VODAFONE INDIA SERVICES P. LTD, MUMBAI V. ASST CIT CIR 3(3), MUMBAI

ITA 7514/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8280 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 13-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2013
• Court: TRIBUNAL
• Assessee Lawyers: N IDHI SHARMA MR SACHIT JOLLY
• Keywords: Related party transaction; Capital asset; Business income; Depreciation; Transfer pricing; Residential status; Share purchase agreement; Principle of natural justice; International transaction; Retrospective amendment; Additional evidence; Question of law; Cost of acquisition; Wholly owned subsidiary; Reasonable cause; Fair market value; Valuation report; Scheme of amalgamation; Revised return; Unabsorbed depreciation
• Section: 92C; 143(3); 92D; 92B; 2(14); 142(1); 92A; 92E; 133A; 234B; 10B; 92

Judgement Text

INCOME TAX APPELLATE TRIBUNAL BENCH K MUMBAI. BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER. ITA NO. 7514/MUM/2013. ASSESSMENT YEAR 2008-09. VODAFONE INDIA SERVICES PRIVATE LTD. [FORMERLY KNOWN AS 3 GLOBAL SERVICES PRIVATE LTD, (GSPL/3GSPL)] VODAFONE HOUSE, CORPORATE ROAD, PRAHLLAD NAGAR, OFF. S. G. HIGHWAY, AHMEDABAD 380051, GUJARAT, INDIA. VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(3), MUMBAI, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 400 020. ASSESSE E RESPONDENT ASSESSEE BY DR. ABHISHEK M. SINGHVI, (LD. SR. COUNEL, MISS. ANURADHA DUTT (LD. ADVOCATE) MISS FERESTHE SETHNA, (LD. ADVOCATE) SHRI PAWAN KUMAR, SHRI TUSHAR JARWAL, SMT. SHWETA BIDDHURI, AND N IDHI SHARMA. MR. SACHIT JOLLY RESPONDENT BY SHRI KEVI C SETALVAD ( LD. ASG), MR. B.M. CHATTERJEE (SR. COUNSEL), SHRI ABHAY AHUJA, SHRI AWAIS AHMEDJI SHRI GIRISH DAVE, SMT. SUSHMA NAGRAJ DATE OF HEARING 20.03.2014 TO 17.11.2014 DATE OF ORDER 10 /12/2014 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 31.10.2012 PASSED U/S 143(3) R.W.S 144C(13) OF THE INCOME TAX ACT IN PURSUANT TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL (HEREINAFTER VODAFONE INDIA SERVICES PRIVATE LTD. 2 | P A G E REFERRED TO AS DRP) DATED 30.09.2012 PASSED U/S 144C(5) OF THE INCOME TAX ACT FOR THE A.Y. 2008-09. BACKGROUND OF THE CASE:- 2. THE ASSESSEE WAS INCORPORATED IN MARCH, 1999, IN T HE NAME OF 3 GLOBAL SERVICES PRIVATE LIMITED (3GSPL). IT WAS A W HOLLY OWNED SUBSIDIARY OF HUTCHISON TELE-SERVICES (INDIA) HOLDI NGS LIMITED, A COMPANY INCORPORATED IN MAURITIUS WHICH, IN TURN, W AS A WHOLLY OWNED SUBSIDIARY OF CGP INVESTMENTS (HOLDINGS) LIMITED, A COMPANY INCORPORATED IN THE CAYMEN ISLANDS (HEREINAFTER REF ERRED TO AS CGP). THE SHARES OF CGP WERE HELD BY HTI (BVI) HOLDINGS LIMIT ED, A COMPANY INCORPORATED IN BRITISH VIRGIN ISLANDS WHICH, IN TU RN, WAS ULTIMATELY CONTROLLED BY HUTCHISON TELECOMMUNICATIONS INTERNAT IONAL LIMITED (HEREINAFTER REFERRED TO AS 'HTIL'), A COMPANY INCO RPORATED IN CAYMEN ISLANDS. IT WOULD BE CONVENIENT HERE TO REPRODUCE T HE OWNERSHIP STRUCTURE CHART SET OUT IN THE JUDGMENT OF THE SUPR EME COURT IN ( VODAFONE INTERNATIONAL HOLDINGS B.V. V. UNION OF INDIA & ANR ., (2012) 341 ITR 1 AS UNDER: VODAFONE INDIA SERVICES PRIVATE LTD. 3 | P A G E VODAFONE INDIA SERVICES PRIVATE LTD. 4 | P A G E 3. SINCE APRIL, 2003, THE ASSESSEE, INTER-ALIA, PRO VIDED CALL CENTRE SERVICES CAPTIVE TO ENTITIES WITHIN THE HUTCHISON G ROUP VIZ. HUTCHISON 3G AUSTRALIA PTY. LTD. AND HUTCHISON 3G UK LTD. IN TER MS OF A MANAGED SERVICES AGREEMENT FOR CONTACT CENTRE SERVICES BETW EEN HUTCHISON CALL CENTRE HOLDINGS LIMITED, BRITISH VIRGIN ISLANDS (HC CH) AND THE ASSESSEE DATED 1ST JANUARY, 2006. 5. A FRAMEWORK AGREEMENT DATED 1ST MARCH, 2006, WAS E NTERED INTO BETWEEN THE ASSESSEE ON THE ONE HAND AND ONE ASIM G HOSH AND THREE COMPANIES CONTROLLED BY HIM ON THE OTHER. AN IDENTI CAL AGREEMENT ALSO DATED 1ST MARCH, 2006, WAS ENTERED INTO BETWEEN THE ASSESSEE ON THE ONE HAND AND ONE ANALJIT SINGH AND HIS GROUP OF COMPANI ES ON THE OTHER. ANALJIT SINGH AND ASIM GHOSH ACQUIRED SHARES IN TEL ECOM INVESTMENTS INDIA (TII) PRIVATE LIMITED, AN INDIAN COMPANY WITH CREDIT SUPPORT PROVIDED BY HTIL. TII, IN TURN, HELD SHARES IN HUTC HISON ESSAR LIMITED (EARLIER KNOWN AS HUTCHISON MAX TELECOM LIMITED (HM TL) AND SUBSEQUENTLY RE-NAMED VODAFONE ESSAR LIMITED. IN CO NSIDERATION OF THE CREDIT SUPPORT, THE FRAMEWORK AGREEMENTS WERE ENTER ED INTO UNDER WHICH A CALL OPTION WAS GIVEN TO THE ASSESSEE, A SUBSIDIARY OF HTIL TO BUY FROM THE RESPECTIVE GROUP COMPANIES, THEIR ENTIRE SHARE HOLD INGS IN TII. THE ASSESSEE WAS ALSO GRANTED A RIGHT TO SUBSCRIBE TO THE SHARES IN RESPECT OF THE GROUP COMPANIES. 6. ON 11TH FEBRUARY, 2007, A SHARE PURCHASE AGREEMENT (HEREINAFTER REFERRED TO AS THE 'SPA') WAS ENTERED INTO BETWEEN HTIL AND VODAFONE INTERNATIONAL HOLDINGS BV (HEREINAFTER REFERRED TO AS 'VIH BV') UNDER WHICH HTIL AGREED TO SELL THE ENTIRE SHARE CAPITAL OF CGP. UNDER THE VODAFONE INDIA SERVICES PRIVATE LTD. 5 | P A G E AGREEMENT HTIL ALSO AGREED TO PROCURE THE ASSIGNMEN T OF LOANS OWED BY CGP AND ANOTHER OF ITS GROUP COMPANIES - ARRAY HOLD INGS LIMITED. HTIL FURTHER UNDERTOOK TO PROCURE THAT EACH OF ITS WIDER GROUP COMPANIES WOULD NOT TERMINATE OR MODIFY ANY RIGHTS UNDER ANY OF ITS FRAMEWORK AGREEMENTS OR EXERCISE ANY OF THEIR OPTIONS UNDER SUCH AGREEME NTS. 7(A). ON 5TH JULY, 2007, NEW FRAMEWORK AGREEMENTS WERE E NTERED INTO BETWEEN THE PARTIES TO THE FRAMEWORK AGREEMENTS OF 1ST MARCH, 2006. THE DIFFERENT NAMES IN THESE AGREEMENTS ARE ONLY ON ACC OUNT OF A CHANGE IN THE NAMES OF THE PARTIES TO THE 1ST MARCH, 2006, AGREEM ENTS. GOLDSPOT MERCANTILE COMPANY PRIVATE LIMITED WAS RENAMED A.G. MERCANTILE COMPANY PRIVATE LIMITED AND CENTRINO TRADING COMPAN Y PRIVATE LIMITED WAS RENAMED NADAL TRADING COMPANY PRIVATE LIMITED. (B) VODAFONE INTERNATIONAL HOLDINGS BV WAS ALSO A PART Y TO THESE AGREEMENTS. RECITAL I STATED THAT VIH BV WOULD BECO ME THE INDIRECT PARENT COMPANY OF THE ASSESSEE WITH EFFECT FROM THE COMPLE TION DATE AND WAS ENTERING INTO THE AGREEMENTS AS A CONFIRMING PARTY 8. THE ASSESSEE SUBMITTED FORM NO.3CEB IN WHICH IT DIS CLOSED TWO INTERNATIONAL TRANSACTIONS DURING THE ASSESSMENT YE AR 2008-09. THE AO, WITH THE APPROVAL OF THE COMM ISSIONER OF INCOME - TAX, BY A LETTER DATED 25TH JANUARY, 2010, REFERRED THE SAME TO THE TPO UNDER SECTION 92CA(1) FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE THEREOF. IN THE COURSE OF PROCEEDINGS, THE TPO SOUGHT VARIOU S DOCUMENTS AND PARTICULAR S AND CONTENDED THAT THE ASSESSEE HAD NOT DISCLOSED TWO VODAFONE INDIA SERVICES PRIVATE LTD. 6 | P A G E INTERNATIONAL TRANSACTIONS VIZ. THE BTA - THE TRANSACTION RELATING TO THE SALE OF THE CALL CENTRE BUSINESS BY THE ASSESSEE TO HWP (INDIA) AND THE ASSIGNMENT OF THE CALL OPTIONS UNDER THE NEW FRAMEW ORK AGREEMENTS DATED 5TH JULY, 2007. THE TPO STATED THAT BOTH THE TRANSACTIONS WERE INTERNATIONAL TRANSACTIONS. HE ALSO DISPUTED THE VA LUATION REPORTS SUBMITTED BY THE ASSESSEE. THE ASSESSEE, AFTER SOME INITIAL HESITATION, FURNISHED THE DOCUMENTS, INCLUDING T HE SPA, THE BTA AND THE FRAMEWORK AGREEMENTS AT DIFFERENT STAGES. THE ASSES SEE CONTENDED THAT THE SAME DID NOT CONSTITUTE INTERNATIONAL TRANSACTI ONS. 9. THE TPO ISSUED NOTICES CALLING UPON THE ASSESSEE TO SHOW CAUSE WHY IT HAD NOT DISCLOSED THE SAID UNREPORTED INTERNATIO NAL TRANSACTIONS. 10. THE ASSESSEE SUBMITTED A DETAILED REPLY TO THE SHOW CAUSE NOTICE. THE ASSESSEE DEALT WITH ALL THE ISSUES RAISED IN TH E SHOW CAUSE NOTICE ON MERITS. IT DID CONTEND THAT THE FRAMEWORK AGREEMENT S WERE NOT INTERNATIONAL TRANSACTIONS AND THAT THERE WAS, THER EFORE, NO QUESTION OF PROVING ANY ARM'S LENGTH NATURE OF A TRANSACTION AN D/OR ANY VALUATION OF THE RIGHTS AS NO RIGHTS WERE CONFERRED AS ALLEGED B Y THE TPO OR AT ALL. THE ASSESSEE, IN FACT, WENT A STEP FURTHER AND CONSTRUED THE AGREEMENTS CONTENDING THAT THERE WAS NO CHANGE BETWEEN THE 1ST MARCH, 2006 AND THE 5TH JULY, 2007 FRAMEWORK AGREEMENTS. THE ASSESS EE ALSO DEALT WITH THE SHOW CAUSE NOTICE INSOFAR AS IT RELATED TO THE BTA. IT ANSWERED THE ALLEGATIONS IN THE SHOW CAUSE NOTICE ON MERITS. VODAFONE INDIA SERVICES PRIVATE LTD. 7 | P A G E 11. ON 16TH NOVEMBER, 2011, THE AO ISSUED A NOTICE UND ER SECTION 142(1) OF THE INCOME-TAX ACT, REFERRING, INTER-ALIA, TO THE O RDER OF THE TPO DATED 31ST OCTOBER, 2011, UNDER SECTION 92CA(3) OF THE ACT REC OMMENDING AN ADJUSTMENT OF RS.85,90,25,49,547/- TO THE ALP. THE ASSESSEE WAS CALLED UPON TO EXPLAIN WHY THE ADJUSTMENT TO THE ALP AS PR OPOSED BY THE IMPUGNED ORDER SHOULD NOT BE MADE TO THE TOTAL INCO ME. 12. ON 29TH DECEMBER, 2011, THE AO PASSED A DRAFT ASSE SSMENT ORDER UNDER SECTION 144C OF THE ACT. 13. THE ASSESSEE CHALLENGED THE ORDER OF TRANSFER P RICING OFFICER (TPO) DATED 31.10.2011 AS WELL AS DRAFT ASSESSMENT ORDER DATED 29.12.2011 ON THE GROUND OF LACK OF JURISDICTION IN RESPECT OF TH E TRANSFER PRICING ADJUSTMENT RECOMMENDED BY THE TPO AND PROPOSED BY T HE ASSESSING OFFICER IN THE DRAFT ORDER BY FILING THE WRIT PETIT ION NO. 448 OF 2012 BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT ON 18.2.2012. IN THE MEANTIME ON 20.01.2012, THE HON'BLE SUPREME COURT DELIVERED TH E JUDGMENT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS BV VS. UNION OF IND IA IN 341 ITR 1, AND REVERSED THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN 329 ITR 126. THE ASSESSEE HAS ALSO FILED OBJECTIONS BEFORE THE DRP ON 30.01.2012 AGAINST THE DRAFT ASSESSMENT ORDER INTER ALIA TOOK THE OBJECTION THAT THE TPO AND ASSESSING OFFICER HAVE PASSED THE ORDERS WITHOUT JURISDICTION. THE ASSESSEE ALSO SOUGHT STAY OF FURT HER PROCEEDINGS BEFORE THE DRP BY FILING THE APPLICATION BEFORE THE HON'BLE JU RISDICTIONAL HIGH COURT ON 13.09.2012. THE HONBLE HIGH COURT HELD THAT IT WAS NOT NECESSARY TO ENTERTAIN THE APPLICATION FOR INTERIM RELIEF AT THA T STAGE AS THE TIME PERIOD VODAFONE INDIA SERVICES PRIVATE LTD. 8 | P A G E FOR PASSING THE DIRECTIONS U/S 144C BY THE DRP WAS DUE TO EXPIRE ON 30.09.2012. IT WAS ALSO OBSERVED BY THE HON'BLE HIG H COURT THAT THE ASSESSEE WOULD BE AT LIBERTY TO APPEAR BEFORE THE D RP WITHOUT PREJUDICE TO ITS RIGHTS AND CONTENTIONS INCLUDING THOSE IN THE W RIT PETITION. THE DRP SUBSEQUENTLY PASSED THE DIRECTIONS U/S 144C(5) OF T HE ACT ON 30.09.2012 INTER ALIA UPHOLDING THE FINDINGS OF TPO. CONSEQUE NTLY, THE ASSESSING OFFICER HAS PASSED THE FINAL ASSESSMENT ORDER U/S 1 43(3) R.W.S 144C(13) OF THE ACT IN PURSUANT TO THE DIRECTIONS OF DRP. 14. THE WRIT PETITION FILED BY THE ASSESSEE WAS DIS POSED OFF BY THE HON'BLE HIGH COURT VIDE JUDGMENT DATED 6.09.2013 REPORTED IN 359 ITR 133 . THE HON'BLE JURISDICTIONAL HIGH COURT HAS REJECT ED THE CONTENTION OF THE ASSESSEE THAT THE TPO HAD NO JURI SDICTION TO CONSIDER THE TRANSACTION RELATING TO THE SALE OF CALL CENTRE/BUS INESS TRANSFER AGREEMENT. THE HONBLE HIGH COURT HAS OBSERVED THAT THERE ARE SEVERAL ISSUES OF FACT AND OF LAW ON EVERY MATERIAL ASPECT WHICH MUST BE C ONSIDERED BY THE AUTHORITIES UNDER THE ACT. THUS IT WAS HELD THAT TH IS IS NOT A FIT CASE FOR INVOKING EXTRA ORDINARY JURISDICTION ARTICLE 226 OF CONSTITUTION OF INDIA. ON MERITS THE HON'BLE HIGH COURT HAS OBSERVED THAT THE MATTER IS REQUIRED TO BE DETERMINED BY THIS TRIBUNAL. THE ASSESSEE THEN F ILED THE PRESENT APPEAL ON 23.12.2013 AND RAISED THE FOLLOWING CONCISE GROUNDS;- CONCISE GROUNDS OF APPEAL 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE ASSESSING OFFICER ('AO'), THE TRANSFER PRICING OFFICER ('TPO'), AND TH E DISPUTE RESOLUTION PANEL ('DRP') (COLLECTIVELY REFERRED TO AS 'LOWER AUT HORITIES') ERRED IN LAW IN ASSESSING/CONFIRMING THE TOTAL INCOME OF THE ASSESSEE AT RS.7547,75,44,610/- AS AGAINST INCOME OFRS.27,71,56,86 1/- RETURNED BY VODAFONE INDIA SERVICES PRIVATE LTD. 9 | P A G E THE ASSESSEE AS PER THE REVISED COMPUTATION OF INCOME BY MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES: 1.1 ADDITION OF RS.6178,88,26, 177/- IN RESPECT OF AL LEGED ASSIGNMENT OF CALL OPTIONS UNDER THE FRAMEWORK AGREEMENTS DATED 05TH JULY 2007 ENTERED INTO, INTER ALIA, BETWEEN THE ASSESSEE AND AN ALJIT SINGH AND ASIM GHOSH ('2007 FRAMEWORK AGREEMENTS'). [HEREINAFTER R EFERRED TO 'ASSIGNMENT OF CALL OPTIONS'] L.2 ADDITION OF RS. 1321,89,71,207/- REPRESENTING ALLE GED LONG TERM CAPITAL GAIN UNDER SECTION 50B OF THE INCOME TAX ACT, 1961 (TH E 'ACT') IN RESPECT OF SALE OF CALL CENTRE BUSINESS, ON A SLUMP SALE BASIS, BY THE ASSESSEE TO HUTCHISON WHAMPOA PROPERTIES (INDIA) PRIVATE LTD ['HWP (INDIA)'] ON 08TH MAY 2007 UNDER A BUSINESS TRANSFER AGREEMENT ('BTA ') [HEREINAFTER REFERRED TO 'SALE OF CALL CENTRE BUSINESS'] 1.3 ADDITION OF RS.28,74,34,828/- REPRESENTING DIFFER ENCE BETWEEN ALLEGED ARMS LENGTH REVENUE AS COMPUTED BY TPO AND REVENUE ACTUA LLY RECEIVED BY THE ASSESSEE FOR PROVISION OF CONTACT CENTRE SERVI CES TO HUTCHISON CALL CENTRE HOLDINGS LIMITED ('HCCH') [HEREINAFTER REFERR ED TO 'PROVISION OF ITES SERVICES'] 1.4 DISALLOWANCE OF RS.2,70,64,399/- IN RESPECT OF B ROUGHT FORWARD DEPRECIATION FROM EARLIER YEARS. ASSIGNMENT OF CALL OPTIONS 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LOWER AUTHORITIES ERRED IN LAW IN ASSUMING JURISDICTION AS T HE TRANSFER PRICING PROVISIONS CONTAINED IN CHAPTER X OF THE ACT DO NOT APPLY EITHER TO THE ALLEGED TRANSACTION OF ASSIGNMENT OF C ALL OPTIONS UNDER THE 2007 FRAMEWORK AGREEMENTS. 3. THAT THE LOWER AUTHORITIES ERRED IN ASSUMING JURISDI CTION IN RESPECT OF THE ALLEGED ASSIGNMENT OF CALL OPTIONS UNDER THE 2 007 FRAMEWORK AGREEMENTS WHERE NO SUCH ASSIGNMENT TOOK PLACE TO CONSTITUTE A TRANSACTION, MUCH LESS AN INTERNATIONAL TRANSACTION FOR THE PURPOSE OF CHAPTER X OF THE ACT, WHICH HAS B EEN SPECIFICALLY CONFIRMED BY THE HONBLE SUPREME COURT VIDE JUDGMENT DATED 20 TH JANUARY 2012 IN THE MATTER OF VODAFONE INTERNATIONAL HOLDINGS BV VS. UOI (2012) 341 ITR 1 (THE JUDGMENT ) VODAFONE INDIA SERVICES PRIVATE LTD. 10 | P A G E 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LOWER AUTHORITIES FAILED TO APPRECIATE THAT NO TRANSACTION PER SE HAS BEEN UNDERTAKEN AS THE RIGHTS UNDER THE 2006 AND THE 2007 FRA MEWORK AGREEMENTS HAVE NOT BEEN ALTERED, AS THEY REMAIN WHER E THEY WERE I.E. WITH THE ASSESSEE, AND, THEREFORE, THE PROVISION S OF THE ACT OR THE TRANSFER PRICING PROVISIONS CONTAINED IN CHAPTER X OF THE ACT DO NOT APPLY FOR THE WANT OF ANY TRANSACTION. 5. THAT THE LOWER AUTHORITIES KNOWING THAT THE FINDING OF THE HON'BLE SUPREME COURT OF INDIA IS BINDING, HAS ERRONEOUSLY TRIE D TO SHIFT ITS STAND BY TREATING ALL SUBSIDIARIES OF VODAFONE GROUP P LC AS THE TRANSFEREE OF THE ALLEGED ASSIGNMENT OF CALL OPTIONS , WHICH IS PERVERSE, VAGUE, AMBIGUOUS AND UNTENABLE AS IT HAS FAILED TO IDENTIFY THE SPECIFIC TRANSFEREE OF THE ALLEGED ASSIG NMENT OF CALL OPTIONS. 6. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E DRP FAILED TO APPRECIATE THE FINDINGS IN THE HON'BLE SUPREME COURT WOULD REMAIN ENTIRELY UNAFFECTED BY THE CLARIFICATORY AMENDMENT IN SECTION 2(14) AND/OR SECTION 2(47) OF THE ACT FOR THE HON'BLE SUP REME COURT HAS CONSIDERED THE TERM 'TRANSFER' AND 'CAPITAL ASSET' AS PER ITS TRUE AMBIT, AS ALWAYS INTENDED BY THE PARLIAMENT. 7. WITHOUT PREJUDICE, THE LOWER AUTHORITIES ERRED IN FACTS AND IN LAW IN COMPUTING THE ARM'S LENGTH PRICE ('ALP') IN RESPE CT OF THE AFORESAID TRANSACTION ON A COMPLETELY ARBITRARY BASI S AND IN COMPLETE DISREGARD TO THE STATUTORY PROVISIONS AND SE TTLED PRINCIPLES OF LAW. 8. THAT THE DRP GROSSLY ERRED IN ADMITTING THE ADDITIO NAL EVIDENCES FILED BY THE TPO VIDE LETTER DATED 12 JUNE 2012, AND ON T HE CONTRARY REJECTING THE NECESSARY ADDITIONAL EVIDENCES PLACED ON R ECORD BY THE ASSESSEE VIDE LETTER DATED 25 SEPTEMBER 2012, THE AUTHEN TICITY AND RELEVANCY OF WHICH IS NOT IN DISPUTE, PARTICULARLY BECA USE SUCH EVIDENCE WAS ALREADY ON RECORD BEFORE THE HON'BLE SUP REME COURT OF INDIA AND WENT TO THE ROOT OF THE MATTER AND WAS NE CESSARILY REQUIRED TO BE ADMITTED IN THE INTEREST OF JUSTICE. TRANSACTION OF SALE OF CALL CENTRE BUSINESS - TRANS FER PRICING ADJUSTMENT OF RS 1321,89,71,207/- 9. THAT THE LOWER AUTHORITIES WHILE PASSING ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ('THE ACT') READ W ITH SECTION 144C OF THE ACT, ERRED IN HOLDING THAT THE TRANSACTION OF SALE OF CALL CENTRE BUSINESS VODAFONE INDIA SERVICES PRIVATE LTD. 11 | P A G E WAS AN 'INTERNATIONAL TRANSACTION' WITHIN THE MEANI NG OF SECTION 92B OF THE ACT. 9.1 THAT THE LOWER AUTHORITIES ERRED IN NOT APPRECIATI NG THAT THE PROVISIONS OF CHAPTER X OF THE ACT (TRANSFER PRICING PROVISIONS) DO NOT APPLY IN RELATION TO SALE OF CALL CENTRE BUSINESS BEING A DOMESTIC TRANSACTION BETWEEN TWO REL ATED INDIAN COMPANIES. 9.2 WHILE DOING SO, THE LOWER AUTHORITIES PROCEEDED ON THE BASIS OF THE FOLLOWING FINDINGS THAT ARE CONTRARY TO THE FACTS : A. AGREEMENT FOR SALE OF CALL CENTRE BUSINESS (BTA) WAS ENTERED TO 'GIVE EFFECT' TO THE SHARE PURCHASE AGREEMENT ('SPA') FOR CGP INVESTMENT (HOLDINGS) LTD'S ('CGP') SHARE. B. VIH BV AND HTIL WERE 'REAL PARTIES' TO THE BTA, WHICH WAS IN FACT ENTERED INTO ONLY BETWEEN 3 GLOBAL SERVICES PVT. LTD. ('3GSPL') AND HWP INDIA (BOTH OF WHIC H WERE INDIAN ENTITIES). C. THE ASSESSEE AND HWP INDIA WERE PARTIES TO THE SPA. 9.3 THAT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE LOWER AUTHORITIES GROSSLY ERRED IN APPLYING THE DOCTRI NE OF LIFTING OF THE CORPORATE VEIL AND THE DOCTRINE OF SUB STANCE OVER FORM TO FORCE ITS ERRONEOUS CONCLUSION' THAT THE SALE OF CALL CENTRE BUSINESS TRANSACTION WAS A DEEMED 'INTERNATIONAL TRANSACTION' AND/OR AN 'INTERNATIONA L TRANSACTION' WITHIN THE MEANING OF SECTION 92B. 9.4 THAT THE LOWER AUTHORITIES HAVE ERRED IN HOLDING THAT HUTCHISON WHAMPOA PROPERTIES (INDIA) PRIVATE LTD ['HWP (INDIA)'] TO BE A DUMMY ENTITY IN COMPLETE DISREGARD OF THE MATERIAL PLACED ON RECORD. 9.5 WHILE DOING SO, THE LOWER AUTHORITIES FURTHER ERRED IN HOLDING THAT HWP (INDIA) WAS 'INTERPOSED ONLY TO EVADE T AX BY AVOIDING TRANSFER PRICING COMPLIANCE' WITHOUT APPRECIATING THAT HWP INDIA WAS USED TO ACQUIRE THE C ALL VODAFONE INDIA SERVICES PRIVATE LTD. 12 | P A G E CENTRE BUSINESS FOR LEGAL, COMMERCIAL AND PRACTICAL R EASONS AND NOT TO EVADE TAX. 10. THAT IN THE FACTS AND CIRCUMSTANCE OF THE PRESENT CAS E, THE LOWER AUTHORITIES GROSSLY ERRED IN NOT CORRECTLY APP LYING SECTION 50B OF THE ACT BY SUBSTITUTING THE ACTUAL SALE CONSIDE RATION OF RS 64 CRORES WITH THE ALLEGED ALP, SINCE THE SALE OF CALL CENTRE BUSINESS IS A DOMESTIC TRANSACTION AND THEREFORE NOT SUBJECT TO TR ANSFER PRICING PROVISIONS. 11. WITHOUT PREJUDICE, THE LOWER AUTHORITIES ERRED IN FACTS AND IN LAW IN COMPUTING THE ALP IN RESPECT OF THE AFORESAID TRA NSACTION ON A COMPLETELY ARBITRARY BASIS AND IN COMPLETE DISREGARD T O THE STATUTORY PROVISIONS AND SETTLED PRINCIPLES OF LAW. 12. THAT THE DRP ERRED IN CONFIRMING THE ACTION OF T HE TPO IN REJECTING THE ACTUAL SALE CONSIDERATION I.E. RS 64 CRORES AND VALUATION REPORTS (OF INDEPENDENT EXPERT VALUERS) & DETERMINING ALP IN RESPECT OF THE SALE OF CALL CENTRE BUSINESS ON THE BASIS OF AN INVAL ID COMPARABLE CHOSEN (I.E. FIRST SOURCE SOLUTIONS LTD.), WHICH IS IN COMPLETE DISREGARD TO THE PROVISIONS OF SECTION 92C OF THE ACT AND RULES LOB AND 10C OF THE INCOME TAX RULES, 1962 ('THE RULES'): A. WITHOUT PREJUDICE, THE DRP ERRED IN CONFIRMING THE ACT ION OF THE TPO IN DISREGARDING VALUATION REPORT OF DALAL & SHAH AND ERNST & YOUNG (INDEPENDENT EXPERT VALUERS), CITING ALLEGED ABSENCE OF ASSUMPTION AND DEFICIENCY IN ASSUMPTIONS RESPECTIVELY. B. THAT THE DRP ERRED IN CONFIRMING THE ACTION OF THE T PO IN ARIBITRARILY SELECTING FIRST SOURCE SOLUTIONS LTD. AS A COMPARABLE FOR COMPUTING THE ALP IN RESPECT OF SALE OF CALL CENTRE BUSINESS WITHOUT APPRECIATING THAT THE FUNTIONS, ASSETS AND RISKS (FAR) OF FIRST SOURCE SOLUTIONS LTD. ARE NOT COMPARABLE TO THE FAR OF THE ASSESSEE ( BEING A CAPTIVE CALL CENTRE BUSINESS). C. WITHOUT PREJUDICE, THE DRP ERRED IN CONFIRMING THE ACT ION OF THE TPO IN COMPUTING THE ALP IN RESPECT OF SALE OF CALL CENTRE BUSINESS BY ADDING THE TRANSFER PRICING ADJUSTME NT MADE TO PROFITS AFTER TAXATION OF THE ASSESSEE IN TH E PROCEEDINGS FOR A Y 2007-08. VODAFONE INDIA SERVICES PRIVATE LTD. 13 | P A G E 13. THAT IN THE ALTERNATIVE, THE VALUATION AS ADOPTED B Y THE LOWER AUTHORITIES IS ARBITRARY AND EXCESSIVE SINCE APPLYING THE DISCOUNTED CASH FLOW METHOD (AS SUGGESTED BY TPO), THE VALUE OF THE CALL CENTRE AS ON THE DATE OF SALE WORKS OUT TO RS 115.1 CRORES A S PER INDEPENDENT EXPERT VALUER. 14. FURTHERMORE IN THE ALTERNATIVE, THE VALUATION AS ADO PTED BY THE LOWER AUTHORITIES IS NOT ONLY ARBITRARY AND EXCESSIVE BUT ALSO IN COMPLETE DISREGARD TO THE FACT THAT IN SEPTEMBER 2012 , THE SAME CALL CENTRE BUSINESS (WHICH HAD DOUBLED IN SIZE SINCE 2007) W AS SOLD [ALBEIT BY WAY OF SALE OF SHARES IN THE COMPANY OWN ING THE CALL CENTRE BUSINESS] TO AN INDEPENDENT THIRD PARTY AT THE A MOUNT OF RS 485.1 CRORES (INCLUDING CASH OF RS 118.3 CRORES) AS PE R THE MATERIAL PLACED ON RECORD. 14.1 THAT FURTHERMORE IF THE AFOREMENTIONED SALE TO T HE THIRD PARTY IS CONSIDERED AS A BENCHMARK IN TERMS OF 'EVIDE NCE OF FAIR VALUE' OF THE CALL CENTRE BUSINESS AND THE SALE PR ICE TO THIRD PARTY IS APPROPRIATELY ADJUSTED TAKING INTO ACCO UNT DIFFERENCES BETWEEN VALUATION DATE AND SUBSEQUENT SALE DATE , AN INDEPENDENT THIRD PARTY WOULD HAVE PAID A SUBSTANTIALLY LOWER AMOUNT OF RS 85 CRORES (APPROX) HAD SUCH SALE TAK EN PLACE IN MARCH 2007 AS AGAINST SEPTEMBER 2012. PROVISION OF ITES SERVICES - ADDITION OF RS 28,74,34,8 28/- 15. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LOWER AUTHORITIES ERRED IN LAW IN MAKING AN ADDITION OF RS.28,74,34,828/- TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF PROVISION OF ITES SERVICES TO HUTCHISON CALL CENTRE H OLDINGS LIMITED ('HCCH') [HEREINAFTER REFERRED TO 'PROVISION O FITES SERVICES']. 15.1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, LOWER AUTHORITIES ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRESE NT CASE. 15.2 THAT IN HOLDING AS AFORESAID, THE DRP ERRED IN CONFIRMING THE ACTION OF THE TPO IN ARBITRARILY REJECTING THE SET OF COMPARABLE COMPANIES SELECTED BY VODAFONE INDIA SERVICES PRIVATE LTD. 14 | P A G E THE ASSESSEE, BASED ON CONTEMPORANEOUS DATA AVAILABLE AT THE TIME OF PREPARATION OF THE TRANSFER PRICING R E P O R T . 15.3 THAT THE COMPARABLES CONFIRMED BY THE DRP ARE ACTUALLY NOT COMPARABLE IN TERMS OF RULE 10B(2) OF TH E RULES. 15.4 THAT IN HOLDING AS AFORESAID, THE DRP ERRED IN EXCLUDING CERTAIN COMPANIES ON ARBITRARY/FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE ASSESSEE IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISK EMPLOYED. 16. THAT, WITHOUT PREJUDICE, THE LOWER AUTHORITIES ERR ED IN NOT ALLOWING (A) WORKING CAPITAL ADJUSTMENT (B) RISK ADJ USTMENT TO THE ALP AS REQUIRED UNDER THE RULE 10B(1)(E)(III) OF THE RULES. 17. THAT THE ASSESSING OFFICER AND DRP ERRED ON FAC TS AND IN LAW IN NOT ALLOWING CARRY FORWARD AND SET OFF OF UNABSORBED DEPREC IATION AMOUNTING TO RS. 2,70,64,399/- AGAINST INCOME FROM OT HER SOURCES WHILE COMPUTING TOTAL INCOME OF THE ASSESSEE. 17.1 IN THE ALTERNATIVE, THE DEDUCTION UNDER SECTI ON 10A OF THE ACT OUGHT TO HAVE BEEN INCREASED BY RS. 2,70,64,399/- AS DIRECTED BY THE DRP. MISCELLANEOUS 18. THAT THE AO ERRED IN GIVING SHORT CREDIT OF TAXES WITHHELD AMOUNTING TO RS 21,59,286 BY GIVING CREDIT OF RS 3,08,67, 480 AS AGAINST RS 3,30,26,766 CLAIMED IN THE REVISED RETURN OF INCOME . 19. THAT THE AO ERRED IN GIVING SHORT CREDIT OF ADVANCE T AX AMOUNTING TO RS 1,82,50,000 BY GIVING CREDIT OF RS 2,68,97,905 AS A GAINST RS 4,51,47,905 CLAIMED IN THE REVISED RETURN OF INCOME. 20. THAT THE AO ERRED IN LEVYING INTEREST UNDER SECTI ON 234B AND 234D OF THE ACT. 21. THAT THE AO ERRED IN LEVYING INTEREST OF RS 269,120 UNDER SECTION 234C OF THE ACT AS AGAINST RS 88,839 AS PER REVISED R ETURN OF INCOME. VODAFONE INDIA SERVICES PRIVATE LTD. 15 | P A G E 22. THAT THE AO ERRED IN INITIATING PENALTY PROCEEDI NGS UNDER SECTION 271 (1)( C), 271AA AND SECTION 271G OF THE ACT. 15. BOTH THE PARTIES HAVE FILED ADDITION EVIDENCE B EFORE US. THE REVENUE HAS FILED TWO SET OF ADDITIONAL EVIDENCE VIDE APPLI CATION DATED 24.2.2014 AND 3.3.2014 RUNNING INTO 945 PAGES AND 265 PAGES R ESPECTIVELY. THE ADDITIONAL EVIDENCE FILED BY THE REVENUE CONTAINS T HE DOCUMENTS SUMMARIZED AS UNDER:- A) PRESS RELEASE OF THE FIPB B) APPLICATIONS FILED BEFORE THE FIPB IN 2009 AND 2013 ALONG WITH RELEVANT ANNEXURES FOR THE PURPOSE OF EXERCISE OF PUT OPTIONS. C) SUBMISSIONS FILED BY THE RESPONDENT BEFORE THE HIGH COURT IN THE CASE OF THE ASSESSEE. D) SHAREHOLDERS AGREEMENTS AND SUPPLEMENT TO THE FRAME WORK AGREEMENTS. E) LIST OF DATES FILED BY VIH BV BEFORE THE HON'BLE SU PREME COURT. F) WRITTEN SUBMISSIONS FILED BY VIH BV BEFORE THE HON' BLE SUPREME COURT. G) FINANCIAL ACCOUNT OF THE VIH BV GROUP OF COMPANIES 16. ADDITIONAL EVIDENCE FILED BY THE ASSESSEE WITH THE APPLICATION DATED 3.3.2014/4.3.2014 CONTAINS THE FOLLOWING DOCUMENTS: - A) LETTERS FROM ANALJIT SINGH AND ASIM GHOSH TO THE AS SESSEE FOR EXERCISE OF PUT OPTIONS. B) LETTERS FROM ASSESSEE TO ITS AFFILIATE, VIZ, CGP IN DIA INVESTMENTS LTD (CGP NOMINATING CGP TO DISCHARGE THE OBLIGATION ARISING FROM EXERCISE OF PUT OPTIONS BY ANALJIT SINGH AND ASIM G HOSH. VODAFONE INDIA SERVICES PRIVATE LTD. 16 | P A G E C) LETTERS FROM THE ASSESSEE TO ANALJIT SINGH AND ASIM GHOSH INDICATING THE NOMINATION OF CGP D) WRITTEN SUBMISSIONS FILED BY THE REVENUE BFORE THE HON'BLE SUPREME COURT. E) ORDER DATED 22.10.2010 PASSED BY THE REVENUE IN TH E CASE OF VIH BV. F) INTERIM APPLICATION NO. 6 OF 2010 FILED BY VIH BV B EFORE THE HONBLE SUPREME COURT AND ORDER PASSED BY THE HONBLE COURT ALLOWING THE SAID INTERIM APPLICATION G) DISCLOSURE LETTER DATED 11.2.2007 ALONG WITH ALL AN NEXURES. 17. THOUGH IN THE RESPECTIVE REPLIES FILED BY THE P ARTIES, VARIOUS OBJECTION WAS RAISED REGARDING THE MAINTAINABILITY OF THE AP PLICATIONS FOR SEEKING THE PERMISSION TO FILE THE ADDITIONAL EVIDENCE, HOWEVER , DURING THE ARGUMENTS, BOTH LD. SR. COUNSEL FOR THE ASSESSEE AND LD. ASG F AIRLY CONCEDED TO THE ADMISSION OF ADDITIONAL EVIDENCES OF EACH OTHER AND NOT RAISED ANY SERIOUS OBJECTION AGAINST THE MAINTAINABILITY AND ADMISSIB ILITY OF THE ADDITIONAL EVIDENCE. EVEN OTHERWISE, THE HON'BLE HIGH COURT WH ILE REMANDING THE MATTER TO THIS TRIBUNAL HAS OBSERVED THAT THE ISSUE INVOLVED IN THE MATTER ARE TO BE DECIDED BY INTER ALIA CONSIDERING THE ADDITIONAL RECORD, FACTS AND EVIDENCE TO BE FILED BY THE PARTIES. THE LD. SR. CO UNSEL FOR THE ASSESSEE HAS, HOWEVER, SUBMITTED THAT THE ADDITIONAL EVIDENCE FIL ED BY THE REVENUE IS NOT RELEVANT FOR DECIDING THE ISSUE OF ASSIGNMENT OF CA LL OPTIONS BECAUSE THE DOCUMENTS FILED BY THE REVENUE DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION RATHER THESE DOCUMENTS RELATE TO EXE RCISE OF PUT OPTION THAT TOO IN SEPTEMBER 2009 AND NOVEMBER 2013. VODAFONE INDIA SERVICES PRIVATE LTD. 17 | P A G E 18. ON THE OTHER HAND, THE LD. ASG FORCEFULLY CONTE NDED THAT THE SHARE HOLDERS AGREEMENT AND OTHER DOCUMENTS RELATING TO T HE EXERCISE OF PUT OPTION ARE VERY MUCH RELEVANT TO DECIDE THE ISSUE . 19. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT AT THE STAGE OF ALLOWING THE PARTIES TO PRODUCE ADDITIONAL EVIDENCE WHAT HAS TO BE CONSIDERED IS THE CONNECTION OF THE EVIDENCE WITH THE ISSUE UNDER CON SIDERATION AND FURTHER WHETHER PARTIES SEEKING PERMISSION TO FILE THE ADDI TIONAL EVIDENCE HAD REASONABLE CAUSE OF NOT PRODUCING THE SAME AT THE T IME OF ASSESSMENT PROCEEDINGS. THESE ASPECTS ARE KEPT IN MIND IN ORD ER TO AVOID MISUSE OF PROCESS OF LAW AND TO SET UP AN ENTIRELY NEW CASE A T THIS STAGE. THERE IS NO DISPUTE ABOUT THE EXISTENCE AND CORRECTNESS OF DOCU MENTS SOUGHT TO BE FILED BY THE PARTIES AS ADDITIONAL EVIDENCE. SO FAR AS TH E ADDITIONAL EVIDENCE SOUGHT TO BE FILED BY THE REVENUE IS CONCERNED ALL THE DOCUMENTS ARE RELATED TO THE ASSESSEE OR ITS GROUP CONCERN, THEREFORE, IT IS NOT A CASE OF NEW DOCUMENT WHICH WAS NOT IN THE KNOWLEDGE OF THE ASSE SSEE RATHER THE DOCUMENTS WERE EXECUTED EITHER BY THE ASSESSEE OR I TS GROUP CONCERN, THEREFORE, THE SCOPE OF MISUSE OF PROCESS AND PROVI SIONS OF LAW IS RULED OUT. THESE DOCUMENTS WERE ADMITTEDLY NOT FILED BY THE AS SESSEE IN THE ASSESSMENT PROCEEDINGS THOUGH SOME OF THEM WERE PRO DUCED BEFORE THE HON'BLE SUPREME COURT. ALL THE DOCUMENTS ARE PERTA INING TO THE PROCESS OF EXECUTION OF AGREEMENT RELATING TO CALL OPTIONS AND PUT OPTIONS AS WELL AS EXECUTION OF PUT OPTION. THEREFORE, IT IS NECESSARY TO EXAMINE ALL THE DOCUMENTS BEFORE ARRIVING AT A CONCLUSIVE FINDING O N THE ISSUE. ACCORDINGLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ADMI T THE ADDITIONAL EVIDENCE FILED BY BOTH THE PARTIE S. VODAFONE INDIA SERVICES PRIVATE LTD. 18 | P A G E GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT REQU IRED ANY SPECIFIC FINDING. 20. GROUND NO. 2 TO 6 IS REGARDING ASSIGNMENT OF C ALL OPTIONS: 21. BRIEF FACTS RELEVANT TO THIS ISSUE EMERGED FR OM RECORD ARE AS UNDER:- 22. THE HUTCHISON GROUP, HONG KONG (HK) FIRST INVES TED INTO THE TELECOM BUSINESS IN INDIA IN 1992 WHEN THE SAID GRO UP INVESTED IN AN INDIAN JOINT VENTURE VEHICLE BY THE NAME HUTCHISON MAX TELECOM LIMITED (HMTL) - LATER RENAMED AS HUTCHISON ESSAR LTD (HEL) . ON 12.01.1998, CGP STOOD INCORPORATED IN CAYMAN ISLANDS, WITH LIMI TED LIABILITY, AS AN 'EXEMPTED COMPANY', ITS SOLE SHAREHOLDER BEING HUTC HISON TELECOMMUNICATIONS LIMITED, HONG KONG ['HTL' FOR SH ORT], WHICH IN SEPTEMBER, 2004 STOOD TRANSFERRED TO HTI (BVI) HOLD INGS LIMITED ['HTIHL (BVI)' FOR SHORT] VIDE BOARD RESOLUTION DAT ED 17.09.2004. HTIHL (BVI) WAS THE BUYER OF THE CGP SHARE. HTIHL (BVI) W AS A WHOLLY OWNED SUBSIDIARY (INDIRECT) OF HUTCHISON TELECOMMUNICATIO NS INTERNATIONAL LIMITED (CI) ['HTIL' FOR SHORT]. IN FEBRUARY, 2005, CONSOLIDATION OF HMTL (LATER ON HEL) GOT EFFECTED. CONSEQUENTLY, ALL OPER ATING COMPANIES BELOW HEL GOT HELD BY ONE HOLDING COMPANY, I.E., HMTL/HEL . THE OWNERSHIP OF THE SAID HOLDING COMPANY, I.E., HMTL/HEL WAS CONSOL IDATED INTO THE TIER I COMPANIES ALL BASED IN MAURITIUS. TELECOM INVESTMEN TS INDIA PRIVATE LIMITED ['TII' FOR SHORT], INDUSIND TELECOM NETWORK LTD. ['ITNL' FOR SHORT] AND USHA MARTIN TELEMATICS LIMITED ['UMTL' F OR SHORT] WERE THE OTHER SHAREHOLDERS, OTHER THAN HUTCHISON AND ESSAR, IN HMTL/HEL. THEY WERE INDIAN TIER I COMPANIES ABOVE HMTL/HEL. THE CO NSOLIDATION WAS VODAFONE INDIA SERVICES PRIVATE LTD. 19 | P A G E FIRST MOOTED AS EARLY AS JULY, 2003. ON 28.10.2005, VIH AGREED TO ACQUIRE 5.61% SHAREHOLDING IN BHARTI TELEVENTURES LTD. (NOW BHARTI AIRTEL LTD.). ON THE SAME DAY, VODAFONE MAURITIUS LIMITED (SUBSIDIAR Y OF VIH) AGREED TO ACQUIRE 4.39% SHAREHOLDING IN BHARTI ENTERPRISES PV T. LTD. WHICH INDIRECTLY HELD SHARES IN BHARTI TELEVENTURES LTD. (NOW BHARTI AIRTEL LTD.). ON 3.11.2005, PRESS NOTE 5 WAS ISSUED BY THE GOVERN MENT OF INDIA ENHANCING THE FDI CEILING FROM 49% TO 74% IN TELECO M SECTOR. UNDER THIS PRESS NOTE, PROPORTIONATE FOREIGN COMPONENT HELD IN ANY INDIAN COMPANY WAS ALSO TO BE COUNTED TOWARDS THE CEILING OF 74%. 23. SINCE THERE WAS A SECTORAL CAP/CEILING ON THE F DI IN TELECOM SECTOR, THE ASSESSEE (GSPL) ENTERED INTO FRAMEWORK AGREEMEN TS IN MARCH 2006, UNDER WHICH THE SHARE HOLDING OF HEL WAS RESTRUCTUR ED THROUGH TII AN INDIAN COMPANY IN WHICH ARIJIT SINGH (AS) AND ASIM GHOSH (AG) ACQUIRED SHARES THROUGH THEIR GROUP COMPANIES WITH THE CREDI T SUPPORT PROVIDED BY HITL. IN CONSIDERATION OF CREDIT SUPPORT, THE PARTI ES ENTERED INTO FRAMEWORK AGREEMENT UNDER WHICH CALL OPTIONS WERE G IVEN TO ASSESSEE (GSPL) TO BUY FROM AG AND AS COMPANIES, THE ENTIRE SHARE HOLDING IN THE TII AND CONSEQUENTLY INDIRECT HOLDING IN HEL. THE S HAREHOLDING OF HEL AGAIN UNDERWENT A CHANGE ON AUGUST 2006 THROUGH EXE CUTION OF 2006 IDFC FRAMEWORK AGREEMENT ON SIMILAR TERMS OF PROVID ING FINANCIAL ASSISTANCE BY HTIL AND ASSESSEE, AND IN CONSIDERATI ON WHEREOF, THE ASSESSEE WOULD HAVE CALL OPTION TO BUY ENTIRE EQUIT Y SHARES OF SMMS THEREBY ITS ENTIRE HOLDING IN HEL. DUE TO THE TRANS FER OF ENTIRE SHARE CAPITAL (SINGLE SHARE) OF CGP FROM HTIL GROUP TO VIH B.V., THE VODAFONE ACQUIRED THE CONTROLLING INTEREST IN HEL VIA ITS SUBSIDIARY VIH B.V. THROUGH THE VODAFONE INDIA SERVICES PRIVATE LTD. 20 | P A G E SUBSIDIARY COMPANIES OF HITL GROUP WITH CONTROL OF 67% INTEREST IN HEL INCLUDING INDIRECT 15% HOLDING THROUGH FRAMEWORK AG REEMENTS. NEW FRAME WORK AGREEMENTS (FWAS) WERE EXECUTED IN THE MONTH OF JUNE AND JULY 2007 BETWEEN ASSESSEE AND INDIAN PARTNERS HOLDING 1 5% INDIRECT INTEREST IN HEL. THESE NEW FWAS WERE ENTERED INTO BECAUSE OF CH ANGE OF HOLDING GROUP COMPANIES FROM HTIL TO VODAFONE. CERTAIN CHAN GES IN TERMS AND CONDITIONS OF 2007 FWAS WERE MADE WHICH HAS LED TO THE CONTROVERSY IN QUESTION AS THE ASSESSING OFFICER HAS TREATED THESE CHANGES BEING TRANSFER/ASSIGNMENT OF OPTION RIGHTS HELD BY THE AS SESSEE IN 2006 AGREEMENT IN FAVOUR OF ITS HOLDING COMPANY VIH (BV) BY VIRTUE OF 2007 FRAMEWORK AGREEMENTS. THUS AS PER THE REVENUE, THE ASSESSEE HAS TRANSFERRED THE RIGHT TO ACQUIRE 15% SHARES HOLDING OF HEL IN THE 2006 FRAMEWORK AGREEMENTS IN FAVOUR OF ITS HOLDING COMPA NY (AE) BY EXECUTION OF 2007 FWAS . 24. THE TRANSACTION OF TRANSFER OF SHARE HOLDING OF CGP BY HTIL TO VIHBV THROUGH SHARE TRANSFER AGREEMENT (STA) AND IN CONSEQUENCE THE FRAMEWORK AGREEMENTS OF 2006 WERE RE-WRITTEN AS FRA MEWORK AGREEMENT 2007 UNDER WHICH THE ASSESSEE WAS HOLDING OPTION RI GHTS INDIRECTLY OF 12.25% EQUITY INTEREST IN HEL/VODAFONE INDIA LTD. ( VIL) THROUGH ASIM GHOSH AND ANALJIT SINGH GROUP COMPANIES UNDER THE I DENTICAL FRAMEWORK AGREEMENTS. 25. WE WILL FIRST DEAL WITH THE ISSUE WHETHER RECAS TING OF FRAMEWORK AGREEMENT IN 2007 TANTAMOUNT ASSIGNMENT OF OPTION R IGHTS HELD BY THE ASSESSEE UNDER FRAMEWORK AGREEMENTS OF 2006. DR. AB HISHEK MANU SINGHVI, LD. SENIOR COUNSEL FOR THE ASSESSEE HAS GI VEN MUCH EMPHASIS ON VODAFONE INDIA SERVICES PRIVATE LTD. 21 | P A G E THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE O F VODAFONE INDIA HOLDINGS BV VS. UOI 341 ITR 1 AND PARTICULARLY PARA 88 OF THE SAID JUDGMENT AND SUBMITTED THAT THE HON'BLE SUPREME COU RT HAS HELD THAT THERE IS NO TRANSFER OR ASSIGNMENT OF OPTION RIGHTS (CALL OPTION) IN PRESENTI BY VIRTUE OF FRAMEWORK AGREEMENT 2007. IT IS PERTIN ENT TO NOTE THAT THIS POINT WAS FORCEFULLY CONTENDED BY THE ASSESSEE BEFO RE HON'BLE JURISDICTIONAL HIGH COURT AND THE HON'BLE HIGH CO URT IN 359 ITR 133 HAS NOTED THAT SUBSEQUENT TO THE JUDGMENT OF THE HON'BL E SUPREME COURT, THERE IS AN AMENDMENT TO SECTION 2(47) WHICH RAISES SEVER AL IMPORTANT QUESTION OF FACT AND LAW AND ACCORDINGLY, THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CONSIDERED AND IT CANNOT BE BRUSHED ASIDE. ACCO RDINGLY, THE HON'BLE HIGH COURT HAS OBSERVED THAT IT WILL BE NECESSARY F OR THE TRIBUNAL TO CONSIDER THE JUDGMENT OF HON'BLE SUPREME COURT AS W ELL AS SUBSEQUENT AMENDMENT IN SECTION 2(47) OF THE INCOME TAX ACT. T HE RELEVANT OBSERVATION OF HONBLE JURISDICTIONAL HIGH COURT IN PARA 209 TO 216 AS UNDER:- 209. THE JUDGMENT OF THE SUPREME COURT WOULD UNDOUBTEDLY BE THE ASSESSEE'S MAIN PLANK AND SUPPORTS ITS CASE TO A CON SIDERABLE EXTENT, ESPECIALLY AS IT IS THE VERY AGREEMENTS THAT FALL FO R CONSIDERATION EVEN IN THE PROCEEDINGS RELATING TO THE ASSESSEE'S ASSESSMEN T. MR. SALVE RIGHTLY CONTENDED THAT THE SUPREME COURT HAD ANALYZED THE FRAMEW ORK AGREEMENTS AND HELD THAT THE CALL OPTIONS ARE CONTRAC TUAL RIGHTS; THAT THEY VESTED AND CONTINUE TO VEST IN THE ASSESSEE AND THAT THEY H AD NOT BEEN TRANSFERRED OR ASSIGNED BY THE ASSESSEE. WE PROCEED, AS INDEED WE MUST, THAT BEFORE THE ITAT, A VERY HEAVY BURDEN WOULD REST UPO N THE REVENUE EVEN REGARDING THE ASSESSEE'S ASSESSMENT IN VIEW OF TH E JUDGMENT IN VODAFONE'S CASE. EVERY COURT, TRIBUNAL, AUTHORITY OR PE RSON IS BOUND TO GIVE THE OBSERVATIONS OF THE SUPREME COURT, INCLUDING I N RESPECT OF THE FRAMEWORK AGREEMENTS, THEIR FULL EFFECT. THE SUGGESTI ON THAT THEY ARE CASUAL OBSERVATIONS IS REJECTED. A VIEW TO THE CONTRAR Y WOULD TANTAMOUNT TO JUDICIAL INDISCIPLINE. THIS IS NOT JUST OUR PRIMA FA CIE VIEW. NEEDLESS TO VODAFONE INDIA SERVICES PRIVATE LTD. 22 | P A G E SAY IT WOULD BE NECESSARY TO CONSIDER THE JUDGMENT EVEN IN THE PRESENT PROCEEDINGS. THAT, HOWEVER, CAN AND IN THE FACTS OF T HIS CASE OUGHT TO BE DONE BY THE AUTHORITIES UNDER THE ACT. IT COULD HAVE BEEN DONE EVEN BY THE TPO AND THE AO. THEIR ORDERS WERE, HOWEVER, PASSED PRI OR TO THE JUDGMENT OF THE SUPREME COURT AND THE OCCASION FOR THEM TO CONSIDER THIS JUDGMENT DOES NOT ARISE AT THIS STAGE. IT WILL, HOWEVER , BE NECESSARY FOR THE ITAT TO DO SO. WE SEE NO REASON TO SHORT-CIRCUIT THE PROCEEDINGS IN THIS REGARD AS THERE ARE OR ARE LIKELY TO BE OTHER ASPECT S INCLUDING FACTS WHICH WILL ALSO REQUIRE CONSIDERATION. 210. THE MATTER REGARDING THE ASSESSEE'S ASSESSMENT, HOWE VER, DOES NOT END THERE. IT DOES NOT END THERE ALTHOUGH THE JUDGMENT IN VODAFONE'S CASE ASSISTS IT TO A CONSIDERABLE DEGREE. THERE ARE OTHER ADDITIONAL ASPECTS WHICH REQUIRE CONSIDERATION. 211. WE OBSERVED EARLIER THAT WE ARE NOT ENTITLED TO RESTR ICT THE AMBIT OF THE OBSERVATIONS OF THE SUPREME COURT IN PARAGRAPH 88 OF THE JUDGMENT AND IN PARTICULAR THE WORDS 'OR ANY OTHER DOCUMENT WHATS OEVER'. THAT WOULD NOT, HOWEVER, PREVENT THE RESPONDENTS IN PROCEEDIN GS PERTAINING TO THE ASSESSEE WHO WAS NOT A PARTY TO THE PROCEEDINGS BEFORE THE SUPREME COURT FROM RELYING UPON ANY OTHER FACTS, CIRCUMSTANCE S OR EVIDENCE. THE JUDGMENT OF THE SUPREME COURT DOES NOT PREVENT THE DEPART MENT FROM DOING SO. WHETHER IT HAS DONE SO OR NOT IS ONE OF THE ISSUES WHICH WOULD BE REQUIRED TO BE DETERMINED BY THE ITAT. THE OTHER QUESTI ON, AND EQUALLY IMPORTANT, WOULD BE WHETHER THE DEPARTMENT IS NOW ENTI TLED TO RELY UPON ANY OTHER FACTS, CIRCUMSTANCES OR DOCUMENTS IN SUPPOR T OF THEIR CONTENTIONS. THESE ISSUES CAN CERTAINLY ALSO BE CONS IDERED BY THE ITAT. WHETHER OR NOT TO PERMIT A PARTY ASSESSEE OR THE DEPARTMENT TO RELY UPON ANY OTHER FACTS, CIRCUMSTANCES OR DOCUMENTS WILL ALSO BE A QUESTION WHICH MAY ARISE BEFORE THE TRIBUNAL. THE MACHINERY H AVING BEEN PUT IN MOTION, WE SEE NO REASON TO INVOKE OUR EXTRA-ORDINARY JURISDICTION TO SHORT-CIRCUIT THE SAME. 212. THERE HAS BEEN AN IMPORTANT DEVELOPMENT AFTER THE JUDG MENT OF THE SUPREME COURT. THE FINANCE ACT OF 2012 AMENDED THE DEFI NITION OF 'TRANSACTION' CONTAINED IN SECTION 2(47) BY INTRODUCIN G AN EXPLANATION THERETO. SECTION 2(47), AS AMENDED, READS AS UNDER : '2. DEFINITIONS ** ** ** (47) 'TRANSFER', IN RELATION TO A CAPITAL ASSET, INCLUDES,- (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASSET; OR VODAFONE INDIA SERVICES PRIVATE LTD. 23 | P A G E (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW ; OR (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER T HEREOF INTO; OR IS TREATED BY HIM AS, STOCK-IN- TRADE OF A BUSINESS CARRIED ON BY HIM AS, STOCK-IN- TRADE OF A BUSINESS CARRIED ON BY HIM, SUCH CONVERSION O R TREATMENT; OR (IVA) THE MATURITY OR REDEMPTION OF A ZERO COUPON BOND; OR (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PE RFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882 (4 OF 1992); OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBE R O F, OR ACQUIRING SHARES IN, A CO- OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT O R ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF T RANSFERRING, OR ENABLING THE ENJOYMENT OF, ANY IMMOVABLE PROPERTY. EXPLANATION 1.-FOR THE PURPOSES OF SUB-CLAUSES (V) AND (VI), 'IMMOVABLE PROPERTY' SHALL THE SAME MEANING AS IN CL AUSE (D) OF SECTION 269UA. EXPLANATION 2.-FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT 'TRANSFER' INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS I NCLUDED DISPOSING OF OR PARTING WITH AN ASSET OR ANY INTERES T THEREIN, OR CREATING ANY INTEREST IN ANY ASSET IN ANY MANNER WH ATSOEVER, DIRECTLY OR INDIRECTLY, ABSOLUTELY OR CONDITIONALLY, VOLUNTARILY OR INVOLUNTARILY, BY WAY OF AN AGREEMENT (WHETHER ENTERED INTO IN INDIA OR OUTSIDE INDIA) OR OTHERWISE, NOTWITHSTANDING THAT SUCH TRANSFE R OF RIGHTS HAS BEEN CHARACTERISED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA.' EXPLANATION 2 WAS INTRODUCED WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1962. 213. THE AMENDMENT TO SECTION 2(47) RAISES SEVERAL IMPORT ANT QUESTIONS OF FACT AND OF LAW. WHETHER OR NOT IT AFFECTS THE PR OCEEDINGS WHICH WERE THE SUBJECT MATTER BEFORE THE SUPREME COURT IS NOT RE LEVANT FOR THE PURPOSE OF THIS WRIT PETITION. BUT, WHETHER IT IS RE LEVANT OR NOT FOR THE PURPOSE OF THE ASSESSMENT PROCEEDINGS IN RESPECT OF THE ASSESSEE WHICH VODAFONE INDIA SERVICES PRIVATE LTD. 24 | P A G E ARE THE SUBJECT MATTER OF THIS WRIT PETITION, IS REL EVANT. THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CONSIDERED. IT CANNOT BE BRUSHED ASIDE. 214. SECTION 2(47), AS AMENDED, EVEN ON A CURSORY GLANCE RA ISES VARIOUS ISSUES. IT IS NECESSARY TO NOTE FOUR PRELIMINARY ASPE CTS OF EXPLANATION 2 TO SECTION 2(47). FIRSTLY, AS THE OPENING WORDS, 'FOR T HE REMOVAL OF DOUBTS IT IS HEREBY CLARIFIED THAT ...', INDICATE IT IS A CLAR IFICATORY AMENDMENT. SECONDLY, IT IS AN INCLUSIVE DEFINITION AS IS EVIDENT FRO M THE WORDS ' 'TRANSFER' INCLUDES '. THIRDLY, THE AMENDMENT IS WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1962. FOURTHLY, THE FINANCE AC T 2012 WHICH INTRODUCED, INTER-ALIA, THE AMENDMENT TO SECTION 2(47) AND SECTION 92CA(2B) IS A VALIDATING ACT IN VIEW OF SECTION 119 THEREOF. 215. EXPLANATION 2 TO SECTION 247 BROADLY HAS FOUR ELEMENTS. (I) DISPOSAL OR PARTING WITH OR CREATING ANY INTEREST IN AN ASS ET. (II) THE ASSET OR ANY INTEREST IN THE ASSET. (III) THE DISPOSING OF OR PARTING WITH THE ASSET OR CREATI NG ANY INTEREST THEREIN MAY BE : (A) DIRECT OR INDIRECT. ( B) ABSOLUTE OR CONDITIONAL. (C) VOLUNTARY OR INVOLUNTARILY. (D) BY AMENDMENT OR OTHERWISE. (IV) A NON - OBSTANTE PROVISION REGARDING THE NATURE OF A TRANSFER . IF AN ACT, ARRANGEMENT, TRANSACTION ETC. CONSTITUTES A TRANSFER AS DEFINED IN THE SECTI ON IT WOULD BE SO NOTWITHSTANDING THE TRANSFER OF RIG HTS HAVING BEEN CATEGORISED AS BEING EFFECTED OR DEPENDENT UPON OR FLOW ING FROM THE TRANSFER OF A SHARE OR SHARES OF A COMPANY REGISTER ED OR INCORPORATED OUTSIDE INDIA. 