9911796707
TMI Blog2014 (12) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... chison Tele-services (India) Holdings Limited, a company incorporated in Mauritius which, in turn, was a wholly owned subsidiary of CGP Investments (Holdings) Limited, a company incorporated in the Caymen Islands (hereinafter referred to as CGP). The shares of CGP were held by HTI (BVI) Holdings Limited, a company incorporated in British Virgin Islands which, in turn, was ultimately controlled by Hutchison Telecommunications International Limited (hereinafter referred to as "HTIL"), a company incorporated in Caymen Islands. It would be convenient here to reproduce the ownership structure chart set out in the judgment of the Supreme Court in (Vodafone International Holdings B.V. v. Union of India & Anr., (2012) 341 ITR 1 as under: 3. Since April, 2003, the assessee, inter-alia, provided call centre services captive to entities within the Hutchison Group viz. Hutchison 3G Australia Pty. Ltd. and Hutchison 3G UK Ltd. in terms of a Managed Services Agreement for contact centre services between Hutchison Call Centre Holdings Limited, British Virgin Islands (HCCH) and the assessee dated 1st January, 2006. 5. A Framework agreement dated 1st March, 2006, was entered into between the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproval of the Commissioner of Income-tax, by a letter dated 25th January, 2010, referred the same to the TPO under section 92CA(1) for the determination of the arm's length price thereof. In the course of proceedings, the TPO sought various documents and particulars and contended that the assessee had not disclosed two international transactions viz. the BTA - the transaction relating to the sale of the call centre business by the assessee to HWP (India) and the assignment of the call options under the new Framework agreements dated 5th July, 2007. The TPO stated that both the transactions were international transactions. He also disputed the valuation reports submitted by the assessee. The assessee, after some initial hesitation, furnished the documents, including the SPA, the BTA and the Framework agreements at different stages. The assessee contended that the same did not constitute international transactions. 9. The TPO issued notices calling upon the assessee to show cause why it had not disclosed the said unreported international transactions. 10. The assessee submitted a detailed reply to the show cause notice. The assessee dealt with all the issues raised in the sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed by the Hon'ble High Court that the assessee would be at liberty to appear before the DRP without prejudice to its rights and contentions including those in the writ petition. The DRP subsequently passed the directions u/s 144C(5) of the Act on 30.09.2012 inter alia upholding the findings of TPO. Consequently, the Assessing Officer has passed the final assessment order u/s 143(3) r.w.s 144C(13) of the Act in pursuant to the directions of DRP. 14. The writ petition filed by the assessee was disposed off by the Hon'ble High Court vide judgment dated 6.09.2013 reported in 359 ITR 133. The Hon'ble Jurisdictional High Court has rejected the contention of the assessee that the TPO had no jurisdiction to consider the transaction relating to the sale of call centre/business transfer agreement. The Hon'ble High Court has observed that there are several issues of fact and of law on every material aspect which must be considered by the authorities under the Act. Thus it was held that this is not a fit case for invoking extra ordinary jurisdiction Article 226 of Constitution of India. On merits the Hon'ble High Court has observed that the matter is required to be dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Supreme Court vide Judgment dated 20th January 2012 in the matter of Vodafone International Holdings BV Vs. UOI (2012) 341 ITR 1 (the "Judgment") 4. That in the facts and circumstances of the case, the Lower Authorities failed to appreciate that no transaction per se has been undertaken as the rights under the 2006 and the 2007 Framework Agreements have not been altered, as they remain where they were i.e. with the Assessee, and, therefore, the provisions of the Act or the transfer pricing Provisions contained in Chapter X of the Act do not apply for the want of any transaction. 5. That the Lower Authorities knowing that the finding of the Hon'ble Supreme Court of India is binding, has erroneously tried to shift its stand by treating all subsidiaries of Vodafone Group Plc as the transferee of the alleged assignment of call options, which is perverse, vague, ambiguous and untenable as it has failed to identify the specific transferee of the alleged Assignment of Call Options. 6. That in the facts and circumstances of the case, the DRP failed to appreciate the findings in the Hon'ble Supreme Court would remain entirely unaffected by the clarificatory amendment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he doctrine of Substance over Form to force its erroneous conclusion' that the sale of Call Centre Business transaction was a deemed "international transaction" and/or an "international transaction" within the meaning of Section 92B. 9.4 That the Lower Authorities have erred in holding that Hutchison Whampoa Properties (India) Private Ltd ["HWP (India)"] to be a dummy entity in complete disregard of the material placed on record. 9.5 While doing so, the Lower Authorities further erred in holding that HWP (India) was "interposed only to evade tax by avoiding transfer pricing compliance" without appreciating that HWP India was used to acquire the Call Centre business for legal, commercial and practical reasons and not to evade tax. 10. That in the facts and circumstance of the present case, the Lower Authorities grossly erred in not correctly applying section 50B of the Act by substituting the actual sale consideration of Rs. 64 crores with the alleged ALP, since the sale of Call Centre business is a domestic transaction and therefore not subject to transfer pricing provisions. 11. Without prejudice, the Lower Authorities erred in facts and in law in computing the ALP in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of "evidence of fair value" of the Call Centre business and the sale price to third party is appropriately adjusted taking into account differences between valuation date and subsequent sale date, an independent third party would have paid a substantially lower amount of Rs. 85 crores (approx) had such sale taken place in March 2007 as against September 2012. Provision of ITeS Services - Addition of Rs. 28,74,34,828/- 15. That in the facts and circumstances of the case, the Lower Authorities erred in law in making an addition of Rs. 28,74,34,828/- to the income of the Assessee on account of provision of ITeS services to Hutchison Call Centre Holdings Limited ("HCCH") [hereinafter referred to "Provision ofITeS Services"]. 15.1 That in the facts and circumstances of the case, Lower Authorities erred in law and in facts in not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case. 15.2 That in holding as aforesaid, the DRP erred in confirming the action of the TPO in arbitrarily rejecting the set of comparable companies selected by the Assessee, based on contemporaneous data available at the time of preparation of the Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f) Written submissions filed by VIH BV before the Hon'ble Supreme Court. g) Financial account of the VIH BV group of companies 16. Additional evidence filed by the assessee with the application dated 3.3.2014/4.3.2014 contains the following documents:- a) Letters from Analjit Singh and Asim Ghosh to the Assessee for exercise of put options. b) Letters from Assessee to its affiliate, viz, CGP India Investments ltd ("CGP" nominating CGP to discharge the obligation arising from exercise of put options by Analjit Singh and Asim Ghosh. c) Letters from the Assessee to Analjit Singh and Asim Ghosh indicating the nomination of CGP d) Written Submissions filed by the Revenue bfore the Hon'ble Supreme Court. e) Order dated 22.10.2010 passed by the revenue in the case of VIH BV. f) Interim Application No. 6 of 2010 filed by VIH BV before the Hon'ble Supreme Court and order passed by the Hon'ble Court allowing the said interim application g) Disclosure letter dated 11.2.2007 along with all annexures. 17. Though in the respective replies filed by the parties, various objection was raised regarding the maintainability of the applications for seeking the permission to file the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of execution of agreement relating to Call Options and Put Options as well as execution of Put Option. Therefore, it is necessary to examine all the documents before arriving at a conclusive finding on the issue. Accordingly in the facts and circumstances of the case, we admit the additional evidence filed by both the parties. Ground no. 1 is general in nature and does not required any specific finding. 20. Ground No. 2 to 6 is regarding assignment of call options: 21. Brief facts relevant to this issue emerged from record are as under:- 22. The Hutchison Group, Hong Kong (HK) first invested into the telecom business in India in 1992 when the said Group invested in an Indian joint venture vehicle by the name Hutchison Max Telecom Limited (HMTL) - later renamed as Hutchison Essar Ltd (HEL). On 12.01.1998, CGP stood incorporated in Cayman Islands, with limited liability, as an "exempted company", its sole shareholder being Hutchison Telecommunications Limited, Hong Kong ["HTL" for short], which in September, 2004 stood transferred to HTI (BVI) Holdings Limited ["HTIHL (BVI)" for short] vide Board Resolution dated 17.09.2004. HTIHL (BVI) was the buyer of the CGP Share. HTIHL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the controlling interest in HEL via its subsidiary VIH B.V. through the subsidiary companies of HITL group with control of 67% interest in HEL including indirect 15% holding through framework agreements. New Frame Work Agreements (FWAs) were executed in the month of June and July 2007 between assessee and Indian Partners holding 15% indirect interest in HEL. These new FWAs were entered into because of change of holding group companies from HTIL to Vodafone. Certain changes in terms and conditions of 2007 FWAs were made which has led to the controversy in question as the Assessing Officer has treated these changes being transfer/assignment of Option rights held by the assessee in 2006 agreement in favour of its holding company VIH (BV) by virtue of 2007 framework agreements. Thus as per the revenue, the assessee has transferred the right to acquire 15% shares holding of HEL in the 2006 framework agreements in favour of its holding company (AE) by execution of 2007 FWAs. 24. The transaction of transfer of share holding of CGP by HTIL to VIHBV through share transfer agreement (STA) and in consequence the framework agreements of 2006 were re-written as framework agreement 2007 under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, including in respect of the Framework Agreements, their full effect. The suggestion that they are casual observations is rejected. A view to the contrary would tantamount to judicial indiscipline. This is not just our prima facie view. Needless to say it would be necessary to consider the judgment even in the present proceedings. That, however, can and in the facts of this case ought to be done by the authorities under the Act. It could have been done even by the TPO and the AO. Their orders were, however, passed prior to the judgment of the Supreme Court and the occasion for them to consider this judgment does not arise at this stage. It will, however, be necessary for the ITAT to do so. We see no reason to short-circuit the proceedings in this regard as there are or are likely to be other aspects including facts which will also require consideration. 210. The matter regarding the assessee's assessment, however, does not end there. It does not end there although the judgment in Vodafone's case assists it to a considerable degree. There are other additional aspects which require consideration. 211. We observed earlier that we are not entitled to restrict the ambit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferring, or enabling the enjoyment of, any immovable property. Explanation 1.-For the purposes of sub-clauses (v) and (vi), "immovable property" shall the same meaning as in clause (d) of section 269UA. Explanation 2.-For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India." Explanation 2 was introduced with retrospective effect from 1st April, 1962. 213. The amendment to section 2(47) raises several important questions of fact and of law. Whether or not it affects the proceedings which were the subject matter before the Supreme Court is not relevant for the purpose of this Writ Petition. But, whether it is relevant or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. It would be evident, therefore, that a lot more must now be seen and considered than before while arriving at a conclusion whether the terms and conditions of the Framework agreement constituted a transfer or assignment of the call options by one party to another. 