TMI Blog2015 (10) TMI 2487X X X X Extracts X X X X X X X X Extracts X X X X ..... rary to what is now urged before us. Apart therefrom, we find that the essential ingredients of the definitions as amended are not satisfied and the conflicting and shifting stand of the Revenue worsens the position. Another agreement between a co-subsidiary of the appellant CGP Mauritius and AG and AS and their companies which allegedly had yet another set of call options in favour of CGP. - Held that:- this is only an intention of the parties. It has never translated, even according to the Tribunal, into anything beyond what is concluded by the Tribunal and to be termed as a transfer. Applicability of section 92B(2) - Held that:- The Tribunal does not indicate in any of the foregoing paragraphs which we have referred or reproduced above that the transaction in question is in the nature of purchase, sale or lease of tangible or intangible property. The Revenue itself understands that this provision does not necessarily require a transfer or assignment of a property or creating any right or interest in the same, but attempts to justify the conclusion reached by the Tribunal and to be found in the foregoing paragraphs. For the purpose of applicability of section 92B itself we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... damental error in not referring to Chapter X, its title and subsection (1) of section 92 before applying the mechanism devised therein. If Chapter X has been inserted to make special provisions relating to avoidance of tax and by section (1) of section 92 computation of income from international transaction having regard to arm's length price has to be done, then, there ought to be an income arising from an international transaction. That only would enable applying further provisions in this Chapter. That being not the position even on this aspect, we are unable to agree with Mr. Setalvad. Thus Tribunal's order is vitiated by serious errors of law apparent on the face of the record. Tribunal's order contains inconsistent and contradictory findings on the issue discussed above. We have also indicated the contradictions and inconsistencies in these findings in the foregoing paragraphs. We have found that the Tribunal's attempt to get over the binding judgment of the Hon'ble Supreme Court in the manner done also cannot be sustained. - Decided in favor of assessee. - INCOME TAX APPEAL NO. 82 OF 2015 - - - Dated:- 8-10-2015 - S.C. DHARMADHIKARI And A.K. MENON, JJ. For the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal was misconceived in law in holding that the Hon ble Supreme Court has not dealt with the transfer of call option rights by the appellant to its associated enterprise when the Hon ble Supreme Court has examined the transfer of 67% controlling interest from HTIL to VIH BV and the same specifically included the 12.25% option rights that were the subject matter of the appeal before the Tribunal? (5) Whether the Tribunal erred in law in not appreciating that the jurisdictional fact before the Hon ble Supreme Court and for invoking transfer pricing provisions in the present case is that there must be a transfer from the appellant to any other person and, therefore, once the Hon ble Supreme Court has decided this jurisdictional fact the Tribunal was bound to follow it? (6) Whether the Tribunal erred in law in holding that the call options were transferred vide the TII Shareholders Agreement even though no nomination was actually made under the said Agreement and the Tribunal had already rendered a finding in law that a transfer can only take place upon actual nomination? (7) Whether the Tribunal was correct in law in holding that an assignment has taken place unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her agitated nor brought to the notice of the Hon ble Supreme Court and nor considered by it while rendering its judgment report in 341 ITR 1? (17) Whether on the facts and circumstances of the case, the Tribunal has grossly misconceived the law by widening the definition of international transaction beyond its scope as defined under Section 92B(1) of the Act and applying the same to a transaction entered into between two resident entities? (18) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sale of the Call Centre business by the appellant to HWP India was an international transaction in terms of section 92B(1) of the Act? (19) Whether on the facts and circumstances of the case, the impugned order passed by the Tribunal in respect of section 92B(1) suffers from gross non application of mind and non-consideration of the criteria laid down in respect of applicability of doctrine of lifting of corporate veil and doctrine of substance over form by the Hon ble Supreme Court in the case of Vodafone International Holding BV vs. UOI Anr [(2012) 6 SCC 631]. (20) Whether the Tribunal was justified in upho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hison 3G Australia Private Limited and Hutchison 3G UK Limited in terms of the Managed Service Agreement for Contact Centre Services between Hutchison Call Centre Holdings Limited, British Virgin Islands and the appellant dated 1st January, 2006. 6 The appellant claims that as per the Foreign Direct Investment (for short FDI ) norms in India, the ceiling in the telecom centre was 49% and which was enhanced to 74% in November, 2005. In order to acquire further equity interest as and when the FDI ceiling in the telecom sector were relaxed, Hutchison group looked for Indian investors who would be independent, but not hostile and would hold the interests till the sector was opened up. These would make a gain at a subsequent point of time when they exit the investment. The Hutchison group, therefore, identified three investors being Analjit Singh (for short AS ), who was one of the leading industrialists of the company and a promoter of Hutchison Max Telecom Limited Mumbai Telecom Circle and had formerly sold his investment to Hutchison. The other one was identified as Asim Ghosh (for short AG ). He was associated with this group for a long time and was a Chief Executive Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust, 2006, with IDFC group of companies, which through its joint venture company SMMS Investments Private Limited (for short SMMS ) indirectly held 2.77% shares in the operating company VIL. The options in regard to this agreement styled as 2006 IDFC Framework Agreement are referred to in paragraph 20 of the Memo of Appeal. The effect of these options and exercise thereof would mean that the appellant acquiring the entire issued share capital of SMMS and obtaining an indirect stake or holding in VIL. Annexure F is this agreement. 8 A public announcement was made by HTIL in December, 2006 of a possible sale of its entire equity interest in the Indian telecom company VIL. The Vodafone group, therefore, solicited its interest in acquiring the Indian telecom business held by the Hutch Group. Accordingly, on 11th February, 2007, HTIL and Vodafone International Holdings B.V. (for short VIH BV ) entered into a Share Purchase Agreement (for short SPA ) whereby HTIL agreed to procure the consent of HTI (BVI) Holdings to transfer the share capital of CGPC and assign certain loan interests to VIH BV. As a result of this SPA executed on 11th February, 2007, VIH BV acquired 66.99% equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 5th July, 2007. The arrangement with IDFC group of companies and the IDFC transaction agreement dated 5th July, 2007, is then referred to in paragraph 25 of this appeal paper-book. 12 During the relevant assessment year 2008-09, the appellant filed its return of income on 30th September, 2008, declaring total income of ₹ 10,64,71,720/- alongwith Form 3CEB wherein international transactions were reported. That is income earned by the appellant during the relevant financial year from providing Call Centre services to Hutchison Call Centre Holdings Limited and issuance of 908,500 equity shares of the appellant to Vodafone Teleservices (India) Holdings Limited, a Mauritius company at a premium of ₹ 13,529/- per share aggregating to a total consideration of ₹ 1229,99,99,800/-. It was clarified that the issuance of equity shares did not affect income of the company but was reported merely out of abundant caution. 13 A revised computation of income was filed during the course of assessment proceedings declaring total income of ₹ 15,52,48,000/-. The Assessing Officer referred the matter to the Transfer Pricing Officer on 22nd January, 2010, to examine al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m order dated 27th September, 2010 in the said SLP, the Hon ble Supreme Court directed the Assessing Officer to quantify the tax liability of VIH BV under section 201 of the Act. Pursuant to the said direction, the Assessing Officer called upon VIH BV to make its submissions on quantification of various rights and entitlements, including the 12.25% call options under the AS and AG Framework Agreements which were held by this Hon ble Court in its judgment dated 8th September, 2010 to have been transferred to VIH BV. A copy of the interim order dated 27th September, 2010, is Annexure R to the appeal paper-book. 16 VIH BV in its submissions vide, inter alia, letter dated 19th October, 2010, to the Assessing Officer in the quantification proceedings, had submitted that the put options under the same 2007 FWAs were subsequently partly exercised in 2009 by Analjit Singh and Asim Ghosh and due taxes were paid by them. Along with the said letter, VIH BV had filed the Share Purchase Agreements between CGP India Investments Limited and AS and AG and their group companies and the corresponding FIPB Approvals in relation to purchase of shares, upon exercise of put option by AS and AG. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the same 12.25% call option rights from HTIL to VIH BV. As a matter of fact, the Income-tax Department specifically invited the attention of the Hon ble Supreme Court to decide upon the issue of assignability of call options in favour of VIH BV by examining the 2007 FWAs. Pertinently, detailed submissions were advanced by both the parties on the issue of assignment of call options under the revised Framework Agreements of 2007 and other agreements specifically including the TII Shareholders Agreement, which were duly examined by the Hon ble Supreme Court. Copies of the written submissions advanced on behalf of the Income Tax Department and VIH BV before the Hon ble Supreme Court in relation to the Framework Agreements are Annexures W (Colly) and X (Colly), to the appeal paper-book. 18 Meanwhile, while the proceedings before the Hon ble Supreme Court in SLP(C) No. 26520 of 2010 filed by VIH BV were pending, assessment proceedings for AY 2008-09 of the appellant had commenced and hearings in relation to certain issues were held. 19 On 18th October, 2011, the TPO issued a show cause notice to the appellant, inter alia, stating that under 2006 Framework Agreement, the call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to determine arm s length consideration for 12.25% indirect equity held cumulatively by Asim Ghosh and Analjit Singh in VIL. It is the appellant s case that the assignment of cashless option by IDFC Investors in favour of the appellant is not at all comparable to the alleged assignment of call options by the appellant to VIH BV under clause 4.4 of the 2007 FWAs. Copies of the submissions dated 21st October, 2011 and 25th October, 2011 and the TPO s order dated 31st October, 2011 are Annexures Z, AA, and BB respectively to the appeal paper-book. 21 Pursuant to the TPO s order, the AO issued a show cause notice dated 16th November, 2011 to the appellant seeking explanation as to why the adjustment of ALP recommended by TPO should not be made to the total income of the appellant. Since during this time, the proceedings before the Supreme Court in SLP(C) No. 26529 of 2010, wherein the issue of assignment of call options was in issue, had been completed and the judgment was reserved, the appellant while giving its preliminary submissions on 28th November, 2011, requested the AO to await the decision of the Hon ble Supreme Court as parallel collateral proceedings on the same issue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This judgment is reported in (2012) 341 ITR 1. The appellants rely on the said judgment to urge that all the agreements noted hereinabove have been referred extensively in the judgment of the Supreme Court of India. Therefore, once the Supreme Court holds that there is no transfer of asset but a transfer of share and that there is no assignment of any call options, then, these findings bind this Court even in the present proceedings. More so, when a review petition filed by the Revenue seeking review of the Hon'ble Supreme Court judgment also raised such issues. Relying on this judgment of the Hon'ble Supreme Court, the appellants claimed that they challenge the order of the Transfer Pricing Officer dated 31st October, 2011 as well as the draft assessment order dated 29th December, 2011 only on the issue that the Transfer Pricing Officer (for short TPO ) and the Assessing Officer (for short AO ) did not have the jurisdiction to make transfer pricing adjustments on the same transaction. The appellants also pursued a statutory remedy by filing objections before the Dispute Resolution Panel (for short DRP ) under section 144C of the IT Act on 30th January, 2012, against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent sought to file these documents, according to the appellant, inter alia, on the false ground that the factum of subsequent exercise of put options in 2009 and the documents in relation thereto have been received from FIPB in February-March 2014 and before that the Revenue was not aware of the factum of exercise of put options. As a matter of fact, the factum of exercise of put options was disclosed by the appellant before the AO vide submissions dated 15th December, 2011 and also in the objections filed before the DRP. In addition, the same fact was disclosed before the AO of VIH BV and the Hon ble Supreme Court in VIH BV s case. Further, this fact was also disclosed in the transfer pricing report of the appellant filed before the TPO for AY 2010-11 vide submissions dated 7th June. 2012. The index of the documents filed by the Revenue on 20th February, 2014 in 3 volumes is Annexure VV to the appeal paper-book. A copy of the Revenue s applications dated 24th February, 2014 is Annexure WW to the appeal paper-book. A copy of the index of the additional documents filed on 24th February, 2014 alongwith the corresponding documents filed in 4 volumes are Annexures XX, YY (Colly.), ZZ ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... options in 2009 had been duly pleaded and placed on record before the Hon ble Supreme Court of India, this Hon ble Court, the Assessing Officer and the DRP in the appellant s proceedings. Copies of appellant s application dated 9th April, 2014, Revenue s reply dated 15th April, 2014 and index of rebuttal evidence filed by the appellant on 16th June, 2014, alongwith the relevant rebuttal documents are Annexures JJJ, KKK, LLL and MMM (Colly.) respectively to the appeal paper-book. 30 Additionally, the appellant had also filed documents about the FIPB proceedings in 2009 in relation to the acquisition of shares of AS and AG Group companies by CGP India Investments Ltd. pursuant to the exercise of put options, subsequent exercise of put option in 2009 and the following nomination of CGP India Investments Ltd. to establish that the Revenue had all through known about the subsequent exercise of the put option in 2009, as it had objected to the approval being granted by the FIPB. Copy of index of documents obtained from the FIPB alongwith the documents containing minutes of FIPB proceedings are Annexures NNN and OOO (Colly.) to the appeal paper-book. 31 The appellant submits that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31st October, 2014. On 31st October, 2014, the Tribunal informed both the parties that although Shareholder s Agreement dated 5th July, 2007 was filed by the Respondent, yet neither of the parties addressed any argument on the said agreement. Accordingly, the Tribunal directed both the parties to file written submissions on the said shareholder s agreement. 