Fidelity Business Services India Private Limited, Bangalore V. Asst.C.I.T., Bangalore

ITA 416/BANG/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8552 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 11-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZZAFFAR HUSSAIN CIT LTU
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Double taxation relief
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE S HRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER I.T . (T.P) A. NO. 416 /BANG/20 16 (ASSESSMENT YEAR : 20 11 - 12 ) M/S. FIDELITY BUSINESS SERVICES INDIA PVT. LTD ., PINEHURST , EMBASSY GOLF LINKS BUSINESS PARK, OFF IRR, BANGALORE - 560 071 . . APPELLANT. PAN AAACF 6175E VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI T. SURYANARAYANA, ADVOCATE. R E SPONDENT BY : SHRI MUZZAFFAR HUSSAIN, CIT, LTU (D.R) DATE OF H EARING : 15.12.2016. DATE OF P RONOUNCEMENT : 22 .02 .201 7 . O R D E R PER SHRI VIJAY P AL RAO, J .M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DT.29.01.2016 PASSED UNDER SE CTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') IN PURSUANT TO THE DIRECTIONS OF THE DISPUTE 2 IT (TP) A NO. 416 /BANG/201 6 RESOLUTION PANEL (IN SHORT DRP ) DT.09.02.2015 FOR THE ASSESSMENT YEAR 2011 - 12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ( AO ) ERRED IN LEVYING DIVIDEND DISTRIBUTION TAX ( DDT ) UNDER SECTION 115 - O OF THE INCOME - TAX ACT, 1961 ( THE ACT ) ON THE AMOUNT REMITTED BY THE APPELLANT TO ITS SHAREHOLDERS ON ACCOUNT OF BUY - BACK OF SHARES MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956. 2 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO EXCEEDED HIS JURISDICTION IN LEVYING DDT IN TERMS OF SECTION 115 - O OF THE ACT UNDER THE SUBJECT PROCEEDINGS UNDER SECTION 143(2)/(3) OF THE ACT. 3 . 1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN ALLEGING THAT THE APPELLANT RESORTED TO THE USE OF COLOURABLE DEVICE TO AVOID PAYMENT OF TAX IN INDIA WHILE DISTRIBUTING PROFITS TO ITS SHAREHOLDERS. 3 . 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN RE - CHARACTERISING THE BUY - BACK OF EQUITY SHARES AS DISTRIBUTION OF DIVIDEND UNDER SECTION 2(22)(D) OF THE ACT. 4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DISPUTE RESOLUTION PANEL ( DRP ) ERRED IN NOT PASSING ANY DIRECTIONS ON GROUNDS OF OBJECTIONS NO. 1 TO 3 (REFERRED IN APPENDIX B TO FORM 35A) IN RELATION TO THE PROPOSED LEVY OF DDT ON THE BUY - BACK OF SHARES. 5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DRP ERRED IN NOT DIRECTING THE AO TO DELETE THE LEVY OF DDT ON BUY - BACK OF SHARES AS PROPOSED IN THE DRAFT ASSESSMENT ORDER PASSED UNDER SECTIO N 143(3) R.W.S 144C OF THE ACT. 6 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN HOLDING THAT INTEREST UNDER SECTION 115 - P OF THE ACT IS LEVIABLE ON THE APPELLANT. 