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TMI Blog2017 (3) TMI 1469X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. After issue of notice u/s 148 the AO cannot be expected to remain idle waiting for the assessee to seek reasons and then prefer objections at the last minute. It is also worth noting that the time available with the AO for passing draft assessment order was only up to 31.03.2015. Under the circumstances, and keeping in view that the assessee had not sought reasons for almost six months even after receiving the notice u/s 148 on 21.03.2014 the action on part of the AO to issue notices u/s 143(2) and 142(1) before 10.06.2014 cannot be faulted upon. Regarding claim of assesses that Reasons Recorded by the AO were not signed contention has never been raised before at any stage. Not only that the assessee through letter dated 16.10.2014 responded to the reasons conveyed, but continued to participate in the proceedings even after that without raising any disagreement about the same, till now. Nevertheless, the fact that the AO not only recorded reasons (and, of course, signed those) for reopening of assessment, but also obtained approval of the competent authority for issue of notice u/s 148 is undeniable. Moreover, the AO conveyed the 'reasons' for issue of notice u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of reopening is not material. That there was income chargeable to tax in India and the assessee had not even filed the tax return was sufficient reason to believe that the income had escaped assessment. The survey only confirmed the aspect of income accruing or arising in India through the transfer of assets situate in India. Whether survey report was received by the AO before or after issue of notice u/s 148 does not come in the way of the legality of such notice. Issue regarding Territorial Jurisdiction - Held that:- The challenge to the jurisdiction was made 72 days after the service of notice u/s 148, much after the 30 days bar placed in that regard u/s 124 of the Income Tax Act. Any challenge to the jurisdiction of the assessing officer at this stage deserves to be rejected. Approval does not meet the requirements laid down under section 151 (2) - Held that:- Necessarily the grant of approval for issue of notice under section 148 of the Income Tax Act was also required to be given by the Additional Director of income tax (International Taxation), New Delhi. The appellant also could not say that the notifications relied upon by the revenue are not in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer of the Cairn India Ltd, and such information has not been passed by the Ld. assessing officer of the Cairn India Ltd to the Ld. assessing officer of the appellant and therefore the reopening is invalid. Such an argument is required to be rejected at the threshold only because the assessment proceeding of one person is quite different from the assessment proceedings of another person and the provisions of the Income Tax Act should be applied fully with respect to the records and information relevant to that assessee only. Chargeability of capital gain - whether transaction entered into by appellant of transferring 251224744 shares of Cairn India holdings Limited to Cairn India Limited on 12/10/2006 is whether liable to tax in India or not ? - assessee company is a tax resident of United Kingdom - Held that:- 1st contention of the assessee is that lower authorities have erred in holding that capital gains arising to the appellant on account of the sales of shares of Cairn India Holdings Ltd to cairn India Ltd is deemed to accrue or arise in India under section 9 (1) (i) of the act and is therefore, chargeable to tax in India. The argument of the assessee is that retrospec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in Cairn India Holdings Ltd to Cairn India Ltd. Cost of acquisition should be stepped up to the fair value of the shares of cairn India holding Ltd on the date of acquisition while computation of the capital gain - Held that:- On conjoint reading of provisions of section 48, 49 and 55 of the Act it is apparently clear that property held by the assessee and its mode of acquisition do not fall in any of the clauses which provides for taking the cost of acquisition in the hands of the assessee in these transaction being cost to the previous owner. No such provision has also been cited before us. We also do not agree with the contention of the assesee that as there is no timing difference between the acquisition and disposal of shares , the full value of consideration and the cost of acquits ion is same. Provision of section 48, 49 and 55(2) of the act does not allow such treatment. Therefore the computation of capital gain in the hands of the assessee is required to be made by deducting from the full value of consideration cost of acquisition incurred by the assessee for acquisition of the property. We do not find any infirmity in the order of the ld AO in taking the cost of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT DR ORDER PER PRASHANT MAHARISHI, A. M. 01. This appeal is preferred by Cairn UK Holdings Limited, (hereinafter referred to as Appellant ) , against the order of the Deputy Commissioner of Income tax , Circle- 1 (2) (1) International taxes, New Delhi ( Hereinafter referred to as the AO ) dated 25/01/2016 passed u/s 143(3) rws 148 of the Income Tax Act ( hereinafter referred to as the act ) passed in pursuance of directions under section 144 C(5) of the Act by Ld Dispute Resolution Panel ( hereinafter referred to as the DRP ) dated 31/12/2015 given with respect to draft assessment order dated 9/3/2015 passed by the Ld. AO. 02. When the appeal was called for hearing on 15/10/2016 the Ld. authorized representative of the appellant submitted a letter dated 15/10/2016 requesting for adjournment of hearing. It was submitted that appellant along with its holding company Cairn Energy PLC is currently engaged in the arbitration under article 9 of the agreement between government of the United Kingdom of Great Britain and Northern Ireland and the government of the Republic of India for the promotion and protection of the investment and proceedings are in progres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Further, on the date of hearing on 15/11/2016, this application was made. As considerable revenue is locked in the present appeal, we persuaded both the parties to argue the case irrespective of the matter pending before the tribunal because the order of the tribunal, whenever passed may be applied in arbitration proceedings. It may not have any impact on the tax liability of the company, as the claim of the assessee is reimbursement of tax burden suffered in India on the impugned transaction. We are of the view that keeping the issue unnecessarily pending for a very long time where there is no timeline available about the disposal of the application of the assessee for arbitration proceedings, which is pending since 11/03/2014, is not proper. Hence, we directed both the parties to argue the matter before us and we have ensured that enough opportunity would be available to both the parties for putting their case forward. Consequently, on 15/11/2016, the matter was partly heard and the revenue was directed to produce the original records and hearing was adjourned to 18/11/2016. Further, on 18/11/2016, hearing was further adjourned to 14/12/2016. On 14/12/2016, there was a fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, on a transfer of shares in CIHL is not even deemed to accrue or arise in India, and is not chargeable to tax in India. 3.3. The AO's interpretation of Section 9 of the Act, as it stood prior to the amendments pursuant to the Finance Act, 2012, is ex facie contrary to the interpretation thereof by the Hon'ble Supreme Court in Vodafone Holdings B. V. v. Union of India and Another. 3.4. The AO failed to appreciate that the purported distinctions between the Appellant's case and the Vodafone case (referred to in paragraph 9.3 of the final assessment order) are of no consequence in determining the chargeability of the transaction to tax in India. 3.5. The AO has erred in and the DRP has further erred in not appreciating the fact that the transaction which gives rise to the assessment order at dispute is purely an internal group restructuring, prior to the listing of CIL's shares on stock exchanges in India. It is submitted that the above referenced reorganisation resulted in new subsidiaries in the corporate group but did not generate any real income or crystallise any new value and is, therefore, not chargeable to tax in India. 3.6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HL to CIL, CIHL and the companies under it remained subsidiaries of CUHL and the ultimate parent company and control of the group remained with the same person i.e. Cairn Energy PLC. Accordingly, even the purported Explanations 4 and 5 to Section 9(l)(i),introduced with retrospective effect pursuant to the Finance Act, 2012, have no applicability and cannot be relied on. 3.10. The AO failed to appreciate that his reliance on the 'separate entity' approach necessarily precludes reliance on the newly-inserted Explanation 5 to Section 9(1 )(i) of the Act, which disregards the separate entity approach in order to determine the situs of shares in a foreign company based on the location of the underlying assets. 3.11. Based on the facts and in the circumstances of this case and on the premise of the grounds mentioned above, the order under Section 147 of the Act dated 25th January 2016, levying income-tax on alleged capital gains amounting to ₹ 24,504 Crore in the hands of the Appellant, is patently illegal and thus liable to be quashed. 4. Erroneous findings of the AO 4.1. The AO has erred in concluding that the money was remitted out of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alter or vary all or any of the above grounds of appeal as they or their representative may think fit. 06. During the course of hearing appellant made an application for admission of additional ground as under :- The Appellant prays for the admission and adjudication by the Hon'ble Tribunal, of the following additional grounds of appeal, which do not require investigation into, or examination of, any new facts or evidence that were not already available before the Assessing Officer and Dispute Resolution Panel; this merely involves interpretation of the provisions of the Income-tax Act, 1961 ('the Act') as furtherance or advancement of ground no (2) of the memorandum of appeal (Pg. No. 4) which the Hon'ble Tribunal is otherwise competent to do, in view of the principles of the Hon'ble Supreme Court in the case of National Thermal Power Corporation Limited 229 ITR 383 (SC). Further, the Appellant believes that the existing grounds are wide enough to cover these grounds, however, as a matter of good order it is filing these as additional grounds. Below Ground No. 2.2, the following grounds are added: 2.3 On the facts and in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that return, notice under section 143 (2) was issued. Also, Notice under section 142 (1) on 07/05/2014 and summons under section 131, dated 20/01/2014 and 22/01/2014 were issued along with the questionnaire. Against all these notices and summons, assessee sought time. The Ld. assessing officer gave a further opportunity vide letter dated 08/10/2014 to the assessee requesting to furnish the details against which the assessee submitted it on 16/10/2014. As the Ld. assessing officer found that assessee has not submitted details as required according to the earlier questionnaire, further letter dated 19/11/2014 was issued against which assessee further submitted adjournment applications on these occasions for additional time for 4 weeks. As the information was not forthcoming from the assessee. The Ld. assessing officer exercised powers under section 133 (6) of the act and asked details from Cairn India Limited , purchaser of the shares of Cairn India Holdings Limited. 