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TMI Blog2019 (7) TMI 1861X X X X Extracts X X X X X X X X Extracts X X X X ..... ces were employed in running operations in India. It is also noticed that as part of business strategy the applicant group entered into strategic alliance with APXL group in 2006 (much before the impugned sale in 2012), sharing part of its supply chain and other practices. Along with the application what was submitted was share purchase agreement and clause 5.4 of the said agreement mentions that all strategic arrangements would cease with effect from the closing date of share purchase agreement. The Department's contention that the transaction is more than share transfer is thus not correct Slump sale - Argument of the Revenue that it is a case of slump sale is not borne out by facts. All the assets and liabilities IEE Pvt. Ltd. remain with IEE Pvt. Ltd. after the transfer and what has changed is the shareholding pattern. Further a perusal of the share purchase agreement, clause 5.4 reveals that all strategic agreement will automatically stand terminated with effect from closing of the share purchase agreement. Value of share of IEE Pvt. Ltd. is not ascertainable thus the fair market value of the capital assets on the date of transfer shall be deemed to be full value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares Total cost in INR Total cost in AUS $ 1 April 18, 2006 10,000 100,000 2,999.40 2 July 12, 2006 1,89,000 162,540,000 4,665,996.84 3 June 4, 2007 1,974,353 169,794,358 5,040,651.86 4 March 27, 2009 2,674,420 230,000,120 6,479,789.27 2. The applicant was holding all 65,48,772 but one equity share of IEE Pvt. Ltd. The other one share was held by PMIT Pty. Ltd., a company from PSIT Group, as nominee shareholder for the benefit of the assessee in whom the beneficial ownership of the shares resided. The IEE Pvt. Ltd. is a wholly owned subsidiary of the applicant. The IEE Pvt. Ltd. is a private limited company engaged in the business of wholesale trading of electronic appliances/equipment in India. The shares of IEE Pvt. Ltd. are not listed on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares of the Indian subsidiary but the Indian business unit to the buyer. In this regard, the Departmental representative refers to the title of the agreement that has been entered into by the applicant, it is called strategic alliance agreement. It is not simple share purchase agreement, but it is strategic transferring of the assets and liabilities of the Indian subsidiary to the buyer. 6. The strategic alliance agreement speaks about the transfer of not only the shares but also the transfer of the assets and liabilities that give intrinsic value to the shares of the Indian company. Therefore, it is submitted that it is not a simple share transfer but transfer of all the assets and liabilities underlying the shares. It is strategic sale and not the sale of shares alone as per recitals 5.2(i) and 5.2(j) of the strategic alliance agreement dated September 2012. The recitals 5.2(i) and 5.2(j) are reproduced herewith- 5.2 The following activities shall occur on the closing date simul taneously- (i) The AS 400 agreement shall come into effect ; (j) The HK supply agreement shall come into effect ; As per recital 1.1 the above terms AS 400 agreement, HK suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicant has transferred one of the undertakings, i. e., Indian subsidiary PW(I) Pvt. Ltd. to the buyer for a consideration without assigning any value to the assets and liabilities in the sale. The sale consideration has been paid by the buyer to the applicant based on the strategic alliance agreement which is not a simple share purchase agreement. The agreement speaks about not only transfer of shares but also the benefits, access to the inventory control, warehouse management techniques, access to foreign and local suppliers, manpower of the Indian subsidiary to the buyer and no separate value has been assigned to these assets or liability. Therefore, it can be stated that the transaction is a slump sale and therefore, section 50B of the Income-tax Act, 1961 is attracted and not section 112(1)(c)(iii) and tax rate has to be 40 per cent. and not 10 per cent. as claimed by the applicant. 10. It is argued that the applicant was controlling the affairs of the Indian subsidiary through its key managerial personnel (KMP), i. e., Mr. AS (A Fiji National), who was acting as the chairman and managing director of the Indian subsidiary, i. e., PW(I) Pvt. Ltd. and thus, it can be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held in IEE Pvt. Ltd. (d) Reliance is placed on the decision of the Bombay High Court in the case of Pr. CIT v. UTV Software Communication Ltd. [2019] 103 taxmann.com 12 (Bom) which held that where there is a mere transfer of shares held in a company then there is no transfer of an undertaking and accordingly the provisions of section 50B of the Act cannot be invoked to such a transfer of shares. Reliance is also placed on the below two decisions of the Supreme Court (a) Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC) (b) Vodafone International Holdings BV v. Union of India [2012] 341 ITR 1 (SC) ; [2012] 17 taxmann.com 202 (f) The Bombay High Court has approved the merger of IEE Pvt. Ltd. with the buyer. (g) Further, the business assets, liabilities, etc. of IEE Pvt. Ltd. continued to be owned and run by IEE Pvt. Ltd. 3 Non-applicability of section 50D of the Act (a) The provisions of section 50D would be applicable only in case where the consideration accruing as a result of transfer of a capital asset is not ascertainable or cannot be determined. (b) In the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question begging attention is determination of tax rate on said transaction. The applicant has insisted that it is a case of share transfer squarely covered under section 112(1)(c)(iii) of the Income-tax Act. The Department on the other hand has raised the following objections : (i) That the transaction is not of share transfer but also involves trans fer of entire business operations including HK supply agreement and man agement and accounting software systems etc. (ii) The transactions amounts to slump sale and as the subsidiary con stitute permanent establishment in India in terms of article 13(5) of the India Australia DTAA the income derived from alienation of property other than referred in article 6 becomes taxable in India and would be charged at 20 per cent. or 30 per cent. depending upon whether the assets were short term or long term. (iii) The provisions of section 50D of the Income-tax Act are appli cable as there is no clear basis of share price of 5.34 AUD. The provisions of section 55A are applicable as the market value of the capital assets is to be ascertained. (iv) The difference between fair market value of shares of subsidiary and the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue that the value of share of IEE Pvt. Ltd. is not ascertainable thus the fair market value of the capital assets on the date of transfer shall be deemed to be full value of the consideration received as per section 50D and also to ascertain the fair market value reference to valuation officer under section 55A is called for. The plea of the Department is not tenable as during the course of hearing the applicant has provided the valuation report prepared by BSR Co. and the same was shared with the Department and their letter dated May 16, 2019 comments were also offered on the said valuation. The valuation report lists out various projections and assumptions and after employing the discounted cash flow method, the value of share was arrived at 5.34 AUD per share (₹ 372 per share). The actual share transfer has happened at ₹ 182 per share owing to hard bargaining by the buyer. Thus, the value of share was ascertained and pleas of the Department are rejected. 18. The next objection is that the difference between ascertained price and the actual sale price is income of buyer as per section 56(2)(viia). The said argument is really not pertinent to the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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