7 THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND / OR TO ALTER, AMEND, RESCIND, MODIFY, THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3 IT (TP) A NO. 416 /BANG/201 6 3. THE ONLY ISSUE ARISES IN THIS APPEAL OF THE ASSESSEE IS REGARDING BUY BACK OF EQUITY SHARES WAS TREATED AS DISTRIBUTION OF DIVIDEND UNDER SECTION 2(22)(D) OF THE ACT AND CONSEQUENTLY LEVY OF DIVIDEND DISTRIBUTION TAX ( DDT ) UNDER SECTION 115(O) OF THE ACT. THE BRIEF FACTS LEADING TO THE CONTROVERSY ARE THAT 99.99% OF THE SHARE S OF THE ASSESSEE ARE HELD B Y M/S. FIS HOLDING MURITIAN LTD. WHICH IS INCORPORATED IN MAURITIUS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS BOUGHT BACK ITS OWN SHARES FROM ITS HOLDING COMPANY TO THE EXTENT OF 2933 SHARES AT A PRICE OF RS.2,85,108 PER SHARE HAVING FACE VALUE OF RS.10 PER SHARE. THE ASSESSING OFFICER FOUND THAT THE CAPITAL GAINS IS NOT TAXABLE IN INDIA DUE TO DOUBLE TAXATION AVOIDANCE AGREEMENT (IN SHORT DTAA ) BETWEEN INDIA AND MAURITIUS WHICH PROVIDES EXEMPTION TO THE RECIPIENT OF MAURITIUS. THE AS SESSING OFFICER WAS OF THE VIEW THAT SINCE FID HOLDING MAURITIUS IS H AVING 99.99% SHARE HOLDING, THE AMOUNT LYING UNDER RESERVES & SURPLUS ARE NOT DISTRIBUTABLE TO OTHERS. IF THE DIVIDEND IS BEING DECLARED BY THE ASSESSEE - COMPANY, THE DIVIDEND DISTRIBUTI ON TAX WOULD HAVE BEEN PAID WHICH WILL RESULT INTO LESS PROFIT FOR THE SHARE HOLDING COMPANY. THEREFORE THE ASSESSEE AND ITS HOLDING COMPANY 4 IT (TP) A NO. 416 /BANG/201 6 ADOPT ED THE OTHER ROUTE TO TRANSFER RESERVES AND SURPLUS OUT OF INDIA WITHOUT BEING ANY SINGLE PENNY OF TAX. THE ASSESSING OFFICER HELD THAT IN SUCH MANNER, THE OFFER IS NOTHING BUT A COLOURABLE INSTRUMENT TO TRANSFER THE ACCUMULATED PROFIT WITHOUT HAVING TAX IMPACT IN INDIA IN THE HAND OF RECIPIENT. HENCE THE ASSESSING OFFICER PROPOSED TO TREAT THE PAYMENT BY THE ASSESSEE TO ITS HOLDING COMPANY ON ACCOUNT OF BUY BACK OF SHARES AS DIVIDEND UNDER SECTION 2(22)(D) OF THE ACT AND LEVIED UNDER DDT UNDER SECTION 115(O) OF THE ACT. THE ASSESSING OFFICER HAS COMPUTED THE DIVIDEND BEING THE DIFFERENCE BETWEEN THE FACE VALU E OF THE SHARES AND THE AMOUNT PAID BY THE ASSESSEE BEING THE BUY BACK PRICE TO THE HOLDING COMPANY. 4. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT PRIOR TO THE AMENDMENT OF SECTION 115QA BY THE FINANCE ACT, 2 013 W.E .F. 1.6.2013 B UY BACK OF SHARES WOULD RESULT CAPITAL GAIN IN THE HAND OF THE SHARE HOLDER AS PER THE PROVISIONS OF SECTION 46A OF I T ACT HOWEVER , THE CAPITAL GAIN ON ACCOUNT OF SALE OF SHARES IS NOT TAXABLE IN INDIA AS PER THE PROVISIONS OF DTAA BE TWEEN THE INDIA AND MARITIUS . T HEREFORE THE ASSESSING OFFICER CANNOT RECLASSIF Y THE 5 IT (TP) A NO. 416 /BANG/201 6 TRANSACTION OF BUY BACK OF SHARES INTO TRANSACTION OF DIVIDEND DISTRIBUTION FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. HE HAS THEN REFERRED TO THE PROVISIONS OF SECTIO N 2(22) AND SUBMITTED THAT BUY BACK OF SHARES HAS BEEN EXCLUDED FROM THE DEFINITION OF DIVIDEND AS PER SUB - CLAUSE (IV) OF THE EXCLUSION OF CLAUSE OF SECTION 2(22) OF THE ACT. HENCE THE LEARNED AUTHORISED REPRESENTATIVE HAS CONTENDED THAT UNDE R NO CIRCUMST ANCES THE TRANSACTION OF BUY BACK CAN BE BROUGHT INTO THE DEFINITION OF DIVIDEND AS PER SECTION 2(22)(D) OF THE ACT. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF GOLDMAN S A CHS INDIA PVT . LTD. VS. ITO (INTERNATIONAL TAXATION) 70 TAXMANN.COM 46 AND SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE SAID CASE AND IT WAS HELD THAT THE TRANSACTION OF BUY BACK WOULD NOT FALL UNDER THE CATEGORY OF COLOURABLE DEVICE OR DISTR IBUTION OF DIVIDEND. FURTHER THE PROVISIONS OF SECTION 115QA ARE NOT APPLICABLE FOR THE ASSESSMENT YEAR PRIOR TO THE AMENDMENT BROUGHT INTO THE STATUTE. THE LEARNED AUTHORISED REPRESENTATIVE HAS THEN REFERRED TO THE CIRCULAR NO.3/16 ISSUED BY THE CBDT D T.26.2.2016 WHEREBY IT HAS BEEN CLARIFIED THAT CONSIDERATION RECEIVED ON BUY BACK OF SHARES BETWEEN 6 IT (TP) A NO. 416 /BANG/201 6 THE PERIOD 1.4.2000 TILL 1.6.2013 WOULD BE TAXED AS CAPITAL GAIN IN THE HAND OF THE RECIPIENT IN ACCORDANCE WITH THE SECTION 46A OF THE ACT AND SUCH AMOUNT SHALL NOT BE TREATED AS DIVIDEND IN VIEW OF THE PROVISIONS OF SECTION 2(22)(IV) OF THE ACT. THE LEARNED AUTHORISED REPRESENTATIVE HAS ALSO RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BHORUKA ENGINEERING INDUSTRIES LTD. VS. DCIT 356 ITR 25 (KAR) AND SUBMITTED THAT THE HON'BLE HIGH COURT HAS HELD THAT A TAX PLANNING EVEN WITH THE MOTIVE FOR SUCH A TRANSACTION IS TO AVOID TAX DOES NOT INVALIDATE IT UNLESS A PARTICULAR ENACTMENT SO PROVIDES. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE HAS ADOPTED A DUBIOUS METHOD AND MOD U S TO MAKE THE PAYMENT OUT OF THE RESERVES AND SURPLUS TO ITS HOLDING COMPANY IN THE GARB OF BUY BAC K OF SHARES AT A VERY EXORBITANT HIGH PRICE. THE ASSESSING OFFICER HAS HELD THAT THE BUYBACK PRICE IS VERY EXORBITANT AND THEREFORE THE ASSESSEE HAS ADOPTED THIS COLOURABLE DEVICE TO TRANSFER THE MONEY FROM THE RESERVES AND SURPLUS TO THIS HOLDING COMPANY . 7 IT (TP) A NO. 416 /BANG/201 6 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE HOLDING COMPANY OF THE ASSESSEE BASED IN MAURITIUS IS HOLDING MORE THAN 99.99% OF THE SHARES OF THE ASSESSEE. THEREFORE IF ANY PAYMENT IS MADE BY THE ASSESSEE TO THE HOLDING COMPANY , THE SAME WOULD BE TREATED AND DEEMED AS DIVIDEND IN VIEW OF THE PROVISION OF SECTION 2(22) OF THE ACT HOWEVER, IN THIS CASE THE PAYMENT IN QUESTION HAS BEEN MADE BY THE ASSESSEE TO THE HOLDING COMPANY ON ACCOUNT OF BUY BACK OF SHARES. THEREFORE TO THE EXTENT OF THE TRANSACTION OF BUY BACK OF SHARES, THE SAME CANNOT BE CLASSIFIED AS DIVIDEND AS PER THE PROVISIONS OF SECTI O N 2(22) WHEN THE EXCLUSION CLAUSE (IV) OF SECTION 2(22) HAS SPECIFICALLY EXCLUDE D SUCH A PAYMENT ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT FROM THE DEFINITION OF DIVIDEND . FOR READY REFERENCE, WE QUOTE CLAUSE (IV) OF SECTION 2(22) AS UNDER : SECTION 2(22) (IV) : ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956). 