08. The facts of the impugned transaction, undisputedly are noted by the Ld. assessing officer in para No. 7 of his order as under:- 7 . Analysis of the transaction of sale of shares of CIHL by Assessee (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2,97,80,710 to Cairn India Holdings Ltd. Cairn India Holdings Ltd. further issued 2,97,80,710 ordinary shares of 1 each in exchange to CUHL. Now the debt amount of 2,97,80,710 became due to Cairn India Holdings Ltd. (CIHL) from Cairn Energy Hydrocarbons Ltd. Thus as on 01.09.2006 CUHL was holding 22,14,44,034 + 2,97,80,710 = 25,12,24,744 ordinary shares of 1 each of Cairn India Holdings Ltd. (CIHL). 7.1.3 Transfer of the Indian Assets from CIHL to CIL On 15 September, 2006 Cairn UK Holdings Ltd entered into the Subscription and Share Purchase Agreement with Cairn India Limited and Cairn India Holdings Limited (both subsidiaries of Cairn UK Holdings Ltd) with Cairn Energy PLC as the Guarantor. The Subscription and Share Purchase Agreement provided for Cairn India Limited to acquire approximately 21.85% of share capital of Cairn India Holdings Limited in two tranches. Subsequently a new Share Purchase Deed was signed on 12.10.2006 and the entire share holding of Cairn India Holdings Ltd was acquired by Cairn India Ltd, from CUHL. By virtue of purchase of 100% shares of CIHL from CUHL, CIL acquired the entire Indian business of the group. CIL acquired (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceptional gain on sale of 1.361 billion. 7.2.2 Further, in the operating Profits Schedule to the Income Statement the company has declared that the exceptional gain of 136,07,84,000 arose on the sale of company s investment in Cairn India Holdings Ltd to Cairn India Ltd. 7.2.3 Future Developments and principal risks and uncertainties The company will continue to operate as a holding company carrying the investment in Cairn India Limited. In continuing the operations, the principal risk to the Company is the carrying value of the 68.98% investment in Cairn India Limited, with the remaining 31.02% now trading on the Bombay Stock Exchange and National Stock Exchange of India. The value of the investment will be dependent on the continued success of the Cairn Oil Gas Exploration and development activities in India. 7.2.4 Regarding taxation, the company in Schedule 6 to the Income Statement has stated that no tax has been provided in respect of the disposal of part of the company s investment in its subsidiary as the disposal is exempt from tax under Schedule 7AC of the Taxation of Chargeable Gains Act, 1992. 7.2.5 Financial Statement of Cairn UK Holdings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2006, Cairn India Ltd has disclosed the entire amount of ₹ 26,681,87,10,140/- under the head investments with the following remarks: Long term investments (at cost) unquoted and non-trade 25,12,24,744 ordinary shares of 1 each, in Cairn India Holdings Limited, subsidiary company (refer note 9(b) under schedule 13)- 26,681,87,10,140. 7.4.2 Further, in the Annual report under the heading Subsidiary companies the following note has been given: SUBSIDIARY COMPANIES During the year, company acquired all the shares of Cairn India Holdings Ltd (CIHL) and consequently CIHL has become a wholly owned subsidiary of the Company. CIHL is also a Holding Company for 26 other companies. Consequently, all these Companies have become subsidiaries of Your Company. 7.4.3 Facts noticed from the Balance Sheet of M/s Cairn India Ltd as at Dec. 31.01.2006 Balance Sheet of M/s Cairn India Ltd as at Dec, 31 2006 is as below: (All amounts are in Indian Rupees ) As at Dec. 31, 2006 SOURCES OF FUNDS Shareholder s funds Share Capital 17,65,31,43,790 St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther relevant regulatory authorities in India and as per applicable valuation norms. This strategic investment has been made to acquire the oil and gas assets of CIHL and its subsidiaries. 7.4.6 Facts Noticed from the Consolidated Balance Sheet of M/s Cairn India Ltd.: As at December 31, 2006 the Consolidated Balance Sheet of M/s Cairn India Ltd. contains the following information (after consolidation of all subsidiaries accounts): (All amounts are in Indian Rupees, unless otherwise stated) SOURCES OF FUNDS Shareholder s Funds Share Capital 17,65,31,43,790 Stock options outstanding 34,50,58,813 Reserves and surplus 275,01,78,36,642 293,01,60,39,245 Loan Funds Unsecured Loans 4,98,47,87,562 Deferred payment liability under finance lease 13,68,30,471 Deferred tax liability (net) 425,81,61,061 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s subsidiaries. (iii) The difference between the cost to the company of its investment in Subsidiaries over its proportionate share in the equity of the investee company at the time of acquisition of shares in the Subsidiaries is recognized in the financial statements as Goodwill or Capital Reserve as the case may be. Goodwill is tested for impairment by the management on annual basis. 7.4.8 Thus from the stand alone and consolidated annual financial statements of M/s Cairn India Ltd. it is evident that in the process of acquisition of shares of M/s Cairn India Holdings Ltd from M/s Cairn UK Holdings Ltd, the payment of ₹ 266,81,87,10,140/- made by M/s Cairn India Ltd was in excess of the Book value of the acquired assets by a sum of ₹ 25,411,51,34,287/- which is represented by Goodwill in the consolidated financial statements, clearly indicating that substantial capital gains have accrued to the company M/s Cairn UK Holdings Ltd. 7.5 Facts noticed from the Annual report of Cairn Energy Plc: From the Annual Report 2006 of Cairn Energy Plc, the following facts are noticeable: Notes to the account 3 SEGMENTAL ANALYSIS Operating segments; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8585 18346 -- 56931 Unsuccessful exploration costs 56650 5368 -- 62018 Depletion and decommissioning charge 48516 54971 --- 103487 Other segmental items included in the income statements are; Impairment of oil and Gas assets -- 71455 -- 71455 Depreciation 2393 3 749 3145 Amortization 2242 -- 1620 3862 The segment assets and liabilities as at 31 December 2006 and capital expenditure for the year then ended are follows: Cairn India Limited Group Capricorn Energy Limited Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , country of operation and country of incorporation were mentioned. Most of the companies operations were in India and even the functional currency of the appellant was in Indian rupees. He further referred to the red Herring prospectus issued by Cairn India Ltd at the time of initial public offer. He further referred to the valuation report obtained by Cairn India Ltd with respect to valuation of shares of Cairn India Holdings Ltd from and M Rothschild and Sons India private limited dated 18/09/2006 and 19/12/2006. Therefore according to him, all the assets of cairn India Holdings Ltd and its subsidiaries are located in India alone. He further referred to the various statements given by various employees of cairn India Ltd to support his contention. In para No. 8.6 of his order he further referred that none of the employees of the subsidiaries, which were subject to transfer, was employed outside India and, therefore the entire workforce of the PE of Cairn Group , was employed in India only. Therefore, he further held that workforce is also located in India. In para No. 8.8 of his order he referred to the certificate of incorporation of cairn India Holdings Ltd issued by Jersey f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (47) and 2 (14) of the Income Tax Act , it is clear that the purpose of the amendment was only to tax those transactions wherein the shares of the foreign company have been sold resulting into transfer of management and control. Hence the above transaction is not chargeable to tax in India. 11. The Ld. AO dealt with the submission of the assessee in para No. 9 of his order. He first considered the legal structure of the assessee and chronology of events of acquisition of those shares, which resulted into transfer of control of Indian business from appellant to cairn India Ltd. He further referred to the subscription and shares purchase agreement dated 15/09/2006 and its amendment dated 05/10/2006 entered into between appellant , the seller of the shares, Cairn India Ltd, the purchaser of the shares, along with the guarantor of the transactions and the company, whose shares are transacted . He further analysed the share purchase deed dated 12/10/2006 and the red Herring prospectus of cairn India Ltd, through book building process. Therefore, he held that all these agreements analysed with chronological event of transactions, It resulted in changing the cairn group structure. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that revenue has invoked provisions of section 281B of the act provisionally attaching the shares to safeguard its interest. Regarding the claim of assessee that these transactions were already disclosed to revenue, he held that appellant has not filed any return of income for assessment year 2007 08 and the transactions were only disclosed in form No. 3 CEB before the Ld. transfer pricing officer for determination of arm s length price by the Indian associated enterprise i.e. cairn India Ltd. He therefore held that the issue there was only for determination of arm s length price in the hands of an Indian entity and not the chargeability of the capital gain tax in the hands of appellant, therefore there was no disclosure made by the assessee as no return of income was filed for the impugned assessment year. He further referred to the disclosure of the transaction made by the Indian entity in the Red Herring prospectus and approval obtained from Foreign Investment Promotion Board and held that there is no concept of group taxation under the Indian Income Tax Act and Indian entity and the appellant are two different assesses. Hence, it cannot be said to be a disclosure at all. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 with retrospective effect from 01/04/1962 which clearly mentions that all income accruing or arising whether directly or indirectly through the transfer of a capital asset situated in India is chargeable to tax as it is deemed to accrue or arise in India. The Ld. assessing officer further drew support from the memorandum of The Finance Act, 2012, explaining the position of the legislature. Therefore he rejected the contention of the cairn India Ltd that the amendments are prospective in nature and further held that Cairn India Ltd made payment of ₹ 26, 6818710140/ to the appellant for acquiring Indian assets through hundred percent shareholding of Cairn India Holdings Ltd and the resulting capital gains for taxable in the hands of the appellant. The Ld. assessing officer further drawing support from the decision of the Hon ble Supreme Court in CIT versus Vatika Township private limited and held that the language of the expiration for an expression 5 which is been inserted w.r.e.f. 01/04/1962, amendments are clarificatory in nature and the operation is retrospective. 