9911796707
TMI Blog2024 (6) TMI 433X X X X Extracts X X X X X X X X Extracts X X X X ..... t' hereinafter) and all consequent proceedings thereto as illegal, arbitrary, ultra vires the Income Tax Act, lacking in subject jurisdiction and to set aside the same and further direct the respondents not to take any coercive steps or action against the petitioner. 3. Heard Mr. S.Ganesh, learned Senior Counsel appearing along with Ms. Rubaina S. Khatoon, learned counsel for the petitioner and Mr. N.Venkataraman, learned Additional Solicitor General of India along with Ms. Mamata, learned counsel for the respondent-Department. 4. The whole issue revolves around the issuance of bonus shares to the shareholder firm namely Ramky Estate and Farms Limited (for short "REFL"). The petitioner sold the shares of REFL to Advisory Services Pvt. Ltd (for short "ADR"). Prior to the aforesaid sale of shares to ADR, REFL had issued bonus shares to its shareholders in the ratio of 5:1. Owing to the issuance of bonus shares, the face value of each share of REFL got reduced to 1/6th of its value. The sale of REFL shares to ADR resulted in a short term capital loss to the petitioner as per the provisions of the Act. 5. The petitioner set-off the short term capital loss incurred on the sale of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. The challenge primarily is on the applicability of the said provision and hence without jurisdiction and unsustainable in the eyes of law. 10. According to the learned Senior Counsel, chapter X-A of the Act was enacted specifically as GAAR. The chapter itself contains a set of general provisions for identifying tax avoidance arrangement and for levying tax thereon. It is further submitted that since the transactions undertaken by the petitioner is one which falls under chapter X of the Act dealing with SAAR, hence, the provisions under chapter X-A cannot be invoked. It is here that the respondent No.1 has committed an error in law while issuing notice invoking Section 96 of the Act, which is the provision otherwise, referred as GAAR which would not be attracted to the facts of the petitioner. 11. It is further submitted that the relevant provision of law to be taken note of in the present writ petition is Section 94(8) of the Act which specifically deals with buying and acquiring of any units. The explanation to the said provision specifically enumerates that units referred to in the Section shall have the meaning assigned to it in clause B of the explanation to Section 115AB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Section 96. It was strongly contended that the respondent No.1 in the given factual backdrop ignoring the applicability of Section 94(8), straightway proceeded to treat the subscription and sale of shares by bringing them under the ambit of Section 96 of the Act. This according to the learned Senior Counsel applying Section 96 was without appreciating the specific and applicable provisions relating to bonus stripping and it was Section 94(8) which was required to be applied at the first instance. 16. According to the learned Senior Counsel, there were guidelines issued in the year 2012 by an expert committee on GAAR, known as Shom Committee which was constituted to undertake stakeholders' consultations and finalize the guidelines for GAAR. The said committee is said to have recommended that where SAAR is applicable to a particular transaction, then GAAR should not be invoked to look into that element. The Shom Committee's recommendation was by and large accepted by the Central Government. According to the petitioner, this in other words means that where the provisions of chapter X gets attracted, the provisions of chapter X-A dealing with GAAR by implications stands excluded. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , learned ASG contended that in the AGM that was held on 27.02.2019, the share capital of REFL was increased of its authorized share capital to Rs.1130,00,00,000/- comprising of equal number of shares. The AGM further decided to allot 7,64,40,100 shares on a private placement basis to Shri Alla Ayodhya Rami Reddy and 5,56,52,175 shares on a private placement basis to M/s.Oxford Ayyapa Consulting Services Private Limited. 22. Immediately thereafter, in a short span of time, the petitioner/assessee purchased the aforementioned 5,56,52,175/- of REFL. Subsequently, on 04.03.2019, REFL declared bonus shares in the ratio of 1:5. As a consequence of bonus shares declaration, the value of the shares got declined from Rs.115/- per share previously to Rs.19.20/- per share. On 14.03.2019, the petitioner/assessee in turn further sold Rs.5,56,521/- shares to another firm i.e. ADR on the rate of Rs.19.20/- per share, thereby, resulting in a business loss of approximately Rs.462 crores. 23. Immediately thereafter, the petitioner/assessee transferred the newly issued shares of REFL purchased at the rate of Rs.19.20/- per share to another related entity i.e. ADR which again is without any busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of law of anti-avoidance cannot be applied and the respondents are required to scrutinize the case of the petitioner strictly within the four corners of the provisions of chapter X i.e. SAAR and chapter X-A i.e. GAAR cannot be invoked. 27. It is worth taking note of the fact that here is a situation where the special provision of law was already there in the Act when the general provision of law has been subsequently enacted by way of an amendment. Normally it is the vice-versa, i.e., where the general provision of law already being in force, the special provision of law is subsequently enacted. It is in those said circumstances, the Hon'ble Supreme Court of India as also the various High Courts have repeatedly held that when a special provision of law stands enacted, then the general provision of law would not and cannot be invoked. In the instant case chapter X-A has been only brought into force with effect from 01.04.2016 in terms of the Finance Act, 2013. Thus the said contention of the learned Senior Counsel appearing for the petitioner cannot be accepted. 