8 IT (TP) A NO. 416 /BANG/201 6 WE FURTHER NOTE THAT SECTION 115QA HAS BEEN INTRODUCED IN THE STATUTE BY FIN ANCE ACT, 2013 W.E.F. 1.6.2013. THEREFORE ANY PAYMENT ON ACCOUNT OF PURCHASE OF ITS OWN SHARES BY THE COMPANY PRIOR TO 1.6.2013 CANNOT BE TERMED AS DIVIDEND AS PER THE PROVISIONS OF SECTION 115QA. WE QUOTE SECTION 115QA AS UNDER : 115QA. (1) NOTWITH STANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, IN ADDITION TO THE INCOME - TAX CHARGEABLE IN RESPECT OF THE TOTAL INCOME OF A DOMESTIC COMPANY FOR ANY ASSESSMENT YEAR, ANY AMOUNT OF DISTRIBUTED INCOME BY THE COMPANY ON BUY - BACK OF SHARES (NO T BEING SHARES LISTED ON A RECOGNISED STOCK EXCHANGE) FROM A SHAREHOLDER SHALL BE CHARGED TO TAX AND SUCH COMPANY SHALL BE LIABLE TO PAY ADDITIONAL INCOME - TAX AT THE RATE OF TWENTY PER CENT ON THE DISTRIBUTED INCOME. EXPLANATION . FOR THE PURPOSES OF THIS S ECTION, ( I ) 'BUY - BACK' MEANS PURCHASE BY A COMPANY OF ITS OWN SHARES IN ACCORDANCE WITH THE PROVISIONS OF [ ANY LAW FOR THE TIME BEING IN FORCE RELATING TO COMPANIES ] ; ( II ) 'DISTRIBUTED INCOME' MEANS THE CONSIDERATION PAID BY THE COMPANY ON BUY - BACK O F SHARES AS REDUCED BY [ THE AMOUNT, WHICH WAS RECEIVED BY THE COMPANY FOR ISSUE OF SUCH SHARES, DETERMINED IN THE MANNER AS MAY BE PRESCRIBED ] . (2) NOTWITHSTANDING THAT NO INCOME - TAX IS PAYABLE BY A DOMESTIC COMPANY ON ITS TOTAL INCOME COMPUTED IN ACCORDA NCE WITH THE PROVISIONS OF THIS ACT, THE TAX ON THE DISTRIBUTED INCOME UNDER SUB - SECTION (1) SHALL BE PAYABLE BY SUCH COMPANY. (3) THE PRINCIPAL OFFICER OF THE DOMESTIC COMPANY AND THE COMPANY SHALL BE LIABLE TO PAY THE TAX TO THE CREDIT OF THE CENTRAL GOV ERNMENT WITHIN FOURTEEN DAYS FROM THE DATE OF PAYMENT OF ANY CONSIDERATION TO THE SHAREHOLDER ON BUY - BACK OF SHARES REFERRED TO IN SUB - SECTION (1) . (4) THE TAX ON THE DISTRIBUTED INCOME BY THE COMPANY SHALL BE TREATED AS THE FINAL PAYMENT OF TAX IN RESPECT OF THE SAID INCOME AND NO FURTHER CREDIT THEREFOR SHALL BE CLAIMED BY THE COMPANY OR BY ANY OTHER PERSON IN RESPECT OF THE AMOUNT OF TAX SO PAID. (5) NO DEDUCTION UNDER ANY OTHER PROVISION OF THIS ACT SHALL BE ALLOWED TO THE COMPANY OR A SHAREHOLDER IN RE SPECT OF THE INCOME WHICH HAS BEEN CHARGED TO TAX UNDER SUB - SECTION (1) OR THE TAX THEREON. 9 IT (TP) A NO. 416 /BANG/201 6 THUS AFTER THE INSERTION OF SECTION 115QA, THE PURCHASE OF ITS OWN SHARES BY THE COMPANY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT SH ALL BE CHARGED TO DDT. SINCE THIS TRANSACTION IN THE CASE OF THE ASSESSEE IS PRIOR TO 1.6.2013 THEREFORE THE SAID PROVISION OF SECTION 115QA IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS IT IS EXPLAINED BY THE CBDT VIDE CIRCULAR NO.3/16. WE QUOTE THE RELEVANT PARA NOS.1, 4 AND 5 OF THE CIRCULAR : 1. AS