2023 (5) TMI 1098 - AT - Income Tax

Stay on recovery of outstanding demand - demand arises because of treatment given to the gain derived by the assessee from sale of compulsory convertible preference shares (CCPS) as short term capital gain - assessee is a non-resident individual - HELD THAT - As in the case of DIT vs. Mitsubishi Corporation 2021 (9) TMI 875 - SUPREME COURT we find substantial merit in the submissions of assessee that interest u/s. 234B is not leviable as the assessee is a non-resident and tax has been withheld on the gain derived. So if the interest component is removed balance tax demand works out to Rs. 248, 35, 14, 727/-. Whereas the assessee has paid tax by way of TDS amounting to Rs.153, 23, 33, 751/- which covers more than 50% of the disputed tax liability of the assessee. Therefore assessee cannot be directed to pay any further amount out of the disputed demand. However considering the fact that the assessee is a non-resident to secure the interest of Revenue we direct the assessee to furnish a bank guarantee for an amount of Rs.10.00 crores before the Ao on or before 2nd of June 2023 which shall remain in force till the disposal of the corresponding appeal of the assessee. Subject to furnishing of such bank guarantee within the stipulated date recovery of the balance outstanding demand shall be stayed for a period of 180 days from the date of this order or till disposal of the corresponding appeal of the assessee whichever is earlier. It is made clear in case the assessee seeks any adjournment without compelling reasons there is likelihood of vacation of this stay order.

Summary

Issues:
The issues involved in the judgment are the stay on recovery of outstanding demand and the taxability of capital gain on the sale of compulsory convertible preference shares (CCPS).

Stay on Recovery of Outstanding Demand:
The assessee sought a stay on the recovery of an outstanding demand of Rs.152,18,89,516 for the assessment year 2017-18. The disputed demand arose due to the treatment of the gain derived from the sale of CCPS as short-term capital gain by the Assessing Officer. The assessee, a non-resident individual, received fully vested CCPS as part of employment compensation, which were later sold. The Assessing Officer considered the gain as short-term capital gain, leading to the disputed demand. The assessee contended that the gain should be treated as long-term capital gain as the shares were held for over 24 months, and the ownership vested with the assessee upon assignment, not upon transfer in the name. The Assessing Officer also did not allow deduction of the cost of acquisition, further disputing the tax liability.

Taxability of Capital Gain on Sale of CCPS:
The dispute revolved around the taxability of the capital gain on the sale of CCPS. The assessee claimed the gain as long-term capital gain, while the revenue treated it as short-term capital gain. The Assessing Officer's actions not only eliminated a refund claimed by the assessee but also created a disputed tax demand, including interest charged under section 234B. The Tribunal noted that the interest under section 234B may not be leviable as tax was withheld on the gain derived, reducing the balance tax demand. Considering that the assessee had already paid more than 50% of the disputed tax liability through TDS, the Tribunal directed the assessee to furnish a bank guarantee to secure the interest of the Revenue. The recovery of the balance outstanding demand was stayed for 180 days or until the disposal of the corresponding appeal, subject to the submission of the bank guarantee.

Separate Judgment by Judges:
The order was pronounced by Shri Saktijit Dey, Judicial Member, and Shri G.S. Pannu, President, on 19/05/2023.