26. Thus the issue of assignment of option rights has to be adjudicated by considering and examining the framework agreements along with any other document(s) or development subsequent or prior to the Framework Agreements in light of the judgment of Hon'ble Supreme Court, the observation of the Hon'ble High Court as well as subsequent amendment in section 2(47) along with transfer pricing provisions of the Act and further by considering the new facts and records brought before us. The Ld. Senior Counsel for the assessee has contended that there is no transfer or assignment of Call Option in presenti as no Call Options were transferred under the framework agreement of 2007 and the assessee continued to hold the Call Option rights. It is the case of the assessee that cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scretion. It is vital to note that at no point of time prior to the present proceedings did the IT Department find the per se existence of clause 4.4 and 4.9 in the 2006 Framework Agreements objectionable or culpable regarding ipso facto assignment or divestiture and consequent application of TP regulations. It is thus clear, and the DRP order dated 30.09.2012 says so explicitly that it is the change of language in the 2007 Framework Agreement which constitutes assignment and, therefore, attracts the TP regulations. For the reasons elaborated above, this is ex facie fallacious and liable to be set-aside. Even otherwise, on first principle, assignment means the transfer or relinquishment or divestiture of rights held by a person in favour of others. Assuming without conceding that there is any relevant or material difference between the two, it is impossible to assert by any distortion of language or stretch of imagination that clause 4.4 in the 2007 versions constitutes in presenti a factual or legal or a voluntary or compulsory assignment of the call option. In this connection it is ironical that the DRP impugned order itself proceeds on the fundamental assumption that the 2007 ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes disposal or parting with or creating any interest in any asset by direct or indirect, absolute or conditional or voluntarily or involuntarily by an agreement or otherwise. Therefore, it is not necessary under the amended provisions of section 2(47) that an asset itself has to be transferred but creation of any interest or right in the asset also falls in the ambit of term 'transfer'. Therefore, the judgment of Hon'ble Supreme Court in the case of Vodafone International Holdings BV vs. UOI (supra) cannot be considered as a decision on the issue of assignment/transfer of Call Option by the assessee to its affiliate. 29. In rebuttal, the Ld. Senior Counsel has submitted that the Hon'ble Supreme Court has decided the jurisdictional fact and even the amended provisions of section 2(47) would not obliterate the judgment of Hon'ble Supreme Court on the point of no assignment of Call Option in presenti. 30. We do not agree with the arguments of Ld. Senior Counsel of the assessee on the point that the issue stands concluded by the Hon'ble Supreme Court because the question before Hon'ble Supreme Court was whether the ownership of a company is transferred by its ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P share, would give VIH an indirect control over the three genres of companies. If one looks at the chart indicating the Ownership Structure, one finds that the acquisition of the CGP share gave VIH an indirect control over the tier I Mauritius companies which owned shares in HEL totalling to 42.34%; CGP India (Ms), which in turn held shares in TII and Omega and which on a pro rata basis (the FDI principle), totalled up to 9.62% in HEL and an indirect control over Hutchison Tele-Services (India) Holdings Ltd. (Ms), which in turn owned shares in GSPL, which held call and put options. Although the High Court has analysed the transactional documents in detail, it has missed out this aspect of the case. It has failed to notice that till date options have remained un-encashed with GSPL. Therefore, even if it be assumed that the options under the Framework Agreements 2006 could be considered to be property rights, there has been no transfer or assignment of options by GSPL till today. Even if it be assumed that the High Court was right in holding that the options constituted capital assets even then Section 9(1)(i) was not applicable as these options have not been transferred till date. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to have been looked at holistically. This case concerns investment into India by a holding company (parent company), HTIL through a maze of subsidiaries. When one applies the "nature and character of the transaction test", confusion arises if a dissecting approach of examining each individual asset is adopted. As stated, CGP was treated in the Hutchison structure as an investment vehicle. As a general rule, in a case where a transaction involves transfer of shares lock, stock and barrel, such a transaction cannot be broken up into separate individual components, assets or rights such as right to vote, right to participate in company meetings, management rights, controlling rights, control premium, brand licences and so on as shares constitute a bundle of rights. [See Charanjit Lal Chowdhuri v. Union of India AIR 1951 SC 41, Venkatesh v. CIT [2000] 243ITR 367 /109 Taxman 781 (Mad.) and Smt. Maharani Ushadevi v. CIT [1981] 131 ITR 445/[1982] 8 Taxman 91 (MP)] Further, the High Court has failed to examine the nature of the following items, namely, non-compete agreement, control premium, call and put options, consultancy support, customer base, brand licences etc. On facts, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction of the nature involved in this case, in that light. 31. It was held by the Hon'ble Supreme Court that the asset of a company belongs to the company and not to the share holders of the company, therefore, the asset vested with the company would remain vested albeit the ownership is transferred. Thus the Hon'ble Supreme Court examined the question in the context of transfer of asset of the assessee by its holding company HTIL to VIH BV by virtue of share transfer agreement(STA) along with FWAs and found that despite the transfer of share held by HTIL to VIH BV, the same would not result transfer of asset of the assessee to VIHBV. This question was dealt with only in context of transfer between HTIL and VIH BV by virtue of STA and not in context of transfer of Option rights by assessee to its affiliate. Therefore, at the first place the judgment of Hon'ble Supreme Court is not based on the finding of facts as examined and investigated by any of the fact finding authority and consequently it is binding on all subordinate courts only on the point of principle laid down on the substantial question of law. The judgment rendered by Hon'ble Supreme Court under extr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 204 in Vodafone India Service (P.) Ltd. Vs. Union of India, (supra). Therefore, undisputedly and undoubtedly the option rights held by the assessee are valuable rights in relation to the indirect share holding to the extent of 15.03% in HEL/VIL. The issue before us, is regarding the option rights to acquire 12.25% shares of HEL/VIL through AG and AS Framework Agreements. 32. As we have already discussed the matter has been remanded by the Hon'ble High Court to this tribunal for finding of fact after considering all facts, additional evidence /documents to be filed by the parties as well the amended provisions of section 2(47) and transfer pricing provisions. First we will examine the FWAs of 2006 and 2007 by comparing the relevant clauses. In order to proper appreciation of agreements in question and facts, we reproduce the relevant clauses of Framework agreement 2006 as well as 2007 side by side as under:- Framework agreement 2006 Framework agreement 2007 Parties to the agreement. ASIM GHOSH GOLDSPOT MERCANTILE COMPANY PRIVATE LIMITED PLUSTECH MERCANTILE COMPANY PRIVATE LIMITED GLOBAL SERVICES PRIVATE LIMITED CENTRINO TRADING COMPANY PRIVAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Parties agree if the Put Option is exercised at any time after the Subscription Notice is issued, then GSPL shall, in its absolute discretion, have the option to withdraw the Subscription Notice or complete thereunder. (4.3) Put Option (a) AG shall have the right to require GSPL or its Nominated Person to purchase, at its sole discretion, any or all of the AG Mercantile Shares (the "Put Shares") held by AG ("Put Option"): (i) at any time, and from time to time, and to the extent GSPL or any of its Affiliates or any Person to which the Call Option is assigned pursuant to Clause 4.10(a) becomes eligible under all applicable Indian laws or Regulations to hold such Put Shares. For the avoidance of doubt, in the event that the Sectoral Cap is increased to permit an increased level of foreign ownership of HEL, AG shall, without the prior written consent of GSPL, only be permitted to exercise the Put Option under this Clause 4.3(a)(I) In respect of such number of the Put Shares that are consequently permitted to be held by foreign investors (as a result of the increase in the Sectoral Cap) as is proportionate to the percentage of Indian Shares held by AG at the time the Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised alter the demise (if any) of AG. GSPl shall have the right to purchase the Plus tech Shares held by AG Mercantile in lieu of the AG Mercantile Shares held by AG and in such event, all references to 'Put Shares' and 'AG Mercantile Shares' in this Agreement. to the extent relevant, shall be deemed to mean the Pluslech Shares and all references to 'AG' shall be deemed to be references to AG Mercantile to the extent relevant. 4.4 Call Option GSPL Shall, subject to the conditions set out below, have the right at any time to purchase all, but not part only, of the Plustech Shares (the "Call Shares") held by Goldspot (the "Call Option") in accordance with the procedure laid down in clause 4.5 below and at a fair market value determined in accordance with clause 4,6 below. GSPL may exercise the Call Option at any time after: (a) GSPL or its nominee exercises the Subscription Option for subscribing to such number of Subscription Shares which would result in GSPP and/or its nominee, in aggregate, holding more than 50% of the issued share capital of Centrino; or (b) COP exercises the TII Option which would result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rences to AG Mercantile to the extent relevant. (d) In consideration of the grant of the Call Option by AG to GSPL, GSPL or an Affiliate shall pay to AG an aggregate amount of US$6.3 million per annum accruing on a daily basis (the 'Option Payment'). GSPL's obligation to pay AG the Option Payment as aforesaid shall be deemed to be effective from 1 May 2007. The Option Payment for the period from 1 May 2007 to 30 April 2008 will be paid as soon as practicable and in any case by the 20'" Business Day after the date of this Agreement and the Option Payment for each twelve (12) month period from 1 May 2008 shall be paid in four equal installments in arrears on 1 August, 1 November, 1 February and 1 May, commencing on 1 November 2008. The Option Payment shall be paid to AG until AG ceases to hold indirectly through' his interest in TII, any equity interest in Hel or, if earller, 7 May 201!. The Option Payment shall be paid by GSPl or any of its Affiliates by wire transfer to AG's bank account In India designated by AG in advance. (4.5) Transfer Procedure (a) The Subscription Option as specified in clause 4.2 shall be exercised by a Subscription Notice from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Option shall be exercised by a written notice ("Transfer Notice) from the Party exercising such Option or Default Option ("Offeror) to the applicable counterparty ("Offeree") and the effective date of its exercise shall be the date of such written notice. Any Transfer of Put Shares or Call Shares or Default Shares shall be subject to the approval of any competent regulatory agencies, if required, and shall be completed within the .periods stipulated by Clause 4.5(b) or such other extended time which may be Trequired to comply with applicable laws (including the obtaining of requisite approvals). GSPL Shall notify AG of the identity of the transferee prior to the date specified in the notice for completion of the Transfer. The purchaser of Put Shares or Call Shares or Default Shares, as the case maybe, shall promptly and duly execute and deliver all such instruments and documents, and do 0r procure to 'be done all such ads or things, as may be necessary or desirable for making the application and obtaining the aforesaid regulatory approvals (If required). (b) Any Transfer of the Put Shares or Call Shares or Default Shares and all payments in consideration thereof Shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A = X multiplied by [Y/Z) Where: A = the price payable pursuant to Clause 4.6(a); X= the Transfer Price; Y = number of Put Shares or Call Shares, as the case maybe, transferred by AG pursuant to exercise of the Put Option or the Call Option, as the case maybe; Z = total number of. Put Shares or Call Shares, as the case maybe, representing 100% of the issued equity share capital of AG Mercantile or Plustech as relevant. 