216. TWO ASPECTS OF A TRANSFER ARE CLARIFIED - THE ASSET ITSELF AND THE MANNER IN WHICH IT IS DEALT WITH. THE ASSET IS NO LO NGER RESTRICTED TO THE ASSET PER SE OR A RIGHT THEREIN, BUT ALSO EXTENDS TO 'ANY INTEREST THEREIN'. PRIOR TO THE AMENDMENT, THE WORDS 'ANY INTEREST THER EIN' WERE ABSENT. FURTHER, THE NATURE OF THE DISPOSAL IS ALSO EXPANDED. IT NOW INCLUDES THE CREATION OF ANY INTEREST IN ANY ASSET. MOREOVER, THE DISPOSAL OF OR CREATION OF ANY INTEREST IN THE ASSET MAY BE DIRECT OR INDIREC T, ABSOLUTE OR CONDITIONAL, VOLUNTARY OR INVOLUNTARY. IT MAY BE BY WAY OF AN AGREEMENT OR OTHERWISE. FURTHER, THE CONCLUDING WORDS CONSTITUTE A NON-OBSTANTE VODAFONE INDIA SERVICES PRIVATE LTD. 25 | P A G E PROVISION. IT PROVIDES THAT THE TRANSFER CONTEMPLATED THEREIN WOULD BE NOTWITHSTANDING THAT IT HAS BEEN CHARACTERISED AS BEI NG EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SHAR E OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA. IT WOULD BE EVIDENT, THEREFORE, THAT A LOT MORE MUST NOW BE SEEN AND CONSIDERED THAN BEFORE WHILE ARRIVING AT A CONCLUSION W HETHER THE TERMS AND CONDITIONS OF THE FRAMEWORK AGREEMENT CONSTITUTED A TRANSFER OR ASSIGNMENT OF THE CALL OPTIONS BY ONE PARTY TO ANOTHER. 26. THUS THE ISSUE OF ASSIGNMENT OF OPTION RIGHTS H AS TO BE ADJUDICATED BY CONSIDERING AND EXAMINING THE FRAMEWORK AGREEMENTS ALONG WITH ANY OTHER DOCUMENT(S) OR DEVELOPMENT SUBSEQUENT OR PRIO R TO THE FRAMEWORK AGREEMENTS IN LIGHT OF THE JUDGMENT OF HON'BLE SUPR EME COURT, THE OBSERVATION OF THE HON'BLE HIGH COURT AS WELL AS SU BSEQUENT AMENDMENT IN SECTION 2(47) ALONG WITH TRANSFER PRICING PROVISION S OF THE ACT AND FURTHER BY CONSIDERING THE NEW FACTS AND RECORDS BROUGHT BE FORE US. THE LD. SENIOR COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THERE I S NO TRANSFER OR ASSIGNMENT OF CALL OPTION IN PRESENTI AS NO CALL OPTIONS WERE TRANSFERRED UNDER THE FRAMEWORK AGREEMENT OF 2007 AND THE ASSES SEE CONTINUED TO HOLD THE CALL OPTION RIGHTS. IT IS THE CASE OF THE ASSESSEE THAT CLAUSE 4.4 OF THE NEW FRAMEWORK AGREEMENTS IS VIRTUALLY IDENTICA L OR AT LEAST SUBSTANTIALLY SIMILAR TO THE COUNTERPART CLAUSE OF 2006 FRAMEWORK AGREEMENTS, THOUGH THE LANGUAGE IS DIFFERENT AS BOT H WERE DRAFTED BY DIFFERENT SET OF FOREIGN LAWYERS. IN PARTICULAR, AS SESSEE CONTENDED THAT FIRSTLY, THERE IS NO RELEVANT MATERIAL DIFFERENCE B ETWEEN THE CLAUSES AND, SECONDLY, WITHOUT PREJUDICE, IN THE EVENT OF SUCH D IFFERENCE, IN ANY CASE THE NEW CLAUSE 4.4, BY NO STRETCH OF IMAGINATION, CONST ITUTES, IPSO FACTO OR IPSO JURE , ANY DIVESTITURE OR ASSIGNMENT OF THE CALL OPTION RIGHT FROM THE ASSESSEE TO VIH BV OR TO ANY OTHER ENTITY. THE LD. SENIOR CO UNSEL HAS REFERRED THE VODAFONE INDIA SERVICES PRIVATE LTD. 26 | P A G E JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF VO DAFONE INDIA HOLDINGS BV VS. UOI (SUPRA) AND SUBMITTED THAT THE ISSUE STA NDS CONCLUDED BY THE HON'BLE SUPREME COURT WHEREIN ON THE SAME SET OF AG REEMENTS, THE HON'BLE SUPREME COURT HAS RENDERED THE FINDING OF F ACT THAT NO ASSIGNMENT AND/OR TRANSFER HAS BEEN MADE. THE LD. SR. COUNSEL FOR THE ASSESSEE CONTENDED THAT EVEN IN THE OLD 2006 FRAMEWORK AGREE MENTS, THERE WAS NO RELEVANT MATERIAL OR SUBSTANTIAL CHANGE AS FAR AS T HE PRESENT CASE IS CONCERNED. THE MAIN DIFFERENCE IS IN STRUCTURE AND FORM AND NOT IN SUBSTANCE INASMUCH AS IN THE OLD 2006 FRAMEWORK AGR EEMENT, THE ISSUE OF CALL OPTION AND ITS ASSIGNABILITY/TRANSFERABILITY I S SPLIT OVER TWO CLAUSES (CLAUSE 4.4 AND 4.9), WHEREAS THESE ESSENTIAL ELEME NTS ARE MERGED INTO A SINGLE CLAUSE 4.4 IN THE 2007 FRAMEWORK AGREEMENTS. THE RIGHT EXISTS IN CLAUSE 4.4 OF 2006 FRAMEWORK AGREEMENT AS MUCH AS I T DOES IN 2007 VERSION. THE RIGHT IS OF BOTH SELF PURCHASE OR TRAN SFER OF THE RIGHT TO A PERSON REFERRED TO AS AFFILIATE OF THE ASSESSEE. THOUGH NO MINALLY THIS IS DIFFERENTLY WORDED SINCE AFFILIATE FINDS NO MENTION IN THE 2007 VERSION, AFFILIATE HAS BEEN SEPARATELY DEFINED IN CLAUSE 1.1 OF THE 2006 F RAMEWORK AGREEMENT. READING THE WIDE AND INCLUSIVE DEFINITION OF AFFILI ATE IN CLAUSE 1.1 OF 2006 FRAMEWORK AGREEMENT, IT IS CLEAR THAT IT IS ALMOST SYNONYMOUS, AT LEAST IN EFFECT AND IN RESULT WITH THE REFERENCE IN THE 2007 FRAMEWORK AGREEMENT TO THE WHOLLY OWNED SUBSIDIARY OF THE VODAFONE GROUP P LC. THOUGH THE PHRASE SOLE DISCRETION DOES NOT FIND MENTION IN THE 2006 VERSION, IT IS CLEAR THAT THE ABSENCE OF ANY FETTER WHATSOEVER ON THE RIGHTS OF GSPL (ASSESSEE), HAS, IN RESULT, THE SAME EFFECT. AT BEST, THE 2007 VERSI ON MAKES EXPLICIT WHAT IS IMPLICIT IN THE 2006 VERSION REGARDING DISCRETION. IT IS VITAL TO NOTE THAT AT NO POINT OF TIME PRIOR TO THE PRESENT PROCEEDINGS D ID THE IT DEPARTMENT VODAFONE INDIA SERVICES PRIVATE LTD. 27 | P A G E FIND THE PER SE EXISTENCE OF CLAUSE 4.4 AND 4.9 IN THE 2006 FRAMEW ORK AGREEMENTS OBJECTIONABLE OR CULPABLE REGARDING IPSO FACTO ASSIGNMENT OR DIVESTITURE AND CONSEQUENT APPLICATION OF TP REGULA TIONS. IT IS THUS CLEAR, AND THE DRP ORDER DATED 30.09.2012 SAYS SO EXPLICIT LY THAT IT IS THE CHANGE OF LANGUAGE IN THE 2007 FRAMEWORK AGREEMENT WHICH C ONSTITUTES ASSIGNMENT AND, THEREFORE, ATTRACTS THE TP REGULATI ONS. FOR THE REASONS ELABORATED ABOVE, THIS IS EX FACIE FALLACIOUS AND LIABLE TO BE SET-ASIDE. EVEN OTHERWISE, ON FIRST PRINCIPLE, ASSIGNMENT MEANS THE TRANSFER OR RELINQUISHMENT OR DIVESTITURE OF RIGHTS HELD BY A P ERSON IN FAVOUR OF OTHERS. ASSUMING WITHOUT CONCEDING THAT THERE IS ANY RELEVA NT OR MATERIAL DIFFERENCE BETWEEN THE TWO, IT IS IMPOSSIBLE TO ASS ERT BY ANY DISTORTION OF LANGUAGE OR STRETCH OF IMAGINATION THAT CLAUSE 4.4 IN THE 2007 VERSIONS CONSTITUTES IN PRESENTI A FACTUAL OR LEGAL OR A VOLUNTARY OR COMPULSORY ASSIGNMENT OF THE CALL OPTION. IN THIS CONNECTION I T IS IRONICAL THAT THE DRP IMPUGNED ORDER ITSELF PROCEEDS ON THE FUNDAMENTAL A SSUMPTION THAT THE 2007 VERSION CONSTITUTED AN ASSIGNMENT IN PRESENTI. ABSENT STATUTORY COMPULSION, AN ASSIGNMENT MUST NECESSARILY BE VOLIT IONAL AND MUST INVOLVE A VOLITIONAL FACTUAL ACT, USUALLY INVOLVING A DOCUM ENT, BY THE ASSIGNOR TO AT LEAST ONE OTHER PARTY VIZ . AN ASSIGNEE. AMAZINGLY, THE IT DEPARTMENT IS UNABLE TO PIN POINT ANY SUCH VOLITIONAL DOCUMENT, S AVE AND EXCEPT THE FRAMEWORK AGREEMENT OF 2007 ITSELF. IT IS SUBMITTED THAT AT THE HIGHEST BOTH THE 2006 & 2007 VERSIONS REMAIN EMPOWERING OR ENABLING AUTHORISATIONS WHICH HAVE NEVER BEEN ACTED UPON. 27. HE HAS CONTENDED THAT THE OTHER REASON STATED I N DRP ORDER THAT THE PURCHASER VIH BV IS THE CONFIRMING PARTY TO THE FRA MEWORK AGREEMENT OF VODAFONE INDIA SERVICES PRIVATE LTD. 28 | P A G E 2007 AND, THEREFORE, CREATES AN ASSIGNMENT OR SUPPO RTS THE DEPARTMENTS CASE ON ASSIGNMENT IS EQUALLY FALLACIOUS. ON THE CO NTRARY, THE EXISTENCE OF ANY ENTITY AS A CONFIRMING PARTY IS ITSELF PROOF PO SITIVE THAT IT IS NEITHER A TRANSFEROR NOR TRANSFEREE BUT MERELY A CONFIRMING P ARTY. SECONDLY, IN LAW OR IN PRACTICE, THE VERY RATIONALE OF A CONFIRMING PA RTY IS TO CONFER UPON SUCH CONFIRMING PARTY THE STATUS OF A SPECIAL WITNESS AN D TO CREATE AN ESTOPPEL AGAINST THE CONFIRMING PARTY SO AS TO PRECLUDE UNNE CESSARY CHALLENGES BY IT. LASTLY, THE CONFIRMING PARTY ISSUE HAS BEEN DISPOSI TIVELY DEALT WITH IN THE APEX COURT JUDGMENT INVOLVING THE SPA AND THE PURCH ASE BY VIH BV. THAT FINDING IS SO CLEAR THAT THE DRP ORDER IS CLEARLY C ONTUMACIOUSLY VIOLATIVE OF THE SUPREME COURTS DECISION ON THIS SUBJECT. 28. THE LD. ASG EMPHASIZED THE PROVISIONS OF SECTIO N 2(47) OF THE ACT AND SUBMITTED THAT AS PER EXPLANATION 2 TO SECTION 2(47) AS INTRODUCED BY THE FINANCE ACT 2012 W.R.E.F 1.4.1962, THE DEFINITION OF TRANSFER AND IN RELATION TO A CAPITAL ASSET IS WIDE AND INCLUDES DI SPOSING OF OR PARTING WITH AN ASSET OR ANY INTEREST THEREIN, OR CREATING ANY I NTEREST IN ANY ASSET IN ANY MANNER WHATSOEVER, DIRECTLY OR INDIRECTLY, ABSOLUTE LY OR CONDITIONALLY, VOLUNTARILY OR INVOLUNTARILY, BY WAY OF AN AGREEMEN T (WHETHER ENTERED INTO IN INDIA OR OUTSIDE INDIA) OR OTHERWISE, NOTWITHSTA NDING THAT SUCH TRANSFER OF RIGHTS HAS BEEN CHARACTERIZED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA. THUS THE LD. ASG HIGHLI GHTED THE WIDEN DEFINITION OF THE TERM TRANSFER IN RELATION TO A C APITAL ASSET BY INTRODUCTION OF EXPLANATION 2 WHICH INCLUDES DISPOSAL OR PARTING WITH OR CREATING ANY INTEREST IN ANY ASSET BY DIRECT OR INDIRECT, ABSOLU TE OR CONDITIONAL OR VODAFONE INDIA SERVICES PRIVATE LTD. 29 | P A G E VOLUNTARILY OR INVOLUNTARILY BY AN AGREEMENT OR OTH ERWISE. THEREFORE, IT IS NOT NECESSARY UNDER THE AMENDED PROVISIONS OF SECTI ON 2(47) THAT AN ASSET ITSELF HAS TO BE TRANSFERRED BUT CREATION OF ANY IN TEREST OR RIGHT IN THE ASSET ALSO FALLS IN THE AMBIT OF TERM TRANSFER. THEREFO RE, THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS BV VS. UOI (SUPRA) CANNOT BE CONSIDERED AS A DECISION ON THE I SSUE OF ASSIGNMENT/TRANSFER OF CALL OPTION BY THE ASSESSEE TO ITS AFFILIATE. 29. IN REBUTTAL, THE LD. SENIOR COUNSEL HAS SUBMITT ED THAT THE HON'BLE SUPREME COURT HAS DECIDED THE JURISDICTIONAL FACT A ND EVEN THE AMENDED PROVISIONS OF SECTION 2(47) WOULD NOT OBLITERATE TH E JUDGMENT OF HONBLE SUPREME COURT ON THE POINT OF NO ASSIGNMENT OF CAL L OPTION IN PRESENTI . 30. WE DO NOT AGREE WITH THE ARGUMENTS OF LD. SENIO R COUNSEL OF THE ASSESSEE ON THE POINT THAT THE ISSUE STANDS CONCLUD ED BY THE HON'BLE SUPREME COURT BECAUSE THE QUESTION BEFORE HON'BLE S UPREME COURT WAS WHETHER THE OWNERSHIP OF A COMPANY IS TRANSFERRED B Y ITS HOLDING COMPANY TO A THIRD PARTY WOULD ALSO AMOUNT TO TRANSFER OF T HE ASSET OF SUBSIDIARY COMPANY. THE FINDING AND OBSERVATION OF HON'BLE SUP REME COURT IN PARA 88 HAS BEEN RELIED UPON BY THE LD. SENIOR COUNSEL OF T HE ASSESSEE WHICH READS AS UNDER:- 88. WE HAVE TO VIEW THE SUBJECT MATTER OF THE TRANSACTION , IN THIS CASE, FROM A COMMERCIAL AND REALISTIC PERSPECTIVE. THE PRES ENT CASE CONCERNS AN OFFSHORE TRANSACTION INVOLVING A STRUCTURED INVESTMEN T. THIS CASE CONCERNS 'A SHARE SALE' AND NOT AN ASSET SALE. IT CO NCERNS SALE OF AN ENTIRE INVESTMENT. A 'SALE' MAY TAKE VARIOUS FORMS. ACCORDIN GLY, TAX CONSEQUENCES WILL VARY. THE TAX CONSEQUENCES OF A SHA RE SALE WOULD BE VODAFONE INDIA SERVICES PRIVATE LTD. 30 | P A G E DIFFERENT FROM THE TAX CONSEQUENCES OF AN ASSET SALE. A SLUMP SALE WOULD INVOLVE TAX CONSEQUENCES WHICH COULD BE DIFFERENT FROM TH E TAX CONSEQUENCES OF SALE OF ASSETS ON ITEMIZED BASIS. 'CO NTROL' IS A MIXED QUESTION OF LAW AND FACT. OWNERSHIP OF SHARES MAY, IN CERTAIN SITUATIONS, RESULT IN THE ASSUMPTION OF AN INTEREST WHICH HAS THE CHARACTER OF A CONTROLLING INTEREST IN THE MANAGEMENT OF THE COMPA NY. A CONTROLLING INTEREST IS AN INCIDENT OF OWNERSHIP OF SHARES IN A COMPANY, SOMETHING WHICH FLOWS OUT OF THE HOLDING OF SHARES. A CONTROLL ING INTEREST IS, THEREFORE, NOT AN IDENTIFIABLE OR DISTINCT CAPITAL A SSET INDEPENDENT OF THE HOLDING OF SHARES. THE CONTROL OF A COMPANY RESIDES IN THE VOTING POWER OF ITS SHAREHOLDERS AND SHARES REPRESENT AN INTEREST OF A SHAREHOLDER WHICH IS MADE UP OF VARIOUS RIGHTS CONTAINED IN THE CONTRACT EMBEDDED IN THE ARTICLES OF ASSOCIATION. THE RIGHT OF A SHAREHOLDER MAY ASSUME THE CHARACTER OF A CONTROLLING INTEREST WHERE THE EXTEN T OF THE SHAREHOLDING ENABLES THE SHAREHOLDER TO CONTROL THE MANAGEMENT. S HARES, AND THE RIGHTS WHICH EMANATE FROM THEM, FLOW TOGETHER AND CA NNOT BE DISSECTED. IN THE FELICITOUS PHRASE OF LORD MACMILLAN IN IRC V. CROS SMAN [1936] 1 ALL ER 762, SHARES IN A COMPANY CONSIST OF A 'CONGERIES OF RIGHTS AND LIABILITIES' WHICH ARE A CREATURE OF THE COMPANIES A CTS AND THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY. THUS, CONTROL AND MANAGEMENT IS A FACET OF THE HOLDING OF SHARES. A PPLYING THE ABOVE PRINCIPLES GOVERNING SHARES AND THE RIGHTS OF THE SHA REHOLDERS TO THE FACTS OF THIS CASE, WE FIND THAT THIS CASE CONCERNS A STRA IGHTFORWARD SHARE SALE. VIH ACQUIRED UPSTREAM SHARES WITH THE INTENTION THAT THE CONGERIES OF RIGHTS, FLOWING FROM THE CGP SHARE, WOULD GIVE VIH AN INDIRECT CONTROL OVER THE THREE GENRES OF COMPANIES. IF ONE LOOKS AT THE CHART INDICATING THE OWNERSHIP STRUCTURE, ONE FINDS THAT THE ACQUISITION OF THE CGP SHARE GAVE VIH AN INDIRECT CONTROL OVER THE TIER I MAURITIUS COMPA NIES WHICH OWNED SHARES IN HEL TOTALLING TO 42.34%; CGP INDIA (MS), WH ICH IN TURN HELD SHARES IN TII AND OMEGA AND WHICH ON A PRO RATA BAS IS (THE FDI PRINCIPLE), TOTALLED UP TO 9.62% IN HEL AND AN INDIRECT CONTROL OVER HUTCHISON TELE-SERVICES (INDIA) HOLDINGS LTD. (MS), WHIC H IN TURN OWNED SHARES IN GSPL, WHICH HELD CALL AND PUT OPTIONS. ALTHO UGH THE HIGH COURT HAS ANALYSED THE TRANSACTIONAL DOCUMENTS IN DETAIL, IT HAS MISSED OUT THIS ASPECT OF THE CASE. IT HAS FAILED TO NOTICE THAT TIL L DATE OPTIONS HAVE REMAINED UN-ENCASHED WITH GSPL. THEREFORE, EVEN IF IT B E ASSUMED THAT THE OPTIONS UNDER THE FRAMEWORK AGREEMENTS 2006 COULD BE CONSIDERED TO BE PROPERTY RIGHTS, THERE HAS BEEN NO TRANSFER O R ASSIGNMENT OF OPTIONS BY GSPL TILL TODAY. EVEN IF IT BE ASSUMED THAT THE HIG H COURT WAS RIGHT IN HOLDING THAT THE OPTIONS CONSTITUTED CAPITAL ASSETS EVEN THEN SECTION 9(1)(I) WAS NOT APPLICABLE AS THESE OPTIONS HAVE NOT BEEN TR ANSFERRED TILL DATE. CALL AND PUT OPTIONS WERE NOT TRANSFERRED VIDE SPA DATED 1 1.02.2007 OR VODAFONE INDIA SERVICES PRIVATE LTD. 31 | P A G E UNDER ANY OTHER DOCUMENT WHATSOEVER. MOREOVER, IF, ON PRI NCIPLE, THE HIGH COURT ACCEPTS THAT THE TRANSFER OF THE CGP SHAR E DID NOT LEAD TO THE TRANSFER OF A CAPITAL ASSET IN INDIA, EVEN IF IT RES ULTED IN A TRANSFER OF INDIRECT CONTROL OVER 42.34% (52%) OF SHARES IN HEL, THEN SURELY THE TRANSFER OF INDIRECT CONTROL OVER GSPL WHICH HELD OPTI ONS (CONTRACTUAL RIGHTS), WOULD NOT MAKE THE TRANSFER OF THE CGP SHARE TAXABLE IN INDIA. ACQUISITION OF THE CGP SHARE WHICH GAVE VIH AN INDIRE CT CONTROL OVER THREE GENRES OF COMPANIES EVIDENCES A STRAIGHTFORWARD SHARE SALE AND NOT AN ASSET SALE. THERE IS ANOTHER FALLACY IN THE IMPUG NED JUDGMENT. ON EXAMINATION OF THE IMPUGNED JUDGMENT, WE FIND A SERIOUS ERROR COMMITTED BY THE HIGH COURT IN APPRECIATING THE CASE OF VIH BEFORE FIPB. ON 19.03.2007, FIPB SOUGHT A CLARIFICATION FROM VIH O F THE CIRCUMSTANCES IN WHICH VIH AGREED TO PAY US$ 11.08 BN FOR ACQUIRI NG 67% OF HEL WHEN ACTUAL ACQUISITION WAS OF 51.96%. IN ITS RESPONSE DATED 19.03.2007, VIH STATED THAT IT HAD AGREED TO ACQUIRE FROM HTIL FOR US$ 11.08 BN, INTEREST IN HEL WHICH INCLUDED A 52% EQUITY SHAREHOLDING. ACCORD ING TO VIH, THE PRICE ALSO INCLUDED A CONTROL PREMIUM, USE OF HUTCH BRAN D IN INDIA, A NON-COMPETE AGREEMENT, LOAN OBLIGATIONS AND AN ENTIT LEMENT TO ACQUIRE, SUBJECT TO THE INDIAN FDI RULES, A FURTHER 15% INDIRECT INTEREST IN HEL. ACCORDING TO THE SAID LETTER, THE ABOVE ELEMENTS TOGE THER EQUATED TO 67% OF THE ECONOMIC VALUE OF HEL. THIS SENTENCE HAS BEEN MISCONSTRUED BY THE HIGH COURT TO SAY THAT THE ABOVE ELEMENTS EQUATED TO 67% OF THE EQUITY CAPITAL (SEE PARA 124). 67% OF THE ECONOMIC VALUE OF H EL IS NOT 67% OF THE EQUITY CAPITAL. IF VIH WOULD HAVE ACQUIRED 67% OF THE EQU ITY CAPITAL, AS HELD BY THE HIGH COURT, THE ENTIRE INVESTMENT WOULD HA VE HAD BREACHED THE FDI NORMS WHICH HAD IMPOSED A SECTORAL CAP OF 74 %. IN THIS CONNECTION, IT MAY FURTHER BE STATED THAT ESSAR HAD 3 3% STAKES IN HEL OUT OF WHICH 22% WAS HELD BY ESSAR MAURITIUS. THUS, VIH DID N OT ACQUIRE 67% OF THE EQUITY CAPITAL OF HEL, AS HELD BY THE HIGH COURT. THIS PROBLEM HAS ARISEN ALSO BECAUSE OF THE REASON THAT THIS CASE DEALS WITH SHARE SALE AND NOT ASSET SALE. THIS CASE DOES NOT INVOLVE SALE OF ASSETS ON ITEMIZED BASIS. THE HIGH COURT OUGHT TO HAVE APPLIED THE LOOK AT TEST IN WHICH THE ENTIRE HUTCHISON STRUCTURE, AS IT EXISTED, OUGHT TO HA VE BEEN LOOKED AT HOLISTICALLY. THIS CASE CONCERNS INVESTMENT INTO INDI A BY A HOLDING COMPANY (PARENT COMPANY), HTIL THROUGH A MAZE OF SUB SIDIARIES. WHEN ONE APPLIES THE 'NATURE AND CHARACTER OF THE TRANSACT ION TEST', CONFUSION ARISES IF A DISSECTING APPROACH OF EXAMINING EACH IN DIVIDUAL ASSET IS ADOPTED. AS STATED, CGP WAS TREATED IN THE HUTCHISON ST RUCTURE AS AN INVESTMENT VEHICLE. AS A GENERAL RULE, IN A CASE WHERE A TRANSACTION INVOLVES TRANSFER OF SHARES LOCK, STOCK AND BARREL, SUC H A TRANSACTION CANNOT BE BROKEN UP INTO SEPARATE INDIVIDUAL COMPONENT S, ASSETS OR RIGHTS SUCH AS RIGHT TO VOTE, RIGHT TO PARTICIPATE IN COMPAN Y MEETINGS, VODAFONE INDIA SERVICES PRIVATE LTD. 32 | P A G E MANAGEMENT RIGHTS, CONTROLLING RIGHTS, CONTROL PREM IUM, BRAND LICENCES AND SO ON AS SHARES CONSTITUTE A BUNDLE OF RIGHTS. [SE E CHARANJIT LAL CHOWDHURI V. UNION OF INDIA AIR 1951 SC 41, VENKATESH V. CIT [2000] 243ITR 367 /109 TAXMAN 781 (MAD.) AND SMT. MAHARANI USHADEVI V. CIT [1981] 131 ITR 445 /[1982] 8 TAXMAN 91 (MP)] FURTHER, THE HIGH COURT HAS FAILED TO EXAMINE THE NATURE OF THE FOLLOWING ITEMS, NAMELY, NON-COMPETE AGREEMENT, CON TROL PREMIUM, CALL AND PUT OPTIONS, CONSULTANCY SUPPORT, CUSTOMER BASE, B RAND LICENCES ETC. ON FACTS, WE ARE OF THE VIEW THAT THE HIGH COURT, IN THE PRESE NT CASE, OUGHT TO HAVE EXAMINED THE ENTIRE TRANSACTION HOLISTICALLY. VIH HAS RIGHTLY CONTENDED THAT THE TRANSACTION IN QUESTION SHOULD BE LO OKED AT AS AN ENTIRE PACKAGE. THE ITEMS MENTIONED HEREINABOVE, LIKE , CONTROL PREMIUM, NON-COMPETE AGREEMENT, CONSULTANCY SUPPORT, CUSTOMER BASE, BRAND LICENCES, OPERATING LICENCES ETC. WERE ALL AN INTEG RAL PART OF THE HOLDING SUBSIDIARY STRUCTURE WHICH EXISTED FOR ALMOST 13 YEARS, GENERATING HUGE REVENUES, AS INDICATED ABOVE. MERELY BECAUSE AT THE TIME O F EXIT CAPITAL GAINS TAX BECOMES NOT PAYABLE OR EXIGIBLE TO TAX WO ULD NOT MAKE THE ENTIRE 'SHARE SALE' (INVESTMENT) A SHAM OR A TAX AVOI DANT. THE HIGH COURT HAS FAILED TO APPRECIATE THAT THE PAYMENT OF US$ 11 .08 BN WAS FOR PURCHASE OF THE ENTIRE INVESTMENT MADE BY HTIL IN INDIA . THE PAYMENT WAS FOR THE ENTIRE PACKAGE. THE PARTIES TO THE TRAN SACTION HAVE NOT AGREED UPON A SEPARATE PRICE FOR THE CGP SHARE AND FOR WHAT THE HIGH COURT CALLS AS 'OTHER RIGHTS AND ENTITLEMENTS' (INCLUDING OPTIONS, RIGHT TO NON- COMPETE, CONTROL PREMIUM, CUSTOMER BASE ETC.). THUS, I T WAS NOT OPEN TO THE REVENUE TO SPLIT THE PAYMENT AND CONSIDER A PART OF SUCH PAYMENTS FOR EACH OF THE ABOVE ITEMS. THE ESSENTIAL CHARACTE R OF THE TRANSACTION AS AN ALIENATION CANNOT BE ALTERED BY THE FORM OF THE C ONSIDERATION, THE PAYMENT OF THE CONSIDERATION IN INSTALMENTS OR ON TH E BASIS THAT THE PAYMENT IS RELATED TO A CONTINGENCY ('OPTIONS', IN THIS CASE), PARTICULARLY WHEN THE TRANSACTION DOES NOT CONTEMPLATE SUCH A SPLI T UP. WHERE THE PARTIES HAVE AGREED FOR A LUMP SUM CONSIDERATION WITHOUT PLACING SEPARATE VALUES FOR EACH OF THE ABOVE ITEMS WHICH GO TO MAKE U P THE ENTIRE INVESTMENT IN PARTICIPATION, MERELY BECAUSE CERTAIN VA LUES ARE INDICATED IN THE CORRESPONDENCE WITH FIPB WHICH HAD RAISED THE Q UERY, WOULD NOT MEAN THAT THE PARTIES HAD AGREED FOR THE PRICE PAYAB LE FOR EACH OF THE ABOVE ITEMS. THE TRANSACTION REMAINED A CONTRACT OF O UTRIGHT SALE OF THE ENTIRE INVESTMENT FOR A LUMP SUM CONSIDERATION [SEE: C OMMENTARY ON MODEL TAX CONVENTION ON INCOME AND CAPITAL DATED 28.01.20 03 AS ALSO THE JUDGMENT OF THIS COURT IN THE CASE OF CIT V. MUGNEERAM BANGUR & CO. [1965] 57ITR 299 . THUS, WE NEED TO 'LOOK AT' THE ENTIRE OWNERSHIP STRUCTURE SET UP BY HUTCHISON AS A SINGLE CONSOLIDATED B ARGAIN AND VODAFONE INDIA SERVICES PRIVATE LTD. 33 | P A G E INTERPRET THE TRANSACTIONAL DOCUMENTS, WHILE EXAMININ G THE OFFSHORE TRANSACTION OF THE NATURE INVOLVED IN THIS CASE, IN THAT LIGHT. 31. IT WAS HELD BY THE HON'BLE SUPREME COURT THAT T HE ASSET OF A COMPANY BELONGS TO THE COMPANY AND NOT TO THE SHARE HOLDERS OF THE COMPANY, THEREFORE, THE ASSET VESTED WITH THE COMPANY WOULD REMAIN VESTED ALBEIT THE OWNERSHIP IS TRANSFERRED. THUS THE HON'BLE SUPREME COURT EXAMINED THE QUESTION IN THE CONTEXT OF TRANSFER OF ASSET OF THE ASSESSEE BY ITS HOLDING COMPANY HTIL TO VIH BV BY VIRTUE OF SHARE TRANSFER AGREEMENT(STA) ALONG WITH FWAS AND FOUND THAT DESPITE THE TRANSFER OF SHARE HELD BY HTIL TO VIH BV, THE SAME WOULD NOT RESULT TRANSFER OF AS SET OF THE ASSESSEE TO VIHBV. THIS QUESTION WAS DEALT WITH ONLY IN CONTEXT OF TRANSFER BETWEEN HTIL AND VIH BV BY VIRTUE OF STA AND NOT IN CONTEXT OF TRANSFER OF OPTION RIGHTS BY ASSESSEE TO ITS AFFILIATE. THEREFORE, AT THE FIRST PLACE THE JUDGMENT OF HON'BLE SUPREME COURT IS NOT BASED ON THE FINDIN G OF FACTS AS EXAMINED AND INVESTIGATED BY ANY OF THE FACT FINDING AUTHORI TY AND CONSEQUENTLY IT IS BINDING ON ALL SUBORDINATE COURTS ONLY ON THE POINT OF PRINCIPLE LAID DOWN ON THE SUBSTANTIAL QUESTION OF LAW. THE JUDGMENT RE NDERED BY HON'BLE SUPREME COURT UNDER EXTRAORDINARY SPECIAL WRIT JURI SDICTION IS BASED EITHER ON UNDISPUTED FACTS OR ON ASSUMPTION OF FACTS AND C ANNOT BE SAID THAT THE SAID JUDGMENT IS BINDING EVEN ON THE FINDING OF FAC TS IN A DISPUTE BETWEEN DIFFERENT PARTIES. FURTHER THE JUDGMENT OF HON'BLE SUPREME COURT IS BASED UPON THE UNAMENDED PROVISIONS OF SECTION 2(47)OF IT ACT IN THE CONTEXT OF LIMITED FACTS AND DOCUMENTS CONSIDERED THEREIN AND THEREFORE, SO FAR AS THE APPLICABILITY OF AMENDED PROVISIONS OF SECTION 2(47 ) TO THE FACTS INCLUDING NEW FACTS OF THE CASE ARE CONCERNED, THE JUDGMENT O F HON'BLE SUPREME VODAFONE INDIA SERVICES PRIVATE LTD. 34 | P A G E COURT WOULD NOT BE REGARDED AS BINDING PRECEDENT. H OWEVER IF THE AMENDED PROVISIONS OF SECTION 2(47) ARE NOT FOUND T O BE APPLICABLE ON THE FACTS OF THE CASE IN HAND THEN, THE JUDGMENT OF THE HON'BLE SUPREME COURT TO THE EXTENT OF INTERPRETATION OF THE AGREEMENTS AND THE PROVISIONS OF SECTION 2(47) WOULD BE BINDING ON ALL THE AUTHORITI ES AND COURTS INCLUDING THIS TRIBUNAL. THEREFORE, IT IS INCUMBENT UPON US T O EXAMINE THE FRAMEWORK AGREEMENTS INCUDING THE ADDITIONAL EVIDENCE PRODUCE D BEFORE US IN THE LIGHT OF AMENDED PROVISIONS OF SECTION 2(47) OF TH E INCOME TAX ACT AS WELL AS SECTION 92B/92F OF THE INCOME TAX ACT. WE MAY CL ARIFY AT THIS STAGE THAT SO FAR AS THE OPTION RIGHTS BEING A VALUABLE RIGHT AND TO BE CONSIDERED AS PROPERTY RIGHTS, THE LD. SENIOR COUNSEL HAS NOT DI SPUTED THIS FACT. EVEN OTHERWISE, THE OPTION RIGHTS HELD BY THE ASSESSEE U NDER FRAMEWORK AGREEMENT 2006 ARE IN CONSIDERATION OF ARRANGEMENT OF FUNDS AND WITH A VIEW TO ACQUIRE THE SHARE HOLDING TO THE EXTENT OF 15.03% IN FUTURE WITH AN ANTICIPATION OF RELAXATION OF SECTORAL CAP/CEILING ON FDI IN TELECOM SECTOR. MOREOVER, A SUM OF US $ 10.2 MILLION AND US $ 6.3 M ILLION PER ANNUM WERE PAID TO MR. ANALJIT SINGH AND MR. ASIM GHOSH RESPEC TIVELY TO KEEP THE CALL OPTION ALIVE UNDER THE FRAMEWORK AGREEMENT 2007. FU RTHER DURING THE PROCEEDINGS BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT AGAINST THE TPO AND DRAFT ASSESSMENT ORDER IN RESPECT OF TRANSFER PRICING ADJUSTMENT OF ASSIGNMENT OF CALL OPTION, SHRI HARISH SALVE, LD. SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE HAS NOT DENIED THAT THE CALL OPTION ARE VERY VALUABLE AND THAT VODAFONE INDIRECTLY OBTAINED A DEGREE OF PERSUASIVE CONTROL OVER THESE CALL OPTIONS CONSISTENT WITH A H OLDING SUBSIDIARY RELATIONSHIP AS RECORDED BY HON'BLE JURISDICTIONAL HIGH COURT IN PARA 204 IN VODAFONE INDIA SERVICE (P.) LTD. VS. UNION OF INDIA , (SUPRA). VODAFONE INDIA SERVICES PRIVATE LTD. 35 | P A G E THEREFORE, UNDISPUTEDLY AND UNDOUBTEDLY THE OPTION RIGHTS HELD BY THE ASSESSEE ARE VALUABLE RIGHTS IN RELATION TO THE IND IRECT SHARE HOLDING TO THE EXTENT OF 15.03% IN HEL/VIL. THE ISSUE BEFORE US, IS REGARDING THE OPTION RIGHTS TO ACQUIRE 12.25% SHARES OF HEL/VIL THROUGH AG AND AS FRAMEWORK AGREEMENTS. 32. AS WE HAVE ALREADY DISCUSSED THE MATTER HAS BEE N REMANDED BY THE HONBLE HIGH COURT TO THIS TRIBUNAL FOR FINDING OF FACT AFTER CONSIDERING ALL FACTS, ADDITIONAL EVIDENCE /DOCUMENTS TO BE FILED B Y THE PARTIES AS WELL THE AMENDED PROVISIONS OF SECTION 2(47) AND TRANSFER PR ICING PROVISIONS. FIRST WE WILL EXAMINE THE FWAS OF 2006 AND 2007 BY COMPAR ING THE RELEVANT CLAUSES. IN ORDER TO PROPER APPRECIATION OF AGREEME NTS IN QUESTION AND FACTS, WE REPRODUCE THE RELEVANT CLAUSES OF FRAMEWO RK AGREEMENT 2006 AS WELL AS 2007 SIDE BY SIDE AS UNDER:- FRAMEWORK AGREEMENT 200 6 FRAMEWORK AGREEMENT 2007. PARTIES TO THE AGREEMENT. ASIM GHOSH GOLDSPOT MERCANTILE COMPANY PRIVATE LIMITED PLUSTECH MERCANTILE COMPANY PRIVATE LIMITED GLOBAL SERVICES PRIVATE LIMITED CENTRINO TRADING COMPANY PRIVATE LIMITED ASIM GHOSH PLUSTECH MERCANTILE COMPANY PVT. LTD. 3 GLOBAL SERVICES PVT. LTD. NADAL TRADING COMPANY PVT. LTD. VODAFONE INTERNATIONAL TRADING HOLDINGS BV. (4.3) PUT OPTION GOLDSPOT SHALL, SUBJECT TO THE CONDITIONS SET OUT B ELOW, HAVE THE RIGHT TO REQUIRE GSPL OR ITS NOMINEE TO PURCHASE ALL, BUT NOT PART ONLY, OF THE PLUSTECH SHA RES (4.3) PUT OPTION (A) AG SHALL HAVE THE RIGHT TO REQUIRE GSPL OR ITS NOMINATED PERSON TO PURCHASE, AT ITS SOLE DISCRETION, ANY OR ALL VODAFONE INDIA SERVICES PRIVATE LTD. 36 | P A G E (THE 'PUT SHARES') HELD BY GOLDSPOT (THE 'PUT OPTION ') IN ACCORDANCE WITH THE PROCEDURE LAID DOWN IN CLAUS E 4.5 BELOW AND AT A FAIR MARKET VALUE DETERMINED IN ACCORDANCE WITH CLAUSE 4.6 BELOW. GOLDSPOT MAY EXERCISE THE PUT OPTION AT ANY TIME AFT ER: (A) GSPL OR ITS NOMINEE ISSUES THE SUBSCRIPTION NOT ICE FOR SUBSCRIBING TO SUCH NUMBER OF SUBSCRIPTION SHAR ES WHICH WOULD RESULT IN GSPL OR ITS NOMIN:.E HOLDING MORE THAN 50% OF THE ISSUED SHARE CAPITAL OF CENTRI NO; OR (B) CGP OR ITS NOMINEE ISSUES A NOTICE TO SUBSCRIBE TO OR PURCHASE THE SHARES IN TII PURSUANT TO THE SUBSCRIPTION RIGHT OR CALL OPTION, AS THE CASE MAYB E, AVAILABLE UNDER THE TII SHAREHOLDERS AGREEMENT (''T II OPTION') WHICH WOULD RESULT IN CGP OR ITS NOMINEE HOLDING MORE THAN 50% OF THE ISSUED SHARE CAPITAL O F TII. CGP SHALL PROCURE A COPY OF THE AFORESAID NOTIC E SHALL BE SENT TO GOLDSPOT SIMULTANEOUS WITH EXERCIS E OF THE TII OPTION. AFTER ISSUE OF THE AFORESAID NOTICE BUT PRIOR TO SUBSCRIPTION TO/PURCHASE OF ANY SHARES IN TII BY CGP, IN THE EVENT GOLDSPOT EXERCISES THE PUT OPTIO N, GSPL SHALL (UNLESS THE PARTIES AGREE OTHERWISE) COMPLETE THE PURCHASE OF THE PUT SHARES AT FAIR MARK ET VALUE DETERMINED IN ACCORDANCE WITH CLAUSE 4.6 BELO W PRIOR TO THE AFORESAID SUBSCRIPTION TO/PURCHASE OF THE SHARES IN TII; OR (C) GSPL BECOMES ELIGIBLE UNDER ALL APPLICABLE INDI AN LAWS AND REGULATIONS TO HOLD ALL OF THE SUBSCRIPTIO N SHARES; OR (D) GSPL TRANSFERS THE SUBSCRIPTION OPTION TO A PART Y ELIGIBLE UNDER ALL APPLICABLE INDIAN LAWS AND REGULATIONS TO HOLD ALL OF THE SUBSCRIPTION SHARES; OR (E) RECEIPT OF A NOTICE OF DEFAULT UNDER THE CENTRI ON FINANCING. GSPL HEREBY AGREES TO ABIDE BY THE DIRECTIONS OF GOLDSPOT IN CONNECTION WITH THE TRANSFER OF THE PU T SHARES TO GSPL OR ITS NOMINEE AND UNDERTAKES TO DO OR PRODUCE ALL NECESSARY THINGS AND EXECUTE ALL NECESS ARY FORMS, DOCUMENTS AND AGREEMENTS TO IMPLEMENT SUCH DIRECTIONS AND THE PARTIES AGREE IF THE PUT OPTION IS EXERCISED AT ANY TIME AFTER THE SUBSCRIPTION NOTICE IS ISSUED, THEN GSPL SHALL, IN ITS ABSOLUTE DISCRETION, HAVE OF THE AG MERCANTILE SHARES (THE 'PUT SHARES') HELD BY AG (PUT OPTION'): (I) AT ANY TIME, AND FROM TIME TO TIME, AND TO THE EXTENT GSPL OR ANY OF ITS AFFILIATES OR ANY PERSON TO WHICH THE CALL OPTION IS ASSIGNED PURSUANT TO CLAUSE 4.10(A) BECOMES ELIGIBLE UNDER ALL APPLICABLE INDIAN LAWS OR REGULATIONS TO HOLD SUCH PUT SHARES. FOR THE AVOIDANCE OF DOUBT, IN THE EVENT THAT THE SECTORAL CAP IS INCREASED TO PERMIT AN INCREASED LEVEL OF FOREIGN OWNERSHIP OF HEL, AG SHALL, WITHOUT THE PRIOR WRITTEN CONSENT OF GSPL, ONLY BE PERMITTED TO EXERCISE THE PUT OPTION UNDER THIS CLAUSE 4.3(A)(I) IN RESPECT OF SUCH NUMBER OF THE PUT SHARES THAT ARE CONSEQUENTLY PERMITTED TO BE HELD BY FOREIGN INVESTORS (AS A RESULT OF THE INCREASE IN THE SECTORAL CAP) AS IS PROPORTIONATE TO THE PERCENTAGE OF INDIAN SHARES HELD BY AG AT THE TIME THE SECTORAL CAP IS INCREASED: (II) SUBJECT TO CLAUSE 4.3(B) AT ANY TIME AFTER THE FIFTH ANNIVERSARY OF THE DATE OF THIS AGREEMENT IF GSPL AND ITS AFFILIATES ARE NOT ELIGIBLE UNDER ALL APPLICABLE INDIAN LAWS OR REGULATIONS TO HOLD ANY OR ALL OF THE PUT SHARES, PROVIDED THAT SUCH EXERCISE SHALL BE IN RESPECT OF AN AND NOT PART ONLY OF THE PUT SHARES; AND (III) AT ANY LIME AFTER RECEIPT OF A NOTICE OF DEFAULT UNDER THE NADAL FINANCING, IN EACH CASE IN ACCORDANCE WITH THE PROCEDURE LAID DOWN IN CLAUSE 4.5 AND AT A FAIR MARKET VALUE DETERMINED IN ACCORDANCE WITH CLAUSE 4.6. (B) THE EXERCISE OF THE PUT OPTION IN ACCORDANCE WITH CLAUSE 4.3{A)(II) SHALL BE CONDITIONAL ON: (I) GSPL AND AG HAVING JOINTLY IDENTIFIED AN INDIAN PERSON REASONABLY ACCEPTABLE TO GSPL WHO IS PERMITTED UNDER APPLICABLE LAW TO ACQUIRE AN OF THE PUT SHARES AND IS WILLING TO ACQUIRE AN OF THE PUT SHARES (THE AG VODAFONE INDIA SERVICES PRIVATE LTD. 37 | P A G E THE OPTION TO WITHDRAW THE SUBSCRIPTION NOTICE OR COMPLETE THEREUNDER. NOMINATED PERSON'): AND (II) SUCH AG NOMINATED PERSON HAVING IRREVOCABLY. UNDERTAKEN AND AGREED (I) TO ENTER INTO AN AGREEMENT WITH GSPL, NADAL, AG MERCANTILE, PLUSTECH AND VODAFONE ON THE SAME TERMS AS THIS AGREEMENT CONDITIONAL ON COMPLETION OF THE TRANSFER OF THE PUT SHARES (SAVE THAT REFERENCES TO AG SHALL BE REFERENCES TO SUCH AG NOMINATED PERSON AND REFERENCE TO THE FIFTH ANNIVERSARY OF THE DATE OF THIS AGREEMENT IN CLAUSE 4.3(A){LL) SHALL BE TO THE FIFTH ANNIVERSARY OF THE DATE OF SUCH NEW AGREEMENT) AND (II) TO PURCHASE THE PUT SHARES ON THE TERMS OF THIS AGREEMENT AND TO BE BOUND BY THE TERMS OF THIS AGREEMENT IN SO FAR AS THEY RELATE TO THE PURCHASE AND/OR TRANSFER OF THE PUT SHARES AS IT WERE A PARTY TO THIS AGREEMENT, FOR THE PURPOSE OF THIS AGREEMENT (C) GSPL HEREBY AGREES TO ABIDE BY THE DIRECTIONS QF AG IN CONNECTION WITH THE TRANSFER OF THE PUT SHARES TO GSPL OR GSPL'S NOMINATED PERSON AND UNDERTAKES TO DO OR PROCURE ALL NECESSARY THINGS (INCLUDING OBTAINING APPROPRIATE CONSENTS FROM LENDERS IN WHOSE FAVOUR THE PUT SHARES ARE PLEDGED) AND EXECUTE ALL NECESSARY FORMS, DOCUMENTS AND AGREEMENT TO IMPLEMENT SUCH DIRECTIONS. (D) NADAL IRREVOCABLY UNDERTAKES TO GSPL.AS TRUSTEE FOR ITSELF AND GSPL'S AFFILIATES THAT IT SHALL NOT EXERCISE 'THE TII PUT OPTION UNLESS THE PUT OPTION AND/OR THE CAN OPTION HAVE BEEN EXERCISED IN FULL IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT (E) IF THE PUT OPTION IS EXERCISED ALTER THE DEMISE (IF ANY) OF AG. GSPL SHALL HAVE THE RIGHT TO PURCHASE THE PLUS TECH SHARES HELD BY AG MERCANTILE IN LIEU OF THE AG MERCANTILE SHARES HELD BY AG AND IN SUCH EVENT, ALL REFERENCES TO 'PUT SHARES' AND 'AG MERCANTILE SHARES' IN THIS AGREEMENT. TO THE EXTENT RELEVANT, VODAFONE INDIA SERVICES PRIVATE LTD. 38 | P A G E SHALL BE DEEMED TO MEAN THE PLUSLECH SHARES AND ALL REFERENCES TO 'AG' SHALL BE DEEMED TO BE REFERENCES TO AG MERCANTILE TO THE EXTENT RELEVANT. 4.4 CALL OPTION GSPL SHALL, SUBJECT TO THE CONDITIONS SET OUT BELOW, HAVE THE RIGHT AT ANY TIME TO PURCHASE ALL, BUT NOT PART ONLY, OF THE PLUSTECH SHARES (THE 'CALL SHARES') HELD BY GOLDSPOT (THE 'CALL OPTION') IN ACCORDANCE WITH THE PROCEDURE LAID DOWN IN CLAUSE 4.5 BELOW AND AT A FAIR MARKET VALUE DETERMINED IN ACCORDANCE WITH CLAUSE 4,6 BELOW. GSPL MAY EXERCISE THE CALL OPTION AT ANY TIME AFTER: (A) GSPL OR ITS NOMINEE EXERCISES THE SUBSCRIPTION OPTION FOR SUBSCRIBING TO SUCH NUMBER OF SUBSCRIPTION SHARES WHICH WOULD RESULT IN GSPP AND/OR ITS NOMINEE, IN AGGREGATE, HOLDING MORE THAN 50% OF THE ISSUED SHARE CAPITAL OF CENTRINO; OR (B) COP EXERCISES THE TII OPTION WHICH WOULD RESULT IN COP AND /OR ITS NOMINEE HOLDING, IN AGGREGATE, MORE THAN 50% OF THE ISSUED SHARE CAPITAL OF TII; OR (C) GSPL BECOMES ELIGIBLE UNDER ALL APPLICABLE INDIAN LAWS AND REGULATIONS TO HOLD ALL OF THE SUBSCRIPTION SHARES. EACH OF GOLDSPOT AND PLUSTECH HEREBY AGREES TO ABIDE BY THE DIRECTIONS OF GSPL IN CONNECTION WITH THE TRANSFER OF THE CALL SHARES TO GSPL AND UNDERTAKES TO DO OR PROCURE ALL NECESSARY THINGS AND EXECUTE ALL NECESSARY FORMS, DOCUMENTS AND AGREEMENTS TO IMPLEMENT SUCH DIRECTIONS AND THE PARTIES AGREE IF THE CALL OPTION IS EXERCISED AT ANY TIME AFTER THE SUBSCRIPTION NOTICE IS ISSUED, THEN GSPL SHALL, IN ITS ABSOLUTE DISCRETION, HAVE THE OPTION TO WITHDRAW THE SUBSCRIPTION NOTICE OR COMPLETE THERE UNDER. ' 4.4 CALL OPTION (A) GSPL SHALL HAVE THE RIGHT (THE 'CALL OPTION') AT ANY TIME TO: I) PURCHASE OR REQUIRE THAT ANY WHOLLY OWNED SUBSIDIARY OF VODAFONE GROUP PLC PURCHASE AT ITS SOLE DISCRETION, ANY OR AL OF THE AG MERCANTILE SHARES HELD BY AG AT ANY TIME, AND FROM TIME TO TIME; AND II) REQUIRE THAT ANY OTHER NOMINATED PERSON NOT REFERRED TO IN CLAUSE 4.4(A)(I) ABOVE PURCHASE ALL, BUT NOT PART ONLY, OF THE AG MERCANTILE SHARE HELD BY AT AT ANY TIME, AND FROM TO TIME. SUCH AG MERCANTILE SHARES BEING REFERRED TO AS THE 'CALL SHARES', IN ACCORDANCE WITH THE PROCEDURE LAID DOWN IN CLAUSE 4.5 BELOW AND AT FAIR MARKET VALUE DETERMINED IN ACCORDANCE WITH CLAUSE 4.6 BELOW. (B) EACH OF AG AND AG.MERCANTILE HEREBY AGREE TO ABIDE BY THE DIRECTIONS OF GSPL IN CONNECTION WITH THE TRANSFER OF THE CALL HARES TO GSPL OR ITS NOMINATED PERSON AND UNDERTAKE TO DO OR PROCURE ALL NECESSARY THINGS AND EXECUTE ALL NECESSARY FORMS, DOCUMENTS AND AGREEMENTS TO IMPLEMENT SUCH DIRECTIONS. C) IN THE EVENT OF THE DEMISE OF EITHER OF THE CONSTITUENTS OF AG. GSPL SHALL HAVE THE RIGHT TO EXERCISE THE CALL OPTION OR THE DEFAULT OPTION EITHER WITH RESPECT TO AG MERCANTILE SHARES OR PLUSTECH SHARES ON THE TERMS OF THIS. AGREEMENT. IF THE VODAFONE INDIA SERVICES PRIVATE LTD. 39 | P A G E CALL OPTION OR THE DEFAULT OPTION IS EXERCISED WITH RESPECT TO PLUSTECH SHARES, ALL REFERENCES TO 'CALL SHARES', 'AG MERCANTILE SHARES' AND 'DEFAULT SHARES' IN THIS AGREEMENT, TO THE EXTENT RELEVANT, SHALL BE DEEMED TO MEAN THE PLUSTECH SHARES HELD BY AG MERCANTILE, AND ALL REFERENCES TO AG SHALL BE DEEMED TO BE REFERENCES TO AG MERCANTILE TO THE EXTENT RELEVANT. (D) IN CONSIDERATION OF THE GRANT OF THE CALL OPTION BY AG TO GSPL, GSPL OR AN AFFILIATE SHALL PAY TO AG AN AGGREGATE AMOUNT OF US$6.3 MILLION PER ANNUM ACCRUING ON A DAILY BASIS (THE 'OPTION PAYMENT'). GSPL'S OBLIGATION TO PAY AG THE OPTION PAYMENT AS AFORESAID SHALL BE DEEMED TO BE EFFECTIVE FROM 1 MAY 2007. THE OPTION PAYMENT FOR THE PERIOD FROM 1 MAY 2007 TO 30 APRIL 2008 WILL BE PAID AS SOON AS PRACTICABLE AND IN ANY CASE BY THE 20'' BUSINESS DAY AFTER THE DATE OF THIS AGREEMENT AND THE OPTION PAYMENT FOR EACH TWELVE (12) MONTH PERIOD FROM 1 MAY 2008 SHALL BE PAID IN FOUR EQUAL INSTALLMENTS IN ARREARS ON 1 AUGUST, 1 NOVEMBER, 1 FEBRUARY AND 1 MAY, COMMENCING ON 1 NOVEMBER 2008. THE OPTION PAYMENT SHALL BE PAID TO AG UNTIL AG CEASES TO HOLD INDIRECTLY THROUGH' HIS INTEREST IN TII, ANY EQUITY INTEREST IN HEL OR, IF EARLLER, 7 MAY 201!. THE OPTION PAYMENT SHALL BE PAID BY GSPL OR ANY OF ITS AFFILIATES BY WIRE TRANSFER TO AG'S BANK ACCOUNT IN INDIA DESIGNATED BY AG IN ADVANCE. (4.5) TRANS FER PROCEDURE (A) THE SUBSCRIPTION OPTION AS SPECIFIED IN CLAUSE 4.2 SHALL BE EXERCISED BY A SUBSCRIPTION NOTICE FROM GS PL TO PLUS TECH AND CENTRINO AND THE EFFECTIVE DATE OF ITS EXERCISE SHALL BE THE DATE OF SUCH WRITTEN NOTICE. AN OPTION AS SPECIFIED IN CLAUSE 4.3 OR 4.4 OR A DEFAU LT OPTION SHALL BE EXERCISED BY A WRITTEN NOTICE ('TRA NSFER NOTICE') FROM THE PARTY EXERCISING SUCH OPTION OR DEFAULT OPTION ('OFFEROR') TO THE APPLICABLE COUNTERPARTY ('OFFEROR') AND THE EFFECTIVE DATE OF ITS (4.5) TRANSFER PROCEDURE (A) AN OPTION AS SPECIFIED IN CLAUSE 4.3 OR 4.4 OR A DEFAULT OPTION SHALL BE EXERCISED BY A WRITTEN NOTICE ('TRANSFER NOTICE) FROM THE PARTY EXERCISING SUCH OPTION OR DEFAULT OPTION ('OFFEROR) TO THE APPLICABLE COUNTERPARTY ('OFFEREE') AND THE EFFECTIVE DATE OF ITS EXERCISE SHALL BE THE DATE OF SUCH WRITTEN NOTICE. ANY VODAFONE INDIA SERVICES PRIVATE LTD. 40 | P A G E EXERCISE SHALL BE THE DATE OF SUCH WRITTEN NOTICE. ANY ISSUANCE OF SUBSCRIPTION SHARES OR TRANSFER OF PUT SHARES OR CALL SHARES OR DEFAULT SHARES SHALL BE SU BJECT TO THE APPROVAL OF ANY COMPETENT REGULATORY AGENCIE S AND SHALL BE COMPLETED WITHIN THE PERIODS STIPULATE D BY CLAUSE 4.5(B) OR SUCH OTHER EXTENDED TIME WHICH MAY BE REQUIRED TO COMPLY WITH APPLICABLE LAWS (INCLUDI NG THE OBTAINING OF REQUISITE APPROVALS). THE PURCHASE R OF SHARES SHALL PROMPTLY AND DULY EXECUTE AND DELIVER AIL SUCH INSTRUMENTS AND DOCUMENTS, AND DO OR PROCURE T O BE DONE ALL SUCH ACTS OR THINGS, AS MAY BE NECESSAR Y OR DESIRABLE FOR MAKING THE APPLICATION AND OBTAINING THE AFORESAID REGULATORY APPROVALS (IF REQUIRED). NOTWITHSTANDING ANYTHING TO THE CONTRARY, ILL THE E VENT' GOLDSPOT EXERCISES THE PUT OPTION AND GSPL IS NOT PERMITTED TO PURCHASE THE PUT SHARES FROM GOLDSPOT FOR ANY REASON WHATSOEVER, GSPL SHALL MAKE ALL EFFOR TS ON A GOOD FAITH BASIS TO IDENTIFY SUCH PERSON AS MAY BE ELIGIBLE AND/OR PROCURE SUCH APPROVALS AS MAY BE REQUIRED TO COMPLETE THE ACQUISITION OF THE PUT SHA RES IN TERMS HEREOF PURSUANT TO THE EXERCISE OF THE PUT OPTION BY GOLDSPOT. (B) ANY ISSUANCE OF SUBSCRIPTION SHARES OR TRANSFER OF THE PUT SHARES OR CALL SHARES OR DEFAULT SHARES AND ALL PAYMENTS IN CONSIDERATION THEREOF SHALL, SUBJECT TO ANY AGREEMENT IN WRITING BETWEEN THE RELEVANT PARTIES TO THE CONTRARY AND CLAUSE 4. 5 (A), BE COMPLETED ON T HE DATE SPECIFIED IN SUCH NOTICE, SUCH DATE TO BE NOT SHORTER THAN 30 DAYS OR LONGER THAN 90 DAYS FROM TH E DATE OF THE RELEVANT NOTICE. (C) IN THE CASE OF AN ISSUE OF SUBSCRIPTION SHARES, UPON THE FAILURE OF CENTRINO AND/OR PLUSTECH, TO COMPLY W ITH THE PROVISIONS OF THIS CLAUSE 4 WITHIN THE PRESCRIB ED TIME FRAME (OR ANY EXTENSION THEREOF NECESSARY TO OBTAIN REQUISITE APPROVALS), CENTRINO AND/OR PLUSTEC H SHALL BE DEEMED TO HAVE IRREVOCABLY APPOINTED GSPL A S ITS ATTORNEY TO DEAL WITH THE MATTER. TRANSFER OF PUT SHARES OR CALL SHARES OR DEFAULT SHARES SHALL BE SUBJECT TO THE APPROVAL OF ANY COMPETENT REGULATORY AGENCIES, IF REQUIRED, AND SHALL BE COMPLETED WITHIN THE .PERIODS STIPULATED BY CLAUSE 4.5(B) OR SUCH OTHER EXTENDED TIME WHICH MAY BE REQUIRED TO COMPLY WITH APPLICABLE LAWS (INCLUDING THE OBTAINING OF REQUISITE APPROVALS). GSPL SHALL NOTIFY AG OF THE IDENTITY OF THE TRANSFEREE PRIOR TO THE DATE SPECIFIED IN THE NOTICE FOR COMPLETION OF THE TRANSFER. THE PURCHASER OF PUT SHARES OR CALL SHARES OR DEFAULT SHARES, AS THE CASE MAYBE, SHALL PROMPTLY AND DULY EXECUTE AND DELIVER ALL SUCH INSTRUMENTS AND DOCUMENTS, AND DO 0R PROCURE TO 'BE DONE ALL SUCH ADS OR THINGS, AS MAY BE NECESSARY OR DESIRABLE FOR MAKING THE APPLICATION AND OBTAINING THE AFORESAID REGULATORY APPROVALS (IF REQUIRED). (B) ANY TRANSFER OF THE PUT SHARES OR CALL SHARES OR DEFAULT SHARES AND ALL PAYMENTS IN CONSIDERATION THEREOF SHALL, SUBJECT TO ANY AGREEMENT IN WRITING BETWEEN THE RELEVANT PARTIES TO THE CONTRARY AND CLAUSE 4.5{A), BE COMPLETED ON THE DATE SPECIFIED IN SUCH TRANSFER NOTICE, SUCH DATE TO BE NOT SHORTER THAN 30 DAYS (OR 60 DAYS IF THE PROVISIONS OF CLAUSE 4.3(B)(I) APPLY) OR LONGER THAN 90 DAYS FROM THE DATE OF THE RELEVANT TRANSFER NOTICE OR SUCH OTHER EXTENDED TIME WHICH MAY BE REQUIRED TO COMPLY WITH APPLICABLE LAWS INCLUDING THE OBTAINING OF REQUISITE APPROVALS). (4.6) TRANSFER PRICE EXCEPT AS STIPULATED BY CLAUSE 4.7 AND SUBJECT TO T HE REQUIREMENTS OF ANY APPLICABLE REGULATORY REQUIREMENTS, THE PRICE PAYABLE FOR ANY TRANSFER (TRANSFER PRICE) PURSUANT TO THE PUT OPTION OR THE CALL OPTION SHALL BE AS DETERMINED BELOW (A) SUCH FAIR MARKET VALUE AS MAY BE AGREED BETWEEN THE PARTIES AND IF THE PARTIES FAIL TO REACH AGREEMENT WITHIN 30 DAYS OF THE DATE OF 4.6 'TRANSFER PRICE (A) EXCEPT AS STIPULATED BY CLAUSE 4.6(B) AND CLAUSE 4,7 AND SUBJECT TO THE REQUIREMENTS OF ANY APPLICABLE REGULATORY REQUIREMENTS, THE PRICE PAYABLE TO AG FOR THE SHARES TO BE TRANSFERRED ('TRANSFER PRICE'] PURSUANT TO THE PUT OPTION OR THE CALL OPTION SHALL BE AS DETERMINED IN ACCORDANCE WITH THE FORMULA SET OUT IN SCHEDULE 1 ON EACH VODAFONE INDIA SERVICES PRIVATE LTD. 41 | P A G E THE TRANSFER NOTICE, THEN; (B) SUCH FAIR MARKET VALUE AS MAY BE DETERM INED IN ACCORDANCE WITH FORMULA SET OUT IN SCHEDULE 2 EXERCISE OF THE RELEVANT OPTION, SUBJECT TO A MAXIMUM OF AN AGGREGATE OF RS. 150 BILLION LESS ANY AMOUNTS PAID OR PAYABLE TO AG PURSUANT TO CLAUSE 4.3 OR CLAUSE 4.4; (B) FOR THE AVOIDANCE OF DOUBT : (I) WHERE AG TRANSFERS ALL THE PUT SHARES OR CAN SHARES, AS THE CASE MAYBE, REPRESENTING 100% OF THE ISSUED EQUITY SHARE CAPITAL OF AG MERCANTILE OR PLUSTECH AS RELEVANT PURSUANT TO EXERCISE OF THE PUT OPTION OR THE CALL OPTION, AS THE CASE MAY BE, THE PRICE PAYABLE TO AG PURSUANT TO AG PURSUANT TO CLAUSE 4.6(A) SHALL BE AN AMOUNT WHICH REPRESENTS 100% OF THE TRANSFER PRICE; AND (II) . WHERE AG TRANSFERS PUT SHARES OR CAN SHARES, AS THE CASE MAYBE, WHICH REPRESENT LESS THAN 100% OF THE ISSUED EQUITY SHARE CAPITAL OF AG MERCANTILE OR PLUSTECH AS RELEVANT PURSUANT TO EXERCISE OF THE PUT OPTION OR THE CALL OPTION, AS THE CASE MAYBE, THE PRICE PAYABLE TO AG PURSUANT TO CLAUSE 4.6(A) ON THE EXERCISE OF EACH PUT OPTION OR EACH CALL OPTION, AS THE CASE MAYBE, SHALL BE CALCULATED AS FOLLOWS: A = X MULTIPLIED BY [Y/Z) WHERE: A = THE PRICE PAYABLE PURSUANT TO CLAUSE 4.6(A); X= THE TRANSFER PRICE; Y = NUMBER OF PUT SHARES OR CALL SHARES, AS THE CASE MAYBE, TRANSFERRED BY AG PURSUANT TO EXERCISE OF THE PUT OPTION OR THE CALL OPTION, AS THE CASE MAYBE; Z = TOTAL NUMBER OF. PUT SHARES OR CALL SHARES, AS THE CASE MAYBE, REPRESENTING 100% OF THE ISSUED EQUITY SHARE CAPITAL OF AG MERCANTILE OR PLUSTECH AS RELEVANT. VODAFONE INDIA SERVICES PRIVATE LTD. 42 | P A G E 4.7 DEFAULT OPTION (A) FOLLOWING ANY EVENT OF DEFAULT ON THE PART OF A G AND/OR GOLDSPOT AND/OR PLUSTECH AND/OR CENTRINO, GSPL SHALL HAVE THE RIGHT TO REQUIRE GOLDSPOT TO SE LL TO GSPL OR ANY PERSON THAT GSPL NOMINATES ALL (BUT NOT PART ONLY) OF THE PLUSTECH SHARES HELD BY GOLDSPOT A T NINETY PERCENT (90%) OF THE TRANSFER PRICE DETERMIN ED IN ACCORDANCE WITH CCLAUSE 4.6 AND AS PER THE PROCEDURE LAID DOWN IN CLAUSE 4.5; (B) FOLLOWING ANY EVENT OF DEFAULT ON THE PART OF GSPL, GOLDSPOT SHALL HAVE THE RIGHT TO REQUIRE GSPL OR ANY PERSON THAT GSPL NOMINATES TO PURCHASE ALL (BUT NOT PART ONLY) OF THE PLUSTECH SHARES HELD BY GOLDSP OT AT ONE HUNDRED AND TEN PERCENT (110%) OF THE TRANSF ER PRICE DETERMINED IN ACCORDANCE WITH CLAUSE 4.6 AND A S PER THE PROCEDURE LAID DOWN IN CLAUSE 4.5. 