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TMI Blog2015 (10) TMI 2487X X X X Extracts X X X X X X X X Extracts X X X X ..... sts. Even if there was a change therein on the basis of the Revenue's stand itself the Tribunal concluded quite contrary to what is now urged before us. Apart therefrom, we find that the essential ingredients of the definitions as amended are not satisfied and the conflicting and shifting stand of the Revenue worsens the position. Another agreement between a co-subsidiary of the appellant CGP Mauritius and AG and AS and their companies which allegedly had yet another set of call options in favour of CGP. - Held that:- this is only an intention of the parties. It has never translated, even according to the Tribunal, into anything beyond what is concluded by the Tribunal and to be termed as a transfer. Applicability of section 92B(2) - Held that:- The Tribunal does not indicate in any of the foregoing paragraphs which we have referred or reproduced above that the transaction in question is in the nature of purchase, sale or lease of tangible or intangible property. The Revenue itself understands that this provision does not necessarily require a transfer or assignment of a property or creating any right or interest in the same, but attempts to justify the conclusion reached by the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, namely, sections 92B(1) and 92B(2). In any event, the Tribunal committed a basic and fundamental error in not referring to Chapter X, its title and subsection (1) of section 92 before applying the mechanism devised therein. If Chapter X has been inserted to make special provisions relating to avoidance of tax and by section (1) of section 92 computation of income from international transaction having regard to arm's length price has to be done, then, there ought to be an income arising from an international transaction. That only would enable applying further provisions in this Chapter. That being not the position even on this aspect, we are unable to agree with Mr. Setalvad. Thus Tribunal's order is vitiated by serious errors of law apparent on the face of the record. Tribunal's order contains inconsistent and contradictory findings on the issue discussed above. We have also indicated the contradictions and inconsistencies in these findings in the foregoing paragraphs. We have found that the Tribunal's attempt to get over the binding judgment of the Hon'ble Supreme Court in the manner done also cannot be sustained. - Decided in favor of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... misconceived in law in holding that the Hon'ble Supreme Court has not dealt with the transfer of call option rights by the appellant to its associated enterprise when the Hon'ble Supreme Court has examined the transfer of 67% controlling interest from HTIL to VIH BV and the same specifically included the 12.25% option rights that were the subject matter of the appeal before the Tribunal? (5) Whether the Tribunal erred in law in not appreciating that the jurisdictional fact before the Hon'ble Supreme Court and for invoking transfer pricing provisions in the present case is that there must be a transfer from the appellant to any other person and, therefore, once the Hon'ble Supreme Court has decided this jurisdictional fact the Tribunal was bound to follow it? (6) Whether the Tribunal erred in law in holding that the call options were transferred vide the TII Shareholders' Agreement even though no nomination was actually made under the said Agreement and the Tribunal had already rendered a finding in law that a transfer can only take place upon actual nomination? (7) Whether the Tribunal was correct in law in holding that an assignment has taken place under the TII Shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court and nor considered by it while rendering its judgment report in 341 ITR 1? (17) Whether on the facts and circumstances of the case, the Tribunal has grossly misconceived the law by widening the definition of 'international transaction' beyond its scope as defined under Section 92B(1) of the Act and applying the same to a transaction entered into between two resident entities? (18) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sale of the Call Centre business by the appellant to HWP India was an international transaction in terms of section 92B(1) of the Act? (19) Whether on the facts and circumstances of the case, the impugned order passed by the Tribunal in respect of section 92B(1) suffers from gross non application of mind and non-consideration of the criteria laid down in respect of applicability of doctrine of lifting of corporate veil and doctrine of substance over form by the Hon'ble Supreme Court in the case of Vodafone International Holding BV vs. UOI & Anr [(2012) 6 SCC 631]. (20) Whether the Tribunal was justified in upholding the action of the DRP in treating the transaction as an internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Service Agreement for Contact Centre Services between Hutchison Call Centre Holdings Limited, British Virgin Islands and the appellant dated 1st January, 2006. 6 The appellant claims that as per the Foreign Direct Investment (for short "FDI") norms in India, the ceiling in the telecom centre was 49% and which was enhanced to 74% in November, 2005. In order to acquire further equity interest as and when the FDI ceiling in the telecom sector were relaxed, Hutchison group looked for Indian investors who would be independent, but not hostile and would hold the interests till the sector was opened up. These would make a gain at a subsequent point of time when they exit the investment. The Hutchison group, therefore, identified three investors being Analjit Singh (for short "AS"), who was one of the leading industrialists of the company and a promoter of Hutchison Max Telecom Limited - Mumbai Telecom Circle and had formerly sold his investment to Hutchison. The other one was identified as Asim Ghosh (for short "AG"). He was associated with this group for a long time and was a Chief Executive Officer of Hutchison Essar. The third was the IDFC Group of Investors, leading players in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments Private Limited (for short "SMMS") indirectly held 2.77% shares in the operating company VIL. The options in regard to this agreement styled as 2006 IDFC Framework Agreement are referred to in paragraph 20 of the Memo of Appeal. The effect of these options and exercise thereof would mean that the appellant acquiring the entire issued share capital of SMMS and obtaining an indirect stake or holding in VIL. Annexure F is this agreement. 8 A public announcement was made by HTIL in December, 2006 of a possible sale of its entire equity interest in the Indian telecom company VIL. The Vodafone group, therefore, solicited its interest in acquiring the Indian telecom business held by the Hutch Group. Accordingly, on 11th February, 2007, HTIL and Vodafone International Holdings B.V. (for short "VIH BV") entered into a Share Purchase Agreement (for short "SPA") whereby HTIL agreed to procure the consent of HTI (BVI) Holdings to transfer the share capital of CGPC and assign certain loan interests to VIH BV. As a result of this SPA executed on 11th February, 2007, VIH BV acquired 66.99% equity interest in VIL and in the manner set out hereinbelow : (i) 42.34% direct interest in VIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5th July, 2007, is then referred to in paragraph 25 of this appeal paper-book. 12 During the relevant assessment year 2008-09, the appellant filed its return of income on 30th September, 2008, declaring total income of ₹ 10,64,71,720/- alongwith Form 3CEB wherein international transactions were reported. That is income earned by the appellant during the relevant financial year from providing Call Centre services to Hutchison Call Centre Holdings Limited and issuance of 908,500 equity shares of the appellant to Vodafone Teleservices (India) Holdings Limited, a Mauritius company at a premium of ₹ 13,529/- per share aggregating to a total consideration of ₹ 1229,99,99,800/-. It was clarified that the issuance of equity shares did not affect income of the company but was reported merely out of abundant caution. 13 A revised computation of income was filed during the course of assessment proceedings declaring total income of ₹ 15,52,48,000/-. The Assessing Officer referred the matter to the Transfer Pricing Officer on 22nd January, 2010, to examine all transactions reported by the appellants. The copies of the return for revised computation are Annexures O and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tify the tax liability of VIH BV under section 201 of the Act. Pursuant to the said direction, the Assessing Officer called upon VIH BV to make its submissions on quantification of various rights and entitlements, including the 12.25% call options under the AS and AG Framework Agreements which were held by this Hon'ble Court in its judgment dated 8th September, 2010 to have been transferred to VIH BV. A copy of the interim order dated 27th September, 2010, is Annexure R to the appeal paper-book. 16 VIH BV in its submissions vide, inter alia, letter dated 19th October, 2010, to the Assessing Officer in the quantification proceedings, had submitted that the put options under the same 2007 FWAs were subsequently partly exercised in 2009 by Analjit Singh and Asim Ghosh and due taxes were paid by them. Along with the said letter, VIH BV had filed the Share Purchase Agreements between CGP India Investments Limited and AS and AG and their group companies and the corresponding FIPB Approvals in relation to purchase of shares, upon exercise of put option by AS and AG. Thereafter, on 22nd October 2010, the Assessing Officer passed an order quantifying the liability of VIH BV under Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y invited the attention of the Hon'ble Supreme Court to decide upon the issue of assignability of call options in favour of VIH BV by examining the 2007 FWAs. Pertinently, detailed submissions were advanced by both the parties on the issue of assignment of call options under the revised Framework Agreements of 2007 and other agreements specifically including the TII Shareholders' Agreement, which were duly examined by the Hon'ble Supreme Court. Copies of the written submissions advanced on behalf of the Income Tax Department and VIH BV before the Hon'ble Supreme Court in relation to the Framework Agreements are Annexures W (Colly) and X (Colly), to the appeal paper-book. 18 Meanwhile, while the proceedings before the Hon'ble Supreme Court in SLP(C) No. 26520 of 2010 filed by VIH BV were pending, assessment proceedings for AY 2008-09 of the appellant had commenced and hearings in relation to certain issues were held. 19 On 18th October, 2011, the TPO issued a show cause notice to the appellant, inter alia, stating that under 2006 Framework Agreement, the call option could only be exercised by the appellant, however, under Clause 4.4 of the revised 2007 Framework Agreements, this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is the appellant's case that the assignment of cashless option by IDFC Investors in favour of the appellant is not at all comparable to the alleged assignment of call options by the appellant to VIH BV under clause 4.4 of the 2007 FWAs. Copies of the submissions dated 21st October, 2011 and 25th October, 2011 and the TPO's order dated 31st October, 2011 are Annexures Z, AA, and BB respectively to the appeal paper-book. 21 Pursuant to the TPO's order, the AO issued a show cause notice dated 16th November, 2011 to the appellant seeking explanation as to why the adjustment of ALP recommended by TPO should not be made to the total income of the appellant. Since during this time, the proceedings before the Supreme Court in SLP(C) No. 26529 of 2010, wherein the issue of assignment of call options was in issue, had been completed and the judgment was reserved, the appellant while giving its preliminary submissions on 28th November, 2011, requested the AO to await the decision of the Hon'ble Supreme Court as parallel collateral proceedings on the same issue would not be merely inappropriate, but also amount to interference with the course of justice. The appellant on 15th December, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inabove have been referred extensively in the judgment of the Supreme Court of India. Therefore, once the Supreme Court holds that there is no transfer of asset but a transfer of share and that there is no assignment of any call options, then, these findings bind this Court even in the present proceedings. More so, when a review petition filed by the Revenue seeking review of the Hon'ble Supreme Court judgment also raised such issues. Relying on this judgment of the Hon'ble Supreme Court, the appellants claimed that they challenge the order of the Transfer Pricing Officer dated 31st October, 2011 as well as the draft assessment order dated 29th December, 2011 only on the issue that the Transfer Pricing Officer (for short "TPO") and the Assessing Officer (for short "AO") did not have the jurisdiction to make transfer pricing adjustments on the same transaction. The appellants also pursued a statutory remedy by filing objections before the Dispute Resolution Panel (for short "DRP") under section 144C of the IT Act on 30th January, 2012, against the draft assessment order and without prejudice to the filing of a writ petition bearing No.488 of 2012 on jurisdictional issues. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put options in 2009 and the documents in relation thereto have been received from FIPB in February-March 2014 and before that the Revenue was not aware of the factum of exercise of put options. As a matter of fact, the factum of exercise of put options was disclosed by the appellant before the AO vide submissions dated 15th December, 2011 and also in the objections filed before the DRP. In addition, the same fact was disclosed before the AO of VIH BV and the Hon'ble Supreme Court in VIH BV's case. Further, this fact was also disclosed in the transfer pricing report of the appellant filed before the TPO for AY 2010-11 vide submissions dated 7th June. 2012. The index of the documents filed by the Revenue on 20th February, 2014 in 3 volumes is Annexure VV to the appeal paper-book. A copy of the Revenue's applications dated 24th February, 2014 is Annexure WW to the appeal paper-book. A copy of the index of the additional documents filed on 24th February, 2014 alongwith the corresponding documents filed in 4 volumes are Annexures XX, YY (Colly.), ZZ (Colly.), AAA (Colly.) and BBB (Colly.), respectively. A copy of the application dated 3rd March, 2014, alongwith the additional documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the DRP in the appellant's proceedings. Copies of appellant's application dated 9th April, 2014, Revenue's reply dated 15th April, 2014 and index of rebuttal evidence filed by the appellant on 16th June, 2014, alongwith the relevant rebuttal documents are Annexures JJJ, KKK, LLL and MMM (Colly.) respectively to the appeal paper-book. 30 Additionally, the appellant had also filed documents about the FIPB proceedings in 2009 in relation to the acquisition of shares of AS and AG Group companies by CGP India Investments Ltd. pursuant to the exercise of put options, subsequent exercise of put option in 2009 and the following nomination of CGP India Investments Ltd. to establish that the Revenue had all through known about the subsequent exercise of the put option in 2009, as it had objected to the approval being granted by the FIPB. Copy of index of documents obtained from the FIPB alongwith the documents containing minutes of FIPB proceedings are Annexures NNN and OOO (Colly.) to the appeal paper-book. 31 The appellant submits that the Supreme Court judgment related to the alleged gain arising from the transfer of the CGP share to VIH BV. The Revenue contended that the considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Respondent, yet neither of the parties addressed any argument on the said agreement. Accordingly, the Tribunal directed both the parties to file written submissions on the said shareholder's agreement. 34 The appellant in its submissions dated 17th November, 2014, submitted that the TII's Shareholders Agreement has no relevance or bearing on the issue of assignment of call options under the 2007 FWAs and that the option rights under the TII's Shareholders Agreement are inchoate rights as they are conditional upon the exercise of call/put options under the 2007 FWAs. On the other hand the Revenue in its submission in respect of the said shareholder's agreement submitted that the introduction of VIH BV as a party to the Framework Agreement as well as Shareholders Agreement for the first time is a clear evidence of the fact that VIH BV acquired the option rights by signing the Framework Agreement and secured its value by entering into the Shareholders Agreement simultaneously. Therefore, nowhere did the Revenue contend that by execution of the Shareholders Agreement, the call options were transferred in favour of CGP India Investments Ltd. Copies of the submissions dated 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the appellant filed a miscellaneous application on 30th December, 2014 (alongwith Addendum on 31st December, 2014) before the Tribunal under Section 254(2) of the Act. In the said miscellaneous application (M.A. No.443/Mum/2014) the appellant has, inter alia, stated that the impugned order of the Tribunal suffers from a mistake apparent on the face of the record as findings have been arrived at without providing an opportunity of hearing to the appellant and accordingly the impugned order is violative of the principles of natural justice. In addition, certain other errors apparent from the record were pointed out for rectification. A copy of the miscellaneous application dated 30th December, 2014 alongwith the Addendum filed on 31st December, 2014 are Annexures TTT and UUU, respectively to the appeal paper-book. 38 As on the date of filing the present statutory appeal, the miscellaneous application filed by the appellant is pending consideration by the Tribunal. 39 As stated earlier, with a view to divest the Indian telecom business of Hutchison Essar Limited (hereinafter referred to as "HEL"), HTIL entered into an SPA with VIH BV whereby VIH BV acquired the entire equity share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok. In accordance with paragraph 6(b) of the MoU, HWP India paid ₹ 64 crores to 3GSPL on 30 April 2007. 44 Following the signing of the BTA and the fulfillment of a number of other conditions precedent, the acquisition of the CGPC share was completed on 8th May, 2007. By virtue of this transaction, the appellant (3GSPL at the relevant time) which was indirectly owned by HTIL became a part of VIH BV. Consequently, the name of 3GSPL was changed to Vodafone India Services Pvt. Ltd. ("VISPL"), i.e. the appellant herein. It is pertinent to state that the appellant was referred to as 3GSPL (part of HTIL Group) before the completion of the SPA and on completion of the SPA, the name of the appellant was changed to VISPL, the appellant (part of VIH BV Group). 45 As per the terms of the BTA, the Call Centre business was transferred on slump sale basis for a consideration of ₹ 64 crores. The said price of ₹ 64 crores was arrived at based on a valuation report dated 16th March, 2007 issued by M/s. Dalal & Shah, a registered Chartered Accountant firm. The valuation report determined the value of the Call Centre business by using a weighted average of the Net Asset Value (for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP in addition to upholding the transaction as a deemed international transaction under section 92B(2), which was applied by the TPO/AO, also alternatively suo moto applied section 92B(1) of the Act. The DRP while issuing directions under section 144C of the Act at Para 10.2.2 erroneously lifted the corporate veil of HWP India and applied the 'substance over form' doctrine and, accordingly, held that the sale of the Call Centre business is an 'international transaction' effectively between the appellant (a resident entity) and HWL (a non-resident entity being the parent of HWP India) thus falling within the scope of section 92B(1) of the Act. The DRP also alleged that HWP India was interposed only to evade tax by avoiding transfer pricing compliance. This was in complete disregard to the fact that the call centre business was transferred to HWP India for good commercial, regulatory and legal reasons. So far as the determination of the arm's length price is concerned, the DRP upheld the valuation based on the PE multiple methodology adopted by the TPO/AO but reduced the arm's length price of the Call Centre business to ₹ 1408 crores by: (i) eliminating 2 out of 3 comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of the Tribunal's common order dated 22nd July, 2011, passed in the appellant's case for the AYs 2005- 06 and 2006-07 is Annexure AAAA to this appeal paper-book. Factual Matrix for the year under appeal - AY 2008-09 54 As aforementioned, the appellant entered into MSAs with its AEs. Clause 6 of each MSA read with Schedule I thereto and a letter dated 5th March, 2007, provided that the appellant would be entitled to a service fee of 107% of the total cost. Clause 3 of Schedule 1 to the MSA made it clear that the service fee shall be calculated by reference to the total cost plus an appropriate margin and that the margin shall aim to be an arm's length price on a total cost over a financial period (April to March) adequate to compensate for all the functions performed, assets employed and risk assumed by the appellant and would be determined in accordance with internationally accepted arm's length standard. 55 The appellant along with its return of income furnished a report in Form 3CEB dated 30th September, 2008, in respect of the International transactions entered into by it with its Associated Enterprises. The said report set out the details of the various International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same. The TPO (para 7.15) rejected the appellant's TP report citing the following reasons: - not using current year's data; - not using different accounting year filter; - not selecting proper criteria for rejecting and selecting comparable companies; - not selecting proper criteria even tough they are functionally similar and operating in similar economic environment. 59 Subsequently, a fresh search of comparables was conducted by the TPO. While doing so, the TPO failed to appreciate that as per section 92C(3) of the Act, he had jurisdiction to do a fresh search of comparables only if the comparables selected by the appellant were either insufficient or had other deficiencies. Neither the AO nor the TPO pointed out which of the above mentioned four conditions of section 92C(3) of the Act, if any, was satisfied. 60 The TPO passed an order dated 31st October, 2011, under section 92CA(3) of the Act by which he determined the arm's length margin of the international transactions entered into by the appellant to be 32.33% based on 17 comparables selected by him. 61 The respondent passed a draft assessment order dated 29th December, 2011, under section 143(3) read with sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in accordance with the OECD guidelines (Para 27.1 on page 43). Even the Respondent in its submissions before the Tribunal conceded that working capital adjustment may be granted to the appellant in line with the appellate order of the Tribunal for AY 2007-08. 68 It is in the above factual scenario and the case as set up by the appellant that we will have to appreciate the contentions raised before us by the learned senior counsel appearing for the parties. 69 Mr. Harish Salve, learned senior counsel appearing on behalf of the appellant submitted that the order passed by the Income Tax Appellate Tribunal and impugned in this appeal is erroneous and illegal. He submits that the said order is vitiated by total non application of mind to several vital and crucial aspects of the case. The order passed by the ITAT is perverse inasmuch as the materials which were relevant have either been overlooked or omitted from consideration. This has led to the Tribunal rendering inconsistent and contradictory conclusions. The Tribunal, in a very lengthy order, has failed to note the fundamental controversy and by losing sight of a legal submission canvassed throughout. Thus, the Tribunal misdire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains. This matter related to financial year 2007-08. Mr. Salve submits that in the judgment of the Hon'ble Supreme Court reversing that of this Court, there is an observation that the call options had not been exercised "till date". Mr. Salve submits that when the Supreme Court observed that this option was not exercised till date it had in mind till the end of that financial year. Even if that expression relates to the date of the delivery of the judgment by the Hon'ble Supreme Court, there is nothing erroneous or incorrect about the same. Mr. Salve submits that it is the counter parties who had exercised the put options sometime in 2010 and pursuant to which the shares had been acquired. Mr. Salve, therefore, submits that there was no occasion for the Revenue then to take up a case and which cannot be reconciled with its consistent stand of assignment of call options. 71 In that regard, Mr. Salve invited our attention to the findings of the Tribunal with regard to what is styled as a third case by him. Mr. Salve faults the Tribunal for having discovered from the documents filed another agreement which was entered into between the shareholders of the appellant CGP (Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 137 of the paper-book from the Tribunal's order. Mr. Salve then took us through the judgment of the Hon'ble Supreme Court and submitted that the main issue is noted in paragraphs 72, 73 and 76 of the judgment. He also referred to paragraphs 235 and 236 of this judgment and equally paragraph 231 to urge that the approach of the Revenue and upheld by the Tribunal is nothing but revisiting or reconsidering these observations and findings in the Supreme Court judgment. Mr. Salve submits that the Supreme Court judgment holds that the call option was not exercised and that the call and put option are not the same. The first one, namely, the call option is to get hold of the company whereas the second or other is to go out. There is no fraud perpetrated on the Revenue and in any manner. The put option in this case was exercised in later years and in that regard, our attention is invited to the law report in which the first Vodafone judgment is reported viz. 341 ITR 1. Mr. Salve has taken us through pages 48, 49 and 50 of this law report to submit that the factual details noted in the foregoing paragraphs by us match completely with that of the judgment of the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suming this submission fails even then on merits the assignment of call option cannot lead to a taxable capital gain. Mr. Salve relied upon section 2(14) of the IT Act which is a definition of the term 'capital assets'. Mr. Salve would submit that the Parliament has stepped in and inserted an explanation in this definition and given it retrospective effect, but even this explanation is not attracted for an interest in property must be the foundation on which this definition has to be construed. Mr. Salve submits that the Tribunal has misread and misinterpreted the concession of the learned senior counsel before it that call option is valuable. It may be valuable but it is not property. Mr. Salve, therefore, submits that so long as there is no transfer of capital asset, the provisions in Chapter X of the IT Act which are styled as machinery provisions by him are inapplicable. 74 Further alternate submission of Mr. Salve is that there is a difference between assignment of options and an option having potential of assignment. That it is capable of being assigned or has the potential of being assigned would not make the act an assignment of call options. He relied upon pages 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the contractual route i.e. options. Any beneficial interest in these 15% would reach the FDI requirements. (E) Thus it was only if the FDI limit was relaxed that 3GSPL/ appellant would become eligible to increase its stake in any way, whether by acquiring the subscription shares and these option shares or merely by acquiring these option shares. (F) There was a shareholders' agreement in 2006 which had 'call' and 'put' options at a different level. CGPM had a 'call' option under this shareholders' agreement to acquire the shares of TII held by the two Tier II companies (NDC of the AS group and Centrino of the AG group) at the stipulated price. The shareholders' agreement was a tripartite agreement in the sense that companies of Hutchison group, AS and AG group were parties to it, in addition to the target company i.e. TII. (G) These options operated at a lower level than the Framework options. Clearly, once the Framework options were exercised by 3GSPL (a co-subsidiary of CGP) and full value paid, a second transaction at the lower level (acquiring the shares of TII) would only be if Hutchison wanted to move economic value from 3GSPL to CGP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the AG group of companies from Goldspot / AG Mercantile down to Centrino (Nadal) would become a VISPL subsidiary. VISPL would have already acquired indirect control over the TII shares. The only purpose thereafter of Nadal / Centrino exercising a put option would be to remove the shares of TII from one VIH BV subsidiary (VISPL) to another VIH BV subsidiary (CPGM) for purposes of corporate restructuring. None of this has any relevance. (L) The SHA of 2007 also had Centrino, NDC, CGPM and TII as parties. VIHBV was added as a confirming party. The agreement was carefully drafted - the rights and obligations under the agreement were cast upon the "parties" which expression was defined, excluding VIHBV. (M) The SHA contained a 'put' option by which NDC or Centrino (Nadal) could require CGPM or its nominated person to purchase the shares held by it in TII (this put option was subject to the limitation in the FWA, i.e. it was subservient to the call option - thus it could only be a measure of restructuring after the appellant had become the parent company). (N) This SHA also had a call option like the previous SHA. CGPM could compel Centrino (Nadal) and/or NDC to sell their s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (B) Finally, to hold that the call options rights held by the appellant to require AS and AG to sell Goldspot/AG Mercantile and Scorpio shares were assigned by virtue of a clause in the 2007 shareholders' agreement to CPGM, which clause entitled CGPM to acquire TII shares from Centrino / Nadal and NDC is a leap of faith. 77 As far as the Call Centre business is concerned, Mr. Salve referred to the facts as culled out and then contended that the issue is whether the scope of section 92B(1) of the Income Tax Act, 1961 that defines "international transaction" for the purpose of the application of transfer pricing regulations (Chapter X) can be applied to a transaction entered into between two resident entities on the specious ground that the transaction was entered into with an Indian company to avoid applicability of Chapter X. Secondly, whether the finding that the transfer of an asset from one Indian subsidiary to another Indian subsidiary of Hutch can be considered to be a device to evade tax, because had the transfer been made to a foreign company, the department could have availed of the Chapter X machinery to arrive at an arms length price, overlooking that the transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O also alternatively suo moto suggested that section 92B(1) of the Act could also be applied. This fact has been noted by the Tribunal at para 115 of the impugned order. The DRP, while issuing directions under section 144C of the Act, at para 10.2.2 erroneously lifted the corporate veil of HWP India and applied the 'substance over form' doctrine and, accordingly, held that the sale of the Call Centre business is an 'international transaction' effectively between the appellant (a resident entity) and HWL (a non-resident entity being the ultimate parent of HWP India) thus falling within the scope of setion 92B(1) of the Act. The DRP also held that HWP India was interposed only to evade tax by avoiding transfer-pricing compliance. The DRP upheld the valuation based on the PE multiple methodology adopted by the TPO/AO but reduced arm's length price of the Call Centre business. The AO passed the final assessment order dated 31st October, 2012 in pursuance of directions of DRP inter alia, determining a capital gain on the transfer of the Call Centre business. (G) The Tribunal vide its order dated 10th December, 2014, accepted the appellant's contention that secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he HWP (India) procured finance from its Group Companies for the purpose of business." Furthermore, the income tax department vide letter dated 18th June, 2014, had also filed the financial statement of HWP Investment Holdings (India) Limited ('HWP Mauritius') for year ended 31st December 2007 (pages 4262 to 4280, paperbook-12) to show the source of funds for payment of preferences shares of HWP India. HWP Mauritius was a tax resident of Mauritius and immediate holding company of HWP India in 2007. (K) It is important to note that 3GSPL (transferor) was an indirect subsidiary of HTIL until 8th May, 2007, prior to the completion of SPA. During that period, HWP India (transferee) was also an indirect subsidiary of HWL and both HTIL and HWL were public listed companies in Hong Kong (having significantly different beneficiaries), therefore, in accordance with stock regulations, any transaction between them being a connected transaction was required to be on normal commercial terms and at arm's length. (L) The appellant submits that in the present case, the corporate veil of HWP India i.e. purchaser of the Call Centre business is lifted, merely on the premise that it raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then handed over written notes and further explaining his contentions. 80. It is urged that the question whether option rights are in the nature of capital asset was considered by the Hon'ble Supreme Court in the original Vodafone Capital Gain dispute. There the issue was whether any capital gain tax was attracted in the hands of HTIL when it transferred its 67% interest in VIL to VIHBV. As HTIL was non resident, the Hon'ble Supreme Court was considering the applicability of Section 9 in the case of an indirect transfer of capital asset. In this connection, the Hon'ble Supreme Court held that u/s. 9, only direct transfers are covered. (A) Subsequent to the Hon'ble Supreme Court's decision, through Finance Act, 2012, the provisions of section 9 along with section 2(14) and section 2(47) were amended with retrospective effective from 01.04.1962. This combined amendment of section 9 and section 2(14) and section 2(47) was to ensure that any transfer effected by creation of an interest in option rights will now be taxable. The respondent submits that while the language of amended provisions are in themselves adequate to construe that the option rights is a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding their stake in different countries. Their holdings structure becomes complex as it has to take into account taxation laws of different countries as well as the regulatory norms. As a result, because of the complex structure, it becomes difficult to understand the actual transactions being undertaken and the tax treatment to be given to it. The advanced countries hence developed the transfer pricing (TP) provisions as a part of their respective domestic law. The transfer pricing provisions regulate the transactions entered into by different companies of a multinational group situated in different tax jurisdictions in their dealings with one another. This ensures that each country gets its due share of taxes. These laws have been in place in other countries for many years whereas India was a late entrant. (A) The Transfer Pricing (TP) provisions were enacted in India in 2001 and the same was first applicable for assessment year 2002-03. The object of these provisions is to prevent erosion of tax base from the country. The Indian TP provisions enact that income arising from an international transaction should be determined having regard to the Arm's Length Price (ALP). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ABC Corporation (ABC Corp) is ₹ 700. If A has bought a call option to buy the shares of ABC Corp at 710 say for a premium of ₹ 5 from B, then A would be known as option holder and B would be option writer. Now, if the price of ABC Corp goes to 720, it would be profitable for Mr. A to exercise the option as he would earn profit of ₹ 5 (720 market price - 710 strike price + 5 option premium paid). Therefore, a call option is exercised only when the market price of the underlying share goes up, in this example beyond 715 or else the option holder will allow the option right to expire without actual purchase of share. (b) Similarly, a Put Option provides the holder with a Right to sell but not the obligation to sell, at a known price (strike price) and date. A person buys a put option if he anticipates the market to go down For example, if the prevailing price of ABC Corporation (ABC Corp) is ₹ 700. If A has bought a put option to sell the shares of ABC Corp at 690 say for a premium of ₹ 5 to B, then A would be known as option holder and B would be option writer. Now, if the price of ABC Corp goes to 680, it would be profitable for Mr. A to exercise th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) 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. (e) Clause 4.6(b) of the FWA's of 2007 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 AS/AG, either under Call or Put Options, the annual payment made to AS/AG gets proportionally reduced. This shows that the transfer under Call and Put Options have the same effect under the FWA. (f) From the terms of the Option, it is also clear that both Call Option and the Put Option can be effectively exercised only when the sectoral CAPS are relaxed. 86. Thus from a reading of the FWA, whether Put option is exercised by AS/AG or Call Option is exercised by the appellant, it is one and the same and can be said to be two sides of the same coin. 87. In this case, VISPL had a Call option to ask AS/AG to sell shares of SBP/AG Mercantile shares while AS and AG had so called put option to ask VISPL to buy same shares of SBP/AG Mercantile. The so-called call/put option in the Framework Agreement is examined in view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Over and above this, the AS group of companies would get 10.2 million per annum accruing on a daily basis up to 7 May 2017 or until AS ceases to hold shares indirectly (Clause 4.4 (d) of FAW of 2007). Similarly, the AG group of companies would get 6.3 million per annum accruing on a daily basis up to 7 May 2017 or until AS ceases to hold shares indirectly (Clause 4.4 (d) of FWA of 2007). (b) Therefore, there is no reason for AS and AG to exercise put options early as the consideration to be received by them is fixed by the FWA's of 2007. In fact, if the put options are exercised early, it would result in discontinuance of annual payment to AS and AG by the appellant/VIH BV which is valid till 7th May, 2017. Therefore, once the put options are exercised, the AS and AG would be in a great loss by forgiving annual payments i.e. 10.3 million US$ for AS and 6.3 million US $ for AG group of companies. Hence, in the given situation, the AS and AG would not like to exercise their put option as they would be in a great loss by exercising the same. Hence, it may be seen that the argument of the appellant on this account are not based on the facts and are misleading. (c) In this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action' has been defined in Clause (v) of sec. 92F and Rule 10A(d). Clause (v) of sec. 92F "transaction" includes an arrangement, understanding 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." Rule 10A(d) "transaction" includes a number of closely linked transactions. 92. The legislature has provided an inclusive definition of the term 'transaction'. It is a word of widest import. Thus the term transaction not only includes a sale, purchase, lease, mortgage, pledge, rent or hire but also any other dealing or course of dealings undertaken in the normal course. In the specific context of T.P. Provisions, it includes any arrangement or undertaking, or action in concert. Further, there is no necessity that such arrangement or understanding should be in writing or legally enforceable. Thus, even an oral understanding or arrangement which may or may not be enforceable at law will constitute a transaction. INTERNATIONAL TRANSACTION 93. The next aspect is whether the transaction qualifies as an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is assumed that the transfer of call centre took place after 08.05.2007, due to the fiction created by section 92A(2), the AE relationship would continue for the entire year and there is no question of applying section 92B(2). (b) Additionally, the ITAT has held that the transfer of call centre took place before the execution of SPA. Once it is held that the call centre was transferred before the share transfer, once again the applicability of section 92B(2) is ruled out. 98 The Revenue submits that while the first conclusion has been arrived at on the basis of language of section 92B(2), the second finding has been arrived at by examining the terms of the SPA. The revenue's argument in respect of the above findings are as follows : 99 The Honourable ITAT has dealt with the first finding at Para 122 of its judgment. It has held that the assessee was a associated enterprise of both HTIL and VIH BV during the previous year in terms of section 92A(2). Thus, once two enterprises are associated enterprise at any time during the previous year they shall be deemed to be the associated enterprise for the purpose of section 92A(1). Similarly at Para 128, it has been held that HWP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction undertaken between A Ltd., India and B Ltd., Hongkong (during the period they complied with the conditions in section 92A) is covered by the TP provisions, the legislature used the word 'at any time during the year'. The object of using these words is only to ensure that a transaction which in fact was undertaken between parties who fulfilled the conditions contained in Section 92A at the time when the transaction was undertaken, does not escape the applicability of the TP Provisions. However, the purpose of the words at any time during the year cannot be extended to such an extent that transactions that were undertaken at a time when the parties did not fulfil any of the conditions contained in section 92A(1) the transaction would still be subjected to Transfer Pricing Provisions. 102 The ITAT has arrived at the second conclusion that BTA was transferred before the share is based on the interpretation of the provisions of SPA. The ITAT has relied on clause 8.8(j) of the SPA wherein it is stated that HTIL was under an obligation to procure and deliver the call centre business transfer agreement duly executed into between the assessee and an affiliate of HTIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 (Pg. No.473) - see Paragraph 13 (iv) of these Submissions below. i. Clause 10.2 (Pg. No.473) - see Paragraph 13 (iv) of these Submissions below. j. Clause 13(c) (Pg.No.480) - see Paragraph 13 (v) of these Submission below. 105 The following clauses of the BTA clearly show that the intention of the parties was always to transfer the call centre only upon fulfilment of various conditions and the same happened only on 4th December 2007. i. The appellant has agreed to sell the business as at closing date (Recital (C) on page 45090/Vol.XIII). The 'closing date' is defined as the date on which closing takes place in accordance with BTA as mentioned in Clause 6.1 (Page No.4513/Vol.XIII). As per Clause 6.1, the sale and purchase of the business shall be completed on the third business day after the closing conditions are fulfilled as per Clause 5 of the BTA. The closing date as declared in financial of the appellant for the F.Y. 2007-08 is 4th December,2007. ii. As per Clause 2.1 of the BTA, the appellant shall transfer and the purchaser shall purchase the business at the closing date (Pg.4509/Vol.XIII). iii. As per Clause 2.2 of the BTA, the ownership and title in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid to HTIL and the share was transferred in the name of VIH BV in the register of members of CGP, CI. A tax deed of covenant was also signed in favour of the VIH BV to indemnify VIH BV in respect of taxation or transfer pricing liabilities. Thereafter, the nominee share in 3 GSPL was transferred. This clearly shows that 3 GSPL became a wholly owned subsidiary of Vodafone group on 8th May before BTA was entered. The signing of the BTA has been shown at sr.no.78. Thus, as per VIH BV's own list of dates the BTA was signed after the CGP share was transferred, as was contemplated by the SPA. This is an admission before Hon'ble Supreme Court, which binds the appellant. xi. As per termination clause in Clause 20 of the BTA (Pg.No.4520/Vol.XIII), the BTA can be terminated by mutual consent. Therefore, VISPL has a right to terminate the BTA. In case of termination of BTA, the call centre will remain with VISPL which on 8/5/2007 became a Vodafone group company. Therefore, if the intention was to transfer the call centre from one Hutch group company (GSPL) to another Hutch group company (HWP India), there would have been no need for such a termination clause. This proves that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The clauses extracted above show that the transfer could not have taken effect until fulfilment of various conditions which took place only on 04.12.2007. This reading is also in accordance with clause 8.8(j) of the SPA. Accordingly, it is submitted that the transfer of call centre business took place only on 04.12.2007 and not at any time before that. 109 In that view of the matter, when the transfer took place on 04.12.2007, the share transfer had already taken effect and the assessee was part of the Vodafone Group and HWP India was not an associate enterprise of the assessee. The revenue submits that it was not only the intention of the parties to transfer the call centre business only after fulfilment of various conditions specified in the BTA, but the transfer in fact took place on 04.12.2007. In this connection, it may not be out of place to mention that in the context of the transfer of shares, the relevant date considered for the purposes of determining AE relationship is 08.05.2007 when the SPA was executed and not 11.02.2007 when the SPA was entered into. For these reasons, it is submitted by Mr. Setalvad that there is no merit in this appeal and it be dismissed. 110 At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess in India in 1992. It invested as a group in an Indian joint venture vehicle by the name Hutchison Max Telecom Limited (HMTL) later renamed as Hutchison Essar Limited (HEL). On 12th January, 1998, CGP stood incorporated in Cayman Islands with limited liability as an exempted company its sole shareholder being Hutchison Telecommunications Limited, Hong Kong (HTL for short). This company HTL stood transferred to HTI (BVI) Holdings Limited [HTIHL (BVI) for short]. The Board resolution dated 17th September,2004, is referred in that regard. Hutchison Telecommunications Limited, Hong Kong, and thereafter HTIHL (BVI) was thus the buyer of the CGP share. HTIHL (BVI) was a wholly owned subsidiary (indirect), according to the Tribunal, of Hutchison Telecommunications International Limited (HTIL for short). In February, 2005, consolidation of of HMTL / HEL was effected. Consequently, all operating companies below HEL were held by one holding company HMTL / HEL. There were Indian Tier I companies above HMTL / HEL. The consolidation was first noted as early as July, 2003. On 28th October, 2005, VIH agreed to acquire 5.61% shareholding in Bharti Televentures Ltd. On the same day, Vodafone Mau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y virtue of 2007 framework agreements. In paragraph 24 of the Tribunal's order at running page 128, how the Tribunal understood the transaction further is quoted hereinbelow: "24. The transaction of transfer of share holding of CGP by HTIL to VIH BV through share transfer agreement (STA) and in consequence the framework agreements of 2006 were re-written as framework agreement 2007 under which the assessee was holding option rights indirectly of 12.25% equity interest in HEL / Vodafone India Ltd. (VIL) through Asim Ghosh and Analjit Singh Group companies under the identical framework agreements." 