13. After holding that the capital gain arising in the hands of the appellant on account of sale of 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawn, and thus stands dismissed as withdrawn. Ld DRP also rejected claim of the assessee that transactions were part of internal reorganization of the group and are revenue neutral. In nutshell, it rejected all the contentions of the assessee about the chargeability of capital gain in the hands of the assessee. On the aspect of the computation, it also rejected all the contentions including the decision referred before it of the Hon ble Supreme Court in CIT versus Gillanders Arbuthnot co 87 ITR 407 (SC) and upheld the computation of capital gains. Another objection raised before the Ld. Dispute Resolution Panel about the pendency of international arbitration and therefore requested to keep the proceedings pending was rejected. It was further objected before the Ld. Dispute Resolution Panel that interest under section 234A, 234B and 234C and 234D of the Income Tax Act is not chargeable because taxes required to be deducted by the Indian entity who paid such sum u/s 195 of the Act. Ld. DRP rejected the contention of the assessee with respect to interest under section 234A and 234C, whereas for the purpose of interest under section 234B Ld. AO is directed to reconsider the issue wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be admitted. The assessee placed reliance on the decision of the Hon ble Supreme Court in the case of national thermal power Corporation limited to 29 ITR 383 (SC) to support its claim for admission of these additional grounds. 18. Ld. departmental representative, vehemently objected to the admission of additional ground and stated that as these grounds are not raised before the Ld. Dispute Resolution Panel or before the Ld. assessing officer the contentions are new and therefore same may not be admitted. 19. We have carefully considered the rival contentions. We are of the opinion that all these additional grounds of appeal raised by the assessee are legal in nature and no further facts are required to be investigated, therefore, in the interest of Justice these are admitted. 20. Now we come to the main grounds of appeal on which submission made by the assessee. Ground No. 1 of the appeal of the assessee is general in nature, arguing that the order passed by the Ld. assessing officer pursuant to the direction of the Ld. Dispute Resolution Panel is bad in law and facts and is liable to be set-aside on the ground set forth below. No specific argument were led on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... likelihood; the said survey report had been received by the Ld. assessing officer after the issuance of the notice under section 148 of the Income Tax Act. Therefore, the action of the reopening of the assessment by the Ld. assessing officer has been attacked on several counts by the Ld. authorized representative in ground No. 2 of the appeal of the assessee. The assessee submitted on each of these issues as under:- 1. Approval required under Section 151(2) of the Act is not correctly provided Relevant Facts under consideration; 1.1. In the notice issued under Section 148 of the Act, there was no mention of the sanction / approval of the higher authorities as required under section 151(2) of the Act (refer page no. 7 of the Paper Book}. Further, on 25 July 2014, when copy of the recorded reasons for reopening of assessment was provided by the AO to the Appellant, the said reasons were neither signed nor was containing any sanction / approval of the higher authorities as contemplated under Section 151(2) of the Act (refer page no. 22 to 30 of the Paper Book). 1.2. During the course of DRP proceedings, vide submission dated 29 September 2016 the Authorize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Taxation), Range -1, New Delhi (;the Addl DIT') on the last page of the recorded reasons, (refer page no. 31 of the Paper Book} Submissions 1.9. In this regard, the Appellant refers to the provisions of Section 151(2) of the Act, which reads as under - 151. . (1) ... (2) In a case other than a case falling under sub-section (I), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. (3) ... ('Emphasis added) 1.10. Therefore, on perusal of Section 151(2) of the Act, it is evident that no notice shall be issued by an Assessing Officer who is below the rank of Joint Commissioner of Income-tax ( JCIT ), unless the JCIT is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of notice. 1.11. Hence, Section 151(2) of the Act gives administration powers only to JCIT for sanction / approval for issuance of the notice under Section 148 of the Act. . 1.12. In this regard, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it very clear that the AO, in substance, has failed to obtain the sanction from the designated authority under Section 151 of the Act before issuance of the notice under Section 148 of the Act. 1.19 In this regard, the Appellant relies on the following judicial precedents, wherein it has been held that absence of approval / sanction from JCIT for issue of notice under Section 148, as contemplated under Section 151(2) of the Act, renders reassessment invalid and therefore should be quashed: Soyuz Industrial Resources Ltd. [2015] 58 taxmann.com 336 (Delhi) Hon'ble Jurisdictional High Court held as under - 8. The Revenue's argument seems plausible and even logical because the Commissioner or a Chief Commissioner is unarguably ranked higher in authority than a Joint Commissioner. Yet at the same time, this Court has to give effect to plain words of the statute which unambiguously states that the competent authority in such cases is the Joint Commissioner (and not the Chief Commissioner or the Principal Commissioner). The Revenue's submissions that all such cases, are covered under proviso to Section 147(1), the competent authority for prior approval would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion here under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner, it has to be done in that manner. In a similar situation the Delhi High Court in CIT v. SPL'S Siddhartha Ltd. [2012} 17 taxmann.com 138 held that powers which are conferred upon a particular authority have to be exercised by that authority and the satisfaction which the statute mandates of a distinct authority cannot be substituted by the satisfaction of another. We are in respectful agreement with the judgment of the Delhi High Court. (Emphasis added) Further, the above ratio has also been followed in the following judicial precedents - DSJ Communication Ltd. vs. DCIT [2014] 41 taxmann.com 151 (Bombay) Gajinder Singh Chhabra vs. ITO [2014] 50taxmann.com 312 (Delhi - Trib.) Sunint Investment Technologies (P.) Ltd. vs. ACIT [2012] 26 taxmann.com 260 (Delhi) ITO vs. Tirupati Cylinders Ltd. (ITA No. 5084/Del/2012) - .; ' : M/s Son ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years, (Emphasis added) 2.2 Based on the above, it is evident that notice under Section 143(2) of the Act for proceeding with the assessment can be issued by the AO only after disposal of objections raised by the Appellant. 2.3 In the instant case, since the notice under Section 143(2) of the Act had been issued before disposal of objections raised by the Assessee, the said notice is bad in law and liable to be quashed. Considering this, the Appellant further submits that once the notice issued under Section 143(2) of the Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or otherwise written thereon. (3) For the purposes of this section, a designated income-tax authority shall mean any income-tax authority authorised by the Board to issue, serve or give such notice or other document after authentication in the manner as provided in sub-section (2). (Emphasis added) 3.5 Thus it is amply clear that any document issued by any Income-tax authority shall bear a signature of the designated authority. Further, Section 282A(2) of the Act provides for deemed authentication if the name and office of a designated Income-tax authority is printed, stamped or written there upon. 3.6 However, in the instant case, the reasons for reopening provided by the AO neither bears the signature of the AO nor is the name and office of the AO is printed, stamped or written thereupon (refer to Page 30 of the Paper Book). 3.7 Thus, in light of provisions of Section 282A, the reasons for reopening provided by the AO are not correctly provided and does not contain any statutory force. b. In this regard, the Appellant would like place reliance on decision of Hon'ble Mumbai Tribunal in case of Mahendra C. Gala v. ACIT (ITA No. 6590/Mum/2013) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt confirmed the view of the Delhi High Court that We also cannot accept submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded on analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (!) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said subsection (3) of section 143, a presumption can be raised that such an order has been passed on application of mind. It is well-known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of I he Indian Evidence Act the judicial and official acts have been regularly performed If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasi-judicial function to take benefit of its own wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter the Act ) was conducted at the office premises of Cairn India Ltd at 3rd and 4th Floor, Viper Plaza, Sun City, Sector-54, Gurgaon-122002, Haryana by the Directorate of Investigation, New Delhi on 15.01.2014. The report of the survey action -was received from Investigation wing which inter-alia contained following documents 6.3 It is further submitted that the Hon'bie DRP in its order, on page no. 2, has also observed as under: DRP has carefully considered the objections, and examined the draft assessment order as well as the contents of the Report of the Survey u/s 133A carried out by the Investigation Wing on 15.1.2014 and referenced by the Assessing Officer..... 6.4 Further, the AO himself in his letter dated 3 December 2015 has observed that the case was reopened under Section 148 on the basis of the survey proceedings under Section 133 A conducted on the office premises of CIL on 15 January 2014. 6.5 Based on the above, the Appellant submits that it is beyond doubt that the reassessment in the instant case had been initiated, based on the report of the survey conducted on the premises of CIL on 15 January 2014. However, the Appellant al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernmental commissions. 