PER PROVISIONS OF SECTION 46A OF THE INCOME TAX ACT, 1961, APPLICABLE WITH EFFECT FROM 1.4.2000, ANY CONSIDERATION RECEIVED BY A SHAREHOLDER OR A HOLDER OF OTHER SPECIFIED SECURITIES FROM ANY COMPANY ON PURCHASE OF ITS OWN SHARES/OTHER SPECIFIED SECURITIES SHALL BE, SUBJECT TO PROVISIONS CONTAINED IN SECTION 48, DEEMED TO BE CAPITAL GAINS. FURTHER, SUB - CLAUSE (IV) OF CLAUSE (22) OF SECTION 2 OF THE ACT EXCLUDES ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 77A OF THE COMPANIES ACT FROM THE AMBIT OF DIVIDEND . FINANCE ACT, 2013 SUBSEQUENTLY INTRODUCED SECTION 115QA (W.E.F. 1.6.2013) TO PROVIDE THAT ANY AMOUNT OF DISTRIBUTED INCOME B Y A COMPANY ON BUYBACK OF UNLISTED SHARES SHALL BE CHARGED TO TAX AND THE COMPANY SO DISTRIBUTING ITS INCOME SHALL BE LIABLE TO PAY ADDITIONAL INCOME TAX AT THE RATE OF TWENTY PERCENT OF THE DISTRIBUTED INCOME. 2 3 .. 4. ACCORDINGLY, THE CBDT HEREBY C LARIFIES THAT CONSIDERATION RECEIVED ON BUYBACK OF SHARES BETWEEN THE PERIOD 1.4.2000 TILL 31.5.2013 WOULD BE TAXED AS CAPITAL GAINS IN THE HANDS OF THE RECIPIENT IN ACCORDANCE WITH SECTION 46A OF THE ACT AND NO SUCH 10 IT (TP) A NO. 416 /BANG/201 6 AMOUNT SHALL BE TREATED AS DIVIDEND IN VIEW OF PROVISIONS OF SECTION 2(22)(IV). 5. WITH A VIEW TO BRING ABOUT FURTHER CLARITY ON THIS ISSUE AS A STEP TOWARDS NON - ADVERSARIAL TAX REGIME, THE CBDT HEREBY DIRECTS THAT AS A MATTER OF GENERAL PRINCIPLE, NO FRESH NOTICE FOR ASSESSMENT / REASSESSME NT / NON - DEDUCTION OF TDS AT SOURCE SHALL BE ISSUED WHERE BUYBACK OF SHARES HAS TAKEN PLACE PRIOR TO 1.6.2013 AND THE CASE IS COVERED UNDER SECTION 46A READ WITH SECTION 2(22)(IV) OF THE ACT. IN CASES WHERE NOTICES HAVE ALREADY BEEN ISSUED AND ASSESSMENT PROCEEDINGS ARE PENDING, TAX AUTHORITIES SHALL COMPLETE THE ASSESSMENT KEEPING IN VIEW THE ABOVE LEGAL POSITION. IN THE BEGINNING OF PARA 1, THE CBDT HAS CLARIFIED THAT THE CONSIDERATION RECEIVED ON BUY BACK OF SHARES BETWEEN THE PERIOD 1.4.2000 TO 31.5 .2013 WOULD BE TAXED AS CAPITAL GAIN IN THE HANDS OF THE RECIPIENT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 46A OF THE ACT AND NO SUCH AMOUNT SHALL BE TREATED AS DIVIDEND IN VIEW OF THE PROVISIONS OF SECTION 2(22)(IV) OF THE ACT. THE ASSESSING OFFICER HAS ACCEPTED THAT THE CAPITAL GAIN IN THE HAND OF THE HOLDING COMPANY IS NOT CHARGEABLE TO TAX AS PER THE PROVISIONS OF ARTICLE 13(4) OF INDO - MAURITIUS DTAA. THEREFORE ON PRINCIPLE WE ARE OF THE VIEW THAT THE TRANSACTION OF BUY BACK OF SHARES PRIOR TO 1.6 .2013 DOES NOT ATTRACT SECTION 115QA AS WELL AS SECTION 2(22) OF THE ACT. 11 IT (TP) A NO. 416 /BANG/201 6 7. HOWEVER, T HERE IS ANOTHER ASPECT IN THIS TRANSACTION RELATING TO THE BUY BACK PRICE OF RS.2,85,108 PER SHARE HAVING FACE VALUE OF RS.10. SO FAR AS THE PAYMENT ON ACCOU NT OF BUY BACK MADE BY THE ASSESSEE TO ITS HOLDING COMPANY TO THE EXTENT OF THE FAIR MARKET PRICE OF THE SHARE OF THE ASSESSEE COMPANY