OF THE INCOME-TAX ACT, 1961 ( HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2010- 11. ITA NO.411/DEL/2014 2 2. THE FOLLOWING EFFECTIVE GROUNDS HAVE BEEN RAISED IN THIS APPEAL:- 1. THE ASSESSEE HAD APPLIED TAX RATE OF 10% IN THE TERMS OF THE PROVISO TO SECTION 112(1) OF THE INCOME TAX ACT. HOWEVER, THE AO HAS APPLIED TAX RATE OF 20% AS THE PROVISO BELOW SECTION 112(1) (C) WAS NOT APPLICABLE IN THE CASE OF NON-RESIDENTS. 2. WHETHER ON THE FACTS STATED AND IN LAWS THE HON BLE DRP HAS ERRED IN HOLDING THE ASSESSEE ENTITLED TO THE BENEFIT OF PROVISO TO SECTION 112(1) OF THE ACT ON SALE OF THE EQUITY SHARES IN QUESTION . 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A COMPANY INCORPORATED UNDER THE LAWS OF JAPAN WITH ITS HEAD OFFICE IN TOKYO. IT IS ENGAGED IN THE BUSINESS OF DEVELOPMENT, DESIGN, MAN UFACTURE, ASSEMBLY, SALES AND PURCHASE, IMPORTING AND OTHER TRANSACTION S RELATING TO AUTOMOBILES AND TO COMPONENT PARTS AND REPLACEMENT PARTS OF SAID AUTOMOBILES. DURING THE YEAR UNDER CONSIDERATION, T HE ASSESSEE REPORTED INCOME FROM THREE STREAMS, VIZ., CAPITAL GAINS, ROY ALTY AND FEES FOR TECHNICAL SERVICES. HOWEVER, ONLY INCOME UNDER THE HEAD CAPITAL GAINS WAS OFFERED FOR TAX. THE DISPUTE IN THE INSTANT APP EAL IS ONLY QUA THE APPLICATION OF TAX RATE ON THE AMOUNT OF SUCH CAPIT AL GAIN ALONE. SUCH CAPITAL GAINS AROSE FROM THE SALE OF SHARES OF EICH ER MOTORS LTD. TO EICHER MOTORS LTD. (AS A PART OF BUY BACK OF SHARES), MR. SIDHARTH LAL, MR. SIMRAN ITA NO.411/DEL/2014 3 LAL AND MRS. TARA LAL FOR A CONSIDERATION OF RS.27. 96 CRORE. COST OF ACQUISITION OF THESE SHARES IN INDIAN CURRENCY WORK ED OUT AT RS.9.94 CRORE, YIELDING LONG-TERM CAPITAL GAIN OF RS.18.01 CRORE. SINCE THE SHARES WERE ACQUIRED AND HELD FOR MORE THAN ONE YEAR, THE ASSES SEE OFFERED INCOME UNDER THIS HEAD @ 10% IN TERMS OF PROVISO TO SECTIO N 112(1) OF THE ACT. THE AO OPINED THAT THE PROVISO BELOW SECTION 112(1) WAS NOT APPLICABLE AND, HENCE, TAX RATE OF 20% SHOULD BE APPLIED. THE ASSESSEE RAISED OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL (DRP) AGAINST THE DRAFT ORDER CHARGING TAX @ 20% AS AGAINST 10% OFFERED BY THE ASSESSEE. THE DRP FOUND THE FACTS OF THE INSTANT CASE SIMILAR TO THOSE CONSIDERED BY THE HONBLE DELHI HIGH COURT IN CAIRN UK HOLDINGS LTD. VS. DIRECTOR OF INCOME-TAX (2013) 359 ITR 268 (DEL). FOLLOWING THE RATIO OF THIS JUDGMENT, THE DRP ACCEPTED THE ASSESSEES CLAIM. T HE AO IN THE FINAL ORDER GAVE EFFECT TO THE DIRECTION OF THE DRP IN AP PLYING TAX RATE OF 10%. THE INSTANT APPEAL HAS BEEN FILED BY THE REVENUE ON SUCH APPLICATION OF 10% TAX RATE AS AGAINST ITS CLAIM OF CORRECT TAX RA TE OF 20%. ITA NO.411/DEL/2014 4 4. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVAN T MATERIAL ON RECORD. THERE IS NO APPEARANCE FROM THE SIDE OF TH E ASSESSEE DESPITE NOTICE. THE SHORT CONTROVERSY BEFORE US IS TO DECI DE THE RATE AT WHICH INCOME FROM TRANSFER OF SHARES HELD AS LONG-TERM CA PITAL ASSETS, BE TAXED. THE CASE OF THE ASSESSEE IS THAT IT IS COVERED BY T HE PROVISO BELOW SECTION 112(1), WHEREAS THE AO HAS HELD THAT SUCH PROVISO I S NOT APPLICABLE AND GOING BY THE MANDATE OF SUB-SECTION (1), TAX RATE O F 20% IS CHARGEABLE. IN ORDER TO APPRECIATE THESE CONFLICTING VIEW POINTS, IT WOULD BE APT TO NOTE DOWN THE RELEVANT PARTS OF SECTION 112(1), APPLICAB LE AT THE MATERIAL TIME, AS UNDER :- 112. (1) WHERE THE TOTAL INCOME OF AN ASSESSEE INC LUDES ANY INCOME, ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL AS SET, WHICH IS CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS', THE TAX PAYABLE BY THE ASSESSEE ON THE TOTAL INCOME SHALL BE THE AGGREGATE OF, (A) . (B). ( C ) IN THE CASE OF A NON-RESIDENT (NOT BEING A COMPA NY) OR A FOREIGN COMPANY, ( I ) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL IN COME AS REDUCED BY THE AMOUNT OF SUCH LONG-TERM CAPITAL GAINS, HAD THE TOTAL INCOME AS SO REDUCED BEEN ITS TOTAL INCOME ; AND ITA NO.411/DEL/2014 5 ( II ) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG -TERM CAPITAL GAINS AT THE RATE OF TWENTY PER CENT ; ( D ). PROVIDED THAT WHERE THE TAX PAYABLE IN RESPECT OF A NY INCOME ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET EXCEEDS T EN PER CENT OF THE AMOUNT OF CAPITAL GAINS BEFORE GIVING EFFECT TO THE PROVIS IONS OF THE SECOND PROVISO TO SECTION 48, THEN, SUCH EXCESS SHALL BE I GNORED FOR THE PURPOSE OF COMPUTING THE TAX PAYABLE BY THE ASSESSEE. .. 5. THE ASSESSEE, A FOREIGN COMPANY, BEING A RESIDE NT OF JAPAN, SATISFIES THE CONDITION OF APPLICABILITY OF SPECIAL RATE AS G IVEN UNDER CLAUSE (C). FURTHER THE CAPITAL GAIN HAS ARISEN FROM THE TRANS FER OF SHARES, WHICH ARE LONG TERM CAPITAL ASSET OF THE ASSESSEE, WHICH FULF ILLS THE CONDITION SET OUT IN THE OPENING PART OF SUB-SECTION (1). AS THESE PR E-REQUISITES ARE SATISFIED, SUB-CLAUSE (II) OF SECTION 112(1)(C) COMES INTO PLA Y, WHICH PROVIDES THAT THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG-TE RM CAPITAL GAIN SHALL BE CHARGED @ 20%. IT IS NOT THE END OF THE MATTER. PROVISO AT THE END OF SUB-SECTION (1) OF SECTION 112 STATES THAT WHERE TH E TAX PAYABLE IN RESPECT OF ANY INCOME ARISING FROM THE TRANSFER OF A LONG-T ERM CAPITAL ASSET EXCEEDS TEN PER CENT OF THE AMOUNT OF CAPITAL GAINS BEFORE GIVING EFFECT TO THE PROVISIONS OF THE SECOND PROVISO TO SECTION 48, THE N, SUCH EXCESS SHALL BE ITA NO.411/DEL/2014 6 IGNORED FOR THE PURPOSE OF COMPUTING THE TAX PAYABL E BY THE ASSESSEE. WHEN WE READ CLAUSE C(II) IN JUXTAPOSITION TO THE P ROVISO TO SECTION 112(1), THE POSITION WHICH EMERGES IS THAT IF A CASE FALLS UNDER THE PROVISO, THEN, THE TAX RATE WILL BE 10% AND IN THE OTHERWISE SITUA TION, THE COMMAND OF SECTION 112(1)(C)(II) WILL APPLY AND ACCORDINGLY TA X AT THE RATE OF 20% SHALL BE CHARGED. WHEREAS THE CLAIM OF THE ASSESSEE AB INITIO HAS BEEN THAT IT IS COVERED BY THE PROVISO, THE AO HAS NEGATED SUCH A C LAIM AND PUT THE CASE UNDER CLAUSE C(II) OF SECTION 112(1). NOW WE HAVE TO ASCERTAIN WHETHER OR NOT THE CASE IS COVERED UNDER THE PROVISO TO SECTIO N 112(1)(C). 6. AS PER THE MANDATE OF THIS PROVISO, WHERE TH E TAX PAYABLE IN RESPECT OF LONG TERM CAPITAL GAIN EXCEEDS 10% OF THE AMOUNT OF CAPITAL GAIN COMPUTED BEFORE GIVING EFFECT TO THE PROVISIONS OF SECOND PROVISO TO SECTION 48, THEN, SUCH EXCESS SHALL BE IGNORED AND THE TAX RATE SHALL BE RESTRICTED TO 10%. NOW WE HAVE TO DETERMINE IF THE AMOUNT OF LONG TERM CAPITAL GAIN HAS BEEN COMPUTED BEFORE OR AFTER GIVI NG EFFECT TO THE PROVISIONS OF 2 ND PROVISO TO SECTION 48. FOR THAT PURPOSE, WE NEED T O HAVE A LOOK AT THE RELEVANT PARTS OF SECTION 48, WHICH ARE AS UNDER : - ITA NO.411/DEL/2014 7 MODE OF COMPUTATION. 48. THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL G AINS' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET TH E FOLLOWING AMOUNTS, NAMELY : ( I ) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CO NNECTION WITH SUCH TRANSFER; ( II ) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO: PROVIDED THAT IN THE CASE OF AN ASSESSEE, WHO IS A NON-RESIDENT, CAPITAL GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BEING SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY SHALL BE COMPUTED BY CONVERTING T HE COST OF ACQUISITION, EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER AND THE FULL VALUE OF THE CONSIDERATION RE CEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET INTO TH E SAME FOREIGN CURRENCY AS WAS INITIALLY UTILISED IN THE PURCHASE OF THE SHARE S OR DEBENTURES, AND THE CAPITAL GAINS SO COMPUTED IN SUCH FOREIGN CURRENCY SHALL BE RECONVERTED INTO INDIAN CURRENCY, SO, HOWEVER, THAT THE AFORESA ID MANNER OF COMPUTATION OF CAPITAL GAINS SHALL BE APPLICABLE IN RESPECT OF CAPITAL GAINS ACCRUING OR ARISING FROM EVERY REINVESTMENT THEREAF TER IN, AND SALE OF, SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY : PROVIDED FURTHER THAT WHERE LONG-TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, OTHER THAN CAPITAL GAIN ARISING TO A NON- RESIDENT FROM THE TRANSFER OF SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY REFERRED TO IN THE FIRST PROVISO, THE PROVI SIONS OF CLAUSE ( II ) SHALL HAVE EFFECT AS IF FOR THE WORDS 'COST OF ACQUISITIO N' AND 'COST OF ANY IMPROVEMENT', THE WORDS 'INDEXED COST OF ACQUISITIO N' AND 'INDEXED COST OF ANY IMPROVEMENT' HAD RESPECTIVELY BEEN SUBSTITUT ED: .. 7. SECTION 48 CONTAINS THE MODE OF COMPUTATION OF INCOME UNDER THE HEAD CAPITAL GAINS BY PROVIDING THAT THE COST O F ACQUISITION OF THE ASSET ITA NO.411/DEL/2014 8 AND THE COST OF ANY IMPROVEMENT THERETO ALONG WITH THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER SHALL BE DEDUCTED FROM THE FULL VALUE OF THE CONSIDERATION F OR DETERMINING THE AMOUNT OF CAPITAL GAIN. FIRST PROVISO TO SECTION 48 STATES THAT IN THE CASE OF AN ASSESSEE WHO IS A NON-RESIDENT, CAPITAL GAIN ARI SING FROM THE TRANSFER OF SHARES IN AN INDIAN COMPANY, SHALL BE COMPUTED BY C ONVERTING THE COST OF ACQUISITION, EXPENDITURE INCURRED AND SALE CONSIDER ATION INTO THE SAME FOREIGN CURRENCY. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE DID NOT COMPUTE CAPITAL GAIN IN TERMS OF THE FIRST PROVISO. SECOND PROVISO, WHICH IS MATERIAL FOR OUR PURPOSE, PROVIDES THAT WHERE LONG -TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, ` OTHER THAN CAPITAL GAIN ARISING TO A NON-RESIDENT FROM THE TRANSFER OF SHAR ES IN AN INDIAN COMPANY REFERRED TO IN THE FIRST PROVISO , THEN THE PROVISIONS OF CLAUSE (II) SHALL HAVE EFFECT AS IF FOR THE WORDS 'COST OF ACQUISITION' AN D 'COST OF ANY IMPROVEMENT', THE WORDS 'INDEXED COST OF ACQUISITIO N' AND 'INDEXED COST OF ANY IMPROVEMENT' HAD RESPECTIVELY BEEN SUBSTITUT ED. AS CAPITAL GAIN IN THE INSTANT CASE HAS ARISEN TO A NON-RESIDENT FROM TRANSFER OF SHARES IN AN INDIAN COMPANY, IT IS CLEAR THAT THE MANDATE OF SEC OND PROVISO BECOMES ITA NO.411/DEL/2014 9 INAPPLICABLE AND THE CASE GETS RESTRICTED IN THE FI RST PROVISO TO SECTION 48 ALONE. 8. AGAIN REVERTING TO THE MAIN ISSUE OF THE APP LICABILITY OR OTHERWISE OF THE PROVISO BELOW SECTION 112(1)(C), WE FIND THAT T AX IS PAYABLE IN RESPECT OF INCOME ARISING FROM TRANSFER OF A LONG-TERM CAPI TAL ASSET WHICH IS BEFORE GIVING EFFECT TO THE PROVISIONS OF SECOND PROVISO T O SECTION 48. IN SUCH CIRCUMSTANCES, THE CASE GETS COVERED UNDER THE PROV ISO AND CONSEQUENTLY, IT IS THE TAX RATE OF 10% WHICH SHOULD BE CORRECTLY AP PLIED. 9. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CAIRN UK HOLDINGS LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT THE LONG-TERM CAPITAL GAIN EARNED BY THE ASSES SEE NON-RESIDENT ON OFF MARKET SALE OF SHARES OF LISTED INDIAN COMPANY IS T AXABLE @ 10% UNDER THE PROVISO TO SECTION 112 AND PROVISO TO SECTION 112(1 ) DOES NOT STATE THAT AN ASSESSEE, WHO AVAILS BENEFIT OF THE FIRST PROVISO T O SECTION 48, IS NOT ENTITLED TO THE BENEFIT OF LOWER RATE OF TAX AT 10%. AS THE VIEW TAKEN BY THE DRP IS IN CONSONANCE WITH THAT OF THE HONBLE HIGH COURT, WE ERGO COUNTENANCE THE SAME. ITA NO.411/DEL/2014 10 10. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.04.201 6. SD/- SD/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 28 TH APRIL, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.