7. Rebuttal to the observations of the AO and DRP on assuming mere territorial jurisdiction In the final assessment order and DRP direction, the AO and DRP has observed that AO has valid jurisdiction over foreign companies on account of certain provisions of the Act and based on the returns of income filed by the Appellant for the subsequent years. However, such an observation of the AO only purports to confirm the territorial jurisdiction of the AO over foreign companies under the Act. The Appellant has been challenging-and is challenging - the validity of assumption of jurisdiction for initiating reassessment proceedings without satisfying the various condition precedent for the valid assumption of jurisdiction as enunciated by the Supreme Court in several decisions, 8. Rebuttal to judicial precedents relied upon by the DRP 8.1 The DRP relied on the decisions of CIT v Mehak Finvest P Ltd [2014] 52 Taxmann.com 51 (P H) and Majinder Singh Kang v CIT [2012] 344 ITR 358 / 25 taxmann.com 124 (P H) contending that in view of Explanation 3 to Section 147 of the Act. the AO shall be empowered to make additions even to the extent of grounds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation) to record satisfaction that it is a fit case for the issue of such notice. He further referred to the provisions of section 2 (28C) and 2 (28D) of the Income Tax Act wherein the definition of Joint Commissioner and joint director is provided. Therefore he vehemently submitted that the power to give sanction under section 151 (2) is only available with the Joint Commissioner and not with Additional Director. He further submitted that these 2 authorities are quite different. He further referred to the decision of the Hon ble Delhi High Court in case of CIT versus Pawan Kumar Garg [2009] 178 Taxman 491 (Delhi)/ [2011] 334 ITR 240 (Delhi)/ [2009] 222 CTR 36 (Delhi) wherein it has been held that manner in which expression Joint Director has been used in section 132(1) requires same to be interpreted in its limited sense as meaning only a Joint Director and not an Additional Director of Income- tax. 24. On the issue of reopening of assessment proceedings the ld departmental representative vehemently contested the submission of the assessee and also submitted on each of the issue as under :- 1) Regarding claim that approval does not meet the requirements laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is also worth noting that the time available with the AO for passing draft assessment order was only up to 31.03.2015. Under the circumstances, and keeping in view that the assessee had not sought reasons for almost six months even after receiving the notice u/s 148 on 21.03.2014 the action on part of the AO to issue notices u/s 143(2) and 142(1) before 10.06.2014 cannot be faulted upon. So far as the case of Premier Ltd v DCIT Ors (WP No. 2340 of 2008) of Bombay HC is concerned, the facts of that case are completely at variance with the case in hand. In that case, the AO had issued notices u/s 148,143(2) and 142(1) altogether. It was in these circumstances that the High Court quashed notices issued u/s 143(2)/142(1) and directed the AO to proceed with the matter afresh. The cited case-law does not apply here. 3) Regarding claim of assesses that Reasons Recorded by the AO were not signed This contention has never been raised before at any stage. Not only that the assessee through letter dated 16.10.2014 responded to the reasons conveyed, but continued to participate in the proceedings even after that without raising any disagreement about the same, till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od since 1962. Whether the Parliament of the Country was competent to do so, it is most humbly submitted, cannot be deliberated in this Hon'ble Tribunal. At the time of issue of notice, the law was thus clear and the AO had clearly stated (order disposing of objections; page 36 - 47 of assessee's paper book) that the conditions laid down in section 9(l)(i) were satisfied and the capital gains accruing to the assessee from transfer of CIHL shares which derived all their value from the assets situated in India, was taxable in India. 6) Regarding issue on Survey Report The insinuation, that while the notice u/s 148 was issued on 21.01.2014, the 'Survey Report', based on which it was purportedly issued, was received by the AO in the month of February 2014, is completely unsupported by the facts on record. As per the assessment records, a report marked 'URGENT MATTERS' was received from DDIT(lnv)-U-IV(2), New Delhi on 16.01.2014. Based on the information provided in that report, the AO recorded his reasons and obtained approval of Addl.DIT(IT)-Range-l, Delhi on 21.01.2014 for issue of notice u/s 148 In any case, and more importantly, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Directors of Income tax referred to in this notification to issue orders in writing empowered the Additional Drectors of the income tax of Joint Directors of income tax, what subordinate to them to exercise the powers to perform the function of Additional Commissioner of income tax or Joint Commissioner of income tax in respect of such territorial areas for of such person or class of person of such income or class of income or of such class of classes of the cases specified in the corresponding entries in that notification. He therefore submitted that Additional Directors of the income tax are equivalent to the Joint Commissioners of the income tax therefore there is no infirmity in the sanction provided under section 151 (2) of the Income Tax Act. He further referred to the notification dated 11/10/2007 issued by the office of the director of income tax, international taxation and notification dated 14/09/2001. 26. In rejoinder, Ld. authorized representative submitted that the notification submitted by the Ld. departmental representative does not specify that the powers of Joint Commissioner with respect to the provisions of section 151 (2) are also with the Additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities. It further provides that the direction of the board may authorise any other income tax authority to issue orders in writing for the exercise of the powers and performance of the function by all or any of the other income tax authorities what subordinate to it. According to those powers notification No. 250/2007 dated 28/09/2007 was issued by the Central board of direct taxes wherein it is provided as under:- (b the Directors of Income-tax referred to in this notification to issue orders in writing empowering the Additional Directors of income-tax or Joint Directors of Income-tax, who are subordinate to them to exercise the powers and perform the functions of Additional Commissioners of Income-tax or Joint Commissioner of Income-tax, in respect of such territorial areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases specified in the corresponding entries in column (4) of the Schedule; Therefore, the Central board of direct taxes has validly exercises power conferred upon it as provisions of section 120 of the Income Tax Act wherein they have also provided that that the functions perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary approval in the notice itself makes the notice invalid. We have carefully perused the rival contentions. In fact, format of the notice provided in ITNS 34, is a non-statutory form, which does not find place in the income tax rules, or any other subsidiary rules relating to administration of the Income Tax Act. However, we fully agree with the contention of the Ld. authorized representative that the non-statutory format provided by the Central Board of Direct Taxes clearly provides that there has to be mention about the notice is being issued after obtaining the necessary satisfaction of the higher authorities prescribed therein. It is also apparent that the notice issued to the assessee on 21st. January 2014 under section 148 of the Income Tax Act does not contain any such statement with respect to obtaining approval under section 151 of the Income Tax Act. Undisputedly, in this case proper approval of Ld. Additional Director of income tax (international taxation) has been taken by the Ld. assessing officer under section 151 of the Income Tax Act. Merely if the notice issued does not mention some facts that are prescribed in a non-statutory form when substantially the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to file objection to issuance of notice and the assessing officer is bound to dispose of the same by passing the speaking order before proceedings with assessment. In the present case, the notice under section 143 (2) was issued on 6th June 2014, whereas the assessee has obtained reasons for notice issued under section 148 of the act only on 10/06/2014, therefore, apparently there is no objections pending before the Ld. assessing officer to dispose before the issue of notice under section 143 (2) of the act. Furthermore, there is specific time limit applicable with respect to the issue of notice under section 143 (2) of the Income Tax Act, as per proviso contained therein. It is the prerogative of the assessee to obtain benefit of the guidelines laid down by Hon ble Supreme Court in case of reopened assessment. However, when the assessee does not care to safeguard its own interest, it cannot hide behind his inefficiency and claim that there is a flaw in assessment proceedings. In the present case, the notice under section 148 was issued on 21/01/2014 where the Ld. assessing officer granted time of 30 days from the date of service of the notice to file a return. In response to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Hon ble Supreme Court in the present case, do not apply at all. It was submitted that though the assessment of Cairn India Ltd was made with full application of mind income in the case of the assessee had escaped assessment because the assessee has failed to file any return whatsoever till the notice under section 148 of the Income Tax Act was issued. We have carefully considered the rival contentions and we reject the argument of the Ld. authorized representative of the assessee as well as the reliance upon the decision of the Hon ble Supreme Court in case of CIT versus Kelvinator of India Ltd (supra). The reasons for the same is that it cannot be argued that if assessment in the case of some another assessee has been made who was also a party to the contract, reassessment proceedings in the hands of the other party cannot be initiated. Here, the argument of the assessee is that that the information could have been passed on to the Ld. assessing officer of the appellant from the assessing officer of the Cairn India Ltd, and such information has not been passed by the Ld. assessing officer of the Cairn India Ltd to the Ld. assessing officer of the appellant and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Cairn India holding Ltd derived all its value from the assets located in India. He further held that the real effect of transfer of the shares of Cairn India holding Ltd will be the transfer of control of the assets of the subsidiaries in India. Therefore, this transfer of shares would indirectly result in transfer of assets situated In India. It situated in India, hence the condition laid down in section 9 (1) (i) of the Indian Income Tax Act are satisfied thereby making the capital gain taxable in India, as per the domestic tax law. The argument of the Ld. authorized representative is correct that ld AO ha not referred to the explanation 5 while recording the reasons however he has referred to provisions of section 9 (1) (i) of the act and explanation 5 is part of that section. Therefore, merely because no reference is made to explanation 5, reasons recorded by the Ld. assessing officer cannot become invalid when he has referred the overall section. Therefore this contention of the Ld. authorized representative is rejected. f. The sixth contention of the assessee is that the recorded reasons provided by the Ld. assessing officer were not signed. During the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 29. Ground No 3 4 of the appeal of the assessee are against chargeability of capital gain and computation of the same under the Income Tax Act 1961. 30. Ld AR submitted on this issue as under :- 1. Facts under consideration 1.1. Cairn Energy PLC ( CPLC ) is a tax resident of United Kingdom under Article 4 of Double Taxation Avoidance Agreement between India and United Kingdom ( India - UK DTAA ). In the year 2006, the CPLC Group undertook an internal reorganisation ( internal reorganisation ) to simplify the group structure for both operational and strategic reasons, to achieve more effective local management, to access Indian capital market, and to allow equity participation by Indian and Foreign investors in their Indian business. 1.2. Step-wise implementation of the reorganisation has been detailed hereunder: Step 1 - Share Exchange Agreement dated 30 June 2006 between CPLC and Cairn UK Holdings Limited ('CUHL' or 'Appellant') (refer Page No. 60 to 66 of Paper Book] a) As part of the internal reorganisation, the Appellant was incorporated on 26 June 2006. Thereafter, a Share Exchange Agreement dated 30 June 2006 was entered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous dates by CUHL and from these funds, on the same day, CIL purchased some part of the share capital of CIHL from CUHL. 1.4. As a result, CIL, a subsidiary of CUHL, acquired 100 percent stake in CIHL from the Appellant. 1.5. With regard to the above transaction. Assessing Officer ('AO'), in the Draft Assessment Order ('DRO') dated 09 March 2015, alleged the gains arising from the sale of shares of CIHL by the CUHL to CIL are short term capital gains and hence chargeable to tax in India at the rate of 40 percent. 1.6. Against the above DRO, CUHL filed objections before the Hon'ble Dispute Resolution Panel ('DRP') vide application dated 6 April 2015. 1.7. After series of hearings and filing of various submissions, Hon'ble DRP issued its directions vide order dated 31 December 2015. In the said directions, Hon'ble DRP agreed with almost all the allegations of the AO and confirmed the DRO. Pursuant to the directions of Hon'ble DRP, AO issued Final Assessment Order ('FAO') dated 25 January 2016. 1.8. Against the above FAO, the Appellant has filed captioned appeal before the Hon'ble Income-tax Appellate Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO and DRP on retrospective amendment. 2 -. During the course of the assessment, the learned AO has placed reliance on the submissions filed by CIL during the course of proceedings under section 201 of the Act, wherein it was submitted that the amendment of section 9(1 )(i) of the Act created new law and new obligations. It was submitted that the legislature though while amending the law has mentioned that the amendments are being made for removal of doubts, however, in view of the settled law in the favorable Supreme Court1 judgment, this attempt is nothing but to create substantive rights to tax a class of persons and accordingly can only be prospective in nature (refer Para 9.4 - Page 270 of Appeal Documents). :'-.. 4 2.5. Further, the learned AO has upheld the validity of retrospective amendment by placing reliance oti the following (refer Para 9.5 to 9.6 from Page 271 to 280 of Appeal Document): 4 a. Memorandum to Finance Act, 2012 and interpretation on the first principles which provides that the insertion of Explanation 4 and 5 to section 9(1) will be applicable with retrospective effect from 01 April 1962; b. Reliance is placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccurring in Explanation 5 to section 9(1 )(i) of the Act. In the said interpretation. Hon'ble Delhi High Court just took note of the provisions of Explanation 5. Such an observation^ of Hon'ble Delhi High Court is presented by the AO in such a manner that Hon'ble Delhi High Court has stated that Explanation 5 is for removal of any doubts and hence applicable with retrospective effect. The Appellant submits that the observations of the Hon'ble Delhi High Court are not at all approving the retrospective application of Explanation 5. 2.10. Without prejudice to the submission in Para 2.9 above, the Appellant would also like to submit that even if for the time being one agrees with the observation of the learned AO that Hon'ble Delhi High Court has approved the retrospective application of Explanation 5 to Section 9(l)(i) of the Act, the said observations should not have any binding force of law. The Appellant would like to point out that the main issue before the Hon'ble Delhi High Court was the interpretation of the word substantially appearing in Explanation 5. For the purpose of this interpretation, there was no requirement of making any comment on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amendment neither purports to be merely clarificatory nor is there any material to suggest that it was intended by Parliament. Furthermore, an amendment made to a taxing statute can be said to be intended to remove 'hardships' only of the assessee, not of the Department. On the contrary, imposing a retrospective levy on the assessee would have caused undue hardship and for that reason Parliament specifically chose to make the proviso effective from 1.6.2002. In view of the above, the decision of Vatika Township (supra) is supporting the case of thii Appellant and not the case of the revenue. .i 2.13. Tn the case of National Agri Coop Mkg Federation (supra), the main issue before the Hon'bHJ Supreme Court ('SC') was validity of the retrospective amendment introduced in sectior) 80P(2)(a)(iii) of the Act. While dealing with the entire issue, learned DRP has very conveniently picked up one statement which was favorable to the Revenue. The Appellant would like to bring following observation of Hon'ble Apex Court to the notice of your Honors: the retrospectivity must he reasonable and not excessive or harsh, otherwise it runs the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The major portion of the ruling dealt with the method to benchmark the transaction of excess Advertisement, Marketing or Promotion ('AMP') expenditure incurred by the assessee for its foreign counterpart. The concept of adopting Bright Line Test ('BLT') as a legitimate means of determining the arm's length price of the international transaction has been discussed at length. However while dealing with this issue in greater detail, the Hon'ble Court also made an observation on the issue of retrospective amendment of section 92CA introduced by the Finance Act, 2012. The learned DRP, abruptly quoted those findings without considering that the main issue raised by assessee. 2.16. In the said ruling, the assessee itself considered the excess AMP expenditure as an international transaction and accordingly this question was not dealt in by the Hon'ble Delhi High Court and remained unanswered. This indicates that the decision of Sony Ericson (supra) cannot be considered as an authority for interpretation of retrospective amendment. Further, various subsequent rulings, discussed in subsequent paragraphs, by the Hon'ble High Court, have also not consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. The main issue was that section 143(1A) provides for an additional tax of 20 percent where the amount of adjustment made under the first proviso to clause (a) of sub-section (1) exceed the total income. In this case, reduction of loss was not specifically covered in the provisions of section 143(1 A). In the case of the Assessee, where on account of adjustments there was reduction of the losses, it was alleged that since reduction of loss is not covered by the express provisions of the section 143(1 A) additional tax of 20 percent should not be applied in the case of the Assessee. Thereafter, by Finance Act, 1993 provisions of section 143(1 A) of the Act were retrospectively amended to include even the reduction of loss. 2.21. To the above, Hon'ble Supreme Court concluded that the provisions of section 143(1 A) of the Act are for punishing the assessee. Ultimately, taking a clue from Varghese3 case, Hon'ble SC concluded that section 143(1 A) of the Act can only be invoked where it is found on facts that th lesser amount stated in the return filed by the Assessee is a result of an attempt to evade tax lawfully payable by the assessee. ;; 2.22. From the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke in the Indian oil and gas business to CIL and received adequate cash consideration for the same. Therefore the claim of the Appellant that these transactions were part of the internal reorganisation of the group and are revenue neutral is not correct, (refer Para 9.1.7.2-Page 253 of the Appeal Documents) 2.27. Further, learned DRP has also agreed with the above observations of the AO (refer observations of the DRP at Page No. 137to 140 of the Appeal Documents] 2.28. In this regard, we would like to bring to the notice the flow of transactions as described in Page No. 294 and 295 of the Paper Book. As already explained above, vide subscription and share purchase agreement dated 15 September 2006 and share purchase deed dated 12 October 2006, the Appellant has infused funds into CIL and the same funds are used by CIL to purchase shares of CIHL. The same is very evident from the dates of funds infused by the Appellant in CIL and on the same day CIL has purchased shares of CIHL and remitted back the same funds to the Appellant. 2.29. Attention of your Honors is also invited to the table provided at Page 295 of the Paper Book. wherein in all the transactions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further observed that only the share swap transaction was approved by the FIPB and RBI, which followed that the first two tranches of the proposed transactions. According to the AO, there was no mention of the approval of the 4th tranche in the application by the Appellant (refer Para 9.1.10 - Page 255 and 256 of Appeal Documents}. 2.33. Further, learned DRP has also agreed with the above observation of the AO and further observed that // is our considered view that the assessee company s statement to FIPB were inaccurate / misleading by inter alia suppressing its intention to remit the IPO and pre-IPO proceeds of the equity floatation of Cairn India Limited ' (refer Last Para - Page 128 of Appeal Documents). 2.34. The Appellant most respectfully submits that the above issue of seeking an approval from RBI for share swap arrangement does not have any bearing on taxability of transfer of shares of CIHL to CIL. However, since it is alleged that the Appellant has furnished inaccurate / misleading information, the Appellant is rebutting all above observations of the learned AO and DRP in the subsequent paragraphs. 2.35. At the outset, the Appellant would lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the above your Honors will appreciate that following points were submitted before the FIPB: a. Subsequent to completion of the IPO - The Appellant clearly mentioned about the transactions to occur after completion of IPO. / b. CJL would acquire the balance equity shares fat least 10%) of CIHL from CUHL - The Appellant clearly mentioned that CIL would acquire balance eguitv shares of CIHL from CUHL. c. for a cash consideration - The Appellant clearly mentioned that CIL will acquire the shares for a cash consideration d. under the automatic route of the Reserve Bank of India - The said shares will be acquired undet automatic route. Since, these shares were acquired under automatic route, there was nd requirement of mentioning anything additional in the application. 2.38. Further, approval was not required for acquisition of shares in CIL for cash. Approval was sought only for shares acquired by the Appellant in exchange of shares. This is also evident from the following extract of the FIPB Application (refer Para 2.7-Page 205 ofthe Paper Book}: ' 2.7.7 As per current Indian legal requirements, the inward leg of a swap transaction, i.e., the invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially the Assessing Officer is required to be pragmatic and not pedantic. 2.41. All the above judicial precedents are distinguished by the learned DRP with the observation that ill the case under consideration the Appellant has received full market consideration for the same* which inter alia has been funded by the pre-IPO private placement as well as the IPO funds raised from the public during the course of the public issue by the CIL. . .j 2.42. The Appellant, most humbly submits that the above analysis of the learned DRP is incorrect. While observing the fact that the Appellant has eventually (post-IPO) received full market consideration, as discussed in Para 2.29 to Para 2.32 above, DRP has lost sight of the fact that out of the total consideration received more than 75 percent of the consideration is received from the funds which are infused by the Appellant or by way of share swap arrangement. From the above, it is evidently clear that due to the corporate reorganization itself, there was neither any increase in the wealth of the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislature has always been to tax the income arising out of any real commercial transaction. The use of word indirectly in section 9(l)(i) makes the legislative intent regarding inclusion of the income accruing or arising to any person, in the income liable to be taxed in India, very clear. 2.47. With the above judgment, learned AO has explained the intention of legislature has always been to tax the income arising out of any real commercial transaction. The Appellant hereby submits that the said case more than supporting the case of the revenue is supporting the case of the Appellant. In the case of the Appellant, as already discussed above, it is merely corporate reorganisation of the holding structure and no real gain has accrued to the Appellant because the internal reorganisation did not result in a change of control. Hence, there should not be any taxability irt the case of the Appellant. 2.48. Further, learned AO has distinguished the decision of Vodafone International Holdings B. V V UOI Another [2012] 341 ITR 1 (SC) on account of following reasons: a. In case of Vodafone, it was payment from non-resident to non-resident. But in present case, a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91. 99 and 100 266 136, 137 and 140 267 However, despite such reproduction, it is categorically stated in the FAO that in fact the facts of the present case are clearly different and distinguishable from the facts of Vodafone International Holdings B.V. Vs. UOI Another, 341 ITR P. This indicates the self-contradictory and patently incorrect position of the law stated in the FAO which forms the basis of the assessment under challenge. While computation capital gain in the hands of Appellant, cost of acquisition stepped up to the fair value of the shares of CIHL on the date of acquisition Without prejudice to the above, assuming but not admitting, that indirect transfer of shares of Company with Indian assets is otherwise taxable in India, no capital gain has arisen in the hands of the Appellant on transfer of shares of CIHL to CIL. This is on account of the fact that, while computing capital gains, cost of acquisition should be stepped up to the fair market value of the shares of CIHL on the date of acquisition by the Appellant. The said argument is explained in the subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in lieu of another asset and no specific amount for consideration is agreed between the parties that) it is a case of transfer by way of exchange. In such a case, while computing capital gains, fair' market value of the asset received in consideration for the asset transferred should be considered as full value of consideration, 2.56. The above principle is supported and explained by the Hon'ble SC in the case of CITv. Gillanders P Arbuthnot Co /1973J 87ITR 407 (SC) and CIT v George Henderson and Co. Ltd[1967] 66 Ih ITR 622 (SC). Ratio of these judicial precedents is explained in the subsequent paragraphs. // 2.57. In the case of Gillanders Arbuthnot Co (supra), the assessee firm through its partners entered into an agreement for sale of some of the shares and securities held by it in favour of Gillanders Arbuthnot Co for a sum of ₹ 75 Lacs. The Income-tax officer was of the view that the market value of the shares and securities sold was much more than ₹ 75 Lacs. According to him, the Company secured those shares and securities at below market value and on that basis he computed capital gains at a higher amount in the hands of firm. The i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer held that the respondent had sold the shares at the book value of ₹ 136 per share whereas the market value of the shares on that date was ₹ 620 per share and the difference of ₹ 484 per share was capital gain arising from the sale of the shares under section 12B of the Income-tax Act, 1922. 2.62. As observed in this case the dispute was whether the capital gain should be computed at INR 13$ i.e. the price fixed in the agreement or at INR 620 which is the fair market value. In which case, the Hon'ble SC concluded that the transaction under consideration is a transaction of sale and further observed that In case of a sale, [he full value of the consideration is the full sale price actually paid. The legislature had to use the words full value of the consideration because it was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money^ If it is therefore held in the present case that the actual price received by the respondent was at the rate of ₹ 136 per share the full value of the consideration must be taken at the rate ofRs. 136per share. 2.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Full value of consideration should be the fair market value of the shares of nine subsidiarj companies. However, since the valuation of the shares of CUHL was not available on the date of transfer, value of the shares of CIHL transferred vide agreements dated 15 September 2006 and 12 October 2006, is considered for the purpose of fair value of shares. (b) Though the capital gain has accrued in the hands of CPLC and was covered under the provision of section 9(1 )(i) of the Act. dealing with indirect transfers, in the assessment proceedings of CPLC, the AO has not alleged to tax the same in the hands of the CPLC. 2.67. In the case of 2nd transfer, Relevant clauses of the Share Exchange Agreement dated 07 August 2006, are as under: - 'WHEREAS the parties hereto have agreed that the Vendor shall sell to the Purchaser and the Purchaser shall purchase from the Vendor the Sale Shares (as hereinafter defined) and that the consideration for the Sale Shares shall be the Consideration Shares (as hereinafter defined), upon the terms and conditions specified and contained in this agreement - Refer Page 68 of the Paper Book. Consideration: 3.1 The tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to above, for computing capital gains of these transactions [i.e. Sr. 2.53(a) and 2.53(b)], full value of consideration should be taken as fair market value of shares of nine subsidiaries transferred. In view of the same, it was argued that cost of acquisition of the CIHL shares in the hands of the Appellant should be deemed to be the fair market value of the shares of CIHL on the date of acquisition. . 2.72. However, both the transactions at Sr. No. 2.53(a) and 2.53(b) (i.e. transfer of shares of nine subsidiaries by CPLC to Appellant and Appellant to CIHL) were not sought to be taxed by the tax authorities. This, in the humble submission of the Appellant, does not prevent the step up of cost of acquisition in The hands of the Appellant-namely, the cost basis of the shares of CIHL-from being deemed to be the fair market value of the shares of CIHL in determining whether Appellant enjoyed any capital gains. 2.73. Since, the capital gains for transactions at Sr. No. 2.53(a) and 2.53(b) will be computed by applying fair market value, consequential cost of acquisition of shares of CIHL in transaction at Sr. No. 2.53(d) should also be deemed to be the fair market va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961 pertaining to foreign Companies in respect of arm's length price will render this judgment totally inapplicable in the instant case. However, except for making a generic statement, no specific provision of the Act is pointed by the learned DRP. 2.79. Decision of Gillanders Arbuthnot (supra) is discarded on account of the following reasons: a. Ratio decindendi deals with whether the sale of an agency business and whether the consideration was essentially a revenue receipt or a capital receipt; b. Facts in this case were different from the case of the Appellant. In the case of the Appellant, it is not the contention of the Appellant to tax the sum received by the UK entity from CIL as revenue receipt; c. Judgement is an expression of interpretation of law as it stood on that date; d. Apex court laid down was that in case of sale of an asset what is material is the actual price realized rather than a notional market value. Undoubtedly provisions have been introduced by the legislature since then with a view to prevent evasion of Income-tax by undervaluing the sales consideration particularly in relation of immovable property. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble SC in the case ofTuticorin Alkali Chemicals Fertilizers Ltd v CIT [1997] 227 ITR 172 (SC) wherein it was held that It is wherein it was that // is true that this Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. 31. During the course of hearing Ld. counsel further referred to the additional ground raised vide ground No. 3.12 contesting that Ld. assessing officer has erred in taxing the appellant by invoking the retrospective amendment to section 9 (1) (i) of the act introduced by The Finance Act, 2012, which was not on the statute, when the India and United Kingdom tax treaty entered into force. Therefore it was submitted that the taxability of the appellant should have been determined under the provisions of section 9 (1) (i) of the act, which were applicable when the India United Kingdom tax treaty was entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f those shares is the market value of those shares and therefore the capital gain arising on these transaction is nil. 33. On Ground No 3 and 4 of the appeal, ld Departmental representative vehemently contested the arguments of the assessee and supported that the Income of the appellant is chargeable to tax in India in view of the clear-cut provision of section 4, 5 and 9 of the Income tax Act 1961. His main arguments were as under :- Abbreviations CUHL Cairn UK Holdings Ltd [the Assesses] - company incorporated on 26 February 2006 in UK as a wholly owned subsidiary of CEP CEP Cairn Energy PLC - company incorporated in Scotland, UK and a tax resident of UK CIHL Cairn India Holdings Ltd - Company incorporated on 2 August 2006 in Jersey, the Channel Islands, as a wholly owned subsidiary of CUHL CEHL Cairn Energy Hydrocarbon Ltd-A subsidiary of CEP incorporated in Scotland, UK CIL Cairn India Ltd - Company incorporated in India on 21 August 2006 Preliminary submission ' 1. The issue to be decided in this case is, whether any gain accrued to CUHL in the financial year 2006-07 by acquiring and selling 'CIHL shares'? If yes, whether such ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on 1st September 2006 Pursuant to a Debt Conversion Agreement8executed separately, CUHL sold to CIHL a debt of 29,780,710 (which was due from CEHL)9. In consideration, CIHL issued 29,780,710 of its own shares of 1 face value each to CUHL. 7. The shares of CIHL derived their value substantially from the assets situate in India as being a holding company of the nine (9) subsidiaries it was specifically incorporated within the Cairn group to hold Indian oil and gas assets . Part-11: BRIEF HISTORY 8. Since 1996 CEP has been acquiring oil and gas assets situated in India through its subsidiaries, and as on 30th June 2006 it was holding Indian oil and gas assets through nine (9) wholly owned foreign subsidiary companies11. 9. On 30th June 2006, pursuant to a Share Exchange Agreement12 the entire share capital of nine (9) wholly owned subsidiaries of CEP having an aggregate book value off 221,444,034 13 was transferred to CUHL In exchange, CUHL issued 221,444,034 of its shares of 1 each to CEP. 10. On 7th August 2006, through yet another Share Exchange Agreement14, CUHL transferred the shares of aforementioned nine (9) subsidiary companies having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 032 61,008,099,631 Cash TOTALS 251,224,744 266,818,710,140 13. Before executing the sale of CIHL shares to CIL, CUHL had subscribed to 365,028,898 shares of CIL (@ 190 per share)17 for a sum of ₹ 6935 crores paid in three tranches of ₹ 5037 cr on!2 Oct'06, ₹ 1755 cr on 22 Nov'06 and ₹ 143 cr on 8 Dec'06. This was in addition to the initial share capital of 50,000 shares subscribed on 21 Aug'06 for ₹ 500,000. Subsequently on 20 Dec'06 CUHL was allotted 861,764,893 CIL shares (worth ₹ 13788 cr) in the swap transaction as a consideration for 135,267,264 shares of CIHL. There were other investors also, including general public, who subscribed for CIL shares. Details of these share subscriptions are as follows: For Cash consideration Date Shares Issued to No of Shares @(Rs) Price (Rs) Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian assets of aggregate book value of 221,444,034 to CIHL 29,780,710 shares of l face value each acquired (on 1st Sep'06) by selling a debt of 29,780,710 to CIHL22. The transaction of sale of debt of 29,780,710 by CUHL for a consideration of equal number of shares from CIHL clearly establishes the price that CUHL paid for each CIHL share at the time of acquisition i.e. 1. The earlier transaction of acquiring 221,444,034 shares was also by paying in the form of nine (9) companies, whose book value was 221,444,034, placing the cost of acquisition for each CIHL share as 1. The cost of acquisition for 251,224,744 CIHL shares, which were eventually sold by CUHL to CIL, was accordingly taken as 251,224,744 (i.e. ₹ 2178,36,97,552)23. Thus, for acquisition of 251,224,744 CIHL shares, CUHL parted with the assets worth 251,224,74424which has accordingly been taken as the cost of acquisition. * -y- 19. Full value of Consideration received in respect of the capital asset i.e. 251,224,744 CIHL shares It is undisputed that for selling 251,224,744 of 'CIHL shares' CUHL received from CIL a sale consideration25 of ₹ 26,681 cr, partly in cash (Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -V: CONCLUSIONS 22. Through a series of transactions, CEP transferred the assets it owned in India, first to CUHL and then to CIHL, the companies incorporated outside India. Eventually, the assets situated in India were transferred to CIL, an Indian company, for a consideration of ₹ 26681 cr. The final transaction of selling Indian assets to an Indian company was done after the market value of Indian assets was ascertained by independent valuation and finally established through the IPO. Through sale of Indian assets to an Indian company, Cairn Group made stupendous gains and paid no taxes anywhere. 23. Moreover, when asked to file tax returns and pay tax dues in India, the Cairn Group has dragged Government of India before an International Arbitration Tribunal by invoking Bilateral Investment Protection Agreement between India and UK. India is contesting the jurisdiction of the Arbitration Tribunal in this matter of taxation, which is a sovereign function. Presently, the matter remains pending before International Arbitration Tribunal. 24. On the gains so earned from the sale of Indian assets, Cairn Group has not paid a single paisa in tax till now, despite G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied up on decision of privy council in case of Rohdesia metals Ltd (liquidator) versus Commissioner of taxes [ vol. IX ITR ( Statutes) 45 to explain source-based taxation and submitted that where the source of income is residing the income is chargeable to tax in that particular source country. With respect to the provisions of section 2 (14 ) of the act, he referred to the explanation inserted w.e.f. 01/04/1962 by The Finance Act, 2012 and submitted that property includes right of management or control. In the present case, the right of management and control has been transferred from one entity to another entity and therefore the provisions of section 2 (14) is also satisfied. With respect to the argument of the assessee that at the time of entering into force the double taxation avoidance between India and United Kingdom, taxing provision as per the domestic law prevalent on that day are required to be seen, he submitted that the explanation 5 inserted by The Finance Act, 2012 is clarificatory in nature and therefore as on that date also the transaction under dispute are chargeable to tax. 35. The Ld. authorized representative vehemently contested the arguments of the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer/ assignment of debt. Therefore by this stage appellant acquired ( 221444034 + 29780710) 251224744 of Cairn India holding Ltd. Subsequently the assessee sold all the shares to a newly formed company in India i.e., cairn India Ltd, through subscription and share purchase agreement dated 15/09/2006, and share purchase deed dated 12/10/2006. As per submission of the assessee, consideration for this transfer was settled partly in cash and partly by shares issued in cairn India Ltd in favour of the appellant. It is an undisputed fact that Cairn India holding Ltd is the holding company of 9 subsidiary companies in India who are engaged in the business in oil and gas sector in India. Therefore the transaction entered into by appellant of transferring 251224744 shares of Cairn India holdings Limited to Cairn India Limited on 12/10/2006 is whether liable to tax in India or not is the precise issue before us. We also examined the other connected issues raised before us arising out of the about transaction as under:- i. The 1st contention of the assessee is that lower authorities have erred in holding that capital gains arising to the appellant on account of the sales of shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is holding company of the Cairn India Holdings Limited. Therefore, it is apparent that appellant is holding rights in control and management of the shares of the 9 Indian subsidiary companies engaged in the business of oil and gas Sector through holding subsidiary structure. Now appellant has transferred this property to Cairn India Limited partly in cash and partly in exchange of shares. Appellant submits that it is a case of business reorganization and there is no increase in wealth of the Group. According to us there are series of transactions entered in to by the group, which culminated in to the Initial Public Offering of 98639903 shares @ 160 per share of Cairn India Limited. Part of the purchase price of the share of ₹ 6101 crores have been paid out of the proceeds of the public issue by Cairn India Limited to the appellant. In the IPO as per Annexure 1 to the letter submitted before DRP placed at page no 159 of the paper book of the revenue shows that in IPO, cairn India Limited has divested 30.50 % of the stake to the General Public and Institutional investors. The complete financial arrangement of the Group has ended through series of transfer of shares from U K Jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange and 24.31% was acquired for cash. Total cash proceeds were approximately GBP 677m. GBP 312 M was receivable in Indian rupees and the company entered into an currency exchange option over the year end to convert the Indian rupees into GBP. The sale of Cairn India Holdings Ltd to Cairn India Ltd resulted in the company generating an exceptional gain on sale of GBP1.36 1 billion. Further reading of note No. 6, which relate to taxation, It is mentioned that no tax has been provided in respect of the disposal of part of the company s investment in its subsidiary is the disposal is exempt from tax under schedule 7AC of the Taxation of the chargeable Gains Act 1992. In view of this, the argument of the assessee that there is no increase in the wealth of the appellant and there is no real income earned by the assessee does not deserve to be accepted. In fact, the assessee has earned substantial gain on sale of the shares and also has gained on account of taxes too as according to the assessee itself such gain is not chargeable to tax. Therefore, the assessee has earned the real income on account of sale of its shares in Cairn India Holdings Ltd to Cairn India Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with those principle stating that where transfer of assets is in lieu of another asset the full value of the consideration shall be the fair market value of the assets received by the transferor. Further assessee has submitted that the 1st and 2nd transfer of share as per the stand of revenue is also chargeable to capital gain. Therefore, it was submitted that 1. capital gain in the hands of Cairn energy plc who exchange the shares in the 1st transaction receiving a sum of ₹ 266818710140/- will have the cost of acquisition of ₹ 21783697552/-and may be liable to capital gain tax in the hands of that cairn Energy PLC of ₹ 245035012588/ . 2. Similarly, in the case of 2nd transfer of shares on 7th of August 2006 when shares of 9 subsidiaries were transferred by appellant to Cairn India holding Ltd should be computed taking the full value of consideration of ₹ 266818710140/-and the cost of acquisition shall be taken at the same value being the full value of consideration in the hands of Cairn energy plc and therefore Nil capital gain shall be chargeable. In the 2nd trench of transaction full value of consideration is taken as the fair value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9780710 shares by selling debt of GBP 29780780710. Therefore actual cost of acquisition is GBP 25124744 which is converted by applying exchange rate of ₹ 86.71 per GBP is ₹ 21783697552/- only. On careful consideration on the argument of the both the parties, it is noted that there is no difference between the full value of the consideration determined by the both the parties received accruing to the assessee as a result of the transfer of the capital asset. Both have taken the same at ₹ 266818710410/-only. As there is no difference between the full value of consideration taken by revenue as well as the assessee, we do not find any reason to go in to the controversy whether the transaction is of exchange or sale. Further merely because the consideration is not stated in monetary terms in the various agreements and deed, it cannot be said that sales consideration as well as the cost cannot be determined of the transfer of the property for working capital gain. In the present case the price of the shares in each of the agreement is identified and the amount of acquisition recorded in the books of accounts also proves that what the cost is paid for acquisition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset ; (iiia) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee ; and (iv) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset ; (ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for demutualization or corporatization approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange ; Provided that the cost of a capital asset, being trading or clearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property of the assessee- (i) on any distribution of assets on the total or partial partition of a Hindu undivided family ; (ii) under a gift or will ; (iii) (a) by succession, inheritance or devolution, or (b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or (c) on any distribution of assets on the liquidation of a company, or (d) under a transfer to a revocable or an irrevocable trust, or (e) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vica) or clause (vicb) or clause (xiii) or clause (xiiib) or clause (xiv) of section 47 ; (iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the asset shall be deemed to be the cost of acquisition to him of the share referred to in the said clause. (2C) The cost of acquisition of the shares in the resulting company shall be the amount which bears to the cost of acquisition of shares held by the assessee in the demerged company the same proportion as the net book value of the assets transferred in a demerger bears to the net worth of the demerged company immediately before such demerger. (2D) The cost of acquisition of the original shares held by the shareholder in the demerged company shall be deemed to have been reduced by the amount as so arrived at under sub-section (2C). (2E) The provisions of sub-section (2), sub-section (2C) and sub-section (2D) shall, as far as may be, also apply in relation to business reorganisation of a co-operative bank as referred to in section 44DB. Explanation For the purposes of this section, net worth shall mean the aggregate of the paid up share capital and general reserves as appearing in the books of account of the demerged company immediately before the demerger. (3) Notwithstanding anything contained in sub-section (1), where the capital gain aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except as provided in Article 8 and 9 each contracting state may tax capital gain in accordance with the provisions of its domestic law. This Double Taxation Avoidance Agreement was notified on 11.02.1994. The contention of the assessee is that for the purpose of taxability of capital gain the domestic law should be seen as it was in existence on the date on which India UK DTAA was notified. Precisely the argument of the assessee is that on 11.02.1994 the retrospective amendment to section 9 made by the Finance Act 2012 was not in existence and therefore, if the assessee is eligible for the benefit of DTAA then the domestic tax law is required to be read ignoring the retrospective amendment made by The Finance Act, 2012. To advance his argument Shri Percy Pardiwala relying upon the decision of the Hon'ble Delhi High Court in case of New Sky Satellite BV (2016) 68 Taxmann.com 8 (Del) has specifically referred to Para No. 36 to 40 of that judgment. In response to this ld Departmental Representative submitted that the contention raised by the ld Authorized Representative is not correct. He stated that the India UK Treaty specifically Article 40 has simply provided that capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant DTAAs in the case before them defined royalty , Article 3(2) could not be applied. For terms which are defined under the DTAA, there is no need to refer to the laws in force in the Contracting States, especially to deduce the meaning of the definition under the DTAA. Further, the court has held that neither act of parliament supply or alter the boundaries of DTAA or supply redundancy to any part of its. Similarly, according to us, the provisions of DTAA where it simply provides that particular income would be chargeable to tax in accordance with the provisions of domestic laws , such article in DTAA also cannot the limit the boundaries of domestic tax laws. In view of this, we do not find any force in the argument of the assessee and dismiss ground No. 3.12 of the appeal. 37. In the result ground No. 3 with all its sub grounds are dismissed. 38. In ground No. 4 of the appeal the assessee has challenged certain findings recorded by the ld AO, such as certain violations of regulatory requirements, non disclosure of certain facts and availability of all facts before the ld AO irrespective of action u/s 133 of the Act. No specific arguments were made before us by bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant relies on the following judicial precedents: a. In case of CIT v. Revathi Equipment Limited. [2008] 298 ITR 67 (Mad.), wherein the Madras High Court held that. .......Normally, new provisions are introduced with effect from the next assessment year, but this provision under section 35DDA was introduced by Parliament in its wisdom with effect from April 1, 2001, ie., the same year and that is why difficulty has arisen for visualizing the liability and the assessee could not deduct such expenditure. In fact in almost identical circumstances in the Third Member decision by the Delhi Bench in the case of Haryana Warehousing Corporation v. Deputy CIT [2001] 252 ITR (AT) 34 it was held that in such situations the legal dictum lex non cogit ad impossibillia would be attracted. The simple meaning of this dictum is that 'law cannot compel you to do the impossible'. In the case before us also, the assessee could not have visualized till the last instalment of advance tax, i.e., March 15, 2001, that it would not be entitled to deduct the VRS payments. Therefore, the assessee could not have done anything other than to estimate the liability to pay advance tax on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which were worked out on the basis of the tax determined in the income escaping assessment. We are inclined to allow this ground raised by the assessee. The Hon'ble Madras High Court in the case of CIT v. Revathi Equipment Ltd. [2008] 298 ITR 67 has held that when an assessee could not have foreseen liability caused on account of a subsequent legislative amendment, the assessee cannot be liable for interest on the differential amount of tax in the reason that the assessee could no! have paid the differential amount of tax for the relevant previous year. Here also, the income escaping assessment was passed because of the retrospective amendment brought in by Finance Act, 2009, The additional liability has been generated only in the assessment. It was not possible for the assessee to foresee the retrospective amendment. So, it was not possible for the assessee to pay advance tax for the relevant previous year against the differential demand of tax that would arise in future. Therefore, we delete the liability of interest made under Section 234B and 234C of the Income-tax Act, 1961. c. Further the following judicial precedents have also upheld that where it is not possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the due date or is not furnished, the assessee shall pay simple interest at the rate of one and one-fourth per cent for every month, or part of a month comprised in the period of default on the amount of tax on total income determined on regular assessment, as reduced by any advance tax paid or tax deducted at source. As such, the word regular assessment is used in the context of computation. It does not say that the order passed under section 143(3)1144 of the Act shall be substituted by section 147 of the Act. In terms of section 234A(l)(a)( b), the period for which the interest liability is calculated is the period between the date on which the return was due to be filed and ending on the date the same is actually furnished and when no return is furnished ending on the date of completion of the assessment under section 144 of the Act. 10. In the present case the assessees did not furnish the returns. As such, the case of the assessees is not coming within the ambit of section 234A(l)(a) of the Act. 11. Section 234A(l)(b ) of the Act contemplates the situation where no return has been furnished. In such a case the period prescribed is ending on the date of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the DRP is not correctly followed by the learned AO 2.8. The learned AO has erred in incorrectly following the directions of the DRP without providing any opportunity of being heard to the Appellant. 2.9. Without prejudice to above, the Appellant wishes to submit that the DRP in its directions observed that where a clear cut finding of fact , duly supported by relevant commercial contract clauses or other documentary evidence from where an inference or presumption could be drawn that Appellant had represented to the payer to deduct tax at a lower rate and that a case is also made out on equities that need to be balanced in those peculiar facts only then section 234B may be levied and the learned AO was directed to give clear finding regarding this in the extant case of the Appellant. The learned AO neither provided any opportunity to the Appellant to provide any facts or details nor submitted any clear findings in this regard to substantiate the above direction of DRP. The learned AO held in the FAO that interest under section 234B is mandatory and hence levied, which is not a satisfactory compliance of the directions provided by the DRP. 2.10. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' 2.13. Further, post decision of Alcatel in the following decisions various tribunals have ruled in favour of the Appellant: ZTE Corporation v. ADIT (2016) 70 taxmann.com 1 (Delhi - Tribunal) Satellite Television Asian Region Ltd. v. DDIT (2016) 66 taxmann.com 247 (Mumbai - Trib.) Kawasaki Heavy Industries Ltd. v. ACIT (2016) 67 taxmann.com 47 (Delhi - Trib.) 2.14. The ratio of above rulings clearly suggest that since the tax is deductible at source on all the payments made to the Appellant, there is no liability on the Appellant to pay advance tax . In absence of any liability to pay advance tax by the Appellant, interest under section 234B of the Act should not be levied on the Appellant. 2.15. Without prejudice to the above, interest under section 234A and 234B cannot be levied on the basis of the retrospective amendment. In this regard, reliance is placed on the following judicial precedents: Deversons (P.) Ltd. v. Chairman, Central Board of Direct Taxes [2004] 140 TAXMAN 628 (GUJ.) 7. Although the above observations were in the context of levy of additional tax under section 143(1A), the same reasoning would apply in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its entire income is liable for deduction of Tax at source. As held by the Hon'ble Bombay High Court in the case ofDIT (International Taxation) Vs. NGC Network Asia LLC[2009]313 JTR187(Bombay), when a duty is cast upon payer to pay tax ats source, on its failure to do so, no interest can be imposed upon payee Assessee under section 234B. Respectively following the decision of Hon'ble Jurisdictional High Court, we hold that interest under section 234B cannot be imposed on the Assessee on failure of payer to deduct tax at source from the payments made to the Assessee. Moreover the issues relating to levy of under section 234B and 234C are consequential and the AO is accordingly directed to allow consequential relief to the Assessee on these issues. 2.16. In view of the above, judicial precedents, your Honors would appreciate that if in the relevant year under consideration, the Appellant was not required to pay tax as per the law then prevailing, subsequent retrospective amendment in law cannot make Appellant liable to pay advance tax and consequential levy of interest under Section 234A and 234B of the Act. 3. Prayer: Based on the above submissions and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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