28. What next to be appreciated is the fact that chapter X-A begins with a non-obstante clause, where in Section 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Rules (GAAR) into law in 2018, the judicial system had already established its own set of rules known as the Judicial Anti-Avoidance Rules (JAAR). The JAAR operated under the principle of 'substance over form', essentially seeking to uncover misleading structures or transactional arrangements that lacked real commercial substance. These rules weren't arbitrary but were carefully crafted tools designed to scrutinize transactions and financial arrangements that might otherwise escape tax obligations through legal loopholes. These anti-avoidance rules, therefore, were used to ensure that all transactions were conducted transparently and within the spirit of the law. The legal amendments that followed were driven by the judiciary's firm commitment to uphold these anti-avoidance principles, using the power of law to enforce it. As a result, a new chapter, Chapter X-A, was added to the Act. This chapter, which comprises Sections 95 to 102, provides a detailed account of various types of transactions that could be potentially viewed as illegal tax avoidance arrangements. This chapter doesn't just list out these transactions, but also provides an extensive definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her substantiated by the Finance Minister's declaration, made on January 14, 2013. During this announcement, the Minister stated that the applicability of either GAAR or SAAR would be determined on a case-by-case basis. 34. What further weakens the petitioner's argument is the subsequent introduction of a Rule under Section 95 and Section 100. This provision indicates that Chapter X-A could be used in conjunction with, or as a substitute for, other Sections of the Act. This development again highlighted the selective and misinterpreted use of legal provisions by the Petitioner. 35. Further, the Finance Bill, 2013, only incorporated some of the expert committee's recommendations and CBDT also clarifies that both GAAR and SAAR would be applied depending upon the specifics of each case. However, Petitioner's assertion is that the facts of the case are irrelevant in determining the application of a general law is also fundamentally flawed. This stance was already addressed and refuted by the Supreme Court in the case of The Commissioner of Income-Tax (Central), New Delhi vs. M/s. S. Zoraster and Company (1972) 4 Supreme Court Cases 15. The Court, in its wisdom, stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Petitioner has chosen to seek this court's intervention instead of following the process set out under Section 144AB. This circumvention of the process raises questions about the Petitioner's motives. 39. The Hon'ble Apex Court in the case of M/s. S. Zoraster and Company (supra), held at paragraph Nos.17 to 20 as under, viz., "17. As we have already pointed out the certificate has been granted by the learned Judges on the basis that the general question whether a presumption under Section 114, Illustration (f) of the Evidence Act can be raised is of great importance and that it is likely to arise in many future cases, not restricted to income tax. It should be remembered that this Court should not be invited to decide any question of law much less the substantial question of law purely in the abstract. Such question of law must reasonably arise on the basis of the material on record. Further, the substantial question of law, in order to be certified as fit to be decided by this Court must arise on the facts of a particular case. With great respect to the learned Judges who dealt with the applications for grant of certificate, we are constrained to remark that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption under Section 114, Illustration (f) of the Evidence Act does not fall to be considered in these proceedings, in view of the specific finding recorded by the Appellate Tribunal against the Revenue, and accepted by the High Court, in our opinion, the High Court was not justified in certifying on this ground, that the cases are fit for appeal to this Court. 20. As the issue of certificates by the High Court is not proper, the only course open to us is to cancel the certificates and set aside the order of the High Court granting them. The result is that the above appeals have become unsustainable, as they have been brought to this Court on the basis of certificates, which, as held by us, have not been properly granted." 40. Further, the Hon'ble Apex Court in the case of McDowell & Co. Ltd. v. CTO (1985) 3 SCC 230 held at paragraph Nos.17 and 18 as under, viz., "17. We think that time has come for us to depart from the Westminster [1936 AC 1 : 1935 All ER Rep 259] principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of "emerging" techniques of interpretation (sic as) was done in Ramsay [1982 AC 300 : (1981) 1 All ER 865] , Burmah Oil [1982 STC 30] and Dawson [(1984) 1 All ER 530] , to expose the devices for what they really are and to refuse to give judicial benediction." 41. Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. 42. Accordingly, we are of the considered opinion that the Revenue has persuasively and convincingly shown that the transactions in the instant case are not permissible tax avoidance arrangements. The evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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