2015 (10) TMI 2487 - HC - Income Tax

Transfer u/s 2(47) - satisfaction of essential ingredients - effect of amendments - intention of the assessee to control the telecommunication business of HEL in India through the TII and downstream companies - Held that:- One deal cannot be picked up in isolation so as to hold that it is a deliberate and intentional act of parties to circumvent Indian tax structure. The deals and agreements are but part of a larger and bigger picture to gain entry in Indian Telecom market and Multinational Corporations to adopt a mode by which they firmly establish themselves by taking support from Indian partners. On the same transactions and same set of facts reaching a different conclusion than that of the Hon'ble Supreme Court is not possible and rather impermissible.

None of these amendments and post the Supreme Court judgment would enable the Revenue to urge that the position as noted in the Supreme Court judgment no longer subsists. Even if there was a change therein on the basis of the Revenue's stand itself the Tribunal concluded quite contrary to what is now urged before us. Apart therefrom, we find that the essential ingredients of the definitions as amended are not satisfied and the conflicting and shifting stand of the Revenue worsens the position.

Another agreement between a co-subsidiary of the appellant CGP Mauritius and AG and AS and their companies which allegedly had yet another set of call options in favour of CGP. - Held that:- this is only an intention of the parties. It has never translated, even according to the Tribunal, into anything beyond what is concluded by the Tribunal and to be termed as a transfer.

Applicability of section 92B(2) - Held that:- The Tribunal does not indicate in any of the foregoing paragraphs which we have referred or reproduced above that the transaction in question is in the nature of purchase, sale or lease of tangible or intangible property. The Revenue itself understands that this provision does not necessarily require a transfer or assignment of a property or creating any right or interest in the same, but attempts to justify the conclusion reached by the Tribunal and to be found in the foregoing paragraphs. For the purpose of applicability of section 92B itself we will have to draw an inference but without some concrete primary facts being established. Mere receipt of incidental benefits may not be sufficient to attract transfer pricing provisions.

In the ultimate analysis, the requirements of section 92B read with section 92F are fulfilled according to the Tribunal because the 2007 Framework Agreement is an arrangement, understanding or action in concert between the assessee and VIH BV for grant of call option by AG and AS to the assessee against the agreed consideration paid by VIH BV. If that is how the matter is approached, then, we do not see any basis for the subsequent observations.

The Hon'ble Supreme Court has categorically held that there is no capital gain which can be taxed in terms of Indian tax regime. This is as far as the transfer of a share. The Court holds that there is no transfer of asset. As far as the above transactions are concerned, that is termed as arrangement creating an interest in option rights under the Framework Agreement of 2007. As already held this is also not covered by section 2(47) as amended retrospectively.

Regarding Call Centre Business:

Applicability of section 92B(2) - whether appellant and HWP India were associated enterprises? - whether any capital tax gain was attracted in the hands of HTIL when it transferred its 67% VIL shares to VIH BV - Held that:- In this case, it is an admitted position that before signing of the SPA, HTIL, appellant and HWP (India) are associated enterprises. HTIL is a non-resident. Since the transaction is between associated enterprises and one of them is a non-resident, the condition specified in section 92B(1) is satisfied. Further, the transaction involves sale of call centre business which is a capital asset. The capital asset of the assessee is getting transferred which in turn affects the income or profits and assets of the appellant. Hence this transaction of sale of call centre satisfies the condition specified in section 92B(1) and constitutes an international transaction even if the assessee's contention that the BTA was signed before the implementation of the SPA is assumed to be correct for the sake of argument.

There was no warrant for the Tribunal to have rendered a conflicting conclusion on the applicability of the two provisions, namely, sections 92B(1) and 92B(2). In any event, the Tribunal committed a basic and fundamental error in not referring to Chapter X, its title and subsection (1) of section 92 before applying the mechanism devised therein. If Chapter X has been inserted to make special provisions relating to avoidance of tax and by section (1) of section 92 computation of income from international transaction having regard to arm's length price has to be done, then, there ought to be an income arising from an international transaction. That only would enable applying further provisions in this Chapter. That being not the position even on this aspect, we are unable to agree with Mr. Setalvad. Thus Tribunal's order is vitiated by serious errors of law apparent on the face of the record.

Tribunal's order contains inconsistent and contradictory findings on the issue discussed above. We have also indicated the contradictions and inconsistencies in these findings in the foregoing paragraphs. We have found that the Tribunal's attempt to get over the binding judgment of the Hon'ble Supreme Court in the manner done also cannot be sustained. - Decided in favor of assessee.