2024 (1) TMI 71 - HC - Income Tax

Stay of all the recovery proceedings - addition of dividend as per section 2(22) as consideration paid by the appellant for purchase of its own shares from the shareholders - Assessee contented consideration paid by the appellant for purchase of its own shares in accordance with the Scheme, which is approved by this Court, is taxable only as capital gains in the hands of the shareholders under section 46A - subsequent amendment in section 115QA with effect from 01.06.2016 clearly indicates the legislative intent and taxation framework that purchase of its own shares under the Scheme by the appellant, was covered u/s 46A of the Act. Without properly appreciating the same, the Tribunal erred in treating the consideration paid by the appellant for purchase of its own shares from the shareholders as dividend as per section 2(22) of the Act and thus, held that the appellant is liable to pay u/s 115-O HELD THAT - As in the interest of both the parties, is inclined to grant an order of interim stay, in the following terms (i)The assessee shall make a payment of Rs. 1500 crores in cash or give a letter to the Bank to remit Rs. 1500 crores (Rupees One Thousand and Five Hundred Crores) to the credit of the respondent from the fixed deposits available, and furnish property security for the balance tax liability with interest and penalty, to the respondent, within a period of four weeks from the date of receipt of a copy of this order. (ii)On such payment and deposit of title deeds pertaining to the property, the respondent shall release the lien on the remaining fixed deposits lying in the Banks. (iii)In the event of default on the part of the appellant in complying with the aforesaid conditions, this order shall stand vacated automatically, without any further reference to this court; and it is also open to the Revenue to recover the tax liability from the appellant in the manner known to law. (iv)The substantial questions of law raised herein shall be considered at the time of final hearing of the appeal. (v)The memos filed by the respective parties, are taken on record.

Summary

Issues involved:
The judgment involves challenging an order passed by the Income Tax Appellate Tribunal regarding the tax treatment of a company's purchase of its own shares, leading to a significant tax liability and recovery proceedings.

Tax Treatment of Purchase of Own Shares:
The appellant argued that the consideration paid for purchasing its own shares should be treated as capital gains in the hands of the shareholders, not as dividend under the Income Tax Act. They highlighted the legislative intent and framework, contending that the Tribunal erred in its interpretation, leading to a substantial tax liability.

Outstanding Tax Demand and Recovery Proceedings:
The appellant faced a substantial tax demand, including interest and penalty, with a significant amount already secured and collected by the Revenue. The appellant sought relief from recovery proceedings and requested the release of fixed deposits to continue business operations.

Contentions of Appellant and Revenue:
The appellant emphasized their compliance with partial payments and proposed further payments to settle the tax liability, seeking the release of lien on fixed deposits. The Revenue argued for securing the outstanding demand to protect their interests, citing the appellant's financial position as well.

Court's Decision and Directions:
Considering the arguments from both sides, the court granted an interim stay with specific conditions. The appellant was directed to make a substantial payment, furnish property security, and comply with set timelines. Failure to meet these conditions would result in the automatic vacation of the order, allowing the Revenue to recover the tax liability through legal means. The court also noted that the substantial legal questions raised would be addressed during the final hearing of the appeal, and the memos filed by the parties were accepted as part of the record.

Conclusion:
The court's judgment provided temporary relief to the appellant by granting an interim stay on the recovery proceedings, subject to compliance with specified payment and security conditions. The decision aimed to balance the interests of both parties while addressing the complex tax treatment issues raised in the appeal.