4.7 Default Option (a) Following any Event of Default on the part of AG and/or Goldspot and/or Plustech and/or Centrino, GSPL shall have the right to require Goldspot to sell to GSPL or any person that GSPL nominates all (but not part only) of the Plustech Shares held by Goldspot at ninety percent (90%) of the Transfer Price determined in accordance with cclause 4.6 and as per the procedure laid down in clause 4.5; (b) Following any Event of Default on the part of GSPL, Goldspot shall have the right to require GSPL or any person that GSPL nominates to purchase all (but not part only) of the Plustech Shares held by Goldspot at one Hundred and ten percent (110%) of the Transfer Price determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (c) The Parties agree that the Put Option set out in Clause 4.3 may not be assigned or transferred without the prior written consent of GSPL. 5.3 Change of Control In the event of a Change of Control, each party will promptly, and in no event later than 10 days after such Change of Control has occurred and provide appropriate details as to the nature of the Change of Control. 5.5 Change of Control In the event of a Change of Control (other than a Change of Control resulting from exercise of any Option or Default Option), each Party will promptly, and in no event later than 10 days after such Change of Control has occurred, notify the other Parties in writing that such Change of Control has occurred and provide. appropriate details as to the nature of the Change of Control. 33. As per clause 4.4 of framework agreement 2006, the assessee shall have the right at any time to purchase all of the indirect share holding to the extent of 12.25% in VIL as held by the Group Companies of Analjit Singh and Asim Ghosh under Call Options. The Call Options under the framework agreement 2006 has to be exercised either by the assessee or its nominee whereas the Call Optio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into; or is treated by him as, stock-in-trade of a business carried on by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1992); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation 1.-For the purposes of sub-clauses (v) and (vi), "immovable property" shall the same meaning as in clause (d) of section 269UA. Explanation 2.-For the removal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant clauses of two framework agreements that by change of prospective nominee it does not amount to transfer or creating any right in favour of the said prospective nominee until the actual nomination is made. 35. Now we will examine the Share Holder's Agreement dated 05/07/2007. Though the re-writing of the frame work agreement in the year 2007 stand alone does not constitute assignment, transfer or creating any right of Call Options in favour of prospective nominee however, the matter does not rest at this stage because there is also a share holder's agreement dated 5.07.2007 between the share holders of TII on one hand and CGP India Investment Ltd, TII and VIH BV on the other hand. The said share holders agreement dated 5.07.2007, has been filed by the revenue as an additional evidence. During the hearing of the matter neither the revenue nor the assessee has advanced any argument on this document except a bare reference along with other documents. The matter was, therefore, fixed for clarification on 13.10.2014 for the submissions and contentions of the parties on this document. On the said date the clarification was postponed for 14.11.2014 at the request of both the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns held by assessee, Analjit Singh and Asim Ghosh respectively, under the 2007 Framework Agreements. The Framework Agreements between Analji Singh and Asim Ghosh and assessee are completely distinct from the TII share holder's agreement as the former relate to Call Options and Put Options in respect of shares of Scorpio Beverages (P) Ltd. and AG mercantile Co. (P) Ltd., whereas the latter relates to shares of TII. A reference is also made to paragraph 155, 157 to 159 of the Judgment of Hon'ble Supreme Court in the context that share holders agreement is essentially a contract between some or other share holders of a company. The parties of which is to confer right and impose obligations over and above those provided under the company's law. Being the private documents bind the private parties thereof and no other remaining share holders of the company. In nutshell it has been submitted that TII share holder's agreement has no relevance or bearing on the issue of assignment of Call Options under 2007 Framework Agreements as it relate to shares of difference company namely TII. The option rights under the TII share holder's agreement are inchoate rights as they are conditional up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd having its registered office at 608. 51 James Court, 51 Denis Street. Port Louis. Mauritius (hereinafter referred 10 as TCGP') of the THIRD PART; (4) Telecom Investments India Private Limited, a company incorporated into the Companies Act 1956 and having its registered office at 240 Navsari Building, First Floor, DN Road, Mumbai 400001 (hereinafter referred to as the "Company") of the FOURTH PART; and (5) Voda1one International Holdings B.V .. a company incorporated in The Netherlands whose 'registered office is at Rivtum Quadrant 173. 2909 LC Capelle aan den Ijssel, The Netherlands (hereinafter referred to as "Vodafone"). of the FIFTH PART. (Nadal, NOC and CGP are hereinafter collectively referred to as the Parties and severally as the "Party"). Whereas: (Al The Company is engaged in the business of investing in secuities of telecommunications companies ill India. (B) NDC, CGP and Nadal currently hold 38.78%, 37.25% and 23.97%, respectively, of the issued equity share capital of the company. (C) On 11 February 2006 Vodafone and Hutchison Telecommunication International Limited (HTIL) entered into an agreement pursuant to which Vodafone purchased the controlling inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Clause 4.4(a); "Offeror" shall have the meaning set forth in Clause 4.4(a); "Original Director" shall have the meaning set forth in Clause 6.6; "Option" shall mean any of the Subscription Option, Put Option or Call Option; "Person" shall mean any natural person limited or unlimited liability company, corporation, general partnership, limited partnership, proprietorship, trust, union, association, court, tribunal, agency, government, ministry, department, commission, selfregulatory organization, arbitrator, board or other entity, enterprise, authority or business organization; "Put Option" shall have the meaning set forth in Clause4.2; 4.2 Put Option Each of NDC and Nadal shall have the right to require CGP or at CGP's option its Nominated Person to purchase, or procure the purchase of all but not party only of the NDC Shares and/or the Nadal Shares respectively (each a "Put Option") as the case may be, in accordance with the procedure laid down in Clause 4.4 below and at a fair market value determined in accordance with Clause 4.5 below. 4.3 Call Option (a) CGP or its Nominated Person shall have the right at any time, and from time to time, to purchase any of the NDC Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s understood by the parties under the Framework Agreements. Even under the Framework Agreements of 2007 what was to be transferred under the option rights were 23.97% and 38.78% of shares in TII and thereby indirect 12.25% share holding in HEL. 40. The combined reading of Framework Agreements 2007 and share holder's agreement dated 5.7.2007 as well as considering the relevant facts and surrounding circumstances emerged from these arrangements made pursuant to VIH BV purchased the controlling interest held by THIL in CGP Investment (Holdings) Limited, lead to the logical conclusion that option rights under the Framework Agreements of 2007 held by the assessee were transferred/assigned in favour of CGP India Investment (Mauritius), the AE of the assessee by virtue of share holder's agreement. The share holder's areement executed in pursuant to Framework Agreements made it unequivocal final that the shares of TII held by Asim Ghosh and Analjit Singh would be transferred in favour of CGP India Investments Ltd., or its nomine as and when the Call/Put Option rights are exercised by the respective parties. The role of the assessee was ceased to exist, the moment share holder's agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re arrangement and exercise was targeted to acquire the 15% share holding in HEL as and when the restriction on FDI in telecom sector is relaxed by the Government. Therefore, both Framework Agreements and TII share holders agreement were signed with the sole object to acquire 12.25% share holding in HEL on a future date and till then Asim Ghosh and Analjit Singh agreed to hold the stake in HEL through TII for that they were remunerated. 42. The interpretation and construction of a document is to ascertain the meaning which the document would convey and what the parties of the document intended and understood having all the background knowledge available to the parties at the time of the contract. Therefore, to understand the true meaning and intent of the parties to the agreement, the surrounding circumstances and background knowledge is very relevant and important. In the case in hand, the Framework Agreements as well as TII share holders agreement were signed in the background of the (SPA), share transfer agreement (STA) between HTIL and VIHBV and further with the intention to keep the 12.25% share holding in HEL indirectly through Asim Ghosh and Analjit Singh so that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w will constitute a transaction. The term 'international transaction' has been defined in sec.92B.Under sub section (1), international transaction has been defined as a transaction between two associated enterprises out of which at least one is a nonresident. This section further provides that the transaction should be in the nature of purchase / sale / lease of tangible or intangible property; Provisions of services; Lending or borrowing money. Any other transaction having a bearing on the profits incomes, losses or assets of such enterprises. 45. He has submitted that under the SPA and the Frame Work Agreements there are a number of closely linked transactions, arrangements and understanding between the various parties of the Hutch and the Vodafone group for the purpose of transferring the call options from the HTIL to VIH BV. The parties have entered into two sets of transactions each of which independently constitutes an international transaction. They are (a) the arrangements and understandings reached under the SPA read with the Frame Work Agreement of 2007 through which the appellant as a part of Vodafone group has permitted a wholly owned subsidiary of Vodafone Group Plc t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ius; a Mauritius based subsidiary company of Vodafone Group Plc at the instance of VIHBV. Thus the Frame Work Agreement has provided the basis for the subsequent nomination of CGP Mauritius in whom all the shares are now vested. 48. On 8th May, 2007, HTIL & VIHBV entered into a Retention Deed. According to clause 2 of retention deed, VIHBV was allowed to retain US $ 351.8 Million out of total consideration of US $ 11.076 Billion. This retention was in consideration for waiver of rights by VIHBV available to it under clause 4.4 & 4.7 of Sch. 4 of SPA relating to vendor warranties as discussed above. This money has been retained by VIHBV as contribution by HTIL towards the acquisition cost of shares on exercise of call/put option by the purchaser or its nominated person. From a plain reading of the Retention deed, either VIHBV itself can exercise the options by using the retained amount or VIHBV can nominate someone else as its nominee. The power of nomination was with VIHBV only (Para 1(b)). Therefore either VIHBV or its nominees were the only persons contemplated to exercise option. 49. From the above it is evident that when the new agreement was signed by the appellant in 2007, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will tantamount to an 'international transaction' as per section 92B of the Act if the said transaction is between two associated enterprises, either or both of whom are non-residents. As per 92(1), an arm's length price can be determined only in respect of an 'international transaction'. The Department's case is that the transaction in the present case is assignment of call options by the Assessee to its associated enterprise by virtue of the rewriting of the Framework Agreements in July 2007. According to IT Department, clause 4.4 of the 2007 Framework Agreements constitutes assignment of call options in presenti in favour of subsidiaries of Vodafone Group Plc. Further, the alleged assignment of call options in 2007 by the Assessee to its associated enterprises is an 'international transaction' which will be subject to arm's length determination. The jurisdictional fact is, therefore, whether or not the 2007 Framework Agreements constitute an assignment of call options in praesenti. This jurisdictional fact was also before the Supreme Court in the case of Vodafone International Holdings B.V. ("VIH BV"). The Department had argued that the rewriting of Framework Agreements in July ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is provided u/s 92B which reads as under:- Meaning of international transaction. 92B. (1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be84a[deemed to be a transaction] entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opyrights, automated databases, and integrated circuit masks and masters; (e) engineering related intangible assets, such as, industrial design, product patents, trade secrets, engineering drawing and schema-tics, blueprints, proprietary documentation; (f) customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders; (g) contract related intangible assets, such as, favourable supplier, contracts, licence agreements, franchise agreements, non-compete agreements; (h) human capital related intangible assets, such as, trained and organised work force, employment agreements, union contracts; (i) location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights; (j) goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value; (k) methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data; (l) any other similar item that derives its value from its intellectu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the realm of international transaction. Even if it is accepted that VIH BV is only a confirming/consenting party to the framework agreements, the said agreement is a mutual agreement under which the Call Options were granted by Asim Ghosh and Analjit Singh to assessee against the consideration to be paid by the assessee or an affiliate for an aggregate amount of US $ 10.2 million and US $ 6.3 Million per annum respectively to the counter parties. There is no dispute that the said consideration has been paid by VIHBV, an affiliate of the assessee, for retaining the Call Options by Asim Ghosh and Analjit Singh. Therefore, the requite ingredients and conditions of an international transaction between the assessee and its associated enterprise (VIHBV) in terms of section 92B r.w.s 92F(v) are fulfilled and satisfied. Accordingly, the 2007, framework agreements is an arrangement, understanding or action in concert between the assessee and VIHBV for grant of Call Option by Asim Ghosh and Analjit Singh to assessee against the agreed consideration paid by the VIHBV. This mutual understanding and arrangement as well as action in concert between the assessee and VIHBV for securing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kes to procure that, save insofar as otherwise agreed in writing the Purchaser (such agreement not to be unreasonably withheld or delayed) or to give effect to and comply with any of the Transaction Documents, during the Closing Period, each Wider Group Company; not to amend, terminate, vary or waive any rights under any of the freamework agreements, the TII shareholders' Agreement or the SMMS Shareholders' Agreement or exercise any of their options, rights or discretions under any such agreement other than in accordance with any of the Transaction documents of the IDFC Framework Agreement Other Vendor's Obligations Prior to Completion Prior to completion, the Vendor shall procure that the Wider Group Companies shall immediately inform the purchaser if there has been any amendment, variation or waiver of any rights under any of the Framework Agreements, the TII shareholders' Agreement or the SMMS shareholders' Agreement or any of the options granted pursuant to such agreements have been triggered or exercised or if there has been any exercise of any rights or discretions under such agreements." 56. The Hon'ble High Court while considering the binding nature of the SPA has obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Length Price. The assessee being the holder of the valuable option rights under FWAs to give proper effect to the SPA was required to be compensated at ALP and on assignment of option rights in the form of CGP India Investments Ltd vide TII share holders agreement dated 5/7/2007, the assessee was not compensated. Ground no. 7 and 8 is regarding valuation of Call Option. 58. The TPO noted from the Global Agreement that the assessee had signed several Frame Work Agreements. In these agreements, the assessee is an affected party as AE of the VIH BV. The TPO accordingly, issue a show-cause notice to the assessee on the ground that as per clause 2.3 of the IDFC termination agreement dated 5.7.2007 cashless option was assigned by the IDFC Investors to the assessee for a payment of Rs. 62.23 crores whereas no consideration was paid to the assessee in respect of the assignment of Option rights to its AE under the Framework Agreements with AS and AG. Having held that re-writing of Framework Agreements dated 5.7.2007 is an international transaction in the shape of assignment of Options rights by the assessee to its AE without any consideration, the TPO proposed to determine the arm's len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and accordingly recomputed the cost of acquisition at nil and thereby the capital gain was taken as full value consideration at Rs. 6178.88 crores. 60. Before us, the Ld. Senior Counsel of the assessee has submitted without prejudice to the contention that the re-writing of the Framework Agreements in 2007 did not result in assignment of Call Options by the Assessee to VIH BV and/ or subsidiaries of Vodafone Group Plc, the AO/TPO/DRP grossly erred in computing short term capital gains in respect of the alleged transaction at Rs. 6178,88,26,177/- resulting in tax payable @ 33.99% amounting to Rs. 2100 Crores approx. He has advanced the following arguments: A. Cashless option of IDFC is not comparable with the call options vested with the Assessee under the Framework Agreements with Analjit Singh and Asim Ghosh (i)It is submitted that the AO/TPO/DRP have made an obvious and patent error in extrapolating the value of options held by the Assessee in the IDFC group of companies, representing 0.1234% shares held in the main operating company, to options held by the Assessee in a totally different set of companies "(Asim Ghosh and his companies and Analjit Singh and his comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent differences between the subject (present) call options and the IDFC option which makes the two options uncomparable. Set forth are the following glaring differences in the two options which makes the comparison of the two meaningless and irrelevant: Description Of Differential Items Present Call Options IDFC Option Shares of different Companies Underlying shares of Call Option are the shares of Plustech Mercantile Co. Ltd. (Asim Ghosh Group Company) and MV Healthcare Services (P) Ltd. (Analjit Singh Group Company), which indirectly through a number of intermediary companies hold shares in main operating company. Direct Shares of main operating company Option price The present call options entitle the option holder to purchase the underlying shares at the FMV. In other words, if someone were to buy the options, he would still have to pay the FMV of the underlying shares at the time of exercise and not the price below the FMV. Accordingly, the value of the option is nil, since the underlying shares itself are available at the same price i.e. the FMV. Therefore, if these options were to be sold even to an independent third party, the Assessee would not be abl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Share Underlying present Call Option is different than the value of HEL shares because of differences in financial assets and liabilities of the downstream companies of Plustech Mercantile Co. (P) Ltd. (Asim Ghosh Group Company) and MV Healthcare Services (P) Ltd. (Analjit Singh Group Company) and those of the main operating company. (f) Value of option to buy shares is the difference between the FMV and the price at which the option holder is entitled to buy the shares. For example if FMV of a share is Rs. 100/- and a person has the option to buy the said share say at Rs. 80/-, then value of the said option is Rs. 20/-. But suppose FMV of a share is Rs. 100/- and a person has the option to buy the said share also at Rs. 100/-, then value of the said option will be Nil. Accordingly, in the present option the option holder will have to pay the FMV to buy the underlying share and hence value of the said option is Nil. The TPO has applied the CUP method. In terms of Rule 10B(1)(a) of the Income Tax Rules, 1962 (the "Rules"). The CUP method requires high degree of comparability in respect of functions performed, assets employed and risks assumed ("FAR analysis") and any minor differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, functions assumed etc. could affect the amount charged in an uncontrolled transaction. Comparability under this method depends on close similarities with respect to various factors." g. Therefore, it is contended that from the above it is amply clear that application of CUP requires strict product comparability. As explained hereinabove, there is a fundamental and conceptual difference in the IDFC Options and the Options held by the Assessee under the 2007 Framework Agreements with Asim Ghosh and Analjit Singh and their group of companies. In that view of the matter, the price paid by the Assessee for purchase of the cashless options from IDFC investors cannot be taken as a comparable for benchmarking the alleged assignment of call options by the Assessee to its AEs, viz. subsidiaries of the Vodafone Group Plc. h. Insofar as the decision of the Bangalore Tribunal in the case of Tally Software cited by the DRP is concerned, the same decision would have had a bearing/relevance only if the comparable selected by the TPO and the DRP would have passed the FAR test mandated by the Rules. B Value of the call option is 'nil' (i) Without prejudice to the foregoing, it is submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly funded by the AE of the Assessee and such cost was neither allocated to the Assessee nor borne by the Assessee and, therefore, the cost of acquisition of option was determinable but at the same time 'nil' in the hands of the Assessee. (iii) It is not clear from the DRP order as to how and on what basis the cost of acquisition is determinable in the hands of the AE. The DRP has just stopped short by holding that the COA is determinable without identifying as to what the actual cost was. The funds for purchase of the shares were made available by Rabobank and not the Assessee or its AE. It has also not been shown how any consideration was paid by the AE of the Assessee for securing such loan. The AE of the Assessee had only stood as a guarantor for securing the credit support for Asim Ghosh and Analjit singh and their group of companies. Such provision of guarantee can never be valued in rupee terms and, therefore, the COA of such options is indeterminable. (iv) A bank usually makes funds available to an entity on the basis of its credit standing. The credit standing of a corporate is based on a number of factors which, inter alia, includes the credit history of the corporate, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered only the difference between the Strike Price and the Fair Market Value, paid for the assignment of cashless option. Thus the pro rata consideration worked out by the TPO at page 67 of the Appeal memo is only the value of the option as assigned (the TPO has considered only Rs. 62.24 crores as the numerator and not Rs. 112.24 crores being the value of 0.1234% stake.) 62. The Ld. ASG has further submitted comparability of the uncontrolled transaction with the subject international transaction is demonstrated under the various attributes of the transaction as under:- a. Property - In both the cases the property being considered is an option to purchase certain shares. b. Underlying assets covered by the Options - In both the cases, the underlying assets are shares in HEL. c. Nature of transaction- In both the cases, the nature of transaction is the transfer of right to exercise options. d. Functions performed- Under the international transaction, the assessee is the holder of options to purchase the shares of SBP/AG Mercantile from AS and AG which together constitute 12.25% shares of HEL. Under the cashless Option (CUP), the original investor is the holder of the optio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the options have been assigned to the assessee and whenever the assessee (Option holder) exercises this option to purchase the shares of HEL, it will be required to pay the strike price (of Rs. 50 crores) to Omega. Similarly, under the FWA 2007 with AS & AG, payment of USD 430.76 million (which is in fact the strike price is payable by VIHBV (Option Holder) on exercise of call options to purchase acquire the shares. Hence there is no difference on account of cash outflow between the subject international transaction and the comparable uncontrolled transaction. 64. Thus, the comparable transaction and the subject international transaction are similar in all material respects. The difference if any do not materially affect the price and suitable adjustments can be made for any other difference. Hence the CUP applied by the TPO fulfils the requirement of Rule l0B and Rule 1OC. 65. The Ld. ASG then submitted that valuation report relied upon by the assessee suffers from various shortcomings as will be demonstrated herein after. The assessee's argument requires to be rejected ex facie based on the decision of the Hon'ble Supreme Court in the case of VIHBV and Hon'ble Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r paid for 67% of enterprise value because of the reason that the competing Indian Bidders would have had de facto access to the entire 67% as they are not subjected to the FDI Cap and would have encashed the call options. This shows that the valuation of 15% option should be on the same basis as was applied for other 52% shares acquired directly or indirectly. It also shows that there is no discount involved on account of holding company or liquidity discount as claimed by the assessee when it is seen from the perspective of the buyer i:e, Vodafone group. 67. From the above discussion the following conclusions are submitted: a. The options have significant value. b. The' TPO has applied the CUP method to determine the ALP and the only objection against the same is that while the cashless option was for the purchase of HEL shares itself, the call options held by the assessee was for an upstream company. It has already been pointed out that the assessee's parent company paid (67%:) of the enterprise value of HEL even though it acquired an upstream company in Cayman Island that was many levels and countries away from HEL. Thus no distinction on account of levels was made w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single window clearance before the FIPB and therefore since the Income Tax Department was a present before the FIPB (albeit in a different capacity) the Income Tax Department is precluded from disputing the Goldman Sachs report is completely baseless. 69 The FIPB was concerned with the return to be earned by AS & AG who were minority shareholders and had a meagre investment. AG had a total investment of Rs. 30 lakhs which enabled AG to hold assets worth more than several thousand crores (please refer to para 30 of the submission of the respondent on determination of ALP of call options). As such, the Department of Revenue was also not alarmed as the beneficiary was the Assessee which was an Indian company and as and when it transfers the right or the shares, it would have been liable to pay taxes in India. However, the Assessee transferred its valuable option rights to its non- resident AEs, viz. VIHBV, in July 2007 for no consideration and did not disclose this international transaction to Supreme Court, High Court, TPO, DRP or the Tribunal. 70. The Assessee has tried to create an impression through its arguments as if the Goldman Sachs presentation was before all the Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Investors Option shares, free from all encumbrances, to the party named in the Cashless Notice for the consideration specified in the Cashless Notice (which consideration shall not be less than the strike price ("third party consideration") and providing all reasonable detail of the terms of the sale and in accordance with the procedures specified in clause 4.5. If the proceeds received by ITNL from such transfer are more than the strike price, HTIL, JVC and ITNL shall ensure that the excess over and above the strike price is paid to the investors by way of transfer to ensure that the Investors receive an amount equivalent to the net proceeds of the sale less the strike price ("Investor Option Excess Amount") (d) the investor agree that the responsibility for finding a purchaser if they exercise the Cashless Option, who shall comply with the Sectoral Cap at the time of purchase under the Cashless Option and for negotiating the terms of such sale and purchase shall rest solely with the Investors. (e) Subject to clause 4.2(i), if the investor elect to exercise the Cashless Option, then the Investors Option will be deemed to have been exercised and all obligations of HTIL and I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment of cashless option was to remove the deficiency/difference in the option rights of the assessee under the IDFC Framework Agreements in comparison to the option rights under Framework Agreements with AS and AG, therefore, by getting the cashless option relinquished, the right under the IDFC Framework Agreements were brought at par with the option rights in AG and AS Framework Agreements. Hence comparing the cashless option rights under IDFC Framework Agreements with the option rights under the AG and AS Framework Agreements is rather in favour of the assessee because the consideration was only for a friction of the option rights and not the full option rights under the IDFC Framework Agreements. Whereas the assessee is having full option rights in the AS and AG Framework Agreements. The objection of the assessee with option rights under IDFC Framework Agreements is to buy 0.1234% share in main operating company (HEL) and not the upstream company as in the case of AG and AS Framework Agreements does not hold field because the option rights under both sets of Framework Agreements are for acquiring the shares of HEL and in the absence of any other assets, with the upstream holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been made by the Hon'ble Supreme Court is not in abstract but given while constructing the very same framework agreements. Thus the Put Option exercised by the other party is an obligation on the part of the assessee to accept the same. It is submitted that Put Options exercised by Asim Ghosh and Analjit Singh are different from Call Option and under the Put Option, the assessee has the obligation and not right to purchase the shares. The Ld. Sr. Counsel cited the difference between the Call and Put Option as: (a) The Call Option Provides an unconditional right to VISPL to buy the underlying shares, whereas the Put Option provides a right in favour of AS/AG to require VISPL to purchase the underlying shares. (b) While providing two separate rights it has been ensured under the 2007 Framework Agreements that the rights of AS/AG and VISPL are completely secured. This protection is ensured by giving a parallel right to both AS/AG and VISPL at a FMV. (c) The Call and Put Option provides flexibility to either party (viz. AS/AG or VISPL) to exercise the rights vested to it at any point in time subject to the occurrence of the triggering event being relaxation of the FDI norms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n so that he does not incur any loss when the underlying stock price drops. Therefore, it is necessary that under a normal put option (i.e. a covered put option or not a short put option), the option holder will own the shares. It was further submitted that the Hon'ble Delhi High Court in a recent Judgment dated 30 July 2014 in the case of Zaheer Mauritius V. DIT : WP (C) 1648/2013 has specifically dealt with a similar arrangement of corresponding call and put options where such rights vested with counter parties under the aegis of the same agreement in respect of the same underlying shares. After examining the nature of rights in these call options the Hon'ble High Court has declared that "The Call and Put options were defined commercial options capable of being elected by the parties." Thus the Ld. Sr. Counsel submitted that both the parties ensured by the Call and Put Options that they are bound by the terms of the agreement and will honor each other's rights such that the underlying shares are only sold to VISPL and the allegations in submissions of the revenue stating that call and put options are the same are misconceived and untenable. 75. On the other hand, the Ld. ASG has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that to the extent Put option is exercised, automatically, call option to same extent stands extinguished. The terms Put Shares and Call Shares are separately defined in the FWA. For instance, in the FMA agreement entered into AS of 5th July 2007, both the Put Shares and Call Shares are defined as 'SBP shares'( These are the shares of a 100% owned company of AS).From the same it is evident that both Put option and Call Option are to be exercised in respect of the same shares. The price at which Put Option and Call Option are to be exercised is the transfer price as defined in para 4.6 of the FWA. Thus the price of both the Options is the same. Clause 4.6(b) of the FWA further supports the view that the Call and Put Options are one and the same. As per Clause 4.6(b) of the FWA, in case of transfer of Put Shares by AS/AG, either under Call or Put Options, the annual payment made to AS/AG gets proportionally reduced. This shows that the transfer under Call and Put Options have the same effect under the FWA. From the terms of the Option, it is also clear that both Call Option and the Put Option can be effectively exercised only when the sectoral CAPS are relaxed. Thus from a reading of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a minority shareholder to sell their shares to the prospective buyer at the same price as any other shareholder would propose to sell. In other words, if one shareholder wants to sell, he can do so only if the purchaser agrees to purchase the other shareholders, who wish to sell at the same price. TAR often finds a place in the SHA which protects the interest of the minority shareholders. (c) Subscription Option : Subscription option gives the beneficiary a right to demand issuance of allotment of shares of the target company. It is for that reason that a subscription right is normally accompanied by ancillary provisions including an Exit clause where, if dilution crosses a particular level, the counter parties are given some kind of Exit option. (d) Call Option: Call option is an arrangement often seen in Merger and Acquisition projects, especially when they aim at foreign investment. A Call option is given to a foreign buyer by agreement so that the foreign buyer is able to enjoy the permitted minimum equity interests of the target company. Call option is always granted as a right not an obligation, which can be exercised upon satisfaction of certain conditions and/or withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under the Framework agreements is entirely different from the purpose of such arrangement in the case of amalgamation, acquisition or trading in stock. Therefore, to understand the real meaning and the intention of the parties having the Call Option and Put Option under the framework agreements, the relevant clauses of the framework agreements are to be examined instead of going by the nomenclature or general meaning of the term call option and put option. Clause 4.3 and 4.4 of the framework agreements as reproduced in the earlier part of this order stipulate Put Option and Call Option. There is no dispute that the pre determined price for Both Put and Call Option is same and the shares are also same in respect of which Put Option and Call Option rights were provided under the framework agreements. Under Put Option, Asim Ghosh and Analjit Singh shall have the right to require the assessee or its nominated person to purchase any or all of the shares held under the Option right. Under the Clauses of FWA the counter party namely Asim Ghosh and Analjit Singh have no discretion or freedom to sell the shares held under Option Rights to any person other than the assessee or its nominee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Supreme Court wherein it has been observed that the Call Option were not exercised till date and held by the assessee and, therefore, there was no assignment of Call Option. The revenue as well as assessee filed the additional evidence before this Tribunal which contained the documents obtained by the revenue from FIPB. The assessee has also filed the additional evidence containing the letters dated 6.04.2009, 7.04.2009, 21.08.2009,21.10.2013 and 23.10.2013 showing that the counter parties had exercised the Put Option in April 2009 and August 2009 respectively. The Ld. ASG has submitted that the assessee never raised this plea either before the Hon'ble Supreme Court or before the Hon'ble High Court during the hearing of the matter, therefore, even if some documents is filed before the Hon'ble Supreme Court as well as before the Hon'ble High Court, that does not mean that the assessee had disclosed the relevant facts when it was not pointed out during the course of hearing. The Ld. ASG has referred para 88 of the judgment and submitted that had the assessee disclosed before the Hon'ble Supreme Court the factum of exercise of Put Option in the year 2009, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer determining the liability of VIHBV u/s 201 has recorded the fact in para 13(k) that the Put Option were not specifically transferred and they remained with the 3GSPL. These Options with Asim Ghosh and Analjit Singh were subsequently exercised and due taxes were paid by the recipient. Thus the Ld. Senior Counsel has submitted that this fact was duly brought on record before the Hon'ble Supreme Court as well as before the taxing authorities and, therefore, the allegations of the revenue are baseless and with the intention to misrepresent, distort and build the false case based on partial and selective attribution to the assessee. He has further submitted that the assessee has disclosed this fact even before the Assessing Officer vide letter dated 15.12.2011 which has duly been noted by the Assessing Officer in its draft assessment order received by the assessee on 30.12.2011. In para 8.6.1 of the draft order the Assessing Officer has expressly stated that the Options were exercised in the year 2009. The Ld. Senior Counsel has referred para 8.6.1 of the draft order and submitted that the Assessing Officer has taken note of the fact that vide submissions dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n presenti. Despite this all facts were also available before the FIPB and before taking the decision the income tax authorities were consulted, therefore, this fact was very much in the knowledge of the income tax authorities being party in the process of decision of FIPB. 82 . Having considered the rival contentions and careful perusal of record we find that by way of amendment in the grounds of SLP in IA no. 6, the VIHBV incorporated this fact in the ground of SLP. The said amendment was allowed by the Hon'ble Supreme Court vide order dated 26.09.2010. However, it is manifest from the judgment of Hon'ble Supreme Court that neither this fact was agitated during the arguments on behalf of the VIHBV nor it has been considered by the Hon'ble Supreme Court while rendering the judgment, therefore, it cannot be said that this fact was brought to the notice of the Hon'ble Supreme Court. The judgment of Hon'ble Supreme Court is based on assumption of fact that the Options were still with the VISPL and were not transferred or assigned till the date of judgment. It cannot be inferred that the words "till date" mentioned by the Hon'ble Supreme Court refer to the F.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of exercise of Put Option, the fact remains that Hon'ble High Court was also not apprised of this fact of exercise of Put Option in the year 2009 and accordingly, the Hon'ble High Court had no occasion to consider this fact while rendering the judgment. Though it cannot be said that the assessee is guilty of suppression of material facts of exercise of put options in the year 2009 onwards and obtained the judgment of Hon'ble Supreme Court by playing fraud however, the factum of put option exercised by the counter party to the FWA and shareholder's agreement dated 05/07/2007 was not brought by the assessee either before the authorities below or before Hon'ble High Court. Even before this tribunal the assessee did not disclose these facts and developments taken place subsequent to FWAs of 2007 and only on the query from the bench as well as from the additional evidence filed by the revenue it came to the notice of the Tribunal. Therefore, the assessee, in our view, is guilty of not disclosing before the assessing authorities the material fact relevant for adjudicating the issue of assignment of option rights (including the call option) under FWA with AS & AG. 84. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ("Transaction") 87. During the Financial Year 2007-08 assessee executed the BTA on 8 May 2007 and thereby transferred the Call Centre business to HWP India, an Indian company (part of HWL Group) on 4 December 2007 for a consideration of Rs. 64 crores. This value was arrived at after taking into account the valuation report dated 16 March 2007, issued by M/s Dalal & Shah, a registered Chartered Accountant firm. The assessee claimed it as slump sale transaction which covered under section 50B of the Act accordingly the assessee computed capital gains/loss as under: Sale consideration Rs. 64,00,00,000 Less: Net worth of the Undertaking (Rs 86,49,50,364) Long Term Capital Loss (Rs 22,49,50,364) Based on the valuation report, the assessee accordingly, computed the Long Term Capital Loss of Rs. 22,49,50,364/- on sale of call centre. This Long Term Capital Loss was computed by the assessee after reducing the net worth of undertaking of Rs. 86,49,50,364/-. In response to the showcause notice for computation of arm's length price as per the provisions of transfer pricing, the assessee, at the outset raised objection and submitted that BTA was entered with an Indian c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction u/s 92B(2), the DRP has also held that HWP India was a dormant company with no business activity until it acquired the call centre business from the assessee. HWP India is an indirect subsidiary of HWL and has no commercial or business substance as disclosed by its balance sheet for the year ended 31st March 2007. Thus the DRP was of the view that the call centre was purchased by the Hutchison Group through a dummy subsidiary company incorporated to create fiction that the assessee was transferring the call centre business to an Indian company. The DRP accordingly held that alternatively it is an international transaction u/s 92B(1) as this transaction is effectively between two associated enterprises one of them is non resident namely HWL Hongkong. On the point of valuation, the DRP accepted the objection of the assessee in respect of two companies i.e. WNS Global Services and EXL Holdings, however the objection against the comparable namely Firstsource Solutions Ltd., was rejected and accordingly directed the TPO to consider Firstsource Solutions Ltd., for the purpose of valuation of business of call centre transferred by the assessee. The TPO was also directed to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s therefore a clean HWL-owned company that was readily available to acquire the Call Centre business, it made perfect commercial sense to transfer the Call Centre business to HWP India. 91. Since VIH BV insisted on knowing the approximate value of the Call Centre business that was to be hived off to the HWL Group, a draft business transfer agreement was attached to the SPA and it provided at paragraph 3 "Purchase Price" for the consideration of Indian Rupee equivalent of US Dollars 7.5 million (i.e. INR 33.75 crores at an exchange rate of 1 USD= INR 45) in respect of the sale of the Call Centre business. There was a specific reference in the draft business transfer agreement that the purchase consideration was still under commercial discussion (Page 2000 of Paperbook, Volume 6). Subsequent to the signing of the SPA on 11 February 2007, the terms of the business transfer agreement were independently finalized by the relevant HWL Group entities and signed on 8 May 2007 just prior to the completion of the SPA on 8 May 2007. 92. The SPA at paragraph 8.13 pecifically provided that in case of failure to comply with the conditions specified in paragraph 8.2 to 8.11, which included the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the BTA. Since these approvals/licenses were obtained by 4 December 2007, thus, the transfer of the Call Centre business from VISPL to HWP India was completed only on 4 December 2007. Paragraph 4.2.4 of the BTA provided that the Board of Directors of assessee could not be changed (except removal of director for cause) between signing of BTA (8 May 2007) and closing date of BTA (4 December 2007) without the written approval of HWP India. 97. On the other hand Ld ASG has submitted that the DRP and the TPO has correctly taken the transaction of sale of call centre business as a deemed international transaction under Section 92B(2) of I.T.Act, 1961. Further the DRP has also held that the sale of call centre business is an international transaction under Section 92B(1) of I.T.Act, 1961. The DRP upheld the method used by TPO for valuation of the Call Centre. The assessee neither filed the documents in time nor did it file the complete documents before the TPO. The conduct of the assessee was brought out in para 86 of Affidavit in reply filed by the respondent in Writ Petition No.488 of 2012. The assessee filed the copy of BTA after one and half months and even that was incomplete as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erprise and a person other than an associated enterprise. The essential ingredients of Section 92B(2) are as follows: i. There should be a transaction as defined in Section 92F(v) r/w Rule 10A(d). ii. The transaction should be between the assessee and a person other than and Associated Enterprise. iii. There is a prior agreement in relation to the transaction between the Person Other Than the Associated Enterprise and the AE of the assessee. or iv. The terms of the relevant transaction are determined in substance between such other person and the associated enterprise 100. It is submitted that the transaction of sale of call centre business squarely falls both under Section 92B(2) as well as Section 92B(1) of the I.T.Act, 1961. The alternative contentions are supported by the following propositions: (i) There is an International Transaction under Section 92B(2) if the date of signing of the BTA i.e. 8th May 2007 is considered as the relevant date. 101. It is important to first ascertain whether the BTA was signed before the transfer of CGP share or the BTA was signed after the transfer of CGP share. This is because the relationship of associated enterprise between the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntegral part of transition of business under SPA. 103. The Bombay High Court in WP No. 488 of 2012 has given its finding at paragraph 140 relating to prior agreement. According to it, there needs to be only an effective nexus between Prior Agreement and the relevant transaction and it is not necessary that the prior agreement must stipulate all the terms and conditions of the relevant transaction. It is sufficient even if some of the terms and conditions of the relevant transactions are stipulated in the prior agreement. The SPA as demonstrated above, fulfils the criteria laid down by the Bombay High Court to qualify as Prior agreement in relation to sale of call centre business. The Bombay High Court in para 147, 148& 159 has giving finding that SPA foreshadowed the sale of call centre business. The terms of Final BTA is "in substance" same as stipuated in Draft BTA attached with the Disclosure Letter which form part of SPA. However, as per Bombay High Court, the prior agreement test is satisfied even if the relevant transaction is modified or altered provided the relevant transaction is in relation to the prior agreement (Para 179 of Bombay High Court in WP No. 488 of 2012. 104 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejudice to the above primary contention the revenue has submitted that the date of the international transaction being sale of call centre, is the date when the actual transfer of call centre took place. Further even as per Section 45 read with Section 2(47) it is the date of transfer that has to be considered for the chargeability of income under Section 45. It is submitted that even if we consider the date of 4th December 2007 as the date of international transaction, all the conditions of sec.92B(2) are fulfilled and there is a deemed international transaction. The various clauses of the BTA clearly show that the intention of the parties was always to transfer the call centre only upon fulfilment of various conditions and the same happened only on 4th December 2007. 110. It was the responsibility of the assessee to submit a certificate to the purchaser on the closing date certifying that the Board of Directors have passed resolution authorizing the sale of the business, the execution of BTA and consummation of the BTA (refer to Clause 6.2.1). Similarly, the purchaser also will provide similar certificate under Clause 6.3.1. The requirement of the Board resolutions and other fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 92B(1). As per the definition of transaction given in Section 92F(v) read with Rule 10A(d), the definition of Transaction is very wide which covers understanding, arrangement and acting in concert. Moreover, the transaction need not be a single transaction. It can be a number of closely linked transactions. In the present case, the transaction of sale of call centre business took place because of closely linked transactions contained in the SPA and the BTA. The SPA and BTA together constitute an arrangement and/or an understanding which is a transaction between the assessee, HTIL and HWP India. The BTA is already defined as "GSPL Transfer Agreement" in the SPA. The SPA in terms mandates that the BTA shall be executed substantially in the form attached to the disclosure letter (Clause 1.1- Definition of GSPL Transfer agreement of the SPA). It was also agreed in the SPA that GSPL will transfer the call centre to an affiliate of the Hutchinson Wampoa Limited which is the ultimate holding company of the Hutchinson group (Clause 1.1- Definition of GSPL Transfer agreement of the SPA). The assessee has transferred the profitable call centre business to HWP India as per unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncept of alter ego arises. There are many circumstances, apart from the one given above, where separate existence of different companies, that are part of the same group, will be totally or partly ignored as a device or a conduit (in the pejorative sense). The Supreme Court further held that in the application of judicial antiavoidance rule, the Revenue may invoke the "substance over form" principle or "piercing the corporate veil" test only after it establish on the basis of the facts and circumstances surrounding the transaction that the impugned transaction is a sham or tax avoidant. 117. It is submitted in light of the parameters laid down by the Supreme Court, the findings of the Bombay High Court in Writ Petition No. 488 of 2012 (in paragraph 145 - 153) are also relevant. The Bombay High Court on interpreting the definitions of certain term in the SPA particularly the term affiliate and vendor group, held that the Supreme Court did not hold that the corporate veil of HWP (India) cannot be pierced. Thus although the judgment may assist the petitioner to a considerable extent, it does not preclude the respondents from invoking the doctrine. 118. The DRP in para no. 10.2.4 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en examined by any lower authorities till date. Without prejudice to this stand, following comments are advanced by the revenue:- i. First of all there were no employee or any activity in HWP India till 31-03-2007 as shown by its financials(2262- 2271/Vol.VII) ii. None of the documents mention the name of HWP India . None of the documents pertain to HWP India and are not relevant to show any activity by HWP India(Pg. No. 1549 to 1817/ Vol. VII). 121.. It is incorrect to say that the transfer pricing provisions cannot apply to a transaction between two resident entities. It is submitted that as HWP India is a dummy entity used for the purposes of a sham its legal personality has to be ignored and consequently the transaction for the sale of the call centre business is not a transaction between two resident entities, but is instead a transaction between the Assessee (a resident entity) and the HWL (the ultimate Hutchison group holding company and a non-resident entity). The terms of this transaction is determined in substance and there is also a prior agreement in this regard in the form of the SPA between the assessee and VIHBV. Accordingly, the condition specified u/s.92B(2) are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprises for the purpose of section 92A(1). Having held that both HTIL and VIH BV were the associated enterprises of the assessee during the year under consideration, it makes no difference whether the call centre sale transaction was preceded to the STA of subsequent to the STA. This aspect is relevant only to the extent that at the time of transfer of call centre business, the assessee was subsidiary of HTIL or VIH BV. As per the clause 8.8 (j) of the SPA, the HTIL was under the obligation to deliver or procure the delivery to the purchaser (VIH BV), the GSPL transfer agreement duly executed by the parties thereto. GSPL transfer agreement is defined in the definition and interpretation clause 1 of the SPA as under" "GSPL transfer agreement means the business transfer agreement to be entered into between GSPL and an affiliate of HWL relating to call centre disposal substantially in the form attached to the disclosure letter" 123. Therefore, from the terms and conditions of the SPA, it is clear that HTIL was under obligation to procure and deliver the call center business transfer agreement duly entered into between the assessee and an affiliate of HTIL at the time of completion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that it was transferred to an India related party, therefore, the provisions of section 92B(1) and 2 are not attracted and consequently it does not fall under the realm of international transaction. On the other hand, the revenue's case is that HWP (India) is a dummy entity and the transaction has to be looked into by lifting the corporate veil. The alternative argument of the revenue is that there is a prior agreement among HWP (India), HTIL and VIH BV being part of SPA, therefore, the sale of call centre to HWP (India) would be deemed as sale to HTIL/VIH BV. 125. First we would consider whether the transaction of sale of call centre business by the assessee to HWP (India) would fall under the expression "international transaction" as per the provisions of section 92B(1). HWP (India) was incorporated with the object of doing real estate business in India in January 2006. In December 2006, the process of divesting telecom business in India by HWL group started and it was decided to sell the telecom business in India through the sale of down stream subsidiaries except call centre business of the assessee. HWP (India) did not do any business till the execution of BTA on 8.05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g any liabilities to taxation) arising as a result of the continuation of the business of the petitioner in the ordinary and usual course, save and except to the extent that any such loss or liability arises as a result of any act or omission including any breach of the GSPL Transfer Agreement by GSPL following completion. Such indemnities posit or, in any event, are likely to posit a transaction/agreement." ********************************** ********************************** 166. As we mentioned earlier, the BTA/sale of the call centre business was foreshadowed in the SPA in several material respects. The question now is which of these agreements preceded the other. In other words, the question is whether as contended by the petitioner, the petitioner was still a part of HTIL group and an associated enterprise thereby of HWP (India) when the BTA was signed or whether as contended by the respondents, the BTA was signed after the petitioner ceased to be a part of the HTIL group and became a part of the Vodafone group. Upon the sale of the CGP share, the petitioner became a part of the Vodafone group. Till then, it was a part of the HTIL group. If the petitioner and HWP (India) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P (India) but to avoid the tax liability in India, the call centre business was though apparently transferred to HWP (India) but the real transaction of sale and purchase is between the assessee and HTIL/HWL Group. Therefore, the transaction being between the assessee and its non resident AEs would constitute the international transaction in terms of section 92B(1). 127. The second question as raised by the department is regarding the applicability of section 92B(2). Though there is a prior agreement being SPA among HTIL and VIH BV as well as HWP (India) being a wider group of companies, however, HWP (India) is undisputedly not a person other than the associated enterprise. The transaction between a person other than the associate enterprise shall be deemed to be transaction entered into between two associated enterprise if there exist a prior agreement in relation to the relevant transaction between such other persons and associated enterprise as stipulated in sub-section 2 of section 92B as under:- "(2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not furnish the requisite information and data for the purpose of valuation based on DCF method, the TPO chose the P/E multiple method under the CUP method based on the availability of the data. The TPO applied valuation of price of share based on PE multiple of listed comparable companies. The TPO finalized three listed companies viz. WNS Global Services, EXL Holdings and First Source Solutions Ltd. The TPO computed the mean P/E of the comparable at 34.96% and made an adjustment of Rs. 2350,20,43,185/-. The DRP rejected two comparables selected by the TPO and accepted First Source Solutions as comparable for the purpose of ALP of Call Centre business transfer. The DRP also allowed the relief to the extent of cash of Rs. 62,24,27,849/- which was not transferred by the assessee while transferring the call centre business. The assessee has strongly objected the comparability of First Source Solutions Ltd for determining the ALP of Call Centre Business on the ground that this company is a listed company on the stock exchange and also the functions performed by the said company are not comparable with the assessee apart from difference in the asset employed and risk assumed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am Ltd 13.24 (2.06) -15.56% 4. Maple E-solutions Ltd 28.02 5.63 20.09% 5. N I I T Smartserve Ltd 56.11 (3.02) -5.38% 6. Nipuna Services Ltd 258.81 (16.06) -6.21% 7. Optimus Global Services Ltd 55.53 0.32 0.58% 8. Transwork Information Services Ltd 185.10 (9.04) -4.88% 9. Sparsh BPO services Limited 148.25 12.77 8.61% 10. Spanco Ltd (Segment) 57.74 4.76 8.24% 11. HTMT Global Solution Ltd 300.32 57.66 19.20% Arithmetic Mean 1.04% 133. The assessee claimed its operating margin at arm's length in comparison to the arithmetic mean of the comparables which is much below to the assessee's operating margin. The TPO did not accept the comparables prices taken by the assessee and carried out a fresh search for identification of comparables in ITES sector. The reasons for not accepting the comparables selected by the assessee are lack of current year data and were not functionally comparable except some companies which are common in the comparables selected by the TPO as well as by the assessee. The TPO finally selected a set of 17 comparable companies and computed arithmetic mean margin at 32.35%. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. Ld. AR has referred the functions performed by the assessee being a captive service provider and submitted that the assessee is providing services related queries, billing related queries, mobile no. portability queries, handset related queries, network related queries and price plan related queries. The Call Centre of the assessee functioning for handling of customer's questions and resolution of the same. The functions performed by the comparables selected by the TPO are different as contended and summarized by the assessee and summarized in following table:- Name of the Company Appellant's Contentions Accentia Technologies Ltd. (Seg.) * Accentia is engaged in medical transcription, Medical Coding, Medical Billing and Receivables Management (Collections). Further it has earned nearly 19% of its income from provision of Software development and implementation services. * Though majority of income is generated from medical transcription and software development, a review of Annual Report of the company shows that company operates under a single segment viz. "Healthcare Receivables Management". Thus no segmental information is respect of medical coding & billin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... United States of America. It provides offshore outsourced services in the medical billing and collection service space. Hence it is not functionally comparable to the Appellant's voice based contact centre services. * Profit and loss account information is not available in the annual report of the Company available on the public domain. Accordingly, this company must be rejected. Infosys BPO Ltd. * Infosys BPO has incurred substantial selling and marketing expenses i.e. 6.17 percent of the revenue while the Appellant has not incurred any such expenditure. Further, Infosys BPO also possesses brand value. For a branded service, a customer is usually willing to pay a premium. Hence, the Appellant submits that the company should not be considered as comparable. * Under selling and marketing expenses it can be seen that Infosys incurred an expenditure of 0.78 Crores towards brand building. This clearly shows that Infosys BPO is creating marketing intangibles. The Appellant on the other hand does not undertake expenditure geared towards the creation of an intangible. * Even otherwise, Infosys must be rejected on account of extremely high turnover [The Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les are excluded from the list of comparables then the mean margin would be reduced to 6.78% which would be less than the margin of the assessee and, therefore, no adjustment is warranted on account of provisions of ITES services to the AE. Alternatively, the Ld. AR has submitted that the companies like Infosys BPO and Wipro Ltd cannot be compared with the assessee on account of extremely high turnover. In support of his contention he has relied upon the decision of Hyderabad Benches of this Tribunal in the case of Capital IQ Information System in ITA No. 1961/Hyd/2011. Apart from this, the Ld. AR has also submitted that the assessee is functioning as captive service provider call centre and therefore, no risk is undertaken by the assessee in providing the services to AE. The entire entrepreneur range of economic risk including market risk, price risk, idle time risk, credit risk, foreign exchange fluctuation risk, technology obsolescence risk, performance risk, etc., has been undertaken by the AE of the assessee. Therefore, as per the provisions of transfer price regulation, suitable adjustment has to be made while computing the ALP on account of no risk undertaken and low working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly rejected by the TPO. 3. Godrej Upstream Ltd. The company fails the Export earning filter. i.e. the foreign exchange earning of the company is less than 75% and hence it is rejected as a comparable. It fails the export earning filter. After going thru the Annual report it is observed that during the year the company had entered into a conducting agreement with one of its related parties. As a result, the sale for the period 1.09.2007 to 29.02.2008 (i.e. for 6 months) was booked as a revenue as per the arrangement in the books of the related party UBSPN, for which the company has received the conducting fee of Rs. 1.5 Cr. This arrangement did not materialize. As such, effectively revenue of the six months of the year was not considered. Hence it is not a reliable comparable. The company has been validly rejected by the TPO. 4. Maple e-Solutions Ltd. The company fails the Export earning filter i.e. the foreign exchange earning of the company is less than 75% and hence it is rejected as a comparable. The company has earned 53% of its revenues from exports, hence it fails the export filter. The company has been validly rejected by the TPO. 5. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt earning filter. The company has been validly rejected by the TPO. 4 Jindal Intellicom P Ltd. Fails RPT filter of 25% Fails RPT filter of 25% 138. He has pointed out that even, otherwise, the Tribunal has already considered the functional comparability of most of the aforesaid companies in assessee's own case for the A.Y. 2007-08, he has referred para 17.2 of the order of Tribunal, wherein the functional profile of these companies have been discussed and it was found that these companies are not functionally comparable. The TPO has pointed out how the filters adopted by the assessee are not appropriate by using three years average of net cost margin of comparables instead of current year data. The Ld. ASG has referred para 21 and 24 of decision of this Tribunal for A.Y. 2007-08, dated 26.4.2013, wherein the comparability of various companies have been discussed. The Ld. ASG has pointed out that M/s Accentia Technologies and Cosmic Global Services Ltd were held to be excluded from the comparables whereas Infosys BPO Ltd., was held to be comparable to the assessee. It was submitted that on going t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds not using the current year data, it is a settled proposition on the point that so far as it is possible, a contemporary results/margins of uncontrolled transactions have to be compared with the margins of the assessee from international transaction. This is also mandated in the Rule 10B(4) as well as 10D(4) of the Income Tax Rules. Therefore, we do not find any error in the objection of the TPO with regard to not using the current year data by the assessee in working out the arithmetic mean margin of the comparables for the purpose of computing arm's length price. The other filters used by the TPO are related party transaction not more than 25% as well as the exports revenue not less than 75%. The assessee is a captive service provider of call centre to its AE, therefore, the entire revenue of the assessee's call centre comes from the export. Accordingly, the filter of minimum 75% export earning applied by TPO was logical and reasonable and it is not going to affect the interest of any party as is applicable for all the comparables whether it was selected by the TPO or by the assessee. Similarly, the filter of related party transaction is also in accordance with the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h effect from 1st April 2005. The amalgamation has been accounted for under the "pooling of interests" method. As per the Scheme during the period between the Appointed date and Effective date, B2K shall be deemed to have carried on the existing business in trust on behalf of the company. All the profits earned and expenses incurred by B@K during such period shall be deemed to be profits and losses of the company. Accoringly, net losses after tax incurred by B2K during the period from 1st April 2005 to 2007 of Rs. 79,865 has been incorporated in the financial statements of the company. " It is seen that the company has shown sizable profit - EBITDA of Rs. 36.40 crore, for the year ended 31-03-2007 and loss of Rs. 2.40 crore for the year under consideration. The additional operational expenses on account of amalgamation of B2K have impacted its profit. Thus the peculiar economic circumstances on account of certain amalgamations and expansions have made this company incomparable. We are of the view that this company is not comparable and has been validly rejected. 2 Ask Me Info Hub Ltd The total revenue of the company is Rs. 1.56crore and it has no export earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from Spanco telesystems and solutions ltd. It fails the export earning filter. This company was validly rejected as comparable. 10. Spanco Ltd (Segment) Common comparable 11. HTMT Global Solution Ltd The related party transaction is more than 25%. Fails the RPT filter set by the assessee and department. It was validly rejected as comparable. Additional companies relied on by assessee as comparable. 12. Axa business services (seg) It is seen that company has followed December end financials. The assesse has relied on Dec.2007 results relating to voice segment. However, it is seen that the entire ITES revenue was earned from related parties. It is 100% RPT. Fails the RPT filter set by the assesse and department. It was validly rejected as comparable. 13. Microwave communications Ltd The company is engaged in paging and call centre business. It is reported in the annual report: 'Paging industry is facing stiff competition within as well as with the related industry such as Cellular and WLL due to being two way communication and low service rates offered as compared to pager rates. Due to high operational cost and debts cost, the company has made losses and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejecting the Allsec Technologies Limited as comparable. 142. Ask Me Info Hub Ltd This company has been rejected because it failed to pass the export earning filter applied by the TPO. The factum of export earning is less than 75% has not been disputed by the assessee, therefore, there is no reason to interfere with the finding of authorities below in rejecting this company as a comparable. It is pertinent to note that the assessee's 100% revenue comes from the export to its AE then the filter of 75% export earning for the comparable in our view is proper and justified. 143. Godrej Upstream Ltd. Regarding this company, the DRP has noted that it has failed the export filter and further in the year under consideration, the revenue for six months of the year has not been considered in the operating performance. In the absence of complete and contemporary data, it was not considered as appropriate comparable. The assessee has not disputed that the revenue of the company is less than 75% from export and further the revenue for six months of the year was not considered in its operating performance. Accordingly, we find that this company cannot be considered as a good comparable for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100%RPT. Accordingly this company cannot be considered as an uncontrolled and unrelated transaction. 153. Microwave Communications Ltd. The segmental revenue from call centre is given in the annual report as recorded by the DRP. But there is no export in this segment, therefore, this company was rejected for want of any export earning on call centre. We do not find any error in the orders of authorities below in rejecting this company when there is no export earning which fails the filter applied by the TPO. 154. Survin Internet Services Ltd. This company was rejected on two grouds viz. no export earning and further the call centre segment margin is not reliable for the reason that all the expenses were taken to the P&L account without any division based on the segment. In our view the company having no earning from export cannot be compared with the 100% export transaction. Accordingly we do not find any error or illegality in the orders of the authorities below in rejecting it as comparable. 155. Jindal Intellicon Ltd. It was rejected on the ground that related party filter of not more than 25% is not satisfied. In the absence of any dispute about the related party transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be considered as a good comparable. We therefore hold that this company has to be excluded. 159. The Tribunal found that in the absence of segmental results, this company cannot be considered as good comparable. For the A.Y. under consideration the TPO though considered segmental data regarding medical transcription activity of the said company, however, the activity of medical transcription services provided by the Accentia Technologies Ltd., cannot be compared with the BPO activity of the assessee provided the services relating to queries, billing, mobile no. portability queries, network related queries and price related queries etc,. The assessee is in the field of telecommunication related services which cannot be compared with the services provided by Accentia Technologies Ltd which is in the field of medical transcription. Accordingly, we are of the view that the company Accentia Technologies Ltd., is not functionally comparable with the assessee's BPO activity. Hence the said company should be excluded from the list of comparables. 160. Cosmic Global Ltd. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. At the outset we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segment should be excluded from the list of comparables. The information in respect of this company was called for u/s 133(6) of the Income Tax Act. When the company operates in providing ITES/BPO services then it is a good comparable in this space of BPO services. 164. Having considered the rival submissions and careful perusal of relevant material on record, we note that the assessee was providing the following services to its AE: * Services related queries; * Billing related queries; * Mobile Number Portability (MNP) related queries; * Handset Related queries; * Network Related queries; and * Price Plan related queries. 165. The company e4e Healthcare Solutions Ltd is engaged in the business of providing healthcare outsourcing services in the nature of medical billing and collection services. The services provided by this company is purely BPO in nature and does not involve any analytical work or mental process work, therefore, the services provided by this company is nothing but pure BPO services and accordingly it is comparable so far as the services are in the nature of BPO and no mental intervention is required. The service of medical billing and collection services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on turnover has also been. 24.3.3. The argument based on turnover has also been examined in detail by the Tribunal in case of Willis Processing Services India (P) Ltd. (Supra) and in case of Capgemini India (P) Ltd. (Supra) and not found acceptable. In that case material in the form of graph and chart had been placed by the department before the Tribunal to point out that there was no linear relationship between turnover and margin and it was pointed out that in many cases with rise in turnover the margin came down. The Tribunal in both the cases referred to above also noted the argument based on concept of economy scale and held that it was relevant to manufacturing concerns and not applicable to service companies. The Tribunal in case of Capgemeni India (P) Ltd. (Supra) noted that employees in service companies were not doubt, valuable assets which have to be considered as a factor for comparability. The Tribunal observed that the assets employed had two dimensions i.e. quantity and quality, more employees would mean more turnover but there was linear relationship between margin and turnover. As regard the quality of employees, the Tribunal noted that this would depend upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Services India (P) Ltd. (Supra). We agree that related party transaction affect the comparability and in case of high RPT the company could not be really considered as independent unrelated party. In case of Willis Processing Services India (P) Ltd. (Supra) the Tribunal held that related party transaction can be accepted only up to 15%. We therefore accept the plea of the assessee to exclude this comparable." 171. As it is clear from the earlier finding of this Tribunal that this company was found to be functionally comparable with the assessee's call centre business activity, however for the A.Y. 2008-09, the said company was excluded from the list of comparables on the ground of related party transaction. As we have already discussed that for the year under consideration, the TPO applied the filter of related party transaction at 25%, the DRP also considered the comparability of this company and directed the Assessing Officer to verify the related party transactions. Since the related party transactions were found to be below the filter criteria of 25% therefore, by following the order of this Tribunal in assessee's own case, we hold that this company is functionally compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT(A) for the A.Y. 2005-06 and, thereafter, the order of this Tribunal, the deduction u/s 10A was allowed to the assessee before setting off unabsorbed depreciation against the business income consequently the income available for setting off unabsorbed depreciation was to be recomputed. Therefore, this issue requires reconsideration at the level of Assessing Officer in the light of order of CIT(A) as well as the order of this Tribunal for the A.Y. 2005-06. Accordingly we restore this issue to the record of the A.O. for consideration. 178. As regards the alternative claim of deduction u/s 10A, since the issue of unabsorbed depreciation is set aside therefore, the Assessing Officer is directed to consider the same as per law in case the business income of the assessee is enhanced due to disallowance of unabsorbed depreciation. 179. Ground no. 18 is regarding short credit of tax withheld amounting to Rs. 21,59,286/-. 180. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The grievance of the assessee is that the assessee claimed credit of tax withheld of Rs. 3,30,26,766/-, whereas the Assessing Officer has given the credit on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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