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2018 (6) TMI 288 - AT - Income TaxCapital gain on transfer of shares outside India - incidence of levy u/s. 45 - applicability of section 9 income deemed to accrue or arise in India - eligible transfer u/s 2(47) - Held that - There was no transfer of capital asset u/s 45 - assessee had transferred the Interest/(stake)in itself outside India to SSPL - thus the concept of creating of interest in any assets in any manner and transferring interest/stake was not part of the word transfer . As far applicability of Explanation 5 of the section 9 is concerned, it is sufficient to state that the explanation covers the non residents and not a resident entity. There is no doubt that the assessee is a resident company. A citizen is perfectly entitled to exercise his ingenuity so to arrange his affairs as may make it possible for him legally and lawfully not to pay tax - thus for not extending cooperation the assessee should be dealt with relevant provisions of the Act. But, for that tax liability cannot be fastened to it without establishing the basic fact of existence and transfer of capital asset - hence we reverse the order of the FAA and decide effective ground in favour of the assessee.
Issues Involved:
1. Validity of the assessment proceedings. 2. Merits of the order of the First Appellate Authority (FAA) regarding the addition made by the Assessing Officer (AO) under the head 'income from short term capital gains.' Issue-wise Detailed Analysis: 1. Validity of the Assessment Proceedings: The assessee-company challenged the validity of the assessment proceedings initiated by the AO. However, since the issue on merits was decided in favor of the assessee, the tribunal did not adjudicate the validity of the assessment proceedings. 2. Merits of the Order of the First Appellate Authority (FAA): The core issue revolved around the addition of ?3288.50 crores to the income of the assessee under the head 'income from short term capital gains' by the AO, which was confirmed by the FAA. The AO had concluded that the assessee transferred its stake outside India to M/s. Super Max, Singapore for ?148.52 crores, while the actual value of transfer was ?3437.02 crores, resulting in an alleged evasion of capital gains tax. Key Points Considered by the Tribunal: - Undisputed Facts: The tribunal noted several undisputed facts, including the acquisition of businesses of RCC and VMPL by the assessee on a slump sale basis, issuance of shares to SSPL, and the valuation of shares and businesses not being questioned by the departmental authorities. - Historical Background of Capital Gains Tax: The tribunal provided a detailed historical context of capital gains tax, emphasizing that the charge of income-tax on capital gains is conditioned by the transfer of a capital asset. - Absence of Transfer of Capital Asset: The tribunal found that there was no transfer of capital asset by the assessee during the year under consideration. The AO and FAA failed to identify any specific capital asset transferred by the assessee. - Linkage to SOHM and Actis: The tribunal noted that the acquisition of shares of SOHM by Actis, both non-resident entities, could not be used to determine the taxability of the assessee under short term capital gains. The assessee had merely issued shares to its parent company, SSPL, and not to Actis. - Application of Section 2(47) and Explanation 2: The tribunal highlighted that the concept of 'creating of interest in any assets in any manner' was introduced in 2013 and was not part of the statute during the relevant period. Hence, the FAA's reliance on this provision was misplaced. - Applicability of Explanation 5 to Section 9: The tribunal clarified that Explanation 5 to Section 9 covers non-residents, whereas the assessee is a resident company. - Multi-layered Holding Structure: The tribunal observed that having associated enterprises outside India cannot be held against an assessee. The tribunal emphasized that businesses are free to structure their operations as they see fit within the legal framework. - Capital Receipt from Issuance of Shares: The tribunal agreed with the assessee's proposition that money received from issuing shares is a capital receipt and cannot be taxed. Conclusion: The tribunal reversed the order of the FAA, deciding the second effective ground in favor of the assessee. Consequently, the appeal filed by the assessee was allowed. The tribunal did not adjudicate the issue of the validity of the assessment proceedings due to the decision on merits.
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