ITO, TDS, WARD- 1(1)(2), NEW DELHI V. BHARTIYA URBAN INFRASTRUCTURE AND LAND DEVELOPMENT, NEW DELHI

ITA 5559/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3358 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 31-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANGADHAR
• Keywords: Double taxation relief; Permanent establishment; TDS; Capital Gains
• Section: 133(6); 201(1); 195; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI D BEN CH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI AMIT SHUKLA, JUDICIAL MEMB ER ITA NO. 5559/DEL/2017 [ASSESSMENT YEAR: 2014-15] THE I.T.O VS. BHARTIYA URBAN INFRASTRUCTURE AND CIRCLE 1(1)(1) LAND DEVELOPMENT, E-52, NEW DELHI MEHRAULI MANDI ROAD NEW MANGOLPURI, NEW DELHI PAN : AACCB 8412 A [APPELLANT] [RESPONDENT] DATE OF HEARING : 11.10.2021 DATE OF PRONOUNCEMENT : 11.10.2021 ASSESSEE BY : SHRI AMIT GOYAL, ADV REVENUE BY : SHRI GANGADHAR PANDA, CIT- DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)- 42, NEW DELHI DATED 28.06.2017 PERTAINI NG TO A.Y 2014-15. 2 2. THE GRIEVANCES OF THE REVENUE READ AS UNDER: 1.1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AN D IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE W AS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE REMITTANCE TO IIRF H OLDINGS XVI LTD. TOWARDS BUYBACK OF SHARES. 1.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE W AS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE REMITTANCE TO IIRF H OLDINGS XVI LTD. TOWARDS BUYBACK OF SHARES, WITHOUT FOLLOWING T HE DECISION OF THE HONBLE ITAT (BANGALORE) IN FIDELITY BUSINESS S ERVICES INDIA PVT. LTD. (I.T.(T.P.)A. NO.416/BANG/2016), AND WITH OUT CONSIDERING THAT THE ASSESSEE HAD NOT ESTABLISHED THAT THE PRIC E PAID PER SHARE WAS THE FAIR MARKET PRICE. 1.3 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE W AS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE REMITTANCE TO IIRF H OLDINGS XVI LTD., TOWARDS BUYBACK OF SHARES, ON THE BASIS OF CI RCULAR NO.3/2016 DATED 26.2.2016, WITHOUT CONSIDERING THAT THE ASSESSEE HAD FAILED TO ESTABLISH THE ESSENTIAL CONDITION FOR APPLICABILITY OF THIS CIRCULAR, THAT THE CONSIDERATION TOWARDS BUYBA CK OF SHARES HAD BEEN RECEIVED BY THE RECIPIENT BY 31.05.2013. 3 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSING OFFICER RECEIVED INFORMATION ON TDS/ITD MODULE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS REMITTED AN AMOUNT OF RS. 43,42,63,980/- WITHOUT DEDUCTION OF TAX AT SOURCE T O FOREIGN COMPANIES/NON-RESIDENT PERSONS ON ACCOUNT OF LONG T ERM CAPITAL GAINS. ACCORDINGLY, A NOTICE U/S 133(6) OF THE ACT WAS ISS UED TO THE ASSESSEE CALLING FOR INFORMATION/DETAILS RELATING TO REMITTA NCES ALONGWITH REASONS FOR NON DEDUCTION OF TAX ON SUCH REMITTANCE S. 4. THE ASSESSEE FILED THE FOLLOWING DOCUMENTS IN TH E COURSE OF HEARING: COPY OF THE FORM 15 CA & 15CB. TAX RESIDENCY CERTIFICATE IN RESPECT OF THE