113 Then, the Tribunal proceeded to deal with the issue whether recasting of framework agreement in 2007 tantamounts to assignment of option rights held by the assessee under the framework agreement of 2006. The Tribunal had before it an argument and very seriously canvassed also before us, that the issues of fact and law now raised are fully covered by the decision of the Hon'ble Supreme Court in the case of Vodafone India Holdings BV vs. Union of India 341 ITR 1 (supra). Reliance was placed on paragraph 88 of this judgment and several paragraphs which we will note hereinafter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel that the issue stands concluded by the judgment of the Hon'ble Supreme Court (supra). The reason for the same is to be found in paragraph 31 where the Tribunal concludes that the Hon'ble Supreme Court examined the question in the context of transfer of asset of the assesseee by its holding company HTIL to VIH BV, by virtue of share transfer agreements along with framework agreement and found that despite the transfer of share holding by HTIL to VIH BV, the same would not result in transfer of asset of the assessee to VIH BV. The Tribunal took the view that the question was dealt with only in the context of transaction between HTIL and VIH BV by virtue of share transfer agreement and not in the context of transfer of option rights by the assessee to its affiliate. The understanding of the Tribunal of this judgment and which has been heavily criticised needs to be noted and in the words of the Tribunal itself : "Therefore, at the first place the judgment of Hon'ble Supreme Court is not based on the finding of facts as examined and investigated by any of the fact finding authority and consequently it is binding on all subordinate courts only on the point of princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment is permissible. Mr. Salve has also urged that a call option was not exercised and never exercised. A put option is not the same as call option. That there is no fraud and perpetrated on the Revenue by the assessee inasmuch as the essential difference between these two options has been lost sight of. One is to get hold and the other is to go out. At best, the put option is exercised in later years. There is an extensive reference made by Mr. Salve to the ownership chart. In such circumstances and when this is the sweep of the arguments, it would be futile to send the matter back to the Tribunal and at this belated stage. The parties having addressed us on all material and relevant aspects with regard to ground Nos.2 to 6 as forming part of the Tribunal's Memo of Appeal and record, then, all the more this request of Mr. Salve need not detain us. 118 It need not be granted also because we are going to consider the issue as to whether the judgment of the Hon'ble Supreme Court in the first Vodafone case covers the present controversy. Once we have heard both sides on this aspect extensively and are considering their arguments, all the more the first contention of Mr. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials held for the purposes of his business or profession; (ii) personal effects, that is to say, movable property including wearing apparel and furniture held for personal use by the assessee or any member of his family dependent on him,but excludes - (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art. Explanation - For the purposes of this sub-clause, "jewellery" includes- (a) ornaments made of gold, silver, platinum or any other precious material or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stone, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; (iii) agricultural land in India, not being land situate - (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this explanation. Therefore, a capital asset means property of any kind held by an assessee whether or not connected with his business or profession and which is not covered by the exceptions or the exclusionary part. The term 'transfer' is defined in section 2(47) and reads as under : "2. In this Act, unless the context otherwise requires, - (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-intrade of a business carried on by him, such conversion or 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 performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in a co-operative society company or other as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1984, with effect from 1st April, 1985. The inclusive portion thereof has been inserted by subsequent Finance Acts. However, the fact remains that the word is defined in relation to a capital asset. The word 'capital asset' has been defined in the manner noted above. That term or word has been defined to mean property of any kind. In turn, that expression is taken to have included and always included any rights in or in relation to an Indian company as explained by the explanation inserted in section 2(14) of the Income Tax Act, 1961, with retrospective effect. 124 The arguments and which revolve around the two Explanations are essentially that given the nature of the transaction covered by the Supreme Court judgment the definition and with the wide Explanations will or will not make a difference. The assessee submits given the nature of the transaction and as noted by the Hon'ble Supreme Court, the essential ingredients of the section are not attracted and have not been satisfied. They would urge that for this definition of the term 'transfer' to apply and together with its Explanation, the Court will have to first decide whether there is any capital asset a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 and 31 that the judgment of the Hon'ble Supreme Court of India would not be of assistance in resolving the controversy. Mr. Salve, however, has urged to the contrary and for that purpose, we must first refer to the Supreme Court judgment for what it considered and decided. 128 However, before embarking on that exercise, we must clear the ground on how a judgment of a superior court has been termed by the Hon'ble Supreme Court as a binding precedent. What binds the Court is the ratio decidendi in the judgment of a superior court or a coordinate court. Ratio decidendi means the reasons for deciding grounds of the decision. Therefore, it is not permissible to ignore the same by undertaking a exercise or process unknown to law. A inferior court or Tribunal ordinarily should not venture to chart a course of getting over or brushing aside the ratio in the judgment of a superior court on a issue arising before it once it is admitted that it is identical. The word "precedents" is understood as under : "In law a precedent is an adjudged case or decision of a Court of justice, considered as furnishing a rule or authority for the determination of an identical or similar case af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not lose its authority, "merely because it was badly argued, inadequately considered or fallaciously reasoned". The case must be considered taking not of the ratio decidendi of the same i.e., the general reasons, or the general grounds upon which, the decision of the court is based, or on the test or abstract, of the specific peculiarities of the particular case, which finally gives rise to the decision. (Vide: Smt.Somavanti & Ors. v. The State of Punjab & Ors., AIR 1963 SC 151; Ballbhdas Mathuradas Lakhani & Ors. v. Municipal Committee, Malkapur, AIR 1970 SC 1002; Ambika Prasad Mishra v. State of U.P. & Ors., AIR 1980 SC 1762; and Director of Settlements, A.P. & Ors. v. M.R. Apparao & Anr., AIR 2002 SC 1598 : (2002 AIR SCW 1504)). 22. In The Direct Recruit Class-II Engineering Officers' Association & Ors. v. State of Maharashtra & Ors., AIR 1990 SC 1607 : (1991 AIR SCW 2226), a Constitution Bench of this Court has taken a similar view, observing that the binding nature of a judgment of a court of competent jurisdiction, is in essence a part of the rule of law on the basis of which, administration of justice depends. Emphasis on this point by the Constitution Bench is we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited. GSPL was an Indian company under a Mauritius subsidiary of CGP and stood indirectly held by HTIL. These agreements also contained clauses which imposed restrictions to transfer downstream interests, termination rights, subject to objection from any party. Thereafter, it referred to the shareholding of HEL in paragraph 10 and in paragraph 11 reference was made to an open offer by Vodafone Group Plc. to Hutchison Whampoa Limited, a non-binding bid and then the Hon'ble Supreme Court makes reference to the further facts right upto paragraph 23 which indicated Vodafone's acquisition of controlling interest in HEL via its subsidiary VIH and companies which control 67% interest in HEL. We find that there is a reference made to the indirect holding in HEL. Thereafter, there is a letter addressed by Asim Ghosh to HEL confirming that he through his 100% Indian companies, owned 23.97% of a joint venture company TII which in turn owned 19.54% of HEL and, accordingly, his indirect interest in HEL worked out to 4.68%. He informed that he had full and unrestricted voting rights in companies owned by him and that he would receive credit support for his investments but primary lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas SMMS held 54.25% in Omega. The holdings of AG, AS and SMMS came under the option route. The Court noted that GSPL is an Indian company indirectly owned by CGP. It held call options and subscription options to be exercised in future under circumstances spelt out in TII and IFDC framework agreements (keeping in mind the sectoral cap of 74%). Then, the several tests and the distinction between "look at" and "look through" tests are referred and in paragraph 72, the primary argument on behalf of the Revenue was considered viz. that the SPA, commercially construed, evidences transfer of HTIL's transfer of property rights by their extinguishment. The Revenue urged that HTIL under the SPA directly extinguished its rights of control and management which are property rights over HEL and its subsidiaries and consequent upon such extinguishment there was a transfer of capital asset situate in India. The features of the SPA were highlighted and one of them was that the 2006 shareholders / framework agreements had to be continued upon transfer of control of HEL to VIH so that VIH could step into the shoes of HTIL. Such continuance was ensured by payment of money to AS and AG by VIH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and subsidiary companies to work as a group, each subsidiary will look to see whether there are separate commercial interests which should be guarded. When there is a parent company with subsidiaries, is it or is it not the law that the parent company has the "power" over the subsidiary. It depends on the facts of each case. For instance, take the case of a one-man company, where only one man is the shareholder perhaps holding 99% of the shares, his wife holding 1%. In those circumstances, his control over the company may be so complete that it is his alter ego. But, in case of multinationals it is important to realise that their subsidiaries have a great deal of autonomy in the country concerned except where subsidiaries are created or used as a sham. Of course, in many cases the courts do lift up a corner of the veil but that does not mean that they alter the legal position between the companies. The directors of the subsidiary under their Articles are the managers of the companies. If new directors are appointed even at the request of the parent company and even if such directors were removable by the parent company, such directors of the subsidiary will owe their d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eam subsidiary as to the manner in which is should vote would fall in the category of a persuasive position / influence rather than having a power over the subsidiary. In this connection, the following facts are relevant. 76. Under the Hutchison structure, the business was carried on by the Indian companies under the control of their Board of Directors, though HTIL, as the Group holding company of a set of companies, which controlled 42% plus 10% (pro rata) shares, did influence or was in a position to persuade the working of such Board of Directors of the Indian companies. In this connection, we need to have a relook at the ownership structure. It is not in dispute that 15% out of 67% stakes in HEL was held by AS, AG and IDFC companies. That was one of the main reasons for entering into separate Shareholders and Framework Agreements in 2006, when Hutchison structure existed, with AS, AG and IDFC. HTIL was not a party to the agreements with AS and AG, though it was a party to the agreement with IDFC. That, the ownership structure of Hutchison clearly shows that AS, AG and SMMS (IDFC) group of companies, being Indian companies, possessed 15% control in HEL. Similarly, the term she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has what is called as a "participative" right, which is a subset of "protective rights". These participative rights, given to a minority shareholder, enable the minority to overcome the presumption of consolidation of operations or assets by the controlling shareholder. These participative rights in certain instances restrict the powers of the shareholder with majority voting interest to control the operations or assets of the investee. At the same time, even the minority is entitled to exit. This "exit right" comes under "protective rights". On examination of the Hutchison structure in its entirety, we find that both, participative and protective rights, were provided for in the Shareholders/ Framework Agreements of 2006 in favour of Centrino, NDC and SMMS which enabled them to participate, directly or indirectly, in the operations of HEL. Even without the execution of SPA, such rights existed in the above agreements. Therefore, it would not be correct to say that such rights flowed from the SPA. One more aspect needs to be mentioned. The Framework Agreements define "change of control with respect to a shareholder" inter alia as su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .06.2007 within the group of original investors with the exit of IDFC and SSKI. In view of the said changes in the parties, a revised Framework Agreement was executed on 6.06.2007, which again had call and put option. Under the said Agreement dated 6.06.2007, the Investors once again agreed to grant call option to GSPL to buy the shares of SMMS and to enter into a Shareholders Agreement to regulate the affairs of Omega. It is important to note that even in the fresh agreement the call option remained with GSPL and that the said Agreement did not confer any rights on VIH. One more aspect needs to be mentioned. The conferment of call options on GSPL under the Framework Agreements of 2006 also had a linkage with intra-group loans. CGP was an Investment vehicle. It is through the acquisition of CGP that VIH had indirectly acquired the rights and obligations of GSPL in the Centrino and NDC Framework Agreements of 2006 [see the report of KPMG dated 18.10.2010] and not through execution of the SPA. Lastly, as stated above, apart from providing for "standstill", an SPA has to provide for transition and all possible future eventualities. In the present case, the change in the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flowed from the CGP share. The Supreme Court specifically referred to the call and put options. That the entire investment was sold to VIH through the investment vehicle CGP. Therefore, there was no extinguishment of rights as alleged by the Revenue. 