ITO (IT) 3(1), MUMBAI V. JAYSHREE G. BHATIA, MUMBAI

ITA 4277/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88613 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 18-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S E DASTUR BHARATH JANARTHANAN
• Keywords: Capital asset; Double taxation relief; Share purchase agreement; Cost of acquisition; Capital receipt
• Section: 2(14)

Judgement Text

, , ,, ,Y YY Y INCOME TAX APPELLATE TRIBUNAL,MUMBAI - L BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL ME MBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.4277/MUM/2013, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2008-09 INCOME-TAX OFFICER (INTERNATIONAL TAXATION)-3(1), SCINDIA HOUSE, 1ST FLOOR, BALLARD ESTATE, MUMBAI-400038 VS JAYSHREE G BHATIA,C/O C B THADANI, 21D-11,VARDHMAN CHAMBERS, 17-0 CAWASJI PATEL STREET, FORT, MUMBAI 1 PAN: ALPT8491N ( #$ / ASSESSEE) ( %&#$ / RESPONDENT) /. ITA NO.4276/MUM/2013, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2008-09 INCOME-TAX OFFICER (INTERNATIONAL TAXATION)-3(1), SCINDIA HOUSE, 1ST FLOOR, BALLARD ESTATE, MUMBAI-400038 VS JITENDRA G BHATIA,C/O C B THADANI,21D-11,VARDHMAN CHAMBERS, 17-0 CAWASJI PATEL STREET, FORT, MUMBAI - 1 PAN:AJOPB3500B ( #$ / ASSESSEE) ( %&#$ / RESPONDENT) ' ( / REVENUE BY :SHRI S.D.SRIVASTAVA ! )* ! )* ! )* ! )* ( ( ( ( /ASSESSEE BY :SHRI S.E.DASTUR &BHARATH JANARTHANAN ! ! ! ! ' '' ' *+ *+ *+ *+ / DATE OF HEARING :18 - 03 -2015 ,-' ' *+ / DATE OF PRONOUNCEMENT :18 -03-2015 ! ! ! ! , 1961 ' '' ' 254 254 254 254( (( (1 11 1) )) ) *4* 5 *4* 5 *4* 5 *4* 5 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER BENCH ! ! ! ! : CHALLENGING THE ORDERS DATED 28.02.2013 OF THE CIT( A)-10,MUMBAI,ASSESSING OFFICER (AO) HAS FILED FOLLOWING IDENTICAL GROUNDS OF APPEAL IN CASE S OF BOTH THE ASSESSEES: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT BASED ON THE INDIA-UAE PROTOCOL SIGNED ON 28/11/2007 ASSESSEE IS RESIDENT IN UAE IGNORING THE FACT THAT (I) THIS PRO TOCOL IS EFFECTIVE ONLY FROM A.Y. 2009-10, AND (II) IN PERIOD PRIOR TO THE SAID PROTOCOL THE A SSESSEE CANNOT BE SAID TO BE 'RESIDENT OF THE CONTRACTING STATE' AS PER ARTICLE 4 READ OF THE INDOUAE DTAA SINCE INDIVIDUALS ARE NOT LIABLE TO TAX IN UAE. 2.THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE,AN INDIVIDUAL,FILED HER RETURN OF INCOME O N 08.10.2009,DECLARING NIL INCOME.LATER ON A NOTICE U/S.148 WAS ISSUED TO HER AFTER RECORDING RE ASONS FOR RE-OPENING THE CASE. THE AO FINALISED THE ASSESSMENT U/S.143(3) R.W.S.147 OF THE ACT ON 1 8.11.2011,DETERMINING HER INCOME AT RS.14 CRORES. BRIEF FACTS: ITA/4276-77/MUM/2013,AY.2008-09,BHATIAS 2 2. THE ASSESSEE IS A RESIDENT OF UAE AND HAD FILED NIL RETURN OF INCOME,AS STATED EARLIER, CLAIMING REFUND OF RS.4,75,86,000/-BEING TAX DEDUCT ED AT SOURCE ON A PAYMENT OF RS.14 CRORES RECEIVED BY HER AS DAMAGES FOR BREA CH OF CONTRACT FROM M/S.MAGUS ESTATES & HOTELS PVT.LTD.(MEHPL).SHE CLAIMED THAT T HE DAMAGES WERE EXEMPT FROM TAX, BEING CAPITAL RECEIPT IN NATURE.THE ASSES SEE ALSO CLAIMED THAT UNDER PARA 3 OF ARTICLE 13 OF THE INDIA-UAE DATTA,EVEN IF THE SA ID AMOUNT WAS HELD AS CAPITAL GAINS SAME WAS NOT TAXABLE IN INDIA.THE AO HELD THAT THE SUM RECEIVED BY THE ASSESSEE WAS CHARGEABLE TO TAX UNDER DOMESTIC LAW.HE ALSO DENIED THE BENEFIT OF INDIA-UAE DTAA TO THE ASSESSEE HOLDING THAT THE ASSESSEE, BEING AN IN DIVIDUAL,WAS NOT LIABLE TO TAX IN UAE.HE HELD THAT AMOUNT IN QUESTION WAS CHARGEABLE TO TAX AT THE RATE OF 20%.THE AO ALSO HELD THAT THE CONSENT AGREEMENT REACHED DURING ARBITRATION PROCEEDINGS RESULTED EXTINGUISHMENT OF THE ASSESSEES RIGHT TO SUBSCRIBE THE SHARE CAPITAL IN MEHPL, THAT A RIGHT TO SUBSCRIBE TO SHARES IN A COMPANY WAS A VALUABLE PRO PERTY AND HENCE QUALIFIED AS CAPITAL ASSETS, THAT THE AMOUNT RECEIVED THE UNDER THE CONSENT AGRE EMENT WAS LIABLE TO CAPITAL GAIN TAX . 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). IT WAS ARGUED BEFORE HIM THAT THE SUM OF RS. 14 CRORE RECEIVED BY HER WAS CAPITAL IN NATURE AND NOT CHARGEABLE TO TAX, THAT H E GROSSLY ERRED IN HOLDING THAT UPON PAYMENT OF RS. 6.14 CRORES ON 09.05.2004 TO MEHPL, SHE HAD BEC OME ENTITLED TO ALLOTMENT AND OWNERSHIP OF SHARES, THAT DESPITE THE AGREEMENT DATED 30.04.2004 MEHPL HAS TREATED THE AMOUNT AS APPLICATION MONEY ON THE GROUND THAT FULL AMOUNT REMAINED TO BE PAID AND THE LEGAL CLOSING OF THE AGREEMENTS HAVE NOT TAKEN PLACE, THAT MERE PAYMENT OF SHARE AP PLICATION MONEY COULD NOT CONSTITUTE CAPITAL ASSET, AS ENVISAGED IN SECTION 2(14) OF THE ACT, TH AT SHE WOULD HAVE BECOME ENTITLED TO ALLOTMENT AND OWNERSHIP ON PAYMENT OF RS. 7.5 CRORES ONLY, TH AT THE PROVISIONS OF SECTION 45(1A) DID NOT ENVISAGE TAXABILITY OF DAMAGES RECEIVED ON BREACH O F CONTRACT, THAT THE AO BURST ASIDE THE PROVISIONS OF SECTION 19(2) OF THE ACT, THAT THE AM OUNT IN QUESTION WAS RECEIVED AS PER THE DEGREE ISSUE DON 26.03.2008, THAT THE DTAA WAS REVISED ON 01.04.2008. BEFORE THE FAA,IT WAS SUBMITTED THAT SHE WAS ELIGIB LE FOR DTAA BENEFITS,THAT SHE WAS A RESIDENT OF UAE FOR LAST TWO DECADES,THAT ONCE THE ASSESSEE WAS HELD TO BE ENTITLED TO THE BENEFITS OF DTAA HER CASE HAD TO BE EXAMINED IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 13 OF THE DTAA, THAT THE RIGHT UNDER THE AGREEMENT DATED 30.04.2004 WAS A RIGHT TO SUBSCRIBE TO 15% OF THE SHARE CAPITAL, THAT THE RIGHT UNDER THE AGREEMENT WAS NOT THE SAME AS SHARES HELD IN THE COMPANY, THAT ARTICLE 13 OF THE INDO-UAE DTAA HAD BEEN AMENDED BY THE PROTOCOL OF 2007, THAT UNDER ARTICLE 13 CAPITAL GAINS ON TRANSFER OF RIGHT TO SUBSCRIBE TO SHARES WOULD BE COVERED EITHER UNDER PARAGRAPH 5 OF THE NEW ARTICLE 13 OR PARAGRAPH 3 OF THE OLD ARTICLE, THAT PARA-3/5 OF THE ARTICLE GAVE THE RIGHT TO TAX CAPITAL GAINS ONLY TO THE CON TRACTING ESTATE.BEFORE THE FAA THE ASSESSEE RELIED UPON VARIOUS CASES OF THE TRIBUNAL AND THE AAR.TH E MATTER OF AZADI BACHAO ANDOLAN (263 ITR 706) WAS ALSO RELIED UPON.THE ASSESSEE ALSO REFERRE D TO THE PROTOCOL OF UAE SIGNED ON 28.11.2007 WHEREIN THE DEFINITION OF RESIDENT OF UAE HAD BEEN AMENDED TO INCLUDE ALL INDIVIDUALS WHO WERE PRESENT IN UAE FOR A PERIOD OF 183 DAYS OR MORE IN A CALENDAR YEAR AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT THE CONSENT AWARD DID NOT TERM THE PAYMENT AS DAMAGED F OR BREACH OF CONTRACT, THAT ASSESSEE HAD A ITA/4276-77/MUM/2013,AY.2008-09,BHATIAS 3 VALUABLE RIGHT TO SUBSCRIBE TO 15% OF SHARES OF MEH PL, THAT SHE HAD RELINQUISHED THE RIGHT UNDER THE CONSENT AGREEMENT AGAINST THE PAYMENT OF RS. 14 CRORES, THAT HER RIGHT WAS OF CONSIDERABLE VALUE AND HENCE QUALIFIED AS CAPITAL ASSET, THAT BY RELINQUISHING THE RIGHT TO SUBSCRIBE THE SHARE CAPITAL SHE HAD TRANSFERRED CAPITAL ASSET, THAT ALL THE REQUIREMENTS FOR CHARGING THE RECEIPT AS CAPITAL GAINS U/S. 45 HAD BEEN FULFILLED. REFERRING TO THE ARTICLES 13 AND 14 OF THE PROTOCALLS AFTER THE AMENDMENT THE FAA HELD THAT PROTOCOL WAS EFFECT IVE FROM AY 2009-10, THAT THE TRANSACTION IN QUESTION WAS FOR THE AY 2008-09, THAT THE OLD ARTIC LE 13 OF THE DTAA WOULD APPLIES TO THE ASSESSEES CASE, THAT AS PER PARA 3 OF ARTICLE 13 T HE RIGHT TO TAX THE CAPITAL GAINS ARISING FROM TRANSFER OF SUCH RIGHT VESTED WITH THE COUNTRY OF R ESIDENT AND NOT WITH THE COUNTRY OF SOURCE, THAT THERE WAS NO TRANSFER OF SHARES BY MEHPL IN FAVOUR OF THE ASSESSEE, THAT THE ASSESSEE WAS NEVER ALLOTTED THE SHARES, THAT UNDER THE PROVIOSNS OF TH E DTAA SHE WAS NOT LIABLE TO CAPITAL GAINS IN ACCORDANCE WITH PARA 3 OF ARTICLE 13. FINALLY, SHE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 3. BEFORE US,DEPARTMETNAL REPRESENTATIVE(DR)FAIRLY CON CEDED THAT CONSIDERING THE JUDGMENT OF THE HONBLE APEX COURT,DELIVERED IN THE CASE OF AZA DI BACHO ANDOLAN(SUPRA)MATTER HAS TO BE DECIDED AGAINST THE AO.AUTHORISED REPRESETATIVE(AR) SUPPORTED THE ORDER OF THE FAA.REFERRING TO THE RULE 27 OF THE ITAT RULES,1963 IT WAS STATED THAT TWO ARGUMENT ON BEHALF OF ASSESSEE SHOULD BE INCORPORATED IN THE ORDER I.E. THAT THERE WAS NO COST OF ACQUISITION OF THE ASSET IN QUESTION AND THAT NO TRANSFER TOOK PLACE IN INDIA.A S THE AR BY WAY OF ARGUMENTS HAS ONLY SUPPORTED THE ORDER OF THE FAA,THEREFORE,WE HAVE TA KEN COGNIZANCE OF THE SAME. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT THE ASSESSEE HAD INVESTED A SUM OF RS. 6,14,55,000/ - FOR PURCHASE OF 75 LAKHS SHARES OF MEHPL UNDER A SHARE PURCHASE AGREEMENT DATED 30.04.2004,T HAT SHE PAID RS. 6.41 CRORES ON 09.05.2004, THAT IT WAS AGREED BETWEEN THE PARTIES THAT THE AGR EEMENT WOULD BE CLOSED SHORTLY, THAT THE TRANSFER FORMALITIES WERE NOT COMPLETED AS PER THE AGREEMENT S, THAT THE PROMOTER HAD AGREED WITH SOME OTHER INVESTORS TO ISSUE THE SAME SHARES AT A PREMI UM OF RS. 30 PER SHARE AS AGAINST RS. 10 PER SHARE BEING PAID BY THE ASSESSEE, THAT THE PROMOTER RETURNED THE MONEY TO THE ASSESEE, THAT SHE INVOKED THE ARBITRATION PROCEEDINGS UNDER THE SHARE PURCHASE AGREEMENT, THAT UNDER THE ARBITRATION AGREEMENT SHE WAS AWARDED A COMPENSATION OF RS. 14 CRORES BY MEHPL,THAT THE AO HAD HELD THAT THE ASSESSEE HAD RELINQUISHED HER RIGHT AND TH E AMOUNT RECEIVED BY HER WAS TAXABLE UNDER THE HEAD CAPITAL GAINS.IT IS A UNDISPUTED FACT THAT SHE IS A RESIDENT OF UAE AND IS GOVERNED BY THE PROVISIONS OF INDO-UAE DTAA.THE FAA HAS CLEARLY BRO UGHT OUT THE LEGAL POSITION AS ENVISAGED BY THE ARTICLE 13 OF THE TREATY.AMENDED PROVISIONS HAVE ALSO BEEN DELIBERATED UPON BY THE FAA AND SHE HAD GIVEN A CATEGORICAL FINDING THAT THE AS SESSEE WAS NOT LIABLE TO CAPITAL GAINS IN ACCORDA -NCE WITH PARA 3 OF ARTICLE 13 OF THE DTAA.AS AT TI ME OF THE TRANSACTION IN QUESTION THE OLD PROVISIONS OF THE TREATY I.E. PARAGRAPH 3 OF THE AR TICLE 13,WERE APPLICABLE,SO,IN OUR OPINION,THERE IS NO LEGAL INFIRMITY IN THE ORDER OF THE FAA.COFIRMIN G HER ORDER,WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. ITA/4276/MUM/13,AY-2008-09: FACTS AND CIRCUMSTANCES OF THE CASE,INCLUDING THE A MOUNT INVOLVED,ARE IDENTICAL TO THE FACTS OF THE DECIDED IN EARLIER PARAGRAPHS OF OUR ORDER.FOLLOWIN G THE SAME EFFECTIVE GROUND,RAISED BY THE AO, IS REJECTED. ITA/4276-77/MUM/2013,AY.2008-09,BHATIAS 4 AS A RESULT,APPEALS FILED BY T HE AO FOR BOTH THE ASSESSEES STAND DISMISSED. 6*7 ! )* + 8 -!9 ! )*9 9 : ; ' 4 : !< ' * =>. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH, MARCH, 2015. 5 ' ,-' : @! 18 , EKPZ , ,, , 201 5 - ' 4 C SD/- SD/- ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, @! /DATE: 18.03.2015 SK 5 5 5 5 ' '' ' %*D %*D %*D %*D ED'* ED'* ED'* ED'* / COPY OF THE ORDER FORWARDED TO : 1. / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT(A)/ F G , 4. THE CONCERNED CIT / F G 5. DR L BENCH, ITAT, MUMBAI / DH4 %*! , ,, ,Y YY Y , . . . 6. GUARD FILE/ 4 6 &D* %* //TRUE COPY// 5! / BY ORDER, I / = DY./ASST. REGISTRAR , /ITAT, MUMBAI.