TMI Blog2009 (11) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... Present for the applicant : Mr. A.V. Sonde, Mr. Achin Goel, Mr. Rahul Yadav, Mr. Rajan Vora, Ms. Sheetal Shah. Present for the Department : Mr. Parag A. Vyas,. R U L I N G Dana Corporation (for short DC) "through its successor company DCLLC is the applicant herein. Dana Corporation (DC) was incorporated in USA in the Commonwealth of Virginia. DHC (Dana Holding Corporation) and Dana Companies Limited Liability Company (DCLLC) are the companies established as part of reorganization of DC. DHC is 100% holding company of DCLLC. Dana merged with DCLLC. Thus, DCLLC being successor to DC, has to bear the tax liability of DC. 2. . DC owned shares of two US entities namely, Dana World Trade Corporation and Dana Global Products, Inc. and also shares of various companies outside the US (subsidiaries of DC) including shares in three Indian companies i.e. (1) Dana India Pvt. Ltd. (2) Spicer India Pvt. Ltd. and (3) Dana India Technical Centre Pvt. Ltd. The percentage of shares held by DC in these three Indian Companies were - 54.65%,74.9% and 100% respectively. It may be stated that the third company was the wholly owned subsidiary of DC. 3 . DC had undergone bankruptcy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer was without consideration. 7. The applicant further states that as a part of bankruptcy transfers the following steps/transactions have taken place: - An independent private equity concern infused funds (Capital) into DHC in exchange for shares of DHC. - Additional shares of DHC were distributed as settlement for certain claims made against DC in the bankruptcy. DHC is, therefore, publicly held. - DC transferred shares held in Dana World Trade Corporation and Dana Global Products Inc to DHC. - Finally, DC merged into DCLLC as per the Articles of Merger dt.31 st Jan 2008. 8. It is stated in the written submissions filed that the liabilities taken over by DHC from DC were more than the assets. 9. On the basis of the above stated facts, the applicant desires to have a ruling on the question whether the transfer of shares of Indian companies by DC to Dana World Trade Corporation (Dana WTC) and Dana Global Products, Inc. (Dana Global) is taxable in India.The following questions are framed by the applicant for the purpose of seeking advance ruling from this Authority: "1. In the facts and circumstances of the case whether the transfer of shares of Dana India Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now held shares through the two US Companies/subsidiaries to whom the shares were transferred. Subsequently, the shares held by DC in those two companies (Dana WTC and Dana Global) were transferred to DHC. The said two companies, however, continued to hold the shares of the Indian companies. In effect, DC which was holding shares in Indian companies directly, post restructuring, held them indirectly through the US subsidiary companies. Later, when DC transferred shares of the US companies (DWTC and Dana Global to DHC), it effectively transferred its indirect control over the Indian companies to DHC. 13 . The US Bankruptcy Court passed an order on 26 th December, 2007, confirming the "third amended joint plan of re-organisation of debtors and debtors in possession. In paragraph W, under the heading "Restructuring Transactions", the Court observed thus: W. . Pursuant to Article V of the Plan and Exhibit V.B.1 to the Plan, the transfer of assets to the Operating Subsidiaries and the assumption of certain Liabilities of Debtor Dana Corporation by the Operating Subsidiaries in exchange for the shares of New Dana Holdco Common Stock to be distributed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant has not come forward with the details whether the individual assets including shares have been valued and whether those values have been considered by DC while agreeing to the reorganization. The expression 'transfer' includes even transfer by operation of law and/or under orders of Court. Once it is held that there was a transfer, income therefrom has to be calculated as provided under Section 45 read with Section 48 and the provisions contained in Chapter X (Section 92 to 92F). As the transfer of shares is for fair consideration (irrespective of whether the applicant has identified the consideration for transfer of shares or not), it cannot be said that there is no income. Even if the consideration for transfer of shares is not identifiable or indeterminable, the arm's length price can be arrived at by taking resort to the transfer pricing provisions under Section 92 etc. of the Act as it is admittedly an international transaction between two or more related entities.Therefore, the computational provisions do not fail. It is finally submitted that the transaction of transfer of shares in Indian companies of DC is taxable in India and the exact amount of tax payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on provisions in each case bears a relationship to the nature of the charge.Thus, the charging section and the computation provisions together constitute an integrated code.When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income.No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is placed on the charging provision.That pertains to the fundamental integrality of the statutory scheme p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unil Siddharthbhai's case (supra), the Supreme Court approvingly referred to the principle laid down in earlier cases that the profits or gains under the Income Tax Act must be understood in the sense of real profits or gains, on the basis of ordinary commercial principles on which the actual profits are computed. Referring to the decision in Ms. Dhun Dadabhai Kapadia vs.CIT, the Supreme Court observed: " The court proceeded on the basis that in working out capital gain or loss the principles which had to be applied are those which are a part of commercial practice or which an ordinary man of business would resort to when making computation for his business purposes" 23. The profit or gain envisaged by Section 45 is not something which remains ambivalent or indefinite or indeterminable. The profit or gain or the full value of the consideration, cannot be arrived at on notional or hypothetical basis. The profit or gain to the transferor must be a distinctly and clearly identifiable component of the transaction. The consideration for the transfer of shares in terms of money or money's worth is not something which can be implied or assumed. No profit or gain in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate that a given part of the liabilities represents the consideration for transfer and such consideration has been passed on to the transferor (applicant). I cannot indulge in an exercise of speculation and far-fetched deduction. I cannot keep out of consideration the entire purpose and substratum of reorganization as a part of bankruptcy proceedings. I cannot import artificial notions of consideration. Thus, viewed from any angle, the take over of the liabilities by DHC under the reorganization plan cannot be treated as the consideration for the transfer of the Indian company shares by the applicant. Nor can it be said that the applicant had, by transferring such shares to its subsidiaries, derived a profit or gain. The fact that the applicant put forward the reorganization plan in the overall interests of its business and that there is certain business advantage to the applicant has no bearing on the point whether any consideration has in fact been received or accrued on the transfer of shares. In fact, such benefit or advantage in the larger sense is incapable of being computed in monetary terms as representing the valuable consideration for transfer. The recital in the Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess.For that reason, it cannot be reasonably said that the book value or the market value of the shares really represents the consideration for the transfer or the profit arising from the transfer. In this context, it is clarified by the applicant (vide written submissions dated 10.8.2009) that the sum of $ 3563 (millions) represents the value of reorganized entity, namely, DHC and has nothing to do with the value of assets and liabilities of the entity under reorganization i.e. DC and that the reorganization value has been determined in view of the statutory requirement so that the creditors and other stakeholders can take an informed business decision. As stated by the applicant, the objective behind the determination of such value is not to determine the consideration for the transfers effected on the sidelines of reorganization. 28. I am, therefore, of the view that the facts on record judged in the light of reorganization plan lead to a reasonable inference that there was no consideration for the transfer or at any rate the consideration is indeterminable and therefore the charging provision - Sec. 45 becomes inapplicable. 29. The counsel for the Revenue has draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such enterprises. The computation of arm's length price is provided by Section 92C. Relying on these provisions, it is submitted on behalf of the Revenue that the income has to be necessarily computed on arm's length basis "irrespective of whether the applicant has identified the consideration for transfer of shares or not". The computational provisions do not therefore fail, according to the Revenue. This argument is based on the obvious assumption that the transfer of shares is for fair consideration or atleast there is some consideration. If no consideration had passed from or on behalf of the transferee Companies to the transferor company and the charge under Section 45 fails to operate for want of consideration or determinable consideration, obviously, the provisions in Section 92 etc. do not come to the aid of the Revenue. It must be noted that Section 92 is not an independent charging provision. As the Section heading itself shows, it is a provision dealing with "Computation of income from international transactions". The opening part of Section 92 says that " any income arising from an international transaction shall be computed having regard to the arm's length price" . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he real question which fell for consideration in that case is discernible from the following lines in para 10.1. " It is the common stand of both - the applicant and the Revenue, that the nature of income arising from the transfer of the applicant's participating interest in Amuguri block to the proposed partnership firm, shall be capital gains. Where they differ is regarding the mode of computation of that income". 35. As a result of the foregoing discussion, this Authority is of the view that the transfer of shares of the three Indian companies by Dana Corporation to US Dana WC and Dana Global is not chargeable to tax as capital gains under the Income-tax Act, 1961. The first question is accordingly answered in the affirmative.The second question is answered by observing that the applicant can seek appropriate remedies under the Act for the refund of advance tax paid. 36. Before closing the case, there are two points I would like to mention.Firstly, the applicant submitted, after the first hearing, as many as 10 questions which merely narrate the specific points or aspects integrally connected with the wider question formulated in the original application.I considere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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