34 The appellant in its submissions dated 17th November, 2014, submitted that the TII s Shareholders Agreement has no relevance or bearing on the issue of assignment of call options under the 2007 FWAs and that the option rights under the TII s Shareholders Agreement are inchoate rights as they are conditional upon the exercise of call/put options under the 2007 FWAs. On the other hand the Revenue in its submission in respect of the said shareholder s agreement submitted that the introduction of VIH BV as a party to the Framework Agreement as well as Shareholders Agreement for the first time is a clear evidence of the fact that VIH BV acquired the option rights by signing the Framework Agreement and secured its value by entering into the Shareholders Agreement simultaneously. Therefore, nowhere did the Revenue contend tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred to CGP India by virtue of the 2007 TII SHA without providing the appellant an opportunity of hearing on the implications of the 2006 and 2007 TII SHAs, the appellant filed a miscellaneous application on 30th December, 2014 (alongwith Addendum on 31st December, 2014) before the Tribunal under Section 254(2) of the Act. In the said miscellaneous application (M.A. No.443/Mum/2014) the appellant has, inter alia, stated that the impugned order of the Tribunal suffers from a mistake apparent on the face of the record as findings have been arrived at without providing an opportunity of hearing to the appellant and accordingly the impugned order is violative of the principles of natural justice. In addition, certain other errors apparent from the record were pointed out for rectification. A copy of the miscellaneous application dated 30th December, 2014 alongwith the Addendum filed on 31st December, 2014 are Annexures TTT and UUU, respectively to the appeal paper-book. 38 As on the date of filing the present statutory appeal, the miscellaneous application filed by the appellant is pending consideration by the Tribunal. 39 As stated earlier, with a view to divest the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises (where Call Centre was operating) for transfer of lease and other suppliers, etc. A copy of the said MoU dated 25th April, 2007 is Annexure WWW to this appeal paper-book. In accordance with paragraph 6(b) of the MoU, HWP India paid ₹ 64 crores to 3GSPL on 30 April 2007. 44 Following the signing of the BTA and the fulfillment of a number of other conditions precedent, the acquisition of the CGPC share was completed on 8th May, 2007. By virtue of this transaction, the appellant (3GSPL at the relevant time) which was indirectly owned by HTIL became a part of VIH BV. Consequently, the name of 3GSPL was changed to Vodafone India Services Pvt. Ltd. ( VISPL ), i.e. the appellant herein. It is pertinent to state that the appellant was referred to as 3GSPL (part of HTIL Group) before the completion of the SPA and on completion of the SPA, the name of the appellant was changed to VISPL, the appellant (part of VIH BV Group). 45 As per the terms of the BTA, the Call Centre business was transferred on slump sale basis for a consideration of ₹ 64 crores. The said price of ₹ 64 crores was arrived at based on a valuation report dated 16th March, 2007 issued by M/s. Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49 Alongside, the appellant had also filed objections to the aforestated draft assessment order which in turn was based on the order of the TPO before the DRP, which objection was disposed of by the DRP vide an order dated 30th September, 2012. While disposing of the objections of the appellant, the DRP in addition to upholding the transaction as a deemed international transaction under section 92B(2), which was applied by the TPO/AO, also alternatively suo moto applied section 92B(1) of the Act. The DRP while issuing directions under section 144C of the Act at Para 10.2.2 erroneously lifted the corporate veil of HWP India and applied the substance over form doctrine and, accordingly, held that the sale of the Call Centre business is an international transaction effectively between the appellant (a resident entity) and HWL (a non-resident entity being the parent of HWP India) thus falling within the scope of section 92B(1) of the Act. The DRP also alleged that HWP India was interposed only to evade tax by avoiding transfer pricing compliance. This was in complete disregard to the fact that the call centre business was transferred to HWP India for good commercial, regulatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exact nature of services rendered by the assessee. It is only after finding out exact nature of services rendered by the assessee can a comparative uncontrolled transaction can be brought to the picture. We, therefore, set aside the order of the CIT(A) and restore the issue to the TPO/AO for a fresh consideration. A copy of the Tribunal s common order dated 22nd July, 2011, passed in the appellant s case for the AYs 2005- 06 and 2006-07 is Annexure AAAA to this appeal paper-book. Factual Matrix for the year under appeal AY 2008-09 54 As aforementioned, the appellant entered into MSAs with its AEs. Clause 6 of each MSA read with Schedule I thereto and a letter dated 5th March, 2007, provided that the appellant would be entitled to a service fee of 107% of the total cost. Clause 3 of Schedule 1 to the MSA made it clear that the service fee shall be calculated by reference to the total cost plus an appropriate margin and that the margin shall aim to be an arm s length price on a total cost over a financial period (April to March) adequate to compensate for all the functions performed, assets employed and risk assumed by the appellant and would be determined in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the price charged by the appellant was at arm s length. 58 However, without appreciating the arguments/computations furnished by the appellant, the TPO rejected the functions assets and risk ( FAR ) and economic analysis conducted by the appellant in its TP report without pointing out any cogent deficiency or insufficiency in the same. The TPO (para 7.15) rejected the appellant s TP report citing the following reasons: - not using current year's data; - not using different accounting year filter; - not selecting proper criteria for rejecting and selecting comparable companies; - not selecting proper criteria even tough they are functionally similar and operating in similar economic environment. 59 Subsequently, a fresh search of comparables was conducted by the TPO. While doing so, the TPO failed to appreciate that as per section 92C(3) of the Act, he had jurisdiction to do a fresh search of comparables only if the comparables selected by the appellant were either insufficient or had other deficiencies. Neither the AO nor the TPO pointed out which of the above mentioned four conditions of section 92C(3) of the Act, if any, was satisfied. 60 The TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 10B(1)(e)(iii) of the Rules. In this regard, the appellant has already filed a miscellaneous application on 30th December, 2014, which is pending adjudication by the Tribunal. 67 It is pertinent to mention here that the Tribunal in the order for the preceding year i.e. AY 2007-08 dated 26th April, 2013 adjudicated that the appellant must be granted working capital adjustment in accordance with the OECD guidelines (Para 27.1 on page 43). Even the Respondent in its submissions before the Tribunal conceded that working capital adjustment may be granted to the appellant in line with the appellate order of the Tribunal for AY 2007-08. 68 It is in the above factual scenario and the case as set up by the appellant that we will have to appreciate the contentions raised before us by the learned senior counsel appearing for the parties. 69 Mr. Harish Salve, learned senior counsel appearing on behalf of the appellant submitted that the order passed by the Income Tax Appellate Tribunal and impugned in this appeal is erroneous and illegal. He submits that the said order is vitiated by total non application of mind to several vital and crucial aspects of the case. The order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the reversing of the judgment of this Court in the first case titled as Vodafone case. When the first case and by way of appeal was pending in the Hon'ble Supreme Court, the Revenue started the second case against the appellant and which involves the same transaction but the Revenue in the second case resorted to transfer pricing so as to assess the appellant to tax on so called capital gains. This matter related to financial year 2007-08. Mr. Salve submits that in the judgment of the Hon'ble Supreme Court reversing that of this Court, there is an observation that the call options had not been exercised till date . Mr. Salve submits that when the Supreme Court observed that this option was not exercised till date it had in mind till the end of that financial year. Even if that expression relates to the date of the delivery of the judgment by the Hon'ble Supreme Court, there is nothing erroneous or incorrect about the same. Mr. Salve submits that it is the counter parties who had exercised the put options sometime in 2010 and pursuant to which the shares had been acquired. Mr. Salve, therefore, submits that there was no occasion for the Revenue then to take up a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the appellant by the judgment of the Hon'ble Supreme Court in the first case. Mr. Salve's arguments and which were spread over several days, revolved around this judgment of the Hon'ble Supreme Court. Mr. Salve referred to it in great detail. Firstly, Mr. Salve read out to us paragraphs 23 to 25 of the impugned order of the Tribunal. Then, he referred to paragraph 30 at page 137 of the paper-book from the Tribunal's order. Mr. Salve then took us through the judgment of the Hon'ble Supreme Court and submitted that the main issue is noted in paragraphs 72, 73 and 76 of the judgment. He also referred to paragraphs 235 and 236 of this judgment and equally paragraph 231 to urge that the approach of the Revenue and upheld by the Tribunal is nothing but revisiting or reconsidering these observations and findings in the Supreme Court judgment. Mr. Salve submits that the Supreme Court judgment holds that the call option was not exercised and that the call and put option are not the same. The first one, namely, the call option is to get hold of the company whereas the second or other is to go out. There is no fraud perpetrated on the Revenue and in any manner. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Salve in this regard. He would submit that even otherwise the options are not an interest in property because in India, we do not have a recognition and legally given to equitable or beneficial ownership. If call options and put options are treated as purely contractual rights and the principle of finality of judgment is attracted, then, nothing more needs to be decided and to be gone into. Assuming this submission fails even then on merits the assignment of call option cannot lead to a taxable capital gain. Mr. Salve relied upon section 2(14) of the IT Act which is a definition of the term 'capital assets'. Mr. Salve would submit that the Parliament has stepped in and inserted an explanation in this definition and given it retrospective effect, but even this explanation is not attracted for an interest in property must be the foundation on which this definition has to be construed. Mr. Salve submits that the Tribunal has misread and misinterpreted the concession of the learned senior counsel before it that call option is valuable. It may be valuable but it is not property. Mr. Salve, therefore, submits that so long as there is no transfer of capital asset, the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % was enhanced, 3SGPL could not exercise these options. This is for the reason that the Essar shareholding of 33% was held to the extent of approximately 22% by Mauritius holding companies and was counted as FDI. This is why the direct and indirect holding of Hutchison could never exceed 52% approximately and those equity interests were acquired by Genre 1 and Genre 2 companies. The balance of 15% equity interests were those through the contractual route i.e. options. Any beneficial interest in these 15% would reach the FDI requirements. (E) Thus it was only if the FDI limit was relaxed that 3GSPL/ appellant would become eligible to increase its stake in any way, whether by acquiring the subscription shares and these option shares or merely by acquiring these option shares. (F) There was a shareholders' agreement in 2006 which had 'call' and 'put' options at a different level. CGPM had a 'call' option under this shareholders' agreement to acquire the shares of TII held by the two Tier II companies (NDC of the AS group and Centrino of the AG group) at the stipulated price. The shareholders' agreement was a tripartite agreement in the sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Goldspot shares from AG. All limitations on exercise of call options were removed. (J) Once again, the condition attached to the put option of Centrino only reflected that the lower lever call and put options in the shareholders agreement were only to be used for restructuring - after the equity interests by way of contractual option had enlarged to a full indirect interest by acquisition of the upstream shares of the Tier 1 company. (K) 3GSPL would have acquired indirect control over the AG group of companies from Goldspot / AG Mercantile down to Centrino (Nadal) would become a VISPL subsidiary. VISPL would have already acquired indirect control over the TII shares. The only purpose thereafter of Nadal / Centrino exercising a put option would be to remove the shares of TII from one VIH BV subsidiary (VISPL) to another VIH BV subsidiary (CPGM) for purposes of corporate restructuring. None of this has any relevance. (L) The SHA of 2007 also had Centrino, NDC, CGPM and TII as parties. VIHBV was added as a confirming party. The agreement was carefully drafted the rights and obligations under the agreement were cast upon the parties which expression was defined, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal overlooked the 2006 shareholders' agreement. CGPM had similar 'call' options in the 2006 agreement in relation to the TII shares. As submitted, when multiple options at multiple layers are created at different tiers, it is to provide flexibility. If the idea was to confer a call option on CPGM in 2006, there was no need to follow this long procedure. Simultaneous signing of the FWA did not involve any taxable transaction and CGPM could have straight away been given the option if it was CGPM and CGPM alone who could acquire these shares. (B) Finally, to hold that the call options rights held by the appellant to require AS and AG to sell Goldspot/AG Mercantile and Scorpio shares were assigned by virtue of a clause in the 2007 shareholders' agreement to CPGM, which clause entitled CGPM to acquire TII shares from Centrino / Nadal and NDC is a leap of faith. 