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2016 (3) TMI 118 - AT - Income TaxTDS u/s 195 - remittance of amount to a non-resident representing its income by way of dividend - 'assessee in default' - assessee argued that a transaction of buy back of shares referred to section2(22) (iv) of the Act was different from a transaction of capital reduction dealt by section 2(22)(d) of the Act, that the transaction in question was one of buy back of shares and not a case of capital reduction - colourable device - Held that:- There is no ambiguity about the provisions that would govern the buyback of shares. Section 2(22)(d)(iv)r. w. s. 46A of the Act would be applicable to the buyback scheme. Accordingly, the transaction cannot be treated deemed dividend. Article 13 of the said DTAA provides that capital gains would not be taxable in the hands of GS-M. We also find force in the alternate argument raised by the assessee. Even if the payment to GSM is considered as dividend u/s. 2(22)(d) of the Act, then the taxes on the same have to be charged by way of DDT as per section 115-O of the Act. As per section 10(34) of the Act, any income by way of dividend referred to in section 115-O of the Act does not form part of total income in the hands of the recipient and company declaring dividend will be in default as per section 115Q. So, the provisions of TDs would not be applicable for dividend covered under section 2(22)(d) of the Act. Transaction in question would not fall under the category of colourable device. If an assessee enters into a deal which does not violate any provision of the Act of applicable to a particular AY. the deal cannot be termed a colourable device, if it result in non-payment or lesser payment of taxes in that year. The whole exercise should not lead to tax evasion. Non-payment of taxes by an assessee in given circumstances could be a moral or ethical issue. But, for that the assessee cannot be penalised. In light of the above discussion, we are reversing the decision of the FAA and deciding the effective ground of appeal in favour of the assessee.
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