4.7 DEFAULT OPTION (A) SUBJECT TO CLAUSE 4.7(C), FOLLOWING ANY EVENT OF DEFAULT ON THE PART OF AG AND/OR AG MERCANTILE AND/OR PLUSTECH AND/OR NADAL, WHICH EVENT OF DEFAULT ON THE PART OF AG MERCANTILE AND/OR PLUSTECH AND/OR NADAL IS NOT ATTRIBUTABLE TO GSPL AND/OR ITS AFFILIATES, GSPL SHALL HAVE THE RIGHT TO REQUIRE AG TO SELL TO GSPL OR ITS OMINATED PERSON ALL (BUT NOT PART ONLY) OF THE DEFAULT SHARES HELD BY AG (OR BY AG MERCANTILE IF CLAUSE 4.4(C) IS APPLICABLE AT 90% OF THE TRANSFER PRICE DETERMINED IN ACCORDANCE WITH CLAUSE 4.6 AND AS PER THE PROCEDURE LAID DOWN IN CLAUSE 4.5. (B) SUBJECT TO CLAUSE 4.7(C), FOLLOWING ANY EVENT OF DEFAULT 00 THE PART OF GSPL, AG SHALL HAVE THE RIGHT TO REQUIRE GSPL OR ITS NOMINATED PERSON TO PURCHASE ALL (BUT OPT PART ONLY) OF THE DEFAULT SHARES HELD BY AG AT 110% OF THE TRANSFER PRICE DETERMINED IN ACCORDANCE WITH CLAUSE 4.6 AND AS PER THE PROCEDURE LAID DOWN IN CLAUSE 4.5. (C) THE MAXIMUM AMOUNT PAYABLE BY GSPL PURSUANT TO CLAUSE 4.7(A) SHALL BE RS. 150 BILLION AND PURSUANT TO CLAUSE 4.7(B) SHALL BE RS. 165 BILLION. IN EACH CASE LESS ANY AMOUNTS PAID OR PAYABLE TO AG PURSUANT TO CLAUSE 4.3 OR CLAUSE 4.4. 4.9 ASSIGNABILITY OR TRANSFE R OF RIGHTS THE PARTIES AGREE THAT THE SUBSCRIPTION OPTION (ALL OR PART ONLY) MAY BE FREELY ASSIGNED OR TRANSFERRED BY GSPL WITHOUT THE CONSENT OF THE OTHER PARTIES, THAT THE CALL OPTION SET OUT IN CLAUSE 4.4 MAY BE ASSIGNED OR TRANSFERRED ONLY TO AN AFFILIATE OF GSPL, WITHOUT THE CONSENT OF GOLDSPOT, AND THAT THE PUT OPTION SET OUT IN CLAUSE 4.3 MAY NOT BE 4.10 ASSIGNABILITY OR TRANSFER OF RIGHTS (A) THE PARTIES AGREE THAT THE CALL OPTION SET OUT IN CLAUSE 4.4 MAY BE FREELY ASSIGNED OR TRANSFERRED BY GSPL WITHOUT THE CONSENT OF AG OR ANY OTHER PARTY BEING REQUIRED. VODAFONE INDIA SERVICES PRIVATE LTD. 43 | P A G E ASSIGNED OR TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF GSPL (B) IN THE EVENT THAT THE CALL OPTION IS ASSIGNED OR TRANSFERRED TO A PERSON THAT IS NOT AN AFFILIATE OF GSPL; (I) SUCH ASSIGNMENT OR TRANSFER SHALL BE SUBJECT TO THE CONDITION THAT THE CALL OPTION CAN ONLY BE EXERCISED IN RESPECT OF ALL, AND NOT PART, OF THE CALL SHARES; AND (II) GSPL SHALL CONTINUE TO BE BOUND BY ALL OBLIGATIONS UNDER THIS AGREEMENT ASSOCIATED WITH THE EXERCISE OF THE CALL OPTION BY SUCH ASSIGNEE OR TRANSFEREE. (C) THE PARTIES AGREE THAT THE PUT OPTION SET OUT IN CLAUSE 4.3 MAY NOT BE ASSIGNED OR TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF GSPL. 5.3 CHANGE OF CONTROL IN THE EVENT OF A CHANGE OF CONTROL, EACH PARTY WIL L PROMPTLY, AND IN NO EVENT LATER THAN 10 DAYS AFTER SUCH CHANGE OF CONTROL HAS OCCURRED AND PROVIDE APPROPRIATE DETAILS AS TO THE NATURE OF THE CHANGE OF CONTROL. 5.5 CHANGE OF CONTROL IN THE EVENT OF A CHANGE OF CONTROL (OTHER THAN A CHANGE OF CONTROL RESULTING FROM EXERCISE OF ANY OPTION OR DEFAULT OPTION), EACH PARTY WILL PROMPTLY, AND IN NO EVENT LATER THAN 10 DAYS AFTER SUCH CHANGE OF CONTROL HAS OCCURRED, NOTIFY THE OTHER PARTIES IN WRITING THAT SUCH CHANGE OF CONTROL HAS OCCURRED AND PROVIDE. APPROPRIATE DETAILS AS TO THE NATURE OF THE CHANGE OF CONTROL. 33. AS PER CLAUSE 4.4 OF FRAMEWORK AGREEMENT 2006, THE ASSESSEE SHALL HAVE THE RIGHT AT ANY TIME TO PURCHASE ALL OF THE I NDIRECT SHARE HOLDING TO THE EXTENT OF 12.25% IN VIL AS HELD BY THE GROUP C OMPANIES OF ANALJIT SINGH AND ASIM GHOSH UNDER CALL OPTIONS. THE CALL OPTIONS UNDER THE FRAMEWORK AGREEMENT 2006 HAS TO BE EXERCISED EITHER BY THE ASSESSEE OR ITS NOMINEE WHEREAS THE CALL OPTION UNDER FRAMEWORK AGR EEMENT 2007 HAS TO BE EXERCISED EITHER BY THE ASSESSEE OR ANY WHOLLY O WNED SUBSIDIARY OF VODAFONE INDIA SERVICES PRIVATE LTD. 44 | P A G E VODAFONE GROUP PLC. APART FROM ASSESSEE OR WHOLLY O WNED SUBSIDIARY OF VODAFONE PLC A THIRD OPTION WAS ALSO PROVIDED UNDER FRAMEWORK AGREEMENTS OF 2007 WHEREBY THE ASSESSEE COULD NOMIN ATE A PERSON OTHER THAN THE WHOLLY OWNED SUBSIDIARY OF VODAFONE GROUP PLC FOR PURCHASE OF ALL BUT NOT PART ONLY OF THE SHARES HELD BY ANALJIT SINGH AND ASIM GHOSH GROUP OF COMPANIES. THEREFORE, IT IS MANIFEST FROM THE COMPARATIVE READING OF THE RELEVANT CLAUSES OF THE FRAMEWORK AGREEMENTS OF 2006 AND 2007 THAT UNDER THE FRAMEWORK AGREEMENTS OF 2006, THE CALL OP TION CAN BE EXERCISED EITHER BY THE ASSESSEE OR BY ITS NOMINEE WHEREAS UN DER THE FRAMEWORK AGREEMENTS 2007, THE CALL OPTION CAN BE EXERCISED E ITHER BY THE ASSESSEE OR ANY WHOLLY OWNED SUBSIDIARY OF VODAFONE PLC. IT IS CLEAR THAT THE ONLY DIFFERENCE UNDER THE FRAMEWORK AGREEMENTS 2007, REG ARDING CALL OPTION IS INCLUSION OF ANY WHOLLY OWNED SUBSIDIARY OF VODAFON E GROUP PLC TO EXERCISE THE CALL OPTION. HOWEVER THIS RIGHT OF EXE RCISING THE CALL OPTION BY A PERSON OTHER THAN ASSESSEE IS NOT AUTOMATIC MEREL Y BY INCLUSION IN CLAUSE 4.4 OF THE FRAMEWORK AGREEMENTS 2007, BUT THE SAME IS SUBJECT TO ASSIGNMENT OR TRANSFER OF RIGHTS AS STIPULATED IN C LAUSE 4.10 OF THE AGREEMENT WHICH REQUIRES THE ASSIGNMENT OR TRANSFER BY GSPL THOUGH WITHOUT THE CONSENT OF ASIM GHOSH AND ANALJIT SING H. THE INCLUSION OF PROBABLE ASSIGNEE IN CLAUSE 4.4 OF FRAMEWORK AGREEM ENTS 2007 ALONE WOULD NOT TANTAMOUNT ASSIGNMENT OR TRANSFER OF CALL OPTIO N. A QUESTION ARISES WHETHER INCLUSION OF ANY OF THE SUBSIDIARY OF VODAF ONE PLC IN THE PROBABLE ASSIGNEES WOULD CREATE A RIGHT OR INTEREST IN THE P ROPERTY/ASSET BEING OPTION RIGHTS IN RESPECT OF THE SHARES HELD UNDER THE CALL OPTION. THE REVENUE HAS RELIED UPON THE AMENDED PROVISIONS OF S ECTION 2(47) OF THE INCOME TAX ACT AND CONTENDED THAT INCLUSION OF ANY OF WHOLLY OWNED VODAFONE INDIA SERVICES PRIVATE LTD. 45 | P A G E SUBSIDIARY OF VODAFONE PLC AS A NOMINEE UNDER CLAUS E 4.4 DOES CREATE A RIGHT AND INTEREST IN FAVOUR OF THE SUBSIDIARY OF V ODAFONE PLC TO ACQUIRE THE SHARES HELD IN THE CALL OPTION AND, THEREFORE, IT IS A TRANSFER IN TERMS OF AMENDED PROVISIONS OF SECTION 2(47) OF THE INCOME T AX ACT. FOR READY REFERENCE WE REPRODUCE SECTION 2(47) ALONG WITH NEW LY INSERTED EXPLANATION 2 AS UNDER:- 2.(47) 'TRANSFER', IN RELATION TO A CAPITAL ASSET, INCLUDES,- (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASSET; OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW ; OR (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO; OR IS TREATED BY HIM AS, STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM AS, STOCK-IN- TRADE OF A BUSINESS CARRIED ON BY HIM, SUCH CONVERSION OR TR EATMENT; OR (IVA) THE MATURITY OR REDEMPTION OF A ZERO COUPON BOND; O R (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSE SSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN O R RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER O F PROPERTY ACT, 1882 (4 OF 1992); OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBE R OF, OR ACQUIRING SHARES IN, A CO-OPERATIVE SOCIETY, COM PANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN AN Y OTHER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF TRANSFERRING, O R ENABLING THE ENJOYMENT OF, ANY IMMOVABLE PROPERTY. EXPLANATION 1.-FOR THE PURPOSES OF SUB-CLAUSES (V) AND (VI), 'IMMOVABLE PROPERTY' SHALL THE SAME MEANING AS IN CLAUSE (D) O F SECTION 269UA. EXPLANATION 2.-FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT 'TRANSFER' INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDE D DISPOSING OF OR PARTING WITH AN ASSET OR ANY INTEREST THEREIN, OR CREATING ANY INTEREST IN ANY ASSET IN ANY MANNER WHATSOEVER, DIRECTLY OR INDIRECTLY, ABSO LUTELY OR CONDITIONALLY, VOLUNTARILY OR INVOLUNTARILY, BY WAY OF AN AGREEMEN T (WHETHER ENTERED INTO IN INDIA OR OUTSIDE INDIA) OR OTHERWISE, NOTWITHSTANDI NG THAT SUCH TRANSFER OF RIGHTS HAS BEEN CHARACTERISED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA.' VODAFONE INDIA SERVICES PRIVATE LTD. 46 | P A G E 34. THE HON'BLE HIGH COURT HAS ALSO MADE CERTAIN OB SERVATIONS REGARDING AMENDED PROVISIONS OF SECTION 2(47). THE MEANING OF EXPLANATION 2 TO SECTION 2(47) HAS BEEN DISCUSSED BY THE HON'BLE HIG H COURT IN PARA 215 AND 216 AS REPRODUCED IN THE FOREGOING PARAS, THEREFORE , THE TRANSFER IN RELATION TO A CAPITAL ASSET INTER ALIA INCLUDES CREATING OR PARTING WITH ANY RIGHT IN AN ASSET IN ANY MANNER WHATSOEVER DIRECTLY OR INDIR ECTLY, ABSOLUTELY OR CONDITIONALLY, VOLUNTARILY OR INVOLUNTARILY, BY AGR EEMENT OR OTHERWISE. THE ESSENCE OF TRANSFER STILL REMAINS IN THE AMENDED PR OVISION IS THE ACTUAL DISPOSAL OR ACTUAL CREATION OR PARTING WITH ANY IN TEREST IN AN ASSET. WITHOUT GOING INTO THE MEANS AND METHODS, SUCH DISPOSAL OR PARTING WITH OR CREATING ANY INTEREST IN AN ASSET MUST EXIST AND BO RNE OUT OF THE ARRANGEMENT OR TRANSFER. MAKING THE PROVISION OF ON E OF THE PROSPECTIVE NOMINEES WOULD NOT AMOUNT TO CREATING ANY INTEREST IN THE ASSET IN THE SHAPE OF RIGHT TO ACQUIRE THE SHARES HELD UNDER CAL L OPTION. UNDER THE FRAMEWORK AGREEMENTS OF 2007, ANY OF WHOLLY OWNED S UBSIDIARY OF VODAFONE PLC IS A PROSPECTIVE NOMINEE BUT WOULD GET THE RIGHT TO ACQUIRE SHARE ONLY WHEN A NOMINATION IS MADE BY THE ASSESSE E IN FAVOUR OF SUCH SUBSIDIARY. UNDER CLAUSE 4.4 READ WITH CLAUSE 4.10 OF FRAMEWORK AGREEMENTS, THE RIGHT TO ACQUIRE SHARES REMAINS WIT H THE ASSESSEE TILL THE ASSESSEE EXERCISES ITS RIGHT TO NOMINATE A PRE MENT IONED WHOLLY OWNED SUBSIDIARY OF VODAFONE PLC FAILING WHICH THE RIGHT TO ACQUIRE THE SHARES REMAINS WITH THE ASSESSEE. IT IS CLEAR FROM CLAUSE 4.4 (A)(I) THAT THE ASSESSEE SHALL HAVE THE RIGHT TO PURCHASE OR REQUIRE THAT AN Y WHOLLY OWNED SUBSIDIARY OF VODAFONE GROUP PLC PURCHASE THE SHARE S HELD UNDER THE CALL OPTION. IT IS DISCERN FROM THE COMPARATIVE STUDY OF THE RELEVANT CLAUSES OF TWO FRAMEWORK AGREEMENTS THAT BY CHANGE OF PROSPECT IVE NOMINEE IT DOES VODAFONE INDIA SERVICES PRIVATE LTD. 47 | P A G E NOT AMOUNT TO TRANSFER OR CREATING ANY RIGHT IN FAV OUR OF THE SAID PROSPECTIVE NOMINEE UNTIL THE ACTUAL NOMINATION IS MADE. 35. NOW WE WILL EXAMINE THE SHARE HOLDERS AGREEMEN T DATED 05/07/2007. THOUGH THE RE-WRITING OF THE FRAME WORK AGREEMENT I N THE YEAR 2007 STAND ALONE DOES NOT CONSTITUTE ASSIGNMENT, TRANSFER OR C REATING ANY RIGHT OF CALL OPTIONS IN FAVOUR OF PROSPECTIVE NOMINEE HOWEVER, T HE MATTER DOES NOT REST AT THIS STAGE BECAUSE THERE IS ALSO A SHARE HOLDER S AGREEMENT DATED 5.07.2007 BETWEEN THE SHARE HOLDERS OF TII ON ONE H AND AND CGP INDIA INVESTMENT LTD, TII AND VIH BV ON THE OTHER HAND. THE SAID SHARE HOLDERS AGREEMENT DATED 5.07.2007, HAS BEEN FILED BY THE RE VENUE AS AN ADDITIONAL EVIDENCE. DURING THE HEARING OF THE MATTER NEITHER THE REVENUE NOR THE ASSESSEE HAS ADVANCED ANY ARGUMENT ON THIS DOCUMENT EXCEPT A BARE REFERENCE ALONG WITH OTHER DOCUMENTS. THE MATTER W AS, THEREFORE, FIXED FOR CLARIFICATION ON 13.10.2014 FOR THE SUBMISSIONS AND CONTENTIONS OF THE PARTIES ON THIS DOCUMENT. ON THE SAID DATE THE CLAR IFICATION WAS POSTPONED FOR 14.11.2014 AT THE REQUEST OF BOTH THE PARTIES W ITH THE DIRECTION TO FILE WRITTEN SUBMISSIONS ON THE SAID SHARE HOLDERS AGRE EMENT DATED 05/07/2007. ACCORDINGLY, THE PARTIES HAVE FILED THE IR RESPECTIVE WRITTEN SUBMISSIONS ON THE SHARE HOLDERS AGREEMENT. THE REV ENUE HAS REITERATED ITS CONTENTION THAT THE ASSESSEE HAS ASSIGNED THE CALL OPTIONS RIGHTS IN FAVOUR OF CGP INDIA INVESTMENT. LTD.(MAURITIUS) A 100% SUB SIDIARY OF VODAFONE GROUP BY REWRITING THE FWA OF 2007. THE SIGNING OF THE SHARE HOLDERS AGREEMENT AGAIN ESTABLISHED THIS FACT THAT THE ASSE SSEE ASSIGNED THE CALL OPTIONS IN FAVOUR OF CGP MAURITIUS. VODAFONE INDIA SERVICES PRIVATE LTD. 48 | P A G E 36. ON THE OTHER HAND, THE ASSESSEE HAS CONTENDED T HAT THE SHARE HOLDERS AGREEMENT DATED 5.7.2005 WAS PART OF THE RECORD BE FORE THE HON'BLE SUPREME COURT IN THE CASE OF VIH BV VS. UNION OF IN DIA AND WAS DULY CONSIDERED BY THE HON'BLE SUPREME COURT. PARA 52 AN D 125 OF THE JUDGMENT OF HON'BLE SUPREME COURT HAVE BEEN REFERRED IN SUPP ORT OF THE CONTENTION THAT THERE WAS NO ASSIGNMENT OF CALL OPTIONS IN 200 7 FRAME WORK AGREEMENT AS HELD BY THE HON'BLE SUPREME COURT EVEN AFTER CONSIDERING THE SHARE HOLDERS AGREEMENT DATED 5.7.2007. IT IS FOR CEFULLY CONTENDED THAT TII SHARE HOLDERS AGREEMENT WILL NOT ALTER THE CONCLUS IVE FINDING OF HON'BLE SUPREME COURT THAT THERE WAS NO ASSIGNMENT OF CALL OPTIONS IN THE F.Y. 2007-08 BY RE-WRITING THE FRAMEWORK AGREEMENTS IN J ULY 2007. ALTERNATIVELY, IT HAS BEEN SUBMITTED THAT TII SHARE HOLDERS AGREEMENT HAS NO RELEVANCY OR BEARING TO THE ISSUE IN THE PRESENT PROCEEDINGS. THE SHARE HOLDERS AGREEMENT WAS ENTERED INTO BETWEEN NADAL T RADING COMPANY PVT. LTD., ND CALLUS INFO SERVICES PVT. LTD. AND CGP IND IA INVESTMENT LTD TO CONFIRM THE UNDERSTANDING REGARDING THE REGULATION OF AFFAIRS OF TELECON INVESTMENT INDIA LTD. (TII). AS PER CLAUSE 4.2 OF T HE SHARE HOLDERS AGREEMENT, THE RIGHT TO EXERCISE PUT OPTIONS WAS C ONFERRED UPON BY ND CALLUS INFO SERVICES PVT. LTD. AND NADAL TRADING CO MPANY PVT. LTD TO REQUIRE CGP INDIA INVESTMENTS LTD. WHO IS A SHARE H OLDER OF TII TO PURCHASE SHARES HELD BY ND CALLUS INFO SERVICES PV T. LTD AND NADAL TRADING COMPANY PVT. LTD IN TII. CLAUSE 4.3 AUTHORI ZES CGP INDIA INVESTMENTS LTD OR ITS NOMINATED PERSON TO CALL OPT IONS TO PURCHASE THE SHARE HELD BY ND CALLUS INFO SERVICES PVT. LTD. AND NADAL TRADING COMPANY PVT. LTD.. THUS IT HAS BEEN SUBMITTED THAT THESE OPTIONS ARE COMPLETELY DIFFERENT FROM CALL OPTIONS AND PUT OPT IONS HELD BY ASSESSEE, VODAFONE INDIA SERVICES PRIVATE LTD. 49 | P A G E ANALJIT SINGH AND ASIM GHOSH RESPECTIVELY, UNDER THE 2007 FRAMEWORK AGREEMENTS. THE FRAMEWORK AGREEMENTS BETWEEN ANALJI SINGH AND ASIM GHOSH AND ASSESSEE ARE COMPLETELY DISTINCT FROM TH E TII SHARE HOLDERS AGREEMENT AS THE FORMER RELATE TO CALL OPTIONS AND PUT OPTIONS IN RESPECT OF SHARES OF SCORPIO BEVERAGES (P) LTD. AND AG MERC ANTILE CO. (P) LTD., WHEREAS THE LATTER RELATES TO SHARES OF TII. A REFE RENCE IS ALSO MADE TO PARAGRAPH 155, 157 TO 159 OF THE JUDGMENT OF HON'B LE SUPREME COURT IN THE CONTEXT THAT SHARE HOLDERS AGREEMENT IS ESSENT IALLY A CONTRACT BETWEEN SOME OR OTHER SHARE HOLDERS OF A COMPANY. THE PARTI ES OF WHICH IS TO CONFER RIGHT AND IMPOSE OBLIGATIONS OVER AND ABOVE THOSE P ROVIDED UNDER THE COMPANYS LAW. BEING THE PRIVATE DOCUMENTS BIND THE PRIVATE PARTIES THEREOF AND NO OTHER REMAINING SHARE HOLDERS OF THE COMPANY. IN NUTSHELL IT HAS BEEN SUBMITTED THAT TII SHARE HOLDERS AGREE MENT HAS NO RELEVANCE OR BEARING ON THE ISSUE OF ASSIGNMENT OF CALL OPTIONS UNDER 2007 FRAMEWORK AGREEMENTS AS IT RELATE TO SHARES OF DIFFERENCE COM PANY NAMELY TII. THE OPTION RIGHTS UNDER THE TII SHARE HOLDERS AGREEMEN T ARE INCHOATE RIGHTS AS THEY ARE CONDITIONAL UPON THE EXERCISE OF OPTION RI GHTS UNDER 2007 FRAMEWORK AGREEMENTS. 37. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND G IVEN OUR DEEP THOUGHT TO THE SURROUNDING FACTS AS WELL AS THE TER MS AND CONDITIONS OF SHARE HOLDERS AGREEMENT DATED 5-7-2007. BEFORE, WE ANALYZE THE VARIOUS CLAUSES OF THE SHARE HOLDERS AGREEMENT, IT IS PERT INENT TO TAKE NOTE OF THE SHARE HOLDING PATTERN OF THE ANALJIT SINGH AND ASIM GHOSH GROUP OF COMPANIES THROUGH THEIR 100% SUBSIDIARIES IN TII A S GIVEN IN THE CHART BELOW: VODAFONE INDIA SERVICES PRIVATE LTD. 50 | P A G E 100% 100% 100% 100% 100% 100% 23.97% 38.78% MR. ASIM GHOSH MR/ MRS. ANALJIT SINGH GLODSPOT MERCANTILE CI. (P) LTD. (LATER AG MERCANTILE CO. PVT. LTD.) (OPTIONS AGREEMENT COUNTERPARTY) SCORPIOS BEVERAGES (P)LTD I OPTIONS AGREEMENT (COUNTERPARTY) PLUSTECH MERCANTILE C O. LTD. I OPTIONS AGREEMENT (COUNTERPARTY) MV HEALTHCARE SERVICES (P) LTD. I OPTIONS AGREEMENT (AGREEMENT) CENTRINO TRADING CO. PVT. LTD. (LATER NADAL TRADING CO. PVT. LTD. ND CALLUS INFO SERVICES PVT. LTD. TELECOM INVESTMENTS INDIA PVT. LTD.(TII) HUTCHISON ESSAR LIMITED (NOW VODAFONE INDIA LTD.) VODAFONE INDIA SERVICES PRIVATE LTD. 51 | P A G E 38. IT IS CLEAR FROM THE ABOVE OWNERSHIP CHART THAT ASIM GHOSH AND ANALJIT SINGH WERE HOLDING 23.97% AND 38.78% SHAR ES RESPECTIVELY IN TII THROUGH THEIR 100% SUBSIDIARIES. THUS THE ASIM GHOS H AND ANALJIT SINGH GROUP OF COMPANIES WERE TOGETHER HOLDING 12.25% SH ARES IN HEL THROUGH TII. THE OPTION RIGHTS IN THE FRAMEWORK AGREEMENTS OF 2007 WERE ESSENTIALLY IN RESPECT OF THE 12.25 % SHARE HOLDIN G OF THESE TWO GROUPS IN HEL THROUGH THEIR SUBSIDIARIES AND THEN THROUGH THE IR SHARE HOLDING IN TII. AS WE HAVE ALREADY DISCUSSED THE ISSUE OF ASSIGNMEN T OF CALL OPTION BY THE ASSESSEE WAS NOT BEFORE THE HON'BLE SUPREME COURT A ND, THEREFORE, TO THE EXTENT OF THE ASSIGNMENT/TRANSFER OF CALL OPTIONS B Y THE ASSESSEE TO ITS AE THE JUDGMENT OF HON'BLE SUPREME COURT HAS NO BEARIN G. IN ORDER TO CONSIDER THE ISSUE OF ASSIGNMENT/TRANSFER OF CALL O PTION RIGHTS HELD BY THE ASSESSEE UNDER FRAMEWORK AGREEMENTS OF 2006 AS WEL L AS FRAMEWORK AGREEMENTS OF 2007 BY VIRTUE OF THE SHARE HOLDERS AGREEMENT DATED 5.7.2007 IT IS NECESSARY TO ANALYZE THE VARIOUS CLA USES OF TII SHA. THE PARTIES TO THE SHARE HOLDERS AGREEMENT AS WELL AS THE RELEVANT CLAUSES ARE AS UNDER:- THIS SHAREHOLDER'S AGREEMENT (THIS 'AGREEMENT) IS ENTERED INTO ON 5 JULY 2007, AMONG: (1) NADAL TRADING COMPANY PRIVATE LIMITED (FORMERLY KNOWN AS CERNTINO TRADING COMPANY PRIVATE' LIMITED). A COMPANY INCORPORATED U NDER THE COMPANIES AD , 956, AND HAVING ITS REGISTERED OFFICE AT MEHER CHAMBERS, 4' AND 5 TH FLOORS. RK MARG, BALLARD ESTATE. MUMBAI 400 038 (HEREIN AFTER REFERRED TO AS 'NADAL') OF THE FIRST PART; (2) ND CALLUS INFO SERVICES PRIVATE LIMITED, A COMP ANY INCORPORATED UNDER THE COMPANIES ACT 1956 AND HAVING ITS REGISTERED OFFICE AT 15. AURANGZEBE ROAD, NEW DELHI 110011 (HEREINAFTER REFERRED TO AS. 'NDC') OF THE SECOND PART; VODAFONE INDIA SERVICES PRIVATE LTD. 52 | P A G E (3) CGP INDIA INVESTMENTS LIMITED. A COMPANY ORGANI ZED UNDER THE LAWS 01 MAURITIUS AND HAVING ITS REGISTERED OFFICE AT 608. 51 JAMES C OURT, 51 DENIS STREET. PORT LOUIS. MAURITIUS (HEREINAFTER REFERRED 10 AS CGP) OF THE THIRD PART; (4) TELECOM INVESTMENTS INDIA PRIVATE LIMITED, A CO MPANY INCORPORATED INTO THE COMPANIES ACT 1956 AND HAVING ITS REGISTERED OFFICE AT 240 NAVSARI BUILDING, FIRST FLOOR, DN ROAD, MUMBAI 400001 (HEREINAFTER REFERRED TO AS THE 'COMPANY') OF THE FOURTH PART; AND (5) VODA1ONE INTERNATIONAL HOLDINGS B.V .. A COMPAN Y INCORPORATED IN THE NETHERLANDS WHOSE 'REGISTERED OFFICE IS AT RIVTUM QUADRANT 173. 2909 LC CAPELLE AAN DEN IJSSEL, THE NETHERLANDS (HEREINAFTER REFERRED TO AS 'VODAFONE') . OF THE FIFTH PART. (NADAL, NOC AND CGP ARE HEREINAFTER COLLECTIVELY RE FERRED TO AS THE PARTIES AND SEVERALLY AS THE 'PARTY'). WHEREAS: (AL THE COMPANY IS ENGAGED IN THE BUSINESS OF INVES TING IN SECUITIES OF TELECOMMUNICATIONS COMPANIES ILL INDIA. (B) NDC, CGP AND NADAL CURRENTLY HOLD 38.78%, 37.25 % AND 23.97%, RESPECTIVELY, OF THE ISSUED EQUITY SHARE CAPITAL OF THE COMPANY. (C) ON 11 FEBRUARY 2006 VODAFONE AND HUTCHISON TELE COMMUNICATION INTERNATIONAL LIMITED (HTIL) ENTERED INTO AN AGREEMENT PURSUANT T O WHICH VODAFONE PURCHASED THE CONTROLLING INTEREST HELD BY THIL IN CGP INVESTMENT (HOLDINGS) LIMITED, A COMPANY WHICH INDIRECTLY HOLDS THE ENTIRE ISSUED SHARE CAPI TAL OF CGP (THE ACQUISITION AGREEMENT_. (D) NADAL NDC, CGP AND THE COMPANY HAVE AGREED TO E NTER INTO THIS AGREEMENT TO CONFIRM THEIR UNDERSTANDING REGARDING THE REGULATIO N OF THE AFFAIRS OF THE COMPANY AND THE RELATIONSHIP OF THE SHAREHOLDERS THEREOF, WITH EFFECT FROM THE EFFECTIVE DATE. (E) THE COMPANY IS ENTERING INTO THIS AGREEMENT AS A CONFIRMING PARTY INTER ALIA AS THE MATTERS CONTAINED IN THIS AGREEMENT MATERIALLY AFF ECT THE ADMINISTRATION OF THE COMPANY. (F) VODAFONE IS THE INDIRECT PARENT COMPANY OF CGP AND IS ENTERING INTO THIS AGREEMENT AS A CONFIRMING PARTY. VODAFONE INDIA SERVICES PRIVATE LTD. 53 | P A G E NOW THERFORE THE PARTIES HEREBY AGREE AS FOLLOWS: 1 DEFINITION AND INTERPRETATION 2 1.1 DEFINITION CALL OPTION SHALL HAVE THE MEANING SE FORTH IN CL AUSE 4.3: NADAL CALL OPTION HAS THE MEANING ASSIGNED TO THE TERM CALL OPTION UNDER THE NADAL FRAMEWORK AGREEMENT; NADAL FRAMEWORK AGREEMENT MEANS THE FRAMEWORK AGR EEMENT DAED THE DATE HEREOF BETWEEN ASIM GHOSH, AG MERCANTILE COMPANY PRIVATE L IMITED, PLUSTECH MERCANTILE COMPANY PRIVATE LIMITED, GSPL, NADAL AND VODAFONE; NADAL SHARES MEANS THE EQUITY SHARES OF THE COMPA NY HELD BY THE NADAL CONSTITUTING 23.97% OF THE TOTAL ISSUED AND PAID UP EQUITY SHARE CAPITAL OF THE COMPANY AT THE DATE HEREOF AND SHALL INCLUDE ANY FURTHER SHARES ISSUED UNDER THE TERMS HEREOF; NDC DIRECTOR SHALL HAVE THE MEANING SET FORTH IN CLAUSE 6.1; NDC CALL OPTION HAS THE MEANING ASSIGNED TO THE T ERM CALL OPTION UNDER THE NDC FRAMEWORK AGREEMENT; NDC FRAMEWORK AGREEMENT MEANS THE FRAMEWORK AGREE MENT DATED THE DATE HEREOF BETWEEN ANALJIT SINGH, MRS. NEELU ANALJIT SINGH, SC ORPIOS BEVERAGES PRIVATE LIMITED MV HEALTHCARE SERVICES PRIVATE LIMITED, GSPL, NDC AND VODAFONE; NDC PUT OPTION HAS THE MEANING ASSIGNED TO THE TE RM PUT OPTION UNDER THE NDC FRAMEWORK AGREEMENT; NDC SHARES MEANS THE EQUITY SHARES OF THE COMPANY HELD BY NDC, CONSULTING 38.78% OF THE TOTAL ISSUED AND PAID UP EQUITY SHARE CAPITAL O F THE COMPANY AT THE DATE HEREOF, AND SHALL INCLUDE ANY FURTHER SHARES ISSUED UNDER THE TERMS HEREOF; NOMINATED PERSON SHALL MEAN ANY PERSON(S) WHOM CG P MAY NOMINATE TO ACQUIRE THE NDC SHARES OR THE NADAL SHARES INCLUDING, FOR THE A VOIDANCE OF DOUBT VODAFONE OR ANY INDIAN THIRD PARTY; OFFEREE SHALL HAVE THE MEANING SET FORTH IN CLAUS E 4.4(A); OFFEROR SHALL HAVE THE MEANING SET FORTH IN CLAUS E 4.4(A); ORIGINAL DIRECTOR SHALL HAVE THE MEANING SET FORT H IN CLAUSE 6.6; OPTION SHALL MEAN ANY OF THE SUBSCRIPTION OPTION, PUT OPTION OR CALL OPTION; PERSON SHALL MEAN ANY NATURAL PERSON LIMITED OR U NLIMITED LIABILITY COMPANY, CORPORATION, GENERAL PARTNERSHIP, LIMITED PARTNERSH IP, PROPRIETORSHIP, TRUST, UNION, VODAFONE INDIA SERVICES PRIVATE LTD. 54 | P A G E ASSOCIATION, COURT, TRIBUNAL, AGENCY, GOVERNMENT, M INISTRY, DEPARTMENT, COMMISSION, SELF- REGULATORY ORGANIZATION, ARBITRATOR, BOARD OR OTHER ENTITY, ENTERPRISE, AUTHORITY OR BUSINESS ORGANIZATION; PUT OPTION SHALL HAVE THE MEANING SET FORTH IN CL AUSE4.2; 4.2 PUT OPTION EACH OF NDC AND NADAL SHALL HAVE THE RIGHT TO REQUI RE CGP OR AT CGPS OPTION ITS NOMINATED PERSON TO PURCHASE, OR PROCURE THE PURCHA SE OF ALL BUT NOT PARTY ONLY OF THE NDC SHARES AND/OR THE NADAL SHARES RESPECTIVELY (EACH A PUT OPTION) AS THE CASE MAY BE, IN ACCORDANCE WITH THE PROCEDURE LAID DOWN IN CLAUSE 4 .4 BELOW AND AT A FAIR MARKET VALUE DETERMINED IN ACCORDANCE WITH CLAUSE 4.5 BELOW. 4.3 CALL OPTION (A) CGP OR ITS NOMINATED PERSON SHALL HAVE THE RIGH T AT ANY TIME, AND FROM TIME TO TIME, TO PURCHASE ANY OF THE NDC SHARES AND/OR THE NADAL SHA RES (EACH A CALL OPTION) IN ACCORDANCE WITH THE PROCEDURE LAID DOWN IN CLAUSE 4 .4 BELOW AND AT A FAIR MARKET VALUE DETERMINED IN ACCORDANCE WITH CLAUSE 4.5 BELOW. (B) NDC IRREVOCABLY UNDERTAKES THAT IT SHALL NOT EX ERCISE THE PUT OPTION UNLESS THE NDC PUT OPTION AND/OR THE NDC CALL OPTION HAVE BEEN EXERCIS ED IN FULL IN ACCORDANCE WITH THE TERMS OF THE NDC FRAMEWORK AGREEMENT. (C) NADAL IRREVOCABLY UNDERTAKEN THAT IT SHALL NOT EXERCISE THE PUT OPTION UNLESS THE NADAL PUT OPTION AND/OR THE NADAL CALL OPTION HAVE BEEN E XERCISED IN FULL LIN ACCORDANCE WITH TERMS OF THE NADAL FRAMEWORK AGREEMENT. (D) NEITHER DBP NOR ITS NOMINATED PERSON SHALL EXER CISE THE CALL OPTION IN RESPECT OF THE NADAL SHARES OR THE SUBSCRIPTION OPTION UNLESS THE NADAL PUT OPTION AND/OR THE NADAL CALL OPTION HAVE BEEN EXERCISED IN FULL. (E) NEITHER CGP NOR ITS NOMINATED PERSON SHALL EXER CISE THE CALL OPTION IN RESPECT OF THE NDC SHARES OR THE SUBSCRIPTION OPTION UNLESS THE ND C PUT OPTION AND/OR THE NDC CALL OPTION HAVE BEEN EXERCISED IN FULL. 39. NADAL TRADING COMPANY AND ND CALLUS INFORMATION SERVICES PVT. LTD. ARE THE COMMON PARTIES TO THE FRAMEWORK AGREEM ENTS AGREEMENT OF 2007 AS WELL AS SHARE HOLDERS AGREEMENT. BOTH SET O F AGREEMENTS WERE SIGNED BY ASIM GHOSH AND ANALJIT SINGH ON THEIR BEH ALF AS WELL AS ON BEHALF OF THE NADAL TRADING COMPANY AND ND CALLUS INFORMAT ION SERVICES PVT. VODAFONE INDIA SERVICES PRIVATE LTD. 55 | P A G E LTD., RESPECTIVELY. THE CALL OPTION RIGHTS TO PUR CHASE THE SHARES HELD BY THE ASIM GHOSH AND ANALJIT SINGH GROUP OF COMPANIES IN TII WERE WITH THE ASSESSEE UNDER THE FRAMEWORK AGREEMENTS OF 2006 AS WELL AS 2007. THOUGH UNDER FWAS THE ASSESSEE WAS HAVING THE RIGHT TO ASSIGN OPTION RIGHTS TO ONE OF THE PROBABLE PERSONS/ASSIGNEES, HO WEVER, TILL THE ASSIGNMENT TOOK PLACE THE RIGHTS WERE REMAINED VEST ED WITH THE ASSESSEE. THESE RIGHTS TO CALL OPTION TO PURCHASE THE SHARES HELD BY THE ASIM GHOSH AND ANALJIT SINGH INCLUDING THEIR 100% SUBSIDIARIE S ND CALLUS INFORMATION SERVICES PVT. LTD. AND NADAL TRADING COMPANY IN TII STAND TRANSFERRED AND VESTED IN CGP INDIA INVESTMENTS (MAURITIUS) BY VIR TUE OF TII SHARE HOLDERS AGREEMENT AS IT IS CLEAR FROM THE CLAUSE 4.2 AND 4. 3 OF THE SHARE HOLDERS AGREEMENT IN QUESTION. AS PER THE DEFINITION CLAUSE , CALL OPTION HAS THE MEANING ASSIGNED TO THE TERM CALL OPTIONS UNDER THE FRAMEWORK AGREEMENTS, THEREFORE, ALL THE TERMS HAVE THE SAME MEANING AS IT WAS UNDERSTOOD BY THE PARTIES UNDER THE FRAMEWORK AGREE MENTS. EVEN UNDER THE FRAMEWORK AGREEMENTS OF 2007 WHAT WAS TO BE TRA NSFERRED UNDER THE OPTION RIGHTS WERE 23.97% AND 38.78% OF SHARES IN T II AND THEREBY INDIRECT 12.25% SHARE HOLDING IN HEL. 40. THE COMBINED READING OF FRAMEWORK AGREEMENTS 20 07 AND SHARE HOLDERS AGREEMENT DATED 5.7.2007 AS WELL AS CONSID ERING THE RELEVANT FACTS AND SURROUNDING CIRCUMSTANCES EMERGED FROM THESE AR RANGEMENTS MADE PURSUANT TO VIH BV PURCHASED THE CONTROLLING INTEREST HELD BY T HIL IN CGP INVESTMENT (HOLDINGS) LIMITED, LEAD TO THE LOGI CAL CONCLUSION THAT OPTION RIGHTS UNDER THE FRAMEWORK AGREEMENTS OF 200 7 HELD BY THE ASSESSEE WERE TRANSFERRED/ASSIGNED IN FAVOUR OF CGP INDIA INVESTMENT (MAURITIUS), THE AE OF THE ASSESSEE BY VIRTUE OF S HARE HOLDERS AGREEMENT. VODAFONE INDIA SERVICES PRIVATE LTD. 56 | P A G E THE SHARE HOLDERS AREEMENT EXECUTED IN PURSUANT TO FRAMEWORK AGREEMENTS MADE IT UNEQUIVOCAL FINAL THAT THE SHARE S OF TII HELD BY ASIM GHOSH AND ANALJIT SINGH WOULD BE TRANSFERRED IN FAV OUR OF CGP INDIA INVESTMENTS LTD., OR ITS NOMINE AS AND WHEN THE CAL L/PUT OPTION RIGHTS ARE EXERCISED BY THE RESPECTIVE PARTIES. THE ROLE OF T HE ASSESSEE WAS CEASED TO EXIST, THE MOMENT SHARE HOLDERS AGREEMENT WAS SIGN ED. IT IS MANIFEST FROM THESE AGREEMENTS THAT THE INTENTION OF THE PARTIES TO THE FRAMEWORK AGREEMENTS WAS THAT THE OPTION RIGHTS HELD BY THE A SSESSEE WERE TO BE TRANSFERRED/ASSIGNED ONLY TO CGP INDIA AND NON OTHE R. THIS INTENTION OF ASSIGNMENT OF OPTION RIGHTS IN FAVOUR OF CGP INDIA IS FURTHER FORTIFIED BY THE FACT THAT THE OPTIONS WERE EXERCISED BY THE OPPOSIT E PARTIES AS PUT OPTION REQUIRING THE CGP INDIA TO PURCHASE THE SHARES AND CONSEQUENTLY THE SHARES WERE TRANSFERRED IN FAVOUR OF CGP INDIA. THUS IT CO RROBORATES THE INTENTION OF THE PARTIES AT THE TIME OF FRAMEWORK AGREEMENTS AND, THEREAFTER SHARE HOLDERS AGREEMENT DATED 5.07.2007 THAT THE OPTION R IGHTS HELD BY THE ASSESSEE UNDER FRAMEWORK AGREEMENTS WERE TO BE TRAN SFERRED/ASSIGNED ONLY TO CGP INDIA AND NON OTHER. THE SHARE HOLDERS AGREEMENT DATED 5.7.2007 WAS SIGNED IN PURSUANT AND IN FURTHERANCE OF FRAMEWORK AGREEMENTS 2007 AND NOT AS AN INDEPENDENT DISTINCT AGREEMENT HAVING NO CONNECTION WITH THE OPTION RIGHTS UNDER THE FRAMEWO RK AGREEMENTS. THEREFORE, WE DO NOT AGREE WITH THE CONTENTION OF T HE ASSESSEE THAT SHARE HOLDERS AGREEMENT HAS NO RELEVANCE OR BEARING ON T HE ISSUE OF ASSIGNMENT OF CALL OPTION. THE OBSERVATION OF THE HON'BLE SUPR EME COURT AS REFERRED BY THE ASSESSEE IS REGADING THE BINDING NATURE OF D OCUMENTS BETWEEN THE PARTIES AND NOT TO THE OTHER REMAINING SHARE HOLDER S. IT IS PERTINENT TO NOTE THAT THE ENTIRE SHARE HOLDING OF TII WAS HELD BY TH REE SHARE HOLDERS NAMELY VODAFONE INDIA SERVICES PRIVATE LTD. 57 | P A G E CGP INDIA, NADAL TRADING AND ND CALLUS WHO ARE THE PARTIES TO THE TII SHA INCLUDING THE TII COMPANY ITSELF. THEREFORE, T HE SHA IS BINDING TO ALL THE SHARE HOLDERS AND COMPANY AS WELL. EVEN OTHERWI SE WHEN THE ISSUE OF ASSIGNMENT/TRANSFER OF CALL OPTIONS RIGHT BY THE AS SESSEE WAS NOT BEFORE THE HON'BLE SUPREME COURT THEN THE SAID OBSERVATION OF THE HON'BLE SUPREME COURT WAS NOT IN THE CONTEXT OF THE ISSUE BEFORE US . 41. UNDER THE FRAMEWORK AGREEMENTS, THE PARTIES AGR EED TO TRANSFER THE ENTIRE SHARE HOLDING OF ASIM GHOSH AND ANALJIT SIN GH GROUP COMPANIES UNDER THE OPTION RIGHTS WHICH MEANS THEIR HOLDING T O THE EXTENT OF 23.97% AND 38.78% IN TII WAS TO BE TRANSFERRED ON EXERCISE OF OPTION RIGHTS UNDER FWAS AS WELL AS UNDER SHA DATED 05/07/2007. IT IS M ANIFEST FROM THE SPA BETWEEN HTIL AND VIHBV, FRAMEWORK AGREEMENTS AND TI I SHARE HOLDERS AGREEMENT AS WELL AS SURROUNDING FACTS AND CIRCUMST ANCES THAT THE ENTIRE ARRANGEMENT AND EXERCISE WAS TARGETED TO ACQUIRE TH E 15% SHARE HOLDING IN HEL AS AND WHEN THE RESTRICTION ON FDI IN TELECOM S ECTOR IS RELAXED BY THE GOVERNMENT. THEREFORE, BOTH FRAMEWORK AGREEMENTS AN D TII SHARE HOLDERS AGREEMENT WERE SIGNED WITH THE SOLE OBJECT TO ACQUIRE 12.25% SHARE HOLDING IN HEL ON A FUTURE DATE AND TILL THEN ASIM GHOSH AND ANALJIT SINGH AGREED TO HOLD THE STAKE IN HEL THROUGH TII FOR TH AT THEY WERE REMUNERATED. 42. THE INTERPRETATION AND CONSTRUCTION OF A DOCUME NT IS TO ASCERTAIN THE MEANING WHICH THE DOCUMENT WOULD CONVEY AND WHAT TH E PARTIES OF THE DOCUMENT INTENDED AND UNDERSTOOD HAVING ALL THE BAC KGROUND KNOWLEDGE AVAILABLE TO THE PARTIES AT THE TIME OF THE CONTRAC T. THEREFORE, TO UNDERSTAND THE TRUE MEANING AND INTENT OF THE PARTIES TO THE A GREEMENT, THE SURROUNDING CIRCUMSTANCES AND BACKGROUND KNOWLEDGE IS VERY RELEVANT AND VODAFONE INDIA SERVICES PRIVATE LTD. 58 | P A G E IMPORTANT. IN THE CASE IN HAND, THE FRAMEWORK AGREE MENTS AS WELL AS TII SHARE HOLDERS AGREEMENT WERE SIGNED IN THE BACKGROU ND OF THE (SPA), SHARE TRANSFER AGREEMENT (STA) BETWEEN HTIL AND VIHBV AND FURTHER WITH THE INTENTION TO KEEP THE 12.25% SHARE HOLDING IN HEL I NDIRECTLY THROUGH ASIM GHOSH AND ANALJIT SINGH SO THAT THE ASSESSEE COULD ACQUIRE THE SAME WHENEVER IT IS PERMISSIBLE AS PER THE FDI LIMIT IN TELECOMMUNICATION SECTOR IS RELAXED. THEREFORE, FROM THE FRAMEWORK AGREEMENT S, TII SHARE HOLDERS AGREEMENT AND THE BACKGROUND OF THE DEVELOPMENT AS WELL AS SURROUNDING CIRCUMSTANCES, IT IS CLEAR THAT THE MUTUAL INTENTIO N OF THE PARTIES OF FRAMEWORK AGREEMENTS AND TII SHARE HOLDERS AGREEMEN T WAS TO TRANSFER THE OPTION RIGHTS VESTED WITH THE ASSESSEE IN FAVOU R OF CGP INDIA INVESTMENT LTD. ACCORDINGLY, WE HOLD THAT THE OPTIO N RIGHTS INCLUDING THE CALL OPTION HELD BY THE ASSESSEE UNDER FRAMEWORK AG REEMENTS STAND TRANSFERRED/ASSIGNED IN FAVOUR OF CGP INDIA INVESTM ENTS BY VIRTUE OF TII SHARE HOLDERS AGREEMENT. 43 INTERNATIONAL TRANSACTION AS PER THE TRANSFER PR ICING PROVISIONS OF IT ACT: 44. THE LD. ASG HAS ALSO RAISED A SPECIFIC CONTENTI ON THAT IN 2007FRAMEWORK AGREEMENTS, VIH BV IS A PARTY AND, TH EREFORE, THERE IS A MUTUAL AGREEMENT/ARRANGEMENT BETWEEN THE ASSESSEE A ND ITS ASSOCIATED ENTERPRISE(AE) FOR SECURING THE OPTION RIGHTS AND A SSIGNMENT OF THE SAME AS WELL AS CONTRIBUTION OF PAYMENT FOR CONSIDERATIO N OF GRANT OF CALL OPTION BY ASIM GHOSH AND ANALJIT SINGH TO ASSESSEE OR ITS AFFILIATE CLEARLY FALLS UNDER THE AMBIT OF INTERNATIONAL TRANSACTION U/S 92 B R.W.S 92F(V). THE LD. VODAFONE INDIA SERVICES PRIVATE LTD. 59 | P A G E ASG HAS POINTED OUT THAT IN THE FRAMEWORK AGREEMENT S 2006, THE ASSESSEE ALONE WAS THE PARTY WHEREAS IN THE FRAMEWORK AGREEM ENTS OF 2007, VIH BV IS A PARTY AND AS PER THE DEFINITION OF TRANSACTION U/S 92F(V), THE ARRANGEMENT/UNDERSTANDING OR ACTION IN CONCERT WHET HER OR NOT SUCH ARRANGEMENT AND UNDERSTANDING IS FORMAL OR IN WRITI NG OR WHETHER OR NOT , THE SAME IS INTENDED TO BE ENFORCEABLE BY LEGAL PRO CEEDINGS. THE LEGISLATURE HAS DELIBERATELY NOT DEFINED THE TERM TRANSACTION ITSELF AND HAS PROVIDED AN INCLUSIVE DEFINITION. IT IS A WORD OF WIDEST IMP ORT. THUS THE TERM TRANSACTION NOT ONLY INCLUDES A SALE, PURCHASE, LEA SE, MORTGAGE, PLEDGE, RENT OR HIRE BUT ALSO ANY OTHER DEALING BETWEEN PARTIES WHICH MAY HAVE A FINANCIAL IMPACT OR ANY OTHER DEALING OR COURSE OF DEALINGS UNDERTAKEN IN THE NORMAL COURSE. IN THE SPECIFIC CONTEXT OF T.P P ROVISIONS, IT INCLUDES ANY ARRANGEMENT, UNDERSTANDING, OR ACTION IN CONCERT. FURTHER, THERE IS NO NECESSITY THAT SUCH ARRANGEMENT OR UNDERSTANDING SH OULD BE IN WRITING OR LEGALLY ENFORCEABLE. THUS, EVEN AN ORAL UNDERSTAND ING OR ARRANGEMENT WHICH MAY OR MAY NOT BE ENFORCEABLE AT LAW WILL CON STITUTE A TRANSACTION. THE TERM INTERNATIONAL TRANSACTION HAS BEEN DEFIN ED IN SEC.92B.UNDER SUB SECTION (1), INTERNATIONAL TRANSACTION HAS BEEN DEF INED AS A TRANSACTION BETWEEN TWO ASSOCIATED ENTERPRISES OUT OF WHICH AT LEAST ONE IS A NON- RESIDENT. THIS SECTION FURTHER PROVIDES THAT THE TR ANSACTION SHOULD BE IN THE NATURE OF PURCHASE / SALE / LEASE OF TANGIBLE OR IN TANGIBLE PROPERTY; PROVISIONS OF SERVICES; LENDING OR BORROWING MONEY. ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISES. 45. HE HAS SUBMITTED THAT UNDER THE SPA AND THE FRA ME WORK AGREEMENTS THERE ARE A NUMBER OF CLOSELY LINKED TRA NSACTIONS, VODAFONE INDIA SERVICES PRIVATE LTD. 60 | P A G E ARRANGEMENTS AND UNDERSTANDING BETWEEN THE VARIOUS PARTIES OF THE HUTCH AND THE VODAFONE GROUP FOR THE PURPOSE OF TRANSFERR ING THE CALL OPTIONS FROM THE HTIL TO VIH BV. THE PARTIES HAVE ENTERED I NTO TWO SETS OF TRANSACTIONS EACH OF WHICH INDEPENDENTLY CONSTITUTE S AN INTERNATIONAL TRANSACTION. THEY ARE (A) THE ARRANGEMENTS AND UNDE RSTANDINGS REACHED UNDER THE SPA READ WITH THE FRAME WORK AGREEMENT OF 2007 THROUGH WHICH THE APPELLANT AS A PART OF VODAFONE GROUP HAS PERMITTED A WHOLLY OWNED SUBSIDIARY OF VODAFONE GROUP PLC TO EXERCISE THE CALL OPTIONS ON ITS OWN ACCOUNT. (B)THE ARRANGEMENTS AND UNDERSTANDINGS BETWEEN HTIL AND THE APPELLANT (AS A GROUP COMPANY OF HTIL), WHEREIN THE APPELLANT UNDERTAKES NOT TO EXERCISE THE OPTION OR DO ANY OTH ER ACT AFFECTING THE OPTION RIGHTS TILL THE COMPLETION OF THE SPA SO THA T HTIL CAN TRANSFER THE OPTION RIGHTS TO VIH BV. 46. THE APPELLANT HAS ENTERED INTO A FRESH FRAMEWOR K AGREEMENT WITH AS AND AG GROUP OF COMPANIES IN PURSUANCE TO THE SPA A S THERE WAS A CHANGE OF CONTROL OVER IT FROM HUTCH TO VODAFONE GROUP. UN DER THE EARLIER FRAMEWORK AGREEMENT THE APPELLANT HAD AN EXCLUSIVE RIGHT TO PURCHASE THE ENTIRE SHARE CAPITAL OF AS & AG GROUP COS GIVING IT A 12.25% INTEREST IN VIL. IN THE NEW FRAMEWORK AGREEMENT SIGNED DURING THE YE AR, THIS RIGHT OF THE APPELLANT HAS BEEN TRANSFERRED BY IT IN FAVOUR OF A NY WHOLLY OWNED SUBSIDIARY OF THE VODAFONE GROUP PLC. HE HAS REFERR ED THE VARIOUS CLAUSES OF THESE TWO SET OF FWAS AND SUBMITTED THAT ON AN E XAMINATION OF THE THESE CLAUSES, IT CAN BE SEEN THAT THE EXCLUSIVE RIGHT OF THE APPELLANT UNDER THE 2006 AGREEMENT NO LONGER SURVIVES UNDER THE 2007 AG REEMENT. UNDER THE 2007 AGREEMENT, THE APPELLANT HAS AGREED THAT ANY W HOLLY OWNED VODAFONE INDIA SERVICES PRIVATE LTD. 61 | P A G E SUBSIDIARY OF VODAFONE GROUP PLC CAN NOW PURCHASE T HE OPTION SHARES. SINCE VIHBV IS A WHOLLY OWNED SUBSIDIARY OF VODAFON E GROUP PLC AND IN FACT AS AND AG IN THE SUBSEQUENT YEAR HAVE SOLD THE SHARES ON THE DIRECTION OF VIHBV TO CGP MAURITIUS, IT IS CLEAR THAT VIHBV B ECAME ENTITLED TO EXERCISE THE CALL OPTIONS IN ITS OWN NAME BY VIRTUE OF NEW FRAMEWORK AGREEMENT. 47. THE USE OF THE WORDS AT ITS SOLE DISCRETION I N CLAUSE 4.4 OF THE 2007 FWA IS VERY MATERIAL. SINCE THE APPELLANT ALREADY H AD THE DISCRETION TO PURCHASE THE OPTION SHARES, THESE WORDS CAN ONLY BE ATTRIBUTED IN FAVOUR OF VODAFONE GROUP PLC SUBSIDIARY. THERE WOULD BE NO PU RPOSE TO ATTRIBUTE THESE WORDS TO THE APPELLANT AS THE APPELLANT ALREA DY HAD THE DISCRETION TO PURCHASE THE OPTION SHARES. THE EFFECT OF ATTRIBUTI NG THE WORDS AT ITS SOLE DISCRETION TO VODAFONE GROUP PLC IS THAT THE APPEL LANT NOW BOUND BY AN OBLIGATION TO CALL UPON THE VODAFONE GROUP PLC SUBS IDIARY TO PURCHASE THE SHARES. HENCE THE NEW FRAME WORK AGREEMENT OF 2007 HAS EFFECTIVELY TRANSFERRED THE APPELLANTS RIGHT TO PURCHASE THE S HARES IN FAVOUR OF A VODAFONE GROUP SUBSIDIARY COMPANY. IN FACT, THE SHA RES HAVE SUBSEQUENTLY BEEN PURCHASED BY CGP MAURITIUS; A MAURITIUS BASED SUBSIDIARY COMPANY OF VODAFONE GROUP PLC AT THE INSTANCE OF VIHBV. THU S THE FRAME WORK AGREEMENT HAS PROVIDED THE BASIS FOR THE SUBSEQUENT NOMINATION OF CGP MAURITIUS IN WHOM ALL THE SHARES ARE NOW VESTED. 48. ON 8TH MAY, 2007, HTIL & VIHBV ENTERED INTO A R ETENTION DEED. ACCORDING TO CLAUSE 2 OF RETENTION DEED, VIHBV WAS ALLOWED TO RETAIN US $ 351.8 MILLION OUT OF TOTAL CONSIDERATION OF US $ 11 .076 BILLION. THIS VODAFONE INDIA SERVICES PRIVATE LTD. 62 | P A G E RETENTION WAS IN CONSIDERATION FOR WAIVER OF RIGHTS BY VIHBV AVAILABLE TO IT UNDER CLAUSE 4.4 & 4.7 OF SCH. 4 OF SPA RELATING TO VENDOR WARRANTIES AS DISCUSSED ABOVE. THIS MONEY HAS BEEN RETAINED BY VI HBV AS CONTRIBUTION BY HTIL TOWARDS THE ACQUISITION COST OF SHARES ON E XERCISE OF CALL/PUT OPTION BY THE PURCHASER OR ITS NOMINATED PERSON. FR OM A PLAIN READING OF THE RETENTION DEED, EITHER VIHBV ITSELF CAN EXERCIS E THE OPTIONS BY USING THE RETAINED AMOUNT OR VIHBV CAN NOMINATE SOMEONE E LSE AS ITS NOMINEE. THE POWER OF NOMINATION WAS WITH VIHBV ONLY (PARA 1 (B)). THEREFORE EITHER VIHBV OR ITS NOMINEES WERE THE ONLY PERSONS CONTEMPLATED TO EXERCISE OPTION. 49. FROM THE ABOVE IT IS EVIDENT THAT WHEN THE NEW AGREEMENT WAS SIGNED BY THE APPELLANT IN 2007, A NUMBER OF RIGHTS WHICH WERE AVAILABLE TO IT UNDER THE EARLIER AGREEMENT UNDERWENT A CHANGE AND IN PARTICULAR THE RIGHT TO PURCHASE SHARES IN AS & AG GROUP OF COMPANIES WH ETHER UNDER CALL OPTION OR PUT OPTION WAS NOW GIVEN TO THE A.ES OF T HE APPELLANT AND DID NOT REMAIN ITS RIGHT. THEREFORE, CLEARLY THE NEW AGREE MENT OF 2007 IS IN THE NATURE OF AN ARRANGEMENT BETWEEN THE APPELLANT AND ITS GROUP COMPANIES, WHEREBY THE APPELLANT HAS NOW AGREED TO PERMIT ITS GROUP COMPANIES TO PURCHASE THE SHARES OF AS & AG GROUP OF COMPANIES I N ITS PLACE, SO THAT NOW THEY WILL BE ENTITLED TO A 12.25% STAKE IN VIL AT A PRICE MUCH LOWER THAN THE MARKET PRICE OF THAT SHARE. 50. TO COUNTER THIS ARGUMENT OF THE LD. ASG, THE LD . SENIOR COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT VIHBV IS ONLY A CON FIRMING PARTY AND NOT A VODAFONE INDIA SERVICES PRIVATE LTD. 63 | P A G E PARTY TO THE AGREEMENT. HE HAS REFERRED THE DECISIO N OF HON'BLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. V. UNION OF INDIA & ANR (SUPRA) AND SUBMITTED THAT THIS ASPECT HAS BEEN CONSIDERED BY THE HON'BLE SUPREME COURT AND SPECIFICALLY HELD THA T VIH BV IS ONLY A CONFIRMING PARTY. THUS THE LD. SENIOR COUNSEL HAS S UBMITTED THAT BEING A CONFIRMING PARTY TO THE AGREEMENT NO RIGHT OR INTER EST IS CREATED IN FAVOUR OF VIHBV. HE HAS REITERATED HIS CONTENTION THAT AFT ER CONSIDERING ALL THESE ASPECTS AND CONTENTIONS, THE HON'BLE SUPREME COURT HELD THAT THERE WAS NO ASSIGNMENT OF CALL OPTION IN THE FRAMEWORK AGREE MENTS OF 2007. THEREFORE, THE JURISDICTIONAL AND THRESHOLD REQUIRE MENT OF EXISTENCE OF TRANSACTION INCLUDING THE INTERNATIONAL TRANSACTION SECTION 92B OF THE INCOME TAX ACT IS NOT SATISFIED. HENCE THE PROVISIO NS OF TRANSFER PRICING CANNOT BE INVOKED WHEN THERE IS NO TRANSACTION BY R ECASTING THE FRAMEWORK AGREEMENTS IN 2007. THE DECISION OF HON'BLE SUPREME COURT IN RESPECT OF 2007 AGREEMENT WERE NOT A MERE CASUAL OBSERVATION B UT IS RATIO DESCENDING AND BINDING LAW DECLARED AS PER ARTICLE 141 OF CONS TITUTION OF INDIA. IN SUPPORT OF HIS CONTENTION HE HAS REFERRED THE JUDGM ENT OF HON'BLE HIGH COURT WHEREIN IT HAS BEEN HELD THAT THE FINDING OF HON'BLE SUPREME COURT IS BINDING. THE LD. SENIOR CL. FURTHER SUBMITTED AS UNDER: (I) UNDER CHAPTER X, THE JURISDICTIONAL AND THRESHOLD F ACT FOR INVOCATION OF TRANSFER PRICING PROVISIONS IS THE EXISTENCE OF A TRANSACTION AS DEFINED UNDER SECTION 92F(V) OF THE INCOME TAX ACT, 1961 WHICH WI LL TANTAMOUNT TO AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF T HE ACT IF THE SAID TRANSACTION IS BETWEEN TWO ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS. AS PER 92(1), AN ARMS LENGTH PRICE CAN BE DETERMIN ED ONLY IN RESPECT OF AN INTERNATIONAL TRANSACTION. THE DEPARTMENTS CASE IS THAT THE TRANSACTION IN THE VODAFONE INDIA SERVICES PRIVATE LTD. 64 | P A G E PRESENT CASE IS ASSIGNMENT OF CALL OPTIONS BY THE A SSESSEE TO ITS ASSOCIATED ENTERPRISE BY VIRTUE OF THE REWRITING OF THE FRAMEW ORK AGREEMENTS IN JULY 2007. ACCORDING TO IT DEPARTMENT, CLAUSE 4.4 OF THE 2007 FRAMEWORK AGREEMENTS CONSTITUTES ASSIGNMENT OF CALL OPTIONS I N PRESENTI IN FAVOUR OF SUBSIDIARIES OF VODAFONE GROUP PLC. FURTHER, THE AL LEGED ASSIGNMENT OF CALL OPTIONS IN 2007 BY THE ASSESSEE TO ITS ASSOCIATED E NTERPRISES IS AN INTERNATIONAL TRANSACTION WHICH WILL BE SUBJECT TO ARMS LENGTH DETERMINATION. THE JURISDICTIONAL FACT IS, THEREFORE, WHETHER OR NOT T HE 2007 FRAMEWORK AGREEMENTS CONSTITUTE AN ASSIGNMENT OF CALL OPTIONS IN PRAESENTI. THIS JURISDICTIONAL FACT WAS ALSO BEFORE THE SUPREME COU RT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. ( VIH BV ). THE DEPARTMENT HAD ARGUED THAT THE REWRITING OF FRAMEWORK AGREEMENTS IN JULY 2007 CONS TITUTED ASSIGNMENT OF CALL OPTIONS TO VIH BV. SINCE THESE CALL OPTIONS WE RE CONTAINED IN FRAMEWORK AGREEMENTS IN INDIA, THE SAME CONSTITUTED A TRANSFE R OF CAPITAL ASSET SITUATED IN INDIA. IN THE SAID CIRCUMSTANCES, AFTER EXAMINING T HE SAME FRAMEWORK AGREEMENTS, THE SHARE PURCHASE AGREEMENT OF FEBRUAR Y 2007 AND THE HISTORY OF THE ENTIRE STRUCTURE, THE SUPREME COURT UNEQUIVOCAL LY DECLARED THAT THE CALL OPTIONS VESTED WITH THE ASSESSEE UNDER THE FRAMEWOR K AGREEMENT OF 2006 AND 2007 AND THERE HAS BEEN NO TRANSFER OR ASSIGNMENT O F SUCH OPTIONS BY THE ASSESSEE UNDER ANY DOCUMENT WHATSOEVER. THE SUPREME COURT HAS ALSO HELD THAT THE 2007 FRAMEWORK AGREEMENTS MERELY REITERATE D THE RIGHTS OF THE ASSESSEE WHICH EXISTED EVEN IN THE 2006 FRAMEWORK A GREEMENTS. THEREFORE, THE INEVITABLE CONCLUSION IS THAT THERE HAS BEEN NO TRA NSACTION WHATSOEVER AS AN ASSIGNMENT WOULD MANDATORILY REQUIRE A VOLITIONAL F ACTUAL ACT, USUALLY INVOLVING A DOCUMENT BY THE ASSIGNOR TO AT LEAST ON E OTHER PARTY WHO IS THE ASSIGNEE. (II)THE DEPARTMENT IS UNABLE TO POINT ANY SUCH VOLI TION ACT SAVE AND EXCEPT THE 2007 FRAMEWORK AGREEMENT WHICH ARGUMENT HAS BEEN RE JECTED BY THE SUPREME COURT IN THE CASE OF VIH BV. FURTHER, THE BOMBAY HI GH COURT IN THE ASSESSEES CASE HAS HELD THAT THE FINDINGS OF THE SUPREME COUR T IN RESPECT OF 2007 FRAMEWORK AGREEMENTS WERE NOT MERE CASUAL OBSERVATI ONS BUT THE RATIO VODAFONE INDIA SERVICES PRIVATE LTD. 65 | P A G E DECIDENDI AND BINDING LAW DECLARED AS PER ARTICLE 1 41 OF THE CONSTITUTION OF INDIA. (III)SINCE THE SAME JURISDICTIONAL FACT WAS BEFORE THE SUPREME COURT IN THE CASE OF VIH BV AND THE PRESENT CASE, THE FINDING OF THE SUPREME COURT THAT THERE IS NO ASSIGNMENT OF ANY CALL OPTIONS UNDER THE JULY 20 07 FRAMEWORK AGREEMENTS IS BINDING ON THIS HONBLE TRIBUNAL AND THE IT DEPA RTMENT. ACCORDINGLY, THE JURISDICTIONAL AND THRESHOLD REQUIREMENT OF EXISTEN CE OF A TRANSACTION, WHICH IS ALSO AN INTERNATIONAL TRANSACTION UNDER SECTION 92B OF THE ACT, IS NOT SATISFIED. THEREFORE, THE INVOCATION OF TRANSFER PRICING PROVI SIONS IS INHERENTLY WITHOUT JURISDICTION. 51. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS VARIOUS DOCUMENTS EXECUTED IN CONNECTION WITH THE DIVESTMEN T OF TELECOM BUSINESS IN INDIA BY HTIL BY TRANSFER OF STAKE IN HEL THROUG H SALE OF SHAREHOLDING OF CGP. WE HAVE ALSO ANALYSED THE RELEVANT FACTS, C LAUSES OF THE AGREEMENTS AND THE PROVISIONS OF THE IT ACT. THE MEANING OF IN TERNATIONAL TRANSACTION IS PROVIDED U/S 92B WHICH READS AS UNDER:- MEANING OF INTERNATIONAL TRANSACTION . 92B. (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92 , 92C , 92D AND 92E , INTERNATIONAL TRANSACTION MEANS A TRANSACTION BET WEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBL E PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTH ER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES, AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN T WO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNE CTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE O R MORE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WIT H A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOSES OF SU B-SECTION (1), BE 84A [ DEEMED TO BE A TRANSACTION ] ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, I F THERE EXISTS A PRIOR AGREEMENT IN RELATION TO THE RELEVANT TRANS ACTION BETWEEN SUCH OTHER VODAFONE INDIA SERVICES PRIVATE LTD. 66 | P A G E PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERS ON AND THE ASSOCIATED ENTERPRISE 84B [ WHERE THE ENTERPRISE OR THE ASSOCIATED ENTERPRISE O R BOTH OF THEM ARE NON-RESIDENTS IRRESPECTIVE OF WHETHER SUCH OTHE R PERSON IS A NON-RESIDENT OR NOT ] . 85 [EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HERE BY CLARIFIED THAT (I) THE EXPRESSION INTERNATIONAL TRANSACTION SHAL L INCLUDE (A) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF T ANGIBLE PROPERTY INCLUDING BUILDING, TRANSPORTATION VEHICLE, MACHINERY, EQUIPM ENT, TOOLS, PLANT, FURNITURE, COMMODITY OR ANY OTHER ARTICLE, PRODUCT OR THING; (B) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF I NTANGIBLE PROPERTY, INCLUDING THE TRANSFER OF OWNERSHIP OR THE PROVISION OF USE O F RIGHTS REGARDING LAND USE, COPYRIGHTS, PATENTS, TRADEMARKS, LICENCES, FRA NCHISES, CUSTOMER LIST, MARKETING CHANNEL, BRAND, COMMERCIAL SECRET, KNOW-H OW, INDUSTRIAL PROPERTY RIGHT, EXTERIOR DESIGN OR PRACTICAL AND NE W DESIGN OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE; (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS; (D) PROVISION OF SERVICES, INCLUDING PROVISION OF M ARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC R ESEARCH, LEGAL OR ACCOUNTING SERVICE; (E) A TRANSACTION OF BUSINESS RESTRUCTURING OR REOR GANISATION, ENTERED INTO BY AN ENTERPRISE WITH AN ASSOCIATED ENTERPRISE, IRRESP ECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF THE TRANSACTION OR AT ANY FUTURE DATE; (II) THE EXPRESSION INTANGIBLE PROPERTY SHALL INC LUDE (A) MARKETING RELATED INTANGIBLE ASSETS, SUCH AS, T RADEMARKS, TRADE NAMES, BRAND NAMES, LOGOS; (B) TECHNOLOGY RELATED INTANGIBLE ASSETS, SUCH AS, PROCESS PATENTS, PATENT APPLICATIONS, TECHNICAL DOCUMENTATION SUCH AS LABOR ATORY NOTEBOOKS, TECHNICAL KNOW-HOW; (C) ARTISTIC RELATED INTANGIBLE ASSETS, SUCH AS, LI TERARY WORKS AND COPYRIGHTS, MUSICAL COMPOSITIONS, COPYRIGHTS, MAPS, ENGRAVINGS; (D) DATA PROCESSING RELATED INTANGIBLE ASSETS, SUCH AS, PROPRIETARY COMPUTER SOFTWARE, SOFTWARE COPYRIGHTS, AUTOMATED DATABASES, AND INTEGRATED CIRCUIT MASKS AND MASTERS; (E) ENGINEERING RELATED INTANGIBLE ASSETS, SUCH AS, INDUSTRIAL DESIGN, PRODUCT PATENTS, TRADE SECRETS, ENGINEERING DRAWING AND SCH EMA-TICS, BLUEPRINTS, PROPRIETARY DOCUMENTATION; VODAFONE INDIA SERVICES PRIVATE LTD. 67 | P A G E (F) CUSTOMER RELATED INTANGIBLE ASSETS, SUCH AS, CU STOMER LISTS, CUSTOMER CONTRACTS, CUSTOMER RELATIONSHIP, OPEN PURCHASE ORD ERS; (G) CONTRACT RELATED INTANGIBLE ASSETS, SUCH AS, FA VOURABLE SUPPLIER, CONTRACTS, LICENCE AGREEMENTS, FRANCHISE AGREEMENTS, NON-COMPE TE AGREEMENTS; (H) HUMAN CAPITAL RELATED INTANGIBLE ASSETS, SUCH A S, TRAINED AND ORGANISED WORK FORCE, EMPLOYMENT AGREEMENTS, UNION CONTRACTS; (I) LOCATION RELATED INTANGIBLE ASSETS, SUCH AS, LE ASEHOLD INTEREST, MINERAL EXPLOITATION RIGHTS, EASEMENTS, AIR RIGHTS, WATER R IGHTS; (J) GOODWILL RELATED INTANGIBLE ASSETS, SUCH AS, IN STITUTIONAL GOODWILL, PROFESSIONAL PRACTICE GOODWILL, PERSONAL GOODWILL O F PROFESSIONAL, CELEBRITY GOODWILL, GENERAL BUSINESS GOING CONCERN VALUE; (K) METHODS, PROGRAMMES, SYSTEMS, PROCEDURES, CAMPA IGNS, SURVEYS, STUDIES, FORECASTS, ESTIMATES, CUSTOMER LISTS, OR TECHNICAL DATA; (L) ANY OTHER SIMILAR ITEM THAT DERIVES ITS VALUE F ROM ITS INTELLECTUAL CONTENT RATHER THAN ITS PHYSICAL ATTRIBUTES.] 52. FOR THE PURPOSE OF SECTION 92, 92B, 92C, 92D AN D 92E, INTERNATIONAL TRANSACTION MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES EITHER OR BOTH OF WHOM ARE NONRESIDENT. SUCH TRANSACTION MAY BE ANY OF THE FOLLOWING ACTS OR ARRANGEMENTS:- (I) PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR (II) PROVISION OF SERVICES OR LENDING OR BORROWING OR (III) ANY OTHER TRANSACTION HAVING BEARING ON THE PROFITS , INCOME, LOSSES OR ASSETS OF ENTERPRISE AND SHALL INCLUDE MU TUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE AES FO R ALLOCATION OR APPORTIONMENT OF OR ANY CONTRIBUTION TO ANY COST OR EXPENSES TO BE INCURRED IN CONNECTION WITH A BENEFIT SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO A NYONE OR MORE OF SUCH ENTERPRISES. THE TERM TRANSACTION HAS BEEN FURTHER DEFINED U/S 9 2F(V) AS UNDER:- VODAFONE INDIA SERVICES PRIVATE LTD. 68 | P A G E 92F(V) TRANSACTION INCLUDES AN ARRANGEMENT, UNDER STANDING OR ACTION IN CONCERT, (A) WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR ACTION IS FORMAL OR IN WRITING; OR (B) WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR ACTION IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCEEDING 53 THEREFORE, AN INTERNATIONAL TRANSACTION MEANS A TRANSACTION INCLUDING AN ARRANGEMENT, UNDERSTANDING, OR ACTION IN CONCERT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES IN THE NATURE OF PURCHASE, S ALE, LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SERVICES OR LEN DING OR BORROWING MONEY OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSET OF SUCH ENTERPRISE. IT ALSO INCLUDE S A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES FOR THE ALLOCATION OR APPORTIONMENT OF OR ANY CONTRIBUTION TO ANY COST, EXPENSES INCURRED OR TO BE INCURRED IN CONNECTION WITH BENEF IT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUC H ENTERPRISES. 54. AS PER THE DEFINITION OF INTERNATIONAL TRANSACT ION AS CONTEMPLATED U/S 92B R.W.S 92F(V), IT DOES NOT NECESSARILY REQUIRE A TRANSFER OR ASSIGNMENT OF A PROPERTY OR CREATING ANY RIGHT OR INTEREST IN THE PROPERTY BUT EVEN AN ARRANGEMENT, UNDERSTANDING AND ACTION IN CONCERT, W HETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR ACTION IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCEEDINGS OR NOT, IF THE SAID UNDERSTANDIN G SHALL HAVE A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSET OF THE ENTERPR ISES, THE SAME WOULD FALL WITHIN THE REALM OF INTERNATIONAL TRANSACTION. EVEN IF IT IS ACCEPTED THAT VIH BV IS ONLY A CONFIRMING/CONSENTING PARTY TO THE FRAMEWORK AGREEMENTS, THE SAID AGREEMENT IS A MUTUAL AGREEMEN T UNDER WHICH THE CALL OPTIONS WERE GRANTED BY ASIM GHOSH AND ANALJIT SINGH TO ASSESSEE VODAFONE INDIA SERVICES PRIVATE LTD. 69 | P A G E AGAINST THE CONSIDERATION TO BE PAID BY THE ASSES SEE OR AN AFFILIATE FOR AN AGGREGATE AMOUNT OF US $ 10.2 MILLION AND US $ 6.3 MILLION PER ANNUM RESPECTIVELY TO THE COUNTER PARTIES. THERE IS NO DI SPUTE THAT THE SAID CONSIDERATION HAS BEEN PAID BY VIHBV, AN AFFILIATE OF THE ASSESSEE, FOR RETAINING THE CALL OPTIONS BY ASIM GHOSH AND ANALJI T SINGH. THEREFORE, THE REQUITE INGREDIENTS AND CONDITIONS OF AN INTERN ATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE (VIHBV) IN TERMS OF SECTION 92B R.W.S 92F(V) ARE FULFILLED AND SATISFIE D. ACCORDINGLY, THE 2007, FRAMEWORK AGREEMENTS IS AN ARRANGEMENT, UNDERSTANDI NG OR ACTION IN CONCERT BETWEEN THE ASSESSEE AND VIHBV FOR GRANT OF CALL OPTION BY ASIM GHOSH AND ANALJIT SINGH TO ASSESSEE AGAINST THE AGR EED CONSIDERATION PAID BY THE VIHBV. THIS MUTUAL UNDERSTANDING AND ARRANGE MENT AS WELL AS ACTION IN CONCERT BETWEEN THE ASSESSEE AND VIHBV FO R SECURING THE OPTION RIGHTS AGAINST THE CONSIDERATION PAID BY VIHBV CERT AINLY HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSET OF THE ASSO CIATED ENTERPRISES. THEREFORE, THE GRANT OF CALL OPTION UNDER FRAMEWORK AGREEMENTS 2007, AGAINST THE CONSIDERATION IS AN INTERNATIONAL TRANS ACTION AS PER PROVISIONS OF SECTION 92B R.W.S 92F(V). THE ANOTHER ANGLE TO SEE AND CONSIDER THIS ISSUE IS THAT VIDE SPA FOR PURCHASE OF THE CGP SHARE, VIH BV ACQUIRED 66.99% E QUITY INTEREST IN VIL AS UNDER: (I) 42% DIRECT INTEREST IN VIL/HEL HELD BY CGP. (II) 9.2% THROUGH TII AND OMEGA ON PRORATE BASIS INDIREC TLY HELD BY CGP. (III) 15.03% OPTIONS THROUGH THE ASSESSEE UNDER FWAS . VODAFONE INDIA SERVICES PRIVATE LTD. 70 | P A G E 55. THERE IS NO DISPUTE THAT THE CONSIDERATION FOR PURCHASE OF SINGLE SHARE OF CGP WAS DETERMINED ON THE BASIS OF 67% OF ENTERP RISE VALUE OF VIL/HEL. WHILE COMPUTING THE VALUE OF THE SINGLE SH ARE OF CGP THE EQUITY INTEREST OF 15.03% THROUGH ASSESSEE UNDER THE FWAS WAS VERY MUCH PART OF THE ECONOMIC VALUE OF THE TRANSACTION UNDER SPA BETWEEN VIH BV AND HTIL. IT IS UNDISPUTED FACT THAT FWAS OF 2007 WERE EXECUTED IN PURSUANT AND TO GIVE EFFECT TO THE SPA. AS PER THE TERMS OF THE SPA ALL GROUP COMPANIES AND AFFILIATES OF HTIL WERE BOUND BY THE SAID SPA BEING PART OF WIDER GROUP AS PER RECITAL/CLAUSE WHICH READS A S UNDER : WHEREAS: (A) CGP IS AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF THE VENDOR, CGP OWNS, DIRECTLY OR INDIRECTLY, COMPANIES WHICH CONTROL THE COMPANY INTERESTS. (B) THE VENDOR HAS AGREED TO PRODUCE THE SALE OF, AND T HE PURCHASER HAS AGREED TO PURCHASE, THE ENTIRE ISSUED SHARE CAPITAL OF CGP ON THE TERMS AND CONDITIONS SE T OUT IN THIS AGREEMENT. THE VENDOR HAS FURTHER AGREED TO PROCURE THE ASSIGNMENT OF, AND THE PURCHASER HAS AGREED TO ACCEPT AN ASSIGNMENT OF, THE LOANS ON THE TERMS AND CONDITIONS SET OUT IN THIS AGREEMENT AND THE LOAN ASSIGNMENTS. ND CALLUS FRAMEWORK AGREEMENT MEANS THE FRAMEWORK AGREEMENT DATED 1 MARCH 2006 BETWEEN ANALJIT SINGH, GSPL, ND CALLUS HOLDCO, ND CALLUS AND ASCO; TRANSACTION DOCUMENTS MEANS THIS AGREEMENT, THE TAX DEED, THIS DISCLOSURE LETTER, THE HUTCH BRAND LICEN SE, THE LOAN ASSIGNMENTS, THE CONFIDENTIALITY AGREEMENT, THE IDF C FRAMEWORK AGREEMENT AND THE GSPL TRANSFER AGREEMENT ; VODAFONE INDIA SERVICES PRIVATE LTD. 71 | P A G E WIDER GROUP MEANS CGP, GSPL, THE HOLDING COMPANIES AND THE GROUP AND WIDER GROUP COMPANY MEANS ANY ONE OF THEM. THE VENDORS OBLIGATIONS IN RELATION TO THE CONDUCT OF BUSINESS THE VENDOR UNDERTAKES TO PROCURE THAT, SAVE INSOFAR AS OTHERWISE AGREED IN WRITING THE PURCHASER (SUCH AGR EEMENT NOT TO BE UNREASONABLY WITHHELD OR DELAYED) OR TO G IVE EFFECT TO AND COMPLY WITH ANY OF THE TRANSACTION DOCUMENTS, D URING THE CLOSING PERIOD, EACH WIDER GROUP COMPANY; NOT TO AMEND, TERMINATE, VARY OR WAIVE ANY RIGHTS U NDER ANY OF THE FREAMEWORK AGREEMENTS, THE TII SHAREHOLDERS AGREEMENT OR THE SMMS SHAREHOLDERS AGREEMENT OR EX ERCISE ANY OF THEIR OPTIONS, RIGHTS OR DISCRETIONS UNDER A NY SUCH AGREEMENT OTHER THAN IN ACCORDANCE WITH ANY OF THE TRANSACTION DOCUMENTS OF THE IDFC FRAMEWORK AGREEME NT OTHER VENDORS OBLIGATIONS PRIOR TO COMPLETION PRIOR TO COMPLETION, THE VENDOR SHALL PROCURE THAT THE WIDER GROUP COMPANIES SHALL IMMEDIATELY INFORM THE PURCHA SER IF THERE HAS BEEN ANY AMENDMENT, VARIATION OR WAIVER O F ANY RIGHTS UNDER ANY OF THE FRAMEWORK AGREEMENTS, THE T II SHAREHOLDERS AGREEMENT OR THE SMMS SHAREHOLDERS AGREEMENT OR ANY OF THE OPTIONS GRANTED PURSUANT TO SUCH AGREEMENTS HAVE BEEN TRIGGERED OR EXERCISED OR IF T HERE HAS BEEN ANY EXERCISE OF ANY RIGHTS OR DISCRETIONS UNDE R SUCH AGREEMENTS. VODAFONE INDIA SERVICES PRIVATE LTD. 72 | P A G E 56. THE HONBLE HIGH COURT WHILE CONSIDERING THE BI NDING NATURE OF THE SPA HAS OBSERVED IN PARA 150-152 THAT THE TRANSACTI ON SHOULD BE OF COMPOSITE NATURE WHERE PERFORMANCE OF MOTHER AGREEM ENT MAY NOT BE FEASIBLE WITHOUT THE AID, EXECUTION AND PERFORMANCE OF THE SUPPLEMENTARY OR ANCILLARY AGREEMENTS FOR ACHIEVING THE COMMON OB JECT AND COLLECTIVELY HAVING BEARING ON THE DISPUTE. IN THE CASE IN HAND THE ENTIRE TRANSACTION UNDER SPA AND OTHER SUPPLEMENTARY/ANCILLARY AGREEME NTS IS ONE PACKAGE/COMPOSITE TRANSACTION OF TRANSFER OF SHARE OF CGP AND RIGHTS ATTACHED TO THE SHARE. AS PART OF ITS OBLIGATIONS, HTIL UNDERTOOK TO PROCURE THAT EACH WIDER GROUP COMPANY WOULD NOT TER MINATE OR MODIFY ANY RIGHTS UNDER ANY OF ITS FRAMEWORK AGREEMENTS OR EXERCISE ANY OF THEIR OPTIONS UNDER ANY SUCH AGREEMENT. HTIL ALSO PROVIDE D SEVERAL WARRANTIES TO VIH AS SET OUT IN SCHEDULE 4 TO SPA WHICH INCLUD ED THAT HTIL WAS THE SOLE BENEFICIAL OWNER OF CGP SHARE. THE TRANSACTION OF SALE AND PURCHASE OF CGP SHARE UNDER SPA TOOK PLACE ON 08/05/2007. TH EREFORE DURING THE YEAR UNDER CONSIDERATION BOTH HTIL AND VIH BV ARE T HE ASSOCIATED ENTERPRISES OF THE ASSESSEE AS PER SECTION 92A(2) O F IT ACT. SPA AND FWAS CONSTITUTE AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT AMONG THE ASSESSEE, HTIL AND VIH BV FOR GRANT OF CALL OPTION BY ASIM GHOSH AND ANALJIT SINGH TO ASSESSEE AGAINST THE AGREED CONSID ERATION PAID BY THE VIHBV. THIS MUTUAL UNDERSTANDING AND ARRANGEMENT AS WELL AS ACTION IN CONCERT BETWEEN THE ASSESSEE AND ITS AES FOR SECURI NG THE OPTION RIGHTS AGAINST THE CONSIDERATION PAID BY VIH BV TO HTIL AN D AG & AS CERTAINLY HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSET OF THE ASSOCIATED ENTERPRISES. VODAFONE INDIA SERVICES PRIVATE LTD. 73 | P A G E 57. NOW THE QUESTION ARISES WHETHER THE TRANSACTION IS AT ARMS LENGTH OR NOT. UNDISPUTEDLY THE CONSIDERATION WAS PAID BY VIH BV TO HTIL AS WELL AS TO AG & AS BUT NOTHING WAS PAID TO THE ASSESSEE FOR FACILITATING THE ARRANGEMENT AND SIGNING THE FRAMEWORK AGREEMENTS TO PROTECT THE VALUABLE INTEREST OF THE VODAFONE GROUP. FURTHER TH E OPTION RIGHTS HELD IN THE FRAMEWORK AGREEMENTS STOOD ASSIGNED AND VESTED IN FAVOUR OF CGP INDIA INVESTMENTS LTD. VIDE TII SHARE HOLDERS AGREE MENT DATED 5.7.2007. A SUM OF US$351.8 MILLION WAS RETAINED BY VIH BV FR OM THE PURCHASE CONSIDERATION AS RETENTION AMOUNT AS PER CLAUSE 8.1 0(B) OF SPA FOR ACQUISITION OF 15.03% STAKE FROM AS & AG AND IDFC U NDER FWAS. ONCE THE TRANSACTION IS HELD TO BE A INTERNATIONAL TRANS ACTION THE SAME MUST BE AT ARMS LENGTH PRICE. THE ASSESSEE BEING THE HOLDER OF THE VALUABLE OPTION RIGHTS UNDER FWAS TO GIVE PROPER EFFECT TO THE SPA WAS REQUIRED TO BE COMPENSATED AT ALP AND ON ASSIGNMENT OF OPTION RIGH TS IN THE FORM OF CGP INDIA INVESTMENTS LTD VIDE TII SHARE HOLDERS AG REEMENT DATED 5/7/2007, THE ASSESSEE WAS NOT COMPENSATED. GROUND NO. 7 AND 8 IS REGARDING VALUATION OF CALL O PTION. 58. THE TPO NOTED FROM THE GLOBAL AGREEMENT THAT TH E ASSESSEE HAD SIGNED SEVERAL FRAME WORK AGREEMENTS. IN THESE AGRE EMENTS, THE ASSESSEE IS AN AFFECTED PARTY AS AE OF THE VIH BV. THE TPO A CCORDINGLY, ISSUE A SHOW-CAUSE NOTICE TO THE ASSESSEE ON THE GROUND THA T AS PER CLAUSE 2.3 OF THE IDFC TERMINATION AGREEMENT DATED 5.7.2007 CASHL ESS OPTION WAS ASSIGNED BY THE IDFC INVESTORS TO THE ASSESSEE FOR A PAYMENT OF RS. 62.23 VODAFONE INDIA SERVICES PRIVATE LTD. 74 | P A G E CRORES WHEREAS NO CONSIDERATION WAS PAID TO THE ASS ESSEE IN RESPECT OF THE ASSIGNMENT OF OPTION RIGHTS TO ITS AE UNDER THE FRA MEWORK AGREEMENTS WITH AS AND AG. HAVING HELD THAT RE-WRITING OF FRAM EWORK AGREEMENTS DATED 5.7.2007 IS AN INTERNATIONAL TRANSACTION IN T HE SHAPE OF ASSIGNMENT OF OPTIONS RIGHTS BY THE ASSESSEE TO ITS AE WITHOUT AN Y CONSIDERATION, THE TPO PROPOSED TO DETERMINE THE ARMS LENGTH PRICE. SINCE THIS TRANSACTION WAS NOT REPORTED BY THE ASSESSEE AS INTERNATIONAL TRANS ACTION, THEREFORE, THE ASSESSEE DID NOT MAINTAIN THE DOCUMENTS AS REQUIRED U/S 92C OF THE INCOME TAX ACT. THUS, IN ORDER TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION OF ASSIGNMENT OF RIGHT TO CALL OPTION, THE TPO TOOK THE CASH LESS OPTION ASSIGNED BY THE IDFC INVESTORS TO THE ASSESS EE FOR A CONSIDERATION OF RS. 62.23 CRORES AS A COMPARABLE UNCONTROLLED TRANS ACTION. IN THE SAID TRANSACTION THE RIGHT OF IDFC INVESTORS UNDER THE C ASH LESS TRANSACTION WAS RELINQUISHED IN FAVOUR OF THE ASSESSEE. THE TPO WAS OF THE VIEW THAT THE ASSIGNMENT OF OPTION RIGHTS TO VODAFONE SUBSIDIARIE S IS IDENTICAL TO RELINQUISHMENT OF CASH LESS OPTION BY THE IDFC INVE STORS. THEREFORE, THE TPO USED THE INTERNAL CUP FOR VALUATION OF ASSIGNME NT OF CALL OPTION RIGHTS TO AE. UNDER THE FRAMEWORK AGREEMENTS WITH AS AND AG, THE ASSESSEE WAS HAVING THE RIGHT TO ACQUIRE TOTAL 12.25% OF HEL SHARES WHEREAS IN THE CASH LESS OPTION, THE CONSIDERATION FOR ASSIGNMENT OF 0.1234% OF HEL SHARES WAS RS. 62.23 CRORES. ACCORDINGLY, THE TPO C OMPUTED THE ALP BY APPLYING THE SAME RATE OF CONSIDERATION AS PAID BY THE ASSESSEE TO IDFC INVESTORS FOR RELINQUISHMENT OF CASH LESS OPTION TO ARRIVE AT RS. 6171.88 CRORES AS ARMS LENGTH PRICE OF ASSIGNMENT OF CALL OPTION UNDER THE FRAMEWORK AGREEMENTS WITH AS AND AG. THE WORKING OF THE ALP OF ASSIGNMENT OF CALL OPTION IS GIVEN AT PAGE 48 OF TH E TPO AS UNDER:- VODAFONE INDIA SERVICES PRIVATE LTD. 75 | P A G E % OF HEL 1) ANALJIT SINGH & ORS. 7.57% 2) ASIM GHOSH & ORS. 4.68% 12.25% VALUATION OF 0.1234% RS. 62,24,27,849/- VALUATION OF 12.25% OPTION 62,24,27,849X12.25% 0.1234% RS. 6178,88,26,177 THE ALP OF ASSIGNMENT OF CALL OPTION RS. 6178,88,2 6,177 ACUTAL PRICE CHARGED NIL ADJUSTMENT U/S. 92CA RS. 6178,88,26,177/- 59. SINCE NO PRICE WAS CHARGED BY THE ASSESSEE FROM AE AGAINST THE ALLEGED ASSIGNMENT OF CALL OPTION RIGHTS TO THE EXT ENT OF 12.25% OF HEL SHARES IN THE FRAMEWORK AGREEMENTS, THEREFORE, THE TPO PROPOSED THE ADJUSTMENT U/S 92CA AT THE ENTIRE AMOUNT OF ALP OF RS. 6178.88 CRORES. WHILE PASSING THE DRAFT ORDER, THE ASSESSING OFFICE R DETERMINED THE COST OF ACQUISITION OF SAID CALL OPTION AT RS. 73,44,15,000 /- BEING THE ANNUAL PAYMENT MADE TO AG AND AS FROM 01 ST MARCH 2006 TO JULY 2007. THE DRP HELD THAT NO COST HAS BEEN BORNE BY THE ASSESSEE AN D ACCORDINGLY RECOMPUTED THE COST OF ACQUISITION AT NIL AND THERE BY THE CAPITAL GAIN WAS TAKEN AS FULL VALUE CONSIDERATION AT RS. 6178.88 C RORES. VODAFONE INDIA SERVICES PRIVATE LTD. 76 | P A G E 60. BEFORE US, THE LD. SENIOR COUNSEL OF THE ASSESS EE HAS SUBMITTED WITHOUT PREJUDICE TO THE CONTENTION THAT THE RE-WRI TING OF THE FRAMEWORK AGREEMENTS IN 2007 DID NOT RESULT IN ASSIGNMENT OF CALL OPTIONS BY THE ASSESSEE TO VIH BV AND/ OR SUBSIDIARIES OF VODAFONE GROUP PLC, THE AO/TPO/DRP GROSSLY ERRED IN COMPUTING SHORT TERM CA PITAL GAINS IN RESPECT OF THE ALLEGED TRANSACTION AT RS.6178,88,26 ,177/- RESULTING IN TAX PAYABLE @ 33.99% AMOUNTING TO RS.2100 CRORES APPROX . HE HAS ADVANCED THE FOLLOWING ARGUMENTS: A. CASHLESS OPTION OF IDFC IS NOT COMPARABLE WITH THE CALL OPTIONS VESTED WITH THE ASSESSEE UNDER THE FRAMEWORK AGREEM ENTS WITH ANALJIT SINGH AND ASIM GHOSH (I)IT IS SUBMITTED THAT THE AO/TPO/DRP HAVE MADE AN OBVIOUS AND PATENT ERROR IN EXTRAPOLATING THE VALUE OF OPTIONS HELD BY THE ASSESSEE IN THE IDFC GROUP OF COMPANIES, REPRESENTING 0.1234 % SHARES HELD IN THE MAIN OPERATING COMPANY, TO OPTIONS HELD BY THE ASSESSEE IN A TOTALLY DIFFERENT SET OF COMPANIES (ASIM GHOSH AND HIS COMPANIES AND ANALJIT SINGH AND HIS COMPANIES), REPRESENTING 12.25% INDIRECT EQUITY INTEREST IN THE MAIN OPERATING COMPANY. IN S IMPLE WORDS THE TPO/AO/DRP HAVE HELD THAT IF VALUE OF OPTIONS REPRE SENTING 0.1234% SHARES IN THE MAIN OPERATING COMPANY COULD FETCH RS.62.63 CRORES THEN OPTIONS REPRESENTING 12.25% INDIRECT EQ UITY INTEREST WOULD FETCH RS.6178 CRORES.THIS SIMPLE EXTRAPOLATIO N IS BAD FOR THE FOLLOWING REASONS: VODAFONE INDIA SERVICES PRIVATE LTD. 77 | P A G E (A) THE CALL OPTION GRANTED TO IDFC INVESTORS PURSUANT TO IDFC FRAMEWORK AGREEMENT (THE IDFC OPTION) HAS THE FOLLOWING STRUCTURAL CHARACTERISTICS: I. IT IS AN OPTION TO BUY 0.1234% SHARES IN THE MAIN OPERATING COMPANY ITSELF AND NOT THE UPSTREAM HOLDING COMPANIES . II. IT IS AN OPTION WHICH HAS A PRE-DETERMINED STRIKE PRICE OF RS. 50 CRORES , WHICH PROVIDES THE OPTION HOLDER WITH THE BENEFIT OF A REDUCED PRICE AGAINST THE FMV OF THE UNDERLYING MAIN OPERATING COMPANYS SHARES III. IT IS AN OPTION THAT DOES NOT REQUIRE THE PAYMENT OF ANY MONEY WHATSOEVER BY THE OPTION HOLDER AT THE TIME OF EXE RCISE OF THE OPTION BECAUSE OF WHICH IT HAS BEEN TERMED AS A CASHLESS OPTION . (B) THE CALL OPTIONS IN DISPUTE (ASG/ AS OPTION) (THE OPTION) HAVE THE FOLLOWING STRUCTURAL CHARACTERISTICS: I. THE OPTION IS AN OPTION TO BUY THE SHARES (THE SHARES UNDERLYING THE OPTION) OF PLUSTECH MERCANTILE CO. LTD. (ASIM GHOSH GROUP COMPANY) AND MV HEALTHCARE SERVICES (P) LTD. (ANALJIT SINGH GROUP COMPANY ) AND NOT THE MAIN OPERATING COMPANY I.E. F IN THE OWNERSHIP CHART. II. IT IS AN OPTION THAT HAS NO STRIKE PRICE , VODAFONE INDIA SERVICES PRIVATE LTD. 78 | P A G E III. IT IS AN OPTION THAT REQUIRES THE PAYMENT OF CASH EQUIVALENT TO FAIR MARKET VALUE (FMV) OF THE SHARES UNDERLYING THE OPTION. THE PRICE, I.E. US$ 266,250,000 (AS OPTION) AND US$ 164,510,000 (AG OPT ION) AT WHICH THE UNDERLYING SHARES COULD BE PURCHASED U NDER THE OPTION WAS THE FMV OF THE SAID SHARES. THESE PRICES WERE FMV OF THE SAID SHARES HAVE BEEN CERTIFIED BY TWO L EADING CHARTERED ACCOUNTANTS AND VALUERS NAMELY, KPMG AND S.R. DINODIA RELYING ON THE REPORT OF A RENOWNED AND EST EEMED VALUER NAMELY GOLDMAN SACHS. ON THE BASIS OF GOLDMA N SACHSS REPORT, THE FIPB ACCEPTED THE FMV OF THESE SHARES AND ONLY AFTER CONSIDERING THE SAID REPORT, FIPB GA VE ITS APPROVAL TO THE ENTIRE TRANSACTIONS INCLUDING THE O PTION PRICE. THIS FACT HAS BEEN CONSIDERED BY THE SUPREME COURT IN ITS JUDGMENT. ( PARA 120 AND 121 ) (C) BASED ON THE ABOVE, IT IS ABUNDANTLY CLEAR THAT THE RE ARE GLARING AND APPARENT DIFFERENCES BETWEEN THE SUBJECT (PRESE NT) CALL OPTIONS AND THE IDFC OPTION WHICH MAKES THE TWO OPT IONS UN- COMPARABLE. SET FORTH ARE THE FOLLOWING GLARING DIF FERENCES IN THE TWO OPTIONS WHICH MAKES THE COMPARISON OF THE TWO MEANINGLESS AND IRRELEVANT: DESCRIPTION OF DIFFERENTIAL ITEMS PRESENT CALL OPTIONS IDFC OPTION SHARES OF UNDERLYING SHARES OF CALL OPTION ARE DIRECT SHARES OF MAIN VODAFONE INDIA SERVICES PRIVATE LTD. 79 | P A G E DIFFERENT COMPANIES THE SHARES OF PLUSTECH MERCANTILE CO. LTD. (ASIM GHOSH GROUP COMPANY) AND MV HEALTHCARE SERVICES (P) LTD. (ANALJIT SINGH GROUP COMPANY), WHICH INDIRECTLY THROUGH A NUMBER OF INTERMEDIARY COMPANIES HOLD SHARES IN MAIN OPERATING COMPANY. OPERATING COMPANY OPTION PRICE THE PRESENT CALL OPTIONS ENTITLE THE OPTION HOLDER TO PURCHASE THE UNDERLYING SHARES AT THE FMV. IN OTHER WORDS, IF SOMEONE WERE TO BUY THE OPTIONS, HE WOULD STILL HAVE TO PAY THE FMV OF THE UNDERLYING SHARES AT THE TIME OF EXERCISE AND NOT THE PRICE BELOW THE FMV. ACCORDINGLY, THE VALUE OF THE OPTION IS NIL , SINCE THE UNDERLYING SHARES ITSELF ARE AVAILABLE AT THE SAME PRICE I.E. THE FMV. THEREFORE, IF THESE OPTIONS WERE TO BE SOLD EVEN TO AN INDEPENDENT THIRD PARTY, THE ASSESSEE WOULD NOT BE ABLE TO REALIZE ANY VALUE WARRANTING ANY TRANSFER PRICING ADJUSTMENT AS THE THIRD PARTY WOULD HAVE DIRECTLY BOUGHT THE SHARES AT THE SAME VALUE. IDFC OPTION PROVIDES THE OPTION HOLDER A BENEFIT AGAINST FMV OF SHARES OF THE MAIN OPERATING COMPANY, AS THE OPTION HOLDER HAD THE OPTION TO PURCHASE THE SHARES AT THE STRIKE PRICE OF RS.50 CRORES. IN OTHER WORDS, THE MAXIMUM COST FOR THE PURCHASE OF SHARES AT THE TIME OF EXERCISE OF THE OPTION WILL BE EQUAL TO THE STRIKE PRICE (RS. 50 CRORES) IRRESPECTIVE OF THE ACTUAL FAIR VALUE OF HEL SHARES. TO ILLUSTRATE, IF THE FMV OF THE HEL SHARES IS 110 CRORES ON THE EXERCISE DATE OF THE OPTION, THE OPTION HOLDER ONLY PAYS RS. 50 CRORES AND, THUS, GETS A BENEFIT OF RS. 60 CRORES CASH VS. UNDER THE STRUCTURE OF THE PRESENT CALL UNDER THE IDFC VODAFONE INDIA SERVICES PRIVATE LTD. 80 | P A G E CASHLESS OPTIONS OPTION, THE OPTION HOLDER HAS TO PAY THE FULL FAIR MARKET VALUE OF THE SHARES AT THE TIME OF EXERCISE OF THE OPTION. TO ILLUSTRATE, IF THE FAIR MARKET VALUE OF THE UNDERLYING SHARES IS RS. 100 CRORES, THE OPTION HOLDER HAS TO EITHER USE CASH AVAILABLE OR FINANCE SUCH COST FROM THE MARKET. IN OTHER WORDS, THE OPTION HOLDER HAS TO PAY THE ENTIRE FMV TO GET THE UNDERLYING SHARES. OPTION, THE OPTION HOLDER DOES NOT HAVE TO PAY ANYTHING AT ALL FOR THE PURCHASE OF THE UNDERLYING HEL SHARES. THE OPTION HOLDER WILL ONLY EXERCISE THE OPTION IF THE FAIR MARKET VALUE OF HEL SHARES IS HIGHER THAN THE STRIKE PRICE. IF THAT IS THE CASE, THEN, THE OPTION HOLDER DOES NOT HAVE TO PAY ANYTHING FOR THE PURCHASE OF THE UNDERLYING SHARES. IN FACT, IT WILL RECEIVE A NET CASH INFLOW UPON THE EXERCISE OF THE OPTION. (D) BASED ON THE ABOVE, IT IS ABUNDANTLY CLEAR THAT THE VALUE OF THE IDFC OPTION IS PREDOMINANTLY DRIVEN EACH OF ITS SAL IENT CHARACTERISTICS, IN PARTICULAR, THE FOLLOWING CHARA CTERISTICS: I. THE VALUE OF THE BENEFIT GRANTED TO THE OPTION HOLD ER THROUGH THE MECHANISM OF STRIKE PRICE, II. NO MONEY HAS TO BE PAID BY THE OPTION HOLDER FOR TH E EXERCISE OF THE OPTION AND III. THE VALUE OF THE SHARES OF HEL. (E) THE TPO FAILED TO APPRECIATE VODAFONE INDIA SERVICES PRIVATE LTD. 81 | P A G E I. ABSENCE OF ALL OF THE BENEFITS IMPLICIT IN THE STRU CTURE OF THE IDFC OPTION ARE COMPLETELY ABSENT IN THE STRUCTURE OF THE PRESENT CALL OPTION, NAMELY, THE BENEFIT TO THE FMV AS A RESULT OF STRIKE PRICE MECHANISM BUILT INTO THE STR UCTURE OF THE IDFC OPTION AND THE CASHLESS FEATURE OF THE IDF C OPTION AND II. THE VALUE OF THE SHARE UNDERLYING PRESENT CALL OPTI ON IS DIFFERENT THAN THE VALUE OF HEL SHARES BECAUSE OF D IFFERENCES IN FINANCIAL ASSETS AND LIABILITIES OF THE DOWNSTRE AM COMPANIES OF PLUSTECH MERCANTILE CO. (P) LTD. (ASIM GHOSH GROUP COMPANY) AND MV HEALTHCARE SERVICES (P) LTD. (ANALJIT SINGH GROUP COMPANY) AND THOSE OF THE MAIN OPERATING COMPANY. (F) VALUE OF OPTION TO BUY SHARES IS THE DIFFERENCE BET WEEN THE FMV AND THE PRICE AT WHICH THE OPTION HOLDER IS ENTITLE D TO BUY THE SHARES. FOR EXAMPLE IF FMV OF A SHARE IS RS. 100/- AND A PERSON HAS THE OPTION TO BUY THE SAID SHARE SAY AT RS. 80/ -, THEN VALUE OF THE SAID OPTION IS RS. 20/-. BUT SUPPOSE FMV OF A S HARE IS RS. 100/- AND A PERSON HAS THE OPTION TO BUY THE SAID S HARE ALSO AT RS. 100/-, THEN VALUE OF THE SAID OPTION WILL BE NIL. A CCORDINGLY, IN THE PRESENT OPTION THE OPTION HOLDER WILL HAVE TO PAY T HE FMV TO BUY THE UNDERLYING SHARE AND HENCE VALUE OF THE SAID OP TION IS NIL. THE TPO HAS APPLIED THE CUP METHOD. IN TERMS OF RUL E 10B(1)(A) OF THE INCOME TAX RULES, 1962 (THE RULES). THE CUP METHOD REQUIRES VODAFONE INDIA SERVICES PRIVATE LTD. 82 | P A G E HIGH DEGREE OF COMPARABILITY IN RESPECT OF FUNCTION S PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED ( FAR ANALYSIS ) AND ANY MINOR DIFFERENCE IN THE PROPERTY SOUGHT TO BE TRANSFERRED MATERIALLY AFFECTS THE APPLICABILITY OF THE SAID METHOD. THE OECD GUID ELINES EXPLICITLY PROVIDE THAT A MINOR DIFFERENCE IN THE PROPERTY TRA NSFERRED COULD MATERIALLY AFFECT THE PRICE. THE RELEVANT EXTRACT O F PARA 2.15 OF THE OECD GUIDELINES ARE AS UNDER: A MINOR DIFFERENCE IN THE PROPERTY TRANSFERRED I N THE CONTROLLED AND UNCONTROLLED TRANSACTIONS COULD MATE RIALLY AFFECT THE PRICE EVEN THOUGH THE NATURE OF THE BUSI NESS ACTIVITIES UNDERTAKEN MAY BE SUFFICIENTLY SIMILAR RELIANCE IN THIS REGARD IS ALSO PLACED UPON THE FOL LOWING OBSERVATIONS OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AZTEC SOFTWARE AND TECHNOLOGY V. ACIT: 107 ITD 141 , WHEREIN AT PARA 119, THE SPECIAL BENCH HELD AS UNDER: 119. THE VARIOUS METHODS ARE NOW DISCUSSED HEREUND ER: (A) COMPARABLE UNCONTROLLED PRICE METHOD (CUP): CUP IS DESCRIBED IN RULE 10B(A) AS FOLLOWS: (A) COMPARABLE UNCONTROLLED PRICE METHOD, BY WHICH, -- (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFEREN CES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET; VODAFONE INDIA SERVICES PRIVATE LTD. 83 | P A G E (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUS E (II) IS TAKEN TO BE AN ARM'S LENGTH PRICE IN RESPEC T OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN TH E INTERNATIONAL TRANSACTION. CUP IS APPLIED WHEN A PRICE IS CHARGED FOR A PRODUC T OR SERVICE. THIS IS ESSENTIALLY COMPARISON OF PRICES CHARGED FO R THE PROPERTY OR SERVICES TRANSFERRED IN A CONTROLLED TR ANSACTION TO A PRICE CHARGED FOR PROPERTY OR SERVICES TRANSFERRE D IN A COMPARABLE UNCONTROLLED TRANSACTION. THE BEDROCK OF THIS METHOD IS THE IDENTIFICATION OF AN IDENTICAL TRANSA CTION, IN A SITUATION WHERE A PRICE IS CHARGED FOR PRODUCTS OR SERVICES BETWEEN UNRELATED PARTIES. WHILE APPLYING CUP THE COMPARABILITY BETWEEN CONTRO LLED AND UNCONTROLLED TRANSACTIONS SHOULD NOT BE ONLY JUDGED FROM THE POINT OF PRODUCT COMPARABILITY, BUT SHOULD ALSO TAK E INTO CONSIDERATION THE EFFECT ON PRICE OF OTHER BROADER BUSINESS FUNCTIONS. EVEN MINOR DIFFERENCES IN CONTRACTUAL TE RMS OR ECONOMIC CONDITIONS, GEOGRAPHICAL AREAS, RISKS ASSU MED, FUNCTIONS ASSUMED ETC. COULD AFFECT THE AMOUNT CHAR GED IN AN UNCONTROLLED TRANSACTION. COMPARABILITY UNDER THIS METHOD DEPENDS ON CLOSE SIMILARITIES WITH RESPECT TO VARIO US FACTORS. G. THEREFORE, IT IS CONTENDED THAT FROM THE ABOVE IT I S AMPLY CLEAR THAT APPLICATION OF CUP REQUIRES STRICT PRODUCT COMPARAB ILITY. AS EXPLAINED HEREINABOVE, THERE IS A FUNDAMENTAL AND C ONCEPTUAL DIFFERENCE IN THE IDFC OPTIONS AND THE OPTIONS HELD BY THE ASSESSEE UNDER THE 2007 FRAMEWORK AGREEMENTS WITH ASIM GHOSH AND ANALJIT SINGH AND THEIR GROUP OF COMPANIES. IN THAT VIEW OF THE MATTER, THE PRICE PAID BY THE ASSESSEE FOR PURCHASE OF THE CASH LESS OPTIONS FROM IDFC INVESTORS CANNOT BE TAKEN AS A COMPARABLE FOR BENCHMARKING VODAFONE INDIA SERVICES PRIVATE LTD. 84 | P A G E THE ALLEGED ASSIGNMENT OF CALL OPTIONS BY THE ASSES SEE TO ITS AES, VIZ. SUBSIDIARIES OF THE VODAFONE GROUP PLC. H. INSOFAR AS THE DECISION OF THE BANGALORE TRIBUNAL I N THE CASE OF TALLY SOFTWARE CITED BY THE DRP IS CONCERNED, THE SAME DE CISION WOULD HAVE HAD A BEARING/RELEVANCE ONLY IF THE COMPARABLE SELECTED BY THE TPO AND THE DRP WOULD HAVE PASSED THE FAR TEST MAND ATED BY THE RULES. B VALUE OF THE CALL OPTION IS NIL (I) WITHOUT PREJUDICE TO THE FOREGOING, IT IS SUBMITTED THAT THE VALUE OF THE CALL OPTIONS WAS DETERMINED BY TWO REPUTABLE IN DEPENDENT VALUATION AGENTS, NAMELY, KPMG AND S.R. DINODIA AT NIL/NEGLIGIBLE AND, THEREFORE, NO CAPITAL GAINS ACCRUED TO THE ASS ESSEE FROM THE ALLEGED ASSIGNMENT OF CALL OPTIONS. BOTH THESE REPO RTS FORMED PART OF THE RECORD BEFORE THE SUPREME COURT IN THE CASE OF VIH BV AND WERE ALSO TENDERED BEFORE THE DRP. HOWEVER, THE DRP HAS ERRONEOUSLY REFUSED TO CONSIDER THE REPORTS FILED BY THE ASSESS EE, SINCE IN THE ASSESSEES CASE THEY WERE TENDERED FOR THE FIRST TI ME BEFORE THE DRP. HOWEVER, THE ADDITIONAL EVIDENCE TENDERED BY THE TP O BEFORE THE DRP FOR THE FIRST TIME WAS ADMITTED AS EVIDENCE. SU CH EXCLUSION OF THE EVIDENCE TENDERED BY THE ASSESSEE AMOUNTS TO VIOLAT ION OF PRINCIPLES OF NATURAL JUSTICE AND, THEREFORE, WITHIN THE SPECI FIC MANDATE OF RULE 29 OF THE ITAT RULES, THESE REPORTS CAN BE CONSIDER ED BY THE HONBLE TRIBUNAL WHILE DECIDING THE PRESENT ISSUE. (II) IT IS SETTLED LAW THAT AN OPINION OF AN EXPERT CAN NOT BE BRUSHED ASIDE. THE DRP, NOT BEING AN EXPERT IN VALUATION, HAD TO M ANDATORILY VODAFONE INDIA SERVICES PRIVATE LTD. 85 | P A G E CONSIDER THE EXPERT OPINIONS, UNLESS AND UNTIL THE DRP COUNTERS IT WITH ANOTHER EXPERT OPINION REPORTS, WHICH STATES O THERWISE OR THE OPINION IS VITIATED BY FRAUD, BIAS OR A PATENT MIST AKE. IN THE FACTS OF THE PRESENT CASE, THE DRP HAS FAILED TO CONSIDER TH E EXPERT OPINIONS WITHOUT ASSIGNING ANY REASON, WHICH IS NOT PERMISSI BLE IN LAW. ( REFER G.L. SULTANIA VS. SEBI AIR 2007 SC 2172) . C. THE COST OF ACQUISITION OF THE CALL OPTIONS IS I NDETERMINABLE (I.) THE REASONS ACCORDED BY THE DRP TO DISTINGUISH THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SRINIVASA SETTY ( SUPRA ) THAT THE COST OF ACQUISITION OF THE OPTIONS WAS DETERMINABLE BUT SINCE THE ASSESSEE DID NOT MAKE ANY PAYMENT FOR SUCH DETERMINABLE COST, THE CO A IN THE HANDS OF THE ASSESSEE IS NIL. (II) AS ADMITTED BY THE DRP, THE CALL OPTIONS CAME INTO EXISTENCE BY THE FRAMEWORK AGREEMENTS EXECUTED ON 1 MARCH 2006. IT IS ALSO UND ISPUTED THAT CREDIT SUPPORT WAS ARRANGED BY THE THEN AE OF THE ASSESSEE THROUGH RABOBANK WHEREIN THE AE STOOD AS A GUARANTOR TO ENABLE ANALJIT SINGH AND ASI M GHOSH TO ACQUIRE SHARES IN THE MAIN OPERATING COMPANY. AS PER THE DRP IN CONSI DERATION OF THIS FACILITY, ANALJIT SINGH AND ASIM GHOSH AGREED TO VEST THE CALL OPTIONS WITH THE ASSESSEE. THE DRP HAS RENDERED A FINDING THAT THE COST OF ACQ UISITION OF THESE OPTIONS WAS FULLY FUNDED BY THE AE OF THE ASSESSEE AND SUCH COS T WAS NEITHER ALLOCATED TO THE ASSESSEE NOR BORNE BY THE ASSESSEE AND, THEREFORE, THE COST OF ACQUISITION OF OPTION WAS DETERMINABLE BUT AT THE SAME TIME NIL IN THE HANDS OF THE ASSESSEE. (III) IT IS NOT CLEAR FROM THE DRP ORDER AS TO HOW AND ON WHAT BASIS THE COST OF ACQUISITION IS DETERMINABLE IN THE HANDS OF THE AE. THE DRP HAS JUST STOPPED SHORT BY HOLDING THAT THE COA IS DETERMINABLE WITHO UT IDENTIFYING AS TO WHAT THE ACTUAL COST WAS. THE FUNDS FOR PURCHASE OF THE SHAR ES WERE MADE AVAILABLE BY RABOBANK AND NOT THE ASSESSEE OR ITS AE. IT HAS ALS O NOT BEEN SHOWN HOW ANY VODAFONE INDIA SERVICES PRIVATE LTD. 86 | P A G E CONSIDERATION WAS PAID BY THE AE OF THE ASSESSEE FO R SECURING SUCH LOAN. THE AE OF THE ASSESSEE HAD ONLY STOOD AS A GUARANTOR FOR S ECURING THE CREDIT SUPPORT FOR ASIM GHOSH AND ANALJIT SINGH AND THEIR GROUP OF COM PANIES. SUCH PROVISION OF GUARANTEE CAN NEVER BE VALUED IN RUPEE TERMS AND, T HEREFORE, THE COA OF SUCH OPTIONS IS INDETERMINABLE. (IV) A BANK USUALLY MAKES FUNDS AVAILABLE TO AN ENTITY O N THE BASIS OF ITS CREDIT STANDING. THE CREDIT STANDING OF A CORPORATE IS BAS ED ON A NUMBER OF FACTORS WHICH, INTER ALIA , INCLUDES THE CREDIT HISTORY OF THE CORPORATE, THE FUTURE EARNING CAPACITY, THE SECTOR IN WHICH THE COMPANY IS OPERAT ING, THE END USE OF THE FUNDS ETC. THEREFORE, IT IS ON THE BASIS OF A MYRIAD OF F ACTORS A LOAN IS ADVANCED, AGAINST WHICH A CORPORATE STANDS AS A GUARANTOR. THE CREDIT WORTHINESS/CREDIT STANDING OF A CORPORATE, ABSENT ANY STATUTORY DEFINITION, IS IN DETERMINABLE. ACCORDINGLY, THE JUDGMENT OF THE SUPREME COURT IN B.C. SRINIVASA SETTY ( SUPRA ) APPLIES IN ALL FOURS AND THE RELIANCE PLACED BY THE DRP ON THE JUDGMENT IN THE CASE OF A.R. KRISHNAMURTHY IS MISPLACED, SINCE COA OF LEASEHOLD RIGHTS WAS UNDISPUTEDLY DETERMINABLE IN THAT CASE. (V) EVEN THOUGH THE DRP HAS ARRIVED AT A FINDING THAT T HE COST ELEMENT IS IDENTIFIABLE, IT HAS FAILED TO RENDER ANY FINDING TO SHOW AS TO W HAT WAS THE MONETARY ELEMENT OF SUCH COST. EXCEPT MAKING A BALD STATEMENT THAT COA IS DETERMINABLE IN THE PRESENT CASE, THE DRP HAS MISERABLY FAILED EVEN TO ATTEMPT DETERMINING THE COA WHICH ITSELF SHOWS THAT IN THE PRESENT CASE THE COA WAS NOT DETERMINABLE. 61. ON THE OTHER HAND, THE LD. ASG HAS SUBMITTED TH AT SINCE, THE IDFC LNVESTORS ARE UNRELATED PARTIES AND THE TRANSACTION INVOLVED IS ASSIGNMENT OF OPTIONS INVOLVING THE UNDERLYING SHARES OF HEL, THE TPO HAS USED ASSIGNMENT OF CASHLESS OPTION AS DESCRIBED ABOVE AS INTERNAL CUP FOR DETERMINING THE ALP OF ASSIGNMENT OF CALL OPTIONS T O VIHBV. SCHEDULE 1 TO THE 2006 IDFC FWA, PROVIDES THE MANNER OF DETERMINA TION OF THE FMV. VODAFONE INDIA SERVICES PRIVATE LTD. 87 | P A G E SINCE, THE CONSIDERATION FOR CASHLESS OPTION IS THE DIFFERENCE BETWEEN THE FMV AND THE STRIKE PRICE, THE FAIR MARKET VALUE OF 0.1234% OF SHARES OF HEL IS RS.112,24,27,849/- (I.E.RS.50.00,00,000 + RS .62,24,27,849). THIS SHOWS THAT THE DIFFERENCE BETWEEN THE FMV AND THE S TRIKE PRICE IS NOTHING BUT THE VALUE OF THE OPTIONS IN THE HANDS OF THE OP TION HOLDER I.E. IDFC INVESTORS. SINCE, THE ASSESSEE HAS ALSO ASSIGNED IT S CALL OPTION RIGHTS IN FAVOUR OF VIH BV THE ASSESSEE SHOULD HAVE GOT COMPE NSATION EQUIVALENT TO THE VALUE OF THE OPTIONS. AS THE OPTION RIGHT WHICH EARLIER VESTED IN THE ASSESSEE, NOW VEST IN VIHBV TO THE EXTENT OF 12.25. % OF HEL SHARES, THE TPO HAS CORRECTLY DETERMINED THE ALP BY PRO RATING THE CONSIDERATION PAID BY THE ASSESSEE TO IDFC INVESTORS (WHICH WERE ALSO IN RESPECT OF OPTION TO BUY HEL SHARES). IN THIS REGARD IT SHOULD BE NOTED THAT THE TPO HAS VALUED THE OPTIONS AND NOT THE SHARES ITSELF. THIS IS EVID ENT FROM THE FACT THAT THE TPO HAS CONSIDERED ONLY THE DIFFERENCE BETWEEN THE STRIKE PRICE AND THE FAIR MARKET VALUE, PAID FOR THE ASSIGNMENT OF CASHL ESS OPTION. THUS THE PRO RATA CONSIDERATION WORKED OUT BY THE TPO AT PAGE 67 OF THE APPEAL MEMO IS ONLY THE VALUE OF THE OPTION AS ASSIGNED (THE TPO H AS CONSIDERED ONLY RS. 62.24 CRORES AS THE NUMERATOR AND NOT RS. 112.24 CR ORES BEING THE VALUE OF 0.1234% STAKE.) 62. THE LD. ASG HAS FURTHER SUBMITTED COMPARABILIT Y OF THE UNCONTROLLED TRANSACTION WITH THE SUBJECT INTERNATIONAL TRANSACT ION IS DEMONSTRATED UNDER THE VARIOUS ATTRIBUTES OF THE TRANSACTION AS UNDER:- A. PROPERTY IN BOTH THE CASES THE PROPERTY BEING CONSIDERED IS AN OPTION TO PURCHASE CERTAIN SHARES. VODAFONE INDIA SERVICES PRIVATE LTD. 88 | P A G E B. UNDERLYING ASSETS COVERED BY THE OPTIONS IN BOTH THE CASES, THE UNDERLYING ASSETS ARE SHARES IN HEL. C. NATURE OF TRANSACTION - IN BOTH THE CASES, THE NATURE OF TRANSACTION IS T HE TRANSFER OF RIGHT TO EXERCISE OPTIONS. D. FUNCTIONS PERFORMED - UNDER THE INTERNATIONAL TRANSACTION, THE ASSESSE E IS THE HOLDER OF OPTIONS TO PURCHASE THE SHARES OF SBP/AG MERCANTILE FROM AS AND AG WHICH TOGETHER CONSTITUTE 12.25% SHARES OF HEL. UNDER THE CASHLESS OPTION (CUP), THE ORIGINAL INVESTOR IS THE HOLDER OF THE OPTION TO PURCHASE 0.1234% OF SHARES OF HEL. IN THIS REGARD, THE RIGHT TO PURCHASE THE SHARES OF UPSTREAM HOLDING COMPANY SBP?AGM) IS NO DIFFERENT FROM THE RIGHT TO PURCHASE THE SHARES OF MAIN OPERATING COMPANY (HEL) AS BOTH THE RIGHTS DERIVE THEIR VALUE FROM HEL SHARES. FURT HER THE CONCLUSION IS ALSO STRENGTHENED BY THE FACT THAT THERE ARE NO OTH ER INVESTORS BESIDES VODAFONE/AS/AG IN ALL THE COMPANIES BETWEEN THE SBP /AG MERCANTILE AND HEL. E. STRIKE PRICE MUCH LOWER THAN FMV UNDER THE FWA WITH IDFC, THE STRIKE PRICE IS RS. 50 CRORRES FOR 0.1234% SHARES O F HEL IS RS. 112.24 CORES AS PER TRANSACTION AGREEMENT DATED 5 TH JUNE 2007. AS PER FWA 2007 WITH AS & AG, VIHBV CAN ACQUIRE THE 12.25% SHARES OF HE L HELD BY AS &AG COMPANIES AT USD 430.76 MILLION (USD 266.25 MILLION USD 164.51 MILLION UNDER FWA 2007 WITH AS AND AG RESPECTIVELY.) THE FM V OF 12.25% SHARES OF HEL HELD BY AS & AG COMPANIES, IS MUCH MORE THAN USD 430.76 MILLION. THEREFORE THERE IS A STRIKE PRICE FOR EXER CISE OF OPTIONS UNDER BOTH VODAFONE INDIA SERVICES PRIVATE LTD. 89 | P A G E AGREEMENTS WHICH IS LOWER THAN THE FMV OF THE STAKE THAT COULD HAVE BEEN ACQUIRED BY EXERCISE OF OPTIONS. F. INVOLVEMENT OF CASH - ON EXERCISE OF THE CASHLESS OPTION UNDER THE 2006 IDFC FWA, IDFC INVESTORS WOULD GET THE DIFFERENCE B ETWEEN THE FMV OF 0.1234% SHARES OF HEL AND THE STRIKE PRICE ( RS. 62 .24 CRORES). UNDER THE TRANSACTION AGREEMENT DATED 5 TH JUNE 2007, THE ASSESSEE GOT THE CASHLESS OPTION ASSIGNED TO ITSELF AFTER MAKING THE SAID PA YMENT OF RS. 62.24 CRORES TO THE IDFC INVESTORS. PURSUANT TO THE FWA 2007 W ITH AS/AG, THE OPTIONS WERE DIVESTED IN FAVOUR OF VIH BV FOR WHICH THE ASS ESSEE RECEIVED NO CONSIDERATION WHATSOEVER. 