77 As far as the Call Centre business is concerned, Mr. Salve referred to the facts as culled out and then contended that the issue is whether the scope of section 92B(1) of the Income Tax Act, 1961 that defines international transaction for the purpose of the application of transfer pricing re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated a new Indian wholly owned subsidiary to run the Call Centre business as required under FEMA. (E) The TPO, during the course of assessment proceedings, alleged the transaction of sale of Call Centre business to be an international transaction under section 92B(2) of the Act. The AO accepted the valuation adopted by the TPO, and passed a draft assessment order dated 29th December, 2011. (F) The DRP while disposing of the objections of the appellant, in addition to upholding the transaction as a deemed international transaction under section 92B(2), which was applied by the TPO/AO also alternatively suo moto suggested that section 92B(1) of the Act could also be applied. This fact has been noted by the Tribunal at para 115 of the impugned order. The DRP, while issuing directions under section 144C of the Act, at para 10.2.2 erroneously lifted the corporate veil of HWP India and applied the 'substance over form' doctrine and, accordingly, held that the sale of the Call Centre business is an 'international transaction' effectively between the appellant (a resident entity) and HWL (a non-resident entity being the ultimate parent of HWP India) thus falli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This FIRC was in fact filed by the income tax department during the proceedings before the Tribunal vide letter dated 18th June, 2014 at pages 4230 to 4255, relevant pages in submissions being 4241 and 4242 under heading Submission on Payment made by HWP India for Call Centre and FIRC being at pages 4259 to 4261. (J) Despite the bank statement referred to above showing the injection of funds from the assessee's parent for subscription of preference shares, the Tribunal in para 126 of the impugned order (page 252 of paper-book-I) alleged that there is no record produced by the assessee to show that the HWP (India) procured finance from its Group Companies for the purpose of business. Furthermore, the income tax department vide letter dated 18th June, 2014, had also filed the financial statement of HWP Investment Holdings (India) Limited ('HWP Mauritius') for year ended 31st December 2007 (pages 4262 to 4280, paperbook-12) to show the source of funds for payment of preferences shares of HWP India. HWP Mauritius was a tax resident of Mauritius and immediate holding company of HWP India in 2007. (K) It is important to note that 3GSPL (transferor) was an indire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the same. He would submit that the option rights have been transferred to Vodafone PLC. Therefore, these transactions and evidenced by several agreements are covered by sections 92F(v) and 93(4)(a). He would submit that the transaction has all characters and can safely be termed as an international transaction. Mr. Setalvad has elaborated his submissions and has urged that a call and put option are part of the same coin. They are related to the same shares and cannot be viewed as a traditional or narrow option. It is fallacious to urge that one is a right and the other is an obligation. Rather, exercise of one would exhaust the other. Mr. Setalvad has then handed over written notes and further explaining his contentions. 80. It is urged that the question whether option rights are in the nature of capital asset was considered by the Hon'ble Supreme Court in the original Vodafone Capital Gain dispute. There the issue was whether any capital gain tax was attracted in the hands of HTIL when it transferred its 67% interest in VIL to VIHBV. As HTIL was non resident, the Hon'ble Supreme Court was considering the applicability of Section 9 in the case of an indirect transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual rights do not constitute property. However, the retrospective amendment to section 2(14) specifically includes any rights in an Indian Company, or in relation to an Indian company or any other rights whatsoever. Hence, it is submitted that, once a right, whether contractual or otherwise, falls within the amended section 2(14), it becomes a property and hence a capital asset. Hence, assessee's arguments that option rights being a contractual right do not constitute a property or capital asset do not survive after the amendment. 81. It is then urged by Mr. Setalvad that it is common for multinational companies to create a web of companies for the purpose of holding their stake in different countries. Their holdings structure becomes complex as it has to take into account taxation laws of different countries as well as the regulatory norms. As a result, because of the complex structure, it becomes difficult to understand the actual transactions being undertaken and the tax treatment to be given to it. The advanced countries hence developed the transfer pricing (TP) provisions as a part of their respective domestic law. The transfer pricing provisions regulate the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that the call and put options in this case are actually not in the nature of an option contract, but are in the nature of a Forward contract. In this connection, an extract from two standard commentaries Practical Share Valuation by Nigel Eastway and Others published by BDO as well as Financial Valuation Applications and Models by James R. Hitchner. The following Write-up is based on these commentaries. (a) A Call Option provides the holder with a Right to purchase the underlying stock but not the obligation to purchase the stock at a specified price (strike price) and date. A person buys a call option if he anticipates the market to go up. For example, if the prevailing price of ABC Corporation (ABC Corp) is ₹ 700. If A has bought a call option to buy the shares of ABC Corp at 710 say for a premium of ₹ 5 from B, then A would be known as option holder and B would be option writer. Now, if the price of ABC Corp goes to 720, it would be profitable for Mr. A to exercise the option as he would earn profit of ₹ 5 (720 market price 710 strike price + 5 option premium paid). Therefore, a call option is exercised only when the market price of the underly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they hold 12.25% stake in VIL. When the restrictions contained in para 3.1 and 4.1 of the FWA's of 2007 as discussed above are read with the Call and Put Option terms, it is clear that to the extent Put option is exercised, automatically, call option to same extent stands extinguished. (c) The terms Put Shares and Call Shares are separately defined in the FWA's of 2007. For instance, in the FWA agreement of 5th July 2007, entered into with AS and its group, 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. (d) 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. (e) Clause 4.6(b) of the FWA's of 2007 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o forward contract as delivery of shares to VISPL is mandatory in both the cases of Put/Call option. 88. Thus it may be seen that AS and AG were under an obligation to sell their stake and hence had no put option. Hence, what has been transferred is the rights, by whatever name called, under Clause 4.4 of the 2007 FWA with AS and AG. As this right vested in the appellant earlier which has now been transferred to its AE-VIHBV, there is transfer of a valuable right attracting capital gains. (a) As per para 4.6 of the FWA's of 2007, the transfer price has been fixed at which the put options are to be tendered. As per Schedule 1 of FWA's of 2007, the AS group of companies would get minimum amount of Indian rupees equivalent to US$ 164.51 million. Over and above this, the AS group of companies would get 10.2 million per annum accruing on a daily basis up to 7 May 2017 or until AS ceases to hold shares indirectly (Clause 4.4 (d) of FAW of 2007). Similarly, the AG group of companies would get 6.3 million per annum accruing on a daily basis up to 7 May 2017 or until AS ceases to hold shares indirectly (Clause 4.4 (d) of FWA of 2007). (b) Therefore, there is no reason f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with the Arm's Length Price. Arm's Length price is the price paid by persons other than associated enterprise under uncontrolled conditions. (vi) Section 92C provides the mechanism for determining the Arm's Length Price in respect of an international transaction. 90 Once the provisions are applicable to a given case, the basic obligation is of the appellant to determine the income arising from the international transaction having regard to the arm's length price. Where assessee fails to discharge the basic onus, the onus on Revenue is secondary in nature. The Revenue has to then determine the ALP based on material available with it. TRANSACTION: 91. The first aspect of the matter is whether there is any transaction undertaken by the appellant. The term 'transaction' has been defined in Clause (v) of sec. 92F and Rule 10A(d). Clause (v) of sec. 92F transaction includes an arrangement, understanding or action in concert,- (A) Whether or not such arrangement, understanding or action is formal or in writing; or (B) Whether or not such arrangement, understanding or action is intended to be enforceable by legal procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he creation of interest in the option rights has an impact on the income as well as assets of the assessee. 97 SALE OF CALL CENTRE : As far as the sale of the call centre business is concerned, the reason given by the ITAT to reject the revenue's contention u/s. 92B(2) is two fold. (a) The ITAT has first held that the assessee and HWP India are associated enterprises for a part of the year commencing from 01st April, 2007 and ending on 8th May 2007 i.e. the date when the share transfer took effect. While this conclusion of the ITAT is factually correct, the ITAT has thereafter relied upon the provisions of section 92A(2) to conclude that once the assessee and HWP India are associate enterprises for the part of the year, they remain associated enterprises for the entire year. Having reached this conclusion, the ITAT held that even if it is assumed that the transfer of call centre took place after 08.05.2007, due to the fiction created by section 92A(2), the AE relationship would continue for the entire year and there is no question of applying section 92B(2). (b) Additionally, the ITAT has held that the transfer of call centre took place before the execution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of these words 'at any time during the year' is explained diagrammatically as Annexure A-1. In the example depicted therein A Ltd., is an Indian company which has purchased goods from B Ltd. Hongkong. Both A B are held by the same holding company X Ltd. Mauritius. Therefore, the transaction of purchase of goods by A from B Ltd. is subject to Transfer Pricing provisions at the time the transaction is entered into. Subsequently X Ltd. Mauritius ceases to be the holding company of B Ltd. Hongkong in the same previous year. B. Ltd., is now held by some other party not related to X Ltd., Mauritius and A Ltd., India. Therefore, at some point during the year A Ltd., India and B Ltd., Hongkong ceased to be AEs as they failed to fulfil any of the conditions u/s.92A(1) and (2). That is the position at the end of the previous year. In order to ensure that the transaction undertaken between A Ltd., India and B Ltd., Hongkong (during the period they complied with the conditions in section 92A) is covered by the TP provisions, the legislature used the word 'at any time during the year'. The object of using these words is only to ensure that a transaction which in fact w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod (Pg. No.452) is the period from the date of the SPA to the date of completion of termination. d. Clause 1.1 Completion Date (Pg No. 452) means the date when Completion takes place. e. Clause 1.1 GSPL Transfer Agreement (Pg. No.453) has been defined as the BTA to be entered into between GSPL and Affiliate of HWL relating to the Call Centre Disposal substantially in the form attached to the Disclosure Letter. f. Clause 8.1 Completion (Pg.No. 468). It is undisputed that completion took place on 8th May 2007 when the CGP share was transferred to a VIH BV. The completion date would be 8.5.2007. g. Clause 8.8(j) (Pg.No.470) Clause 8.8 provides that BTA qill be executed only after completion, i.e. On Completion . Since completion has been defined as completion of share of CGP, it is obvious that BTA is to be signed only after the share of CGP is transferred. h. Clause 10.1 (Pg. No.473) see Paragraph 13 (iv) of these Submissions below. i. Clause 10.2 (Pg. No.473) - see Paragraph 13 (iv) of these Submissions below. j. Clause 13(c) (Pg.No.480) see Paragraph 13 (v) of these Submission below. 105 The following clauses of the BTA clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 8 (Pg.4515/Vol.XIII) shows that the persons working in the call centre were the employees of VISPL (appellant) till the closing date. This also proves that the transfer took place on the closing date. ix. Clause 14 of the BTA (Pg.4518/Vol.XIII) defines Vodafone group as the vendor and provides that all the communications required to be delivered to vendor, should be addressed to Vodafone Group Services Ltd., United Kingdom . Since in the transaction of sale of call centre the vendor is the appellant and the vendor as per clause 14 of the BTA is stated as the Vodafone Group, it is clear that the BTA has taken place after appellant became part of Vodafone Group. x. The fact that the BTA was signed after the SPA is further supported by the List of Dates Events submitted by VIH BV in the Vodafone case before the Supreme Court.(page 3456-3486 /Vol.IX/A). At Sr.no. 71 to 75 of the List of Dates, VIH BV has submitted that the consideration was paid to HTIL and the share was transferred in the name of VIH BV in the register of members of CGP, CI. A tax deed of covenant was also signed in favour of the VIH BV to indemnify VIH BV in respect of taxation or transfer pricing lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to take place only upon completion of conditions precedent and the same happened only on 4th December 2007. The appellant's return of income also supports the same conclusion. Hence, the date of the international transaction is 4th December, 2007 and the AE relationship is also examined based on the position existing as on 4th December 2007. The above conclusions are supported by the decisions in the case of Harish Chandra Ors. vs. CIT (1985) 154 ITR 478(Del.) - para No.8, Smt. Raj Rani Devi Ramna vs. CIT (1993) 201 ITR 1032 (Pat.) - para No.4 and para No.6. 108 The respondents submit that the date that is relevant for the purpose of deciding the transfer of call centre is the date when the transfer of call centre took effect. The date of the BTA is not relevant for the purpose of deciding the date when the transfer of call centre took place. The BTA merely evidences the terms and conditions under which the transfer of the call centre will take place. The clauses extracted above show that the transfer could not have taken effect until fulfilment of various conditions which took place only on 04.12.2007. This reading is also in accordance with clause 8.8(j) of the SPA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and valid. Their legality and validity is not questioned in these proceedings. Based on the words and expressions earlier used and now employed the parties have addressed us. 111 Now, certain developments and events post filing of the writ petition in this Court, during its pendency and when the matter was at large before the Hon'ble Supreme Court may be noted. 112 By the impugned order, the Tribunal has partly allowed the assessee's appeal. We are not required to go into the correctness of the Tribunal's findings and conclusions on all grounds, save and except those which have been highlighted before us. We must note that it is with regard to ground Nos.2 to 6 in the Memo of Appeal before the Tribunal that the essential arguments were canvassed. These grounds are taken by the Tribunal together for consideration. From para 21 onwards, the Tribunal has noted the facts and found that the Hutchison Group, Hong Kong (HK) first invested into the telecom business in India in 1992. It invested as a group in an Indian joint venture vehicle by the name Hutchison Max Telecom Limited (HMTL) later renamed as Hutchison Essar Limited (HEL). On 12th January, 1998, CGP stood inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L. The GSPL was understood as the assessee in the Tribunal's order. The Tribunal in para 23 holds that due to the transfer of the entire share capital (single share) of CGP from HTIL group to VIH BV, the Vodafone group acquired the controlling interest in HEL via its subsidiary VIH BV through the subsidiary companies of HITL group with control of 67% in HEL including indirect 15% holding through framework agreements. New framework agreements were executed in the month of July 2007, between the assessee and Indian Partners holding 15% indirect interest in HEL. These new framework agreements were entered into because of change of holding group companies from HTIL to Vodafone. Certain changes in terms and conditions of 2007 framework agreements were made which has led to the controversy in question. 