135 Then, the Supreme Court referred to the role of CGP in the transaction and this reference is made in paragraph 79 and in paragraph 83, the Court concluded as under : "83. According to the Revenue, the entire case of VIH was that it had acquired only 42% (or, accounting for FIPB regulations, 52%) is belied by clause 5.2 of the Shareholders Agreement. In this connection, it was urged that 15% in HEL was held by AS/ AG/ IDFC because of the FDI cap of 74% and, consequently, vide clause 5.2 of the Shareholders Agreement between these entities and HTIL downstream subsidiaries, AS/AG/IDFC were all reigned in by having to vote only in accordance with HTIL's dictates as HTIL had funded the purchase by these gentlemen of the HEL shares through financing of loans. Further, in the Term Sheet dated 15.03.2007, that is, between VIH and Essar, VIH had a right to nominate 8 directors (i.e. 67% of 12) and Essar had a right to nominate 4 dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricts the right to vote. Therefore, the transaction in the present case provides for a triggering event, viz. relaxation of the sectoral cap. Till such date, HTIL/VIH cannot be said to have a control over 15% stakes in HEL. It is for this reason that even FIPB gave its approval to the transaction by saying that VIH was acquiring or has acquired effective shareholding of 51.96% in HEL." 136 The Hon'ble Supreme Court has thus concluded that the Hutchison Structure denotes that shares of Plustech in the AG group, shares of Scorpio in the AS group and shares of SMMS came under the options held by GSPL. Pending exercise, options are not management rights. At the highest, options could be treated as potential shares and till exercised they cannot provide right to vote or management or control. The Hon'ble Supreme Court concluded that till date GSPL has not exercised its rights under the framework agreement 2006 because of the sectoral cap of 74% which, in turn, restricts the right to vote. 137 The appellants explained to us the circumstances in which initially the Revenue succeeded in this Court. The appellants contended before us that there has been only one transaction i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and pursuant to which the shares were acquired. It is in that regard they argue as to what is the difference between a call option and a put option. We shall come to this aspect a little later. The Revenue contended that the judgment of the Hon'ble Supreme Court had been obtained by suppression of relevant and material facts and perpetrating a fraud on it. That is because the Supreme Court holds that the call options had not been exercised to date. In any event, this aspect is immaterial according to the appellant because the Tribunal concluded that the revised framework agreements did not amount to an assignment. 138 It is in this context a further reference to the judgment of the Hon'ble Supreme Court becomes necessary and from paragraph 87 onwards the Hon'ble Supreme Court considered as to whether this Court was right in applying the "nature and character of transaction" test. Then, in paragraph 88, the Hon'ble Supreme Court concluded : "88. We have to view the subject matter of the transaction, in this case, from a commercial and realistic perspective. The present case concerns an offshore transaction involving a structured investment. This case concerns " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and an indirect control over Hutchison Tele-Services (India) Holdings Ltd. (Ms), which in turn owned shares in GSPL, which held call and put options. Although 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 till date options have remained un-encashed with GSPL. Therefore, even if it be assumed that the options under the Framework Agreements 2006 could be considered to be property rights, there has been no transfer or assignment of options by GSPL till today. Even if it be assumed that the High 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 transferred till date. Call and put options were not transferred vide SPA dated 11.02.2007 or under any other document whatsoever. Moreover, if, on principle, the High Court accepts that the transfer of the CGP share did not lead to the transfer of a capital asset in India, even if it resulted 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 options (contractual rights), w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here a transaction involves transfer of shares lock, stock and barrel, such a transaction cannot be broken up into separate individual components, assets or rights such as right to vote, right to participate in company meetings, management rights, controlling rights, control premium, brand licences and so on as shares constitute a bundle of rights. [See Charanjit Lal v. Union of India AIR 1951 SC 41, Venkatesh (minor) v. CIT 243 ITR 367 (Mad) and Smt. Maharani Ushadevi v. CIT 131 ITR 445 (MP)] Further, the High Court has failed to examine the nature of the following items, namely, non-compete agreement, control premium, call and put options, consultancy support, customer base, brand licences etc. On facts, we are of the view that the High Court, in the present case, ought to have examined the entire transaction holistically. VIH has rightly contended that the transaction in question should be looked 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 integral part of the Holding Subsidiary Structure which existed for almost 13 years, generating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The said offshore transaction was between HTIL, a Cayman Islands company and VIH BV a company incorporated in Netherlands. The subject-matter of the transaction was the transfer of the CGP a company incorporated in Cayman Islands. Consequently, the Indian authority had no territorial tax jurisdiction to tax the offshore transaction. On that reasoning, the Hon'ble Supreme Court allowed VIH BVs appeal. 140 Even in the concurring judgment from paragraph 100 onwards, the transaction is referred and in great details. In the concurring judgment, the third Hon'ble Judge A.S. Radhakrishnan, J. arrived at the same conclusion. Pertinently, while construing section 9(1)(i) viz. a provision dealing with accruing of income or arising of the same in India, His Lordship Hon'ble Mr. Justice Radhakrishnan found that all income accruing or arising whether directly or indirectly through or from any business connection in India or through or from any property in India or through or from any asset or source of income in India or through the transfer of a capital asset situate in India. Therefore, in paragraph 260, the learned Judge held the meaning that will have to be given to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the impact and to be found in section 2(47), as amended, the tax effect. It is that which, according to the appellant, can be brought to tax. 142 In the present case, the Revenue has urged during oral arguments and also extensively through the notes that in the earlier or in the first Vodafone case, the issue was whether any capital tax gain was attracted in the hands of HTIL when it transferred its 67% VIL shares to VIH BV. As HTIL was a non resident, the Hon'ble Supreme Court was considering the applicability of section 9 in the case of indirect transfer of capital asset. That is how by referring to section 9 and interpreting it, the Hon'ble Supreme Court held that only direct transfers are covered. However, the amendment to this section changes the colour of the controversy. The amendment to sections 9, 2(14) and 2(47) ensures that any transfer affected by creation of an interest in option rights will now be taxable. The argument is that the language of the amended provisions in itself enough to construe that option rights is a capital asset and creation of interest in option rights is a transfer. Therefore, the amendment to the above sections should be interpreted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in favour of VIH BV / subsidiary for which it did not receive a single penny for the capital asset being held by it. Subsequent facts are relied on in which shares were transferred to a Mauritius subsidiary and the assessee was not compensated at all for the transaction although substantial costs were incurred by the appellant for acquiring those rights. Apart from the international angle and element in the transaction what is alleged is that the issue before the Hon'ble Supreme Court was "share sale" whereas at present case involves the issue of creation of interest in the option rights of the appellant. 146 We have noted that great emphasis has been laid on the findings of the Hon'ble Supreme Court in the first Vodafone case to urge that complete and correct factual position was not before it. However, the Income Tax Appellate Tribunal has considered several documents and these documents would evidence that options have been exercised in April 2009 and August 2009 to the extent of 49%. This resulted in the option reducing by 6% out of the 12.25% in VIL held originally. Subsequently the FWA with AG group of companies was terminated during the financial year 2010-11 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es from Analjit Singh and Neelu Analjit Singh andCGP India has accepted the nomination; (xi) Letter dated 23rd October 2013 (Vol.IX, Pg. 3525/A) from the Assessee to Analjit Singh and Neelu Analjit Singh notifying nomination of CGP India to purchase the said 1,95,005,079 shares. These documents individually and collectively demonstrate that the options under the 2007 Framework Agreements were exercised in 2009 itself; (xii) The Shareholder's Agreement dated 7th April 2009 (Vol. VIII, Pg.3183/A) between Analjit Singh, Neelu Analjit Singh, SBP and CGP India; (xiii) The Shareholder's Agreement dated 27th August 2009 (Vol.VIII, Pg.3144/A) between Asim Ghosh, Sanjikta Ghose, SG Mercantile and CGP India; (xiv) Share Purchase Agreement dated 18-09-2009 between ND, TII and CGP Mauritius (Vol.V, Pg.6037/R); (xv) Share Purchase Agreement dated 10-05-2010 between NDC, AG Mercantile, Asim Ghosh and others. (Vol.V, Pg.6055/R); (xvi) Second Supplement to the Shareholder's Agreement dated 10- 05-2010 between Nadal, NDC, CGP, TILL and VIH BV(Vol.V, Pg.6073/R); (xvii) Termination agreement dated 10-05-2010 between AG Mercantile, Plus tech, VISPL, Nadal and VIH BV (Vol.V, Pg.6080/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment that inclusion of any of the wholly owned subsidiary of Vodafone PLC as a nominee under clause 4.4 does create a right and interest in favour of the subsidiary of Vodafone PLC to acquire the shares held in the call option and, therefore, the transaction would fall in section 2(47) as amended. 148 The Tribunal in paragraph 34 then refers to the prima facie observations of this Court in the order passed in the Writ Petition No.488 of 2012 dated 6th September, 2013, and concludes that the essence of transfer still remains and despite amendment, namely, the actual disposal or actual creation of or parting with any interest in an asset. The means and methods of disposal or creation apart such disposal or parting with or creating interest in an asset must exist and be borne out from the arrangement or transfer. Making the provision of one 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 the call option. Under the FWAs of 2007 , any of the wholly owned subsidiary of Vodafone PLC is a prospective nominee. It would get the right to acquire the share only when a nomination is made by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no assignment of call options in the financial year 2007-08 by rewriting the FWAs in July, 2007. The alternate contention of the assessee has also been noted and which is that TII shareholder's agreement has no relevance or bearing on the issue. That agreement was entered into between Nadal, ND Callus Info Services Pvt. Ltd. and CGP India Investment Ltd. to confirm the understanding regarding regulation of affairs of TII. As per clause 4.2 of this agreement the right to exercise put options was conferred upon by ND Callus and Nadal to require CGP India Investment Ltd. who is the shareholder of TII to purchase shares held by ND Callus and Nadal in TII. Clause 4.3 of the same authorises CGP India Investment Ltd. or its nominated person to purchase the shares held by ND Callus and Nadal. The argument of the assessee was that these options are completely different from call options and put options held by the assessee, Analjit Singh and Asim Ghosh respectively under the 2007 FWAs. In that regard also reference is extensively made to the Hon'ble Supreme Court judgment. The argument was that TII shareholders agreement has no relevance or bearing on the issue of assignment of cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding in HEL. Therefore, a combined reading of the FWA 2007 and shareholder agreement of 2007 and a consideration of the surrounding circumstances emerging from the arrangements enabled the Tribunal to conclude in paragraph 40 that option rights under the FWA of 2007 held by the assessee were transferred / assigned in favour of CGP India Investment, Mauritius, the associated enterprise of the assessee by virtue of the shareholder's agreement. The shareholder's agreement is executed pursuant to the FWA and that conclusively shows that the shares of TII held by AS and AG would be transferred in favour of CGP or its nominee as and when the call / put option rights are exercised by the respective parties. 150 In furtherance of such conclusion, the Tribunal in paragraph 41 holds that from the share purchase agreement between HTIL and VIH BV, FWAs and TII shareholders agreement as well as surrounding facts and circumstances, the arrangement and exercise was terminated to acquire the 15% shareholding in HEL as and when the restriction on foreign direct investment in telecom sector is relaxed by the Government. Both FWAs and TII shareholders agreement were signed with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by taking support from Indian partners. On the same transactions and same set of facts reaching a different conclusion than that of the Hon'ble Supreme Court is not possible and rather impermissible. Our conclusion is reinforced by the observations of the Hon'ble Supreme Court in the case of Director of Settlements A.P. v. M.R. Apparao reported in AIR 2002 SC 1598. At Pg. 160, the court held thus : "7. So far as the first question is concerned, Article 141 of the Constitution unequivocally indicates that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. The aforesaid Article empowers the Supreme Court to declare the law. It is, therefore, an essential function of the Court to interpret a legislation. The statements of the Court on matters other than law like facts may have no binding force as the facts of two cases may not be similar. But what is binding is the ratio of the decision and not any finding on facts. It is the principle found our upon a reading of a judgment as a whole, in the light of the questions before the Court that forms the ratio and not any particular word or sentence. To determine whether a decision h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its subsidiaries and, consequent upon such extinguishment, there was a transfer of capital asset situated in India. In support, the following features of SPA were highlighted : (i) the right of HTIL to direct a downstream subsidiary as to the manner in which it should vote. According to the Revenue, this right was property right and not a contractual right. It vested in HTIL as HTIL was a parent company, i.e. a 100 per cent shareholder of the subsidiary; (ii) According to the Revenue, the 2006 shareholders/framework agreements had to be continued upon transfer of control of HEL to VIH could step into the shoes of HTIL. According to the Revenue, such continuance was ensured by payment of money to AS and AG by VIH failing which AS and AG could have walked out of those agreements which would have jeopardised VIH's control over 15 per cent of the shares of HEL and,consequently, the stake of HTIL in TII would have stood reduced to minority; (iii) Termination of the IDFC framework agreement of 2006 and its substitution by a fresh Framework Agreement dated June 5, 2007, as warranted by SPA; (iv) Termination of the term sheet agreement dated July 5, 2003. According to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire investment was sold to VIH through the investment vehicle CGP and, therefore, there was no extinguishment of rights as alleged by the Revenue. The Hon'ble Supreme Court has explained as to how when a business gets big enough,there is a certain degree of reconstruction and restructuring resulting in multitude of commonly owned subsidiaries and creation of various entities as a group to guarantee each other's debts. If there is an indirect way or manner in which control is retained by the holding company, then this ensures the authority. That further takes care of the decisions that are taken or to be taken in future. In all such decisions also, the holding units or companies have their authoritative say. In paragraphs 84 and 85 of this judgment, on which reliance is placed before us, the Hon'ble Supreme Court has has held as under : "84. As regards the term sheet dated March 15, 2007, it may be stated that the said term sheet was entered into between VIH and Essar. It was executed after February 11, 2007 when SPA was executed. In the term sheet, it has been recited that the parties have agreed to enter into the term sheet in order to regulate the affairs of HEL an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of taxation. The basis of taxation is profits or income or receipt. In this case, we are not concerned with tax on income/profit arising from business operations but with tax on transfer of rights (capital asset) and gains arising therefrom. In the latter case, we have to see the conditions on which the tax becomes payable under the Income Tax Act. Valuation may be a science, not law. In valuation, to arrive at the value one has to take into consideration the business realities, like the business model, the duration of its operations, concepts such as cash flow, the discounting factors, assets and liabilities, intangibles, etc. In the present case, VIH paid US $11.08 bn for 67 per cent of the enterprise value of HEL plus its downstream companies having operational licences. It bought an upstream company with the intention that rights flowing from the CGP share would enable it to gain control over the cluster of Indian operations or operating companies which owned telecom licences, business assets, etc. VIH agreed to acquire companies which in turn controlled a 67 per cent interest in HEL and its subsidiaries. Valuation is a matter of opinion. When the entire business or investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der options held by GSPL. Thus, giving of the letters of credit and placing the shares of Plustech and Scorpios under options were required to be disclosed to the US investors under the US AAP, unlike Indian GAAP. Thus, the difference between the 52 per cent figure (control) and 67 per cent (equity interest) arose on account of the difference in computation under the Indian and US GAAP." 156 If these findings and conclusions of the Hon'ble Supreme Court about the nature of the deal and transaction cannot be revisited or reconsidered, then, the conclusions of the Tribunal are wholly unsustainable and difficult to uphold. 