REMITTE E. COPY OF THE ACKNOWLEDGEMENT OF THE ITR FOR THE ASSESSMENT YEAR 2014-15 COPY OF THE AUDITED ACCOUNT S OF THE ASSESSEE COMPANY FOR THE RELEVANT PERIOD CONSENT LETTER OF THE BUYERS AND SELLERS AND FORM F C - TRS BEING A DECLARATION REGARDING TRANSFER OF SHARE BY WAY OF S ALE FROM NON-RESIDENT TO RESIDENT. COPY OF THE ORDER OF THE SUPREME COURTS RULING IN CASE OF UOI & ANR. VS AZADI BACHAO ANDOLAN & ANR DATED 31.0 5.2002 4 WHEREIN THE HONBLE SUPREME COURT HAS QUASHED THE O RDER OF THE DELHI HIGH COURT AND HELD THAT THAT CIRCULAR NO. 79 DATED 13.04.2000 IS VALID AND EFFICACIOUS. POWER OF ATTORNEY. 5. THE FACTS OF THE CASE ARE THAT M/S IIRF HOLDING XVI LIMITED, MAURITIUS [HAVING PAN - AACC17719K] HAS SOLD 249577 0 FULLY PAID SERIES A COMPULSORY CONVERTIBLE CUMULATIVE PREFEREN CE SHARES OF M/S BHARTIYA URBAN INFRASTRUCTURE & LAND DEVELOPMENT CO PVT. LTD [BUILDCO] OF FACE VALUE OF RS. 10/- EACH F OR AN AGGREGATE CONSIDERATION OF INR RS. 43,42,63,980/- TO THE ASSE SSEE COMPANY I.E. M/S BHARTIYA REALTY AND INFRASTRUCTURE PRIVATE LIMI TED AT A PRICE OF RS. 174/- PER SHARE. THE SELLER DID NOT HAVE ANY PE IN INDIA. THE ASSESSEE WAS OF THE OPINION THAT THE CAPITAL GAIN ARISING OU T OF THE SALE OF THE SAID SHARES IS CHARGEABLE TO TAX IN MAURITIUS O NLY, AS PER THE PROVISIONS OF SECTION 13(4) OF THE DTAA . HOWEVER, AFTER EXAMINING ALL THE DETAILS FILED BY THE ASSESSEE COM PANY, IT WAS SEEN THAT THE ASSESSEE COMPANY WAS LIABLE TO DEDUCT TDS AS THE TRANSACTION ENTERED INTO BY THE ASSESSEE COMPANY WAS FOUND TO B E NOTHING BUT ONLY A COLOURABLE DEVICE AS TO DODGE PAYMENT OF RIGHTFUL LY IMPOSED TAXES; 5 6. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THA T NEITHER ANY TAX HAS BEEN DEDUCTED AT ALL IN RESPECT OF THE ABOVE RE MITTANCES TO THE NON-RESIDENTS NOR ANY COPY OF THE ORDER HAS BEEN FU RNISHED BY THE ASSESSEE U/S 195(2) /195(3) OF THE ACT OR CERTIFICA TE ISSUED U/S 197(1) OF THE ACT. THE ASSESSING OFFICER WAS CONVINCED TH AT THE REMITTANCES TO THE NON-RESIDENT HAVE BEEN MADE IN CONTRAVENTION TO THE EXPRESS PROVISIONS OF THE ACT AND FURTHER REFERRING TO THE RULINGS OF THE AAR, WAS CONVINCED THAT THE AMOUNT SO REMITTED TO THE P AYEE IS TAXABLE IN INDIA. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED THE REMITTANCES CHARGEABLE TO TAX U/S 201(1) AND INTEREST U/S 201(1 A) OF THE ACT AS UNDER: AMOUNT ON WHICH NO TAX WAS - DEDUCTED AT SOURCE (RS.) TAX @15% INTEREST (RS.) U/S 201(1 A) FOR 1% FROM THE DATE ON WHICH SUCH TAX WAS DEDUCTIBLE TILL THE DATE OF ORDER I.E. 30.05.2013 (43 MONTHS) TOTAL TAX & INTT. (2+3) (1) (2) (3) (4) RS. 41,93,06,280/- RS. 6,28,95,942/- RS. 2,70,45,255/- RS.8,99,41,197/- 6 7. THE ASSESSEE AGITATED THE MATTER BEFORE THE L D. CIT(A) AND VEHEMENTLY CONTENDED THAT THE RULINGS OF THE AAR RE LIED UPON BY THE ASSESSING OFFICER IS TOTALLY MISPLACED AS IN THE AS SESSEES CASE, SHARE HOLDING OF MAURITIUS BASED COMPANY IN SHARE CAPITAL OF THE COMPANY IS JUST 8.08% AND THE ASSESSEE COMPANY HAS MADE NO DIS TRIBUTION OF DIVIDEND. 