IS CONCERNED, THE SAME WOULD BE TREATED AS CAPITAL GAIN IN THE HAND OF THE HOLDING COMPANY AS PER THE PROVISIONS OF SECT I O N 46A AND IN VIEW OF THE PROVISIONS OF INDO - MAURITIUS DTAA THE CAPITAL GAINS ON ACCOUNT OF SALE OF SHARE IS NOT CHARGEABLE TO TAX IN INDIA. THE PAYMENT IN THE NAME OF BUY BACK OF SHARES MADE BY THE ASSESSEE OVER AND ABOVE THE FAIR MARKET PRICE OF THE S HARE OF THE ASSESSEE WOULD NOT BE TREATED AS PART OF THE PURCHASE PRICE BECAUSE THE TRANSACTION IS BETWEEN THE TWO CLOSELY RELATED PARTIES AND THEREFORE THE PAY MENT WHICH IS IN EXCESS OF FAIR MARKET PRICE OF THE SHARE OF THE ASSESSEE COMPANY WOULD CERTAIN LY FALL IN THE AMBIT OF SECTION 2(22)(E) OF THE ACT. THERE IS NO DISPUTE REGARDING THE OTHER CONDITION OF THE HOLDING COMPANY HAVING A VOTING POWER OF NOT LESS THAN 10% AS IT HOLD S THE SHARES OF THE ASSESSEE TO THE EXTENT OF 99.99%. IN CASE THE BUY BACK PRICE IS NOT BASED ON THE REAL VALUATION AND IT IS ARTIFICIALLY INFLATED BY THE PARTIES THEN IT IS 12 IT (TP) A NO. 416 /BANG/201 6 CERTAINLY A DEVICE FOR TRANSFER OF THE RESERVES AND SURPLUS TO THE HOLDING COMPANY BY AVOIDING THE PAYMENT OF TAX AND THEREFORE IT WILL BE TREATED AS A COL OURABLE DEVICE. THERE ARE TWO ASPECTS IN THIS TRANSACTION - (I) IT IS A SIMPLE AND PLA I N TRANSACTION OF BUY BACK OF SHARES WITHOUT HAVING ANY DISPUTE OF PRICE THEN THE SAME IS BEYOND THE SCOPE OF THE PROVISIONS OF SECTION 2(22) AS WELL AS SECTION 115QA OF THE ACT AND THEREFORE CANNOT BE TREATED AS A COLOURABLE DEVICE. (II) THE SECOND ASPECT IS BUY BACK PRICE PAID BY THE ASSESSEE TO ITS WHOLLY OW N ED HOLDING COMPANY DOES NOT REPRESENT TRUE FAIR MARKET PRICE OF THE SHARE OF THE ASSESSEE THE N IT IS NOTHING BUT A DUBIOUS METHOD OF AVOIDING THE TAX IN THE GARB OF BUY BACK . T H US IF THE BUY BACK PRICE PAID TO THE HOLDING COMPANY IS UNREALISTIC AND HIGHLY INFLATED THEN TO THAT EXTENT THE TRANSACTION OF PAYMENT TO THE HOLDING COMPANY HAS BEEN GIV EN A COLOUR OF PAYMENT TOWARDS BUY BACK. WE FIND THAT NEITHER THE ASSESSING OFFICER NOR THE DRP HAS DECIDED THIS ISSUE OF ACTUAL FAIR MARKET PRICE OF THE SHARE OF THE ASSESSEE AS ON THE DATE OF BUY BACK TO ASCERTAIN WHETHER THE PAYMENT MADE BY THE ASSESS EE @ RS.2,85,108 PER SHARE IS UNREALISTIC AND ARTIFICIALLY INFLATED WITH THE MOTIVE TO AVOID TAX. HENCE 13 IT (TP) A NO. 416 /BANG/201 6 THIS ISSUE OF EXAMINATION OF THE FAIR MARKET PRICE OF THE SHARE VIS - - VIS THE BUY BACK PRICE OF THE ASSESSEE IS SET ASIDE TO THE RECORD OF THE ASSESSIN G OFFICER FOR ADJUDICATION AS PER LAW. 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 22ND DAY OF FEB., 201 7 . SD/ - ( INTURI RAMA RAO ) ACCOUNTANT MEMBER SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER BANGALORE, DT. 22 . 02.2017. *REDDY GP COPY TO : 1 . APPELLANT 2 . RESPONDENT 3 . C.I.T. 4 . CIT(A) 5 . DR, ITAT, BANGALORE. 6 . GUA RD FILE. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE