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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI AMIT SHUKLA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the ld. CIT(A)- 42, New Delhi dated 28.06.2017 pertaining to A.Y 2014-15.
2. The grievances of the Revenue read as under:
1.1 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in holding that the assessee was not required to deduct tax at source on the remittance to IIRF Holdings XVI Ltd. towards buyback of shares.
1.2 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in holding that the assessee was not required to deduct tax at source on the remittance to IIRF Holdings XVI Ltd. towards buyback of shares, without following the decision of the Hon’ble ITAT (Bangalore) in Fidelity Business Services India Pvt. Ltd. (I.T.(T.P.)A. No.416/Bang/2016), and without considering that the assessee had not established that the price paid per share was the fair market price.
1.3 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in holding that the assessee was not required to deduct tax at source on the remittance to IIRF Holdings XVI Ltd., towards buyback of shares, on the basis of Circular No.3/2016 dated 26.2.2016, without considering that the assessee had failed to establish the essential condition for applicability of this Circular, that the consideration towards buyback of shares had been received by the recipient by 31.05.2013.”
Briefly stated, the facts of the case are that the Assessing Officer received information on TDS/ITD Module that during the year under consideration, the assessee company has remitted an amount of Rs. 43,42,63,980/- without deduction of tax at source to foreign companies/non-resident persons on account of long term capital gains.
Accordingly, a notice u/s 133(6) of the Act was issued to the assessee calling for information/details relating to remittances alongwith reasons for non deduction of tax on such remittances.
4. The assessee filed the following documents in the course of hearing:
• Copy of the Form 15 CA & 15CB. • Tax Residency Certificate in respect of the remittee.
• Copy of the Acknowledgement of the ITR for the Assessment Year 2014-15 Copy of the audited accounts of the assessee company for the relevant period
• Consent Letter of the buyers and sellers and Form FC - TRS being a declaration regarding transfer of share by way of sale from Non-resident to resident.
• Copy of the Order of the Supreme Court’s Ruling in case of UOI & Anr. Vs Azadi Bachao Andolan & Anr dated 31.05.2002 wherein the Hon’ble Supreme Court has quashed the order of the Delhi High Court and held that that Circular No. 79 dated 13.04.2000 is valid and efficacious. • Power of Attorney.
The facts of the case are that M/s IIRF Holding XVI Limited, Mauritius [having PAN - AACC17719K] has sold 2495770 fully paid Series A Compulsory Convertible Cumulative Preference Shares of M/s Bhartiya Urban Infrastructure & Land Development Co Pvt. Ltd [BUILDCO] of face value of Rs. 10/- each for an aggregate consideration of INR Rs. 43,42,63,980/- to the assessee company i.e. M/s Bhartiya Realty and Infrastructure Private Limited at a price of Rs. 174/- per share. The seller did not have any PE in India. The assessee was of the opinion that the capital gain arising out of the sale of the said shares is chargeable to tax in Mauritius only, as per the provisions of Section 13(4) of the DTAA. However, after examining all the details filed by the assessee company, it was seen that the assessee company was liable to deduct TDS as the transaction entered into by the assessee company was found to be nothing but only a colourable device as to dodge payment of rightfully imposed taxes;
The Assessing Officer was of the firm belief that neither any tax has been deducted at all in respect of the above remittances to the non-residents nor any copy of the order has been furnished by the assessee u/s 195(2) /195(3) of the Act or certificate issued u/s 197(1) of the Act. The Assessing Officer was convinced that the remittances to the non-resident have been made in contravention to the express provisions of the Act and further referring to the rulings of the AAR, was convinced that the amount so remitted to the payee is taxable in India. Accordingly, the Assessing Officer computed the remittances chargeable to tax u/s 201(1) and interest u/s 201(1A) of the Act as under:
Tax @15% Amount on which Total Tax & Interest (Rs.) u/s Intt. (2+3) no tax was - 201(1 A) for 1% from deducted at source (Rs.) the date on which such tax was deductible till the date of order i.e. 30.05.2013 (43 months)
(1) (2) (3) (4)
Rs. 41,93,06,280/- Rs. 6,28,95,942/- Rs. 2,70,45,255/- Rs.8,99,41,197/-
The assessee agitated the matter before the ld. CIT(A) and vehemently contended that the rulings of the AAR relied upon by the Assessing Officer is totally misplaced as in the assessee’s case, share holding of Mauritius based company in share capital of the company is just 8.08% and the assessee company has made no distribution of dividend.
