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M/s Accordis Beheer BV Versus Director of Income Tax Officer (International Taxation) -1 (1) , Mumbai and Vica-Versa

Capital gain arising on transfer of shares taxable in India - whether the exception given in Article 13(5) of the India Netherland DTAA is not applicable to the said transaction - Held that:- Two different activities have been combined with the scheme of arrangement. The first one was to buy back shares belonging to non-resident share holders and the second one was to cancel the shares so purchased. We agree with the view taken by Ld CIT(A) that they are two different actions and both should not .....

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al restructuring, but to provide an exit route to the non-resident shareholders.

In view of the above, we are of the view that the Ld CIT(A) was justified in upholding the view taken by the AO on this issue. Accordingly we uphold his order on this issue. - Decided against assessee

Entitlement to concessional rate of tax provided in the second proviso to sec. 112 - Held that:- The only contested in the appeal filed by the revenue relates to the rate at which the capital gain .....

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% on the impugned Capital gains.- Decided against revenue - I.T.A. No.4688/Mum/2010, I.T.A. No.5025/Mum/2010 - Dated:- 13-1-2016 - SHRI B.R.BASKARAN, AM AND PAWAN SINGH, JM For The Assessee : Shri Yogesh Thar For The Respondent : Shri Jasbir Chauhan ORDER Per B R Baskaran, AM: These cross appeals are directed against the order dated 26-03-2010 passed by Ld CIT(A)-10, Mumbai for the assessment year 2006-07. 2. The assessee is aggrieved by the decision of Ld CIT(A) in affirming the order of the AO .....

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ds. It held 38.24% of shares comprising of 1,09,52,280 shares in the paid capital of M/s Century Enka Ltd, an Indian public listed company. During the year under consideration, the assessee tendered 85,93,109 equity shares having face value of ₹ 10/- each to M/s Century Enka Ltd at ₹ 122/- per shares under a scheme of arrangement, by way of buy back of own shares, as per the approval given by Hon‟ble High Court of Calcutta u/s 391 of the Companies Act. The said tendering of sha .....

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rovided in the second proviso to sec. 112 of the Act is not applicable to the assessee. Accordingly he levied tax @ 20%. However, the Ld CIT(A) decided this issue in favour of the assessee and hence the revenue has filed appeal before us. 6. With regard to the issue relating to taxation of capital gains, the assessee has placed reliance on Article 13(5) of the DTAA entered between India and Netherlands, which reads as under:- Gains from the alienation of any property other than that referrred to .....

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ized in the course of a corporate organization, reorganization, amalgamation, division or similar transaction and the buyer or the seller owns at least 10 percent of the capital of the other. While the tax authorities have held that the condition highlighted by us in bold letters shall be applicable to this transaction, the assessee is contending that the condition highlighted by us by under scoring shall be applicable. 7. The AO has interpreted the provisions highlighted in bold letters as unde .....

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e in India as per Article 13(5), referred above. Besides the above, the AO noted that the assessee has not paid tax on the impugned capital gains in Netherlands also, since the same was exempt under the tax provisions of that country. Accordingly, the AO observed that the basic purpose of DTAA as well as section 90 of the Act is that the assessee should not be liable for double taxation whereas in the case of the assessee, it is trying to claim double benefit by taking recourse to DTAA. 8. Befor .....

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ny may be taxed in other state if the alienation takes place to the resident of that other state. Therefore, since the assessee has earned capital gain of alienation of 30%shares of CE (Indian Company) and also shares were tendered to a resident of India, the case of the assessee is covered under Article 13(5) of Indo - Netherlands DTAA. It is also noticed that the capital gains on sale of shares is exempt in Netherlands as per Corporate Income Tax Act, 1961 of Netherlands. Therefore, the capita .....

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t is seen that the assessee has tendered the shares, thus tendering of shares to transfer of share. It is immaterial what does the CE do of that shares. Further, the shares were tendered on account of buy back scheme u/s 77A of the Companies Act, 1956. Thus there was transfer of shares. The appellant has transferred its share to CE and in lieu of that reconsideration. It was a scheme only for non resident share holders of the CE. The objective of scheme was to enable the assessee to transfer its .....

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109 shares held by the assessee. The CE has cancelled the shares is nothing to do with transfer even though it led to a reduction of CE's paid-Up shares capital. It is also noticed that prior to such buy back, the assessee held 38.24% of the total paid-up shares capital of CE and the Indian Promoters, i.e. B.K. Birla Group held 13.91% of such capital. The assessee was one of the collaborators of CE along with the B.K. Birla Group. It is also seen that the objective of the scheme was to unabl .....

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hat tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment to tax by resorting to dubious methods. It is the obligation of every citizen to pay tax honestly without resorting to subterfuge and in the case of Juggilal Kamlapat vs. CIT (1969) (73 ITR 702)(SC) wherein it was held that the Income-tax authorities were entitled to pierce the .....

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. "For years a battle of maneuver has been waged between the Legislature and those who are minded to throw the burden of taxation off their own shoulders on those of their fellow subjects. In that battle, the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents. It scarcely lies in the mouth of the tax plays with fire to complain of burnt fingers". Therefore, alienation of share is covered under Article 3(5) of DTAA. The case laws of Vania .....

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ansfer is taxable as per Article 13(5) of the DTAA. I, therefore, of the opinion that the AO was right in taxing the capital gain arising on account of buy back of shares of CE Group. I, therefore, uphold the action of the AO on the reasons advanced by him. Accordingly, the findings of the AO are hereby upheld. 9. The Ld A.R submitted that the tax authorities are not justified in rejecting the claim of the assessee on the ground that the assessee did not pay tax on the same in Netherlands. He su .....

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ntentions of the assessee that payment of tax on the capital gains in Netherlands may not be a condition for availing DTAA benefits in India. 10. The Ld CIT(A), in paragraph 1.3.3., has observed that the Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment of tax by resorting to dubious methods. In this regard, the Ld CIT(A) has referred to the decision of Hon‟ble Supreme Court rendered in the case of .....

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pproved by Hon‟ble Calcutta High Court is not disputed. Hence we do not see any colourable device in the claim made by the assessee and accordingly we are of the view that the observations made by Ld CIT(A) may not be relevant to the facts prevailing in the instant case. 11. The Ld A.R contended before us that the assessee has transferred the shares under a scheme of arrangement approved by the Hon‟ble High Court of Calcutta and the same falls in the category of reorganization specif .....

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or Accountants by Eric L Kohler, wherein the term reorganization is defined as under:- reorganization 1. A major change in the financial structure of a corporation or a group of associated corporations resulting in alterations in the rights and interests of security holders; a recapitalization, merger or consolidation. We notice that the assessee has transferred a part of shares held by it to the company, M/s Century Enka Ltd and accordingly earned Capital gain. Subsequently, the above said comp .....

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interests even after the reduction of share capital and hence there is no alteration in the rights and interests of security holders. Accordingly, we are of the view that arrangement entered by the assessee in selling part of its share holding to the company in the scheme of buy back does not fall under the definition of reorganization given in the dictionary cited above. 13. The Ld A.R also placed reliance on a study material titled as Strategic Financial Management issued by the Board of Stud .....

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onstruction or reorganization or scheme of arrangement … The aspects relating to expansion or contraction of a firm‟s operations or changes in its assets or financial or ownership structure are known as corporate re-structuring. While there are many forms or corporate restructuring, mergers, acquisitions and takeovers, financial restructuring and re-organisation, divestitures de-mergers and spin-offs, leveraged buyouts and management buyouts are some of the most common forms of corp .....

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r view, cannot be considered as the change in the rights and interests of shareholders. Before and even after the reduction of share capital, the promoter groups continued and continues to remain as promoter groups with the same rights and interests. At this stage, we feel it pertinent to refer to the definition of the term arrangement given under sec. 390 of the Companies Act:- 390 (a)…. (b) the expression arrangement includes a reorganisation of the share capital of the company by conso .....

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d (Order dated 15-07-2002 given in Appeal Lodging No. 520 of 2002 in Company petition No.203 of 2002 in Company Application No. 18 of 2002 & other)(113 Company cases 273) rendered under the Companies Act. We have gone through the said decision and we notice that the issue considered therein was whether the Court can sanction buy back of its shares under a scheme of arrangement prescribed in sec. 391 of the Companies Act, when a specific section 77A is available for that purpose. Thus, we not .....

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it route to the non-resident share holders. Thus, the objective of the scheme was to enable the assessee to transfer its shareholding. Further the Ld CIT(A) has observed that the subsequent cancellation or writing off the shares is nothing to do with the transfer made by the assessee, even though the same has resulted in reduction of paid up share capital of the company, M/s Century Enka Ltd. We agree with the above said observations made by Ld CIT(A). As observed by him, two different activitie .....

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