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. In paragraph 24 of the Tribunal's order at running page 128, how the Tribunal understood the transaction further is quoted hereinbelow: 24. The transaction of transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements and it was urged that it is identical to or substantially similar to the counterpart clause of the 2006 framework agreement though the language is different. These documents were drafted by different set of foreign lawyers. The assessee's arguments were noted, particularly that there was no material difference between the clauses and, in any case, the new clause 4.4 by no stretch of imagination constitutes ipso facto or ipso jure any divestiture or assignment of the call option right from the assessee to VIH BV or to any other entity. The argument principally, therefore, was that the issue stands concluded by the judgment of the Hon'ble Supreme Court (supra). We would proceed on the footing that paragraphs 26 to 29 of the Tribunal's order merely note the rival contentions. 114 However the position with regard to paragraph 30 onwards is different inasmuch as in the said paragraphs, the Tribunal specifically negates the argument of the assessee's senior counsel that the issue stands concluded by the judgment of the Hon'ble Supreme Court (supra). The reason for the same is to be found in paragraph 31 where the Tribunal concludes that the Hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding the Tribunal. 116 The Tribunal found that it is incumbent upon it to examine the framework agreements, including the additional evidence produced in the light of the amended provisions of section 2(47) of the Income Tax Act as well as sections 92B / 92F of the said Act. 117 We are of the view that before proceeding further it is necessary to dispose of the first contention of Mr. Salve, the learned senior counsel appearing on behalf of the assessee. He had argued and very vehemently that the matter must go back to the Tribunal as the appellant had no opportunity to meet the case of the Revenue on the agreement between TII and CGP dated 5th July, 2007. However, at the same time he argued that it will not make any difference because the entire issue stands covered by the judgment of the Hon'ble Supreme Court (supra). Mr. Salve submits that all the arguments of the Revenue have been considered by the Hon'ble Supreme Court and no revisiting or reconsideration of the said judgment is permissible. Mr. Salve has also urged that a call option was not exercised and never exercised. A put option is not the same as call option. That there is no fraud and perpetrated on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken pains and an enormous effort and delivered a lengthy order, then, sending the matter back would result in delay in adjudication of the issue by the Tribunal and thereafter by a higher Court. There have been several rounds of litigation between the parties, hence further delay in taking a decision on Revenue matters and involving an important question of law will not serve larger public interest and public purpose either. Hence this request is rejected. 120 Since section 2(47) of the Income Tax Act, 1961, has been relied upon before reproducing it one aspect needs to be noticed and that is the term 'transfer' is defined in relation to a capital asset . That term itself is defined in section 2(14) and to read as follows : 2. In this Act, unless the context otherwise requires,- (14) capital asset means property of any kind held by an assessee whether or not connected with his business or profession, but does not include - (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; (ii) personal effects, that is to say, movable property including wearing apparel and furniture held for personal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which has a population of more than ten lakh. Explanation.- For the purposes of this sub-clause, population means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (iv) 6 per cent Gold Bonds, 1991, issued by the Central Government; (v) Special Bearer Bonds, 1991, issued by the Central Government; (vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government. Explanation.- For the removal of doubts, it is hereby clarified that property includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever; 121 This explanation has been inserted by the Finance Act, 2012 with retrospective effect from 1st April, 1962. It clarifies as to how the word 'property' includes and shall be deemed to have included any rights in or in relation to an Indian company and including the rights falling in the later part of this explanation. Therefore, a capital asset means property of any kind held by an assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the rights therein or its compulsory acquisition and various acts and transactions which have the effect of transferring the asset are covered. Explanation -1 is for sub-clauses (v) and (vi) of clause (47) of section 2 and we will not be required to refer to it in any details. 123 For our purpose, the Explanation - 2 is relevant and which also has been inserted retrospectively by the Finance Act, 2012. What the Explanation does is to remove doubts and to clarify 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 and by way of an agreement whether entered into in India or outside India or otherwise, notwithstanding that such transfer of rights has been characterised or has been effected or is dependent upon or flowing from the transfer of a share or shares of the company registered or incorporated outside India. Thus, this definition as earlier inserted has been substituted later by the Taxation Laws (Amendment) Act, 1984, with effect from 1st April, 1985. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Analjit Singh and Asim Ghosh group of companies through their 100% subsidiaries in TII as given in the ownership chart. It referred to this ownership chart and from that the Tribunal concluded that Asim Ghosh and Analjit Singh were holding 23.97% and 38.78% shares respectively in TII through their 100% subsidiaries. Thus, the Asim Ghosh and Analjit Singh group of companies were together holding 12.25% shares in HEL through TII. The option rights in the framework agreements of 2007 were essentially in respect of this 12.25% share holding of these two groups in HEL through their subsidiaries and then through their share holding in TII. After having concluded that the assignment of call options by the assessee was not before the Hon'ble Supreme Court and, therefore, to the extent of assignment / transfer of call options by the assessee to its associate enterprise this judgment of the Hon'ble Supreme Court will have no bearing, the Tribunal proceeded to consider the issue of assignment / transfer of call options held by the assessee under the framework agreements. The Tribunal's exercise is founded on the conclusions reached in paragraphs 30 and 31 that the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical, will be counter productive. It will encourage those interested in confusing or creating uncertainties and chaos in the decision making. Eventually, this would be subversive to the rule of law. Since Mr. Salve and Mr. Setalvad were agitated and disturbed and the assessee and Revenue were engaged in a fairly detailed but charged argument before the Tribunal that we have said so much on this issue. We remind all concerned about what the Hon'ble Supreme Court has repeatedly emphasized. In AIR 2013 SC 1048 (Ravinder Singh vs. Sukhbir Singh Ors.), the Hon'ble Supreme Court reiterated the principle in the following words: 21. There can be no dispute with respect to the settled legal proposition that a judgment of this Court is binding, particularly when the same is that of a coordinate bench, or of a larger bench. It is also correct to state that, even if a particular issue has not been agitated earlier, or a particular argument was advanced, but was not considered, the said judgment does not lose it binding effect, provided that the point with reference to which an argument is subsequently advanced, has actually been decided. The decision, therefore, would not lose i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court was considering the attempt of the Revenue to tax the capital gains arising from the sale of share capital of CGP on the basis that CGP may not be a tax resident in India but it holds underlying Indian assets. 130 That is how from paragraph 3 onwards in its judgment, the Hon'ble Supreme Court set out the relevant facts. The Supreme Court also referred to the TII framework and shareholders agreement dated 1st March 2006 under which the shareholding of HEL was restructured through TII an Indian company in which Analjit Singh and Asim Ghosh acquired shares through their group companies and with the credit support provided by HTIL. In consideration of this credit support parties entered into framework agreements under which the call option was given to 3 Global Services Private Limited, a subsidiary of HTIL to buy from Gold Spot Mercantile Company Private Limited, an Asim Ghosh company and Scorpio Beverages (Private) Limited, an Analjit Singh company, their entire shareholding in TII. Additionally, a subscription right was also provided allowing GSPL a right to subscribe to the share of Centrino Trading Company Private Limited and ND Callus Info Services Private Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequently, there was no change of control. Then there are references made to the settlement agreement between HTIL and the Essar group and in paragraph 38, there is a reference to letter dated 17th March, 2007, by which HTIL confirmed in writing to AS that it had no beneficial or legal or any other right in AS's TII interest or HEL interest. The reference then extensively is made to the correspondence between FIPB and VIH and from paragraph 49 onwards, what we find is that June 06, 2007, framework agreement, June 27, 2007 declaration of a special dividend by HTIL is referred and in paragraph 50, the Supreme Court refers to the July 05, 2007, framework agreement and then from paragraph 54 the Hon'ble Supreme Court referred to the ownership structure which has been also placed before us. The Hon'ble Supreme Court summed up the case by holding that CGP held 43.34% in HEL through 100% wholly owned subsidiaries viz. Mauritius companies, 9.62% indirectly through TII and Omega and 15.03% through GSPL route. In paragraph 56 the GSPL route was explained by pointing out that on 11th February, 2007, the AG group of companies held 23.97% in TII, AS group held 38.78% in TII wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as control over the subsidiary. For example, in a proper case of lifting of corporate veil , it would be proper to say that the parent company and the subsidiary form one entity. But barring such cases, the legal position of any company incorporated abroad is that its powers, functions and responsibilities are governed by the law of its incorporation. No multinational company can operate in a foreign jurisdiction save by operating independently as a good local citizen . A company is a separate legal persona and the fact that all its shares are owned by one person or by the parent company has nothing to do with its separate legal existence. If the owned company is wound up, the liquidator, and not its parent company, would get hold of the assets of the subsidiary. In none of the authorities have the assets of the subsidiary been held to be those of the parent unless it is acting as an agent. Thus, even though a subsidiary may normally comply with the request of a parent company it is not just a puppet of the parent company. The difference is between having power or having a persuasive position. Though it may be advantageous for parent and subsidiary companies to work as a group, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andstill arrangements in the interregnum between the date of signing of the SPA on February 11, 2007, and its completion on May 8, 2007; to provide for a seamless transfer and to provide for fundamental terms of price, indemnities,warranties etc. As regards the right of HTIL to direct a downstream subsidiary as to the manner in which it should vote is concerned, the legal position is well settled, namely, that even though a subsidiary may normally comply with the request of a parent company, it is not just a puppet of the parent company. The difference is between having the power and having a persuasive position. A great deal depends on the facts of each case. Further, as stated above, a company is a separate legal persona, and the fact that all the shares owned by one person or company has nothing to do with the existence of a separate company. Therefore, though it may be advantageous for a parent and subsidiary companies to work as a group, each subsidiary has to protect its own separate commercial interests. In our view, on the facts and circumstances of this case,the right of HTIL, if at all it is a right, to direct a downstream subsidiary as to the manner in which is should vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier, enforceability is an important aspect of a legal right. Applying these tests, on the facts of this case and that too in the light of the ownership structure of Hutchison, we hold that HTIL, as a Group holding company, had no legal right to direct its downstream companies in the matter of voting, nomination of directors and management rights. As regards continuance of the 2006 Shareholders/Framework Agreements by SPA is concerned, one needs to keep in mind two relevant concepts, viz., participative and protective rights. As stated, this is a case of HTIL exercising its exit right under the holding structure and continuance of the telecom business operations in India by VIH by acquisition of shares. In the Hutchison structure, exit was also provided for Essar, Centrino, NDC and SMMS through exercise of Put Option/TARs, subject to sectoral cap being relaxed in future. These exit rights in Essar, Centrino, NDC and SMMS (IDFC) indicate that these companies were independent companies. Essar was a partner in HEL whereas Centrino, NDC and SMMS controlled 15% of shares of HEL (minority). A minority investor has what is called as a participative right, which is a subset of protective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he next point raised by the Revenue concerns termination of IDFC Framework Agreement of 2006 and its substitution by a fresh Framework Agreement dated 5.06.2007 in terms of the SPA. The submission of the Revenue before us was that the said Agreement dated 5.06.2007 (which is executed after the completion of acquisition by VIH on 8.05.2007) was necessary to assign the benefits of the earlier agreements of 2006 to VIH. This is not correct. The shareholders of ITNL (renamed as Omega) were Array through HTIL Mauritius and SMMS (an Indian company). The original investors through SMMS (IDFC), an infrastructure holding company, held 54.21% of the share capital of Omega; that, under the 2006 Framework Agreement, the original investors were given Put Option by GSPL [an Indian company under Hutchison Teleservices (India) Holdings Limited (Ms)] requiring GSPL to buy the equity share capital of SMMS; that on completion of acquisition on 8.05.2007 there was a change in control of HTIL Mauritius which held 45.79% in Omega and that changes also took place on 5.06.2007 within the group of original investors with the exit of IDFC and SSKI. In view of the said changes in the parties, a revised Frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A is to cover the situations which may arise during the transition and those which are capable of being anticipated and dealt with. Essar had 33% stakes in HEL. As stated, the Hutchison structure required the parent and the subsidiary to work together as a group. The said structure required the Indian partners to be kept in the loop. Disputes on existence of RoFR/ TARs had to be settled. They were settled on 15.03.2007. The rights and obligations created under the SPA had to be preserved. In any event, preservation of such rights with a view to continue business in India is not extinguishment. 134 After setting out what is a SPA, why it is executed, what object it achieves and its ultimate impact, in paragraph 77, the Hon'ble Supreme Court concluded that under the HTIL structure as existed in 1994, HTIL occupied only a persuasive position / influence of downstream companies qua manner of voting, nomination of directors and management rights. That the minority shareholders / investors had participative and protective rights which flowed from the CGP share. The Supreme Court specifically referred to the call and put options. That the entire investment was sold to VIH throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , one can say that HTIL had an effective shareholding (direct and indirect interest) of 51.96% (approx. 52%) in HEL. On the basis of the shareholding test, HTIL could be said to have a 52% control over HEL. By the same test, it could be equally said that the balance 15% stakes in HEL remained with AS, AG and IDFC (Indian partners) who had through their respective group companies invested 15% in HEL through TII and Omega and, consequently, HTIL had no control over 15% stakes in HEL. At this stage, we may state that under the Hutchison structure shares of Plustech in the AG Group, shares of Scorpios in the AS Group and shares of SMMS came under the options held by GSPL. Pending exercise, options are not management rights. At the highest, options could be treated as potential shares and till exercised they cannot provide right to vote or management or control. In the present case, till date GSPL has not exercised its rights under the Framework Agreement 2006 because of the sectoral cap of 74% which in turn restricts the right to vote. Therefore, the transaction in the present case provides for a triggering event, viz. relaxation of the sectoral cap. Till such date, HTIL/VIH cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets located in India. On that count, the payment by Vodafone to Hutchison involved transfer of some assets in India. Therefore, the Tax Department would have jurisdiction to initiate proceedings for failing to withhold tax against Vodafone. However, the Hon'ble Supreme Court reversed this judgment holding that there was no assignment of call options under these very framework agreements. During the pendency of the appeal before the Hon'ble Supreme Court, the Revenue started proceedings and according to the appellant, regarding the same alleged transaction viz. entering into of revised framework agreements. As there was no consideration for this so-called transfer, the Revenue resorted to transfer price. Therefore, before the Hon'ble Supreme Court which disposed of the appeal in January 2012 and relating to Financial Year 2007-08, there has been no attempt to mislead or misinterpret the facts. The call options were never exercised. The counter parties exercised the put options sometime in 2010 and pursuant to which the shares were acquired. It is in that regard they argue as to what is the difference between a call option and a put option. We shall come to this aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n IRC v. Crossman [1936] 1 All ER 762, shares in a company consist of a congeries of rights and liabilities which are a creature of the Companies Acts and the Memorandum and Articles of Association of the company. Thus, control and management is a facet of the holding of shares. Applying the above principles governing shares and the rights of the shareholders to the facts of this case, we find that this case concerns a straightforward share sale. VIH acquired Upstream shares with the intention that the congeries of rights, flowing from the CGP 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 docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ached the FDI norms which had imposed a sectoral cap of 74%. In this connection, it may further be stated that Essar had 33% stakes in HEL out of which 22% was held by Essar Mauritius. Thus, VIH did not acquire 67% of the equity capital of HEL, as held by the High Court. This problem has arisen also because of the reason that this case deals with share sale and not asset sale. This case does not involve sale of assets on itemized basis. The High Court ought to have applied the look at test in which the entire Hutchison structure, as it existed, 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 me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach of the above items. The transaction remained a contract of outright sale of the entire investment for a lump sum consideration [see: Commentary on Model Tax Convention on Income and Capital dated 28.01.2003 as also the judgment of this Court in the case of CIT (Central), Calcutta v. Mugneeram Bangur and Company (Land Deptt.), (1965) 57 ITR 299 (SC)]. Thus, we need to look at the entire Ownership Structure set up by Hutchison as a single consolidated bargain and interpret the transactional documents, while examining the offshore transaction of the nature involved in this case, in that light. 139 In paragraph 90, the Hon'ble Supreme Court concluded that the offshore transaction is a bona fide structured foreign direct investment into India and fell outside Indian territorial tax jurisdiction and hence not taxable. The said offshore transaction evidences participative investment not a sham or tax avoidant preordained transaction. The said offshore transaction was between HTIL, a Cayman Islands company and VIH BV a company incorporated in Netherlands. The subject-matter of the transaction was the transfer of the CGP a company incorporated in Cayman Islands. Consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguishment and transfer of an asset/management and control of the property situate in India. It is in these circumstances that it is concluded even in the concurring judgment that the sale of the CGP share of HTIL to Vodafone would amount to a transfer of a capital asset within the meaning of section 2(14) of the Income-tax Act and the rights and entitlements flow from FWAs, SHAs, term sheet, loan assignments,brand licence etc. form integral part of CGP share attracting capital gains tax, cannot be the conclusion and as reached by this Court. The learned Judge, therefore, disagreed with that conclusion of the High Court. 141 In this context, even if one were to refer to the definition of the term capital asset it means property of any kind and which does not fall in the exclusive part. That property should be held by an assessee whether or not connected with the business or profession and it is transfer of such capital asset but which has the impact and to be found in section 2(47), as amended, the tax effect. It is that which, according to the appellant, can be brought to tax. 142 In the present case, the Revenue has urged during oral arguments and also extensively through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IDFC, FWA 2006 and of FWA 2007 of AS and AG group of companies is then emphasized to mean that the appellant's option rights to purchase the shares of AS and AG group of companies are identical to the cashless option under the IDFC FWA. When the IDFC cashless options could be assigned for valuable consideration without actual exercise of the options, it is clear that an interest can be created in respect of the option rights held by the assessee as has happened in the facts of the present case. 145 The argument then was that the transaction before the Hon'ble Supreme Court was of sale of CGP share between Hutchison and Vodafone group and the issue of Vodafone group stepping into the shoes of Hutchison. The issue in this appeal is the subsequent creation of interest amongst the companies of Vodafone group and after Vodafone stepped into the shoes of Hutchison. In this case, the appellant was made to create interest in the option rights in favour of VIH BV / subsidiary for which it did not receive a single penny for the capital asset being held by it. Subsequent facts are relied on in which shares were transferred to a Mauritius subsidiary and the assessee was not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Pg. 3519/A) wherein the Appellant has nominated CGP India to purchase the AG Mercantile shares from Asim Ghosh and CGP India has accepted the nomination; (vii) Letter dated 21st August 2009 (Vol.IX, Pg. 3521/A) from the Appellant to Asim Ghosh notifying nomination of CGP India to purchase the said 1,47,000 shares; (viii) 'Supplement to the Framework Agreement' dated 27th August 2009 (Vol.VIII, Pg. 3232/A) amongst others, Asim Ghosh, the Assessee as also VIH BV; (ix) Letter dated 21st October 2013 (Vol.IX, Pg.3522/A) addressed by Analjit Singh and Neelu Analjit Singh to the Appellant and VIH BV issuing a notice to both the Appellant and VIH BV under Clause 4.5 of the Framework Agreement exercising their put option in respect of 1,95,005,079 shares of SBP constituting 51% of the issued and paid up equity share capital of SBP; (x) Letter dated 23rd October 2013 (Vol.IX, Pg. 3524/A) wherein the Appellant has nominated CGP India to purchase the 1,95,005,079 SBP shares from Analjit Singh and Neelu Analjit Singh andCGP India has accepted the nomination; (xi) Letter dated 23rd October 2013 (Vol.IX, Pg. 3525/A) from the Assessee to Analjit Singh and Neelu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006 and 2007 FWAs regarding call options but the right of exercising the call option by a person other than the assessee is not automatic. It cannot be by inclusion in clause 4.4 of the FWA 2007 of a person other than the assessee. It is subject to assignment or transfer of rights as stipulated in clause 4.10 of the agreement which requires the assignment or transfer by GSPL though without the consent of AS and AG. The finding in the Tribunal's order in paragraph 33 is that the inclusion of probable assignment in clause 4.4 of the FWA 2007 alone would not tantamount to assignment or transfer of call option. Therefore, the Tribunal posed a question to itself as to whether inclusion of any of the subsidiary of Vodafone PLC in the probable assignees would create a right or interest in the property/asset being option rights in respect of the shares held under the call option. In this paragraph the Tribunal reproduces all the amended definitions and particularly of the term 'transfer' and notes the Revenue's argument that inclusion of any of the wholly owned subsidiary of Vodafone PLC as a nominee under clause 4.4 does create a right and interest in favour of the subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s then postponed so as to enable parties to canvass their arguments on the same. The parties also tendered written submissions. The Revenue reiterated its contention that the assessee-appellant had assigned the call option rights in favour of CGP India Investment Ltd. Mauritius a 100% subsidiary of Vodafone group by rewriting the FWA of 2007. The signing of the shareholder's agreement again establishes the fact that the assessee assigned the call options in favour of CGP Mauritius. The assesseee, however, contended that this agreement was put on record before the Hon'ble Supreme Court in the first Vodafone case. It was duly considered by it and paragraphs 52 and 125 of the judgment have been referred to support the contention that there was no assignment of call options in the 2007 FWA and even after considering the shareholder's agreement dated 5th July, 2007. This conclusion of the Hon'ble Supreme Court and in above paragraphs denotes that TII shareholders agreement will not alter this conclusion i.e. there was no assignment of call options in the financial year 2007-08 by rewriting the FWAs in July, 2007. The alternate contention of the assessee has also been not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the FWA of 2007 as well as shareholder's agreement. Both set of agreements were assigned by Analjit Singh and Asim Ghosh on their behalf as well as on behalf of Nadal and ND Callus respectively. The call option rights to purchase the shares held by Analjit Singh and Asim Ghosh group of companies in TII were with the assessee under the FWAs of 2006 as well as 2007. Though under the FWAs, the assessee was having the right to assign the options to one of the probable persons / assignees till that assignment takes place, the rights remain vested with the assessee. These rights to call upon to purchase the shares held by Asim Ghosh and Analjit Singh, including their 100% subsidiaries in TII stand transferred and vested in CGP India Investment Ltd., Mauritius by virtue of the TII shareholder's agreement as is clear from clauses 4.2 and 4.3 of the shareholder's agreement in question. Even under the FWA of 2007 what was to be transferred under the option rights were 23.97% and 38.78% shares in TII thereby indirect 12.25% shareholding in HEL. Therefore, a combined reading of the FWA 2007 and shareholder agreement of 2007 and a consideration of the surrounding circumstances e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the same the Tribunal could not have concluded that the amended definition of the term 'transfer' is attracted, that the matter must be viewed differently and distinctly and not in the manner noted by the Hon'ble Supreme Court. We are of the opinion that all the aspects and which are so extensively referred by the Tribunal and by us were already brought to the notice of the Hon'ble Supreme Court. The Hon'ble Supreme Court expressly viewed them and in such details as were missed by all earlier. The Hon'ble Supreme Court commented and very emphatically held that a holistic view and approach ought to be adopted in considering such intricate deals and complex transactions. One deal cannot be picked up in isolation so as to hold that it is a deliberate and intentional act of parties to circumvent Indian tax structure. The deals and agreements are but part of a larger and bigger picture to gain entry in Indian Telecom market and Multinational Corporations to adopt a mode by which they firmly establish themselves by taking support from Indian partners. On the same transactions and same set of facts reaching a different conclusion than that of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he High Court or a subordinate Court to follow the decision of the Supreme Court. A judgment of the High Court which refuses to follow the decision and directions of the Supreme Court or seeks to revive a decision of the High Court which had been set aside by the Supreme Court is a nullity. (See 1984 (2) SCC 402 and 1984 (2) SCC 324). 153 In this regard, we have already referred to the controversy before the Hon'ble Supreme Court and the reference in the judgment of the Hon'ble Supreme Court to the issue raised before it. There is some substance in the contentions of Mr. Salve that all the agreements have been referred to as also the ownership structure. The Hon'ble Supreme Court in paragraph 72 of the judgment held as under : 72. The primary argument advanced on behalf of the Revenue was that the SPA, commercially construed, evidences a transfer of HTIL s property rights by their extinguishment. That, HTIL had, under the SPA, directly extinguished its rights of control and management, which are property rights, over HEL and its subsidiaries and, consequent upon such extinguishment, there was a transfer of capital asset situated in India. In support, the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SPA as HTIL itself disregarded the corporate structure it had set up; (viii) As a holder of 100% shares of downstream subsidiaries, HTIL possessed de facto control over such subsidiaries. Such de facto control was the subject matter of the SPA. 154 Thereafter, in paragraph 78, in the context of the role of CGP in the transaction, the Hon'ble Supreme Court considered the main contention of the Revenue that CGP stood inserted at a later stage in the transaction in order to bring in a tax free entity (or to create a transaction to avoid tax) and thereby avoid capital gains. The Hon'ble Supreme court has categorically held that there is no merit in these arguments. 155 Prior thereto, in paragraph 77, the Hon'ble Supreme Court holds that under the HTIL structure as it existed in 1994, HTIL occupied only a persuasive position / influence over the downstream companies qua manner of voting, nomination of directors and management rights. That such minority shareholders / investors had participative and protective rights which flowed from the CGP share. That the entire investment was sold to VIH through the investment vehicle CGP and, therefore, there was no extingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and two directors were appointed by TII. One such director was AS, the other director was AG. This was the practice even before the term sheet. The term sheet continues this practice by guaranteeing or assuring Essar that four directors would be appointed from its group. The above facts indicate that the object of the SPA was to continue the practice concerning nomination of directors on the board of sirectors of HEL which in law is different from a right or power to control and manage and which practice was given to keep the business going, post acquisition. Under the company law, the management control vests in the board of directors and not with the shareholders of the company. Therefore, neither from clause 5.2 of the shareholders agreement nor from the term sheet dated March 15, 2007, one could say that VIH had acquired 67 per cent controlling interest in HEL. 85. As regards the question as to why VIH should pay consideration to HTIL based on an enterprise value of 67 per cent of the share capital of HEL is concerned, it is important to note that valuation cannot be the basis of taxation. The basis of taxation is profits or income or receipt. In this case, we are not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y shares of HTIL stood listed on the Hong Kong Stock Exchange as well as on the New York Stock Exchange. In Note No. 36, a list of principal subsidiaries of HTIL as on December 31, 2006, has been attached. This list shows the names of HEL (India) and some of its subsidiaries. In the said annual report, there is an annexure to the said notes to the accounts under the caption Information for US Investors . It refers to variable interest entities (VIEs). According to the annual report, the Vodafone Group consisting of HTIL and its subsidiaries conducted its operations inter alia in India through entities in which HTIL did not have the voting control. Since HTIL was listed on New York Stock Exchange, it had to follow for accounting and disclosure the rules prescribed by US GAAP. Now, in the present case, HTIL as a listed company was required to make disclosures of potential risk involved in the investment under the Hutchison structure. HTIL had furnished letters of credit to Rabo Bank which in turn had funded AS and AG, who in turn had agreed to place the shares of Plustech and Scorpios under options held by GSPL. Thus, giving of the letters of credit and placing the shares of Plustec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation pending between these parties on same issues. It is one thing to say that the judgment of the Hon'ble Supreme Court is not based on the facts now noted and another to hold that after the Supreme Court judgment, the Parliament has amended the law and has altered the basis of the judgment itself. The latter may permit the course charted by the Tribunal, but the former does not. The binding force of the judgment of a superior court is not to be taken away in this manner. It is only for the Hon'ble Supreme Court itself to come to a conclusion that its earlier judgment or decision does not lay down the correct law and will, therefore, not be binding or any observation and conclusion therein need not be applied to pending cases of similar nature because it has clarified the position in a subsequent order or judgment. It is not for any court other than the Hon'ble Supreme Court to come to such a conclusion. Judicial discipline demands that judgments of the superior Court, particularly the Hon'ble Supreme Court are not brushed aside casually and lightly. We say nothing more. 159 The conclusion then reached by the Tribunal is that the judgment of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was offered an investment in Telecom Investments India Limited (TII), an Indian company which, in turn, will hold beneficial direct or indirect interest of 19.54% interest in the issued share capital of HEL and offered AG the opportunity to make such an investment. AG declined such offer unless AG could be assisted in obtaining the finances necessary to make such investment. GSPL agreed to assist or procure assistance for AG in obtaining such finances and to provide any guarantees required by any lenders providing such financing. As a result, AG through Centrino which is in the business of investing in securities of telecommunication companies in India, subscribed to 1275426 ordinary shares of par value of ₹ 10/- each which is 23.97% subscription in TII. Goldspot, which is wholly owned by AG, currently holds 100% of the issued equity share capital of Plustech which, in turn, owns 100% of the issued equity share capital of Centrino. Therefore, in consideration of GSPL procuring credit support for financing obtained by Centrino for subscription to the TII shares, Centrino was desirous of granting GSPL right to subscribe for equity shares of Centrino. In consideration of GSPL p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the Subscription Shares; or (d) GSPL transfers the Subscription Option to a party eligible under all applicable Indian laws and regulations to hold all of the Subscription Shares; or (e) Receipt of a notice of default under the Centrino Financing. GSPL hereby agrees to abide by the directions of Goldspot in connection with the Transfer of the Put Shares to GSPL or its nominee and undertakes to do or procure all necessary things and execute all necessary forms, documents and agreements to implement such directions and the 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.. At page 308 clause 4.4 is the Call Option. Clause 4.6 deals with transfer price and reads as under : 4.6 Transfer Price Except as stipulated by clause 4.7 and subject to the requirements of any applicable regulatory requirements, the price payable for any Transfer ( Transfer Price ) pursuant to the Put Option or the Call Option shall be as determined below: (a) such fair market value as may be agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. which in turn owns 100% of the issued equity share capital of ND Callus. In consideration of GSPL procuring credit support for the financing obtained by ND Callus to finance its acquisition of TII shares, NDC was desirous of granting GSPL an option to purchase equity shares of MV Healthcare Services Pvt. Ltd. That is how the recitals in the agreement read and which we find contains similar clauses and subclauses viz. put option and call option clauses 4.3 and 4.4 and contains similar signatures. 165 Then there is a Shareholders Agreement dated 1st March, 2006 which follows the Centrino Framework Agreement (AS) and Framework Agreement dated 1st March, 2006 of AG and this shareholders agreement Annexure-E at page 347 is between Centrino Trading Company Pvt. Ltd., ND Callus, CGP India Investments Limited and TII Limited. Here, the TII is defined as the company and the agreement recites that it is engaged in the business of investing in securities of telecommunication companies in India. NDC, CGP and Centrino currently hold 38.78%, 37.25% and 23.97% respectively of the issued equity share capital of TII. The parties were desirous of entering in this agreement to confirm their u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contrary and Clause 4.4(a), be completed simultaneously within a period of 90 days from the Transfer Notice in question. Clause 4.9 deals with assignability of transfer of rights and that reads as under : 4.9 Assignability or Transfer of Rights The parties agree that the Subscription Option (all or part only) may be freely assigned or transferred by CGP without the consent of the other Parties, that the Call Options set out in Clause 4.3 may be assigned or transferred only to an Affiliate of CGP, without the consent of NDC and/or Centrino, and that the Put Options set out in Clause 4.2 may not be assigned or transferred without the prior written consent of CGP. 166 The Tribunal, by referring to all these agreements, rendered a finding that a comparison of the Framework Agreement of 2006 and Framework Agreement of 2007 by putting the relevant clauses thereof side by side reveals that the assessee shall have the right at any time to purchase all of the indirect shareholding to the extent of 12.25% in VIL as held by the group companies of AS and AG under call options. The call options under the Framework Agreement of 2006 have to be exercised either by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court was guided by the definition of the terms 'property' and 'transfer' as they then existed. Both these terms have been amended and the scope has been widened through the retrospective amendment. Therefore, whether 3GSPL has transferred or assigned the options will have to be examined in the light of the amended law. Alternative to this it is submitted that the decision of the Hon'ble Supreme Court was rendered on 20th January, 2012. However, various documents were placed on record before the Supreme Court to show that options have been exercised in April 2009 and August 2009 to the extent of 49%. This resulted in reduction of options by 6% out of 12.25% in VIL held originally. Subsequently, the Framework Agreement with AG group of companies was terminated during the financial year 2010-2011 relevant to the assessment year 2011-12. The option further reduced by 2.34% during this assessment year. We have already referred and reproduced above that part of the contention of Mr. Setalvad relying upon various letters commencing from 6th April, 2009 and ending upto the second explanation to the shareholders agreements 7th April, 2009, 27th August, 2009. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that the right to acquire shares remains with the assessee till the assessee exercises its right to nominate a pre mentioned wholly owned subsidiary of Vodafone PLC. If the right of the assessee to acquire or purchase through a wholly owned subsidiary of Vodafone PLC the shares held under the call option is spelt out but what has transpired is that change of prospective nominee will not bring about the transfer or create any right in favour of the prospective nominee until the actual nomination is made. Further, in paragraph 35, the Tribunal held that though the re-writing of the framework agreement in the year 2007 stand alone does not constitute assignment, transfer or creating any right of call options in favour of the prospective nominee, the matter does not rest there as there is a shareholders agreement dated 5th July, 2007 between the shareholders of TII on one hand and CGP India Investment Ltd., TII and VIH BC on the other. This document has been filed as an additional evidence. Based on this, the Revenue reiterated that the assessee assigned the call options in favour of CGP India Investment Ltd., a 100% subsidiary of the Vodafone group by rewriting the Framework Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have noted the same. 170 Mr. Setalvad has disputed the above position and by urging that from a reading of the Framework Agreements and the definition of the term option therein, the position as noted in the Supreme Court judgment has undergone substantial change. He has relied heavily upon certain documents and which are referred in the written note V at pages 4 and 5. This written note is on the applicability of the Supreme Court decision. The argument is that the options have been exercised in April and August, 2009 to a considerable extent. He would submit that the Hon'ble Supreme Court holds that options become property only when they are exercised. Since the definition of the word property has also been amended with retrospective effect to include option rights, it is no longer necessary for the options to be encashed in order to constitute property. Further, it is contended that the documents at least those after the letter dated 21st August, 2009, would indicate as to how the Supreme Court judgment will not apply any longer. There is evidence that option rights were in fact exercised. The option rights could not have been exercised unless an interest in the opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd by the above process by the Revenue itself. The Revenue urges that from a reading of the Framework Agreements of 2007 it would be apparent whether put option is exercised by AS / AG or call option is exercised by the appellant, it is one and the same and can be said to be two sides of the same coin. In this case, the appellant had a call option to ask AS /AG to sell shares of SBP / AG Mercantile while AS and AG had so called put option to ask VISPL to buy the same shares of SBP / AG Mercantile. Therefore, in the case of call option granted by AS and AG to VISPL, the option holder is VISPL while the option writer is AS / AG. 172 We have adverted to the above arguments and from Note No.6- A and reproduced them. The essence of the same is that AS and AG were under an obligation to sell their stake and hence had no put option. Hence, what has been transferred is rights by whatever name called under clause 4.4. of the 2007 Framework Agreement with AS and AG. As this right vested in the appellant earlier which has now been transferred to its AE i.e. Associate Enterprise in VIH BV it is a transfer of valuable right attracting capital gain. 173 At the same time, the argument is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely voluntarily or involuntarily, by way of an agreement or otherwise. The character that is given to the transfer of rights contemplated by explanation 2 may be effected in the manner further indicated by that explanation or may be dependent upon or flowing from the same. Thus, this transfer may be characterized as being effected or dependent upon or flowing from the transfer or shares of a company which may be registered or incorporated outside India but still it would have to be a transfer. 176 It is not disputed that this must be in relation to a capital asset and capital asset means property. Under section 2(14) capital asset means property of any kind held by an assessee and whether or not connected with the business or profession but does not include what falls in sub-clauses (i) and (ii). Therefore, capital asset means property and what we find is that all throughout it is concluded that there is only a transfer of a share. Further, the overseas transaction and thereafter all the agreements or arrangements noted above evince an intention of the assessee to control the telecommunic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of property and falls within the ambit of section 2(14) read with the explanation thereto. Now, this is too far fetched a situation and to accept that it is falling within the explanation one would have to assume that the option rights are held by the assessee. The options without being exercised would become property because they relate to shares of an Indian company and the holder thereof is entitled to an equity interest in HEL. At the same time, the argument is that this is a right of the appellant to subscribe to the shares of AS and AG group company and that is in the nature of a capital asset. Thus, this is a situation which is completely contradictory and the Revenue is clearly shifting its stand from time to time. There is substance in the contentions of Mr. Salve to this effect and when Mr. Setalvad urged before us that the appellant was made to create interest in the option rights in favour of VIH BV / subsidiary for which it did not receive a single penny for the capital asset being held by it. Mr. Salve interdicted and urged that this is a completely new case. This was never argued by the Revenue. Something contrary to it was contended and in that regard he placed reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(47) of the IT Act as amended would be attracted. We have found from a reading of the Tribunal's order that it held that in order to consider the issue of assignment / transfer of call option rights held by the assessee under the Framework Agreements of 2006 as well as the Framework Agreements of 2007 by virtue of the Shareholders Agreement dated 5th July, 2007, it is necessary to analyze various clauses of the TII Shareholders Agreement. The relevant clauses of the same have been reproduced in paragraph 38 and thereafter in paragraph 39, the Tribunal concluded that even under the Framework Agreement of 2007 what was to be transferred under the option rights were 23.97% and 38.78% of the shares in TII and thereby indirectly 12.25% shareholding in HEL. We do not see how and when thereafter in paragraph 40 the Tribunal concluded that all this corroborates the intention of the parties at the time of the Framework Agreements and thereafter Shareholder Agreement dated 5th July, 2007 that the option rights held by the assessee under the Framework Agreements were to be transferred / assigned only to CGP India and none other, that the option rights including the call option held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the property but even an arrangement, understanding of the nature specified above would make the transaction an international transaction. It then concludes that even if was accepted that VIH BV is only a confirming / consenting party to the Framework Agreement, the said agreement is a mutual agreement under which the call options were granted by Asim Ghosh and Analjit Singh to the 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 VIH BV, an affiliate of the assessee, for retaining the call options by AG and AS. Hence the ingredients and conditions of an international transaction between the assessee and its associated enterprise (VIH BV) in terms of section 92B read with section 92F(v) are fulfilled and satisfied. Such a conclusion is reached by terming the 2007 Framework Agreement as an arrangement, understanding or action in concert between the assessee and VIH BV for grant of call option by AG and AS to the assessee against the agreed consideration paid by VIH BV. This mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BV to HTIL and AG and AS certainly having a bearing on the profits, income, losses or asset of the associated enterprises. 180 Mr. Salve has assailed this conclusion by inviting our attention to the definition of the terms capital asset and transfer to submit that if these definitions and essential ingredients thereof are not satisfied, then, the machinery provision in Chapter X will not be attracted and applicable. His argument is that assignment of the call option cannot lead to a taxable capital gain. Even if the explanation to section 2(14) is given retrospective effect, but that is not applicable. There was never any concession made that call option is property. It is valuable but not property. In the circumstances, he would submit that there was no question of section 92B being attracted. Mr. Salve has submitted that there is no international transaction within the meaning of the above legal provisions. Mr. Salve had throughout taken pains to submit that the Revenue is confusing the issue by placing reliance upon section 92B of the IT Act. In the present case, the appellant had argued that there is no transaction and secondly there is no taxable income that arises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of VIH BV an associated enterprise of the assessee. The Revenue also submitted before the Tribunal that the ultimate beneficiaries of the option rights was CGP Mauritius another associated enterprise of the assessee. The conclusions of the Revenue are sought to be supported by documents and facts on record. In that regard, our attention is invited to the 2007 TII Shareholders Agreement and once again it is urged that in the TII Shareholders Agreement dated 5th July, 2007 between Nadal, ND Callus, CGP, TII and VIH BV are shown as confirming parties whereas Nadal, ND Callus, CGP India are shown as parties to this agreement. In the 2006 TII Shareholders Agreement, HTIL the then holding company of CGP Mauritius was not a party. However, clauses 3.1, 3.2, 3.3, 3.5, 4.1, 4.2, 4.3, 4.4, 4.10, 6 and 6.2(b) are relied upon to urge that the implications from the above clauses would result in the respective stake in share capital of TII held by ND Callus and Nadal not increasing as there is an embargo on any further issue of shares in their favour. On the other hand, call and put options permit CGP to acquire the entire stake of ND Callus and Nadal. CGP acquired the stake of ND Callus and Nad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licencees, franchises, customer list,marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long-term or short-term borrowing,lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92C and 92D and 92E to mean 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 etc. and thereafter follows the inclusive part. The explanation has been incorporated so as to remove doubt and clarify that the expression international transaction shall include all that is covered by clause (I) sub-clauses (a) to (e). By sub-section (2) of section 92B, a transaction entered into by an enterprise with a person other than associated enterprise shall, for the purpose of sub-section (1) be deemed to be a transaction entered into between associated enterprises, if there exists a prior arrangement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise and the portion which has been added now is inserted by the Finance Act No.2 of 2014 with effect from 1st April, 2015. The computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome from international transaction is not computed as above. It is for such computation that the further sections would come into play. If any income arising from an international transaction is to be computed and not otherwise. In our view, the transaction that the Tribunal refers to in section 92B 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. In the present case, there is definitely no provision of service nor is it held to be one of lending or borrowing money, but is simplicitor held to be any other transaction having a bearing on the profits, income, losses or assets of the associated 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 enterprise. The Tribunal does not indicate in any of the foregoing paragraphs which we have referred or reproduced above that the transaction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re on the footing that consideration for purchase of single share of CGP was determined on the basis of 67% of the enterprise value of VIH / HEL and while computing the value of this single share, the equity interest of 15.03% through assessee under the Framework Agreements was very much part of the economic value of the transaction under the SPA between VIH BV and HTIL. That is how the Tribunal records that it is undisputed that Framework Agreements of 2007 were executed in pursuance of and to give effect to the SPA. It then concludes that as per the terms of the SPA all group companies and affiliates of HTIL were bound by the SPA being part of the wider group and that is how it refers to several clauses. It is this understanding of the Tribunal which we find to be completely faulty. In paragraph 56 which we have reproduced above, we find that the HTIL obligations are referred to, several warranties are provided to VIH as set out in Schedule 4 to the SPA which included that HTIL was the sole beneficial owner of CGP share. It is thus apparent that the Tribunal has accepted a completely confusing and unclear case of the Department. The Tax Department must clarify if it desires to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007 has effectively created an interest in the option rights in favour of the Vodafone group subsidiary company. The shares have been purchased by CGP Mauritius subsequently which is a Mauritius based subsidiary company of Vodagone group PLC at the instance of VIH BV. We do not see any basis for this and then the reliance on the retention deed dated 8th May, 2007, between HTIL and VIH BV. That is not something which was relied upon before the Tribunal. The conditions of section 92B(1) are said to be satisfied by relying on the creation of interest in the option rights under the 2007 Framework Agreements. The basis for reliance on clause 4.4 of the 2007 Framework Agreement is to urge that there is an arrangement between the appellant and a wholly owned subsidiary of the Vodafone group PLC and if the appellant is also a wholly owned subsidiary of Vodafone group PLC, it will be an associated enterprise of any other wholly owned subsidiary of Vodafone group PLC. That is how the transaction will become an international transaction. VIH which is wholly owned subsidiary of Vodafone group PLC is a non-resident as also CGP Mauritius and which is the company to which the shares are finally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation 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 downstream subsidiaries except call centre business of the assessee. HWP (India) did not do any business till execution of the business transfer agreement on 8th May, 2007. Even subsequent to the business transfer agreement HWP (India) did not run the call centre business but it was run by the assessee as agreed upon between the parties till 4th December, 2007. Since the HTIL was under an obligation to retain the call centre business and the assessee was going to be subsidiary of VIH BV, therefore, the call centre business group was required to be transferred from the assessee to the affiliate of HWL group. 190 Mr. Salve submits that in paragraph 126 of the Tribunal's decision it concluded that the transaction made between the assessee and its non resident associate enterprises would be an international transaction in terms of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h to another Indian subsidiary of Hutch can be considered to be a device to evade tax because had the transfer been made to a foreign company, the Department could have availed of the Chapter X machinery to arrive at an arm's length price, overlooking that the transfer of an Indian call centre owned by an Indian company to a foreign company would create serious regulatory hurdles and problems in relation to Indian Exchange Control Regulations. 192 On the other hand, the argument of the Revenue is based on the fact that the appellant is an Indian company incorporated as 3GSPL and it was after 8th May,2007, that its name was changed from 3GSPL to Vodafone India Services Private Limited. It became a part of Vodafone International Holdings BV (VIH BV) on completion of share transfer agreement of 8th May, 2008. Since 2003, assessee operated a capital call centre catering to HWL group companies (Hutchison 3G Australia Pty. Ltd.) and Hutchison 3G UK Limited). On 11th February, 2007, HTIL and VIH BV entered into the SPA whereby VIH BV agreed to acquire the entire equity share capital of CGP Investments (Holdings) Ltd. ( CGP ) which indirectly owned assessee, together with certain lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged to 3640. In all this, it was urged, that the essential ingredients of section 92B(1) and 92B(2) are satisfied. The Tribunal, from paragraph 100 onwards dealt with the primary and the alternate argument and concluded that the transaction of sale of call centre business by the assessee to HWP (India) is an international transaction in terms of section 92B(1). In reaching that conclusion the Tribunal held that the transaction in substance is between the assessee and HTIL / HWL group, the associated enterprises of the assessee and HWP (India) is merely an interpose to give a different colour to the transaction with the motive to circumvent the transfer pricing provisions of the Act. The surrounding facts and circumstances can lead to the conclusion that it was only an arrangement without any substantial business or commercial interest of HWP (India) but to avoid the tax liability in India. The Call centre business, though apparently transferred to HWP (India) but all transactions of sale and purchase is between the assessee and HTIL/HWL Group. That is how this aforestated conclusion is reached. 193 We are only concerned with the attempt of the Tribunal in not only referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited [HWP (India)] by the business transfer agreement dated 8th May, 2007 and the consideration was determined at ₹ 64 crores. This transaction was claimed to be a domestic transaction. The business transfer agreement was entered into on 8th May, 2007, and the call centre business was transferred by the appellant to HWP (India) on 4th December, 2007. The Transfer Pricing Officer treated this transaction as a deemed international transaction under section 92B(2) and determined the value of the call centre at ₹ 2413 crores by applying a PE multiple of ₹ 34.96. The DRP upheld the stand of the TPO under section 92B(2) and also held that it was an international transaction under section 92B(1). The Tribunal, however, accepted the conclusion of the DRP on applicability of section 92B(1) but did not agree with the Revenue on application of 92B(2). In the cross-objections one of the ground is about applicability of section 92B(2). The argument is that both sections are applicable. Mr. Setalvad submits that if the assessee has been held by the Tribunal to be an associated enterprise of both HTIL and VIH BV during the previous year in terms of section 92A(2), then, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter. Mr. Setalvad, therefore, emphasised that completion took place on 8th May, 2007, when the CGP share was transferred to VIH BV and clause 8.8 provides that BTA will be executed only after completion. If completion has been defined as completion of transfer of CGP share to VIH BV, then, it is obvious that BTA is signed only after this transfer. Mr. Setalvad then relied upon the clause of the BTA and as set out in paragraph 13 of his written note. After relying upon it, he would submit that the date of international transaction is 4th December, 2007 and the associated enterprise relationship is also examined based on the position existing as on 4th December, 2007. Once it is held that the term any time during the year used in section 92A(2) does not result in establishing associated enterprise relationship for the periods for which conditions of section 92A are not fulfilled and it is also held that the call centre business was transferred after 8th May, 2007, then the limitations cited by the Tribunal for applying section 92B(2) are no longer valid. Thus, all conditions are fulfilled in this case. A very detailed note has been submitted and placed on record to urge that some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SPA is assumed to be correct for the sake of argument. 196 With all this, he still relies on the doctrine of lifting of corporate veil. In that regard, the written note from paragraphs 34 to 43 has been perused by us as also paragraph 45. We have also perused the further paragraphs 46 to 48. 197 Mr. Salve has submitted that the argument of the Revenue and the conclusions of the Tribunal to the extent assailed by the appellant- assessee fail to note the difference between the two sub-sections (1) and(2) of section 92B. He would submit that section 92B(2) cannot be re-written. HWP (India) was an existing Indian company. 198 For appreciating all the above contentions, what we nave to note is that section 92 of the Act, with which Chapter X opens, deals with computation of income from international transaction having regard to arm's length price. Sub-section (1) of section 92 says that any income arising from an international transaction shall be computed having regard to the arm's length price. Then explanation to sub-section (1) says that for removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o by an enterprise with a person other than an associated enterprise shall for the purpose of sub-section (1) be 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 associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. 201 Mr. Salve is right in urging that when international transaction is defined by sub-section (1) to mean a transaction between two or more associated enterprises either or both of whom are non-residents and in the nature specified in sub-section(1), by sub-section (2) a transaction entered into by an enterprise with a person other than an associated enterprise shall be 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 associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. Thereafter the doubts are cleared by the expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diary is located at the same place where the enterprise is located or at a different place or places; (iiia) permanent establishment referred to in clause (iii), includes a fixed place of business through which the business of the enterprise is wholly or partly carried out. 204 Mr. Salve, therefore, emphasises that if any income arises from the international transaction that shall be computed having regard to the arm's length price. He relied upon the fact that the appellant is an Indian company incorporated as 3GSPL and was part of the HTIL group. It operated a capital call centre catering to HWL company since 2003. Under the SPA, HTIL agreed to procure sale of the Indian share capital of CGP, an indirectly wholly owned subsidiary, to VIH BV. The call centre business was required to be hived off to an affiliate of HWL under a business transfer agreement and that is how the call centre business was accordingly transferred by 3GSPL to HWP (India). These facts have been noted in paragraphs 86 and 90 of the impugned order of the Tribunal. The business established in 2003 by an Indian company, always held by an Indian company and in 2007, is transferred to an Indian c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the Assessing Officer and the Transfer Pricing Officer, the petitioner ought to have valued each share at ₹ 53,775/- as against the aforesaid valuation done under the Capital Issue (Control) Act. On that basis a shortfall in premium to the extent of ₹ 45,256/- per share resulted in a total shortfall of ₹ 1308.91 crores. Both the Assessing Officer and the Transfer Pricing Officer on application of the transfer pricing provision in Chapter X of the Income Tax Act held that this amount of ₹ 1308.91 is income. Further, as a consequence of the above, this amount is required to be treated as deemed loan given by the petitioner to its holding company and periodical interest thereon is to be charged to tax as interest income of ₹ 86.35 crore in the financial year 2008-09 i.e. assessment year 2009-10. The argument was that absent income arising from international transaction, Chapter X of the Act has no application. The accounting year involved in the proceeding was 2009-10. The basic facts are noted and namely the undisputed position that the holding company is an associated enterprise of the petitioner for the purpose of Chapter X as defined in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s senior counsel and in paragraph 17, the contentions and submissions of the Revenue have been noted. Thereafter, in paragraph 21, all the relevant provisions, including section 92, sections 92B, 92F are reproduced and in paragraphs 22, 23, 24, 25 and 26, this is what is held : 22 Chapter X of the Act in the present form replaced the erstwhile Section 92 of the Act by Section 92 to 92F of the Act with effect from the assessment year 2002-03. Erstwhile Section 92 of Chapter X of the Act did deal with cross border transactions permitting adjustments of profits made by a resident in case of transactions with non-resident (two entities having close connection) if the profits of the resident were understated. This and Section 40A(2) of the Act which governed all assessee, did give some power to the Assessing Officer to ensure the correct profits are brought to tax in case of cross border transactions. However, in the light of Indian Economy opening up and becoming part of the global economy, leading to a spate of foreign companies (Multinational Enterprises) establishing business in India either by itself or through its subsidiaries or joint ventures. Similarly, Indian Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or expenses allocated or apportioned between two or more associated enterprises under a mutual agreement or arrangement shall be at arm's length price. Examples of such transactions could be where one associated enterprise carries out centralized functions which also benefit one or more other associated enterprises, or two or more associated enterprises agree to carry out a joint activity, such as research and development, for their mutual benefit. 55.6:- The new provision is intended to ensure that profits taxable in India are not understated (or losses are not overstated) by declaring lower receipts or higher outgoings than those which would have been declared by persons entering into similar transactions with unrelated parties in the same or similar circumstances. The basic intention underlying the new transfer pricing regulations is to prevent shifting out of profits by manipulating prices charged or paid in International Transactions thereby eroding the country's tax base. The new section 92 is, therefore, not intended to be applied in cases where the adoption of the arm's length price determined under the regulations would result in a decrease in the overall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly Chapter X of the Act stands concluded by the order in Vodafone- III. 25 But we have examined the issue afresh. The word income for the purpose of the Act has a well understood meaning as defined in Section 2(24) of the Act. This even when the definition in Section 2(24) of the Act is an inclusive definition. It cannot be disputed that income will not in its normal meaning include capital receipts unless it is so specified, as in Section 2(24) (vi) of the Act. In such a case, Capital Gains chargeable to tax under Section 45 of the Act are, defined to be income. The amounts received on issue of share capital including the premium is undoubtedly on capital account. Share premium have been made taxable by a legal fiction under Section 56(2)(viib) of the Act and the same is enumerated as Income in Section 2(24)(xvi) of the Act. However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from a non-resident i.e. premium allegedly not received on application of arm's length price. Therefore, absent express legislation, no amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above, we find considerable substance in the Petitioner's case that neither the capital receipts received by the Petitioner on issue of equity shares to its holding company, a non-resident entity, nor the alleged short-fall between the so called fair market price of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act. 26 We shall now consider the submissions on behalf of the Revenue in the context of the statutory provisions. At one point of time we were toying with the idea of only dealing with the new grounds in support of the impugned order, as canvassed before us by the learned Solicitor General. This was for the reason that the revenue itself did not adopt the basis/grounds found in the impugned order viz. the short receipt of share premium being sufficient justification to invoke Section 92(1) in Chapter X of the Act. The ground found in the impugned order was substituted /replaced at the hearing with a new ground viz: benefit given by the Petitioner to its holding company on application of Section 92(2) of the Act. However, on further consideration to comprehensive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am Agarwal Vs. State of M.P. 1999(8) SCC 667 had laid down the following test for interpreting a taxing statue as under:- The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more that what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order on grounds different from those found therein, it would be necessary to note that taxing of premium not received as the ground in the impugned order is given up and the jurisdiction to tax a transaction of issue of shares is on the basis of benefit given to the holding company. The basis/justification of the impugned order is based upon Section 92(1) of the Act, while before us the learned Solicitor General places reliance upon Section 92(2) read with 92(1) of the Act to subject the transaction to tax on the basis of the cost of the benefit passed. Therefore, many of the decisions cited by the Petitioner in its opening submissions are no longer relevant and therefore, not dealt with in this order. FINDINGS ON SUBMISSIONS OF SOLICITOR GENERAL:- 34 The learned Solicitor General submitted that Section 92(1) has to be read with Section 92(2) of the Act and a conjoint reading would indicate that the cost incurred in passing on the benefit to the holding company is being subjected to tax and not the share premium not received. The difference between the arm's length price and the price charged for issue of shares is the benefit conferred upon the holding com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending upon the arm's length price of such benefit to be received by the assessed associated enterprise. It would have no application in the cases like the present one, where there is no occasion to allocate, apportion or contribute any cost and/or expenses between the Petitioner and the holding company. Therefore, we find no substance in the above submission. 37 The learned Solicitor General next contended that the issue is no long res integra as the issue stands covered by the decision of the Apex Court in Mazgaon Dock Ltd. (supra) while interpreting Section 42(2) of 1922 Act. It is submitted that the above Section 42(2) of the 1922 Act dealt with transfer pricing. In the above case, the Apex Court held that under Section 42(2) of the 1922 Act, the tax is charged on the resident in respect of profits which he would have normally made but not made, because of a business association with a non resident. The resident was subjected to tax on notional profits in respect of its business dealing with a non resident with whom he had close connection. Section 42(2) of the 1922 Act reads as under:- Where a person not resident or not ordinarily resident in the taxable ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents to a taxing statute:- (a) subject of tax; (b) person liable to pay the tax; (c) rate at which tax is to be paid, and (d) measure or value on which the rate is to be applied. Thus, there is difference between a charge to tax and the measure of tax (a) (d) above. This distinction is brought out by the Supreme Court in Bombay Tyres India Ltd. Vs. Union of India reported in 1984 (1) SCC 467 wherein it was held that the charge of excise duty is on manufacture while the measure of the tax is the selling price of the manufactured goods. In this case also the charge is on income as understood in the Act, and where income arises from an International Transaction, then the measure is to be found on application of arm's length price so far Chapter X of the Act is concerned. The arriving at the transactional value/ consideration on the basis of arm's length price does not convert non-income into income. The tax can be charged only on income and in the absence of any income arising, the issue of applying the measure of arm's length price to transactional value/consideration itself does not arise. The ingredient (a) above is not satisfied i.e. sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the construction of computation provisions. In the present case, there is no charging provision to tax capital account transaction in respect of issue of shares at a premium. Computation provisions cannot replace/ substitute the charging provisions. In fact, in B. C. Srinivasa Shetti (supra), there was charging provision but the computation provision failed and in such a case the Court held that the transaction cannot be brought to tax. The present facts are on a higher pedestal as there is no charging provision to tax issue of shares at premium to a non-resident, then the occasion to invoke the computation provisions does not arise. We, therefore, find no substance in the aforesaid submission made on behalf of the Revenue. 209 Mr. Setalvad submitted that this judgment would not be of any assistance to the assessee. 210 We are unable to agree with him. In that regard, we have perused the written note No.6 so also considered his oral arguments. We are unable to agree with him that in this case, there is an income arising in the form of capital gains as per the provisions of section 45 and section 2(14) and 2(45) of the Act and, therefore, this Division Bench judgment is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Mr. Salve, and the further paragraphs would support the arguments canvassed before us in this case and, therefore, we find that the reliance on paragraphs 203 to 211 of this judgment is well placed. 215 Thereafter this Court referred to the post amendment scenario and this Court clarified that it is neither necessary nor proper to indicate the application of section 2(47) as amended to the proceedings before it. In the circumstances, we do not think that any further reference to this judgment is necessary. 216 As far as the Division Bench judgment in the case of Vodafone India Services Pvt. Ltd. vs. Union of India Ors., (2014) 368 ITR 1, we have followed and applied it and hence the reliance on this judgment is well placed. Further, the Department has accepted this judgment is also apparent. 217 Mr. Salve then relied upon the judgment of the Hon'ble Supreme Court in the case of Rambaran Prosad vs. Ram Mohit Hazr Ors. (1967) 1 SCR 293 and that reiterated the well settled rule that as far as a mere contract for sale of immovable property is concerned that does not create any interest by itself in the immovable property. At best, it creates a right to apply for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and a limited interest which can be severed and disposed of for a specified period in the form of lease or mortgage or the like is part of that bundle. Therefore, the Tribunal held that the purchase price paid for the land includes therein a component of purchase price attributable to various counts of interests embedded in the said land. That is how the Tribunal confirmed the orders impugned before it and dismissed the appeal. 222 However, the reference to the High Court for the two questions in paragraph 6 resulted in an answer as noted in paragraph 7. Thus, the finding and essentially was that the rights of the owner of a land included a right to grant the lease for exploiting the land. It is in these circumstances and what should be the cost of acquisition of a right which is of limited enjoyment that the Hon'ble Supreme Court in dismissing the appeal made the observations in paragraph 9 which are relied upon by Mr. Setalvad before us. As we have already noted in the foregoing paragraphs that the arguments of Mr. Salve on cost of acquisition of the asset have not been dealt with and discussed in detail because of the conclusions on the substantive questions and as rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Supreme Court in the manner done also cannot be sustained. We have commented upon the same as well. We have found that there is no substance in the contentions of the Revenue that a fraud was perpetrated by the assessee on the Hon'ble Supreme Court as well as the other authorities by suppressing vital and material facts. Once the Hon'ble Supreme Court judgment was in the field and in which the observations and findings were made on the very issue, then, no attempt by any party to sidetrack the same can be upheld. It is in these circumstances that we find that the Tribunal's order is vitiated by serious errors of law apparent on the face of the record. It is also perverse for it ignores vital materials and which have been noted extensively in the judgment of the Hon'ble Supreme Court. Once the Revenue also tries to impugne and challenge some of the findings in the order of the Tribunal and has filed cross objections, then, our job is fairly easy. Then, the inconsistencies or contradictions in the Tribunal's order are apparent. We are unable to uphold the crossobjections of the Revenue because in the given facts and circumstances in upholding some of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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