It was further pointed out to the ld. CIT(A) that the Assessing Officer has not followed the binding Circular of the CBDT Circular No. 3/2016 dated 26.12.2016.
After considering the facts and submissions, the ld. CIT(A) observed as under:
“5.6 Further, the appellant pointed out that the AO has not followed the CBDT Circular No. 3/2016 dated 26 February 2016. The appellant brought my attention to the fact that the aforesaid circular categorically spells out that the consideration received on buy-back of shares between the period 01 April 2000 till 31 May 2013 would be taxed as capital gains in the hands of the recipient in accordance with section 46A of the Act and no such amount shall be treated as dividend in view of provisions of section 2(22)(iv) of the Act. Further, CBDT directed that as a matter of general principle, no fresh notice for assessment/reassessment/non- deduction of TDS at source shall be issued where buy-back of shares has taken place prior to 01 June 2013 and the case is covered under section 46A read with section 2(22)(iv) of the Act. The circular also mentioned that in cases where notices have already been issued and assessment proceedings are pending, tax authorities shall complete the assessment keeping in view the above legal position.
5.7 By applying the principle laid down by the CBDT Circular No 3/2016 dated 26 February 2016 to the facts of this case, it is clear that the amount paid to IIRF on buy -back of equity shares on 31/05/2013 is chargeable to tax under Section 46A read with Section 2(22)(iv) of the Act and not as dividend income. AO has not raised any doubt on the date of transaction of transfer of shares. Special provision relating to tax in case of buy back of shares under section 115QA has been introduced with effect from 01/06/2013. As regards chargeability of capital gains under Section 46A of I.T. Act, the paragraph 4 of Article 13 of Avoidance of double taxation treaty between India and Mauritius grants the right of taxation to Mauritius if the capital gain arises to resident of Mauritius. The Article 13 of the treaty is reproduced as under :
ARTICLE 13 - Capital gains - 1 Gains from the alienation of immovable property, as defined in paragraph (21 of article 6. may be taxed in the Contracting State in which such property is situated.
Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in that other State.
3. Notwithstanding the provisions of paragraph (2) of this article, gains from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships and aircraft, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs (.1), (2) and (3) of this article shall be taxable only in that State.
5. For the purposes of this article, the term alienation means the sale, exchange, transfer, or relinquishment of the property or the extinguishment of any rights therein or the compulsory acquisition thereof under any law in force in the respective Contracting States.
5.8 It is a settled position that liability to deduct tax under section 195 arises only when the "sum" being paid is chargeable to tax under the Income Tax Act. Since, in the present case, there is no sum chargeable to tax under the provisions of the Act in view of paragraph 4 of Article 13 of Avoidance of double taxation treaty between India and Mauritius, therefore, there is no requirement to withheld tax on such remittance. Hence, the ground of appeal is allowed.”
Before us, the ld. DR strongly supported the findings of the Assessing Officer.
Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.
We have carefully considered the orders of the authorities below and have gone through the statement of HSBC placed at PDF page 8 of the paper book. We find that the remittances have been made on 31.05.2013 which conclusively proves that the assessee company remitted the buy-back of equity shares on or before 31.05.2013 which makes the CBDT Circular 3/2016 dated 26.02.2016 squarely applicable as in that Circular, the Board has categorically spelled out that the consideration received on 01.04.2000 to 31.05.2013 would be taxed as capital gains in the hands of the recipients in accordance with section 46A of the Act and no such amount shall be treated as dividend in view of provisions of section 222(iv) of the Act.
We are of the considered view that the facts of the case squarely fall within the circular of CBDT [supra] which is binding on the Revenue authorities and has been rightly followed by the first appellate authority. Therefore, no interference is called for.
In the result the appeal of the Revenue in is dismissed.
The order is pronounced in the open court in the presence of both the representatives on 11.10.2021.