63. THE LD. ASG FURTHER CONTENDED THAT THE ASSESSEE S ARGUMENT THAT NO EXCHANGE OF CASH IS INVOLVED ON THE ASSIGNMENT OF T HE CASHLESS OPTION UNDER THE IDFC FWA, WHEREAS A PAYMENT OF USD 430.76 MILL ION WILL HAVE TO BE MADE ON EXERCISE OF THE CALL OPTION UNDER THE 2007, FWAS WITH AS AND AG, IS EX FACIE INCORRECT. IN FACT, CASH IS INVOLVED UNDER THE ID FC FWA BECAUSE IN ADDITION TO THE RS. 62.24 CRORES PAID TO THE ID FC INVESTORS BY THE ASSESSEE, AN AMOUNT OF RS. 50 CRORES (THE STRIKE PR ICE) WOULD HAVE TO BE PAID TO OMEGA ON EXERCISE OF THE OPTION. THE ASSESS EE HAS CONFUSED THE OUTFLOW AT THE TIME OF EXERCISE OF OPTION BY ACTUAL PURCHASE OF SHARES WITH THE COMPENSATION PAYABLE ON TRANSFER OF THE OPTION PRIOR TO ITS EXERCISE. IN THE IDFC AGREEMENT, THE OPTIONS HAVE BEEN ASSIGN ED TO THE ASSESSEE AND WHENEVER THE ASSESSEE (OPTION HOLDER) EXERCISES THI S OPTION TO PURCHASE THE SHARES OF HEL, IT WILL BE REQUIRED TO PAY THE STRIK E PRICE (OF RS. 50 CRORES) TO OMEGA. SIMILARLY, UNDER THE FWA 2007 WITH AS & AG, PAYMENT OF USD 430.76 MILLION (WHICH IS IN FACT THE STRIKE PRICE I S PAYABLE BY VIHBV VODAFONE INDIA SERVICES PRIVATE LTD. 90 | P A G E (OPTION HOLDER) ON EXERCISE OF CALL OPTIONS TO PURC HASE ACQUIRE THE SHARES. HENCE THERE IS NO DIFFERENCE ON ACCOUNT OF CASH OUT FLOW BETWEEN THE SUBJECT INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTION. 64. THUS, THE COMPARABLE TRANSACTION AND THE SUBJEC T INTERNATIONAL TRANSACTION ARE SIMILAR IN ALL MATERIAL RESPECTS. T HE DIFFERENCE IF ANY DO NOT MATERIALLY AFFECT THE PRICE AND SUITABLE ADJUSTMENT S CAN BE MADE FOR ANY OTHER DIFFERENCE. HENCE THE CUP APPLIED BY THE TPO FULFILS THE REQUIREMENT OF RULE L0B AND RULE 1OC. 65. THE LD. ASG THEN SUBMITTED THAT VALUATION REPOR T RELIED UPON BY THE ASSESSEE SUFFERS FROM VARIOUS SHORTCOMINGS AS WILL BE DEMONSTRATED HEREIN AFTER. THE ASSESSEES ARGUMENT REQUIRES TO BE REJEC TED EX FACIE BASED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF VIHBV AND HONBLE BOMBAY HIGH COURT IN THE ASSESSEES OWN CASE. THE LD. ASG FURTHER SUBMITTED THAT RELIANCE ON THE VALUATION REPORTS, F OR THE FIRST TIME BEFORE THE TRIBUNAL BEING THE FINAL FACT FINDING AUTHORITY , OUGHT NOT TO BE PERMITTED. HE SUBMITTED THAT THERE ARE VARIOUS INCO NSISTENCIES, DEFECTS AND DEFICIENCIES IN THE SAID REPORTS, IT WAS SUBMITTED THAT UNLESS THE PERSON WHO HAD PREPARED THE REPORT IS EXAMINED, THE DEPARTMENT IS PERMITTED TO CROSS EXAMINE, NO RELIANCE OUGHT TO BE PLACED ON REPORTS. ANY SUCH RELIANCE, WITHOUT THE DEPARTMENT BEING PERMITTED ITS RIGHT OF CROSS EXAMINATION, WOULD BE BREACH OF THE PRINCIPLES OF NATURAL JUSTIC E. 66. HE FURTHER SUBMITTED THAT THE MOST IMPORTANT EV IDENCE THAT HOLDING COMPANY DISCOUNT AND LIQUIDITY DISCOUNT ARE NOT APP LICABLE WHEN A BUYER IS ACQUIRING MAJORITY STAKE IN A COMPANY, IS AVAILABLE IN THE CASE WHEN VIHBV VODAFONE INDIA SERVICES PRIVATE LTD. 91 | P A G E ACQUIRED THE STAKE IN HEL FROM HTIL. IT IS AN ADMIT TED FACT THAT VIHBV ACQUIRED 66.98% INTEREST AT USD 11.076 BN WHICH WAS 67% OF THE ENTERPRISE VALUE. IT IS ALSO AN ADMITTED FACT THAT CGP, CAYMAN ISLAND, OWNED DIRECTLY AND INDIRECTLY THROUGH ITS SUBSIDIARIES, AN AGGREGA TE OF 42.34% OF THE ISSUED SHARE CAPITAL OF HEL AND A FURTHER INDIRECT INTERES T IN 9.62% OF THE ISSUED SHARE CAPITAL OF HEL. (PARA 25 OF HON 'BLE SUPREME COURT ORDER). IT HAS BEEN FURTHER CLARIFIED IN PARA 33 OF THE HON'BLE S UPREME COURT ORDER THAT VIHBV ACQUIRED 42% DIRECT INTEREST .IN HEL THROUGH ITS ACQUISITION OF 100%CGP (CI). IT ALSO ACQUIRED FURTHER 10% STAKE TH ROUGH PRO-RATA ROUTE BY HOLDING SHARES IN TII AND OMEGA THROUGH ACQUISITION OF CGP (CI). WHILE VALUING THESE 10% SHARES, NO HOLDING COMPANY DISCOU NT OR LIQUIDITY DISCOUNT WAS APPLIED THOUGH THESE 10% SHARES WERE H ELD IN A SIMILAR FASHION AS SHARES OF HEL HELD BY AS/AG THROUGH ND C ALLUS AND CENTRINO. IT IS SUBMITTED THAT THE HOLDING COMPANY/LIQUIDITY DISCOUNT COMES INTO PLAY ONLY WHEN A MINORITY SHAREHOLDER IS TRYING TO SELL ITS STAKE IN THE MARKET AS FAR AS MAJORITY SHAREHOLDER IS CONCERNED, THE ACQUI SITION OF FURTHER SHARES ONLY STRENGTHENS ITS BARGAINING POWER AND FROM THE PERSPECTIVE OF THE MAJORITY SHAREHOLDER WHO IS ACQUIRING THE SHARES, T HERE IS NO CONCEPT OF ANY DISCOUNT. THAT IS WHY WHILE ACQUIRING CGP SHARES TH ERE IS NO DIFFERENCE IN THE VALUE OF DIRECT, INDIRECT OR PRO-RATA HOLDING. IN PARA 85 OF THE JUDGMENT OF HON 'BLE SUPREME COURT, THE FINDING HAS BEEN GIV EN THAT THE PURCHASER PAID FOR 67% OF ENTERPRISE VALUE BECAUSE OF THE REA SON THAT THE COMPETING INDIAN BIDDERS WOULD HAVE HAD DE FACTO ACCESS TO TH E ENTIRE 67% AS THEY ARE NOT SUBJECTED TO THE FDI CAP AND WOULD HAVE ENCASHE D THE CALL OPTIONS. THIS SHOWS THAT THE VALUATION OF 15% OPTION SHOULD BE ON THE SAME BASIS AS WAS APPLIED FOR OTHER 52% SHARES ACQUIRED DIRECTLY OR INDIRECTLY. IT ALSO VODAFONE INDIA SERVICES PRIVATE LTD. 92 | P A G E SHOWS THAT THERE IS NO DISCOUNT INVOLVED ON ACCOUNT OF HOLDING COMPANY OR LIQUIDITY DISCOUNT AS CLAIMED BY THE ASSESSEE WHEN IT IS SEEN FROM THE PERSPECTIVE OF THE BUYER I:E, VODAFONE GROUP. 67. FROM THE ABOVE DISCUSSION THE FOLLOWING CONCLUS IONS ARE SUBMITTED: A. THE OPTIONS HAVE SIGNIFICANT VALUE. B. THE' TPO HAS APPLIED THE CUP METHOD TO DETERMINE THE ALP AND THE ONLY OBJECTION AGAINST THE SAME IS THAT WHILE THE CASHLE SS OPTION WAS FOR THE PURCHASE OF HEL SHARES ITSELF, THE CALL OPTIONS HEL D BY THE ASSESSEE WAS FOR AN UPSTREAM COMPANY. IT HAS ALREADY BEEN POINTED OU T THAT THE ASSESSEE'S PARENT COMPANY PAID (67%:) OF THE ENTERPRISE VALUE OF HEL EVEN THOUGH IT ACQUIRED AN UPSTREAM COMPANY IN CAYMAN ISLAND THAT WAS MANY LEVELS AND COUNTRIES AWAY FROM HEL. THUS NO DISTINCTION ON ACC OUNT OF LEVELS WAS MADE WHEN 67% STAKE WAS ACQUIRED IN HEL. NO OUTSIDE , PARTY HAS ANY CONTROL ON THE ASSESSEE'S INVESTMENT. WHENEVER THE ASSESSEE WISHES, IT CAN LIQUIDATE ITS INVESTMENT AND REALIZE ITS VALUE INDE PENDENTLY. THE ONLY ADJUSTMENT THAT WILL BE REQUIRED WILL BE ON ACCOUNT OF LOANS IN THE INTERMEDIATE COMPANIES. THE VALUE AS CALCULATED BY THE TPO DULY ADJUSTED FOR THE SAME CAN BE SEEN AT ANNEXURE I. THE VALUE W ORKS OUT TO RS. 6889.08 CRORES. C. FROM THE ASSESSEE'S VALUATION BASED ON KPMG AND S.R. DINODIA & CO VALUATION REPORTS (PAGE NO. 1886 TO 1945 AND PAGE N O. 1946 TO 1995 OF VOLUME VI OF THE PAPER BOOK RESPECTIVELY),THE ASSE SSEE HAS TAKEN THE VALUE OF HEL AT USD 25 BI11ION ON THE BASIS THAT THE VALU E OF HEL WILL INCREASE TO THAT FIGURE IN 2-3 YEARS TIME. ON THIS ENHANCED VAL UE THE ASSESSEE HAS APPLIED HOLDING COMPANY DISCOUNT AND LIQUIDITY DISC OUNTS AND HAS ALSO VODAFONE INDIA SERVICES PRIVATE LTD. 93 | P A G E REDUCED CAPITAL GAINS TAX AT TII LEVEL. IF THE HOLD ING COMPANY DISCOUNT, LIQUIDITY DISCOUNTS AND TAX ADJUSTMENTS ARE DELETED AS EXPLAINED EARLIER, THE VALUE WORKS OUT TO RS.LL066.67 CRORES. THIS CALCULA TION CAN BE REFERRED TO AT ANNEXURE II. AS OBSERVED THIS VALUE IS MUCH MORE TH AN THE TPO'S DETERMINATION. D. ALTERNATIVELY EVEN IF THE METHODOLOGY ADOPTED BY THE ASSESSEE IS FOLLOWED AND THE ENTERPRISE VALUE OF HEL IS CONSIDERED AT US D 18.80 BILLION AS PER THE SPA EVEN THEN THE VALUE WORKS OUT TO RS. 7262.5 8 CRORES. 68. THE ASSESSEE ARGUED THAT THE CONCLUSIONS ARRIV ED AT IN THE PRESENTATION MADE BY GOLDMAN SACHS BEFORE THE FIPB CANNOT BE CHALLENGED BY THE DEPARTMENT BEFORE THE ITAT NOW. T HE GOLDMAN SACHS HAD VALUED THE EQUITY IN N. D. CALLUS AND CENTRINO BEING THE COMPANY THROUGH WHICH THE SHARES IN HEL WERE INDIRECTLY HEL D BY THEM. ACCORDING TO THE COUNSEL, THE VALUATION OF THESE TWO COMPANIE S WAS BINDING ON THE REVENUE AS THE REVENUE ATTENDED THE MEETING CALLED FOR BY THE FIPB. THIS ARGUMENT OF THE ASSESSEE IS UNFOUNDED AS THE PURPOS E OF THE FIPB MEETING WAS ENTIRELY DIFFERENT AND HAD NOTHING TO DO WITH D ETERMINATION OF THE ASSESSEE'S TAXABILITY UNDER THE TP PROVISIONS IN RE SPECT OF THE TRANSACTIONS ENTERED INTO SUBSEQUENTLY. IN FACT, AT THAT TIME (9 TH APRIL, 2007), NOBODY COULD HAVE FORESEEN THAT THE ASSESSEE WOULD TRANSFE R ITS VALUABLE OPTION RIGHTS TO ITS NON-RESIDENT AES FOR NO CONSIDERATION THROUGH THE FRAMEWORK AGREEMENT DATED IN JULY, 2007. THE ASSESSEE'S CONTE NTION THAT THERE WAS A SINGLE WINDOW CLEARANCE BEFORE THE FIPB AND THEREFO RE SINCE THE INCOME VODAFONE INDIA SERVICES PRIVATE LTD. 94 | P A G E TAX DEPARTMENT WAS A PRESENT BEFORE THE FIPB (ALBEI T IN A DIFFERENT CAPACITY) THE INCOME TAX DEPARTMENT IS PRECLUDED FR OM DISPUTING THE GOLDMAN SACHS REPORT IS COMPLETELY BASELESS. 69 THE FIPB WAS CONCERNED WITH THE RETURN TO BE EAR NED BY AS & AG WHO WERE MINORITY SHAREHOLDERS AND HAD A MEAGRE INV ESTMENT. AG HAD A TOTAL INVESTMENT OF RS.30 LAKHS WHICH ENABLED AG TO HOLD ASSETS WORTH MORE THAN SEVERAL THOUSAND CRORES (PLEASE REFER TO PARA 30 OF THE SUBMISSION OF THE RESPONDENT ON DETERMINATION OF AL P OF CALL OPTIONS). AS SUCH, THE DEPARTMENT OF REVENUE WAS ALSO NOT ALARME D AS THE BENEFICIARY WAS THE ASSESSEE WHICH WAS AN INDIAN COMPANY AND AS AND WHEN IT TRANSFERS THE RIGHT OR THE SHARES, IT WOULD HAVE BE EN LIABLE TO PAY TAXES IN INDIA. HOWEVER, THE ASSESSEE TRANSFERRED ITS VALUAB LE OPTION RIGHTS TO ITS NON- RESIDENT AES, VIZ. VIHBV, IN JULY 2007 FOR NO CONSIDERATION AND DID NOT DISCLOSE THIS INTERNATIONAL TRANSACTION TO SUPR EME COURT, HIGH COURT, TPO, DRP OR THE TRIBUNAL. 70. THE ASSESSEE HAS TRIED TO CREATE AN IMPRESSION THROUGH ITS ARGUMENTS AS IF THE GOLDMAN SACHS PRESENTATION WAS BEFORE ALL TH E INCOME TAX AUTHORITIES IN THE PRESENT PROCEEDINGS AGAINST THE ASSESSEE AS ALSO BEFORE THE SUPREME COURT IN THE PROCEEDINGS IN THE CASE OF VIHBV. THE HON'BLE BENCH RAISED A QUERY WHETHER THE PRESENTATION OF GO LDMAN SACHS WAS BEFORE THE SUPREME COURT IN THE CASE OF VIHBV AND B EFORE THE INCOME TAX AUTHORITIES IN THE PRESENT PROCEEDINGS AGAINST THE ASSESSEE. IT IS SUBMITTED THAT THE GOLDMAN SACHS PRESENTATION WAS NEVER FURNI SHED BY THE ASSESSEE BEFORE ANY OF THE LOWER AUTHORITIES INCLUDING THE T RIBUNAL IN THE PRESENT VODAFONE INDIA SERVICES PRIVATE LTD. 95 | P A G E PROCEEDINGS AGAINST THE ASSESSEE (REFER PARA NO.19 AND 20 OF THE SUBMISSION OF THE RESPONDENT ON DETERMINATION OF AL P OF CALL OPTIONS). THE PRESENTATION WAS ONLY BEFORE THE FIPB FROM WHERE TH E DEPARTMENT OBTAINED THE COPY AROUND FEBRUARY, 2014 AND FILED B EFORE THE ITAT. 71. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RE LEVANT MATERIAL ON RECORD. AS REGARDS THE VALUATION AND BENCHMARKING T HE TRANSACTION THE TPO APPLIED CUP METHOD AND ADOPTED THE PRICE PAID BY TH E ASSESSEE FOR PURCHASE OF CASHLESS OPTION FROM IDFC INVESTORS REG ARDING 0.1234% SHARES HELD BY OMEGA TELECOM HOLDINGS PVT. LTD. IN VIL/HEL . THE TPO COMPUTED THE STCG BY CONSIDERING THE COST OF ACQUIS ITION OF CALL OPTIONS THE AMOUNT PAID TO AG AND AS BEING ANNUAL PAYMENT F OR KEEPING THE OPTIONS ALIVE. THE DRP HELD THAT NO COST HAS BEEN B ORNE BY THE ASSESSEE AND ACCORDINGLY RECOMPUTED THE SHORT TERM CAPITAL GAIN BY TAKING THE COST OF ACQUISITION AT NIL. CONSEQUENTLY THE DRP ENHANCED T HE ASSESSMENT. WE MAY CLARIFY THAT IT IS NOBODYS CASE THAT THERE IS NO COST OF ACQUISITION OF CALL OPTIONS BUT THE DRP PROCEEDED ON BASIS THAT THE COS T OF ACQUISITION WAS NOT PAID BY THE ASSESSEE. 72. THE ASSESSEE HAS DISPUTED THE COMPARABILITY OF THE CASHLESS OPTION HELD BY THE IDFC INVESTORS UNDER FRAMEWORK AGREEMEN TS DATED 7-8-2006 WITH THE CALL OPTIONS UNDER FWAS WITH AG & AS. AS P ER THE CLAUSE 4.2 (C) TO (F), THE INVESTORS OF THE IDFC WERE HOLDING A CASH LESS OPTION THEREBY REQUIRING THE OTHER PARTIES OF THE FRAMEWORK AGREEM ENTS TO TRANSFER THE 0.1234% OF HEL SHARES IN FAVOUR OF THIRD PARTY AS N OMINATED BY THE INVESTORS. FOR READY REFERENCE, WE QUOTE CLAUSE 4.2 (C) TO (F)AS UNDER: VODAFONE INDIA SERVICES PRIVATE LTD. 96 | P A G E (C) IF AT ANY TIME DURING THE OPTION EXERCISE PERIO D PRIOR TO ANY INVESTOR OPTION CASHLESS EXERCISE (CASHLESS OPTION) THEY MAY DO SO BY WAY OF WRITTEN NOTICE (CASHLESS NOTICE) TO ITNL, GSPL AND HTIL RE QUIRING THE ITNL TO TRANSFER THE INVESTORS OPTION SHARES, FREE FROM ALL ENCUMBRANCES, TO THE PARTY NAMED IN THE CASHLESS NOTICE FOR THE CONSIDERAT ION SPECIFIED IN THE CASHLESS NOTICE (WHICH CONSIDERATION SHALL NOT BE LE SS THAN THE STRIKE PRICE (THIRD PARTY CONSIDERATION) AND PROVIDING ALL REASON ABLE DETAIL OF THE TERMS OF THE SALE AND IN ACCORDANCE WITH THE PROCEDURES SPECIFIED IN CLAUSE 4.5. IF THE PROCEEDS RECEIVED BY ITNL FROM SUCH TR ANSFER ARE MORE THAN THE STRIKE PRICE, HTIL, JVC AND ITNL SHALL ENSUR E THAT THE EXCESS OVER AND ABOVE THE STRIKE PRICE IS PAID TO THE INVESTORS BY WAY OF TRANSFER TO ENSURE THAT THE INVESTORS RECEIVE AN AMOUNT EQUIVALENT TO THE NET PROCEEDS OF THE SALE LESS THE STRIKE PRICE (INVESTOR OPTION EXCESS AMOUNT) (D) THE INVESTOR AGREE THAT THE RESPONSIBILITY FOR FINDING A PURCHASER IF THEY EXERCISE THE CASHLESS OPTION, WHO SHALL COMPLY WITH THE SECTORAL CAP AT THE TIME OF PURCHASE UNDER THE CASHLESS OPTION AND F OR NEGOTIATING THE TERMS OF SUCH SALE AND PURCHASE SHALL REST SOLELY WITH THE INVES TORS. (E) SUBJECT TO CLAUSE 4.2(I), IF THE INVESTOR ELECT TO EXERCISE THE CASHLESS OPTION, THEN THE INVESTORS OPTION WILL BE DEEMED TO H AVE BEEN EXERCISED AND ALL OBLIGATIONS OF HTIL AND ITNL SHALL HAVE BEEN F ULFILLED UPON PAYMENT OF THE INVESTOR OPTION EXCESS AMOUNT TO THE INVEST OR. (F) IF THE INVESTOR WISH TO EXERCISE THE CASHLESS OP TION WHILE HEL IS NOT LISTED ON ANY STOCK EXCHANGE, THEN GSPL SHALL HAVE TH E OPTION, EXERCISABLE WITHIN 3 DAYS OF RECEIPT OF THE CASHLESS NOTICE FROM THE INVESTORS BY PROVIDING A WRITTEN NOTICE TO THE GSPL OR ITS NOMINEE THE INVESTORS OPTION FOR THE THIRD PARTY CONSIDERATION LESS THE ST RIKE PRICE (CASHLESS ASSIGNMENT PRICE). ANY SUCH NOTICE ISSUED BY GSPL S HALL SUPERSEDE THE CASHLESS NOTICE WHICH SHALL IMMEDIATELY CEASE TO BE OF ANY EFFECT. COMPLETION OF THE ASSIGNMENT AND NOVATION AND PAYMENT OF THE CASHLESS ASSIGNMENT PRICE SHALL TAKE PLACE WITHIN 14 DAYS OF GSPLS NOTICE. UPON SUCH ASSIGNMENT AND NOVATION. ITNL ALSO AGREES THAT TH E INVESTORS OPTION SHALL BE AMENDED SO AS TO ALLOW THE INVESTORS O PTION TO BE EXERCISED AT ANY TIME BY GSPL OR ITS NOMINEE AND SHAL L LAPSE 10 YEARS AFTER SUCH ASSIGNMENT AND NOVATION. THE CASHLESS OPTI ON IS DEEMED TO BE FULFILLED UPON PAYMENT OF THE CASHLESS ASSIGNMENT PRICE T O THE INVESTORS. 73. THERE IS NO DOUBT THAT THE OPTION RIGHT HELD BY THE ASSESSEE UNDER FRAMEWORK AGREEMENTS WITH AS AND AG AS WELL AS FRA MEWORK AGREEMENTS WITH INVESTORS OF IDFC ARE FOR ACQUISITION OF HEL S HARES. THE ONLY VODAFONE INDIA SERVICES PRIVATE LTD. 97 | P A G E DIFFERENCE IN THE RIGHTS OF THE ASSESSEE UNDER IDFC FRAMEWORK AGREEMENTS IS THAT THE INVESTORS WERE ALSO HAVING THE CASH LES S OPTION TO PURCHASE THE SHARES OF HEL HELD BY OMEGA TELECOM HOLDING PVT. L TD. THEREFORE, THERE WAS A DEFICIENCY IN THE RIGHT OF THE ASSESSEE TO PU RCHASE THE SHARES UNDER IDFC FRAMEWORK AGREEMENTS TO THE EXTENT OF CASH LES S OPTION HELD BY THE INVESTORS OF IDFC UNDER WHICH THERE WAS A POSSIBILI TY AS PER THE TERMS AND CONDITIONS OF THE FRAMEWORK AGREEMENTS THAT THE INV ESTORS MAY EXERCISE THE CASHLESS OPTION IN FAVOUR OF A THIRD PARTY AFTE R GIVING A PRIOR NOTICE TO THE ASSESSEE. THUS TO REMOVE THIS DEFICIENCY IN THE RIGHTS OF THE ASSESSEE IT ENTERED INTO A TRANSACTION AGREEMENT DATED 5.6.2007 WITH THE IDFC INVESTORS, WHEREBY, THE SAID CASHLESS OPTION WAS AS SIGNED BY THE IDFC INVESTORS IN FAVOUR OF THE ASSESSEE. IN THIS WAY TH E IDFC FRAMEWORK AGREEMENTS WAS BROUGHT TO THE PARITY WITH THE FRAME WORK AGREEMENTS WITH AG AND AS AND DISSIMILARITY IN THE OPTION RIGH TS OF ASSESSEE BETWEEN THE TWO SETS OF FRAMEWORK AGREEMENTS WAS BROUGHT TO AN END. THE CONSIDERATION PAID FOR ASSIGNMENT OF CASHLESS OPTIO N WAS TO REMOVE THE DEFICIENCY/DIFFERENCE IN THE OPTION RIGHTS OF THE A SSESSEE UNDER THE IDFC FRAMEWORK AGREEMENTS IN COMPARISON TO THE OPTION RI GHTS UNDER FRAMEWORK AGREEMENTS WITH AS AND AG, THEREFORE, BY GETTING THE CASHLESS OPTION RELINQUISHED, THE RIGHT UNDER THE IDFC FRAME WORK AGREEMENTS WERE BROUGHT AT PAR WITH THE OPTION RIGHTS IN AG AND AS FRAMEWORK AGREEMENTS. HENCE COMPARING THE CASHLESS OPTION RIGHTS UNDER ID FC FRAMEWORK AGREEMENTS WITH THE OPTION RIGHTS UNDER THE AG AND AS FRAMEWORK AGREEMENTS IS RATHER IN FAVOUR OF THE ASSESSEE BECA USE THE CONSIDERATION WAS ONLY FOR A FRICTION OF THE OPTION RIGHTS AND NO T THE FULL OPTION RIGHTS UNDER THE IDFC FRAMEWORK AGREEMENTS. WHEREAS THE AS SESSEE IS HAVING VODAFONE INDIA SERVICES PRIVATE LTD. 98 | P A G E FULL OPTION RIGHTS IN THE AS AND AG FRAMEWORK AGREE MENTS. THE OBJECTION OF THE ASSESSEE WITH OPTION RIGHTS UNDER IDFC FRAME WORK AGREEMENTS IS TO BUY 0.1234% SHARE IN MAIN OPERATING COMPANY (HEL) A ND NOT THE UPSTREAM COMPANY AS IN THE CASE OF AG AND AS FRAMEW ORK AGREEMENTS DOES NOT HOLD FIELD BECAUSE THE OPTION RIGHTS UNDE R BOTH SETS OF FRAMEWORK AGREEMENTS ARE FOR ACQUIRING THE SHARES OF HEL AND IN THE ABSENCE OF ANY OTHER ASSETS, WITH THE UPSTREAM HOLDING COMPANIES I N CASE OF AS AND AG GROUP OF COMPANIES, THE RIGHT UNDER FRAMEWORK AGREE MENTS REMAINS AND RESTRICTED ONLY TO THE PURCHASE OF HEL SHARES. THER EFORE, MERELY BECAUSE OF DIFFERENCE IN THE LAYERS OF UPSTREAM/DOWNSTREAM SUB SIDIARIES WITHOUT ANY OTHER ASSET EXCEPT THE INDIRECT HOLDING OF HEL SHAR ES, IT CANNOT BE SAID THAT THE VALUE OF RIGHT IN THESE TWO SET OF FRAMEWORK AG REEMENTS ARE IN ANY WAY DIFFERENT SO FAR AS TO PURCHASE THE SHARES OF HEL. WE MAKE IT CLEAR THAT THE COST OF OPTION RIGHTS UNDER THE FRAMEWORK AGREEMEN TS WAS BORNE BY THE AE OF THE ASSESSEE AND, THEREFORE, WHILE COMPUTING THE ALP AND INCOME TO BE ASSESSED IN THE HANDS OF THE ASSESSEE, THE SAID COST IS TO BE REDUCED FROM THE ALP. FURTHER WE DO NOT FIND ANY MERIT OR SUBSTA NCE IN THE CONTENTION OF THE ASSESSEE THAT VALUATION PRESENTED BEFORE THE FI PB AND ACCEPTED BY THE AUTHORITIES CANNOT BE DENIED BY THE DEPARTMENT. IT IS PERTINENT TO NOTE THAT THE VALUATION PRODUCED BEFORE THE FIPB CANNOT BE RE GARDED AS ACCEPTANCE OF THE CORRECTNESS OF THE SAID VALUATION BY TAXING AUTHORITIES UNDER THE ASSESSMENT PROCEEDINGS. WE HAVE DISCUSSED THIS POIN T WHILE DEALING WITH THE ISSUE OF SUPPRESSION OF MATERIAL FACTS . THEREFORE, WHEN THE REPORTS WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER THEN IT C ANNOT BE SAID THAT THE VALUATION WERE ACCEPTED BY THE ASSESSING AUTHORITY MERELY BECAUSE THESE WERE PRESENTED BEFORE THE FIPB. IN VIEW OF THE ABOV E DISCUSSION, WE DO NOT VODAFONE INDIA SERVICES PRIVATE LTD. 99 | P A G E FIND ANY REASON TO INTERFERE WITH THE ORDERS OF AUT HORITIES BELOW EXCEPT THE RE-COMPUTATION OF SHORT TERM CAPITAL GAIN BY DRP ON WHICH, WE RESTORE THE ORDER OF TPO. 74. THE LD. SENIOR COUNSEL HAS RAISED AN ANOTHER PO INT THAT NO CALL OPTION WAS EXERCISED BUT PUT OPTION WAS EXERCISED B Y THE OTHER PARTIES IN THE YEAR 2009 AND, THEREFORE, EVEN AT THE TIME OF A CQUIRING THE SHARES UNDER THE PUT OPTION EXERCISED BY ASIM GHOSH AND ANALJIT SINGH, THERE WAS NO ASSIGNMENT OF ANY RIGHT BUT IT WAS AN OBLIGATION ON THE PART OF THE ASSESSEE TO ACQUIRE THE SHARES UNDER PUT OPTION EXERCISED BY OTHER PARTIES. THE LD. SENIOR COUNSEL HAS PLACED RELIANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT AND SUBMITTED THAT THE HON'BLE SUPREME COURT HAD CONSIDERED THIS ISSUE IN DETAIL IN PARA 158 OF THE JUDGMENT AND NOT ED THE DIFFERENCE BETWEEN THE CALL OPTION AND PUT OPTION. THE LD. SENIOR COUN SEL HAS SUBMITTED THAT IT IS SIGNIFICANT TO NOTE THAT THE OBSERVATION HAS BEEN MADE BY THE HON'BLE SUPREME COURT IS NOT IN ABSTRACT BUT GIVEN WHILE CO NSTRUCTING THE VERY SAME FRAMEWORK AGREEMENTS. THUS THE PUT OPTION EXERCISE D BY THE OTHER PARTY IS AN OBLIGATION ON THE PART OF THE ASSESSEE TO ACCEPT THE SAME. IT IS SUBMITTED THAT PUT OPTIONS EXERCISED BY ASIM GHOSH AND ANALJI T SINGH ARE DIFFERENT FROM CALL OPTION AND UNDER THE PUT OPTION, THE ASSE SSEE HAS THE OBLIGATION AND NOT RIGHT TO PURCHASE THE SHARES. THE LD. SR. C OUNSEL CITED THE DIFFERENCE BETWEEN THE CALL AND PUT OPTION AS: (A) THE CALL OPTION PROVIDES AN UNCONDITIONAL RIGHT TO VISPL TO BUY THE UNDERLYING SHARES, WHEREAS THE PUT OPTION PROVIDES A RIGHT IN FAVOUR OF AS/AG TO REQUIRE VISPL TO PURCHASE THE UNDERLYING S HARES. (B) WHILE PROVIDING TWO SEPARATE RIGHTS IT HAS BEEN ENSURED UNDER THE 2007 FRAMEWORK AGREEMENTS THAT THE RIGHTS OF AS/AG AND VISPL ARE VODAFONE INDIA SERVICES PRIVATE LTD. 100 | P A G E COMPLETELY SECURED. THIS PROTECTION IS ENSURED BY G IVING A PARALLEL RIGHT TO BOTH AS/AG AND VISPL AT A FMV. (C) THE CALL AND PUT OPTION PROVIDES FLEXIBILITY T O EITHER PARTY (VIZ. AS/AG OR VISPL) TO EXERCISE THE RIGHTS VESTED TO IT AT ANY POINT IN TIME SUBJECT TO THE OCCURRENCE OF THE TRIGGERING EVENT B EING RELAXATION OF THE FDI NORMS. (D) EITHER PARTY CANNOT ALTER OR AFFECT THE RIGHTS WHICH HAS BEEN VESTED UNDER THE CALL AND PUT OPTIONS. THE UNCONDITIONAL R IGHTS VESTED WITH BOTH AS/AG AND VISPL CANNOT BE CHANGED/ALTERED OR VARIED , AS AS/AG HAS NOT CONTROL OVER THE CALL OPTION AND SIMILARLY VISPL DO ESNOT HAVE ANY CONTROL OVER THE PUT OPTION. (E) AS A MATTER OF FACT, THESE OPTIONS ENSURE THAT AS/AG WHO ARE THE OWNERS OF THE UNDERLYING SHARES GET THEIR VALUE. TH E UNDERLYING SHARES UNDER BOTH THE OPTIONS ARE PROPERTY VESTED WITH AS/ AG. THESE OPTIONS ENSURE THAT AS/AG GET THEIR DESIRED FMV EITHER FROM VISPL OR ANY OTHER THIRD PARTY. THUS THE LD. SR. COUNSEL SUBMITTED THAT IT IS NOT I N DISPUTE THAT CALL OPTIONS GIVES THE OPTION HOLDER THE RIGHT TO BUY AN UNDERLY ING ASSET AT A FIXED PRICE DURING A CERTAIN PERIOD. FURTHER, IT IS ALSO NOT I N DISPUTE THAT, CONVERSELY, A PUT OPTION GIVES THE OPTION HOLDER THE RIGHT TO SEL L A STOCK AT A FIXED PRICE. THEREFORE, IN A NORMAL CALL OPTION, THE OPTION WRI TER IS IN POSSESSION OF THE UNDERLYING STOCK AS HE HAS TO DELIVER THE SHARES WH EN THE OPTION HOLDER EXERCISES THE RIGHT TO BUY, SIMILARLY, UNDER A PUT OPTION, IT WILL BE OPTION HOLDER (NOT THE OPTION WRITER WHO WILL BE IN THE P OSSESSION OF THE UNDERLYING STOCK AS HE HAS RIGHT TO SELL THE STOCK ON A SPECIFIED DATED. THIS VODAFONE INDIA SERVICES PRIVATE LTD. 101 | P A G E POSITION IS CLEARLY EXPLAINED IN THE BOOK FINANCIA L MANAGEMENT, THEORY & PRACTICE, 4 TH EDITION WRITTEN BY PRASSANA CHANDRA ON PAGES 639 T O 642. HE FURTHER SUBMITTED THAT THE OBSERVATION OF HON'BLE S UPREME COURT IN PARA 158 WITH REGARD TO PUT OPTION HAS TO BE UNDERSTOOD IN THIS CONTEXT. THE HONBLE SUPREME COURT HAS OBSERVED THAT THE PUT OPT ION REPRESENTS THE RIGHT, BUT NOT THE REQUIREMENT TO SELL A SET NUMBER OF SHARES OF STOCK, WHICH ONE DO NOT YET OWN AT A PRE-DETERMINED STRIKE PRICE , BEFORE THE OPTION REACHES THE EXPIRATION DATE. THIS DOES NOT SIGNIFY THAT THE PUT OPTION HOLDER DOES NOT OWN THE UNDERLYING SHARES. IT MEANS THAT I T IS THE PUT WRITER, WHO DOES NOT OWN THE SHARES YET AND WILL OWN THEM AFTER EXERCISE OF THE PUT OPTION. THIS INTENTION IS CLEAR FROM THE NEXT LINE IN THE SUPREME COURT JUDGMENT WHEREIN THE COURT HAS CLEARLY CLARIFIED TH AT A PUT OPTION IS PURCHASED WITH THE BELIEF THAT THE UNDERLYING STOC K PRICE WILL DROP WELL BEFORE THE STRIKE PRICE, AT WHICH POINT ONE MAY CHO OSE TO EXERCISE THE OPTION. THIS CLEARLY SHOWS THAT THE PUT OPTION HOL DER IS PURCHASING THE OPTION SO THAT HE DOES NOT INCUR ANY LOSS WHEN THE UNDERLYING STOCK PRICE DROPS. THEREFORE, IT IS NECESSARY THAT UNDER A NORM AL PUT OPTION (I.E. A COVERED PUT OPTION OR NOT A SHORT PUT OPTION), THE OPTION HOLDER WILL OWN THE SHARES. IT WAS FURTHER SUBMITTED THAT THE HON BLE DELHI HIGH COURT IN A RECENT JUDGMENT DATED 30 JULY 2014 IN THE CASE OF Z AHEER MAURITIUS V. DIT : WP (C) 1648/2013 HAS SPECIFICALLY DEALT WITH A SI MILAR ARRANGEMENT OF CORRESPONDING CALL AND PUT OPTIONS WHERE SUCH RIGHT S VESTED WITH COUNTER PARTIES UNDER THE AEGIS OF THE SAME AGREEMENT IN RE SPECT OF THE SAME UNDERLYING SHARES. AFTER EXAMINING THE NATURE OF RI GHTS IN THESE CALL OPTIONS THE HONBLE HIGH COURT HAS DECLARED THAT THE CALL AND PUT OPTIONS WERE DEFINED COMMERCIAL OPTIONS CAPABLE OF BEING ELECTED BY THE PARTIES. THUS VODAFONE INDIA SERVICES PRIVATE LTD. 102 | P A G E THE LD. SR. COUNSEL SUBMITTED THAT BOTH THE PARTIES ENSURED BY THE CALL AND PUT OPTIONS THAT THEY ARE BOUND BY THE TERMS OF THE AGREEMENT AND WILL HONOR EACH OTHERS RIGHTS SUCH THAT THE UNDERLYING SHARES ARE ONLY SOLD TO VISPL AND THE ALLEGATIONS IN SUBMISSIONS OF THE REV ENUE STATING THAT CALL AND PUT OPTIONS ARE THE SAME ARE MISCONCEIVED AND U NTENABLE. 75. ON THE OTHER HAND, THE LD. ASG HAS CONTENDED TH AT UNDER THE FRAMEWORK AGREEMENTS BOTH CALL AND PUT OPTIONS ARE INCLUDED IN THE TERM OPTION. THE TERMS AND CONDITIONS OF THE FRAMEWORK AGREEMENTS CLEARLY EXHIBIT THAT THE ARRANGEMENT HAS BEEN MADE TO ENSUR E THAT ASIM GHOSH AND ANALJIT SINGH CANNOT BRING NEW SHARE HOLDING INTO T HEIR COMPANY AND, THEREFORE, BOTH ASIM GHOSH AND ANALJIT SINGH HAVE B EEN RESTRICTED FOR MAKING ANY CHANGE IN ANY DOWN STREAM INTEREST THROU GH WHICH THEY HOLD 15% STAKE IN VIL. BOTH PUT OPTION AND CALL OPTION A RE TO BE EXERCISED IN RESPECT OF THE SAME SHARES AND FOR TRANSFER OF THE SHARES AT A SAME PRICE AS DEFINED IN CLAUSE 4.6 OF THE FRAMEWORK AGREEMENTS. THE HON'BLE SUPREME COURT HAS EXTRACTED THE DEFINITION OF STANDARD CALL OPTION AND PUT OPTION WHEREAS AS PER THE CLAUSES OF FRAMEWORK AGREEMENTS, THERE IS NO DIFFERENCE IN THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER CALL OPTION AND PUT OPTION IN BOTH THE CASES. THE SAME SET OF SHARES WE RE TO BE TRANSFERRED BY ASIM GHOSH AND ANALJIT SINGH TO THE NOMINATED PERSO N OF ASSESSEE. THEREFORE, THERE IS NO DIFFERENCE IN THE RIGHTS EXI ST UNDER CALL OPTION AND PUT OPTION AS PER THE FRAMEWORK AGREEMENTS IN QUEST ION. THE TERM OPTION HAS BEEN DEFINED TO MEAN PUT OPTION OR CALL OPTION . THUS, EVEN AS PER THE APPELLANTS FWA, BOTH OPTIONS ARE INCLUDED IN THE T ERM OPTIONS. VODAFONE INDIA SERVICES PRIVATE LTD. 103 | P A G E 76. IT IS FURTHER SUBMITTED THAT AS PER CLAUSE 3 .1 OF THE FWA 2007, AS / AG HAVE TO ENSURE THAT THE ENTIRE ISSUED AND PAID UP C APITAL OF THE GROUP COMPANIES ARE HELD BY THEM RESPECTIVELY. THUS, IT I S ENSURED THAT AS AND AG CANNOT BRING NEW SHAREHOLDERS INTO THEIR COMPANY . AS PER CLAUSE 4.1 OF THE SAME AGREEMENT, THERE IS A COMPLETE EMBARGO ON AG AND AS FROM ISSUING ANY FURTHER SHARES IN THEIR COMPANIES WHICH WOULD ALTER THE ISSUED SHARE CAPITAL OF THOSE COMPANIES. THE EFFECT OF CLA USE OF 3.1 AND 4.1 OF THE FWA IS THAT BOTH AS AND AG HAVE BEEN RESTRAINED FRO M MAKING ANY CHANGE IN ANY DOWNSTREAM INTEREST (OR CAPITAL STRUCTURE OF THEIR COMPANIES THROUGH WHICH THEY HOLD 15% STAKE IN VIL) LEADING TO THEIR SHAREHOLDING IN TII AND CONSEQUENTLY HEL/VIL. THIS ASPECT HAS IN FACT BEEN NOTICED BY THE SUPREME COURT AT PARA 9 OF THE JUDGEMENT OF JUSTICE K.S. RADHAKRISHNAN. WHEN THE RESTRICTIONS CONTAINED IN PARA3.1 AND 4.1 OF THE FWA ON SUBSCRIPTION AND TRANSFER OF ANY INTEREST IN THE AS AND AG GROUP OF COMPANIES ARE READ WITH THE CALL AND PUT OPTION TER MS, IT IS CLEAR THAT TO THE EXTENT PUT OPTION IS EXERCISED, AUTOMATICALLY, CALL OPTION TO SAME EXTENT STANDS EXTINGUISHED. THE TERMS PUT SHARES AND CALL SHARES ARE SEPARATELY DEFINED IN THE FWA. FOR INSTANCE, IN THE FMA AGREEM ENT ENTERED INTO AS OF 5 TH JULY 2007, BOTH THE PUT SHARES AND CALL SHARES ARE DEFINED AS SBP SHARES( THESE ARE THE SHARES OF A 100% OWNED COMPA NY OF AS).FROM THE SAME IT IS EVIDENT THAT BOTH PUT OPTION AND CALL OP TION ARE TO BE EXERCISED IN RESPECT OF THE SAME SHARES. THE PRICE AT WHICH PUT OPTION AND CALL OPTION ARE TO BE EXERCISED IS THE TRANSFER PRICE AS DEFINED IN PARA 4.6 OF THE FWA. THUS THE PRICE OF BOTH THE OPTIONS IS THE SAME . CLAUSE 4.6(B) OF THE FWA FURTHER SUPPORTS THE VIEW THAT THE CALL AND PUT OPTIONS ARE ONE AND THE SAME. AS PER CLAUSE 4.6(B) OF THE FWA, IN CASE OF TRANSFER OF PUT SHARES BY VODAFONE INDIA SERVICES PRIVATE LTD. 104 | P A G E AS/AG, EITHER UNDER CALL OR PUT OPTIONS, THE ANNUAL PAYME NT MADE TO AS/AG GETS PROPORTIONALLY REDUCED. THIS SHOWS THAT THE TRANSFER UNDER CALL AND PUT OPTIONS HAVE THE SAME EFFECT UNDER THE FWA. FROM THE TERMS OF THE OPTION, IT IS ALSO CLEAR THAT BOTH CALL OPTI ON AND THE PUT OPTION CAN BE EFFECTIVELY EXERCISED ONLY WHEN THE SECTORAL CAP S ARE RELAXED. THUS FROM A READING OF THE FWA, WHETHER PUT OPTION IS EX ERCISED BY AS/ AG OR CALL OPTION IS EXERCISED BY THE APPELLANT, IT IS ON E AND THE SAME. 77. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AS WEL L RELEVANT MATERIAL ON RECORD. MUCH EMPHASIS HAS BEEN GIVEN BY LD. SR. COU NSEL FOR THE ASSESSEE THAT HON'BLE SUPREME COURT IN CASE OF VIH BV (SUPR A) HAS HELD THAT CALL OPTIONS ARE DIFFERENT FROM THE PUT OPTIONS AS FORME R IS A RIGHT AND LATER IS AN OBLIGATION. THE HON'BLE SUPREME COURT WHILE DISC USSING THE CALL OPTION AND PUT OPTION HAS NOTED IN PARA 158 AS UNDER:- 158. SHA ALSO PROVIDES FOR MATTERS SUCH AS RESTRICTION OF TRANSFER OF SHARES I.E. RIGHT OF FIRST REFUSAL (ROFR). RIGHT OF FIRST OFFER (ROFO). DRAG-ALONG RIGHTS (DARS) AND TAG-ALONG RIGHTS (TARS). PRE-EMPT ION RIGHTS. CALL OPTION. PUT OPTION. SUBSCRIPTION OPTION ETC. SHA IN A CHARACTER ISTIC JOINT VENTURE ENTERPRISE MAY REGULATE ITS AFFAIRS ON THE BASIS OF VARIOUS PR OVISIONS ENUMERATED ABOVE, BECAUSE JOINT VENTURE ENTERPRISE MAY DEAL WITH MATT ERS REGULATING THE OWNERSHIP AND VOTING RIGHTS OF SHARES IN THE COMPANY, CONTROL AND MANAGE THE AFFAIRS OF THE COMPANY, AND ALSO MAY MAKE PROVISIONS FOR RESOLUTIO N OF DISPUTES BETWEEN THE SHAREHOLDERS. MANY OF THE ABOVE MENTIONED PROVISION S FIND A PLACE IN SHAS, FWAS, TERM SHEET AGREEMENT ETC. IN THE PRESENT CASE, HENC E, WE MAY REFER TO SOME OF THOSE PROVISIONS. (A) RIGHT OF FIRST REFUSAL (ROFR): ROFR PERMITS ITS HOLDERS TO CLAIM THE TRANSFER OF THE SUBJECT OF THE RIGHT WITH A UNILATERAL DECLA RATION OF INTENT WHICH CAN EITHER BE CONTRACTUAL OR LEGAL. NO STATUTORY RECOGN ITION HAS BEEN GIVEN TO THAT RIGHT EITHER IN THE INDIAN COMPANY LAW OR THE INCOM E TAX LAWS. SOME FOREIGN JURISDICTIONS HAVE MADE PROVISIONS REGULATI NG THOSE RIGHTS BY STATUTES. GENERALLY, ROFR IS CONTRACTUAL AND DETERM INED IN AN AGREEMENT. VODAFONE INDIA SERVICES PRIVATE LTD. 105 | P A G E ROFR CLAUSES HAVE CONTRACTUAL RESTRICTIONS THAT GIV E THE HOLDERS THE OPTION TO ENTER INTO COMMERCIAL TRANSACTIONS WITH THE OWNER O N THE BASIS OF SOME SPECIFIC TERMS BEFORE THE OWNER MAY ENTER INTO THE TRANSACTIONS WITH A THIRD PARTY. SHAREHOLDERS' RIGHT TO TRANSFER THE SHARES I S NOT TOTALLY PREVENTED, YET A SHAREHOLDER IS OBLIGED TO OFFER THE SHARES FIRST TO THE EXISTING SHAREHOLDERS. CONSEQUENTLY, THE OTHER SHAREHOLDERS WILL HAVE THE PRIVILEGE OVER THE THIRD PARTIES WITH REGARD TO PURCHASE OF SHARES. (B) TAG ALONG RIGHTS (TARS): TARS, A FACET OF ROFR, OFTEN REFER TO THE POWER OF A MINORITY SHAREHOLDER TO SELL THEIR SHARES TO THE PROSPECTIVE BUYER AT THE SAME PRICE AS ANY OTHER SHAREHOLDER WOULD PROPOSE T O SELL. IN OTHER WORDS, IF ONE SHAREHOLDER WANTS TO SELL, HE CAN DO SO ONLY IF THE PURCHASER AGREES TO PURCHASE THE OTHER SHAREHOLDERS, WHO WISH TO SELL A T THE SAME PRICE. TAR OFTEN FINDS A PLACE IN THE SHA WHICH PROTECTS THE INTERES T OF THE MINORITY SHAREHOLDERS. (C) SUBSCRIPTION OPTION : SUBSCRIPTION OPTION GIVES THE BENEFICIARY A RIGHT TO DEMAND ISSUANCE OF ALLOTMENT OF SHARES OF THE TARGE T COMPANY. IT IS FOR THAT REASON THAT A SUBSCRIPTION RIGHT IS NORMALLY ACCOMP ANIED BY ANCILLARY PROVISIONS INCLUDING AN EXIT CLAUSE WHERE, IF DILUT ION CROSSES A PARTICULAR LEVEL, THE COUNTER PARTIES ARE GIVEN SOME KIND OF E XIT OPTION. (D) CALL OPTION: CALL OPTION IS AN ARRANGEMENT OFTE N SEEN IN MERGER AND ACQUISITION PROJECTS, ESPECIALLY WHEN THEY AIM AT F OREIGN INVESTMENT. A CALL OPTION IS GIVEN TO A FOREIGN BUYER BY AGREEMENT SO THAT THE FOREIGN BUYER IS ABLE TO ENJOY THE PERMITTED MINIMUM EQUITY INTEREST S OF THE TARGET COMPANY. CALL OPTION IS ALWAYS GRANTED AS A RIGHT NOT AN OBL IGATION, WHICH CAN BE EXERCISED UPON SATISFACTION OF CERTAIN CONDITIONS A ND/OR WITHIN CERTAIN PERIOD AGREED BY THE GRANTOR AND GRANTEE. THE BUYER OF CAL L OPTION PAYS FOR THE RIGHT, WITHOUT THE OBLIGATION TO BUY SOME UNDERLYIN G INSTRUMENT FROM THE WRITER OF THE OPTION CONTRACT AT A SET FUTURE DATE AND AT THE STRIKE PRICE. CALL OPTION IS WHERE THE BENEFICIARY OF THE ACTION HAS A RIGHT TO COMPEL A COUNTER- PARTY TO TRANSFER HIS SHARES AT A PRE-DETERMINED OR PRICE FIXED IN ACCORDANCE WITH THE PRE-DETERMINED MAXIM OR EVEN FAIR MARKET V ALUE WHICH RESULTS IN A SIMPLE TRANSFER OF SHARES. (E) PUT OPTION: A PUT OPTION REPRESENTS THE RIGHT, BUT NOT THE REQUIREMENT TO SELL A SET NUMBER OF SHARES OF STOCK, WHICH ONE DO NOT YET OWN, AT A PRE-DETERMINED STRIKE PRICE, BEFORE THE OPTION REACHES THE EXPIRAT ION DATE. A PUT OPTION IS PURCHASED WITH THE BELIEF THAT THE UNDERLYING STOCK PRICE WILL DROP WELL BEFORE THE STRIKE PRICE, AT WHICH POINT ONE MAY CHOOSE TO EXERCISE THE OPTION. (F) CASH AND CASHLESS OPTIONS: CASH AND CASHLESS OP TIONS ARE RELATED ARRANGEMENT TO CALL AND PUT OPTIONS CREATING A ROUT E BY WHICH THE INVESTORS COULD CARRY OUT THEIR INVESTMENT, IN THE EVENT OF A N APPRECIATION IN THE VALUE OF SHARES. VODAFONE INDIA SERVICES PRIVATE LTD. 106 | P A G E 77 . THE LD. SENIOR COUNSEL OF THE ASSESSEE ALSO MA DE A REFERENCE TO THE EXPLANATION OF CALL OPTION AND PUT OPTION IN TH E BOOK FINANCIAL MANAGEMENT THEORY AND PRACTICE 4 TH EDITION BY PRASSANA CHANDRA. THERE IS NO QUARREL ON THE STANDARD MEANING OF CAL L OPTION AND PUT OPTION WHEREBY THE CALL OPTION GIVES THE OPTION HO LDER A RIGHT TO BUY AN ASSET (SHARE) AT A FIXED PRICE WITHIN A CERTAIN PERIOD. THE OPPOSITE OF CALL OPTION IS PUT OPTION WHICH GIVES THE HOLDER THE RIGHT TO SALE A STOCK AT A FIXED PRICE. SIMILARLY, THE HON'BLE SUPR EME COURT HAS ALSO DISCUSSED THE CALL OPTION AND PUT OPTION IN THE CON TEXT OF AN ARRANGEMENT IN MERGER AND ACQUISITION PROJECT AND P UT OPTION REPRESENTS THE RIGHT TO SELL A SET NUMBER OF SHARES OR STOCK, WHICH ONE DO NOT YET OWN, AT A PRE DETERMINED PRICE BEFORE THE O PTION REACHES THE EXPIRATION DATE. THUS THE PUT OPTION AS DISCUSSED B Y THE HON'BLE SUPREME COURT IS IN THE CONTEXT OF TRADING OF STOCK WITHOUT OWNING THE SECURITIES. IN THE CASE OF THE ASSESSEE, THE CALL O PTION AND PUT OPTION ARE PROVIDED UNDER THE FRAMEWORK AGREEMENTS WITH THE IN TENTION TO ENSURE 15% SHARE HOLDING OF VIL TO BE ACQUIRED IN FUTURE B Y THE ASSESSEE OR ITS NOMINEE (AFFILIATE). THEREFORE, THE CONTEXT AND PUR POSE OF THE PUT AND CALL OPTION UNDER THE FRAMEWORK AGREEMENTS IS ENTIR ELY DIFFERENT FROM THE PURPOSE OF SUCH ARRANGEMENT IN THE CASE OF AMAL GAMATION, ACQUISITION OR TRADING IN STOCK. THEREFORE, TO UNDE RSTAND THE REAL MEANING AND THE INTENTION OF THE PARTIES HAVING THE CALL OPTION AND PUT OPTION UNDER THE FRAMEWORK AGREEMENTS, THE RELEVANT CLAUSES OF THE FRAMEWORK AGREEMENTS ARE TO BE EXAMINED INSTEAD OF GOING BY THE NOMENCLATURE OR GENERAL MEANING OF THE TERM CALL OP TION AND PUT OPTION. CLAUSE 4.3 AND 4.4 OF THE FRAMEWORK AGREEMENTS AS R EPRODUCED IN THE VODAFONE INDIA SERVICES PRIVATE LTD. 107 | P A G E EARLIER PART OF THIS ORDER STIPULATE PUT OPTION AND CALL OPTION. THERE IS NO DISPUTE THAT THE PRE DETERMINED PRICE FOR BOTH P UT AND CALL OPTION IS SAME AND THE SHARES ARE ALSO SAME IN RESPECT OF WH ICH PUT OPTION AND CALL OPTION RIGHTS WERE PROVIDED UNDER THE FRAMEWOR K AGREEMENTS. UNDER PUT OPTION, ASIM GHOSH AND ANALJIT SINGH SHAL L HAVE THE RIGHT TO REQUIRE THE ASSESSEE OR ITS NOMINATED PERSON TO PUR CHASE ANY OR ALL OF THE SHARES HELD UNDER THE OPTION RIGHT. UNDER THE CLAUS ES OF FWA THE COUNTER PARTY NAMELY ASIM GHOSH AND ANALJIT SINGH H AVE NO DISCRETION OR FREEDOM TO SELL THE SHARES HELD UNDER OPTION RI GHTS TO ANY PERSON OTHER THAN THE ASSESSEE OR ITS NOMINEE. AS PER CLAU SE 10.10 OF THE FRAMEWORK AGREEMENTS THE PUT OPTION CANNOT BE ASSIG NED OR TRANSFERRED WITHOUT THE PRIOR CONSENT OF THE GSPL, THEREFORE, E VEN IN THE CASE OF DEFAULT ON THE PART OF THE ASSESSEE OR ITS NOMINEE, THE COUNTER PARTY NAMELY ASIM GHOSH AND ANALJIT SINGH SHALL HAVE NO R IGHT TO ASSIGN OR TRANSFER THE SHARE HELD UNDER THE OPTION EXCEPT PRI OR WRITTEN CONSENT OF THE ASSESSEE. IT IS PERTINENT TO NOTE THAT BOTH UND ER PUT OPTION AS WELL AS CALL OPTION WHAT FLOWS FROM THE CLAUSES OF PUT OPTI ON AND CALL OPTION IS THE MANDATORY ACQUISITION BY THE ASSESSEE OR ITS NO MINEE, 12.25% SHARE HOLDING INDIRECTLY HELD BY ASIM GHOSH AND ANALJIT SINGH. IRRESPECTIVE OF WHOSOEVER EXECISE THE OPTION RIGHT THE CONSEQUENCES OF EXERCISE OF PUT OPTION OR CALL OPTION IS SAME AS TRANSFER OF SHARES TO THE ASSESSEE OR ITS NOMINEE AT THE SAME PRE DETERMINED PRICE HAVING NO DISCRETION WITH THE COUNTER PARTY TO TRANSFER OR SELL THE SHARES HELD U NDER OPTION RIGHTS TO ANYBODY ELSE EVEN IN CASE OF DEFAULT ON THE PART OF THE ASSESSEE OR ITS NOMINEE. THEREFORE, THE PROVISIONS OF FRAMEWORK AGR EEMENTS ARE ONLY TO ENFORCE THE CLAUSES AND NOT GIVING ANY DISCRETION O R FREE HAND TO COUNTER VODAFONE INDIA SERVICES PRIVATE LTD. 108 | P A G E PARTY NAMELY ASIM GHOSH AND ANALJIT SINGH TO SELL O R TRANSFER THE SHARES HELD UNDER CALL OPTION TO ANYBODY OTHER THAN THE AS SESSEE . HENCE, IN ANY EVENTUALITY, THE SHARES HELD UNDER OPTION RIGHT S SHALL HAVE TO BE TRANSFERRED IN FAVOUR OF THE ASSESSEE OR ITS NOMINE E AS THE CASE MAY BE AT A PRE DETERMINED PRICE. THE PUT OPTION AND CALL OPT ION UNDER THE FRAMEWORK AGREEMENTS IS AN ARRANGEMENT LIKE TOSSING A EVEN SIDED COIN AND, THEREFORE, IT MAKES NO DIFFERENCE WHOSOEVER TO SSES THE COIN AS THE RESULT WILL BE SAME. THOUGH THIS ISSUE IS NOT SO RE LEVANT FOR THE YEAR UNDER CONSIDERATION BECAUSE THE PUT OPTION HAS BEEN EXERCISED IN THE YEAR 2009 AND THE ISSUE BEFORE US IS CONFINED ONLY WITH RESPECT TO THE ARRANGEMENTS MADE FOR CALL OPTION RIGHT AS PER CLAU SE 4.4 OF FRAMEWORK AGREEMENTS 2007. 78. DURING THE COURSE OF HEARING, THE REVENUE HAS R AISED A SERIOUS CONTENTION THAT THE ASSESSEE IS GUILTY OF CONCEALME NT OF RELEVANT FACTS REGARDING EXERCISE OF PUT OPTION BY ANALJIT SINGH A ND ASIM GHOSH IN THE YEAR 2009, THEREFORE, THE ASSESSEE OBTAINED THE DEC ISION OF HON'BLE SUPREME COURT AS WELL AS HON'BLE HIGH COURT BY MISR EPRESENTATION AND CONCEALMENT OF FACTS. THE LD. ASG HAS REFERRED THE JUDGMENT OF HON'BLE SUPREME COURT WHEREIN IT HAS BEEN OBSERVED THAT THE CALL OPTION WERE NOT EXERCISED TILL DATE AND HELD BY THE ASSESSEE AN D, THEREFORE, THERE WAS NO ASSIGNMENT OF CALL OPTION. THE REVENUE AS WELL A S ASSESSEE FILED THE ADDITIONAL EVIDENCE BEFORE THIS TRIBUNAL WHICH CONT AINED THE DOCUMENTS OBTAINED BY THE REVENUE FROM FIPB. THE ASSESSEE HAS ALSO FILED THE ADDITIONAL EVIDENCE CONTAINING THE LETTERS DATED 6. 04.2009, 7.04.2009, 21.08.2009,21.10.2013 AND 23.10.2013 SHOWING THAT T HE COUNTER PARTIES HAD EXERCISED THE PUT OPTION IN APRIL 2009 AND AUGU ST 2009 VODAFONE INDIA SERVICES PRIVATE LTD. 109 | P A G E RESPECTIVELY. THE LD. ASG HAS SUBMITTED THAT THE AS SESSEE NEVER RAISED THIS PLEA EITHER BEFORE THE HON'BLE SUPREME COURT O R BEFORE THE HON'BLE HIGH COURT DURING THE HEARING OF THE MATTER, THEREF ORE, EVEN IF SOME DOCUMENTS IS FILED BEFORE THE HON'BLE SUPREME COURT AS WELL AS BEFORE THE HON'BLE HIGH COURT, THAT DOES NOT MEAN THAT THE ASSESSEE HAD DISCLOSED THE RELEVANT FACTS WHEN IT WAS NOT POINTE D OUT DURING THE COURSE OF HEARING. THE LD. ASG HAS REFERRED PARA 88 OF THE JUDGMENT AND SUBMITTED THAT HAD THE ASSESSEE DISCLOSED BEFORE TH E HON'BLE SUPREME COURT THE FACTUM OF EXERCISE OF PUT OPTION IN THE Y EAR 2009, THE HON'BLE SUPREME COURT WOULD NOT HAVE GIVEN THE FINDING THAT THERE HAS BEEN NO TRANSFER OR ASSIGNMENT OF OPTIONS TILL TODAY. IN S UPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIONS:- (I) OSWAL FATS AND OILS LIMITED VS. ADDITIONAL COMMISSIONE R ADMINISTRATION) (2010) 4 SCC 728. (II) BADAMI (DECEASED ) BY HER LR VS. BHALI (2012) 11 SCC 574. (III) DALIP SINGH VS. STATE OF UTTAR PRADESH AND OTHERS ( 201) 2 SCC 114. (IV) RAM CHANDRA SINGH VS. SAVITRI DEVI AND OTHERS (2003) 8 SCC 319. (V) STATE OF A.P. AND ANOTHER VS. T. SURYACHANDRA RAO ( 2005) 6 SCC 149. (VI) HAMZA HAJI VS. STATE OF KERALA AND ANOTHER (2006) 7 SCC 416. 79. THUS THE LD. ASG HAS SUBMITTED THAT MERELY PLA CING OR REFERRING A FACT IN THE PLEADING WITHOUT BRINGING T HE SAME TO THE NOTICE OF THE COURT AND CONSEQUENTLY THE JUDGMENT WAS PASSED WITHOUT CONSIDERING SUCH A MATERIAL FACT AMOUNTS TO SUPPRES SION OF FACT BEFORE HON'BLE SUPREME COURT AS WELL AS BEFORE HON'BLE HIG H COURT. VODAFONE INDIA SERVICES PRIVATE LTD. 110 | P A G E 80. IN RESPONSE TO THE SUBMISSIONS OF REVENUE, THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAS DULY DISCLOSED ALL THE FACTS INCLUDING THE EXERCISE OF PUT OPTION IN THE YEAR 2009 BEFORE THE HON'BLE SUPREME COURT. THE LD. SENIOR COUNSEL HAS POINTED OUT THAT AFTER THE EXERCISE OF PUT OPTION, THE ASSESSEE SOUGHT AMENDMENT IN THE SL P FILED BEFORE THE HON'BLE SUPREME COURT. THE AMENDMENT SOUGHT THROUGH THE IA NO. 6 TO THE SLP WAS PERMITTED BY THE HON'BLE SUPREME COURT VIDE ORDER DATED 26.11.2010. EVEN OTHERWISE, BY INTERIM ORDER DATED 27.9.2010 IN SLP, THE HON'BLE SUPREME COURT DIRECTED THE TAX OFFICE TO QU ANTIFY THE TAX LIABILITY OF VIHBV U/S 201. ACCORDINGLY, IN PURSUANT TO THE D IRECTION OF HON'BLE SUPREME COURT, THE TAX OFFICE PASSED AN ORDER DATED 22.10.2010 QUANTIFYING TAX LIABILITY OF VIHBV U/S 201. THIS OR DER DATED 22.10.2010 WAS CHALLENGED BEFORE THE HON'BLE SUPREME COURT BY WAY OF AN AMENDMENT. CONSEQUENT TO AMENDMENT TO THE SLP CONVE RTED INTO THE CIVIL APPEAL, THE ASSESSEE ADDED THE GROUND NO PPPP PP TO THE PETITION, WHEREIN IT HAS BEEN EXPLAINED THAT THE RELEVANT MAT ERIAL PLACED BEFORE THE RESPONDENT NO. 2 IN RELATION TO EXERCISE OF PUT OPTION BY ASIM GHOSH AND ANALJIT SINGH INCLUDING FIPB PERMISSION GRANTED IN RELATION TO SUCH TRANSACTION HAS BEEN COMPLETELY IGNORED BY THE RESP ONDENT NO. 2. THE LD. COUNSEL HAS ALSO POINTED OUT THAT IN ORDER DATE D 22.10.2010 PASSED BY THE ASSESSING OFFICER DETERMINING THE LIABILITY OF VIHBV U/S 201 HAS RECORDED THE FACT IN PARA 13(K) THAT THE PUT OPTIO N WERE NOT SPECIFICALLY TRANSFERRED AND THEY REMAINED WITH THE 3GSPL. THESE OPTIONS WITH ASIM GHOSH AND ANALJIT SINGH WERE SUBSEQUENTLY EXERCISED AND DUE TAXES WERE PAID BY THE RECIPIENT. THUS THE LD. SENIOR COUNSEL HAS SUBMITTED THAT VODAFONE INDIA SERVICES PRIVATE LTD. 111 | P A G E THIS FACT WAS DULY BROUGHT ON RECORD BEFORE THE HON 'BLE SUPREME COURT AS WELL AS BEFORE THE TAXING AUTHORITIES AND, THERE FORE, THE ALLEGATIONS OF THE REVENUE ARE BASELESS AND WITH THE INTENTION TO MISREPRESENT, DISTORT AND BUILD THE FALSE CASE BASED ON PARTIAL AND SELEC TIVE ATTRIBUTION TO THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT THE ASSESSE E HAS DISCLOSED THIS FACT EVEN BEFORE THE ASSESSING OFFICER VIDE LETTER DATED 15.12.2011 WHICH HAS DULY BEEN NOTED BY THE ASSESSING OFFICER IN ITS DRAFT ASSESSMENT ORDER RECEIVED BY THE ASSESSEE ON 30.12.2011. IN PA RA 8.6.1 OF THE DRAFT ORDER THE ASSESSING OFFICER HAS EXPRESSLY STATED TH AT THE OPTIONS WERE EXERCISED IN THE YEAR 2009. THE LD. SENIOR COUNSEL HAS REFERRED PARA 8.6.1 OF THE DRAFT ORDER AND SUBMITTED THAT THE ASS ESSING OFFICER HAS TAKEN NOTE OF THE FACT THAT VIDE SUBMISSIONS DATED 15.12.2011, THE ASSESSEE HAS PRESENTED A VERY DETAILED ANALYSIS AND HAS RAISED VERY EXHAUSTIVE ARGUMENTS RUNNING INTO 22 PAGES AGAINST THE ACTION OF THE TPO. HE HAS ALSO REFERRED THE LETTER DATED 15.12.20 11 FILED BEFORE THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE D ISCLOSED THIS FACT AND PLACED ON RECORD OF ASSESSING OFFICER. THE SAID DRA FT ORDER WAS CHALLENGED BEFORE THE HON'BLE HIGH COURT AND THE SA ID LETTER DATED 15.12.2011 WAS ALSO FILED BEFORE THE HON'BLE HIGH C OURT. THEREFORE, THERE IS NO QUESTION OF CONCEALMENT OR MISREPRESENTATION ON THE PART OF THE ASSESSEE. HENCE, THE REVENUE HAS MADE SERIOUS FALSE ALLEGATIONS OF FRAUD RECKLESSLY. 81. THE LD. SENIOR COUNSEL FOR THE ASSESSEE HAS SU BMITTED THAT FIRSTLY, THE FACTUM OF EXERCISE OF PUT OPTION IN 2009 WAS DI SCLOSED BEFORE THE HON'BLE SUPREME COURT AS ALSO TO THE TAX AUTHORITIE S. SECONDLY, THE WORDS TILL TODAY USED IN PARA 88 OF THE JUDGMENT OF HON'BLE SUPREME VODAFONE INDIA SERVICES PRIVATE LTD. 112 | P A G E COURT ARE IN REFERENCE TO RELEVANT FINANCIAL YEAR 2 007-08 PERTAINING TO THE TRANSACTION OF ACQUISITION OF 66.98% EQUITY INT EREST BY VIHBV INCLUDING THE ISSUE OF RE-WRITING OF FRAMEWORK AGRE EMENTS 2007. THEREFORE, THE WORD TILL TODAY HAS BEEN USED IN R ESPECT TO THE TRANSACTION THAT CULMINATED IN THE FINANCIAL YEAR 2 009 AND HAVE TO BE UNDERSTOOD IN THE AFORESAID FACTUAL MATRIX. THE JUD GMENT OF THE HON'BLE SUPREME COURT HAS TO BE READ AS WHOLE AND SENTENCES CANNOT BE PICKED OUT DE HORS FROM THE CONTEXT IN WHICH IT WAS RENDERED AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS SUN ENGINEERING WORKS (P.) LTD. (1989 ITR 297). THE LD. SENIOR COUNSEL HAS SUMMARIZED HIS CONTENTION BY REF ERRING THE PROCEEDINGS IN THE CASE OF VIHBV TAX QUANTIFICATION BY TAX AUTHORITIES IN THE YEAR, WHEREIN, THE FACT OF EXERCISE OF PUT OPT ION IN THE YEAR 2009-10 WAS TAKEN NOTE OF. THE FACT WAS BROUGHT ON RECORD OF THE HON'BLE SUPREME COURT BY AMENDMENT IN THE GROUNDS OF SLP WH ICH WERE ALLOWED BY THE HON'BLE SUPREME COURT. AGAIN THIS FA CT WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER DURING THE ASSE SSMENT PROCEEDINGS IN THE YEAR 2011 AS WELL AS BEFORE THE DRP IN THE YEAR 2012. EVEN OTHERWISE, THIS FACT AND DOCUMENTS RELATING TO EXERCISE OF PUT OPTION ARE IRRELEVANT IN DETERMINING THE QUESTION WHETHER RE-WRITING OF F RAMEWORK AGREEMENTS IN JULY 2007, CONSTITUTED A TRANSFER/ASS IGNMENT OF CALL OPTION IN PRESENTI . DESPITE THIS ALL FACTS WERE ALSO AVAILABLE BEFORE THE FIPB AND BEFORE TAKING THE DECISION THE INCOME TAX AUTHORITIES WERE CONSULTED, THEREFORE, THIS FACT WAS VERY MUCH IN TH E KNOWLEDGE OF THE INCOME TAX AUTHORITIES BEING PARTY IN THE PROCESS O F DECISION OF FIPB. VODAFONE INDIA SERVICES PRIVATE LTD. 113 | P A G E 82 . HAVING CONSIDERED THE RIVAL CONTENTIONS AND CA REFUL PERUSAL OF RECORD WE FIND THAT BY WAY OF AMENDMENT IN THE GROU NDS OF SLP IN IA NO. 6, THE VIHBV INCORPORATED THIS FACT IN THE GROUND O F SLP. THE SAID AMENDMENT WAS ALLOWED BY THE HON'BLE SUPREME COURT VIDE ORDER DATED 26.09.2010. HOWEVER, IT IS MANIFEST FROM THE JUDGME NT OF HON'BLE SUPREME COURT THAT NEITHER THIS FACT WAS AGITATED D URING THE ARGUMENTS ON BEHALF OF THE VIHBV NOR IT HAS BEEN CONSIDERED B Y THE HON'BLE SUPREME COURT WHILE RENDERING THE JUDGMENT, THEREF ORE, IT CANNOT BE SAID THAT THIS FACT WAS BROUGHT TO THE NOTICE OF TH E HON'BLE SUPREME COURT. THE JUDGMENT OF HON'BLE SUPREME COURT IS BAS ED ON ASSUMPTION OF FACT THAT THE OPTIONS WERE STILL WITH THE VISPL AND WERE NOT TRANSFERRED OR ASSIGNED TILL THE DATE OF JUDGMENT. IT CANNOT BE INFERRED THAT THE WORDS TILL DATE MENTIONED BY THE HON'BL E SUPREME COURT REFER TO THE F.Y. 2007-08 AS THERE IS NO SUCH INDICATION OR INFERENCE CAN BE DRAWN FROM THE FINDING OF THE HON'BLE SUPREME COUR T. EVEN OTHER WISE PLACING SOME DOCUMENTS IN THE CASE FILE BEFORE THE COURT WITHOUT MAKING ANY SPECIFIC REFERENCE DURING THE HEARING OR BRINGI NG THE SAME INTO THE NOTICE OF THE COURT IT CANNOT BE SAID THAT THE FACT WAS EXPRESSLY BROUGHT TO THE NOTICE OF THE COURT FOR ITS CONSIDERATION. THER EFORE, IT IS CLEAR THAT THIS FACT OF EXERCISE OF PUT OPTION IN THE YEAR 200 9-10 WAS NEITHER AGITATED NOR BROUGHT TO THE NOTICE OF THE HON'BLE S UPREME COURT NOR CONSIDERED BY THE HON'BLE SUPREME COURT WHILE RENDE RING THE JUDGMENT. THIS FACT THOUGH WAS BROUGHT TO THE NOTICE OF THE T AX AUTHORITIES WHILE COMPUTING THE TAX LIABILITY U/S 201 OF VIHBV BUT IT CANNOT BE REGARDED AS DISCLOSING THE FACT BY THE ASSESSEE IN THE ASSES SMENT PROCEEDINGS OF THE ASSESSEE AND TO THE TAXING AUTHORITIES HAVING J URISDICTION OVER THE VODAFONE INDIA SERVICES PRIVATE LTD. 114 | P A G E ASSESSEE. THEREFORE, IT CANNOT BE PRESUMED THAT THE FACT OF EXERCISE OF PUT OPTION AS NOTED BY THE ASSESSING OFFICER IN THE CAS E OF VIHBV FOR QUANTIFYING THE LIABILITY U/S 201 AS PER THE DIRECT IONS OF THE HON'BLE SUPREME COURT HAS BEEN BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER HAVING JURISDICTION OVER THE ASSESSEE DURING THE AS SESSMENT PROCEEDINGS. AS REGARDS THE RELEVANT DOCUMENTS AND FACTS SUBMITT ED BEFORE THE FIPB FOR ALLOWING THE TRANSFER OF SHARES IN PURSUANT TO THE EXERCISE OF PUT OPTION, IT CANNOT BE SAID THAT THE DECISION TAKEN B Y THE FIPB WAS IN CONTEXT OF THE TAX IMPLICATIONS OF THE TRANSACTION UNDER THE TRANSFER PRICING PROVISIONS OF THE INCOME TAX ACT. THEREFORE , THE PERMISSION GRANTED BY THE FIPB TO A TRANSACTION CANNOT BE TREA TED AS ACCEPTANCE OF THE CLAIM OF THE ASSESSEE OF NO TAX IMPLICATION UND ER THE PROVISIONS OF INCOME TAX ACT. EVEN OTHERWISE WHILE TAKEN THE DECI SION BY THE FIPB IT IS NOT SUPPOSED TO HAVE GONE DEEP INTO THE ISSUE OF TAX LIABILITY UNDER THE TRANSFER PRICING PROVISIONS OF INCOME TAX ACT. 83. IN THE WRIT PETITION BEFORE THE HON'BLE HIGH CO URT AGAINST THE TPO AND DRAFT ASSESSMENT ORDER THIS FACT WAS NOT EX PRESSLY DISCLOSED BY THE ASSESSEE AS IT WAS NOT PART OF THE CONTENTIONS OR PLEADINGS BUT THE DOCUMENTS AND RECORD AS FILED BEFORE THE HON'BLE SU PREME COURT WERE ALSO FILED ALONG WITH WRIT PETITION. THEREFORE, IN THE ABSENCE OF ANY CONTENTION DURING THE HEARING AND ANY SPECIFIC ARGU MENT ON THIS ASPECT OF EXERCISE OF PUT OPTION, THE FACT REMAINS THAT HO N'BLE HIGH COURT WAS ALSO NOT APPRISED OF THIS FACT OF EXERCISE OF PUT O PTION IN THE YEAR 2009 AND ACCORDINGLY, THE HON'BLE HIGH COURT HAD NO OCCA SION TO CONSIDER THIS FACT WHILE RENDERING THE JUDGMENT. THOUGH IT C ANNOT BE SAID THAT THE ASSESSEE IS GUILTY OF SUPPRESSION OF MATERIAL FACTS OF EXERCISE OF PUT VODAFONE INDIA SERVICES PRIVATE LTD. 115 | P A G E OPTIONS IN THE YEAR 2009 ONWARDS AND OBTAINED THE J UDGMENT OF HONBLE SUPREME COURT BY PLAYING FRAUD HOWEVER, THE FACTUM OF PUT OPTION EXERCISED BY THE COUNTER PARTY TO THE FWA AND SHARE HOLDERS AGREEMENT DATED 05/07/2007 WAS NOT BROUGHT BY THE ASSESSEE EI THER BEFORE THE AUTHORITIES BELOW OR BEFORE HON'BLE HIGH COURT. EVE N BEFORE THIS TRIBUNAL THE ASSESSEE DID NOT DISCLOSE THESE FACTS AND DEVELOPMENTS TAKEN PLACE SUBSEQUENT TO FWAS OF 2007 AND ONLY ON THE QU ERY FROM THE BENCH AS WELL AS FROM THE ADDITIONAL EVIDENCE FILED BY TH E REVENUE IT CAME TO THE NOTICE OF THE TRIBUNAL. THEREFORE, THE ASSESSEE, IN OUR VIEW, IS GUILTY OF NOT DISCLOSING BEFORE THE ASSESSING AUTHORITIES THE MATERIAL FACT RELEVANT FOR ADJUDICATING THE ISSUE OF ASSIGNMENT OF OPTION RIGHTS (INCLUDING THE CALL OPTION) UNDER FWA WITH AS & AG. 84. GROUND NOS. 9 AND 10 ARE REGARDING SALE OF CALL CENTRE BUSINESS. BRIEF FACTS:- THE ASSESSEE IS AN INDIAN COMPANY WHICH WAS INCORPO RATED ON 16 MARCH, 1999 UNDER THE COMPANIES ACT, 1956, IN THE NAME OF 3 GLOBAL SERVICES PRIVATE LIMITED (3GSPL). 3GSPL WAS PART OF HUTCHI SON WHAMPOA LIMITED (HWL) GROUP. IT BECAME PART OF VODAFONE INTERNATI ONAL HOLDINGS B.V. VODAFONE INDIA SERVICES PRIVATE LTD. 116 | P A G E (VIH BV) GROUP ON COMPLETION OF SHARE TRANSFER AG REEMENT (STA) ON 8 MAY 2007. SUBSEQUENTLY, THE NAME OF 3GSPL WAS CHAN GED TO VODAFONE INDIA SERVICES PRIVATE LIMITED (VISPL). 85. SINCE 2003, ASSESSEE OPERATED A CAPTIVE CALL CE NTRE CATERING TO HWL GROUP COMPANIES VIZ. HUTCHISON 3G AUSTRALIA PTY. LT D. AND HUTCHISON 3G UK LTD. THE SERVICES PROVIDED TO THESE TWO COMPANIE S WERE, WITH EFFECT FROM 1 JANUARY 2006, MADE UNDER TWO MANAGED SERVICE S AGREEMENTS (MSA) FOR CONTACT CENTRE SERVICES BETWEEN HUTCHIS ON CALL CENTRE HOLDINGS LIMITED, BRITISH VIRGIN ISLANDS (HCCH) AND 3GSPL BOTH DATED 1 JANUARY, 2006. 86. ON 11 FEBRUARY 2007, HTIL AND VIH BV ENTERED IN TO THE SPA, WHEREBY VIH BV AGREED TO ACQUIRE THE ENTIRE EQUITY SHARE CAPITAL OF CGP INVESTMENTS (HOLDINGS) LTD. (CGP) WHICH INDIRECTL Y OWNED ASSESSEE, TOGETHER WITH CERTAIN LOANS. IT WAS AGREED UPON BETWEEN HTIL AND VIH BV AT THE TIME OF ENTERING INTO SPA THAT THE CALL CENT RE BUSINESS OF THE ASSESSEE WILL NOT BE ACQUIRED BY VIH BV. PURSUANT TO THE SPA BETWEEN HTIL AND VIH BV, THE CALL CENTRE BUSINESS OF THE ASSESSEE WA S TRANSFERRED TO HUTCHISON WHAMPOA PROPERTIES (INDIA) PVT. LTD., A S UBSIDIARY OF HWL GROUP. THE OWNERSHIP STRUCTURE OF THE HWL GROUP COM PANIES IS AS UNDER:- VODAFONE INDIA SERVICES PRIVATE LTD. 117 | P A G E VODAFONE INDIA SERVICES PRIVATE LTD. 118 | P A G E 2.1 THE ASSESSE SETS OUT BELOW THE GENESIS OF THE TRANS ACTION REFLECTED IN THE CHART BELOW: S. NO. DATE PARTICULARS 1. 11 FEBRUARY 2007 SPA WAS SIGNED BETWEEN HTIL AND VIH BV 2. 8 MAY 2007 BUSINESS TRANSFER AGREEMENT (BTA) W AS SIGNED BETWEEN 3GSPL (AT THIS STAGE BECAUSE THE SPA HAD NOT BEEN COMPLETED, 3GSPL HAD NOT YET BECOME PART OF THE VIH BV GROUP) AND HUTCHISON WHAMPOA PROPERTIES (INDIA) PRIVATE LTD (HWP INDIA) 3. 8 MAY 2007 COMPLETION OF SPA TOOK PLACE AFTER BTA (AS DEFINED IN PARA 2.4 BELOW @ PAGE 4 OF THIS SUBMISSION) WAS SIGNED (AS A CONSEQUENCE OF HAVING MET THE PRE- COMPLETION CONDITIONS OF SPA) 4. 4 DECEMBER 2007 SALE OF CALL CENTRE BUSINESS (I.E. COMPLETION OF BTA ) TOOK PLACE AFTER STATUTORY APPROVAL/LICENSES WERE OBTAINED (HEREINAFTER REFERRED TO AS (TRANSACTION ) VODAFONE INDIA SERVICES PRIVATE LTD. 119 | P A G E 87. DURING THE FINANCIAL YEAR 2007-08 ASSESSEE EXEC UTED THE BTA ON 8 MAY 2007 AND THEREBY TRANSFERRED THE CALL CENTRE BU SINESS TO HWP INDIA, AN INDIAN COMPANY (PART OF HWL GROUP) ON 4 DECEMBER 2007 FOR A CONSIDERATION OF RS 64 CRORES. THIS VALUE WAS ARRIV ED AT AFTER TAKING INTO ACCOUNT THE VALUATION REPORT DATED 16 MARCH 2007, I SSUED BY M/S DALAL & SHAH, A REGISTERED CHARTERED ACCOUNTANT FIRM. THE A SSESSEE CLAIMED IT AS SLUMP SALE TRANSACTION WHICH COVERED UNDER SECTION 50B OF THE ACT ACCORDINGLY THE ASSESSEE COMPUTED CAPITAL GAINS/LOS S AS UNDER: SALE CONSIDERATION RS 64,00,00,000 LESS: NET WORTH OF THE UNDERTAKING (RS 86,49,50,364 ) LONG TERM CAPITAL LOSS (RS 22,49,50,364) BASED ON THE VALUATION REPORT, THE ASSESSEE ACCORDI NGLY, COMPUTED THE LONG TERM CAPITAL LOSS OF RS. 22,49,50,364/- ON SALE OF CALL CENTRE. THIS LONG TERM CAPITAL LOSS WAS COMPUTED BY THE ASSESSEE AFTER REDUCING THE NET WORTH OF UNDERTAKING OF RS 86,49,50,364/-. IN R ESPONSE TO THE SHOW- CAUSE NOTICE FOR COMPUTATION OF ARMS LENGTH PRICE AS PER THE PROVISIONS OF TRANSFER PRICING, THE ASSESSEE, AT THE OUTSET RAISE D OBJECTION AND SUBMITTED THAT BTA WAS ENTERED WITH AN INDIAN COMPANY, THEREF ORE, IT IS OUTSIDE THE PURVIEW OF SECTION 92B OF THE ACT. THE TPO AFTER CO NSIDERING THE GLOBAL PURCHASE AGREEMENT BETWEEN HTIL AND VIH BV, MOU BET WEEN ASSESSEE AND HWP (INDIA) PVT. LTD, BUSINESS TRANSFER AGREEME NT AND SPA HELD THAT THERE EXIST A PRIOR AGREEMENT AMONG TWO AES AND THE IR AFFILIATES I.E. ASSESSEE AND HWP INDIA, ALL THE FOUR PARTIES OF THE GLOBAL PURCHASE AGREEMENT. THE BTA WAS ENTERED INTO THE PARTIES TO GIVE EFFECT TO THE GLOBAL AGREEMENT. THE INDIAN AGREEMENT IS SOLELY DEPENDENT ON GLOBAL AGREEMENT WHICH HAS OVERRIDING EFFECT ON INDIAN AGR EEMENT. THE TPO VODAFONE INDIA SERVICES PRIVATE LTD. 120 | P A G E NOTED THAT IN CASE OF TERMINATION OF GLOBAL AGREEME NT, THE INDIAN AGREEMENT ALSO TERMINATES AUTOMATICALLY. THEREFORE, THE TPO WAS OF THE VIEW THE REAL PARTIES TO THE INDIAN SALE IS ALSO 2 AES I.E. ASSESSEE AND HWL. THE TPO APPLIED THE DOCTRINES OF LIFTING UP OF CORP ORATE VEIL AND SUBSTANCE OVER FORM. THE TERMS OF RELEVANT TRANSACT ION ARE DULY DETERMINED BY GLOBAL AGREEMENT TO WHICH, THE ASSESS EE AND HWP (INDIA) ARE PARTIES, THEREFORE, IT WAS CONCLUDED THAT THE T RANSACTION OF SALE OF CALL CENTRE BUSINESS BY THE ASSESSEE TO HWP (INDIA) IS D EEMED TRANSACTION U/S 92B OF THE INCOME TAX ACT . THE TPO PROPOSED TO DET ERMINE THE ARMS LENGTH PRICE OF THE SALE OF CALL CENTRE BUSINESS ON THE BASIS FUTURE CASH FLOWS USING DCF METHOD AND REJECTED THE VALUATION SUBMITT ED BY THE ASSESSEE BASED ON PROFIT EARNING CAPACITY VALUE AND NET ASSE T METHOD. SINCE THE RELEVANT DATA WAS NOT AVAILABLE WITH THE TPO REGARD ING THE FUTURE CASH FLOWS, THEREFORE, THE DCF METHOD COULD BE APPLIED B Y THE TPO FOR THE PURPOSE OF COMPUTATION OF ARMS LENGTH PRICE/ SALE PRICE OF THE CALL CENTRE. THE TPO THEN APPLIED THE VALUATION OF THE PRICE OF SHARE BASED ON P/E MULTIPLE OF LISTED COMPARABLE COMPANIES. FINALLY, T HE TPO SELECTED THREE LISTED COMPANIES NAMELY WNS GLOBAL SERVICES, EXL HO LDINGS AND FIRSTSOURCE SOLUTIONS LTD., BY APPLYING THE FILTER OF 2000 EMPLOYEES. ACCORDINGLY, THE TPO MADE AN ADJUSTMENT OF RS. 23,5 0,20,43,185/- OF ARITHMETICAL MEAN OF P/E AT 34.96%. THE ASSESSEE C HALLENGED THE ACTION OF THE TPO BEFORE DRP ON THE GROUND THAT PROVISIONS OF SECTION 92B(2) ARE NOT APPLICABLE AS THE TRANSACTION IS BETWEEN TWO RE LATED PARTIES ONE OF WHICH IS AN INDIAN COMPANY. THE DRP DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND APART FROM CONFIRMING THE FINDING OF T PO TREATING THESE TRANSACTION AS DEEMED INTERNATIONAL TRANSACTION U/S 92B(2), THE DRP HAS VODAFONE INDIA SERVICES PRIVATE LTD. 121 | P A G E ALSO HELD THAT HWP INDIA WAS A DORMANT COMPANY WITH NO BUSINESS ACTIVITY UNTIL IT ACQUIRED THE CALL CENTRE BUSINESS FROM THE ASSESSEE. HWP INDIA IS AN INDIRECT SUBSIDIARY OF HWL AND HAS NO COMMERCIAL OR BUSINESS SUBSTANCE AS DISCLOSED BY ITS BALANCE SHEET FOR THE YEAR ENDE D 31 ST MARCH 2007. THUS THE DRP WAS OF THE VIEW THAT THE CALL CENTRE WAS PU RCHASED BY THE HUTCHISON GROUP THROUGH A DUMMY SUBSIDIARY COMPANY INCORPORATED TO CREATE FICTION THAT THE ASSESSEE WAS TRANSFERRING T HE CALL CENTRE BUSINESS TO AN INDIAN COMPANY. THE DRP ACCORDINGLY HELD THAT AL TERNATIVELY IT IS AN INTERNATIONAL TRANSACTION U/S 92B(1) AS THIS TRANSA CTION IS EFFECTIVELY BETWEEN TWO ASSOCIATED ENTERPRISES ONE OF THEM IS N ON RESIDENT NAMELY HWL HONGKONG. ON THE POINT OF VALUATION, THE DRP AC CEPTED THE OBJECTION OF THE ASSESSEE IN RESPECT OF TWO COMPANIES I.E. WNS GLOBAL SERVICES AND EXL HOLDINGS, HOWEVER THE OBJECTION AGAINST THE COM PARABLE NAMELY FIRSTSOURCE SOLUTIONS LTD., WAS REJECTED AND ACCOR DINGLY DIRECTED THE TPO TO CONSIDER FIRSTSOURCE SOLUTIONS LTD., FOR THE PUR POSE OF VALUATION OF BUSINESS OF CALL CENTRE TRANSFERRED BY THE ASSESSEE . THE TPO WAS ALSO DIRECTED TO CONSIDER THE TP ADJUSTMENT MADE BY THE TPO IN THE EARLIER YEAR POST-TAX AND WORK OUT THE EPS OF THE ASSESSEE. APAR T FROM THE ABOVE DIRECTIONS THE DRP ALSO DIRECTED THE TPO TO GIVE RE LIEF REGARDING CASH OF RS. 62,24,27,849/- WHICH WAS NOT TRANSFERRED BY THE ASS ESSEE WHILE TRANSFERRING THE CALL CENTRE. HENCE, THE ADJUSTMENT WAS REDUCED BY THE DRP TO RS. 1408 CRORES. 88. BEFORE US, SHRI PAWAN KUMAR, LD AR OF THE ASSE SSEE HAS SUBMITTED THAT THE INTENT OF HIVING OFF THE CALL CENTRE WAS R EFLECTED IN THE SPA BETWEEN VIH BV AND HTIL WHICH PROVIDED FOR THE PURC HASE OF THE ENTIRE VODAFONE INDIA SERVICES PRIVATE LTD. 122 | P A G E SHARE CAPITAL OF CGP, TOGETHER WITH CERTAIN LOANS. PARA 8.8(J) OF THE SPA PROVIDED THAT AN EXECUTED BTA WAS REQUIRED TO BE DE LIVERED BY HTIL TO VIH BV BEFORE COMPLETION OF THE SPA. THE SIGNING OF THE BTA THEREFORE PRECEDED THE COMPLETION OF THE SPA. IT IS EVIDENT F ROM THE AFORESAID CLAUSE OF THE SPA THAT SINCE CALL CENTRE WAS REQUIRED TO B E HIVED OFF (AS VIH BV DID NOT INTEND TO, AND NOR DID IT WANT TO, ACQUIRE THE SAME), THE BTA WAS SIGNED BETWEEN ASSESSEE AND HWP INDIA (BOTH ASSOCIA TED ENTERPRISES OF THE HWL GROUP) THUS, THE BTA WAS NOT PURSUANT TO OR PART OF THE SPA (AS ALLEGED BY THE LOWER AUTHORITIES), BUT WAS IN CONSE QUENCE OF THE SPA. IN FACT, THE SALE OF CALL CENTRE WAS NOT THE DRIVING F ORCE BEHIND THE EXECUTION OF THE SPA. THE SPA WAS ENTERED INTO WITH THE AIM O F ACQUIRING THE EQUITY SHARE OF CGP AND ASSIGNMENT OF CERTAIN LOANS, AND N OT WITH THE INTENT TO SELL THE CALL CENTRE BUSINESS OF ASSESSEE. 89. OWING TO THE DIFFICULTIES IN OBTAINING REGULATO RY APPROVAL TO RUN A CALL CENTRE BUSINESS IN INDIA BY AN INDIAN BRANCH OF NON -RESIDENT COMPANY, TOGETHER WITH THE LEGAL AND PRACTICAL DIFFICULTIES OF DOING SO EVEN IF SUCH APPROVAL COULD BE OBTAINED, IT WAS DECIDED THAT THE CALL CENTRE BUSINESS WOULD BE ACQUIRED BY AN INDIAN SUBSIDIARY OF THE HW L GROUP. IT SHOULD BE NOTED THAT IT IS COMMON PRACTICE FOR MOST MULTINATI ONAL COMPANIES TO DO BUSINESS IN INDIA THROUGH AN INDIAN SUBSIDIARY RATH ER THAN A BRANCH OF A FOREIGN COMPANY. 90. SINCE VIH BV DID NOT INTEND TO, NOR WISH TO, AC QUIRE THE CALL CENTRE BUSINESS, IT WAS NECESSARY TO TRANSFER THE BUSINESS FROM ASSESSEE (PART OF THE HWL GROUP) TO ANOTHER ENTITY (PART OF THE HWL G ROUP). HWP INDIA (PART OF THE HWL GROUP) WAS INCORPORATED IN JANUARY 2006 TO PURSUE THE VODAFONE INDIA SERVICES PRIVATE LTD. 123 | P A G E REAL ESTATE BUSINESS IN INDIA. HOWEVER, THIS DID NO T MATERIALIZE AND HWP INDIA WAS THEREFORE A CLEAN HWL-OWNED COMPANY THAT WAS READILY AVAILABLE TO ACQUIRE THE CALL CENTRE BUSINESS, IT M ADE PERFECT COMMERCIAL SENSE TO TRANSFER THE CALL CENTRE BUSINESS TO HWP I NDIA. 91. SINCE VIH BV INSISTED ON KNOWING THE APPROXIMAT E VALUE OF THE CALL CENTRE BUSINESS THAT WAS TO BE HIVED OFF TO THE HWL GROUP, A DRAFT BUSINESS TRANSFER AGREEMENT WAS ATTACHED TO THE SPA AND IT P ROVIDED AT PARAGRAPH 3 PURCHASE PRICE FOR THE CONSIDERATION OF INDIAN RU PEE EQUIVALENT OF US DOLLARS 7.5 MILLION (I.E. INR 33.75 CRORES AT AN EX CHANGE RATE OF 1 USD= INR 45) IN RESPECT OF THE SALE OF THE CALL CENTRE BUSIN ESS. THERE WAS A SPECIFIC REFERENCE IN THE DRAFT BUSINESS TRANSFER AGREEMENT THAT THE PURCHASE CONSIDERATION WAS STILL UNDER COMMERCIAL DISCUSSION (PAGE 2000 OF PAPERBOOK, VOLUME 6). SUBSEQUENT TO THE SIGNING OF THE SPA ON 11 FEBRUARY 2007, THE TERMS OF THE BUSINESS TRANSFER AGREEMENT WERE INDEPENDENTLY FINALIZED BY THE RELEVANT HWL GROUP ENTITIES AND SI GNED ON 8 MAY 2007 JUST PRIOR TO THE COMPLETION OF THE SPA ON 8 MAY 20 07. 92. THE SPA AT PARAGRAPH 8.13 PECIFICALLY PROVIDED THAT IN CASE OF FAILURE TO COMPLY WITH THE CONDITIONS SPECIFIED IN PARAGRAP H 8.2 TO 8.11, WHICH INCLUDED THE DELIVERY OF AN EXECUTED BUSINESS TRANS FER AGREEMENT AS A PRE- COMPLETION DELIVERABLE, VIH BV AND HTIL SHALL HAVE FOLLOWING REMEDIES AVAILABLE: (A) TERMINATE THE SPA; OR (B) COMPLETE THE SPA TO THE EXTENT PRACTICABLE GIVEN TH E DEFAULTS WHICH HAVE OCCURRED; OR VODAFONE INDIA SERVICES PRIVATE LTD. 124 | P A G E (C) EXTEND TIME FOR COMPLETION OF CONDITIONS. 93. THUS, AS IT WAS A PRE-CONDITION TO THE SPA TO E NSURE THE EXECUTION OF A BUSINESS TRANSFER AGREEMENT IN RESPECT OF TRANSFER OF ASSESSEES CALL CENTRE BUSINESS, THE PURPOSE OF THE AFORESAID PARAGRAPH 8. 13 OF THE SPA WAS TO ENSURE THAT IN THE EVENT BTA BETWEEN ASSESSEE AND H WP INDIA WAS NOT EXECUTED PRIOR TO COMPLETION OF THE SPA, THE SPA CO ULD STILL BE GIVEN EFFECT TO. 94. IT IS IMPORTANT TO NOTE THAT ASSESSEE (TRANSFER OR) WAS AN INDIRECT SUBSIDIARY OF HTIL UNTIL 8 MAY 2007 PRIOR TO COMPLE TION OF SPA. DURING THAT PERIOD, HWP INDIA (TRANSFEREE) WAS ALSO AN IND IRECT SUBSIDIARY OF HWL AND BOTH HTIL AND HWL WERE PUBLIC LISTED COMPANIES IN HONG KONG (HAVING SIGNIFICANTLY DIFFERENT BENEFICIARIES), THE REFORE IN ACCORDANCE WITH STOCK EXCHANGE REGULATIONS, ANY TRANSACTION BETWEEN THEM BEING CONNECTED TRANSACTION, WAS REQUIRED TO BE ON NORMAL COMMERCIA L TERMS I.E. AT ARMS LENGTH. 95. IN ORDER TO DETERMINE ARMS LENGTH PRICE OF THE CALL CENTRE BUSINESS, ASSESSEE ENGAGED DALAL & SHAH, A REGISTERED CHARTER ED ACCOUNTANT FIRM AND AN INDEPENDENT EXPERT VALUER FOR VALUING THE CALL C ENTRE. DALAL & SHAH ISSUED A VALUATION REPORT DATED 16 MARCH 2007 WHERE IN THE CALL CENTRE BUSINESS WAS VALUED AT RS 67.57 CRORES. DALAL & SHA H USED WEIGHTED AVERAGE OF NET ASSET VALUE (NAV) METHOD AND PROFIT EARNIN G CAPACITY METHOD (PECV) OR EARNING CAPITALIZATION METHOD. THE MET HOD OF VALUATION USED IS IN LINE WITH THE PRINCIPLES LAID DOWN BY THE HON BLE SUPREME COURT IN THE VODAFONE INDIA SERVICES PRIVATE LTD. 125 | P A G E CASE OF HINDUSTAN LEVER EMPLOYEES' UNION VS. HINDUS TAN LEVER LIMITED AND ORS [SPECIAL LEAVE PETITION (CIVIL) AND AN ACCE PTABLE METHOD OF VALUATION. DALAL & SHAH GAVE BASIS OF VALUATION IN PARAGRAPH 3.1, ASSUMPTIONS FOR NAV METHOD. BASED ON THE DALAL & SH AHS VALUATION REPORT, ASSESSEE AGREED TO SELL THE CALL CENTRE BUS INESS TO HWP INDIA FOR RS 64 CRORES. 96. IN ACCORDANCE WITH PARAGRAPH 6(B) OF THE MOU, H WP INDIA PAID RS 64 CRORES TO ASSESSEE ON 30 APRIL 2007. IT WAS AGRE ED IN PARAGRAPH 5.1.1 OF THE BTA THAT CERTAIN GOVERNMENT APPROVALS/LICENSES ARE REQUIRED TO BE OBTAINED BY HWP INDIA BEFORE THE COMPLETION OF THE BTA. SINCE THESE APPROVALS/LICENSES WERE OBTAINED BY 4 DECEMBER 2007 , THUS, THE TRANSFER OF THE CALL CENTRE BUSINESS FROM VISPL TO HWP INDIA WA S COMPLETED ONLY ON 4 DECEMBER 2007. PARAGRAPH 4.2.4 OF THE BTA PROVID ED THAT THE BOARD OF DIRECTORS OF ASSESSEE COULD NOT BE CHANGED (EXCEPT REMOVAL OF DIRECTOR FOR CAUSE) BETWEEN SIGNING OF BTA (8 MAY 2007) AND CLOS ING DATE OF BTA (4 DECEMBER 2007) WITHOUT THE WRITTEN APPROVAL OF HWP INDIA. 97. ON THE OTHER HAND LD ASG HAS SUBMITTED THAT THE DRP AND THE TPO HAS CORRECTLY TAKEN THE TRANSACTION OF SALE OF CALL CENTRE BUSINESS AS A DEEMED INTERNATIONAL TRANSACTION UNDER SECTION 92B( 2) OF I.T.ACT, 1961. FURTHER THE DRP HAS ALSO HELD THAT THE SALE OF CA LL CENTRE BUSINESS IS AN INTERNATIONAL TRANSACTION UNDER SECTION 92B(1) OF I .T.ACT, 1961. THE DRP UPHELD THE METHOD USED BY TPO FOR VALUATION OF THE CALL CENTRE. THE ASSESSEE NEITHER FILED THE DOCUMENTS IN TIME NOR DI D IT FILE THE COMPLETE DOCUMENTS BEFORE THE TPO. THE CONDUCT OF THE ASSESS EE WAS BROUGHT OUT IN VODAFONE INDIA SERVICES PRIVATE LTD. 126 | P A G E PARA 86 OF AFFIDAVIT IN REPLY FILED BY THE RESPONDE NT IN WRIT PETITION NO.488 OF 2012. THE ASSESSEE FILED THE COPY OF BTA AFTER O NE AND HALF MONTHS AND EVEN THAT WAS INCOMPLETE AS SCHEDULES FORMING PART OF THE AGREEMENT WERE NOT FILED. INCOMPLETE SCHEDULES WERE FILED ONLY ON 21 ST OCTOBER 2011 I.E. JUST 9 DAYS BEFORE THE TIME BARRING DATE. HOWEVER, SCHED ULE D TO THE BTA WAS NOT FILED BY THE ASSESSEE AND THE SAME HAS NOW BE EN FILED BY THE RESPONDENT FOR THE SAKE OF COMPLETENESS IN ITS PAP ER BOOK. AS PER THE SPA, A DRAFT BTA WAS ATTACHED TO THE DISCLOSURE LETTER W HICH FORMED PART OF THE SPA. HOWEVER, THE ASSESSEE DID NOT FILE THE COPY OF DRAFT BTA BEFORE THE TPO OR AO. A COPY OF THE DRAFT BTA WAS FILED ON 25 TH SEPTEMBER, 2012 BEFORE THE DRP FOR THE FIRST TIME. THE DRP COULD NO T HAVE LOOKED INTO IT AS THERE WERE ONLY 5 DAYS LEFT BEFORE THE ORDER OF THE DRP WOULD HAVE BECOME TIME BARRED. THEREFORE, THE DRP DID NOT ADMIT DRAFT BTA AS ADDITIONAL EVIDENCE. THE COPY OF SPA WAS ALSO FILED AFTER TW O MONTHS THAT TOO AFTER ISSUANCE OF SUMMONS U/S.131 OF I.T.ACT, 1961. FURTH ER, THE ASSESSEE DID NOT FILE THE SIGNED AND DATED COPY OF MOU BEFORE THE TP O. THE ASSESSEE WAS ASKED TO FILE THE NUMBER OF EMPLOYEES WORKING IN TH E CALL CENTRE. IT DID NOT PROVIDE THE CORRECT NUMBER TO THE TPO AND KEPT ON C HANGING THE NUMBER OF EMPLOYEES. THE SAME IS EVIDENT FROM ITS LETTER FILE D BEFORE THE TPO ON OCTOBER 7, 2011 AND OCTOBER 10, 2011. ACCORDING TO THESE LETTERS, THE ASSESSEE FIRST REPORTED ITS NUMBER AS 5483 WHICH IT LATER CHANGED TO 3640 AS ON 30TH NOVEMBER 2007. THE ASSESSEE DID NOT PROVIDE ANY REASON FOR CHANGING ITS NUMBER. 98. HE REFERRED THE PROVISIONS OF SECTION 92B(1) OF THE I.T.ACT, 1961 AND SUBMITTED THAT THE DEFINITION OF TRANSACTION IS GIV EN IN SECTION 92F(V) VODAFONE INDIA SERVICES PRIVATE LTD. 127 | P A G E ACCORDING TO WHICH TRANSACTION INCLUDES AN ARRANG EMENT, UNDERSTANDING OR ACTION IN CONCERT WHETHER OR NOT IT IS FORMAL OR IN WRITING OR WHETHER THE SAME IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCEED ING OR NOT. THE MEANING OF AE IS GIVEN IN SECTION 92A. TRANSACTION IS REQUI RED TO BE BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES IN WHICH ONE OF THE ASS OCIATED ENTERPRISE HAS TO BE A NON-RESIDENT. THE TARNACTION IS IN THE NATURE OF PURCHASE, SALE OR LEASE OR BORROWING MONEY OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRIS ES. 99. SECTION 92B(2) OF THE INCOME TAX ACT, 1961 SETS OUT THE ESSENTIAL INGREDIENTS OF A TRANSACTION WHICH IS DEEMED TO BE A TRANSACTION BETWEEN TWO ASSOCIATED ENTERPRISES THOUGH THE ACTUAL TRANSA CTION IS ENTERED BETWEEN AN ENTERPRISE AND A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE. THE ESSENTIAL INGREDIENTS OF SECTION 92B(2) ARE AS FOLL OWS: I. THERE SHOULD BE A TRANSACTION AS DEFINED IN SECTIO N 92F(V) R/W RULE 10A(D). II. THE TRANSACTION SHOULD BE BETWEEN THE ASSESSEE AND A PERSON OTHER THAN AND ASSOCIATED ENTERPRISE. III. THERE IS A PRIOR AGREEMENT IN RELATION TO THE TRANS ACTION BETWEEN THE PERSON OTHER THAN THE ASSOCIATED ENTERPRISE AN D THE AE OF THE ASSESSEE. OR IV. THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMINE D IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERP RISE 100. IT IS SUBMITTED THAT THE TRANSACTION OF SALE O F CALL CENTRE BUSINESS SQUARELY FALLS BOTH UNDER SECTION 92B(2) AS WELL AS SECTION 92B(1) OF THE I.T.ACT, 1961. THE ALTERNATIVE CONTENTIONS ARE SUPP ORTED BY THE FOLLOWING PROPOSITIONS: VODAFONE INDIA SERVICES PRIVATE LTD. 128 | P A G E (I) THERE IS AN INTERNATIONAL TRANSACTION UNDER SECTION 92B(2) IF THE DATE OF SIGNING OF THE BTA I.E. 8 TH MAY 2007 IS CONSIDERED AS THE RELEVANT DATE. 101. IT IS IMPORTANT TO FIRST ASCERTAIN WHETHER THE BTA WAS SIGNED BEFORE THE TRANSFER OF CGP SHARE OR THE BTA WAS SIGNED A FTER THE TRANSFER OF CGP SHARE. THIS IS BECAUSE THE RELATIONSHIP OF ASSOCIAT ED ENTERPRISE BETWEEN THE ASSESSEE AND OTHER PARTIES WILL CHANGE ON THE TRANS FER OF SHARE OF CGP. SINCE BOTH THE TRANSACTIONS HAVE TAKEN PLACE ON THE SAME DATE, ONE HAS TO LOOK AT THE SURROUNDING FACTS AND CIRCUMSTANCES TO DETERMIN E WHICH WOULD HAVE BEEN TAKEN PLACE FIRST . ACCORDINGLY, THE VARIOUS DOCUMENTS SUCH AS BTA AND SPA WERE EXAMINED. HE HAS REFERRED THE VARIOUS CLAUSES OF SPA AND BTA SUBMITTED THAT IT IS CLEAR THAT THE BTA HAS TA KEN PLACE AFTER ASSESSEE BECAME PART OF VODAFONE GROUP. AS PER TERMINATION C LAUSE IN CLAUSE 20 OF THE BTA, THE BTA CAN BE TERMINATED BY MUTUAL CONSEN T. THEREFORE, VISPL HAS A RIGHT TO TERMINATE THE BTA. IN CASE OF TERMIN ATION OF BTA, THE CALL CENTRE WILL REMAIN WITH VISPL WHICH ON 8/5/2007 BEC AME A VODAFONE GROUP COMPANY. THEREFORE, IF THE INTENTION WAS TO T RANSFER THE CALL CENTRE FROM ONE HUTCH GROUP COMPANY (GSPL) TO ANOTHER HUTC H GROUP COMPANY (HWP INDIA), THERE WOULD HAVE BEEN NO NEED FOR SUCH A TERMINATION CLAUSE. THIS PROVES THAT THE CALL CENTRE WAS TO BE TRANSFER RED BY VODAFONE GROUP TO HUTCH GROUP WITH ADEQUATE SAFEGUARDS BUILT IN. IN V IEW OF THE ABOVE CLAUSES OF SPA AND BTA AND IN VIEW OF THE ADMISSION OF VIHBV BEFORE THE SUPREME COURT, THE RESPONDENT SUBMITS THAT THE BTA WAS SIGNED AFTER THE EXECUTION OF SPA ON 08.05.2007. SPA IS THE PRIOR AG REEMENT IN RELATION TO THE TRANSACTION, AS VARIOUS CLAUSES OF THE SPA CLEA RLY DEMONSTRATE THAT THE BTA IS IN PURSUANCE OF SPA. IT IS AN ADMITTED FACT THAT VIHBV DID NOT WANT VODAFONE INDIA SERVICES PRIVATE LTD. 129 | P A G E TO KEEP THE CALL CENTRE WITHIN THE VODAFONE GROUP A S IT WAS EXCLUSIVELY PROVIDING SERVICES TO THE VARIOUS GROUP COMPANIES O F THE HUTCHISON GROUP. THEREFORE, VIHBV WANTED TO HIVE OFF THE CALL CENTRE TO THE HUTCHISON GROUP. THAT IS WHY, CLAUSES WERE INSERTED IN THE S PA TO FACILITATE THE SALE OF CALL CENTRE OWNED BY THE ASSESSEE. THE FOLLOWING CL AUSES OF THE SPA CLEARLY DEMONSTRATE THAT THE SPA IS THE PRIOR AGREEMENT I N RELATION TO THE SALE OF THE ASSESSEES CALL CENTRE BUSINESS. THE SPA REFERS TO A BUSINESS TRANSFER AGREEMENT TO BE ENTERED INTO BETWEEN THE ASSESSEE A ND AN AFFILIATE OF HWL RELATING TO THE DISPOSAL OF THE ASSESSEES CALL CEN TRE BUSINESS. THE BUSINESS TRANSFER AGREEMENT IS TO BE SUBSTANTIALLY IN THE FO RM ATTACHED TO A DISCLOSURE LETTER FROM HTIL TO VIH BV. 102. THE SUPREME COURT IN PARAGRAPH 80 OF THE JUDGE MENT IN THE CASE OF VIHBV V UOI (341 ITR 1) HAS GIVEN A BINDING FIN DING THAT THE SALE OF CALL CENTRE BUSINESS WAS AN INTEGRAL PART OF TRANSITION OF BUSINESS UNDER SPA. 103. THE BOMBAY HIGH COURT IN WP NO. 488 OF 2012 HA S GIVEN ITS FINDING AT PARAGRAPH 140 RELATING TO PRIOR AGREEMENT. ACCOR DING TO IT, THERE NEEDS TO BE ONLY AN EFFECTIVE NEXUS BETWEEN PRIOR AGREEME NT AND THE RELEVANT TRANSACTION AND IT IS NOT NECESSARY THAT THE PRIOR AGREEMENT MUST STIPULATE ALL THE TERMS AND CONDITIONS OF THE RELEVANT TRANSA CTION. IT IS SUFFICIENT EVEN IF SOME OF THE TERMS AND CONDITIONS OF THE RELEVANT TRANSACTIONS ARE STIPULATED IN THE PRIOR AGREEMENT. THE SPA AS DEMON STRATED ABOVE, FULFILS THE CRITERIA LAID DOWN BY THE BOMBAY HIGH COURT TO QUALIFY AS PRIOR AGREEMENT IN RELATION TO SALE OF CALL CENTRE BUSINE SS. THE BOMBAY HIGH COURT IN PARA 147, 148& 159 HAS GIVING FINDING THA T SPA FORESHADOWED THE SALE OF CALL CENTRE BUSINESS. THE TERMS OF FINAL BT A IS IN SUBSTANCE SAME AS STIPUATED IN DRAFT BTA ATTACHED WITH THE DISCLOS URE LETTER WHICH FORM VODAFONE INDIA SERVICES PRIVATE LTD. 130 | P A G E PART OF SPA. HOWEVER, AS PER BOMBAY HIGH COURT, THE PRIOR AGREEMENT TEST IS SATISFIED EVEN IF THE RELEVANT TRANSACTION IS MO DIFIED OR ALTERED PROVIDED THE RELEVANT TRANSACTION IS IN RELATION TO THE PRIO R AGREEMENT (PARA 179 OF BOMBAY HIGH COURT IN WP NO. 488 OF 2012. 104. THE RELIANCE HAS BEEN PLACED ON THE FINDING OF THE HONBLE HIGH COURT AT PARA 140,147 AND 179 OF ITS ORDER IN WRIT PETITI ON NO.488 OF 2012 AND THE VARIOUS CLAUSES OF THE SPA R/W BTA REFERRED TO ABOV E AND SUBMITS THAT THE SPA WAS A PRIOR AGREEMENT IN RELATION TO THE TRANSA CTION OF SALE OF CALL CENTRE BUSINESS. 105. IT IS SUBMITTED THAT THE PROVISIONS OF THE SPA SHOW THAT HWP INDIA IS A PARTY TO THE SPA AS PART OF THE VENDOR GROUP AND ALSO AS BENEFITS, RIGHTS AND OBLIGATIONS OF THE SPA IN RESPECT OF THE TRANSA CTION INVOLVING THE SALE OF THE CALL CENTRE BUSINESS WILL ACCRUE TO AND BIND HW P INDIA. THE TERM AFFILIATE IS DEFINED TO MEAN ANY SUBSIDIARY OR HO LDING COMPANY AND ANY SUBSIDIARY OF ANY HOLDING COMPANY. HWP INDIA WOULD THEREFORE QUALIFY AS AN AFFILIATE OF HWL/HTIL. 106. THE TERM OF SPA THAT A BUSINESS TRANSFER AGREE MENT WOULD BE ENTERED INTO BETWEEN THE ASSESSEE AND AN AFFILIATE OF HWL RELATING TO THE CALL CENTRE DISPOSAL WAS A RIGHT AND OBLIGATION IN THE SPA THAT ACCRUED TO AND BOUND HWP INDIA. 107. IN THE PRESENT CASE, IT HAS BEEN SHOWN THAT H WP INDIA IS A PARTY TO THE SPA AND THEREBY FULFILLING THE CONDITION OF PRI OR AGREEMENT BEING BETWEEN THE AE OF ASSESSEE I.E VIHBV AND HWP INDIA (PERSON OTHER THAN ENTERPRISE). HOWEVER, THE BOMBAY HIGH COURT AT PARA 155 IN WP NO. 488 OF 2012, HAVE GIVEN THE FINDING THAT, THE PRIOR AGREEM ENT NEED NOT BE IN VODAFONE INDIA SERVICES PRIVATE LTD. 131 | P A G E WRITING AND IT CAN BE ORAL ALSO. SINCE, HWP INDIA H AVE ACTED AS PER THE CONDITIONS STIPULATED UNDER SPA UNDER AN ORAL AGREE MENT WITH VIHBV, THE CONDITION REQUIRED FOR SPA TO BE A PRIOR AGREEMENT IS SATISFIED THEREFORE, ALL THE CONDITIONS SPECIFIED IN SEC.92B(2) R.W.S.92 B(1) ARE SATISFIED. 108.. HENCE THE TRANSACTION OF SALE OF CALL CENTRE BUSINESS IS DEEMED TO BE BETWEEN TWO ASSOCIATED ENTERPRISES I.E. ASSESSEE AN D VIHBV. SINCE, VIHBV IS A NON-RESIDENT, THE CONDITION OF SEC. 92 B(1) IS ALSO FULFILLED. THE TRANSACTION INVOLVES SALE OF CALL CENTRE BUSINESS I N WHICH THE CALL CENTRE BUSINESS IS A CAPITAL ASSET WHICH IS GETTING TRANSF ERRED WHICH IN TURN AFFECTS THE INCOME OR PROFIT OF THE ASSESSEE. THEREFORE, TH E TRANSACTION OF SALE OF CALL CENTRE BUSINESS SATISFIES THE CONDITIONS SPECI FIED U/S.92 B(2) R.W.S.92B(1) AND CONSTITUTE AN INTERNATIONAL TRANSA CTION. (II) THERE IS AN INTERNATIONAL TRANSACTION U/S 92B(2) IF THE COMPLETION OF BTA I.E. 4 TH DECEMBER, 2007 IS CONSIDERED AS THE RELEVANT DATE. 109. WITHOUT PREJUDICE TO THE ABOVE PRIMARY CONTENT ION THE REVENUE HAS SUBMITTED THAT THE DATE OF THE INTERNATIONAL TRANSA CTION BEING SALE OF CALL CENTRE, IS THE DATE WHEN THE ACTUAL TRANSFER OF CAL L CENTRE TOOK PLACE. FURTHER EVEN AS PER SECTION 45 READ WITH SECTION 2(47) IT I S THE DATE OF TRANSFER THAT HAS TO BE CONSIDERED FOR THE CHARGEABILITY OF INCOM E UNDER SECTION 45. IT IS SUBMITTED THAT EVEN IF WE CONSIDER THE DATE OF 4 TH DECEMBER 2007 AS THE DATE OF INTERNATIONAL TRANSACTION, ALL THE CONDITIO NS OF SEC.92B(2) ARE FULFILLED AND THERE IS A DEEMED INTERNATIONAL TRANS ACTION. THE VARIOUS CLAUSES OF THE BTA CLEARLY SHOW THAT THE INTENTION OF THE PARTIES WAS ALWAYS VODAFONE INDIA SERVICES PRIVATE LTD. 132 | P A G E TO TRANSFER THE CALL CENTRE ONLY UPON FULFILMENT OF VARIOUS CONDITIONS AND THE SAME HAPPENED ONLY ON 4 TH DECEMBER 2007. 110. IT WAS THE RESPONSIBILITY OF THE ASSESSEE TO S UBMIT A CERTIFICATE TO THE PURCHASER ON THE CLOSING DATE CERTIFYING THAT THE B OARD OF DIRECTORS HAVE PASSED RESOLUTION AUTHORIZING THE SALE OF THE BUSIN ESS, THE EXECUTION OF BTA AND CONSUMMATION OF THE BTA (REFER TO CLAUSE 6.2.1 ). SIMILARLY, THE PURCHASER ALSO WILL PROVIDE SIMILAR CERTIFICATE UND ER CLAUSE 6.3.1 . THE REQUIREMENT OF THE BOARD RESOLUTIONS AND OTHER FORM ALITIES AS OF THE CLOSING DATE, SHOWS THAT THE PARTIES TO BTA MUST HAVE OBTAI NED THESE NEAR ABOUT 4 TH DECEMBER, 2007 AND AT THAT TIME, THE SELLER (ASSESS EE) WAS A VODAFONE GROUP COMPANY AND THE BUYER (HWP INDIA) WAS A HUTCH ISON GROUP COMPANY. THIS CONCLUSIVELY PROVES THAT THE TRANSAC TION WAS COMPLETED BETWEEN TWO UNRELATED PARTIES. AS PER CLAUSE 6.4 , THE RECEIPT FOR PAYMENT AND THE CLOSING MEMORANDUM WILL BE ISSUED ON COMPLE TION OF ACTIONS MENTIONED IN CLAUSE 6. CLAUSE 8 SHOWS THAT THE PERSONS WORKING IN THE CALL CENTRE, WERE THE EMPLOYEES OF VISPL (ASSESSEE) TILL THE CLOSING DATE. THIS ALSO PROVES THAT THE TRANSFER TOOK PLACE ON TH E CLOSING DATE. 111. A VERY STRONG AND IRREFUTABLY POSITIVE EVIDEN CE OF CALL CENTRE BEING PART OF VODAFONE GROUP FOR THE PERIOD FROM 11.2.200 7 TO 4.12.2007 IS THE FACT THAT IN ITS FINANCIALS FOR THE YEAR ENDED 31.3 .2008, THE ASSESSEE HAS NOT ONLY SHOWN ITS BUSINESS BEING RUNNING OF CALL CENTR E( ITES) AND HOLDING OF INVESTMENT IN CALL OPTIONS BUT HAS ALSO INCLUDED T HE INCOME FROM CALL CENTRE BUSINESS IN ITS HANDS TILL THE DATE OF TRANS FER. THIS PROVES THAT THE TRANSFER TOOK PLACE ON 4 DECEMBER, 2007. VODAFONE INDIA SERVICES PRIVATE LTD. 133 | P A G E 112. IT IS SUBMITTED THAT IN VIEW OF THE VARIOUS CL AUSES, ON READING THE FINANCIAL STATEMENT SUBMITTED BY THE ASSESSEE TO TH E ASSESSING OFFICER AT PAGE 24 VOLUME 1 UNDER THE HEADING NOTES TO THE FINANCIAL STATEMENTS, WHICH SETS OUT THE COMPLETION DATE, IT BECOMES INDI SPUTABLY CLEAR THAT THE TRANSFER OF CALL CENTRE BUSINESS TOOK PLACE ON 4 TH DECEMBER 2007. THUS, IT IS SUBMITTED THAT THE READING OF THE CLAUSES SET OUT A BOVE OF THE SPA WILL DEMONSTRATE THAT THE SPA IS THE PRIOR AGREEMENT ENT ERED INTO BETWEEN VIH BV AND HWP INDIA IN RELATION TO SALE OF ASSESSEES CALL CENTRE BUSINESS. THE SPA ITSELF CONTEMPLATED THE BTA, WHICH IN TURN CONTEMPLATED A COMPLETION DATE, WHICH FINALLY CULMINATED INTO THE TRANSFER OF CALL CENTRE BUSINESS ON 4 TH DECEMBER 2007. 113. THE ABOVE SUBMISSIONS ARE SUPPORTED BY THE DEC ISIONS IN THE CASE OF HARISH CHANDRA & ORS. VS. CIT, (1985) 154 ITR 478 ( DEL.)- PARA NO.8, SMT. RAJ RANI DEVI RAMNA VS. CIT, (1993) 201 ITR 1032 (P AT.). 114. ALTERNATIVELY IT IS SUBMITTED THAT IN CASE THE BTA WAS SIGNED BEFORE THE SPA, BOTH THE BTA AS WELL THE SPA BEING SIGNED ON THE SAME DATE I.E. 8 TH MAY, 2007 WHILST DENYING THAT THE ASSESSEES CONTE NTION IS CORRECT, EVEN IN SUCH CIRCUMSTANCES, THERE IS AN INTERNATIONAL TR ANSACTION UNDER SECTION 92B(1). AS PER THE DEFINITION OF TRANSACTION GIVEN IN SECTION 92F(V) READ WITH RULE 10A(D), THE DEFINITION OF TRANSACTION IS VERY WIDE WHICH COVERS UNDERSTANDING, ARRANGEMENT AND ACTING IN CONCERT. MOREOVER, THE TRANSACTION NEED NOT BE A SINGLE TRANSACTION. IT C AN BE A NUMBER OF CLOSELY LINKED TRANSACTIONS. IN THE PRESENT CASE, THE TRANS ACTION OF SALE OF CALL CENTRE BUSINESS TOOK PLACE BECAUSE OF CLOSELY LINKED TRANS ACTIONS CONTAINED IN THE VODAFONE INDIA SERVICES PRIVATE LTD. 134 | P A G E SPA AND THE BTA. THE SPA AND BTA TOGETHER CONSTITUT E AN ARRANGEMENT AND/OR AN UNDERSTANDING WHICH IS A TRANSACTION BETW EEN THE ASSESSEE, HTIL AND HWP INDIA. THE BTA IS ALREADY DEFINED AS GSPL TRANSFER AGREEMENT IN THE SPA. THE SPA IN TERMS MANDATES THAT THE BTA SHALL BE EXECUTED SUBSTANTIALLY IN THE FORM ATTACHED TO THE DISCLOSUR E LETTER (CLAUSE 1.1- DEFINITION OF GSPL TRANSFER AGREEMENT OF THE SPA). IT WAS ALSO AGREED IN THE SPA THAT GSPL WILL TRANSFER THE CALL CENTRE TO AN AFFILIATE OF THE HUTCHINSON WAMPOA LIMITED WHICH IS THE ULTIMATE HOL DING COMPANY OF THE HUTCHINSON GROUP (CLAUSE 1.1- DEFINITION OF GSPL TRANSFER AGREEMENT OF THE SPA). THE ASSESSEE HAS TRANSFERRED THE PROFITABLE CALL CE NTRE BUSINESS TO HWP INDIA AS PER UNDERSTANDING AND ARRANGEMENT IN T HE FORM OF THE SPA REACHED BETWEEN HTIL, ASSESSEE AND HWP INDIA. THERE IS NO REQUIREMENT OR ADVANTAGE OF SELLING THE CALL CENTRE BUSINESS BY THE ASSESSEE OTHER THAN AS PER THE MANDATE OF THE SPA. THE SALE ATTRACTS CA PITAL GAINS AND OTHER ISSUES LIKE GETTING THE LICENCES TRANSFERRED IN THE NAME OF THE TRANSFEREE, GETTING THE NAME OF THE TRANSFEREE SUBSTITUTED IN T HE CONTRACTS WITH 3RD PARTIES ETC. THE ASSESSEE HAS, UNDER THE SPA, AGREE D TO ENTER INTO THE BTA IN SUBSTANTIALLY THE SAME FORM AS THE DRAFT BTA ATT ACHED TO THE DISCLOSURE LETTER. THERE WAS NOT ONLY AN UNDERSTANDING BUT AL SO AN ARRANGEMENT BETWEEN HTIL, ASSESSEE AND HWP INDIA. ALL THE THRE E PARTIES HAVE ACTED IN CONCERT TO TRANSFER THE CALL CENTRE BUSINESS WHICH WAS AN ESSENTIAL CONDITION FOR THE SUCCESSFUL COMPLETION OF THE SPA [CLAUSE 8. 8(J) OF SPA]. IN THIS CONNECTION, THE CLAUSES 1.1 OF DEFINITIONS- WIDER G ROUP, CALL CENTRE BUSINESS, GSPL TRANSFER AGREEMENT, TRANSACTION DOCU MENTS, AND CLAUSES 10.1, 10.2 AND 13(C) ARE RELEVANT TO SHOW THAT THE PARTIES HAVE AN UNDERSTANDING AND / OR AN ARRANGEMENT OR HAVE ACTED IN CONCERT. THE BTA VODAFONE INDIA SERVICES PRIVATE LTD. 135 | P A G E DT. 8TH MAY, 2007 WAS SIGNED BETWEEN THE ASSESSEE AND HWP INDIA SUBSTANTIALLY IN THE SAME FORM WHICH WAS ATTACHED T O THE DISCLOSURE LETTER. 115. WITHOUT PREJUDICE TO ABOVE CONTENTIONS THE REV ENUE ADVANCED FURTHER ARGUMENTS TO SHOW THAT THERE IS AN INTERNATIONAL TR ANSACTION U/S.92B(1) BY LIFTING THE CORPORATE VEIL. THIS HAS BEEN DONE BY THE DRP ADDITIONALLY WHILE UPHOLDING THE CASE MADE BY THE TPO U/S.92B(2). TH E SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. V. UNION OF INDIA [2012] 341 ITR 1 HAS LAID DOWN VARIOUS PARAMETERS FOR PIER CING THE CORPORATE VEIL OF A COMPANY. THOUGH THE SUPREME COURT HELD IN THA T PIERCING OF CORPORATE VEIL IS NOT APPLICABLE IN THAT CASE, HOWEVER, THE P ARAMETERS MAY BE APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE. 116. REFERENCE WAS MADE TO THE PARAGRAPH 65 68 OF JUDGMENT OF HONBLE SUPREME COURT AND SUBMITTED THAT WHETHER A TRANSACT ION IS USED PRINCIPALLY AS A COLOURABLE DEVICE FOR THE DISTRIBU TION OF EARNINGS, PROFITS AND GAINS, IS DETERMINED BY A REVIEW OF ALL THE FAC TS AND CIRCUMSTANCES SURROUNDING THE TRANSACTION. IT IS IN THE ABOVE CAS ES THAT THE PRINCIPLE OF LIFTING THE CORPORATE VEIL OR THE DOCTRINE OF SUBST ANCE OVER FORM OR THE CONCEPT OF BENEFICIAL OWNERSHIP OR THE CONCEPT OF A LTER EGO ARISES. THERE ARE MANY CIRCUMSTANCES, APART FROM THE ONE GIVEN ABOVE, WHERE SEPARATE EXISTENCE OF DIFFERENT COMPANIES, THAT ARE PART OF THE SAME GROUP, WILL BE TOTALLY OR PARTLY IGNORED AS A DEVICE OR A CONDUIT (IN THE PEJORATIVE SENSE). THE SUPREME COURT FURTHER HELD THAT IN THE APPLICAT ION OF JUDICIAL ANTI- AVOIDANCE RULE, THE REVENUE MAY INVOKE THE SUBSTAN CE OVER FORM PRINCIPLE OR PIERCING THE CORPORATE VEIL TEST O NLY AFTER IT ESTABLISH ON THE VODAFONE INDIA SERVICES PRIVATE LTD. 136 | P A G E BASIS OF THE FACTS AND CIRCUMSTANCES SURROUNDING TH E TRANSACTION THAT THE IMPUGNED TRANSACTION IS A SHAM OR TAX AVOIDANT. 117. IT IS SUBMITTED IN LIGHT OF THE PARAMETERS LAI D DOWN BY THE SUPREME COURT, THE FINDINGS OF THE BOMBAY HIGH COURT IN WRI T PETITION NO. 488 OF 2012 (IN PARAGRAPH 145 153) ARE ALSO RELEVANT. T HE BOMBAY HIGH COURT ON INTERPRETING THE DEFINITIONS OF CERTAIN TERM IN THE SPA PARTICULARLY THE TERM AFFILIATE AND VENDOR GROUP, HELD THAT THE SUPR EME COURT DID NOT HOLD THAT THE CORPORATE VEIL OF HWP (INDIA) CANNOT BE PI ERCED. THUS ALTHOUGH THE JUDGMENT MAY ASSIST THE PETITIONER TO A CONSIDERABL E EXTENT, IT DOES NOT PRECLUDE THE RESPONDENTS FROM INVOKING THE DOCTRINE . 118. THE DRP IN PARA NO. 10.2.4 HAS HELD THE TRANSA CTION OF SALE OF CALL CENTRE BUSINESS AS INTERNATIONAL TRANSACTION U/S 92 B(1) BY PIERCING THE VEIL OF HWP INDIA. IN THIS CONNECTION, THE REVENUE HAS RELIED UPON FOLLOWING RULINGS WHERE THE CONCEPT OF PIERCING THE CORPORATE VEIL HAS BEEN EXPLAINED. A. IN NEW HORIZONS LIMITED AND ANOTHER V. UNION OF INDIA & OTHERS (1995) 1 SCC 478 , B. IN DELHI DEVELOPMENT AUTHORITY V. SKIPPER CONSTRUCTION CO (P) LTD & ANOTHER (1996) 4 SCC 622 , C. IN COMMISSIONER OF INCOME TAX, WEST BENGAL V. EAST COA ST COMMERCIAL CO. LTD. (1967) 1 SCR 821 , D. IN COMMISSIONER OF CENTRAL EXCISE, NEW DELHI V. MODIAL KALIES& CHEMICALS LTD. & OTHERS (2004) 7 SCC 574 , E. IN PARLEBISLERI PRIVATE LIMITED V. COMMISSIONER OF CUS TOMS AND CENTRAL EXCISE, AHMEDABAD (2010) 14 SCC 378 , VODAFONE INDIA SERVICES PRIVATE LTD. 137 | P A G E F. IN SINGER INDIA LTD V. CHANDER MOHAN CHADHA & OTHERS (2004) 7 SCC 1 , 119. IT IS SUBMITTED THAT HWP INDIA IS A DUMMY ENTI TY INCORPORATED BY THE HUTCHISON GROUP TO CREATE A SHAM THAT THE CALL CENT RE BUSINESS WAS BEING TRANSFERRED BY THE ASSESSEE TO AN INDIAN COMPANY WH EN IN FACT THE CALL CENTRE BUSINESS WAS BEING TRANSFERRED TO THE HUTCHI SON GROUP. THE GOVERNMENT OF INDIA, VIDE PRESS NOTE 5 (2005 SERIES ) DATED 3 NOVEMBER 2005 NOTIFIED AN ENHANCEMENT OF THE FOREIGN DIRECT INVESTMENT LIMITS IN THE TELECOMMUNICATIONS SECTOR FROM 49% TO 74%. SINC E APPARENTLY THE HUTCHISON GROUP WISHED TO DIVEST ITS TELECOM BUSINE SS SHAREHOLDING IN INDIA BUT NOT ITS CALL CENTRE BUSINESS, HWP INDIA W AS INCORPORATED ON 23 JANUARY 2006. AFTER ITS INCORPORATION, HWP INDIA WA S A DORMANT COMPANY WITH NO BUSINESS ACTIVITY UNTIL IT ACQUIRED THE CAL L CENTRE BUSINESS FROM THE ASSESSEE. HWP INDIA IS A WHOLLY OWNED SUBSIDIARY OF HUTCHISON WAMPOA LIMITED ( HWL ), HONG KONG. HWL IS THE HOLDING COMPANY OF HTIL. IT IS SUBMITTED THAT HWP INDIA HAS NO COMMERCIAL OR BUSIN ESS SUBSTANCE AS DISCLOSED BY ITS BALANCE SHEET FOR THE YEAR ENDED 3 1 MARCH 2007 (PG. NO.2262 TO 2267 OF VOLUME VII). HWP INDIA WAS INTER POSED ONLY TO EVADE TAX. 120. THE ASSESSEE FILED ADDITIONAL EVIDENCE TO SHOW THAT THE HWP INDIA WAS EXPLORING THE REALTY BUSINESS. THESE DOCUMENTS WERE PLACED BEFORE DRP ON 25.09.2012 I.E. JUST 5 DAYS BEFORE THE TIME BARRING DATE AND WITHOUT EVEN A REQUEST TO ADMIT AS ADDITIONAL EVIDENCE. IT WAS FILED BEFORE DRP AND REJECTED BY DRP. THERE IS NO REQUEST EVEN BEFORE T HE TRIBUNAL TO ADMIT THEM AS ADDITIONAL EVIDENCE. THESE DOCUMENTS HAVE N OT BEEN EXAMINED BY VODAFONE INDIA SERVICES PRIVATE LTD. 138 | P A G E ANY LOWER AUTHORITIES TILL DATE. WITHOUT PREJUDICE TO THIS STAND, FOLLOWING COMMENTS ARE ADVANCED BY THE REVENUE:- I. FIRST OF ALL THERE WERE NO EMPLOYEE OR ANY ACTIVITY IN HWP INDIA TILL 31-03-2007 AS SHOWN BY ITS FINANCIALS(22 62- 2271/VOL.VII) II. NONE OF THE DOCUMENTS MENTION THE NAME OF HWP INDIA . NONE OF THE DOCUMENTS PERTAIN TO HWP INDIA AND ARE NOT RELEVANT TO SHOW ANY ACTIVITY BY HWP INDIA(PG. NO. 1549 TO 1817/ VOL. VII). 121.. IT IS INCORRECT TO SAY THAT THE TRANSFER PRI CING PROVISIONS CANNOT APPLY TO A TRANSACTION BETWEEN TWO RESIDENT ENTITIES. IT IS SUBMITTED THAT AS HWP INDIA IS A DUMMY ENTITY USED FOR THE PURPOSES OF A SHAM ITS LEGAL PERSONALITY HAS TO BE IGNORED AND CONSEQUENTLY THE TRANSACTION FOR THE SALE OF THE CALL CENTRE BUSINESS IS NOT A TRANSACTION BE TWEEN TWO RESIDENT ENTITIES, BUT IS INSTEAD A TRANSACTION BETWEEN THE ASSESSEE (A RESIDENT ENTITY) AND THE HWL (THE ULTIMATE HUTCHISON GROUP H OLDING COMPANY AND A NON-RESIDENT ENTITY). THE TERMS OF THIS TRANSACTIO N IS DETERMINED IN SUBSTANCE AND THERE IS ALSO A PRIOR AGREEMENT IN TH IS REGARD IN THE FORM OF THE SPA BETWEEN THE ASSESSEE AND VIHBV. ACCORDINGL Y, THE CONDITION SPECIFIED U/S.92B(2) ARE SATISFIED. 122. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND C AREFULLY GONE THROUGH THE RECORD PRODUCED BEFORE US. THE FIRST OBJECTION RAISED BY THE ASSESSEE AGAINST THE ACTION OF TPO IS THAT THE CALL CENTRE B USINESS WAS TRANSFERRED TO THE HWP (INDIA), WHICH IS AN INDIAN ASSOCIATED ENTE RPRISE OF THE ASSESSEE. VODAFONE INDIA SERVICES PRIVATE LTD. 139 | P A G E SINCE HWP (INDIA), IS AN INDIAN COMPANY, THEREFORE, THE TRANSACTION IN QUESTION IS AN INTERNATIONAL TRANSACTION AS PER THE PROVISIONS OF SECTION 92B OF THE INCOME TAX ACT. THIS CONTENTION HAS BEEN AD VANCED BY THE LD COUNSEL BASED ON THE PREMISES THAT AT THE TIME OF S IGNING OF BTA ON 8 TH MAY 2007, THE ASSESSEE WAS A PART/AN AFFILIATE OF HUTCH ISON WHAMPOA LTD. (HWL GROUP) AND ONLY ON COMPLETION OF THE SHARE PUR CHASE AGREEMENT, THE ASSESSEE BECAME PART OF VIH BV, THEREFORE, THE HWP (INDIA), WAS AN ASSOCIATED ENTERPRISES BUT AN INDIAN COMPANY AND TR ANSACTION BETWEEN TWO INDIAN COMPANIES/PARTIES CANNOT BE TREATED AS AN IN TERNATIONAL TRANSACTION. THE LD. ASG ON THE OTHER HAND, CONTENDED THAT BTA W AS ENTERED ON 8.5.2007 BUT THE CALL CENTRES WERE TRANSFERRED BY T HE ASSESSEE TO HWP (INDIA) ON 4.12.2007, THEREFORE, THE TRANSFER OF T HE CALL CENTRE WAS SUBSEQUENT TO THE SPA DATED 8.05.2007 AND, THEREFOR E, THE ASSESSEE WAS PART OF VIH BV ON THE DATE OF TRANSFER/SALE OF CALL CENTRE. SINCE THERE WAS A PRIOR AGREEMENT BETWEEN HUTCHISON WHAMPOA GROUP AND VIH BV BEING SPA, THEREFORE, THE SALE OF CALL CENTRE TO HWP (IND IA) WILL FALL UNDER THE PROVISIONS OF SECTION 2 OF SECTION 92B BEING A TRAN SACTION ENTERED INTO BY THE ASSESSEE WITH A UNRELATED PARTY BUT SHALL BE DE EMED TO BE A TRANSACTION ENTERED INTO BETWEEN THE ASSESSEE AND ITS ASSOCIATE D ENTERPRISES VIH BV DUE TO THE EXISTENCE OF A PRIOR AGREEMENT. IT IS P ERTINENT TO NOTE THAT UP TO 08/05/2007, THE ASSESSEE WAS SUBSIDIARY OF HTIL GR OUP AND AFTER 08/05/2007 THE ASSESSEE BECAME SUBSIDIARY OF VIHBV GROUP. THE ASSESSEE WAS ASSOCIATED ENTERPRISES OF BOTH HTIL AND VIH BV DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y. UNDER CONSIDERATION IN TE RMS OF SUB- SECTION 2 OF SECTION 92A OF THE INCOME TAX ACT BECAUSE PRIOR TO THE SPA DAT ED 08.05.2007, THE ASSESSEE WAS UNDISPUTEDLY THE ASSOC IATED ENTERPRISES OF VODAFONE INDIA SERVICES PRIVATE LTD. 140 | P A G E HTIL AND SUBSEQUENT TO THE SPA, THE ASSESSEE BECAME THE ASSOCIATED ENTERPRISES OF VIH BV. THUS ONCE TWO ENTERPRISES AR E ASSOCIATED ENTERPRISES AT ANY TIME DURING THE PREVIOUS YEAR THEY SHALL BE DEEMED TO BE THE ASSOCIATED ENTERPRISES FOR THE PURPOSE OF SECTION 9 2A(1). HAVING HELD THAT BOTH HTIL AND VIH BV WERE THE ASSOCIATED ENTERPRISE S OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, IT MAKES NO DI FFERENCE WHETHER THE CALL CENTRE SALE TRANSACTION WAS PRECEDED TO THE ST A OF SUBSEQUENT TO THE STA. THIS ASPECT IS RELEVANT ONLY TO THE EXTENT THA T AT THE TIME OF TRANSFER OF CALL CENTRE BUSINESS, THE ASSESSEE WAS SUBSIDIARY O F HTIL OR VIH BV. AS PER THE CLAUSE 8.8 (J) OF THE SPA, THE HTIL WAS UNDER T HE OBLIGATION TO DELIVER OR PROCURE THE DELIVERY TO THE PURCHASER (VIH BV), THE GSPL TRANSFER AGREEMENT DULY EXECUTED BY THE PARTIES THERETO. GSP L TRANSFER AGREEMENT IS DEFINED IN THE DEFINITION AND INTERPRETATION CLAUS E 1 OF THE SPA AS UNDER GSPL TRANSFER AGREEMENT MEANS THE BUSINESS TRANSFE R AGREEMENT TO BE ENTERED INTO BETWEEN GSPL AND AN AFFILIATE OF HW L RELATING TO CALL CENTRE DISPOSAL SUBSTANTIALLY IN THE FORM ATTA CHED TO THE DISCLOSURE LETTER 123. THEREFORE, FROM THE TERMS AND CONDITIONS OF TH E SPA, IT IS CLEAR THAT HTIL WAS UNDER OBLIGATION TO PROCURE AND DELIVER TH E CALL CENTER BUSINESS TRANSFER AGREEMENT DULY ENTERED INTO BETWEEN THE AS SESSEE AND AN AFFILIATE OF HTIL AT THE TIME OF COMPLETION OF SPA ON 8/5/200 7. THOUGH THIS ASPECT IS NOT GOING TO ALTER THE STATUS OF THE PARTIES SO FAR AS THE TRANSACTION BETWEEN TWO AES FOR THE PURPOSE OF SECTION 92B HOWE VER, IT DISCERN FROM THE AGREEMENTS BETWEEN THE PARTIES THAT THE ASSESSE E WAS ACTING AS A SUBSIDIARY OF HTIL WHILE ENTERING INTO THE BTA IN PURSUANT TO THE VODAFONE INDIA SERVICES PRIVATE LTD. 141 | P A G E DISCHARGE OF THE OBLIGATION OF HTIL/HWL GROUP UNDER THE SPA. THEREFORE, EVEN IF THE BTA WAS SIGNED ON 8.05.2007 WHEN THE SP A WAS COMPLETED, IT WILL BE CONSIDERED AS ON THE SAME DATE AND AT THE T IME OF SPA AND NOT SUBSEQUENT TO THE SPA. ACCORDINGLY THE LANGUAGE OF SPA AND BTA MANIFEST WITHOUT ANY AMBIGUITY THAT THE BTA WAS SIGNED BETWE EN THE ASSESSEE BEING DOWN STREAM SUBSIDIARY OF HTIL AND, THEREFORE, THE BTA IS PRECEDED THE SPA. BOTH SPA AND BTA WAS SIGNED ON THE SAME DATE, HOWEVER, BTA IS CONSIDERED AS PRECEDED THE SPA BECAUSE OF THE CONDI TIONS PROVIDED UNDER SPA. IT WAS NOT THE INTENTION OF THE PARTIES TO THE SPA THAT THE CALL CENTRE BUSINESS WAS TO BE TRANSFERRED BACK TO HTIL POST SP A BUT THE AGREEMENT AND ARRANGEMENT BETWEEN THE PARTIES SUGGEST THAT TH E CALL CENTRE BUSINESS WAS TO BE RETAINED BY THE HTIL AT THE TIME OF TRANS FER OF SHARE OF CGP ALONG WITH INTEREST IN ALL DOWN STREAM SUBSIDIARIES EXCEP T CALL CENTRE BUSINESS OF THE ASSESSEE. THE QUESTION ARISES WHETHER THE TRANS FER OF CALL CENTRE BUSINESS IS AN INTERNATIONAL TRANSACTION AS PER TH E PROVISIONS OF SECTION 92B (1) AND (2). UNDISPUTEDLY, THE SALE OF CALL CEN TRE BUSINESS WAS NOT AN INDEPENDENT DECISION OF THE ASSESSEE ALONE BUT IT W AS A DECISION OF THE HUTCHISON WHAMPOA GROUP AS PER THE TERMS AND CONDIT IONS OF THE SPA. THEREFORE, THE BTA WAS ENTERED INTO IN PURSUANT TO THE SPA WHEREIN IT WAS AGREED UPON BETWEEN THE PARTIES THAT VIH BV SHALL A CQUIRE THE TELECOM BUSINESS THROUGH THE ENTIRE SHARE OF CGP BUT EXCLUD ING THE CALL CENTRE BUSINESS OF THE ASSESSEE. THE ASSESSEE BEING A DOWN STREAM SUBSIDIARY OF HTIL AND HWL WAS BOUND BY THE SPA BEING THE PART OF WIDER GROUP COMPANIES. IT WAS IN THE COMPLIANCE OF SPA DATED 11 .02.2007 THAT THE HTIL WAS REQUIRED TO RETAIN THE CALL CENTRE BUSINESS AND , THEREFORE, THE HTIL WAS UNDER THE OBLIGATION TO RETAIN THE CALL CENTRE BUSI NESS BY PROCURING THE VODAFONE INDIA SERVICES PRIVATE LTD. 142 | P A G E TRANSFER OF CALL CENTRE BUSINESS FROM THE ASSESSEE TO AN AFFILIATE OF HWL. CONSEQUENTLY, THE BTA WAS EXECUTED BETWEEN THE ASSE SSEE AND HWP(INDIA) AN AFFILIATE OF HWL. 124. THE ASSESSEE HAS FORCEFULLY CONTENDED THAT IT WAS TRANSFERRED TO AN INDIA RELATED PARTY, THEREFORE, THE PROVISIONS OF S ECTION 92B(1) AND 2 ARE NOT ATTRACTED AND CONSEQUENTLY IT DOES NOT FALL UNDER T HE REALM OF INTERNATIONAL TRANSACTION. ON THE OTHER HAND, THE REVENUES CASE IS THAT HWP (INDIA) IS A DUMMY ENTITY AND THE TRANSACTION HAS TO BE LOOKED I NTO BY LIFTING THE CORPORATE VEIL. THE ALTERNATIVE ARGUMENT OF THE REV ENUE IS THAT THERE IS A PRIOR AGREEMENT AMONG HWP (INDIA), HTIL AND VIH BV BEING PART OF SPA, THEREFORE, THE SALE OF CALL CENTRE TO HWP (INDIA) W OULD BE DEEMED AS SALE TO HTIL/VIH BV. 125. FIRST WE WOULD CONSIDER WHETHER THE TRANSACTIO N OF SALE OF CALL CENTRE BUSINESS BY THE ASSESSEE TO HWP (INDIA) WOULD FALL UNDER THE EXPRESSION INTERNATIONAL TRANSACTION AS PER THE PROVISIONS O F SECTION 92B(1). HWP (INDIA) WAS INCORPORATED WITH THE OBJECT OF DOING R EAL ESTATE BUSINESS IN INDIA IN JANUARY 2006. IN DECEMBER 2006, THE PROCES S OF DIVESTING TELECOM BUSINESS IN INDIA BY HWL GROUP STARTED AND IT WAS D ECIDED TO SELL THE TELECOM BUSINESS IN INDIA THROUGH THE SALE OF DOWN STREAM SUBSIDIARIES EXCEPT CALL CENTRE BUSINESS OF THE ASSESSEE. HWP ( INDIA) DID NOT DO ANY BUSINESS TILL THE EXECUTION OF BTA ON 8.05.2007. EV EN SUBSEQUENT TO THE BTA, HWP (INDIA) DID NOT RUN THE CALL CENTRE BUSINE SS BUT IT WAS RUN BY THE ASSESSEE AS AGREED UPON BETWEEN THE PARTIES TILL 4. 12.2007. SINCE THE HTIL WAS UNDER OBLIGATION TO RETAIN THE CALL CENTRE BUSI NESS AND THE ASSESSEE WAS GOING TO BE THE SUBSIDIARY OF VIH BV, THEREFORE, TH E SAID CALL CENTRE VODAFONE INDIA SERVICES PRIVATE LTD. 143 | P A G E BUSINESS WAS REQUIRED TO BE TRANSFERRED FROM ASSESS EE TO THE AFFILIATE OF HWL GROUP. THIS ASPECT WAS ALSO CONSIDERED BY THE H ON'BLE HIGH COURT IN PARA 159 TO 161 AND 166 AS UNDER:- 159. THAT THE BTA WAS FORESHADOWED BY AND WAS A PART OF THE SPA IS EVIDENCED FROM WHAT WE SAID ABOVE AND ALSO BY CLAUS ES 8.8, (C), (F) AND (J), 8.13, 10.1, 10.2, 13 AND 27 OF THE SPA. CLAUSE 1.1 DEFINE S TERMS SPECIFICALLY IN CONNECTION WITH THE BTA SUCH AS 'CALL CENTRE BUSINE SS', 'CALL CENTRE DISPOSAL', 'GSPL TRANSFER AGREEMENT' AND 'TRANSACTION DOCUMENT S'. 160. CLAUSE 8.8 REQUIRED THE VENDOR I.E. HTIL ON COMPLE TION TO DELIVER OR PROCURE THE DELIVERY TO THE PURCHASER I.E. VIH BV O F THE GSPL TRANSFER AGREEMENT DULY EXECUTED BY THE PARTIES THERETO. THE PARTIES TO THE 'GSPL TRANSFER AGREEMENT' ARE THE SELLER I.E. THE PETITIO NER AND THE AFFILIATE OF HWL. HWP (INDIA) WAS ULTIMATELY NOMINATED TO BE THE PURC HASER. CLAUSE 8.13 OF THE SPA FURTHER PROVIDED THAT IF CLAUSES 8.2 TO 8.11 IN CLUDING 8.8 (J) ARE NOT FULLY COMPLIED WITH BY THE VENDOR I.E. HTIL OR THE PURCHA SER I.E. VIH BV BY THE COMPLETION DATE, THE VENDOR OR THE PURCHASER, AS TH E CASE MAY BE, WOULD BE ENTITLED INTER-ALIA TO TERMINATE THE AGREEMENT. 161. CLAUSE 10.1 PROVIDED THAT FOLLOWING COMPLETION, TH E PURCHASER I.E. VIH BV WOULD PROCURE THAT THE PETITIONER COMPLIES WITH ITS OBLIGATIONS UNDER THE GSPL TRANSFER AGREEMENT. THUS THE SPA EXPRESSLY CONTEMPL ATED THE POSSIBILITY OF VIH BV BEING REQUIRED TO ENSURE THAT THE PETITIONER WOU LD COMPLY WITH ITS OBLIGATIONS UNDER THE GSPL TRANSFER AGREEMENT. IT W OULD FOLLOW THAT THE SPA CONTEMPLATED THE FORMATION OF THE GSPL AGREEMENT FO R WITHOUT THE FORMATION OF THE AGREEMENT, THERE WOULD BE NO QUESTION OF COMPLI ANCE OF THE OBLIGATIONS THEREIN. CLAUSE 10.2 GOES A STEP FURTHER AND REQUIRES HTIL T O INDEMNIFY AND HOLD HARMLESS NOT MERELY THE PURCHASER BUT ALSO THE PURC HASER AS AN AGENT FOR ANY MEMBER OF ITS GROUP AGAINST ANY LOSS (OTHER THAN IN RELATION TO TAXATION) INCURRED OR SUSTAINED AS A DIRECT RESULT OF THE CAL L CENTRE DISPOSAL AND ANY NET LIABILITY (EXCLUDING ANY LIABILITIES TO TAXATION) A RISING AS A RESULT OF THE CONTINUATION OF THE BUSINESS OF THE PETITIONER IN T HE ORDINARY AND USUAL COURSE, SAVE AND EXCEPT TO THE EXTENT THAT ANY SUCH LOSS OR LIABILITY ARISES AS A RESULT OF ANY ACT OR OMISSION INCLUDING ANY BREACH OF THE GSP L TRANSFER AGREEMENT BY GSPL FOLLOWING COMPLETION. SUCH INDEMNITIES POSIT O R, IN ANY EVENT, ARE LIKELY TO POSIT A TRANSACTION/AGREEMENT. ********************************** ********************************** VODAFONE INDIA SERVICES PRIVATE LTD. 144 | P A G E 166. AS WE MENTIONED EARLIER, THE BTA/SALE OF THE CALL CENTRE BUSINESS WAS FORESHADOWED IN THE SPA IN SEVERAL MATERIAL RESPECT S. THE QUESTION NOW IS WHICH OF THESE AGREEMENTS PRECEDED THE OTHER. IN OTHER WORDS , THE QUESTION IS WHETHER AS CONTENDED BY THE PETITIONER, THE PETITIONER WAS STI LL A PART OF HTIL GROUP AND AN ASSOCIATED ENTERPRISE THEREBY OF HWP (INDIA) WHEN T HE BTA WAS SIGNED OR WHETHER AS CONTENDED BY THE RESPONDENTS, THE BTA WAS SIGNED AFTER THE PETITIONER CEASED TO BE A PART OF THE HTIL GROUP AND BECAME A PART OF TH E VODAFONE GROUP. UPON THE SALE OF THE CGP SHARE, THE PETITIONER BECAME A PART OF THE VODAFONE GROUP. TILL THEN, IT WAS A PART OF THE HTIL GROUP. IF THE PETITIONER AND HWP (INDIA) WERE ASSOCIATED ENTERPRISES, SUB-SECTION (2) OF SECTION 92-B WOULD NOT APPLY FOR THE BTA, THEN COULD NOT BE SAID TO BE A TRANSACTION ENTERED INTO BETWEE N AN ENTERPRISE WITH A PERSON OTHER AN ASSOCIATED ENTERPRISE. 126 AS IT WAS A PRECONDITION OF THE SPA THAT HTIL W OULD GET THE CALL CENTRE BUSINESS OF THE ASSESSEE TRANSFERRED TO ITS GROUP COMPANY, A MOU WAS ENTERED INTO FOR SETTLING THE TERMS AND CONDITI ONS OF THE BTA. AT THE TIME OF MOU DATED 30.04.2007, THE PAYMENT OF PURCHA SE CONSIDERATION OF RS. 64 CRORES WAS MADE. IT IS PERTINENT TO NOTE THA T HWP (INDIA) WAS NOT HAVING FUNDS OF ITS OWN NOR ANY BUSINESS EVER DONE TILL THE DATE OF THE BTA. THE PAYMENT OF RS. 64 CRORES WAS ALSO MADE BY HWL G ROUP COMPANY THOUGH ROUTED THROUGH THE BANK ACCOUNT OF HWP (INDI A). THE STATEMENT OF ACCOUNT IS PLACED AT PAGE NO. 232 OF THE PAPER BOOK . WE HAVE ALSO CAREFULLY PERUSED THE BANK STATEMENT OF HWP (INDIA) AND FIND THAT THE PAYMENT OF RS. 64 CRORE WAS RECEIVED BY HWP (INDIA) IN ITS BAN K ACCOUNT ON 30.04.2007 WHEN THE MOU WAS SIGNED BETWEEN THE ASSE SSEE AND HWP (INDIA). THE PAYMENT WAS ALSO MADE ON THE SAME DATE I.E. 30.04.2007. THUS IT IS CLEAR THAT THE PAYMENT WAS MADE BY HWL GROUP COMPANY AND NOT BY THE HWP (INDIA), THOUGH IT WAS ROUTED THROUGH THE B ANK ACCOUNT OF HWP (INDIA). THERE IS NO RECORD PRODUCED BY THE ASSESS EE TO SHOW THAT THE HWP (INDIA) PROCURED FINANCE FROM ITS GROUP COMPANIES F OR THE PURPOSE OF BUSINESS. FURTHER ONLY AFTER THE BEGINNING OF PROCE SS OF DIVESTMENT OF VODAFONE INDIA SERVICES PRIVATE LTD. 145 | P A G E INVESTMENT IN INDIA BY HTIL AND DECISION OF RETAINI NG THE CALL CENTRE BUSINESS, THE MEMORANDUM OF ASSOCIATION (MOA) OF HW P (INDIA) WAS AMENDED IN JANUARY 2007, TO INCORPORATE THE CALL CE NTRE BUSINESS IN ITS OBJECT. THERE WAS NO BUSINESS, COMMERCIAL OR ECONOM IC SUBSTANCE OR INTEREST OF HWP (INDIA) INVOLVED IN THE TRANSACTION OF PURCHASE OF CALL CENTRE BUSINESS EXCEPT IT WAS IN PURSUANT TO THE SP A AND TO AVOID CHARGEABILITY OF TAX UNDER THE PROVISIONS OF TRANSF ER PRICING OF INCOME TAX ACT. THE TRANSACTION IN SUBSTANCE IS BETWEEN THE AS SESSEE AND HTIL/ HWL GROUP, THE AES OF THE ASSESSEE AND HWP (INDIA) IS M ERELY AN INTERPOSE TO GIVE A DIFFERENT COLOUR TO THE TRANSACTION WITH THE MOTIVE TO CIRCUMVENT THE TRANSFER PRICING PROVISIONS OF THE ACT. THE SURROUN DING FACTS AND CIRCUMSTANCES CAN LEAD TO THE CONCLUSION THAT IT WA S ONLY AN ARRANGEMENT WITHOUT ANY SUBSTANTIAL BUSINESS OR COMMERCIAL INTE REST OF HWP (INDIA) BUT TO AVOID THE TAX LIABILITY IN INDIA, THE CALL C ENTRE BUSINESS WAS THOUGH APPARENTLY TRANSFERRED TO HWP (INDIA) BUT THE REAL TRANSACTION OF SALE AND PURCHASE IS BETWEEN THE ASSESSEE AND HTIL/HWL GROUP . THEREFORE, THE TRANSACTION BEING BETWEEN THE ASSESSEE AND ITS NON RESIDENT AES WOULD CONSTITUTE THE INTERNATIONAL TRANSACTION IN TERMS O F SECTION 92B(1). 127. THE SECOND QUESTION AS RAISED BY THE DEPARTMEN T IS REGARDING THE APPLICABILITY OF SECTION 92B(2). THOUGH THERE IS A PRIOR AGREEMENT BEING SPA AMONG HTIL AND VIH BV AS WELL AS HWP (INDIA) BE ING A WIDER GROUP OF COMPANIES, HOWEVER, HWP (INDIA) IS UNDISPUTEDLY NOT A PERSON OTHER THAN THE ASSOCIATED ENTERPRISE. THE TRANSACTION BET WEEN A PERSON OTHER THAN THE ASSOCIATE ENTERPRISE SHALL BE DEEMED TO BE TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISE IF THERE EXI ST A PRIOR AGREEMENT IN RELATION TO THE RELEVANT TRANSACTION BETWEEN SUCH O THER PERSONS AND VODAFONE INDIA SERVICES PRIVATE LTD. 146 | P A G E ASSOCIATED ENTERPRISE AS STIPULATED IN SUB-SECTION 2 OF SECTION 92B AS UNDER:- (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WI TH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOSES OF SU B-SECTION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENT ERPRISES, IF THERE EXISTS A PRIOR AGREEMENT IN RELATION TO THE RELEVANT TRANSAC TION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE ; OR THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERS ON AND THE ASSOCIATED ENTERPRISE. 128. FOR INVOKING THE PROVISIONS OF SUB-SECTION 2 O F SECTION 92B, THE TRANSACTION MUST BE ENTERED INTO BY THE ENTERPRISE WITH THE PERSON OTHER THAN AN ASSOCIATED ENTERPRISE. THE DEFINITION OF TH E ASSOCIATED ENTERPRISES IS PROVIDED U/S 92A WHICH DOES NOT CONT EMPLATE THAT ASSOCIATED ENTERPRISES MEANS AN ENTERPRISE INTER ALIA A NON RESIDENT. THEREFORE, AN ENTERPRISE WHICH FULFILLS THE CONDITI ONS AS PRESCRIBED U/S 92A WILL FALL UNDER THE EXPRESSION ASSOCIATED ENTER PRISES IRRESPECTIVE OF ITS RESIDENTIAL STATUS, DOMESTIC OR NON RESIDENT. I T IS ONLY FOR THE PURPOSE OF INTERNATIONAL TRANSACTION, A TRANSACTION MUST BE BETWEEN TWO OR MORE ASSOCIATED ENTERPRISE EITHER OR BOTH OF WHOM ARE NO N RESIDENT. THE CONDITION OF NON RESIDENT OF ASSOCIATED ENTERPRISES IS ONLY FOR BRINGING A TRANSACTION BETWEEN TWO ASSOCIATED ENTERPRISES UNDE R THE AMBIT OF INTERNATIONAL TRANSACTION. HENCE AN ASSOCIATED ENTE RPRISE CAN BE A RESIDENT OR NON RESIDENT. HWP (INDIA) IS AN ASSOCIA TED ENTERPRISE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, THEREFOR E, THE PROVISIONS OF SUB-SECTION 2 OF SECTION 92B ARE NOT ATTRACTED. GROUND NO. 11 TO 14 IS REGARDING VALUATION OF CALL CENTRE BUSINESS FOR COMPUTATION OF ARMS LENGTH PRICE VODAFONE INDIA SERVICES PRIVATE LTD. 147 | P A G E 129. WE HAVE HEARD THE LD. AR AS WELL AS LD. ASG AT LENGTH AND ALSO CONSIDERED THE WRITTEN SUBMISSIONS FILED BY BOTH TH E PARTIES. ON CAREFUL PERUSAL OF THE TPOS ORDER WE FIND THAT THE TRANSFE R PRICING OFFICER WAS OF THE VIEW THAT DISCOUNTED CASH FLOW METHOD (DCFM) IS THE MOST APPROPRIATE METHOD FOR COMPUTATION OF ALP IN RESPEC T OF THE TRANSACTION OF TRANSFER OF CALL CENTRE BUSINESS. AC CORDINGLY, THE TPO ASKED THE ASSESSEE TO SUBMIT THE VALUATION ON THE B ASIS OF DISCOUNTED CASH FLOW ANALYSIS OR PROFIT EARNING MULTIPLE METHO D. THE REPORT SUBMITTED BY THE ASSESSEE FROM DALAL& SHAH VALUATIO N WAS BASED ON WEIGHTED AVERAGE OF TWO METHODS NAMELY NET ASSETS M ETHOD AND PROFIT EARNING CAPACITY VALUE METHOD. THE TPO DID NOT ACCE PT THE VALUATION REPORT BY CITING VARIOUS REASON INCLUDING THE CAPIT ALIZATION WAS BASED ON THE PAST EARNING AND NOT ON THE FUTURE CASH FLOW. S INCE THE ASSESSEE DID NOT FURNISH THE REQUISITE INFORMATION AND DATA FOR THE PURPOSE OF VALUATION BASED ON DCF METHOD, THE TPO CHOSE THE P/ E MULTIPLE METHOD UNDER THE CUP METHOD BASED ON THE AVAILABILI TY OF THE DATA. THE TPO APPLIED VALUATION OF PRICE OF SHARE BASED ON P E MULTIPLE OF LISTED COMPARABLE COMPANIES. THE TPO FINALIZED THREE LISTE D COMPANIES VIZ. WNS GLOBAL SERVICES, EXL HOLDINGS AND FIRST SOURCE SOLUTIONS LTD. THE TPO COMPUTED THE MEAN P/E OF THE COMPARABLE AT 34.9 6% AND MADE AN ADJUSTMENT OF RS. 2350,20,43,185/-. THE DRP REJECTE D TWO COMPARABLES SELECTED BY THE TPO AND ACCEPTED FIRST SOURCE SOLUT IONS AS COMPARABLE FOR THE PURPOSE OF ALP OF CALL CENTRE BUSINESS TRAN SFER. THE DRP ALSO ALLOWED THE RELIEF TO THE EXTENT OF CASH OF RS. 62, 24,27,849/- WHICH WAS NOT TRANSFERRED BY THE ASSESSEE WHILE TRANSFERRING THE CALL CENTRE BUSINESS. THE ASSESSEE HAS STRONGLY OBJECTED THE C OMPARABILITY OF FIRST VODAFONE INDIA SERVICES PRIVATE LTD. 148 | P A G E SOURCE SOLUTIONS LTD FOR DETERMINING THE ALP OF CAL L CENTRE BUSINESS ON THE GROUND THAT THIS COMPANY IS A LISTED COMPANY ON THE STOCK EXCHANGE AND ALSO THE FUNCTIONS PERFORMED BY THE SAID COMPAN Y ARE NOT COMPARABLE WITH THE ASSESSEE APART FROM DIFFERENCE IN THE ASSET EMPLOYED AND RISK ASSUMED BY THE SAID COMPANY. IT W AS FURTHER CONTENDED THAT THE FIRST SOURCE SOLUTIONS LTD HAS E ARNED ITS MAJOR REVENUE FROM BANKING, FINANCIAL SERVICES, INSURANCE AND HEALTHCARE SECTOR, WHEREAS, THE ASSESSEE CATERS PREDOMINANTLY TO TELECOM SECTOR. ONLY 25% OF THE REVENUE OF FIRST SOURCE SOLUTIONS L TD IS FROM TELECOM SECTOR, THEREFORE, THE SAID COMPANY CANNOT BE A COM PARED WITH THE ASSESSEE. THE SAID COMPANY IS A LISTED COMPANY MANY TIMES BIGGER IN THE SIZE OF THE ASSESSEE HAVING DIVERSIFIED PRODUCTS OF FERING AND HAVING GLOBAL PRESENCE, MULTIPLE CUSTOMERS, OWNERSHIP OF I NTANGIBLES, LIQUIDITY ETC. THUS THE SAME IS NOT VALID COMPARABLE OF THE A SSESSEE IN TERMS OF SECTION 92C OF THE ACT READ WITH RULE 10B OF THE IN COME TAX ACT. THE ASSESSEE THOUGH FILED THE VALUATION REPORT BASED ON DCF METHOD BEFORE THE DRP, HOWEVER, THE SAME WAS NOT ADMITTED BY THE DRP BECAUSE OF THE TIME CONSTRAINT. 130. HAVING CONSIDERING THE RIVAL SUBMISSIONS, RELE VANT RECORD AND HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED VIEW THAT THE VALUATION OF CALL CENTRE BUSINESS SHOULD BE BASED ON THE MOST APPROPR IATE METHOD AS AGREED BY BOTH THE PARTIES, BEING DCF METHOD. ACCO RDINGLY, WE SET ASIDE THE ISSUE OF VALUATION OF CALL CENTRE BUSINESS FOR THE PURPOSE OF DETERMINATION OF ALP TO THE RECORD OF ASSESSING OFF ICER/TPO FOR VODAFONE INDIA SERVICES PRIVATE LTD. 149 | P A G E CONSIDERATION OF VALUATION FILED BY THE ASSESSEE AN D THEN DECIDE THE ISSUE AFTER GIVING AN APPROPRIATE OPPORTUNITY OF HEARING TO THE ASSESSEE. 131. GROUND NO. 15 AND 16 IS REGARDING ADDITION ON ACCOUNT OF ADJUSTMENT MADE AS A RESULT OF ARM'S LENGTH PRIC E OF PROVISION OF ITES SERVICES. 132. DURING THE RELEVANT YEAR , THE ASSESSEE HAS P ROVIDED IT ENABLED SERVICES TO ITS AE M/S HUTCHISON CALL CENTR E HOLDING LTD. THE ASSESSEE HAS CHARGED COST + 7% MARK UP ON OPERATING COST INCLUDING DEPRECIATION. TO BENCH MARK ITS INTERNATIONAL TRANS ACTION OF PROVIDING IT ENABLED SERVICES TO AE, THE ASSESSEE SELECTED A SET OF 9 COMPARABLE COMPANIES ENGAGED IN PROVIDING VOICE BASED BPO SERV ICES. THE DETAILS OF COMPANIES SELECTED BY THE ASSESSEE WITH MARGINS ARE GIVEN BY THE TPO AT PAGE NO. 3 OF THE TRANSFER PRICING ORDER AS UNDER:- (RS. IN CRORES) SR. NO. NAME OF THE COMPANY OPERATING COST PBIT % OF PBIT 1. ALLSEC TECHNOLOGIES LIMITED 115.05 (16.03) - 13.93% 2. ASK ME INFO HUB LTD 1.56 0.01 0.64% 3. GODREJ UPSTREAM LTD 13.24 (2.06) - 15.56% 4. MAPLE E - SOLUTIONS LTD 28.02 5.63 20.09% 5. N I I T SMART SERVE LTD 56.11 (3.02) - 5.38% 6. NIPUNA SERVICES LTD 258.81 (16.06) - 6.21% VODAFONE INDIA SERVICES PRIVATE LTD. 150 | P A G E 7. OPTIMUS GLOBAL SERVICES LTD 55.53 0.32 0.58% 8. TRANSWORK INFORMATION SERVICES LTD 185.10 (9.04) - 4.88% 9. SPARSH BPO SERVICES LIMITED 148.25 12.77 8.61% 10. SPANCO LTD (SEG MENT) 57.74 4.76 8.24% 11. HTMT GLOBAL SOLUTION LTD 300.32 57.66 19.20% ARITHMETIC MEAN 1.04% 133. THE ASSESSEE CLAIMED ITS OPERATING MARGIN AT A RMS LENGTH IN COMPARISON TO THE ARITHMETIC MEAN OF THE COMPARABLE S WHICH IS MUCH BELOW TO THE ASSESSEES OPERATING MARGIN. THE TPO D ID NOT ACCEPT THE COMPARABLES PRICES TAKEN BY THE ASSESSEE AND CARRIE D OUT A FRESH SEARCH FOR IDENTIFICATION OF COMPARABLES IN ITES SECTOR. THE R EASONS FOR NOT ACCEPTING THE COMPARABLES SELECTED BY THE ASSESSEE ARE LACK OF CURRENT YEAR DATA AND WERE NOT FUNCTIONALLY COMPARABLE EXCEPT SOME COMPAN IES WHICH ARE COMMON IN THE COMPARABLES SELECTED BY THE TPO AS WE LL AS BY THE ASSESSEE. THE TPO FINALLY SELECTED A SET OF 17 COMPARABLE COM PANIES AND COMPUTED ARITHMETIC MEAN MARGIN AT 32.35%. ACCORDINGLY, THE TPO PROPOSED THE TRANSFER PRICING ADJUSTMENT OF RS. 59,92,31,628/-. THERE IS NO DISPUTE THAT THE ASSESSEE AS WELL AS THE TPO ADOPTED TRANSACTION AL NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD WITH OPERATING PR OFIT/TOTAL COST (OP/TC) AS A PROFIT LEVEL INDICATOR (PLI). THE ASS ESSEE FILED OBJECTIONS BEFORE DRP AGAINST THE TPOS ACTION OF CARRYING OUT A FRESH SEARCH AND SELECTING DIFFERENT SET OF COMPARABLES AS WELL AS R EJECTING THE COMPARABLES SELECTED BY THE ASSESSEE. THE DRP WHILE DECIDING TH E ISSUE FOUND MERITS IN THE ARGUMENTS OF THE ASSESSEE IN RESPECT OF CERTAIN COMPANIES SELECTED BY VODAFONE INDIA SERVICES PRIVATE LTD. 151 | P A G E THE TPO SHOULD NOT BE INCLUDED IN THE COMPARABLES O N THE GROUND OF FUNCTIONALLY NOT COMPARABLE AS WELL AS ONE OF THE C OMPANIES IS HAVING MORE THAN 25% RELATED PARTY TRANSACTION. THE DRP DIRECTE D THE TPO TO EXCLUDE 7 COMPANIES FROM THE SET OF COMPARABLES BEING NOT FUN CTIONALLY COMPARABLE WITH THE ASSESSEE AND THE 8 TH COMPANY NAMELY HCL COMNET SYSTEM AND SERVICES LTD CAN BE CONSIDERED AS FUNCTIONALLY COMP ARABLE SUBJECT TO THE VERIFICATION OF RELATED PARTY TRANSACTION AND THEN TO RE-COMPUTE THE ARMS LENGTH PRICE. ACCORDINGLY, THE ADJUSTMENT GOT REDU CED TO RS. 28,74,34,828/- AS A RESULT OF THE DRPS DIRECTION WHEREBY 7 OUT OF 17 COMPARABLES COMPANIES SELECTED BY THE TPO WERE TREA TED AS NOT SUITABLE COMPARABLES. 134. BEFORE US, LD. A R OF THE ASSESSEE HAS SUBMIT TED THAT THE TPO HAS NO JURISDICTION TO DO FRESH SEARCH OF COMPARABLES. THE TPO REJECTED THE FAR AND ECONOMIC ANALYSIS ADOPTED BY THE ASSESSEE IN TP REPORT WITHOUT POINTING OUT ANY COGENT REASON AND INSUFFICIENCY IN THE SAME. THE TPO FAILED TO APPRECIATE THAT AS PER SECTION 92C(3) OF THE ACT. HE HAS THE JURISDICTION TO DO FRESH SEARCH OF COMPARABLES ONLY IF THE COMPARABLE SELECTED BY THE ASSESSEE WERE EITHER INSUFFICIENT O R HAD OTHER DEFICIENCY. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MENTOR GRAPHICS (NOIDA) PVT. LTD. (259 CTR 1). THE DRP HAS ALSO UPHELD THE REJECTION MADE BY THE T PO WITHOUT ASSIGNING ANY FURTHER REASON. THE NEXT CONT ENTION OF THE LD. A R IS REGARDING THE COMPARABLE OF THE COMPANIES SELECTED BY THE TPO AND UPHELD BY THE DRP TO THE EXTENT OF 10 COMPANIES. THESE CO MPANIES ARE NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE AS THE SE RVICES PROVIDED BY THE SELECTED COMPANIES ARE FUNCTIONALLY DIFFERENT FROM THE FUNCTIONS OF THE VODAFONE INDIA SERVICES PRIVATE LTD. 152 | P A G E ASSESSEE. LD. AR HAS REFERRED THE FUNCTIONS PERFORM ED BY THE ASSESSEE BEING A CAPTIVE SERVICE PROVIDER AND SUBMITTED THAT THE A SSESSEE IS PROVIDING SERVICES RELATED QUERIES, BILLING RELATED QUERIES, MOBILE NO. PORTABILITY QUERIES, HANDSET RELATED QUERIES, NETWORK RELATED Q UERIES AND PRICE PLAN RELATED QUERIES. THE CALL CENTRE OF THE ASSESSEE FU NCTIONING FOR HANDLING OF CUSTOMERS QUESTIONS AND RESOLUTION OF THE SAME. T HE FUNCTIONS PERFORMED BY THE COMPARABLES SELECTED BY THE TPO ARE DIFFEREN T AS CONTENDED AND SUMMARIZED BY THE ASSESSEE AND SUMMARIZED IN FOLLOW ING TABLE:- NAME OF THE COMPANY APPELLANTS CONTENTIONS ACCENTIA TECHNOLOGIES LTD. (SEG.) ACCENTIA IS ENGAGED IN MEDICAL TRANSCRIPTION, MEDIC AL CODING, MEDICAL BILLING AND RECEIVABLES MANAGEMENT (COLLECT IONS). FURTHER IT HAS EARNED NEARLY 19% OF ITS INCOME FROM PROVISI ON OF SOFTWARE DEVELOPMENT AND IMPLEMENTATION SERVICES. THOUGH MAJORITY OF INCOME IS GENERATED FROM MEDICAL TRANSCRIPTION AND SOFTWARE DEVELOPMENT, A REVIEW OF ANNUAL REPORT OF THE COMPANY SHOWS THAT COMPANY OPERATES UNDER A SINGLE SEGMENT VIZ. HEALTHCARE RECEIVABLES MANAGEMENT. THUS NO SEGMENTAL INFORMATION IS RESPECT OF MEDICAL CODING & BILLING ACTIVITIES I S AVAILABLE IN PUBLIC DOMAIN. THUS, SERVICES PROVIDED BY ACCENTIA ARE NOT FUNCTIONALLY COMPARABLE WITH THE VOICE BASED CO NTACT CENTRE SERVICES RENDERED BY THE APPELLANT. DURING THE FINANCIAL YEAR 2007-08, ACCENTIA HAD ACQ UIRED THE FOLLOWING COMPANIES VODAFONE INDIA SERVICES PRIVATE LTD. 153 | P A G E NAME OF THE COMPANY APPELLANTS CONTENTIONS PURCHASE OF BUSINESS IN THUNGA SOFTWARE PRIVATE LIMI TED WHICH IS ENGAGED IN MEDICAL TRANSCRIPTION AND CODING. PURCHASE OF BUSINESS IN GSR SYSTEMS INC WHICH IS ENG AGED IN BILLINGS AND COLLECTIONS. PURCHASE OF BUSINESS IN GSR PHYSICIAN BILLING SERVICE INC A SOFTWARE COMPANY SPECIALIZING IN HRCM. PURCHASE OF BUSINESS IN DENMED TRANSCRIPTION SERVICE S INC WHICH IS ENGAGED IN MEDICAL TRANSCRIPTION. FURTHER, ACCENTIA HAS BEEN HELD AS NOT VALID COMPAR ABLE IN CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. IN ITA NO. 1961/HYD/2011 (PG 15-17 OF THE RULING) DUE TO AMALGAMATION IN DECEMBER 2006 AND IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. IN ITA NO. 1316/BANG/2012 (PG 6 TO 9 OF THE RULING) DUE TO OCCURRENCE OF EXTRA ORDINARY EVENTS DURING T HE PREVIOUS YEAR. THE COMPANY FAILS THE FILTER OF REJECTION OF COMPA NIES HAVING PECULIAR CIRCUMSTANCES APPLIED BY THE LD DRO (SERIA L NO.1, PARA 12.5(V), PAGE 52-54) FOR REJECTING ONE OF THE COMPA RABLES OF THE APPLICANT I.E. ALLSEC TECHNOLOGIES LIMITED (ALLSEC ). THE DRP REJECTED ALLSEC DUE TO INCREASE IN COST ON ACCOUNT OF AMALGAMATION. IN CASE OF ACCENTIA ALSO, THERE IS SIGNIFICANT ACQU ISITION (AS CITED ABOVE). IN VIEW OF THE ABOVE, ACCENTIA NEEDS TO BE REJECTED . VODAFONE INDIA SERVICES PRIVATE LTD. 154 | P A G E NAME OF THE COMPANY APPELLANTS CONTENTIONS COSMIC GLOBAL LTD. MEDICAL TRANSCRIPTION AND TRANSLATION SERVICES CONSTITUTE THE MAJOR PORTION OF THE REVENUE OF COSMIC AND ARE NOT FUNCTIONALLY COMPARABLE WITH THE VOICE BASED CONTACT CENTRE SERV ICES RENDERED BY THE APPELLANT. COSMIC OPERATES UNDER A DIFFERENT BUSINESS MODEL AS IT OUTSOURCES TRANSLATION WORK TO THIRD PARTIES . THE HONBLE TRIBUNAL IN THE APPELLANTS OWN CASE FO R AY 2007-08 (@ PARA 21.6, PAGE 232 OF PAPERBOOK, VOLUME B ) HAS ALREADY REJECTED COSMIC GLOBAL LTD ON THE GROUND OF FUNCTIO NAL DISSIMILARITY. COPY OF THE ORDER IS AT PAGES 206 TO 249 OF PAPERBOOK, VOLUME B. ACCORDINGLY, THIS COMPANY MUST BE REJECTED. E4E HEALTHCARE SOLUTIONS LTD. E4E IS PRIMARILY ENGAGED IN THE BUSINESS OF PROVIDI NG HEALTHCARE OUTSOURCING SERVICES FOR THE HEALTHCARE INDUSTRY IN THE UNITED STATES OF AMERICA. IT PROVIDES OFFSHORE OUTSOURCED SERVICE S IN THE MEDICAL BILLING AND COLLECTION SERVICE SPACE. HENCE IT IS NOT FUNCTIONALLY COMPARABLE TO THE APPELLANTS VOICE BASED CONTACT C ENTRE SERVICES. PROFIT AND LOSS ACCOUNT INFORMATION IS NOT AVAILABL E IN THE ANNUAL REPORT OF THE COMPANY AVAILABLE ON THE PUBLIC DOMAI N. ACCORDINGLY, THIS COMPANY MUST BE REJECTED. INFOSYS BPO INFOSYS BPO HAS INCURRED SUBSTANTIAL SELLING AND MARKETING VODAFONE INDIA SERVICES PRIVATE LTD. 155 | P A G E NAME OF THE COMPANY APPELLANTS CONTENTIONS LTD. EXPENSES I.E. 6.17 PERCENT OF THE REVENUE WHILE THE APPELLANT HAS NOT INCURRED ANY SUCH EXPENDITURE. FURTHER, INFOSYS BPO ALSO POSSESSES BRAND VALUE . FOR A BRANDED SERVICE, A CUSTOMER IS USUALLY WILLING TO PAY A PREMIUM. HENCE, THE APPELL ANT SUBMITS THAT THE COMPANY SHOULD NOT BE CONSIDERED AS COMPARABLE. UNDER SELLING AND MARKETING EXPENSES IT CAN BE SEEN THAT INFOSYS INCURRED AN EXPENDITURE OF 0.78 CRORES TOWA RDS BRAND BUILDING . THIS CLEARLY SHOWS THAT INFOSYS BPO IS CREATING MARKETING INTANGIBLES. THE APPELLANT ON THE OTHER HAND DOES NOT UNDERTAKE EXPENDITURE GEARED TOWARDS THE CREATI ON OF AN INTANGIBLE. EVEN OTHERWISE, INFOSYS MUST BE REJECTED ON ACCOUNT OF EXTREMELY HIGH TURNOVER [THE HONBLE HYDERABAD TRIBUNAL IN CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. IN ITA NO. 1961/HYD/2011 ( PARA 20, PAGE 188 OF PAPERBOOK, VOLUME B )] (PARA 8.40 TO 8.42 BELOW @ PAGE 75-76 OF THIS SU BMISSION). ALTERNATIVELY, INFOSYS MUST ALSO BE REJECTED GIVEN THAT ITS BRAND VALUE HAS SIGNIFICANT INFLUENCE IN PRICE THAT IT CO MMANDS IN MARKET. [THE HONBLE BANGALORE TRIBUNAL IN CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. IN ITA NO. 1316/BANG/2012 (PARA 24, PG 202 OF PAPERBOOK, VOLUME B )] WIPRO LTD. WIPRO BEING A MARKET LEADER ENJOYS SIGNIFICANT BENE FITS ON ACCOUNT OF MARKETING INTANGIBLES AND INTELLECTUAL PROPERTY RIG HTS VODAFONE INDIA SERVICES PRIVATE LTD. 156 | P A G E NAME OF THE COMPANY APPELLANTS CONTENTIONS OWNED BY IT. WIPRO HAS A NUMBER OF GLOBAL DEVELOPME NT CENTERS AS ON 31 MARCH 2008, OF WHICH SOME ARE LOCATED OUTSIDE INDIA. WIPRO ALSO FILED OVER 17 PATENTS IN FY 2007-08, WIT H CURRENT PORTFOLIO OF 101 FILED PATENTS AND 38 GRANTED PATENTS . THESE PATENTS SPAN ACROSS PRODUCT ENGINEERING, ENTERPRISE BUSINESS AND QUALITY. THE STANDALONE SEGMENTAL DATA OF WIPRO IS NOT AVAILABLE IN THE PUBLIC DOMAIN . EVEN OTHERWISE, WIPRO MUST BE REJECTED ON ACCOUNT O F EXTREMELY HIGH TURNOVER [THE HONBLE HYDERABAD TRIBUNAL IN CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. IN ITA NO. 1961/HYD/2011 ( PARA 20, PAGE 188 OF PAPERBOOK, VOLUME B )] (PARA 8.40 TO 8.42 BELOW @ PAGE 75-76 OF THIS SU BMISSION). ALTERNATIVELY, WIPRO MUST ALSO BE REJECTED GIVEN TH AT ITS BRAND VALUE HAS SIGNIFICANT INFLUENCE IN PRICE THAT IT CO MMANDS IN MARKET [THE HONBLE BANGALORE TRIBUNAL IN CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. IN ITA NO. 1316/BANG/2012 (PARA 26, PAGE 203 OF PAPERBOOK, VOLUME B) HCL COMNET SYSTEMS AND SERVICES LTD. (SEG) AS PER SEGMENTAL INFORMATION, HCLS BUSINESS SEGMENT COMPRISED OF DATA CENTRE MANAGEMENT SERVICES, END USER COMPUT ING SERVICES, MANAGED SECURITY SERVICES, NETWORKING SERVICES AND TOOLS AND PROCESS CONSULTING SERVICES. THESE SERVICES ARE FUN CTIONALLY NOT VODAFONE INDIA SERVICES PRIVATE LTD. 157 | P A G E NAME OF THE COMPANY APPELLANTS CONTENTIONS COMPARABLE TO CALL CENTRE SERVICES PROVIDED BY THE APPELLANT AND THEREFORE, THIS COMPANY SHOULD NOT BE CONSIDERED AS COMPARABLE. 135. THUS THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT OUT OF THE 10 COMPARABLES FINALLY CONSIDERED IN PURSUANT TO THE D RPS DIRECTION, THE ABOVE SIX COMPANIES ARE TO BE EXCLUDED ON THE GROUN D THAT THEY ARE NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. IF THE ABOVE SET OF SIX COMPARABLES ARE EXCLUDED FROM THE LIST OF COMPARABL ES THEN THE MEAN MARGIN WOULD BE REDUCED TO 6.78% WHICH WOULD BE LES S THAN THE MARGIN OF THE ASSESSEE AND, THEREFORE, NO ADJUSTMENT IS WARRA NTED ON ACCOUNT OF PROVISIONS OF ITES SERVICES TO THE AE. ALTERNATIVEL Y, THE LD. AR HAS SUBMITTED THAT THE COMPANIES LIKE INFOSYS BPO AND W IPRO LTD CANNOT BE COMPARED WITH THE ASSESSEE ON ACCOUNT OF EXTREMELY HIGH TURNOVER. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DE CISION OF HYDERABAD BENCHES OF THIS TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEM IN ITA NO. 1961/HYD/2011. APART FROM THIS, THE LD. AR HAS ALSO SUBMITTED THAT THE ASSESSEE IS FUNCTIONING AS CAPTIVE SERVICE PROVIDER CALL CENTRE AND THEREFORE, NO RISK IS UNDERTAKEN BY THE ASSESSEE IN PROVIDING THE SERVICES TO AE. THE ENTIRE ENTREPRENEUR RANGE OF ECONOMIC RISK INCLUDING MARKET RISK, PRICE RISK, IDLE TIME RISK, CREDIT RISK, FOREIGN EX CHANGE FLUCTUATION RISK, TECHNOLOGY OBSOLESCENCE RISK, PERFORMANCE RISK, ETC ., HAS BEEN UNDERTAKEN BY THE AE OF THE ASSESSEE. THEREFORE, AS PER THE PR OVISIONS OF TRANSFER PRICE REGULATION, SUITABLE ADJUSTMENT HAS TO BE MADE WHIL E COMPUTING THE ALP ON VODAFONE INDIA SERVICES PRIVATE LTD. 158 | P A G E ACCOUNT OF NO RISK UNDERTAKEN AND LOW WORKING CAPIT AL EMPLOYED BY THE ASSESSEE AS PER RULE 10B(1)(III). THUS THE LD. AR H AS SUBMITTED THAT A PROPER ADJUSTMENT FOR DIFFERENCE IN WORKING CAPITAL POSITION AND RISK PROFILE OF THE ASSESSEE AND THE COMPANY SELECTED BY THE TPO HAS TO BE GIVEN. THE NEXT ALTERNATIVE CONTENTION OF THE LD. AR IS THAT T HE FILTER APPLIED BY THE TPO FOR REJECTING THE COMPARABLES SELECTED BY THE A SSESSEE IS NOT PROPER. THE FOLLOWING COMPANIES SELECTED BY THE ASSESSEE AR E FUNCTIONALLY COMPARABLE WITH THE ASSESSEE AS ENGAGED IN THE IT E NABLED SERVICES. A) ASK ME INFO HUB LTD (0.64% MARGIN) B) GODREJ UPSTREAM LTD (-15.56% MARGIN) C) MAPLE E-SOLUTIONS LTD (20.09% MARGIN) D) OPTIMUS GLOBAL SERVICES LTD (0.58% MARGIN) E) SPARSH BPO SERVICES LTD (8.61% MARGIN) F) MICROWAVE COMMUNICATIONS LIMITED (1.81% MARGIN) G) SURVIN INTERNET SERVICES LTD (3.21% MARGIN) 136. IF THESE COMPANIES ARE INCLUDED IN THE LIST OF COMPARABLES THEN THE MEAN MARGIN AFTER GIVING THE ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL AND RISK PROFILE WOULD BE WITHIN THE RANGE OF +/- 5% AN D CONSEQUENTLY NO ADJUSTMENT IS CALLED FOR. 137. ON THE OTHER HAND, THE LD. ASG HAS SUBMITTED T HAT THE TPO AS WELL AS THE DRP HAS ANALYZED THE DETAILS OF THE COMPARABLES SELECTED BY THE ASSESSEEE AND FOUND THAT THESE COMPANIES WERE NOT F UNCTIONALLY COMPARABLE AS WELL AS CERTAIN COMPANIES WERE HAVING PECULIAR ECONOMIC CIRCUMSTANCES ON ACCOUNT OF AMALGAMATION AND EXPANS ION AND THEREFORE, CANNOT BE CONSIDERED AS COMPARABLE FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. THE LD. ASG HAS REFERRED THE RE ASONS ASSIGNED BY THE VODAFONE INDIA SERVICES PRIVATE LTD. 159 | P A G E TPO AND DRP FOR REJECTING THE COMPARABLES WHICH ARE SUMMARIZED IN THE TABLE BELOW :- S.N O NAME OF THE COMPARABLE REJECTED REASONS BY THE TPO R EASONS BY THE DRP 1 ALLSEC TECHNOLOGIES LTD. THE COMPANY IS FUNCTIONALLY NOT COMPARABLE. THE COMPANY IS FUNCTIONALLY NOT COMPARABLE. ADDITIONALLY, THE PECULIAR ECONOMIC CIRCUMSTANCES ON ACCOUNT OF CERTAIN AMALGAMATIONS AND EXPANSIONS HAVE MADE THE COMPANY INCOMPARABLE. THE COMPANY HAS BEEN VALIDLY REJECTED BY THE TPO. 2 ASK ME INFO HUB LTD. THE COMPANY FAILS THE EXPORT EARNING FILTER. .I.E. THE FOREIGN EXCHANGE EARNING OF THE COMPANY IS LESS THAN 75% AND HENCE IT IS REJECTED AS A COMPARABLE. THE TOTAL REV ENUE OF THE COMPANY WAS RS.1.56 CRORE AND IT HAD NO EARNING OUT OF EXPORTS. IT FAILS THE EXPORT EARNING FILTER. THE COMPANY HAS BEEN VALIDLY REJECTED BY THE TPO. 3 GODREJ UPSTREAM LTD. THE COMPANY FAILS THE EXPORT EARNING FILTER. I.E. THE FOREIGN EXCHANGE EARNING OF THE COMPANY IS LESS THAN 75% AND HENCE IT IS REJECTED AS A COMPARABLE. IT FAILS THE EXPORT EARNING FILTER. AFTER GOING THRU THE ANNUAL REPORT IT IS OBSERVED THAT DURING THE YEAR THE COMPANY HAD ENTERED INTO A CONDUCTING AGREEMENT WITH ONE OF ITS RELATED PARTIES. AS A RESULT, THE SALE FOR THE PERIOD 1.09.2007 TO 29.02.2008 (I.E. FOR 6 MONTHS) WAS BOOKED AS A REVENUE AS PER THE ARRANGEMENT IN THE BOOKS OF THE RELATED PARTY UBSPN, FOR VODAFONE INDIA SERVICES PRIVATE LTD. 160 | P A G E WHICH THE COMPANY HAS RECEIVED THE CONDUCTING FEE OF RS.1.5 CR. THIS ARRANGEMENT DID NOT MATERIALIZE. AS SUCH, EFFECTIVELY REVENUE OF THE SIX MONTHS OF THE YEAR WAS NOT CONSIDERED. HENCE IT IS NOT A RELIABLE COMPARABLE. THE COMPANY HAS BEEN VALIDLY REJECTED BY THE TPO. 4. MAPLE E - SOLUTIONS LTD. THE COMPANY FAILS THE EXPORT EARNING FILTER I.E. THE FOREIGN EXCHANGE EARNING OF THE COMPANY IS LESS THAN 75% AND HENCE IT IS REJECTED AS A COMPARABLE. THE COMPANY HAS EARNED 53% OF ITS REVENUES FROM EXPORTS, HENCE IT FAILS THE EXPORT FILTER. THE COMPANY HAS BEEN VALIDLY REJECTED BY THE TPO. 5 NIIT SMARTSERVE LTD. THE RELATED PARTY TRANSACTION IS MORE THAN 25% AND HENCE THE COMPANY FAILS THE RPT FILTER APPLIED BY THE ASSESSEE AS WELL AS TPO, HENCE REJECTED. THE RELATED PARTY TRANSACTION IS MORE THAN 25% AND HENCE THE COMPANY FAILS THE RPT FILTER APPLIED BY THE ASSESSEE AS WELL AS DEPARTMENT. THE COMPARABLE HAS BEEN VALIDLY REJECTED. 6 NIPUNA SERVICES LTD. THE RELATED PARTY TRANSACTION IS MORE THAN 25% AND HENCE THE COMPANY FAILS THE RPT FILTER APPLIED BY THE ASSESSEE AS WELL AS TPO, HENCE REJECTED THE RELATED PARTY TRANSACTION IS MORE THAN 25% AND HENCE THE COMPANY FAILS THE RPT FILTER APPLIED BY THE ASSESSEE AS WELL AS DEPARTMENT. THE COMPARABLE HAS BEEN VALIDLY REJECTED. 7 OPTIMUS GLOBAL SERVICES LTD. THE COMPANY FAILS THE EXPORT EARNING FILTER I.E. THE FOREIGN EXCHANGE EARNING OF THE COMPANY IS LESS THE EXPORT EARNINGS CONSTITUTE ONLY 11.46% OF THE TOTAL REVENUE AND HENCE THE COMPANY FAILS THE EXPORT EARNING VODAFONE INDIA SERVICES PRIVATE LTD. 161 | P A G E THAN 75% AND HENCE IT IS REJECTED AS A COMPARABLE. FILTER. THE COMPANY HAS BEEN VALIDLY REJECTED BY THE TPO. 8 SPARSH BPO SERVICES LTD. THE COMPANY FAILS THE EXPORT EARNING FILTER I.E. THE FOREIGN EXCHANGE EARNING OF THE COMPANY IS LESS THAN 75% AND HENCE IT IS REJECTED AS A COMPARABLE. THE COMPANY FAILS THE EXPORT EARNING FILTER. THE COMPANY HAS BEEN VALIDLY REJECTED BY THE TPO. 9 HTMT GLOBAL SOLUTION LTD. THE RELATED PARTY TRANSACTION IS MORE THAN 25% AND HENCE THE COMPANY FAILS THE RPT FILTER APPLIED BY THE ASSESSEE AS WELL AS TPO, HENCE REJECTED THE RELATED PAR TY TRANSACTION IS MORE THAN 25% AND HENCE THE COMPANY FAILS THE RPT FILTER APPLIED BY THE ASSESSEE AS WELL AS DEPARTMENT. THE COMPARABLE HAS BEEN VALIDLY REJECTED. ADDITIONAL COMPANIES RELIED BY ASSESSEE AFTER A FRE SH SEARCH 1 AXABUISNESS SERVICES (SEG.) FAILS RPT FILTER OF 25% FAILS RPT FILTER OF 25% 2 MICROWAVE COMMUNICATIONS LIMITED. THE COMPANY FAILS THE EXPORT EARNING FILTER I.E. THE FOREIGN EXCHANGE EARNING OF THE COMPANY IS LESS THAN 75% AND HENCE IT IS REJECTED AS A COMPARABLE. THE COMPANY FAIL S THE EXPORT EARNING FILTER. THE COMPANY HAS BEEN VALIDLY REJECTED BY THE TPO. 3 SURVIN INTERNET SERVICES LTD. THE COMPANY FAILS THE EXPORT EARNING I.E. THE FOREIGN EXCHANGE EARNING OF THE COMPANY IS LESS THAN 75% AND HENCE IT IS REJECTED AS A COMPARABLE. THE COMPANY FAILS THE EXPORT EARNING FILTER. THE COMPANY HAS BEEN VALIDLY REJECTED BY THE TPO. 4 JINDAL INTELLICOM P LTD. FAILS RPT FILTER OF 25% FAILS RPT FILTER OF 25% VODAFONE INDIA SERVICES PRIVATE LTD. 162 | P A G E 138. HE HAS POINTED OUT THAT EVEN, OTHERWISE, THE T RIBUNAL HAS ALREADY CONSIDERED THE FUNCTIONAL COMPARABILITY OF MOST OF THE AFORESAID COMPANIES IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08, HE HAS REFERRED PARA 17.2 OF THE ORDER OF TRIBUNAL, WHEREIN THE FUNCTIONAL PROFILE O F THESE COMPANIES HAVE BEEN DISCUSSED AND IT WAS FOUND THAT THESE COMPANIE S ARE NOT FUNCTIONALLY COMPARABLE. THE TPO HAS POINTED OUT HOW THE FILTERS ADOPTED BY THE ASSESSEE ARE NOT APPROPRIATE BY USING THREE YEARS A VERAGE OF NET COST MARGIN OF COMPARABLES INSTEAD OF CURRENT YEAR DATA. THE LD . ASG HAS REFERRED PARA 21 AND 24 OF DECISION OF THIS TRIBUNAL FOR A.Y. 200 7-08, DATED 26.4.2013, WHEREIN THE COMPARABILITY OF VARIOUS COMPANIES HAVE BEEN DISCUSSED. THE LD. ASG HAS POINTED OUT THAT M/S ACCENTIA TECHNOLOG IES AND COSMIC GLOBAL SERVICES LTD WERE HELD TO BE EXCLUDED FROM T HE COMPARABLES WHEREAS INFOSYS BPO LTD., WAS HELD TO BE COMPARABLE TO THE ASSESSEE. IT WAS SUBMITTED THAT ON GOING THROUGH THE ANNUAL REPORT O F THE INFOSYS BPO LTD., IT IS FOUND THAT THE SAME IS A SINGLE LINE BUSINESS WHICH CAN BE CATEGORIZED AS ITES/BPO, THEREFORE, THERE IS NO QUESTION OF ANY SEGMENTAL DATA TO BE CONSIDERED. AS REGARDS THE WIPRO LTD, THE TRIBUNAL IN PARA 24.4 HAS UPHELD THE INCLUSION OF THIS COMPANY IN COMPARABLES HAVING SEGMENTAL DATA. THE ASSESSEE AND TPO AGREED UPON THE FILTER OF 25% RELA TED PARTY TRANSACTION, THEREFORE, IN THE CASE OF HCL COMNET SYSTEM LTD, TH E RELATED PARTY TRANSACTION WERE FOUND LESS THAN 25% AND ACCORDINGL Y, IT WAS INCLUDED IN THE COMPARABLES OTHERWISE, THIS COMPANY IS FUNCTION ALLY COMPARABLE WITH THE ASSESSEE AS HELD BY THE DRP AS THE SEGMENTAL MA RGINS HAVE BEEN ADOPTED BY THE TPO. AS REGARDS THE OBJECTION OF TH E ASSESSEE ON ACCOUNT OF EXTREME HIGH TURNOVER, THE LD. ASG HAS SUBMITTED TH AT THE TRIBUNAL HAS CONSIDERED THIS ISSUE EXTENSIVELY IN THE CASE OF WI LLIS PROCESSING SERVICES VODAFONE INDIA SERVICES PRIVATE LTD. 163 | P A G E INDIA PVT. LTD., IN (57 SOT 339). AS REGARDS THE COMPARABILITY OF E4E HEALTHCARE SOLUTIONS, THE SAID COMPANY WAS ALSO FOU ND AS COMPARABLE WITH THE ASSESSEE AS HELD BY THE TRIBUNAL IN THE ASSESSE ES OWN CASE FOR A.Y. 2007-08 IN PARA 20.1 OF THE DECISION. THUS THE LD. ASG HAS SUBMITTED THAT THE COMPANIES SELECTED BY THE ASSESSEE ARE NOT FUNC TIONALLY COMPARABLES WHEREAS THE COMPANIES SELECTED BY THE TPO AND CONFI RMED BY THE DRP ARE EVEN OTHERWISE, COMPARABLES IN VIEW OF THE DECISIO N OF THIS TRIBUNAL IN ASSESSEES OWN CASE. 139. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A S WELL AS THE RELEVANT MATERIALS ON RECORD. THE ASSESSEE HAS BENCH MARKED ITS MARGINS FROM ITS INTERNATIONAL TRANSACTION IN PROVIDING IT ENABLED SERVICES TO AE BY SELECTING 11 COMPARABLES AS REPRODUCED IN THE FOREG OING PARAS. THE ARITHMETIC MEAN CALCULATED FROM THE 11 COMPARABLES IS 1.04% TO THE ASSESSEES MARGIN OF 7.12%. ACCORDINGLY THE ASSESSE E CLAIMED THE TRANSACTIONS ARE AT ARMS LENGTH PRICE. THE TPO RE JECTED THE COMPARABLES SELECTED BY THE ASSESSEE ON THE GROUND THAT THE ASS ESSEE HAS NOT USED CURRENT YEAR DATA AND ALSO NOT USED THE DIFFERENT A CCOUNTING YEARS FILTER. FURTHER PROPER CRITERIA HAS NOT BEEN USED FOR REJEC TING AND SELECTING THE COMPARABLE COMPANIES AS WELL AS THE FUNCTIONAL SIMI LARITY IN OPERATING IN SIMILAR ECONOMIC ENVIRONMENT AS A FILTER WAS NOT US ED BY THE ASSESSEE. THE TPO APPLIED THE FILTER OF 75% MINIMUM REVENUE FROM EXPORTS FOR SELECTING THE COMPARABLES. AS REGARDS NOT USING THE CURRENT Y EAR DATA, IT IS A SETTLED PROPOSITION ON THE POINT THAT SO FAR AS IT IS POSSI BLE, A CONTEMPORARY RESULTS/MARGINS OF UNCONTROLLED TRANSACTIONS HAVE T O BE COMPARED WITH THE MARGINS OF THE ASSESSEE FROM INTERNATIONAL TRANSACT ION. THIS IS ALSO VODAFONE INDIA SERVICES PRIVATE LTD. 164 | P A G E MANDATED IN THE RULE 10B(4) AS WELL AS 10D(4) OF TH E INCOME TAX RULES. THEREFORE, WE DO NOT FIND ANY ERROR IN THE OBJECTIO N OF THE TPO WITH REGARD TO NOT USING THE CURRENT YEAR DATA BY THE ASSESSEE IN WORKING OUT THE ARITHMETIC MEAN MARGIN OF THE COMPARABLES FOR THE P URPOSE OF COMPUTING ARMS LENGTH PRICE. THE OTHER FILTERS USED BY THE T PO ARE RELATED PARTY TRANSACTION NOT MORE THAN 25% AS WELL AS THE EXPORT S REVENUE NOT LESS THAN 75%. THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER OF CALL CENTRE TO ITS AE, THEREFORE, THE ENTIRE REVENUE OF THE ASSESSEES CAL L CENTRE COMES FROM THE EXPORT. ACCORDINGLY, THE FILTER OF MINIMUM 75% EXPO RT EARNING APPLIED BY TPO WAS LOGICAL AND REASONABLE AND IT IS NOT GOING TO AFFECT THE INTEREST OF ANY PARTY AS IS APPLICABLE FOR ALL THE COMPARABLES WHETHER IT WAS SELECTED BY THE TPO OR BY THE ASSESSEE. SIMILARLY, THE FILTER O F RELATED PARTY TRANSACTION IS ALSO IN ACCORDANCE WITH THE PROVISIONS OF TRANSF ER PRICING REGULATION BECAUSE THE INTERNATIONAL TRANSACTION HAS TO BE COM PARED WITH THE UNCONTROLLED COMPARABLE TRANSACTION WITH THE UNRELA TED PARTIES. WHILE COMPARING THE INTERNATIONAL TRANSACTION WITH UNCONT ROLLED TRANSACTION, IT IS NECESSARY TO SEE THAT COMPARABLE PRICE SHOULD NOT INVOLVE ANY RELATED PARTY TRANSACTION OTHERWISE IT WILL LOOSE THE CHARACTER O F UNCONTROLLED UN RELATED PARTY TRANSACTION. HOWEVER, IN THE REAL WORD IT IS ALMOST IMPOSSIBLE TO HAVE A COMPARABLE WITHOUT SINGLE RELATED PARTY TRANSACTI ON AND, THEREFORE, WHILE SELECTING THE COMPARABLES, RELATED PARTY TRANSACTIO N CANNOT BE COMPLETELY RULED OUT. THEREFORE, HAVING REGARD TO THE FACT AND CIRCUMSTANCES AND AVAILABILITY OF THE COMPARABLES TO BENCH MARK THE I NTERNATIONAL TRANSACTION, THE REASONABLE TOLERANCE RANGE HAS TO BE CONSIDERED WHICH MAY BE 10% ON THE LOWER SIDE TO 25% AS THE HIGHEST LIMIT WHICH CO ULD BE PERMITTED IN ANY EXCEPTIONAL CIRCUMSTANCES WHERE THE AVAILABILITY OF THE COMPARABLES IS VERY VODAFONE INDIA SERVICES PRIVATE LTD. 165 | P A G E LESS. IN THE CASE IN HAND, THE TPO ADOPTED A VERY L ENIENT AND HIGHEST LIMIT OF RELATED PARTY TRANSACTION, THEREFORE, WE DO NOT FIND ANY ERROR IN APPLYING FILTER OF NOT EXCEEDING 25% OF RELATED PARTY. THE D RP WHILE DECIDING THE COMPARABILITY OF THE COMPANIES SELECTED BY THE ASSE SSEE APPLIED THESE FILTERS AS WELL AS FUNCTIONAL COMPARABILITY WHICH I S SUMMARIZED IN THE TABLE BELOW:- SR. NO. NAME OF THE COMPANY REMARKS 1. ALLSEC TECHNOLOGIES LIMITED THE ANNUAL REPORT OF THE COMPANY REFERS TO THE FOLLOWING: WE EXPANDED OUR VERTICAL SPECIALIZATION RESULTING WITH THE ACQUISITION OF MANILA BASED ITES COMPANY KINGDOM BUILDERS INC DURING THE YEAR. OUR VERTICALS OF SPECIALIZATION STAND EXTENDED TO LIFE CYCLE CUSTOMER MANAGEMENT, TELE MARKETING, COLLECTIONS, QUALITY ASSURANCE, PAY ROLL MANAGEMENT, TECHNICAL SUPPORT AND WE B DEVELOPMENT SUPPORT. THE EXPORT REVENUE REDUCED FROM RS.109.3CR TO RS.85.26CR (REDUCTION OF 24CR) ON ACCOUNT OF LOSS OF TWO MAJOR CLIENTS. EMPLOYEE COST INCREASED FROM 48.9CR TO 70.97CR (INCREASE OF RS.21.98 (I) VODAFONE INDIA SERVICES PRIVATE LTD. 166 | P A G E BECAUSE OF HIGHER NUMBER OF EMPLOYEES ON AN AVERAGE DURING THE YEAR MAINLY DUE TO IMPACT OF AMALGAMATION OF B2K CORP AND (II) PARTLY ON ACCOUNT OF RISE IN AVERAGE PAY LEVEL EXISTING STAFF. THE COMPANY ENTERED INTO SCHEME OF AMALGAMATION WITH ITS WHOLLY OWNED SUBSIDIARY B2K, WHICH SCHEME WAS APPROVED ON 23 AUG 2007, WITH EFFECT FROM 1 ST APRIL 2005. THE AMALGAMATION HAS BEEN ACCOUNTED FOR UNDER THE POOLING OF INTERESTS METHOD. AS PER THE SCHEME DURING THE PERIOD BETWEEN THE APPOINTED DATE AND EFFECTIVE DATE, B2K SHALL BE DEEMED TO HAVE CARRIED ON THE EXISTING BUSINESS IN TRUST ON BEHALF OF THE COMPANY. ALL THE PROFITS EARNED AND EXPENSES INCURRED BY B@K DURING SUCH PERIOD SHALL BE DEEMED TO BE PROFITS AND LOSSES OF THE COMPANY. ACCORINGLY, NET LOSSES AFTER TAX INCURRED BY B2K DURING THE PERIOD FROM 1 ST APRIL 2005 TO 2007 OF RS79,865 HAS BEEN INCORPORATED IN THE FINANCIAL STATEMENTS OF THE COMPANY. IT IS SEEN THAT THE COMPANY HAS SHOWN SIZABLE PROFIT EBITDA OF RS.36.40 CRORE, FOR THE YEAR ENDED 31-03-2007 AND LOSS OF RS.2.40 CRORE FOR THE YEAR VODAFONE INDIA SERVICES PRIVATE LTD. 167 | P A G E UNDER CONSIDERATION. THE ADDITIONAL OPERATIONAL EXPENSES ON ACCOUNT OF AMALGAMATION OF B2K HAVE IMPACTED ITS PROFIT. THUS THE PECULIAR ECONOMIC CIRCUMSTANCES ON ACCOUNT OF CERTAIN AMALGAMATIONS AND EXPANSIONS HAVE MADE THIS COMPANY INCOMPARABLE. WE ARE OF THE VIEW THAT THIS COMPANY IS NOT COMPARABLE AND HAS BEEN VALIDLY REJECTED. 2. ASK ME INFO HUB LTD THE TOTAL REVENUE OF THE COMPANY IS RS.1.56CRORE AND IT HAS NO EXPORT EARNINGS. IT FAILS THE EXPORT EARNINGS FILTER. THIS COMPANY WAS VALIDLY REJECTED AS COMPARABLE. 3. GODREJ UPSTREAM LTD THE FOREIGN CURRENCIES EARNINGS APPEAR TO BE NIL. FAILS THE EXPORT FILTER. HENCE, THIS COMPANY WAS VALIDLY REJECTED. FROM THE ANNUAL REPORT OF THE COMPANY IT IS ALSO SEEN THAT THE SALES OF THE COMPANY HAS DECREASED COMPARED TO THE EARLIER YEAR BY 44% ON ACCOUNT OF A CONDUCTING AGREEMENT ENTERED BY THE COMPANY WITH ITS RELATED PARTY UPSTREAM RPO SERVICES PVT. LTD. AS A RESULT, THE SALES FOR THE PERIOD 1.9.2007 TO 29.2.2008, (IE. FOR SIX MONTHS) WAS BOOKED AS REVENUE AS PER ARRANGEMENT IN THE BOOKS OF THE RELATED PARTY VODAFONE INDIA SERVICES PRIVATE LTD. 168 | P A G E UBSPN, FOR WHICH T HE COMPANY HAS RECEIVED CONDUCTING FEE OF RS.1.5 CRORES. AS THIS AGREEMENT DID NOT MATERIALIZE, THE REVENUE FOR MARCH 2008 WAS OFFERED IN THE BOOKS OF THIS COMPANY. EFFECTIVELY REVENUE FOR 6 MONTHS OF THE YEAR WAS NOT CONSIDERED IN ITS OPERATING PERFORMANCE. HENCE IT NOT A RELIABLE COMPARABLE. 4. MAPLE E - SOLUTIONS LTD AS PER SCHEDULE 13 THE REVENUE FROM EXPORTS SERVICES RS. 17.76 CRORES AND DOMESTIC SALES AND SERVICES RS.15.88 CRORES. THE EXPORT EARNINGS CONSTITUTE 53% OF THE TOTAL REVENUE. IT FAILS THE EXPORT EARNING FILTER SET BY THE TPO. AS WE HAVE ALREADY OBSERVED THAT THIS FILTER IS VALID, WE ARE OF THE VIEW THAT THIS COMPANY WAS VALIDLY REJECTED. 5. N I I T SMARTSERVE LTD THE RELATED PARTY TRANSACTION IS MORE THAN 25%. FAILS THE RPT FILTER SET BY THE ASSESSEE AND DEPARTMENT. IT WAS VALIDLY REJECTED AS COMPARABLE. 6. NIPUNA SERVICES LTD (SATYAM BPO NOW) THE RELATED PARTY TRANSACTION IS MORE THAN 25%. FAILS THE RPT FILTER SET BY THE ASSESSEE AND DEPARTMENT. IT WAS VALIDLY REJECTED AS COMPARABLE. 7. OPTIMUS GLOBAL SERVICES LTD THE COMPANYS EXPORT EARNINGS AS SEEN FROM THE PROFIT AND LOSS ACCOUNT WAS VODAFONE INDIA SERVICES PRIVATE LTD. 169 | P A G E RS.6,40,46,960/ - AND ITS DOMESTIC EARNINGS WAS RS.49,44,51,590/- . THE EXPORT EARNINGS CONSTITUTE 11.46% OF TOTAL REVENUE. IT FAILS THE EXPORT EARNING FILTER. THIS COMPANY WAS VALIDLY REJECTED AS COMPARABLE. 8. TRANSWORK INFORMATION SERVICES LTD COMMON COMPARABLE 9. SPARSH BPO SERVICES LIMITED AS SEEN FROM THE ANNUAL REPORT THE COMPANY OPERATES IN A SINGLE PRODUCT SEGMENT- DOMESTIC CALL CENTRE SERVICES. ITS CUSTOMERS SPREAD ACROSS SEGMENTS LIKE BANKING AND FINANCIAL SERVICES, INSURANCE, RETAIL CONSUMER DURABLES ETC. THE DOMESTIC CALL CENTRE BUSINESS DIVISION (SPARSH) WAS DEMERGED FROM SPANCO TELESYSTEMS AND SOLUTIONS LTD. IT FAILS THE EXPORT EARNING FILTER. THIS COMPANY WAS VALIDLY REJECTED AS COMPARABLE. 10. SPANCO LTD (SEGMENT) COMMON COMPARABLE 11. HTMT GLOBAL SOLUTION LTD THE RELATED PARTY TRANSACTION IS MORE THAN 25%. FAILS THE RPT FILTER SET BY THE ASSESSEE AND DEPARTMENT. IT WAS VALIDLY REJECTED AS COMPARABLE. ADDITIONAL COMPANIES RELIED ON BY ASSESSEE AS COMPARABLE . VODAFONE INDIA SERVICES PRIVATE LTD. 170 | P A G E 12 AXA BUSINESS SERVICES (SEG) IT IS SEEN THAT COMPANY HAS FOLLOWED DECEMBER END FINANCIALS. THE ASSESSEE HAS RELIED ON DEC.2007 RESULTS RELATING TO VOICE SEGMENT. HOWEVER, IT IS SEEN THAT THE ENTIRE ITES REVENUE WAS EARNED FROM RELATED PARTIES. IT IS 100% RPT. FAILS THE RPT FILTER SET BY THE ASSESSEE AND DEPARTMENT. IT WAS VALIDLY REJECTED AS COMPARABLE. 13 MICROWAVE COMMUNICATIONS LTD THE COMPANY IS ENGAGED IN PAGING AND CALL CENTRE BUSINESS. IT IS REPORTED IN THE ANNUAL REPORT: PAGING INDUSTRY IS FACING STIFF COMPETITION WITHIN AS WELL AS WITH THE RELATED INDUSTRY SUCH AS CELLULAR AND WLL DUE TO BEING TWO WAY COMMUNICATION AND LOW SERVICE RATES OFFERED AS COMPARED TO PAGER RATES. DUE TO HIGH OPERATIONAL COST AND DEBTS COST, THE COMPANY HAS MADE LOSSES AND THE ACCUMULATED LOSSES AMOUNTED TO RS.16659.06 LAKHAS AS ON 31 ST MARCH 2008. THE COMPANY HAS EXPANDED ITS ACTIVITIES TO CALL CENTRE BUSINESS AND THE MANAGEMENT IS HOPEFUL OF ARRESTING THESE LOSSES AND TURNING AROUND THE OPERATIONS IN COMING YEARS. ACCORDINGLY THE ACCOUNTING STANDARDS HAVE BEEN PREPARED ON A GOING CONCERN BASIS. VODAFONE INDIA SERVICES PRIVATE LTD. 171 | P A G E THE COMPANY HAS GIVEN SEGMENTAL PROFITABILITY INFORMATION FROM CALL CENTRE BUSINESS AND PAGING BUSINESS. THE REVENUE FROM CALL CENTRE IS RS.11,83,05,511/-, THE OPERATING PROFIT WAS RS.2,83,69,152/-.THE OP/TC COMES TO 31.54%. HOWEVER, IT IS SEEN IT HAS NOT REPORTED ANY EXPORT EARNINGS. IT FAILS THE EXPORT EARNING FILTER. THIS COMPANY WAS VALIDLY REJECTED AS COMPARABLE. 14 SURVIN INTERNET SERVICES LTD THE COMPANY HAS NO EXPORT EARNINGS. IT FAILS THE EXPORT EARNING FILTER. THIS COMPANY WAS VALIDLY REJECTED AS COMPARABLE. THE COMPANYS TOTAL REVENUE IS ONLY RS.1.91 CRORE OF WHICH 1.86 CRO WAS FROM CALL CENTRE AND THE BALANCE FROM SOFTWARE DIVISION, BUT THE SEGMENTAL INFORMATION HAS NOT BEEN PROVIDED IN THE ANNUAL REPORT. IT IS SEEN THAT THE ASSESSEE HAS TAKEN INTO ACCOUNT THE CALL CENTRE REVENUE BUT HAS CONSIDERED ALL THE EXPENSES IN THE PROFIT & LOSS THE PROFIT FROM CALL CENTRE BUSINESS CANNOT BE RELIABLY COMPUTES. FOR THIS REASON ALSO THIS COMPANY IS CONSIDERED INCOMPARABLE. 15 JINDAL INTELLICOM PVT LTD FAILS THE RPT FILTER SET BY THE ASSESSEE AND DEPARTMENT. IT WAS VALIDLY REJECTED VODAFONE INDIA SERVICES PRIVATE LTD. 172 | P A G E AS COMPARABLE . 140. WE WOULD ANALYSE THE RELEVANT FACTS AND DETAIL S OF THE COMPANIES SELECTED BY THE ASSESSEE IN THE CONTEXT OF THE COMP ARABILITY AS UNDER: 141. ALLSEC TECHNOLOGIES LIMITED THE COMPANY WAS FOUND TO BE NOT COMPARABLE DUE TO THE REASON TH AT IT HAS AMALGAMATED WITH ITS WHOLLY OWNED SUBSIDIARY B2K. I T HAS BEEN NOTED BY THE DRP IN THE REASONS CITED ABOVE THAT THE SAID CO MPANY HAD SHOWN SIZABLE PROFIT EBITDA OF RS. 36.40 CRORES IN THE YEAR ENDED 31 ST MARCH 2007, BUT HAS INCURRED LOSS OF RS. 2.40 CRORE FOR THE YEAR UNDER CONSIDERATION DUE TO ADDITIONAL OPERATIONAL EXPENSE S ON ACCOUNT OF AMALGAMATION WITH B2K. THE ANALYSIS OF THE DRP IS B ASED ON THE FACTS AS REPORTED IN THE ANNUAL REPORT WHICH HAS NOT BEEN DI SPUTED BY THE ASSESSEE BEFORE US. AMALGAMATION IS AN EXTRAORDINARY EVENT H AVING EFFECT ON THE PROFIT MARGIN AND FINANCIAL OF THE COMPANY. THEREFO RE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDING OF DRP IN REJECT ING THE ALLSEC TECHNOLOGIES LIMITED AS COMPARABLE. 142. ASK ME INFO HUB LTD THIS COMPANY HAS BEEN REJECTED BECAUSE IT FAILED TO PASS THE EXPORT EARNING FILTER APPLIED BY THE TPO. THE FACTUM OF EXPORT EAR NING IS LESS THAN 75% HAS NOT BEEN DISPUTED BY THE ASSESSEE, THEREFORE, THERE IS NO REASON TO INTERFERE WITH THE FINDING OF AUTHORITIES BELOW IN REJECTING THIS COMPANY AS A COMPARABLE. IT IS PERTINENT TO NOTE THAT THE ASSESS EES 100% REVENUE COMES VODAFONE INDIA SERVICES PRIVATE LTD. 173 | P A G E FROM THE EXPORT TO ITS AE THEN THE FILTER OF 75% EX PORT EARNING FOR THE COMPARABLE IN OUR VIEW IS PROPER AND JUSTIFIED. 143. GODREJ UPSTREAM LTD. REGARDING THIS COMPANY, THE DRP HAS NOTED THAT IT H AS FAILED THE EXPORT FILTER AND FURTHER IN THE YEAR UNDER CONSIDERATION, THE REVENUE FOR SIX MONTHS OF THE YEAR HAS NOT BEEN CONSIDERED IN THE O PERATING PERFORMANCE. IN THE ABSENCE OF COMPLETE AND CONTEMPORARY DATA, I T WAS NOT CONSIDERED AS APPROPRIATE COMPARABLE. THE ASSESSEE HAS NOT DISPUT ED THAT THE REVENUE OF THE COMPANY IS LESS THAN 75% FROM EXPORT AND FURTHE R THE REVENUE FOR SIX MONTHS OF THE YEAR WAS NOT CONSIDERED IN ITS OPERAT ING PERFORMANCE. ACCORDINGLY, WE FIND THAT THIS COMPANY CANNOT BE CO NSIDERED AS A GOOD COMPARABLE FOR DETERMINING THE ARMS LENGTH PRICE O F INTERNATIONAL TRANSACTION. 144. MAPLE E-SOLUTIONS LTD. THIS COMPANY WAS REJECTED ON THE GROUND OF FAILING TO PASS THE EXPORT EARNING FILTER AS ITS EXPORT EARNING CONSTITUTES ON LY 53% OF THE TOTAL REVENUE WHICH IS NOT DISPUTED. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF AUTHORITIES BELOW FOR REJECTING THIS COMPANY AS A COMPARABLE. 145. NIIT SMARTSERVE LTD VODAFONE INDIA SERVICES PRIVATE LTD. 174 | P A G E THIS COMPANY HAS BEEN REJECTED ON THE GROUND THAT T HE RELATED PARTY TRANSACTION IS MORE THAN 25%. THIS FACT IS NOT DISP UTED BY THE ASSESSEE THAT THIS COMPANY HAS MORE THAN 25% RELATED PARTY TRANSA CTION. WE HAVE ALREDY DISCUSSED THE FILTERS APPLIED BY THE TPO AND FOUND TO BE PROPER AND JUSTIFIED. ACCORDINGLY, THIS COMPANY CANNOT BE CONS IDERED AS UNCONTROLLED COMPARABLE FOR DETERMINING THE ARMS LENGTH PRICE. 146. NIPUNA SERVICES LTD (NOW SATYAM BPO) UNDISPUTEDLY RELATED PARTY TRANSACTION IN THIS CASE IS ALSO MORE THAN 25%, THEREFORE, IT CANNOT BE INCLUDED AS COMPARABLE REPR ESENTING UNCONTROLLED TRANSACTION. 147. OPTIMUS GLOBAL SERVICES LTD. IN THIS CASE, THE DRP HAS NOTED THAT THE EXPORT EAR NING CONSTITUTE ONLY 11.46% OF THE TOTAL REVENUE AND ACCORDINGLY, IT WAS REJECTED ON ACCOUNT OF FAILURE TO PASS THE EXPORT EARNING FILTER. THE COMP ANY HAVING SO MEAGER EARNING FROM EXPORT CANNOT BE COMPARED WITH THE 10 0% EXPORT TRANSACTION. 148. TRANSWORK INFORMATION SERVICES LTD. THIS COMPANY IS ACCEPTED BY THE TPO, THEREFORE, THE RE IS NO QUESTION OF DISPUTE ON THIS COMPANY IN INCLUDING IN THE SET OF COMPARABLES. 149. SPARSH BPO SERVICES LTD. THE DRP HAS NOTED THE FACT THAT THIS COMPANY IN SIN GLE PRODUCT SEGMENT DOMESTIC CALL CENTRE SERVICE. WHEN THERE IS NO EXPO RT INCOME THEN THIS VODAFONE INDIA SERVICES PRIVATE LTD. 175 | P A G E COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE I N VIEW OF THE FILTER APPLIED REQUIRING MINIMUM 75% OF THE EXPORT REVENUE . 150. SPANCO LTD (SEGMENT) THIS COMPANY IS COMMON AS ACCEPTED BY THE TPO, THER EFORE, NO QUESTION OF DISPUTE ARISES. 151. HTMT GLOBAL SOLUTIONS LTD. THE DRP RECORDED THE REASON OF MORE THAN 25% RELATE D PARTY TRANSACTION FOR REJECTING THIS COMPANY AS COMPARABLE. ACCORDING LY, THE SAID COMPANY CANNOT BE CONSIDERED AS COMPARABLE. APART FROM 11 ORIGINAL COMPARABLES, THE ASSESSEE HA ALSO FURNISHED ADDITIONAL FOUR COMPARABLES WHICH WERE REJECTED BY THE DRP. 152. AXA BUSINESS SERVICES (SEG.) THE DRP HAS REJECTED THIS COMPANY ON THE GROUND THA T IT HAS 100%RPT. ACCORDINGLY THIS COMPANY CANNOT BE CONSIDERED AS AN UNCONTROLLED AND UNRELATED TRANSACTION. 153. MICROWAVE COMMUNICATIONS LTD. THE SEGMENTAL REVENUE FROM CALL CENTRE IS GIVEN IN THE ANNUAL REPORT AS RECORDED BY THE DRP. BUT THERE IS NO EXPORT IN THIS SEGMENT, THEREFORE, THIS COMPANY WAS REJECTED FOR WANT OF ANY EXPORT EARNING ON CALL CENTRE. WE DO NOT FIND ANY ERROR IN THE ORDERS OF AUTHORITIES BEL OW IN REJECTING THIS VODAFONE INDIA SERVICES PRIVATE LTD. 176 | P A G E COMPANY WHEN THERE IS NO EXPORT EARNING WHICH FAILS THE FILTER APPLIED BY THE TPO. 154. SURVIN INTERNET SERVICES LTD. THIS COMPANY WAS REJECTED ON TWO GROUDS VIZ. NO EXP ORT EARNING AND FURTHER THE CALL CENTRE SEGMENT MARGIN IS NOT RELIA BLE FOR THE REASON THAT ALL THE EXPENSES WERE TAKEN TO THE P&L ACCOUNT WITHOUT ANY DIVISION BASED ON THE SEGMENT. IN OUR VIEW THE COMPANY HAVING NO EARN ING FROM EXPORT CANNOT BE COMPARED WITH THE 100% EXPORT TRANSACTION . ACCORDINGLY WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDERS OF T HE AUTHORITIES BELOW IN REJECTING IT AS COMPARABLE. 155. JINDAL INTELLICON LTD. IT WAS REJECTED ON THE GROUND THAT RELATED PARTY FI LTER OF NOT MORE THAN 25% IS NOT SATISFIED. IN THE ABSENCE OF ANY DISPUTE ABO UT THE RELATED PARTY TRANSACTION IS MORE THAN 25%, IT WAS RIGHTLY REJECT ED AS A COMPARABLE. 156. THE ASSESSEE HAS RAISED THE OBJECTION REGARDIN G THE JURISDICTION OF THE TPO TO CARRY OUT FRESH SEARCH FOR SELECTING THE COM PARABLES FOR DETERMINATION OF ARMS LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION. IT IS PERTINENT TO NOTE THAT AS PER PROVISIONS OF S ECTION 92C(A)(3) OF THE INCOME TAX ACT, THE TPO HAS THE JURISDICTION/POWER TO GATHER AND CONSIDER ALL RELEVANT MATERIAL AND INFORMATION APART FROM EV IDENCE, INFORMATION AND DOCUMENTS, PRODUCED BY THE ASSESSEE AS REQUIRED U/S 92D(3). FURTHER SECION 92C(A)(7) EMPOWERS THE TPO TO EXERCISE ANY O F THE POWERS SPECIFIED IN CLAUSE (A) TO (D) OF SUB-SECTION 1 OF SECTION 1 32 OR SUBSECTION 6 TO SECTION VODAFONE INDIA SERVICES PRIVATE LTD. 177 | P A G E 133 OR 133A OF THE INCOME TAX ACT FOR THE PURPOSE O F DETERMINING THE ARMS LENGTH PRICE. THERE IS NO IMPEDIMENT ON THE POWER O F THE TPO TO CARRY OUT A FRESH SEARCH FOR THE PURPOSE OF GATHERING MORE INFO RMATION AND DOCUMENTS RELEVANT TO DETERMINE THE ARMS LENGTH PRICE IN REL ATION TO INTERNATIONAL TRANSACTION. THUS WE DO NOT FIND ANY MERIT OR SUBST ANCE IN THE CONTENTION OF THE ASSESSEE IN THIS RESPECT. 157. NOW WE WILL ANALYZE THE FUNCTIONAL COMPARABILI TY AND OTHER ASPECTS OF THE COMPARABLES SELECTED BY THE TPO AND CONFIRMED B Y DRP WHILE COMPUTING THE ARMS LENGTH PRICE IN RESPECT OF INT ERNATIONAL TRANSACTION OF PROVIDING ITES TO THE AE. 158. ACCENTIA TECHNOLOGIES LTD. HAVING CONSIDERED THE RIVAL CONTENTION AND RELEVANT MATERIAL ON RECORD, AT THE OUTSET WE NOTE THAT THIS COMPARABLE WAS CONSIDE RED BY THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2007-08 IN ITA NO. 7140 & 7097/MUM/2012 IN PARA 21.1 AS UNDER:- 21.1 THIS COMPARABLE HAS BEEN OBJECTED TO BY THE A SSESSEE ON THE GROUND OF FUNCTIONAL DIFFERENCES. IT HAS BEEN POINT ED OUT THAT IN ADDITION TO MEDICAL TRANSCRIPTION AND BILLING AND C ODING, THIS COMPANY IS ALSO INVOLVED IN SOFTWARE SALES. THE LEA RNED DR HAS PLACED ON RECORD THE PROFIT AND LOSS ACCOUNT OF THE COMPANY FOR THE RELEVANT YEAR WHICH SHOWS THAT OUT OF TOTAL REVENUE OF RS. 50.2 CRORE A SUM OF RS. 9.6 CRORE IS FROM SALE OF SOFTWARE AND REVENUE FROM MEDICAL TRANSCRIPTION IS 32.1 CRORE, WHICH IS ABOUT 67%OF TOTAL REVENUE. THERE IS NO SEGMENT WISE RESULT AVAILABLE IN CASE OF MEDICAL TRANSCRIPTION AND BILLING AND CODING. IT IS NOT KNO WN BY HOW MUCH THE MARGIN IS AFFECTED BY TRADING IN SOFTWARE. THER EFORE IN OUR VIEW VODAFONE INDIA SERVICES PRIVATE LTD. 178 | P A G E THIS COMPANY COULD NOT BE CONSIDERED AS A GOOD COMP ARABLE. WE THEREFORE HOLD THAT THIS COMPANY HAS TO BE EXCLUDED . 159. THE TRIBUNAL FOUND THAT IN THE ABSENCE OF SEGM ENTAL RESULTS, THIS COMPANY CANNOT BE CONSIDERED AS GOOD COMPARABLE. FO R THE A.Y. UNDER CONSIDERATION THE TPO THOUGH CONSIDERED SEGMENTAL D ATA REGARDING MEDICAL TRANSCRIPTION ACTIVITY OF THE SAID COMPANY, HOWEVER, THE ACTIVITY OF MEDICAL TRANSCRIPTION SERVICES PROVIDED BY THE ACCE NTIA TECHNOLOGIES LTD., CANNOT BE COMPARED WITH THE BPO ACTIVITY OF THE ASS ESSEE PROVIDED THE SERVICES RELATING TO QUERIES, BILLING, MOBILE NO. P ORTABILITY QUERIES, NETWORK RELATED QUERIES AND PRICE RELATED QUERIES ETC,. THE ASSESSEE IS IN THE FIELD OF TELECOMMUNICATION RELATED SERVICES WHICH CANNOT BE COMPARED WITH THE SERVICES PROVIDED BY ACCENTIA TECHNOLOGIES LTD WHIC H IS IN THE FIELD OF MEDICAL TRANSCRIPTION. ACCORDINGLY, WE ARE OF THE V IEW THAT THE COMPANY ACCENTIA TECHNOLOGIES LTD., IS NOT FUNCTIONALLY COM PARABLE WITH THE ASSESSEES BPO ACTIVITY. HENCE THE SAID COMPANY SHO ULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 160. COSMIC GLOBAL LTD. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS COMPANY WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y . 2007-08 (SUPRA) IN PARA 21.6 AS UNDER:- 21.6 THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF THIS COMPARABLE ON THE GROUND THAT THE COMPANY IS NOT COMPARABLE AS IT IS MAINLY ENGAGED IN TRANSLATION BUSINESS IN ADDITION TO MEDI CAL TRANSCRIPTION, ACCOUNTS BPO AND CONSULTANCY. THE LEARNED DR HAS PL ACED ON RECORD THE ANNUAL REPORT OF THE COMPANY WHICH SHOWS THAT THE MAIN REVENUE I.E. 4.05 CRORE IS FROM TRANSLATION BUSINES S WHERE AS REVENUE VODAFONE INDIA SERVICES PRIVATE LTD. 179 | P A G E FROM MEDICAL TRANSCRIPTION IS ONLY 9.72 LAKH AND FR OM BPO AT RS. 12.41 LAKH. THE TRANSLATION BUSINESS IS NOT COMPARA BLE TO THE CASE OF THE ASSESSEE. THEREFORE, IN OUR VIEW, THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPARABLE. 161. THE TRIBUNAL FOUND THAT THE MAJOR REVENUE OF THE COMPANY IS FROM TRANSLATION BUSINESS WHICH IS NOT COMPARABLE TO THE CASE OF THE ASSESSEE, THEREFORE, IT WAS HELD THAT THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. FOLLOWING THE EARLIER ORDER OF THIS T RIBUNAL, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES FOR DETERMINATION OF ARMS LENGTH PRICE . 162. E4E HEALTHCARE SOLUTIONS LTD THE ASSESSEE HAS CONTENDED THAT THIS COMPANY IS PRI MARILY ENGAGED IN THE BUSINESS OF PROVIDING HEALTHCARE OUTSOURCING SERVIC ES IN THE HEALTHCARE INDUSTRY. IN USA IT PROVIDES OFFSHORE OUTSOURCE SER VICES IN MEDICAL BILLING AND COLLECTION SERVICE SPACE. HENCE IT IS CONTENDED THAT IT IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEES VOICE BASED CONTACT CE NTRE SERVICE WHICH IS IN THE NATURE OF SERVICE, BILLING, MOBILE NUMBER PORTA BILITY, HANDSET, NETWORK, PRICE PLAN ETC., THE ASSESSEE HAS ALSO RAISED THE OBJECTION THAT THE PROFIT AND LOSS ACCOUNT INFORMATION IS NOT AVAILABLE IN TH E ANNUAL REPORT OF THE COMPANY AND, THEREFORE THE INFORMATION IS NOT AVAIL ABLE ON THE PUBLIC DOMAIN. IT IS PLEADED THAT THIS COMPANY BE REJECTED AS GOOD COMPARABLE. 163. ON THE OTHER HAND, THE LD. ASG HAS SUBMITTED T HAT THIS COMPANY ALSO OPERATES AS A BPO WHICH EXACTLY HAS THE SAME FUNCTI ONS AS OF THE ASSESSEES VODAFONE INDIA SERVICES PRIVATE LTD. 180 | P A G E BPO. HE HAS REFERRED PARA 22.1 OF THE TRIBUNALS ORD ER IN THE ASSESSEES OWN CASE FOR A.Y. 2008-09 AND SUBMITTED THAT THE TRIBUN AL HAS ALREADY REJECTED THE PLEA OF HTE ASSESSEE THAT THE COMPARABLES BELON GING TO HIGH END SEGMENT SHOULD BE EXCLUDED FROM THE LIST OF COMPARA BLES. THE INFORMATION IN RESPECT OF THIS COMPANY WAS CALLED FOR U/S 133(6 ) OF THE INCOME TAX ACT. WHEN THE COMPANY OPERATES IN PROVIDING ITES/BPO SER VICES THEN IT IS A GOOD COMPARABLE IN THIS SPACE OF BPO SERVICES. 164. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CA REFUL PERUSAL OF RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSES SEE WAS PROVIDING THE FOLLOWING SERVICES TO ITS AE: SERVICES RELATED QUERIES; BILLING RELATED QUERIES; MOBILE NUMBER PORTABILITY (MNP) RELATED QUERIES; HANDSET RELATED QUERIES; NETWORK RELATED QUERIES; AND PRICE PLAN RELATED QUERIES. 165. THE COMPANY E4E HEALTHCARE SOLUTIONS LTD IS EN GAGED IN THE BUSINESS OF PROVIDING HEALTHCARE OUTSOURCING SERVICES IN THE NATURE OF MEDICAL BILLING AND COLLECTION SERVICES. THE SERVICES PROVIDED BY T HIS COMPANY IS PURELY BPO IN NATURE AND DOES NOT INVOLVE ANY ANALYTICAL W ORK OR MENTAL PROCESS WORK, THEREFORE, THE SERVICES PROVIDED BY THIS COMP ANY IS NOTHING BUT PURE BPO SERVICES AND ACCORDINGLY IT IS COMPARABLE SO FA R AS THE SERVICES ARE IN THE NATURE OF BPO AND NO MENTAL INTERVENTION IS REQ UIRED. THE SERVICE OF MEDICAL BILLING AND COLLECTION SERVICES IS NOTHING BUT ARRANGING THE VODAFONE INDIA SERVICES PRIVATE LTD. 181 | P A G E ELECTRONIC DATA IN THE COMPUTER DEVICE WITHOUT ANY INVOLVEMENT OF APPLICATION OF MIND. HENCE THIS COMPANY IS A GOOD C OMPARABLE FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. 166. INFOSYS BPO WE HAVE HEARD THE LD. AR AS WELL AS LD. ASG AND CON SIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT TH E COMPARABILITY OF THIS COMPANY WAS EXAMINED BY THE TRIBUNAL IN THE ASSESSE ES OWN CASE FOR THE A.Y. 2008-09 IN PARA 24.3.2 AND 24.3.3 AS UNDER:- 24.3.2 WE HAVE CAREFULLY CONSIDERED THE VARIOUS ASPECTS OF THE ISSUE AND THE RIVAL ARGUMENTS ADVANCED BY BOTH THE PARTIES. WE HAVE ALREADY HELD THAT HIGH END SERVICES IN ITES SECTOR COULD NOT BE THE BASIS FOR EXCLUSION OF COMPARABLES. SIMILARLY, WE HAVE ALSO NOT FOUND THE AR GUMENTS BASED ON HIGH MARGIN CONVINCING FOR THE REASON GIVEN EARLIER. THE ARGUMENT OF THE LEARNED AR BASED ON BRAND VALUE AND HIGH MARKETING /SEL LING EXPENSES HAD BEEN EXAMINED IN DETAIL BY THE TRIBUNAL IN CASE O F ACTIS ADVISORS (P) LTD. (SUPRA). THE TRIBUNAL NOTED THAT HIGH MARKETING EXPENSES DID CREATE MARKETING INTANGIBLES SUCH AS BRAND. BUT IT WAS NOT NE CESSARY THAT IT ALWAYS RESULTED INTO HIGH MARGIN. THE TRIBUNAL IN THAT CASE NOTED THE FINDING OF TPO THAT 95% OF THE REVENUE OF INFOSYS CAM E FROM REPEAT BUSINESS WHICH SHOWED THAT MARKETING INTANGIBLES DID NO T HELP INFOSYS TO GET ANY BETTER BUSINESS. THE TRIBUNAL ALSO ACCEPTED T HE FINDING OF TPO THAT MARKETING INTANGIBLES MAY BE HELPFUL IN GETTING BETTER BUSINESS BUT THE SAME MAY NOT BE APPLICABLE IN THE CASE OF SERVIC E INDUSTRIES LIKE ITES. THE DEPARTMENT IN THAT CASE HAD PLACED ON RECORD SOME I NSTANCES IN WHICH COMPANIES WITH MUCH LOWER MARKETING EXPENSES HAD SHOWN MUCH HIGHER MARGIN. THE TRIBUNAL THEREFORE, CONCLUDED THAT M ARKETING INTANGIBLES SUCH AS BRAND COULD NOT BE CONSIDERED AS A FA CTOR FOR RAISING THE MARGIN IN A PARTICULAR CASE. BRAND IS AN ASSET W HICH CAN BRING IN MORE BUSINESS AND CAN GIVE MORE TURNOVER BUT THERE IS N O EVIDENCE TO SHOW THAT IT RESULTS IN HIGHER MARGIN. BRAND IS NO DOUB T AN ASSET WHICH IS A RELEVANT FACTOR FOR DECIDING COMPARABILITY BUT IN TH E ABSENCE OF ANY CONCRETE MATERIAL TO SHOW THAT IT RAISES THE MARGIN , THE ARGUMENT BASED ON BRANDING CANNOT BE ACCEPTED. WE THEREFORE, FOLLOW THE DECISION OF VODAFONE INDIA SERVICES PRIVATE LTD. 182 | P A G E TRIBUNAL (SUPRA) AND REJECT THE ARGUMENTS ADVANCED BAS ED ON HIGH MARKETING EXPENSES AND BRANDING. 24.3.3. THE ARGUMENT BASED ON TURNOVER HAS ALSO BEEN. 24.3.3. THE ARGUMENT BASED ON TURNOVER HAS ALSO BEEN E XAMINED IN DETAIL BY THE TRIBUNAL IN CASE OF WILLIS PROCESSING SERVICES IND IA (P) LTD. (SUPRA) AND IN CASE OF CAPGEMINI INDIA (P) LTD. (SUPRA) AND NOT FOUND ACCEPTABLE. IN THAT CASE MATERIAL IN THE FORM OF GRAPH AND CHART HAD BEEN PLACED BY THE DEPARTMENT BEFORE THE TRIBUNAL TO POINT OUT THAT THERE WAS NO LINEAR RELATIONSHIP BETWEEN TURNOVER AND MARGIN AND IT WAS POI NTED OUT THAT IN MANY CASES WITH RISE IN TURNOVER THE MARGIN CAME DOWN. THE TRIBUNAL IN BOTH THE CASES REFERRED TO ABOVE ALSO NOTED THE ARGUME NT BASED ON CONCEPT OF ECONOMY SCALE AND HELD THAT IT WAS RELEVANT TO MANUFACTURING CONCERNS AND NOT APPLICABLE TO SERVICE COMPANIES. THE TRIBUNAL IN CASE OF CAPGEMENI INDIA (P) LTD. (SUPRA) NOTED THAT EMPLOYEES IN SERVICE COMPANIES WERE NOT DOUBT, VALUABLE ASSETS WHICH HAVE TO BE CONSIDERED AS A FACTOR FOR COMPARABILITY. THE TRIBUNAL OBSERVED THAT THE ASSETS EMPLOYED HAD TWO DIMENSIONS I.E. QUANTITY AND QUALITY, MORE EMPLOYEES WOULD MEAN MORE TURNOVER BUT THERE WAS LINEAR RELATIONS HIP BETWEEN MARGIN AND TURNOVER. AS REGARD THE QUALITY OF EMPLOYE ES, THE TRIBUNAL NOTED THAT THIS WOULD DEPEND UPON THE NATURE OF PROJECTS AND EMPLOYEE COST BEING MORE IN CASE OF MORE SKILLED MANPOWER, IT WILL NOT RESULT INTO HIGHER MARGINS. THEREFORE FOLLOWING THE DECISIONS OF TRIBUNAL (SUPRA), WE REJECT THE ARGUMENT ADVANCED FOR EXCLUSION OF INFOSYS BP O LTD. AND ACCORDINGLY HOLD THAT THIS HAS TO BE ACCEPTED AS A GOOD COMPARABL E. 167. THERE IS NO CHANGE IN THE BUSINESS PROFILE OF THE SAID COMPANY DURING THE YEAR CONSIDER, THEREFORE, FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE HOLD THAT THE INFOSYS BPO IS A GOOD COMPARABLE TO T HE ASSESSEE TO DETERMINE THE ARMS LENGTH PRICE. 168. WIPRO LTD. WE HAVE HEARD THE LD. AR AS WELL AS LD. ASG AND CON SIDERED THE RELEVANT MATERIAL ON RECORD. WE FIND FROM RECORD THAT THE CO MPARABILITY OF THIS VODAFONE INDIA SERVICES PRIVATE LTD. 183 | P A G E COMPANY WAS ALSO ANALYZED BY THIS TRIBUNAL IN ASSES SEES OWN CASE FOR A.Y. 2007-08 IN PARA 24.4 AS UNDER:- THE CASE OF WIPRO LTD. WHICH HAS BEEN EXCLUDED BY CIT (A) IS IDENTICAL TO THE CASE OF INFOSYS BPO LTD. WITH ONLY DIFFERENCE TH AT TURNOVER IN CASE OF WIPRO LTD. IS 939.78 WHEREAS IN CASE OF INFOSYS BPO L TD. THE TURNOVER IS 649.57. THE ARGUMENT ADVANCED BY THE ASSESSEE FOR EXCLUSION OF THIS COMPARABLE IS THE SAME AS ADVANCED IN THE CASE OF INFO SYS BPO LTD. THEREFORE, FOR THE SAME REASONS GIVEN IN CASE OF INF OSYS BPO LTD. WE REJECT THE ARGUMENT ADVANCED AND UPHOLD THE INCLUSION O F THIS COMPARABLE BY ASSESSING OFFICER/TPO. 169. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR A.Y. 2007-08, WE HOLD THAT WIPRO LTD. IS A GOOD COM PARABLE TO THE ASSESSEE FOR DETERMINATION OF ARMS LENGTH PRICE. 170. HCL SYSTEMS & SERVICES LTD . WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE AS WELL AS LD. ASG AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE CO MPARABILITY OF THIS COMPANY WAS ALSO CONSIDERED BY THE TRIBUNAL IN ASSE SSEES OWN CASE FOR A.Y. 2007-08 IN PARA 21.10 AS UNDER:- THE ASSESSEE HAS OBJECTED TO THIS COMPANY ON THE GR OUND THAT IT IS ENGAGED IN ACTIVITIES DIFFERENT FROM THAT OF THE ASSES SEE I.E. TELEPHONE COMMUNICATION IN ADDITION TO ITES. THE LEARNED DR HAS P LACED ON RECORD THE ANNUAL REPORT OF THE COMPANY TO POINT OUT THAT SE GMENT WISE RESULT FOR ITES IS AVAILABLE, WHICH HAS BEEN USED BY THE TPO FOR THE PURPOSE OF COMPARISON. THE LEARNED AR FOR THE ASSESSEE HOWEVER, POINTED OUT THAT COMPANY HAD RELATED PARTY TRANSACTION UP TO 21.52% AN D ON THIS GROUND THIS COMPANY HAD BEEN EXCLUDED IN CASE OF WILLIS PROC ESSING SERVICES INDIA (P) LTD. (SUPRA). WE AGREE THAT RELATED PARTY TR ANSACTION AFFECT THE COMPARABILITY AND IN CASE OF HIGH RPT THE COMPANY CO ULD NOT BE REALLY VODAFONE INDIA SERVICES PRIVATE LTD. 184 | P A G E CONSIDERED AS INDEPENDENT UNRELATED PARTY. IN CASE OF WIL LIS PROCESSING SERVICES INDIA (P) LTD. (SUPRA) THE TRIBUNAL HELD THAT RELATED PARTY TRANSACTION CAN BE ACCEPTED ONLY UP TO 15%. WE THEREF ORE ACCEPT THE PLEA OF THE ASSESSEE TO EXCLUDE THIS COMPARABLE. 171. AS IT IS CLEAR FROM THE EARLIER FINDING OF THI S TRIBUNAL THAT THIS COMPANY WAS FOUND TO BE FUNCTIONALLY COMPARABLE WIT H THE ASSESSEES CALL CENTRE BUSINESS ACTIVITY, HOWEVER FOR THE A.Y. 2008 -09, THE SAID COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES ON THE GR OUND OF RELATED PARTY TRANSACTION. AS WE HAVE ALREADY DISCUSSED THAT FOR THE YEAR UNDER CONSIDERATION, THE TPO APPLIED THE FILTER OF RELATE D PARTY TRANSACTION AT 25%, THE DRP ALSO CONSIDERED THE COMPARABILITY OF T HIS COMPANY AND DIRECTED THE ASSESSING OFFICER TO VERIFY THE RELATE D PARTY TRANSACTIONS. SINCE THE RELATED PARTY TRANSACTIONS WERE FOUND TO BE BEL OW THE FILTER CRITERIA OF 25% THEREFORE, BY FOLLOWING THE ORDER OF THIS TRIBU NAL IN ASSESSEES OWN CASE, WE HOLD THAT THIS COMPANY IS FUNCTIONALLY COM PARABLE AND TO BE INCLUDED IN THE LIST OF COMPARABLES. 172. OUT OF TEN COMPARABLES, THE ASSESSEE HAD RAISE D OBJECTION BEFORE US ONLY WITH RESPECT TO SIX COMPANIES AS DISCUSSED ABO VE. IN VIEW OF OUR ABOVE FINDING, THE TWO COMPARABLES NAMELY, ACCENTIA TECHN OLOGIES LTD,. AND COSMIC GLOBAL LTD., ARE DIRECTED TO BE EXCLUDED FRO M THE LIST OF COMPARABLES AND, ACCORDINGLY, THE ASSESSING OFFICER/TPO IS DIR ECTED TO RE-COMPUTE THE ARMS LENGTH PRICE ON THE BASIS OF THE REMAINING 8 COMPARABLES. VODAFONE INDIA SERVICES PRIVATE LTD. 185 | P A G E 173. GROUND NO. 17 IS REGARDING SET OFF OF UNABSORB ED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES OR A LTERNATIVE DEDUCTION U/S 10A OF THE INCOME TAX ACT. 174. THE ASSESSEE CLAIMED SET OFF UNABSORBED DEPREC IATION OF RS. 2,70,64,399/- AGAINST THE INCOME FROM OTHER SOURCES . THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GRO UND THAT UNABSORBED DEPRECIATION HAS ALREADY BEEN ADJUSTED IN THE A.Y. 2005-06 AND, THEREFORE, NO FURTHER SET OFF CAN BE ALLOWED IN THE YEAR UNDER CONSIDERATION. THE DRP CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICE R ON THE GROUND THAT UNABSORBED DEPRECIATION OF RS. 38520781/- PERTAINS TO THE A.Y. 2004-05, WAS CARRIED FORWARD TO A.Y. 2005-06 AND THE ASSESSI NG OFFICER WHILE PASSING THE ASSESSMENT ORDER FOR A.Y. 2005-06 HAS A DJUSTED THE ENTIRE AMOUNT OF RS. 38520781/- AGAINST THE BUSINESS INCOM E BEFORE ALLOWING 10A DEDUCTION RESULTING IN NIL CARRY FORWARD. 175. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE H AS POINTED OUT THAT WHILE GIVING EFFECT TO THE ORDER OF CIT(A) DATED 10 .05.2010 FOR THE A.Y. 2005-06 WHICH WAS CONFIRMED BY THIS TRIBUNAL VIDE O RDER DATED 22.07.2011, THE UNABSORBED DEPRECIATION OF RS. 2,70 ,64,399/- COULD NOT BE ADJUSTED FOR THE A.Y. 2005-06 AND, THEREFORE, THE S AME SHOULD BE ADJUSTED AGAINST THE INCOME FROM OTHER SOURCES FOR THE A.Y. UNDER CONSIDERATION. ALTERNATIVELY THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE IS A 100% EXPORT ORIENTED UNIT REGISTERED WITH SOFTWARE TECHNOLOGY PARK OF INDIAN AND, THEREFORE, ENTITLED FOR DEDUCT ION U/S10A OF THE INCOME VODAFONE INDIA SERVICES PRIVATE LTD. 186 | P A G E TAX ACT. ANY INCREASE IN THE INCOME OF THE ASSESSE E DUE TO THE DISALLOWANCE OF UNABSORBED DEPRECIATION WOULD BE ELIGIBLE FOR D EDUCTION U/S 10A. 176. ON THE OTHER HAND, THE REVENUE HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 177. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD, WE FIND THAT DUE TO THE FINDING OF CIT(A ) FOR THE A.Y. 2005-06 AND, THEREAFTER, THE ORDER OF THIS TRIBUNAL, THE DE DUCTION U/S 10A WAS ALLOWED TO THE ASSESSEE BEFORE SETTING OFF UNABSORB ED DEPRECIATION AGAINST THE BUSINESS INCOME CONSEQUENTLY THE INCOME AVAILAB LE FOR SETTING OFF UNABSORBED DEPRECIATION WAS TO BE RECOMPUTED. THERE FORE, THIS ISSUE REQUIRES RECONSIDERATION AT THE LEVEL OF ASSESSING OFFICER IN THE LIGHT OF ORDER OF CIT(A) AS WELL AS THE ORDER OF THIS TRIBUN AL FOR THE A.Y. 2005-06. ACCORDINGLY WE RESTORE THIS ISSUE TO THE RECORD OF THE A.O. FOR CONSIDERATION. 178. AS REGARDS THE ALTERNATIVE CLAIM OF DEDUCTION U/S 10A, SINCE THE ISSUE OF UNABSORBED DEPRECIATION IS SET ASIDE THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE SAME AS PER LAW IN CASE TH E BUSINESS INCOME OF THE ASSESSEE IS ENHANCED DUE TO DISALLOWANCE OF UNABSOR BED DEPRECIATION. 179. GROUND NO. 18 IS REGARDING SHORT CREDIT OF TA X WITHHELD AMOUNTING TO RS. 21,59,286/-. VODAFONE INDIA SERVICES PRIVATE LTD. 187 | P A G E 180. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE GRIEVANCE OF THE A SSESSEE IS THAT THE ASSESSEE CLAIMED CREDIT OF TAX WITHHELD OF RS. 3,30 ,26,766/-, WHEREAS THE ASSESSING OFFICER HAS GIVEN THE CREDIT ON ACCOUNT O F TAX WITHHELD ONLY OF RS. 3,08,67,480/- RESULTING A SHORT CREDIT OF WITHHELD AMOUNTING TO RS. 21,59,286/-. THIS CLAIM OF THE ASSESSEE IS BASED ON THE REVISED RETURN OF INCOME. SINCE THE COMPLETE FACTS ARE NOT RECORDED B Y THE AUTHORITIES BELOW AS THIS GROUND WAS NOT RAISED BEFORE THE AUTHORITIE S BELOW PARTICULARLY BEFORE THE DRP, THEREFORE, IN THE FACTS AND CIRCUMS TANCES OF THE CASE AS WELL AS IN THE INTEREST OF JUSTICE, WE DIRECT THE ASSESS ING OFFICER TO VERIFY THE CORRECT AMOUNT OF TAX WITHHELD AND ACCORDINGLY CONS IDER THE CLAIM OF CREDIT OF THE SAME. 181. GROUND NO. 19 IS REGARDING SHORT CREDIT OF ADV ANCE TAX. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THE GRIEVANCE OF THE ASSESSEE I S THAT IN THE REVISED RETURN OF INCOME, THE ASSESSEE CLAIMED THE CREDIT O F ADVANCE TAX OF RS. 4,51,47,905/- WHEREAS THE ASSESSING OFFICER HAS GIV EN THE CREDIT OF RS. 2,68,97,905/- RESULTING SHORT CREDIT OF RS. 1,82,50 ,000/-. THIS PLEA HAS BEEN RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFO RE US, THEREFORE, IT WAS NOT CONSIDERED BY THE AUTHORITIES BELOW. ACCORDINGLY, I N THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE ASSESSING OFFICER TO VERIFY AND CONSIDER THE CLAIM OF THE ASSESSEE. 182. GROUND NO. 20 IS REGARDING LEVY OF INTEREST U/ S 234B AND 234D. VODAFONE INDIA SERVICES PRIVATE LTD. 188 | P A G E LEVY OF INTEREST U/S 234B AND 234D IS MANDATORY AND CONSEQUENTIAL, THEREFORE, NO SEPARATE FINDING IS REQUIRED ON THIS ISSUE. 183. GROUND NO. 21 IS REGARDING THE DIFFERENCE OF L EVY OF INTEREST U/S 234C IN VIEW OF THE REVISED RETURN OF INCOME. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THE DIFFERENCE IN LEVY OF INTE REST IS CLAIMED BY THE ASSESSEE IN VIEW OF THE REVISED RETURN OF INCOME AN D NO SUCH CLAIM WAS RAISED BEFORE THE AUTHORITIES BELOW. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE. 184. GROUND NO. 22 IS REGARDING INITIATION OF PENAL TY PROCEEDINGS U/S 271(1)(C), 271AA AND 271G OF THE INCOME TAX AC T. THIS GROUND IS PREMATURE AS THE REMEDY IS AVAILABLE ONLY AGAINST THE ORDER OF LEVY OF PENALTY AND NOT AGAINST THE INITIATION O F PENALTY PROCEEDINGS. THEREFORE, THIS GROUND OF ASSESSEES APPEAL IS DISM ISSED BEING NOT ARISING FROM THE IMPUGNED ORDERS. 185. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED ON THIS 10 TH DAY OF DECEMBER 2014. SD/- SD/- ( R.C. SHARMA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 10-12 -2014 SKS SR. P.S, VODAFONE INDIA SERVICES PRIVATE LTD. 189 | P A G E COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI