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2020 (3) TMI 476 - SC - Income TaxDeemed dividend - Buy back of shares / reduction in share capital - amount remitted to non-residents - Determination of liability of the appellant u/s 115-O - as submitted that the appellant was never put to notice about the proposed determination - HELD THAT - On the issue whether communication dated 22.03.2018 was in the nature of determination of the liability, both the learned counsel were heard at considerable length, at the end of which it was agreed by Mr. Zoheb Hossain, learned Advocate for the Department, that the communication dated 22.03.2018 could be treated as a show cause notice and the Department be permitted to conclude the issue within a reasonable time, provided the interim order passed by the Single Judge of the High Court on 03.04.2018 was continued. The course suggested by the learned counsel for the Department was acceptable to the learned Senior Counsel for the appellant. Therefore, suggested that the appellant may file an affidavit of undertaking to withdraw the proceedings initiated by it before the AAR and the Department may also file an appropriate affidavit stating that it was willing to treat the communication dated 22.03.2018 as a show cause notice. An appropriate affidavit of undertaking to withdraw the proceedings initiated before the AAR has since then been filed by the appellant. The communication dated 22.03.2018 shall be treated as a show cause notice calling upon the appellant to respond with regard to the aspects adverted to in said communication. The appellant shall be entitled to put in its reply and place such material, on which it seeks to place reliance, within 10 days from today.
Issues Involved:
1. Liability under Section 115-O of the Income Tax Act. 2. Nature of the communication dated 22.03.2018. 3. Maintainability of the writ petition and the appeal. 4. Interim relief and attachment of bank accounts. 5. Proceedings before the Authority for Advance Ruling (AAR). Issue-wise Detailed Analysis: 1. Liability under Section 115-O of the Income Tax Act: The appellant, engaged in the business of software development, executed a buy-back of shares in the Financial Year 2016-17 under a Scheme of Arrangement and Compromise sanctioned by the High Court. The appellant remitted a total of ?19,080 crores to its shareholders, deducting tax at source for some shareholders but not for Cognizant (Mauritius) Limited, claiming treaty benefits. The Deputy Commissioner of Income Tax later questioned the non-payment of tax on these remittances, asserting that the buy-back amounted to dividends under Sections 2(22)(d) and 2(22)(a) of the Income Tax Act, thereby attracting tax under Section 115-O. The appellant contended that the buy-back was not subject to Section 115-O, leading to the dispute. 2. Nature of the Communication Dated 22.03.2018: The communication from the Income Tax Department dated 22.03.2018 was initially treated as a final demand for tax payment by the Department, leading to the attachment of the appellant's bank accounts. The appellant argued that this communication should be considered a show cause notice rather than a final determination of liability. The Supreme Court, after hearing both parties, directed that the communication be treated as a show cause notice, allowing the appellant to respond and be heard before a final order is passed. 3. Maintainability of the Writ Petition and the Appeal: The Single Judge of the High Court dismissed the appellant's writ petition, suggesting that the appellant should seek remedy through the Appellate Authority under the Income Tax Act. The Division Bench of the High Court upheld this view but noted that the Single Judge should not have delved into the merits of the case after declaring the writ petition non-maintainable. The Supreme Court, while disposing of the appeal, directed that the communication dated 22.03.2018 be treated as a show cause notice, and the appellant be given an opportunity to present its case. 4. Interim Relief and Attachment of Bank Accounts: The High Court initially granted interim relief by directing the appellant to deposit 15% of the demanded tax and furnish a bank guarantee for the remaining amount. This led to the attachment of several bank accounts and fixed deposits of the appellant. The Supreme Court maintained the interim relief, allowing the appellant to continue its business operations while the matter is being reconsidered by the tax authorities. 5. Proceedings Before the Authority for Advance Ruling (AAR): During the dispute, the appellant filed an application before the AAR seeking a ruling on the tax liability under Section 115QA or Section 115-O. The High Court dismissed the writ petition, stating that the matter should be resolved by the Appellate Authority. The Supreme Court directed the appellant to withdraw the AAR proceedings and allowed the Department to treat the communication dated 22.03.2018 as a show cause notice, thus providing a fresh opportunity for the appellant to present its case. Conclusion: The Supreme Court directed that the communication dated 22.03.2018 be treated as a show cause notice, allowing the appellant to respond within ten days and be heard by the tax authorities. The interim order for maintaining the deposited amounts and fixed deposits was extended until a final decision is made. The appeal was disposed of with directions for a fresh determination of the appellant's tax liability, ensuring that the merits of the case are independently assessed by the concerned authorities.
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