8. IT WAS FURTHER POINTED OUT TO THE LD. CIT(A) THA T THE ASSESSING OFFICER HAS NOT FOLLOWED THE BINDING CIRCULAR OF T HE CBDT CIRCULAR NO. 3/2016 DATED 26.12.2016. 9. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, THE LD. CIT(A) OBSERVED AS UNDER: 5.6 FURTHER, THE APPELLANT POINTED OUT THAT THE AO HAS NOT FOLLOWED THE CBDT CIRCULAR NO. 3/2016 DATED 26 FEBR UARY 2016. THE APPELLANT BROUGHT MY ATTENTION TO THE FACT THAT THE AFORESAID CIRCULAR CATEGORICALLY SPELLS OUT THAT THE CONSIDER ATION RECEIVED ON BUY-BACK OF SHARES BETWEEN THE PERIOD 01 APRIL 2000 TILL 31 MAY 2013 WOULD BE TAXED AS CAPITAL GAINS IN THE HANDS O F THE RECIPIENT IN ACCORDANCE WITH SECTION 46A OF THE ACT AND NO SU CH AMOUNT SHALL BE TREATED AS DIVIDEND IN VIEW OF PROVISIONS OF SEC TION 2(22)(IV) OF THE ACT. FURTHER, CBDT DIRECTED THAT AS A MATTER OF GENERAL 7 PRINCIPLE, NO FRESH NOTICE FOR ASSESSMENT/REASSESSM ENT/NON- DEDUCTION OF TDS AT SOURCE SHALL BE ISSUED WHERE BU Y-BACK OF SHARES HAS TAKEN PLACE PRIOR TO 01 JUNE 2013 AND TH E CASE IS COVERED UNDER SECTION 46A READ WITH SECTION 2(22)(I V) OF THE ACT. THE CIRCULAR ALSO MENTIONED THAT IN CASES WHERE NOT ICES HAVE ALREADY BEEN ISSUED AND ASSESSMENT PROCEEDINGS ARE PENDING, TAX AUTHORITIES SHALL COMPLETE THE ASSESSMENT KEEPING I N VIEW THE ABOVE LEGAL POSITION. 5.7 BY APPLYING THE PRINCIPLE LAID DOWN BY THE CBDT CIRCULAR NO 3/2016 DATED 26 FEBRUARY 2016 TO THE FACTS OF THIS CASE, IT IS CLEAR THAT THE AMOUNT PAID TO IIRF ON BUY -BACK OF EQUITY SHARES ON 31/05/2013 IS CHARGEABLE TO TAX UNDER SECTION 46 A READ WITH SECTION 2( 22 )( I V) OF THE ACT AND NOT AS DIVIDEND INCOME. AO HAS NOT RAISED ANY DOUBT ON THE DATE OF TRANSACTION OF TRANSFER OF SHARES. SPECIAL PROVISION RELATING TO TAX IN CASE O F BUY BACK OF SHARES UNDER SECTION 115QA HAS BEEN INTRODUCED WITH EFFECT FROM 01/06/2013. AS REGARDS CHARGEABILITY OF CAPITAL GAI NS UNDER SECTION 46A OF I.T. ACT, THE PARAGRAPH 4 OF ARTICLE 13 OF AVOIDANCE OF DOUBLE TAXATION TREATY BETWEEN INDIA A ND MAURITIUS GRANTS THE RIGHT OF TAXATION TO MAURITIUS IF THE CA PITAL GAIN ARISES TO RESIDENT OF MAURITIUS. THE ARTICLE 13 OF THE TRE ATY IS REPRODUCED AS UNDER : ARTICLE 13 - CAPITAL GAINS - 1 GAINS FROM THE ALIENATION OF IMMOVABLE PROPERTY, AS DEFINED IN PARAGRAPH (21 OF ARTICLE 6. MAY BE TAXED IN THE CONTRACTING STATE IN WHICH SUCH PRO PERTY IS SITUATED. 8 2. GAINS FROM THE ALIENATION OF MOVABLE PROPERTY F ORMING PART OF THE BUSINESS PROPERTY OF A PERMANENT ESTABLISHME NT WHICH AN ENTERPRISE OF A CONTRACTING STATE HAS IN THE OTHER CONTRACTING STATE OR OF MOVABLE PROPERTY PERTAINING TO A FIXED BASE AVAILABLE TO A RESIDENT OF A CONTRACTING STATE IN THE OTHER C ONTRACTING STATE FOR THE PURPOSE OF PERFORMING INDEPENDENT PERSONAL SERVICES, INCLUDING SUCH GAINS FROM THE ALIENATION OF SUCH A PERMANENT ESTABLISHMENT (ALONE OR TOGETHER WITH THE WHOLE ENT ERPRISE) OR OF SUCH A FIXED BASE, MAY BE TAXED IN THAT OTHER STATE . 3. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH (2) OF THIS ARTICLE, GAINS FROM THE ALIENATION OF SHIPS AND AIR CRAFT OPERATED IN INTERNATIONAL TRAFFIC AND MOVABLE PROPERTY PERTAINI NG TO THE OPERATION OF SUCH SHIPS AND AIRCRAFT, SHALL BE TAXA BLE ONLY IN THE CONTRACTING STATE IN WHICH THE PLACE OF EFFECTIVE M ANAGEMENT OF THE ENTERPRISE IS SITUATED. 4. GAINS DERIVED BY A RESIDENT OF A CONTRACTING STA TE FROM THE ALIENATION OF ANY PROPERTY OTHER THAN THOSE MENTION ED IN PARAGRAPHS (.1), (2) AND (3) OF THIS ARTICLE SHALL BE TAXABLE ONLY IN THAT STATE. 5. FOR THE PURPOSES OF THIS ARTICLE, THE TERM ALIEN ATION MEANS THE SALE, EXCHANGE, TRANSFER, OR RELINQUISHMENT OF THE PROPERTY OR THE EXTINGUISHMENT OF ANY RIGHTS THEREIN OR THE COM PULSORY ACQUISITION THEREOF UNDER ANY LAW IN FORCE IN THE R ESPECTIVE CONTRACTING STATES. 9 5.8 IT IS A SETTLED POSITION THAT LIABILITY TO DEDU CT TAX UNDER SECTION 195 ARISES ONLY WHEN THE 'SUM' BEING PAID I S CHARGEABLE TO TAX UNDER THE INCOME TAX ACT. SINCE, IN THE PRESENT CASE, THERE IS NO SUM CHARGEABLE TO TAX UNDER THE PROVISIONS OF TH E ACT IN VIEW OF PARAGRAPH 4 OF ARTICLE 13 OF AVOIDANCE OF DOUBLE TA XATION TREATY BETWEEN INDIA AND MAURITIUS, THEREFORE, THERE IS NO REQUIREMENT TO WITHHELD TAX ON SUCH REMITTANCE. HENCE, THE GROUND OF APPEAL IS ALLOWED. 10. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FI NDINGS OF THE ASSESSING OFFICER. 11. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 12. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND HAVE GONE THROUGH THE STATEMENT OF HSBC PLACED AT PDF PAGE 8 OF THE PAPER BOOK. WE FIND THAT THE REMITTANCES HAVE BEEN MADE ON 31.05.2013 WHICH CONCLUSIVELY PROVES THAT THE ASSES SEE COMPANY REMITTED THE BUY-BACK OF EQUITY SHARES ON OR BEFORE 31.05.2013 WHICH MAKES THE CBDT CIRCULAR 3/2016 DATED 26.02.2016 SQU ARELY APPLICABLE AS IN THAT CIRCULAR, THE BOARD HAS CATEGORICALLY SP ELLED OUT THAT THE CONSIDERATION RECEIVED ON 01.04.2000 TO 31.05.2013 WOULD BE TAXED AS 10 CAPITAL GAINS IN THE HANDS OF THE RECIPIENTS IN ACC ORDANCE WITH SECTION 46A OF THE ACT AND NO SUCH AMOUNT SHALL BE TREATED AS DIVIDEND IN VIEW OF PROVISIONS OF SECTION 222(IV) OF THE ACT. 13. WE ARE OF THE CONSIDERED VIEW THAT THE FACTS OF THE CASE SQUARELY FALL WITHIN THE CIRCULAR OF CBDT [SUPRA] WHICH IS B INDING ON THE REVENUE AUTHORITIES AND HAS BEEN RIGHTLY FOLLOWED BY THE FI RST APPELLATE AUTHORITY. THEREFORE, NO INTERFERENCE IS CALLED FO R. 14. IN THE RESULT THE APPEAL OF THE REVENUE IN ITA NO. 5559/DEL/2017 IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF BOTH THE REPRESENTATIVES ON 11.10.2021. SD/- SD/- [AMIT SHUKLA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11 TH OCTOBER, 2021 VL/ 11 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER