DCIT, CIRCLE- 3(1)(1), INTERNATIONAL TAXATION, NEW DELHI vs. ZAHEER MAURITIUS, NOIDA

ORDER

PER ANIL CHATURVEDI, AM:

2 2. The relevant facts as culled from the material on records are as under :

3. Assessee is a company incorporated under the laws of Mauritius and is a tax resident of Mauritius. Assessee filed its return of income for A.Y. 2014-15 on 30.09.2014 declaring NIL income. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 31.08.2015 and duly served on the assessee. Thereafter draft assessment order was passed on 27.09.2016 u/s 144C(1) r.w.s 143(3) of the Act which was duly served on the assessee. Thereafter, assessment was framed u/s 143(3) r.w.s 144C(3) of the Act vide order dated 14.12.2016 and the total income was determined at Rs.4,75,97,440/-. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who vide order dated 30.10.2017 in Appeal No.180/2016-17 deleted the addition and thus decided the issue in favour of the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal before us and has raised the following grounds of appeal :

“1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that the gainss arising to the assessee on the transfer of compulsorily convertible Debentures (CCDs) to M/s. Vatika Ltd. is in the nature of capital gains and not in the nature of interest income as held by the Assessing Officer on the basis of Advance Ruling dated 21.03.2012 in AAR No.1048 of 2011 pronounced by the Hon’ble Authority for Advance Ruling.

4. AO has noted that in the year 2007, assessee had invested into securities of an Indian company, SH Tech Park Developers Private Limited, which was engaged in development and construction of projects of India, along with another Indian company, Vatika Limited, in the ratio of 35:65. During the year under consideration assessee sold 8,957 equity shares and 17,63,71,304 CCDs issued by SH Tech Park to Vatika and had declared total gain of Rs. 6,82,09,076/- (comprising gains of Rs. 4,75,97,153/- on sale of CCDs and Rs.2,06,11,923/- on sale of equity shares). Assessee was asked to show-cause as to why income from sale of CCDs and equity shares not be taxed as interest income instead of ‘capital gains’ as considered by the assessee. Assessee made the submissions which was not found acceptable to AO. AO noted that the transaction in respect of sale of CCDs was identical to those transactions executed by the 4 assessee in A.Y. 2011-12 & 2013-14 wherein his predecessor had examined the issue in detail and had held the gains arising from the sale of CCDs to be taxable. He also noted that the issue had not attained the finality as the matter was pending before the Hon’ble Supreme Court but to protect the interest of Revenue and to maintain the consistency with the decision taken in earlier years in assessee’s own case, he considered the gains on sale of CCDs to be taxable. He accordingly considered the income arising on transfer of CCDs at Rs.4,75,97,440/- as taxable. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who noted that for A.Y. 2011-12, assessee had sought ruling on the taxability of capital gains arising on sale of CCDs before the Authority for Advance Ruling (AAR). The AAR decided the issue against the assessee and held that the gain from transfer of CCDs to be chargeable to tax as interest income. Against the ruling of the AAR, assessee carried the matter before the Hon’ble Delhi High Court. Hon’ble Delhi High Court vide order dated 30.07.2014 decided the issue in favour of the assessee by holding the gains on CCDs has to be treated as capital gains. CIT(A), thus following the decision of Hon’ble Delhi High Court decided the issue in favour of the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal before us.

5. Before us, Learned DR supported the order of AO and further submitted that Revenue has filed SLP before the Hon’ble Apex Court which has been admitted on 19.11.2015 and the 5 matter is pending before the Hon’ble Apex Court. Learned AR on the other hand supported the order of CIT(A) and further submitted that on identical facts in assessee’s own case for A.Y. 2013-14, the Co-ordinate Bench of Tribunal in order dated 08.09.2021 has dismissed the appeal of the Revenue. She placing reliance on the aforesaid order submitted that following the Hon’ble ITAT order in assessee’s own case for A.Y. 2013-14, the grounds of Revenue needs to be dismissed.