157 Mr. Setalvad, learned senior counsel, however, would submit that the Tribunal's order does not go contrary to the judgment of the Hon'ble Supreme Court of India in the first Vodafone case. He submits that the Tribunal was required to decide as to how post this judgment and when the law itself is amended can the transaction be looked at again. That is to consider whether the amended provisions would take within their sweep the particular details and transactions and that was permissible in law. 158 We have noted that the Tribunal was aware of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 159 The conclusion then reached by the Tribunal is that the judgment of the Hon'ble Supreme Court is based on unamended provisions of section 2(47) of the Income Tax Act. That was in the context of limited facts and documents. Therefore, after the law has been amended the Tribunal can find out whether the amended provisions will govern the controversy or not. Mr. Setalvad would urge that this course at least was permissible and if that is what is adopted by the Tribunal this Court must not interfere with it. It is in that backdrop that the Tribunal has examined the Framework Agreements and the additional evidence. However, while examining the same, the Tribunal prefaced its observations. It held that so far as option rights are concerned, they are a valuable right. The appellants have not disputed this fact. The Tribunal holds that the option rights are held by the assessee under the Framework Agreement of 2006 in consideration of arrangement of funds and with a view to acquire the shareholding to the extent of 15.03% in future with an anticipation of relaxation of sectoral cap /ceiling on FDI and telecom sector. That is why the assessee paid hefty sum of US $10.2 million and U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng GSPL right to subscribe for equity shares of Centrino. In consideration of GSPL procuring credit support for financing obtained by Centrino to finance its subscription to the TII shares, Goldspot was desirous of granting GSPL an option to purchase equity shares of Plustech. That is how the further recital H reads. Clause 1 of this agreement contains definition and the word "Change of Control" which is defined at page 303. At page 304, the word "TII Shareholders Agreement" is defined to mean the share holders agreement to be entered into as of the same date between Centrino, ND Callus Info Services Pvt. Ltd., CGP and TII. Then, under clause 4 which is entitled "Subscription and Transfer of Shares", clause 4.1 sets out the restrictions on subscription or transfer. Clause 4.2 deals with subscription of Centrino shares and at clause 4.3, the put option is set out and that reads as under : "4.3 Put Option Goldspot shall, subject to the conditions set out below, have the right to require GSPL or its nominee to purchase all, but not part only, of the Plustech Shares (the "Put Shares") held by Goldspot (the "Put Option") in accordance with the procedure laid down in clause 4.5 below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket value as may be agreed between the Parties; and if the Parties fail to reach agreement within 30 days of the date of the Transfer Notice, then; (b) such fair market value as may be determined in accordance with the formula set out in Schedule 2. 162 The assignability or transfer of rights is dealt with by clause 4.9 and it states that 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 put option set out in clause 4.3 may not be assigned or transferred without the prior written consent of GSPL. The change of control is dealt with by clause 5.3 and clause 6.2 deals with termination. 163 The Framework Agreement copy of which is at Annexure-D Page 323 is between Analjit Singh and Scorpios Beverges Pvt. Ltd. and MV Healthcare Services Pvt. Ltd., 3 Global Services Pvt. Ltd. and ND Callus Info Services Pvt. Ltd.. Analjit Singh also is styled as an Indian based entrepreneur with diversified interests and investments in various sectors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirm their understanding regarding the regulation of affairs of TII and the relationship of the shareholders thereof. TII joined this agreement as a confirming party, inter-alia, as the matters contained in this agreement affect the administration of TII. This agreement at running page 355 in clauses 4.2 to 4.4 sets out the put option, call option, subscription and transfer procedure. These clauses at pages 355 and 366 read as under : "4.2 Put Option Each of NDC and Centrino shall have the right to require CGP to purchase, or procure the purchase of, all but not part only of the NDC Shares and/or the Centrino 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 CGP shall have the right at any time, and from time to time, to purchase any of the NDC Shares and/or the Centrino Shares (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. 4.4 Subscription and Transfer Procedure (a) The Subscription Option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll option under the Framework Agreement of 2007 have to be exercised either by the assessee or any wholly owned subsidiary of Vodafone Group PLC. Apart from the assessee or wholly owned subsidiary of Vodafone PLC, a third option was also provided under the Framework Agreement of 2007, whereby the assessee could nominate a person other than the wholly owned subsidiary of Vodafone Group PLC for purchase of all but not part of the shares held by AS and AG group of companies. Thus, a combined reading of the relevant clauses of the Framework Agreements of 2006 and 2007 reveals that there is only one difference under the Framework Agreements of 2007 regarding call option and that is including any wholly owned subsidiary of Vodafone PLC can exercise the call option. The finding is that the inclusion of a probable assignee in clause 4.4. of Framework Agreement of 2007 alone would not tantamount to assignment or transfer of call option. In that regard, the Revenue's reference to section 2(47) has been considered and thereafter the Tribunal renders a finding in paragraph 34 which is in favour of the assessee. 167 It is this finding which has been relied upon very heavily by Mr. Salve, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Supreme Court and though the assessee submitted that VIH BV was a party to the dispute before the Hon'ble Supreme Court, it admitted certain averments in this regard. Thus, there is evidence that options rights were, in fact, exercised. The option rights would not have been exercised unless an interest in the same could have been created in assessment year 2008-09. In any view and without prejudice, the case of the Revenue is not in any way vitally affected by the findings of the Hon'ble Supreme Court in paragraph 88 and in the light of the subsequent amendments to the Income Tax Act. Therefore, the assessee's contention that the word "till date" or "till today" should be read as "during the relevant assessment year" is completely unfounded and the Hon'ble Supreme Court's judgment cannot he read in this manner. We find that the Revenue's arguments are essentially based on the Framework Agreements of 2007. Even if those are taken into consideration and as vehemently urged what we find is that the term "transfer" is in relation to a capital asset and includes what is enumerated under clauses (i) to (vi) and by explanation 2 what has been clarified is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt again establishes the fact that the call options were assigned by the assessee in favour of CGP Mauritius. The assessee on the other hand submitted that the options are completely different from call options and put options held by the assessee, AS and AG respectively under the 2007 Framework Agreement. That is with reference to the shareholders agreement of 5th July, 2007. The distinction has been brought about and thereafter what the Tribunal finds is that some clauses of the agreement styled as shareholders agreement dated 5th July, 2007, which was signed in pursuance and in furtherance of the Framework Agreement of 2007 and not as an independent distinct agreement having no connection with the option rights under the Framework Agreements, enables the Tribunal not to agree with the contentions of the assessee that shareholders agreement has no relevance or bearing on the issue of assignment of call options and that observations of the Hon'ble Supreme Court would not bind the other remaining shareholders. We find that by this circuitous and somewhat round about method, the Tribunal arrives at a conclusion and which we have already referred in great details above. If the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2008-09. Apart therefrom, heavy reliance is placed on the amendments. It is also argued that the appellant has acquired 15.4% option rights through a Framework Agreement of 2006 with AS, AG and IDFC group of companies. The payment have been made as under. Appellant made payment of 47.30 million US$ towards the annual payment during Financial Year 2011-12. Payment of ₹ 62.23 crores to IDFC investor for assignment of cashless option. The appellant has not availed its right to purchase 0.123% stake in VIL/HEL on acquiring the cashless option. In the process and to that extent, the Mauritius Associate Enterprise of the appellant benefitted. The IDFC Framework Agreement dated 6th June, 2007, was terminated during Financial Year 2011-12 vide termination agreement dated 23rd November, 2011 and the appellant has paid ₹ 2.2.50 million for which it has not received a single share. Thus, the payments have been made from time to time but no benefit has been received by the appellant on creation of interest in the option rights in favour of its Associate Enterprise or at the time of exercise of option rights. As on date, there is no option right existing in the hands of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the call option even if they are considered separate. They automatically stand assigned. 174 The definition of the term 'transfer' has been repeatedly emphasised and by virtue of the explanation 2 which has been inserted by Finance Act of 2012 with retrospective effect from 1st April, 1962. The word 'transfer' in relation to a capital asset includes the sale, exchange or relinquishment of the asset or the extinguishment of any right therein or the compulsory acquisition thereof under any law or in a case where the asset is converted by the owner thereof into or is treated by him as a stock-in-trade of a business carried on by him, such conversion or treatment. The further sub-clauses (iv-a), (v) and (vi) are not required to be referred, but they would throw light on the intention of the legislature in bringing into the definition of the term 'transfer' the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein, the compulsory acquisition thereof, the conversion or treatment in the manner referred in clause (iv), the maturity or redemption of a zero coupon bond or the transaction involving the allowing of possession of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ream companies. All this even after the amendment has not been termed as a transfer by the Tribunal even in the impugned order. Even if one peruses and analyses the transactions by reading all the agreements together, the result is not as reached by the Tribunal. That does not bring about the result nor does it culminate in the dealing or transaction falling within explanation 2 and, therefore, included in section 2(47) of the Incometax Act, 1961. We do not see how we can stretch these amended definitions to such an extent and as desired by the Revenue. The Revenue's contentions either canvassed mainly or alternately or without prejudice would not enable us to hold that section 2(47) would be attracted and even to the situation noted post the judgment of the Hon'ble Supreme Court. It is very clear that the Revenue's arguments take into consideration the explanation which has been inserted in section 2(14) and once again that is to remove doubts and clarify that "property" includes and shall be deemed to have always included any rights in or in relation to an Indian company including rights of management or control or any other rights whatsoever. The argument is that a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some substance in the contentions and to this effect. 177 Therefore, we are of the view that none of these amendments and post the Supreme Court judgment would enable the Revenue to urge that the position as noted in the Supreme Court judgment no longer subsists. Even if there was a change therein on the basis of the Revenue's stand itself the Tribunal concluded quite contrary to what is now urged before us. Apart therefrom, we find that the essential ingredients of the definitions as amended are not satisfied and the conflicting and shifting stand of the Revenue worsens the position. 178 Now what remains for our consideration is the argument of the assessee that the Tribunal discovered from the documents filed, another agreement between a co-subsidiary of the appellant CGP Mauritius and AG and AS and their companies which allegedly had yet another set of call options in favour of CGP. The Tribunal concluded in paragraphs 40 and 42 that the call options contained in this Shareholders Agreement rendered the call options contained in the Framework Agreements nugatory. It then concluded that this Shareholders Agreement results in an assignment of the call options of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d / assigned in favour of CGP India Investment by virtue of the TII Shareholders Agreement. In short and substance it is difficult to reconcile leave alone harmonize the conclusions in the preceding paragraphs with that of the final one rendered in paragraph 42. In any event and as held above, this is only an intention of the parties. It has never translated, even according to the Tribunal, into anything beyond what is concluded by the Tribunal and to be termed as a transfer. 179 Then, as far as the issue of international transaction as per the transfer pricing provisions of the Income-tax Act, 1961 is concerned, the Tribunal noted the rival contentions and particularly the arguments of Mr. Setalvad in paragraphs 44 and 45. The Tribunal then noted the contentions of the assessee to the contrary and in paragraph 51 it reproduces the definition of international transaction (section 92B) of the Income-tax Act, 1961. The Tribunal also holds that it has considered the rival submissions as well as various documents executed in connection with the divestment of telecom business in India by HTIL by transfer of stake in HEL through sale of shareholding of CGP. It also holds that it has ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the assessee and VIH BV will certainly have a bearing on the profits, income,losses or asset of the associated enterprise. Hence the grant of call option under Framework Agreement 2007 against the consideration is an international transaction as per the provisions of section 92B read with section 92F(v). The other angle and as noted in paragraphs 54 and 55 eventually lead to the Tribunal's findings at paragraph 56 running page 180. That is with reference to to the entire transaction under SPA and other supplementary / ancillary agreements. The entire transaction is taken as one package / composite transaction of transfer of CGP and rights attached to the share. Paragraph 56 of the order of the Tribunal reads as under : "56. The Hon'ble High Court while considering the binding nature of the SPA has observed in para 150-152 that the transaction should be of composite nature where performance of mother agreement may not be feasible without the aid, execution and performance of the supplementary or ancillary agreements for achieving the common object and collectively having bearing on the dispute. In the case in hand the entire transaction under SPA and other supplementa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any options. The question of applicability of section 92B would arise only after it is shown that there is a chargeability under the provisions of the Act. Thus, section 92B applies only for purpose of computation. 181 Mr. Setalvad had in his oral arguments and the written note submitted that the 2007 Framework Agreement and particularly clause 4.4. thereof as held by the Tribunal does not in itself result in assignment of an option in favour of VIH BV. However, the Tribunal has thereafter considered the terms of TII Shareholders Agreement dated 5th July, 2007 entered into between Nadal, ND Callus and CGP Mauritius a Vodafone Group company. The Tribunal concluded that by virtue of TII Shareholders Agreement and in particular clauses 4.2 and 4.3 the shares held in TII and AS and AG have to be sold only to CGP Mauritius. Once these options were exercised under the 2007 TII Shareholders Agreement, then, TII would become a 100% subsidiary of CGP. The Tribunal has noted that TII being downstream company holding the shares in VIL when that becomes a subsidiary of CGP any stake held by the assessee in AS and AG group of companies being upstream companies is of no relevance. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements. While the put options can be exercised by ND Callus and Nadal only in respect of their stake in TII, CGP can exercise call option at any time and from time to time wholly or partially. The stake in TII of CGP, Nadal and ND Callus cannot be transferred in any manner other than what is provided under clause 4. All this and the terms of the TII Shareholders Agreement indicate that 2007 TII Shareholders Agreement and 2007 Framework Agreement are closely connected to one another. That is how the argument of applicability of section 92B(1) is built. The conditions contained therein are satisfied and fulfilled is the submission. 182 We are unable to accept it for the edifice is built on the applicability of the amended provisions and really the definition of the term "capital asset" and "transfer". 183 Section 92-B of the Income Tax Act, 1961, reads as under : "92B. (1) For the purpose of this section and section 92, 92C, 92D and 92E, "international transaction"means a transaction between two or more associated enterprises, either or both of whom are nonresidents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of such enterprise at the time of the transaction or at any future date; (ii) the expression "intangible property" shall include - (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos; (b) technology related intangible assets, such as process patents, patent applications, technical documentation such as laboratory notebooks, technical know-how; (c) artistic related intangible assets, such as, literary 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 schematics, blueprints, proprietary documentation; (f) customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders; (g) contract related intangible assets, such as, favourable supplier, contracts, licence agreements, franchise agreements, non-compete agreements; (h) human capital related intangibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is set out in section 92A. 185 The Revenue has urged that in 2007 Framework Agreements, VIH BV is a party and, therefore, it is a mutual agreement / arrangement between the assessee and its associated enterprise for securing the option rights and assignment of the same as well as contribution or payment for consideration of grant of call options by AG and AS to assessee or its affiliate which clearly falls within the ambit of an international transaction under section 92B read with section 92F(v). The assessee, on the other hand argued that VIH BV is only a confirming party and not a party to the agreement and relied upon the judgment of the Hon'ble Supreme Court in the first Vodafone case. Thus, once the Supreme Court concludes that there was no assignment of call option in the Framework Agreements of 2007 in the light of the same, the jurisdictional and threshold requirement of existence of a transaction including international transaction vide section 92B of the Income-tax Act is not satisfied. Therefore, the provision of transfer pricing cannot be invoked when there is no transaction by recasting the Framework Agreements of 2007. By the elaborate submission of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer or assignment of a property or creating any right or interest in the same, but attempts to justify the conclusion reached by the Tribunal and to be found in the foregoing paragraphs. For the purpose of applicability of section 92B itself we will have to draw an inference but without some concrete primary facts being established. Mere receipt of incidental benefits may not be sufficient to attract transfer pricing provisions. The Tribunal has, while dealing with aspect, attempted to bring in a transaction under the SPA and other supplementary / ancillary agreements by terming it as one package / composite transaction of transfer of share of CGP and rights attached to the share. It terms the same as obligation and undertaken by HTIL to procure that each wider group company would not terminate or modify any rights under any of the Framework Agreements in exercise of their options under such agreements. HTIL also provided several warranties to VIH BV as set out in Schedule 4 to the SPA which included that HTIL was the sole beneficial owner of the CGP share. The transaction and purchase of share of CGP under SPA took place on 8th May, 2007. We do not see how the Tribunal then con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) "transaction" includes an arrangement, understanding 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 proceedings." 187 A bare reading of clause (v) would indicate that the same defines "transaction" to include an arrangement, understanding or action in concert whether or not such arrangement, understanding or action is formal or in writing or whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings. We also find that during the course of arguments, another facet was tried to be introduced before us and that is that the appellant has entered into the 2007 Framework Agreements with AS and AG group of companies in pursuance to the SPA as there was a change of control over it from Hutchison group. Under the new Framework Agreement of 2006, the appellant had an exclusive right to purchase the entire share capital of AS and AG group giving it a 12.25% interest in VIL. Under the new Framework Agreement of 2007 signed during the Accounting Year 2008-09, an interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nresidents. As per section 92B(1) there can be two or more than two parties to the transaction. There is no requirement that there has to be only one assignee. That is how and further this transaction having an impact or bearing on the profits, income or losses on the assets of such enterprise that the transaction is an international transaction. 188 We do not find any basis for such a case and now to be introduced. We do not, therefore, accept the same and for the reasons which have been assigned for not acceding to the primary contentions of the Revenue. In any event Mr. Setalvad's arguments overlook the fact that the income from international transaction has to be computed having regard to the arm's length price. It is not clarified throughout as to what is the income arising from the international transaction which is to be brought to tax. The Hon'ble Supreme Court has categorically held that there is no capital gain which can be taxed in terms of Indian tax regime. This is as far as the transfer of a share. The Court holds that there is no transfer of asset. As far as the above transactions are concerned, that is termed as arrangement creating an interest in opti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident. HWP (India) is an associated enterprise of the assessee for the year under consideration. Therefore, the provisions of sub-section (2) of section 92B are not attracted. 191 We have already reproduced these two sections and what we find is that the assessee in this case had contended that the business was transferred to an India related party. Therefore, both sub-sections (1) and (2) of section 92B are not attracted and consequently, it does not fall under the realm of international transaction. On the other hand, the Revenue's case was that HWP (India) is a dummy entity and that the transaction must be looked into by lifting the corporate veil. The alternative argument is that there is a prior agreement between HWP (India), HTIL and VIH BV being part of the SPA. Therefore, the sale of the call centre to HWP (India) would be deemed as sale to HTIL VIH BV. Sub-section (1) of section 92B defines an "international transaction" to mean a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property. The "associated enterprise" is defined by section 92A to mean i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the call centre business was transferred to Hutchison Whampoa Properties (India) Pvt. Ltd., a subsidiary of HWL group. After referring to the ownership structure as on 8th May, 2007, it was argued that the Dispute Resolution Panel ("DRP" for short) and the Transfer Pricing Officer ("TPO" for short) have correctly taken the transaction of sale of call centre business as a deemed international transaction under section 92B(2) of the Income Tax Act, 1961. Further, it is held that the sale of call centre business is an international transaction under section 92B(1) of the Income Tax Act, 1961. The DRP upheld the method introduced by the TPO for valuation of the call centre. The assessee neither filed the documents in time nor did it file the complete documents before the TPO. The conduct of the assessee was brought out before the High Court in Writ Petition No. 488 of 2012 by filing an affidavit in reply. The assessee filed copy of the BTA after one and half months and even that was incomplete as the schedules forming part of the agreement were not filed. Incomplete schedules were filed only on 21st October, 2011, just before nine days of the time bar. However, Schedule-D to the BTA w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though it was routed through the bank account of HWP (India). 194 As far as the second question about the applicability of section 92B(2) in the Tribunal's order and impugned in the appeal, at paragraph 127, the Tribunal adverted to sub-section (2) of section 92B and in paragraph 128 held that a transaction within the meaning of this sub-section must be entered into by the enterprise with the person other than an associated enterprise. The definition of the term associated enterprise is to be found in section 92A which does not contemplate associated enterprise to mean a non-resident. Therefore, an enterprise which fulfills the conditions as prescribed under section 92-A will fall under the expression "associated enterprise" irrespective of its residential status, domestic or non-resident. It is only for the purpose of international transaction, a transaction between two or more associated enterprises, either or both of whom are non- residents. The condition of non-residence of associated enterprises is only for bringing a transaction between two associated enterprises under the ambit of international transaction. Pertinently with all this, the Tribunal concluded that HWP (Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th section 92B should be given a purposive interpretation. In transfer pricing proceedings one has to firstly see whether there is a transaction and if yes whether it is entered into between two associated enterprises. The words "at any time during the year" were introduced in the Act to overcome a situation where an assessee would contend that although it was an associated enterprise at the time when the transaction was entered into but was not an associated enterprise either at the beginning of the year or at the end of the year and hence the transfer pricing provisions would not apply. The relationship of associated enterprise should be considered at the time when the relevant international transaction was entered into and if the interpretation placed by the Tribunal that once two associated enterprises are associated enterprises at any time during the previous year they shall be deemed to be the associated enterprise for the entire year is upheld, it would lead to anomalous and unacceptable situations. In the written note at paragraphs 8 and 9, Mr. Setalvad has given some illustrations and has relied upon them. Mr. Setalvad was at pains to urge that the Tribunal relied on clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion involved in the sale of the call centre business will accrue to and bind HWP. In the present case it has been shown that HWP (India) is a party to the SPA thereby fulfilling the condition of prior agreement being between the associated enterprise of the appellant i.e. VIH BV and HWP (India). There is no requirement that the prior agreement must be in writing. Since HWP (India) acted as per the conditions stipulated under the SPA its conduct shows that it is acting under an oral agreement with VIH BV. Therefore, the condition required for SPA to be a prior agreement is satisfied. 195 On the applicability of section 92B(1) Mr. Setalvad submits that the relevant terms of the SPA read with the BTA constitute an arrangement, understanding and action in concert, as per the definition of the transaction given in section 92F(v) read with Rule 10A(d). It is widely worded and covers understanding, arrangement and action in concert. Moreover, the action need not be a single transaction and it can be number of closely related transactions. Thereafter, outlining the details of such transaction and relying on paragraphs 28 and 29 of the written note on this subject so also paragraph 30, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been inserted by Finance Act, 2012 with effect from 1st April, 2013), two or more associated enterprises enter into a mutual agreement or arrangement for allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprise, the cost of expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm's length price of such benefit, service or facility, as the case may be. 199 Therefore, it is apparent that sub-section (1) deals with computation of income from an international transaction whereas subsection (2) deals with an international transaction in which two or more associated enterprises enter into a mutual agreement or arrangement for the for allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprise. By sub-section (2A) any allowance for an expenditure or interest or allocation of any cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to the said international transaction or specified domestic transaction under section 92C to the Transfer Pricing Officer. 203 The other provisions in Chapter X are sections 92CB, 92CC, 92CD, 92D and 92E. Section 92F contains definitions of certain terms relevant to the computation of arm's length price etc. Thus, by section 92B the meaning of international transaction is given for the purposes of the prior section 92 and the following sections 92C, 92D and 92E and section 92F contains the definitions which are relevant for computation of arm's length price. In that regard, we would reproduce section 92F(ii)(iii) and (iiia): "92F. In section 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires,- (ii) "arm's length price" means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions. (iii) "enterprise" means a person (including a permanent establishment of such person) who is, or has been, or is propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween 3GSPL when it was still part of the HWL group. The completion of SPA took place after the business transfer agreement was signed. One of the conditions precedent for closure of the transaction under the SPA was the transfer of business of the call centre. That was transferred on 4th December,2007 on necessary Government approvals being obtained. Pending completion of the sale of this call centre business of the appellant, HWP (India) paid ₹ 64 crores to 3GSPL on 30th April, 2007, under the aforementioned Memorandum of Understanding dated 25th April, 2007. The call centre business was transferred on slump sale basis for consideration of ₹ 64 crores. Mr. Salve emphasized that the 3GSPL was always treated by the Income Tax Department as a separate corporate personality. It was always assessed as an Indian company, irrespective of the fact that it was wholly owned by a nonresident. It was also submitted that HWP has been filing Income-tax returns as an Indian company and not as a foreign company. 205 In that regard, Mr. Salve has relied upon the judgment of this Court in the case of Vodafone India Services Pvt. Ltd. vs. Union of India and that the Division Bench held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovember, 2013, reported in 2014 (361) ITR 531 and filed by the same petitioner are referred. In Vodafone 3 case (supra) the challenge by the petitioner was to the order dated 28th January, 2013 of the Transfer Pricing Officer passed in terms of section 92CA of the Act and consequently draft assessment order dated 22nd March, 2013, passed by the Assessing Officer in terms of section 143(3) read with section 144C(1) of the Act relating to assessment year 2009-10. In this background and after extensively referring to the order passed in the Vodafone 3 case, this is what is held in paragraphs 14 and 15 : "14 The impugned order further holds that as a consequence of the Petitioner's not receiving the arm's length price on the issue of shares, resulted in lesser premium being garnered by the Petitioner. This would result, in the Petitioner having less liquid funds available at its command which in turn could have reduced its debts or the excess funds could have been invested to earn income. Thus, the amount not received could have enhanced its potential income. In view of the above, the impugned order also holds that the share premium forgone has impacted potential income. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of income from one tax jurisdiction to another as appeared profitable to them. Thus, the new Sections 92 to 92F of the Act were introduced with effect for A. Y. 2002-03 as a part of Chapter X of the Act. The aim being to have well defined rules to tax transactions between associated enterprises and not left to the discretion of the Assessing Officer and bring out uniformity in treatment to tax of International Transaction between associated enterprises. The Explanatory Notes to the Finance Act, 2001 brings out the objectives as indicated in the Circular No.14 of 2001 which read as under:- "55.3:- With a view to provide a detailed statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India. In the case of such multinational enterprises, the Act has substituted section 92 with a new section and has introduced new sections 92A to 92F in the Income-tax Act, relating to computation of income from an International Transaction having regard to the arm's length price, meaning of associated enterprise, meaning of International Transaction, computation of arm's length price, maintenance of information and documents by persons ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to ensure that qua International Transaction between associated enterprises, the profits are not understated nor losses overstated by abuse of either showing lesser consideration or higher expenses between associated enterprises than would be the consideration between two independent entities, uninfluenced by relationship. It did not replace the concept of Income or Expenditure as normally understood in the Act for the purposes of Chapter X of the Act. The objective of Chapter X of the Act is certainly not to punish Multinational Enterprises and/or associated enterprises from doing business inter se. However, we are conscious of the fact that in fiscal statutes, whatever may be the intent of the Parliament, the Courts have to construe the statute strictly on the basis of what is stated in the Act. We are governed by the off quoted passage of Rowlatt J. to the following effect: " In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in nothing is to be implied. One can only look fairly at the language employed". The above principle was resta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved as under:- " It is well settled that all receipts are not taxable under the Income tax Act. Section 2(24) defines "income". It is no doubt an inclusive definition. However, a capital receipt is not income under section 2(24) unless it is chargeable to tax as capital gains under Section 45. It is for this reason that under section 2(24)(vi) that the Legislature has expressly stated, inter alia, that income shall include any capital gains chargeable under section 45. Under Section 2(24)(vi), the Legislature has not included all capital gains as income. It is only capital gains chargeable under Section 45 which has been treated as income under Section 2(24). If the argument of the Department is accepted then all capital gains whether chargeable under section 45 of not, would come within the definition of the word "income" under section 2(24). Further, under section 2(24)(vi) the Legislature has not stated that "any capital gains" will be covered under the word income. On the contrary, the Legislature has advisedly stated that only capital gains which are chargeable under Section 45 of the Act could be treated as income. In other words, capital gains not chargeable to tax under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to the principles of interpretation to be applied while interpreting a fiscal / taxing statute and held thus : "28 We shall first deal with the grounds recorded in the impugned order to justify the conclusion that the Revenue has jurisdiction to apply Chapter X of the Act to the transaction of issue of shares by the Petitioner to its holding company. This conclusion has been reached on application of Section 92(1) of the Act. Section 92 of the Act provides for computation of income from International Taxation having regard to arm's length price. Section 92(1) of the Act states that while determining/computing/assessing income from an International Taxation regard shall be had to arm's length price. The impugned order correctly holds that although the words International Taxation has been defined in Section 92B of the Act for the purposes of Chapter X of the Act, the words 'Income' has not been defined. Thereafter, the impugned order seeks to widen the meaning of the word "Income" to include all incomings. This is sought to be supported by the intent/object of Chapter X of the Act, particularly the definition of International Transaction given in Section 92B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to conclude that Income has to be given a broader meaning to include notional income, as otherwise Chapter X of the Act would be rendered otiose is far fetched. The issue of shares at a premium does not exhaust the universe of applicability of Chapter X of the Act. There are transactions which would otherwise qualify to be covered by the definition of International Transaction. The transaction on capital account or on account of restructuring would become taxable to the extent it impacts income i.e. under reporting of interest or over reporting of interest paid or claiming of depreciation etc. It is that income which is to be adjusted to the arm's length price. It is not a tax on the capital receipts. This aspect appears to have been completely lost sight of in the impugned order. 32 The other basis in the impugned order is that as a consequence of under valuation of shares, there is an impact on potential income. The reasoning is that if the arm's length price were received, the Petitioner would be able to invest the same and earn income, proceeds on a mere surmise/assumption. This cannot be the basis of taxation. In any case, the entire exercise of charging to tax the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 8519/- each; and (b) The valuation of holding company goes up in International Market due to holding of undervalued shares of the Petitioner. In support the learned Solicitor General wanted us to read Section 92(2) of the Act in the following manner:- "92(2) Wherein an International Transaction..., two or more associated enterprises enter into a mutual ….arrangement for.. any contribution to, any cost..incurred ..in connection with a benefit, .....provided... to any one or more of such enterprises, the cost...., contributed by, any such enterprise shall be determined having regard to the arm's length price of such benefit... (The dotted words are omitted for the purpose of construction/interpretation). 35 This indeed is a unique way of reading a provision i.e. to omit words in the Section. This manner of reading a provision by ignoring/rejecting certain words without any finding that in the absence of so rejecting, the provision would become unworkable, is certainly not a permitted mode of interpretation. It would lead to burial of the settled legal position that a provision should be read as a whole, without rejecting and/or adding words thereto. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise in that business, the profits derived therefrom, or which may reasonably be deemed to have been derived therefrom, shall be chargeable to income tax in the name of the resident person who shall be deemed to be, for all the purpose of this Act, the assessee in respect of such income tax." (emphasis supplied) 38 If the above provision is contrasted with the provisions of Chapter X of the Act and in particular Section 92 thereof, it would be noticed that the crucial words "shall be chargeable to income tax" which are found in Section 42(2) of the 1922 Act are absent in Chapter X of the Act. We pointed out this difference in the two provisions to the learned Solicitor General and he agreed that the above difference exists. However, according to him this was in view of the fact that Sections 4, 5, 14 and 56 of the Act does create a charge to income tax on deemed income earned from International taxation. Therefore, it is clear that the deemed income which was charged to tax under Section 42(2) of the 1922 Act was done away with under the Act. The charge of Income now has to be found in Section 4 of the Act. If it is income which is chargeable to tax, under the normal provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ield. It is essentially the produce of something which is often loosely spoken of as capital." 40 It was contended by the Revenue that in view of Chapter X of the Act, the notional income is to be brought to tax and real income will have no place. The entire exercise of determining the arm's length price is only to arrive at the real income earned i.e. the correct price of the transaction, shorn of the price arrived at between the parties on account of their relationship viz. associated enterprises. In this case, the revenue seems to be confusing the measure to a charge and calling the measure a notional income. We find that there is absence of any charge in the Act to subject issue of shares at a premium to tax." 208 In paragraph 44, a similar contention as raised by Mr. Setalvad before us is negatived. In paragraphs 45 and 46 the Bench held as under : "45 Chapter X of the Act is a machinery provision to arrive at the arm's length price of a transaction between associated enterprises. The substantive charging provisions are found in Sections 4, 5, 15 (Salaries), 22 (Income from house property), 28 (Profits and gains of business), 45 (Capital gain) and 56 (Income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rant for the Tribunal to have rendered a conflicting conclusion on the applicability of the two provisions, namely, sections 92B(1) and 92B(2). In any event, the Tribunal committed a basic and fundamental error in not referring to Chapter X, its title and subsection (1) of section 92 before applying the mechanism devised therein. If Chapter X has been inserted to make special provisions relating to avoidance of tax and by section (1) of section 92 computation of income from international transaction having regard to arm's length price has to be done, then, there ought to be an income arising from an international transaction. That only would enable applying further provisions in this Chapter. That being not the position even on this aspect, we are unable to agree with Mr. Setalvad. 211 Now all that remains for consideration are the judgments cited by both sides. 212 We have already referred to the judgment of the Hon'ble Supreme Court in the case of Vodafone International Holding B.V. vs. Union of India & Anr. (supra) extensively and followed it. Mr. Salve's reliance on this judgment, therefore, need not be considered in further details. 213 Then, Mr. Salve relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble ownership what is meant is, inter-alia, the purchaser under a specific enforceable contract. Mr. Salve was at pains to point out that the passage in the judgment by Lloyd, LJ. Should be seen in the context of the position prevailing in English law. 219 In the view that we have taken, it is not necessary to go into any further details of this judgment. Suffice it to note that even after noticing the position in English law, the judgment does not go as far as assisting the contentions of the Revenue before us. 220 The judgment relied upon by Mr. Setalvad may now be noticed. If we find from his written notes, Mr. Setalvad essentially relies upon the judgment of the Hon'ble Supreme Court in the case of M/s. A.R. Krishnamurthy & Anr. vs. Commissioner of Income-tax, Madras, (1989) 1 SCC 754. 221 The judgment of the Hon'ble Supreme Court relied upon by Mr. Setalvad must be read in the backdrop of the facts. There the assessee was a body of individuals. They purchased two pieces of land and thereafter by an instrument of lease-cum-licence, they granted a mining lease in favour of the company (private limited). As noted in paragraph 2, the period of the lease was ten years an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in this judgment. Whether the cost of acquisition in the leasehold rights would take within its import the cost of the right to excavate clay in the land in terms of money is an issue which must be answered as held by the Hon'ble Supreme Court in each cases on the basis of evidence. It is a question of fact. In these circumstances, we do not think that the reliance by Mr. Setalvad on this judgment will advance his contentions any further. 223 Since we have held that the judgment and order of the Hon'ble Supreme Court in the main case covers the controversy, then, it is not necessary to answer anything with regard to the valuation of the call options. The arguments in that regard were canvassed on the footing that there is an assignment of call options. Once we have held that there is no such assignment, then, the question of valuation of the same need not detain us. 224 As far as the valuation of ITES is concerned, the Tribunal has followed its earlier order and for the assessment year 2007-08. Both sides conceded that a substantive appeal in that regard is pending against the same and in this Court. We would, therefore, prefer not to express any opinion on the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X
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