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2015 (10) TMI 2487 - HIGH COURT OF BOMBAY

2015 (10) TMI 2487 - HIGH COURT OF BOMBAY - [2016] 385 ITR 169 - Transfer u/s 2(47) - satisfaction of essential ingredients - effect of amendments - intention of the assessee to control the telecommunication business of HEL in India through the TII and downstream companies - Held that:- 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 pict .....

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subsists. Even if there was a change therein on the basis of the Revenue's stand itself the Tribunal concluded quite contrary 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 optio .....

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evenue 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 will have to draw an inference but without some concrete primary facts being established. Mere receipt of incidental benefits may not be sufficient to attract transfer prici .....

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rt has categorically held that there is no capital gain which can be taxed in terms of Indian tax regime. This is as far as the transfer of a share. The Court holds that there is no transfer of asset. As far as the above transactions are concerned, that is termed as arrangement creating an interest in option rights under the Framework Agreement of 2007. As already held this is also not covered by section 2(47) as amended retrospectively. - Regarding Call Centre Business: - Applicability .....

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is satisfied. Further, the transaction involves sale of call centre business which is a capital asset. The capital asset of the assessee is getting transferred which in turn affects the income or profits and assets of the appellant. Hence this transaction of sale of call centre satisfies the condition specified in section 92B(1) and constitutes an international transaction even if the assessee's contention that the BTA was signed before the implementation of the SPA is assumed to be correct for .....

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utation 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 findi .....

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Fereshte Sethna, Ms. Gayatri Goswami, Mr. Tushar Jarwal and Mr. Sachit Jolly I/b Dutt Menon Dunmorrsett For the Respondent : Mr. Kevic Setalvad, senior counsel/special counsel with Mr. Abhay Ahuja, Mr. Sham Walve, Mr. Awais Ahmedji, Ms. Sushma Nagraj and Mr. Swarnangshu Shekhar i/b Mr. Abhay Ahuja JUDGMENT [Per S.C. Dharmadhikari, J.] 1 An application for interim relief styled as a Notice of Motion was placed before us and at the hearing of which we indicated to the parties that bearing in mind .....

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at Mumbai, dated 10th December, 2014, in Income Tax Appeal No.7514/Mum/2013. The assessment year is 2008-09. The appeal invokes section 260-A of the Income Tax Act, 1961 (for short IT Act ) and raises the following substantial questions of law : (1) Whether the Tribunal had the jurisdiction to arrive at a finding that there was transfer of rights, on a basis that was neither set out in the draft order of assessment, the order of the TPO, or the order of the DRP -thereby negating the entire schem .....

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ether it was open in law to the Tribunal to bypass the observations in that judgment and also ignore the findings of this High Court in its judgment dated 6 September 2013 and come to the conclusion that the judgment of the Hon'ble Supreme Court was irrelevant? (4) Whether the Tribunal 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 .....

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d 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 under the TII Shareholders Agreement b .....

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Whether the Tribunal erred in law in placing reliance on a document that has not been relied upon, referred or argued by any of the parties without putting the parties on notice about its relevance and inviting arguments on it? (10) Whether the Tribunal was correct in law in changing the very basis of the Respondent s case even when the Respondent did not invite the Tribunal s judgment on the TII Shareholders Agreement? (11) Whether the Tribunal was misconceived in law in admitting the TII Share .....

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option under 2007 FWAs against consideration is an international transaction as per section 92B read with Section 92F(v) when the Tribunal itself held that there has This Order is modified/corrected by Speaking to Minutes Order dated 23/12/2015 not been any assignment under the 2007 FWAs? (14) Whether the Impugned Order is erroneous in law as even though it has held that the assignment is from the appellant to CGP India Investments Limited it holds that the international transaction is between t .....

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e 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? ( .....

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on of the DRP in treating the transaction as an international transaction in terms of section 92B(1) when the TPO had sought to treat the transaction as an international transaction in terms of section 92B(2) of the Act? (21) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the arm s length price for the transfer of the Call Centre business was to be determined by adopting a valuation for the Call Centre business based upon the Disc .....

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s Private Limited (for short 3GSPL ) as a wholly owned subsidiary of a Mauritian entity, namely, Hutchison Teleservices (India) Holdings Limited. The said HTIL was in turn a wholly owned subsidiary of CGP Investment Holdings Limited, Cayman Islands (CGPC). 5 Until 8th May 2007, CGPC was held by HTI (BVI) Holdings Limited, a company incorporated in British Virgin Islands which in turn was ultimately controlled by Hutchison Telecommunication International Limited, Cayman Island (for short HTIL ). .....

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7. Further, HTIL was an indirect subsidiary of Hutchison Whampoa Limited (for short HWL ) which was a company whose shares were also listed on the Stock Exchange in Hongkong in 2007. The appellant was engaged since April, 2003, inter-alia, in providing Call Centre services, captive to entities within the HWL group and specifically to two group companies viz. Hutchison 3G Australia Private Limited and Hutchison 3G UK Limited in terms of the Managed Service Agreement for Contact Centre Services be .....

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ould 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 t .....

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group companies and AS and his group companies. These agreements were styled as Framework Agreements and shall hereinafter be referred to as 2006 FWA for short. These enabled the acquisition of the above rights over the shares of Asim Ghosh group company and Analjit Singh group company. These companies indirectly or directly held 12.25% equity shares in the Indian telecom operating company, Vodafone India Limited (for short VIL ) and earlier known as Hutchison Essar Limited (for short HEL ). Un .....

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exercise of such put option rights by AS and AG. Annexures C and D to the appeal paper-book are copies of these Framework Agreements with the AS and AG group of companies. 7 On the same date, a Shareholders Agreement was executed between the shareholders in Telecom Investments India Private Limited (for short TII ) i.e. Nadal Trading Company Pvt. Ltd. (for short Nadal ) , ND Callus Info Services Private Limited (for short ND Callus ) and CGP India Investments Limited (for short CGP India ). TII .....

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gh 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 annou .....

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l 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 interest in VIL and in the manner set out hereinbelow : (i) 42.34% direct interest in VIL/HEL through 100% wholly owned Mauritius subsidiary of CGPC; (ii) 9.62% through Indian companies, Telecom Investments India Pvt. Ltd ( TII ) and Omega Telecom Holdings Private Limited on a pro-rata basis indirectly held by CGPC; (iii) 15.03% options through the appella .....

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and AG under the put options and their obligations under the call options were retained entirely. They were thus intact. The further plea is that the reason for the Framework Agreements with Asim Ghosh and Analjit Singh being re-drawn in July, 2007 was that following the course of the Foreign Investment Promotion Board (for short FIPB ) process undergone by VIH BV in connection with the SPA, a new consideration was agreed between the parties. The appellant, by letter dated 9th April, 2007, had c .....

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ppellant retained the sole discretion to appoint a nominee to acquire the shares held by AS and AG in their group companies that indirectly held stake in the operating company, namely, VIL. 11 The TII share holders agreement dated 1st March, 2006, was also re-written consequent to the acquisition of the equity interest in VIL by the Vodafone group. A fresh Shareholders Agreement dated 5th July, 2007, was entered into wherein VIH BV was made a confirming party. Annexure K is a copy of this Shareh .....

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ncial 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 .....

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to a separate litigation between the Income Tax Department and VIH BV, in which proceedings the Hon ble Supreme Court in SLP (C) No. 464 of 2009 vide Order dated 23rd January, 2009 of the Hon ble Supreme Court directed the Income Tax Department to first determine the issue of jurisdiction to proceed against VIH BV in respect of the said transaction executed under the SPA. Accordingly, the Assistant Director of Income Tax (International Taxation) vide order dated 31st May, 2010, held that it had .....

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8% equity interest in the Indian telecommunications company in India and was therefore, liable to capital gains tax and that the said 66.98% included, 15.03% interest through call options held by the appellant. This Hon ble Court vide its order and judgment dated 8th September, 2010, held that the transfer of the share capital of CGPC and the related controlling rights was a transfer of a capital asset outside India, but that some rights and entitlements, particularly, the call and put options u .....

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. 26529 of 2010 against the aforesaid Order dated 8th September, 2010 of this Hon ble Court. By an interim 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 A .....

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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. Thereafter, on 22nd October 2010, the Assessing Officer passed an order quantifying the liability of VIH BV under Section 201 of the Act, whereby the Assessing Officer specifically held that the 15% opti .....

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Court of India by its order dated 26th November, 2010. All documents and submissions filed by VIH BV before the Assessing Officer during quantification of liability against VIH BV (pursuant to the direction of the Hon ble Supreme Court), which included the Valuation Reports obtained from two independent valuers namely, KPMG and S.R. Dinodia in relation to valuation of options under the Framework Agreements, the Share Purchase Agreement in relation to the purchase of shares of AS and AG group com .....

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ction under the SPA, wherein VIH BV had specifically undertaken to revise the Framework Agreements based on the fair market value determined in the Goldman Sachs presentation. Copies of VIH BV s submissions dated 19th October, 2010 alongwith the FIPB approvals and the Share Purchase Agreements, Assessing Officer s quantification order dated 22nd October, 2010, Hon ble Supreme Court s order dated 26th November, 2010, VIH BV s Application for urging additional facts and amendment of the SLP are An .....

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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 .....

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reements, this right has been given to the wholly owned subsidiaries of Vodafone Group, which amounts to assignment of call option. The TPO vide the said show cause notice asked the appellant to show cause as to why the alleged assignment of right of call option was not disclosed as an international transaction and required the appellant to prove the arm s length nature of the alleged transaction and to provide valuation of rights conferred on its Associated Enterprise (for short AE ). Therefore .....

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f the call option right by the appellant, there was no question of proving arm s length in respect of the alleged transaction and/or valuation of the rights of the appellant allegedly transferred by the appellant. The TPO, rejecting the submissions of the appellant and without providing any opportunity to the appellant of the comparable it sought to rely on for computing the arm s length price of the alleged transaction, passed the transfer pricing order on 31st October, 2011, holding that in th .....

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l CUP for valuation of alleged assignment of call option by the appellant and computed the arm s length price of the alleged transaction of assignment of call option as ₹ 6178,88,26,177 by extrapolating the figures of ₹ 62.24 Crores (in respect of direct 0.1234% of VIL shares) 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 i .....

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P 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 would not be mer .....

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e said to have occurred. Further vide appellant s letter dated 19th December, 2014, certain documents, including the SPA and the 2006 and 2007 Framework Agreements as requisitioned by the AO were submitted. 22 However, in complete disregard to the submissions of the appellant, the AO on 29th December, 2011, passed a draft assessment order under Section 144C of the Act. The AO in his draft assessment order also held that since the AE of the appellant, i.e., VIH BV became a party to the 2007 Frame .....

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mount paid by VIH BV towards option fee under clause 4.4 of the 2007 Framework Agreement and thereby computed short capital gain of ₹ 6105,44,11,177/-. It is important to note here that the case of the AO was also restricted to the mere re-writing of the 2007 FWAs and the fact of exercise of the put options by AS and AG was specifically brought to the notice of the AO. Copies of the show cause notice dated 16th November, 2011, appellant s submissions dated 28th November 2011, 15th December .....

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oted 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 Supr .....

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rt DRP ) under section 144C of the IT Act on 30th January, 2012, against the draft assessment order and without prejudice to the filing of a writ petition bearing No.488 of 2012 on jurisdictional issues. In the meanwhile, the review petition filed by the Revenue in the Supreme Court of India was also dismissed on 20th March, 2012. The proceedings before the Dispute Resolution Panel referred above continued and without prejudice to their contentions and the stand taken in the writ petition. The a .....

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6178,88,26,177/- in respect of the alleged transaction of assignment of call options under the 2007 Framework Agreements but this order was not served on the appellants in view of the directions of this Court in its order passed in writ petition No.488 of 2012. This Court eventually passed its order on 6th September, 2013 and that disposed of Writ Petition No.488 of 2012. This Court relegated the appellants to exercise of its statutory remedy of appeal before the Income Tax Appellate Tribunal bu .....

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endency of the said appeal: 26 Before the Tribunal, the respondent filed three sets of additional evidence on 20th February, 2014 (running into 930 pages), 24th February, 2014 (running into 945 pages) and 3rd March, 2014 (running into 265 pages) vide applications dated 24th February, 2014 and 3rd March, 2014, inter alia, comprising of annual reports of Vodafone Group Plc, various Shareholders Agreements and Supplement(s) to the Framework Agreements. The respondent sought to file these documents, .....

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tion, 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 co .....

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additional documents in relation to the nomination of CGP India Investments Ltd pursuant to the exercise of put option in 2009 by AS and AG under the 2007 Framework Agreements. Copy of the index of the documents filed by the appellant on 3rd March, 2014 alongwith the additional documents are Annexures EEE and FFF (Colly.) respectively. A copy of the index of the documents filed by the appellant on 5th March, 2014 alongwith relevant annexures are Annexures GGG and HHH (Colly.) respectively to th .....

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l paper-book. 29 During the course of hearing on 8th April, 2014, the counsel for the Revenue for the first time alleged that the judgment of Hon ble Supreme Court in the case of VIH BV v. Union of India (2012) 341 ITR 1 and that of this Hon ble Court in the case of VISPL v. Union of India (2013) 359 ITR 133 have been obtained by fraud since the material facts of put options had not been disclosed before either of the Courts. The appellant vide its application dated 9th April, 2014 requested the .....

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stablishing that the fact of subsequent exercise of put 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.) .....

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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 the Supreme Court judgment related to the alleged gain arising from the transfer of the CGP share to VIH BV. The Revenue contended that the consideration in the SPA was not limited to the value of the share but related to other ancillary transactions, .....

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a matter of no relevance to this issue. 32 Although voluminous additional documents were filed by the Revenue, including the Shareholders Agreement dated 5th July, 2007 of a downstream Indian company, Telecom Investments India Ltd., however, no arguments were advanced by the Revenue in support of the same and the case of the Revenue throughout was that upon rewriting of the Framework Agreements in 2007, the appellant had assigned its call option rights to it s A.E. under Clause 4.4. Revenue s r .....

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uded the hearing and reserved its order on the appeal on 13th August, 2014. Copies of list of dates and detailed submissions advanced by the appellant on 20th March, 2014, 24th March, 2014, 23rd to 25th June 2014, 7th August, 2014, 8th August, 2014, 9th August, 2014 and 14th August, 2014 are Annexures PPP (Colly). Further, copies of detailed submissions advanced by the Respondent on 5th May, 2014, 6th May, 2014, 17th June, 2014 and 13th August, 2014 are Annexures QQQ (Colly) to this appeal paper .....

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eement. 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 introdu .....

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vember, 2014, filed by the appellant and submissions dated 19th November, 2014, filed by the respondent in response to the clarifications sought by the Tribunal respectively are Annexures RRR and SSS respectively to the appeal paper-book. 35 On 10th December, 2014, the appeal of the appellant was listed for pronouncement before the Tribunal and the impugned order was passed. The Tribunal ruled in favour of the appellant on the original case that was framed against the appellant from the inceptio .....

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/ transfer cannot take place until an actual nomination is made. In addition, the Tribunal also examined in detail the applicability of the amended provisions of Section 2(47) of the Act and held that the essence of transfer even in the amended provisions remains that actual disposal or actual creation or parting with an interest in an asset. Accordingly, since no actual disposal or actual creation / parting in an interest occurred as no nomination was made, the Tribunal held in favour of the a .....

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e before the Supreme Court of India and that the Supreme Court, according to the Tribunal, proceeded on undisputed facts. 37 The appellant submits that since the impugned order has held that the call options have been assigned / transferred 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 .....

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e 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 telecom business of Hutchison Essar Limited (hereinafter referred to as HEL .....

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PA between VIH BV and HTIL. 40 Accordingly, the Call Centre business was sold by the appellant (part of the HTIL Group at the time of sale) to Hutchison Whampoa Properties (India) Pvt. Ltd. ( HWP India ), an Indian resident company (part of the HWL Group). HWP India was incorporated in January 2006 to pursue the real estate business in India. However, this business did not materialize and HWP India was, therefore, a clean HWL-owned company that was readily available to acquire the Call Centre bu .....

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upon receipt of the statutory approvals/licenses. A copy of the said BTA dated 8th May, 2007, is Annexure VVV to the appeal paper-book. 42 In order to avoid market speculation, notwithstanding the fact that the sale of Call Centre business was approved on 18th April, 2007 in Board of Directors meeting of the appellant, the parties wished to delay signing the BTA until just prior to completion of the SPA, so that the execution of BTA and completion of SPA could be announced to the public at the .....

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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 appellan .....

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Dalal & Shah, a registered Chartered Accountant firm. The valuation report determined the value of the Call Centre business by using a weighted average of the Net Asset Value (for short NAV ) method and the Profit Earning Capacity Method (for short PECV ) or Earning Capitalization method. This valuation methodology was in accordance with the principles laid down by the Hon ble Supreme Court in the case of Hindustan Lever Employees' Union vs. Hindustan Lever Limited and Ors., reported in .....

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a long- term capital loss in respect of the sale of the Call Centre business was computed in the following manner: Sale Consideration (Rs.) 64,00,00,000/- Less: Net worth of the undertaking (Rs.) 86,49,50,364/- Long Term Capital Loss (Rs.) 22,49,50,364/- 47 However, during the course of assessment proceedings, the TPO treated the transaction of sale the of Call Centre business, which was admittedly between two domestic entities, as an international transaction under section 92B(2) of the Act. T .....

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was not an international transaction, accordingly, the appellant challenged the jurisdiction of the TPO vide writ petition No. 488 of 2012 before this Hon ble Court. This Hon ble Court vide its order dated 6th September, 2013 upheld the jurisdiction of the TPO in this regard. 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 .....

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ll 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 and legal reasons. So far as .....

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sferred by the assesse to HWP India. The AO passed final assessment order dated 31st October, 2012 in pursuance of directions of DRP, inter alia, determining a capital gain on the transfer of the Call Centre business at ₹ 1322 crores. 50 The appellant challenged the aforesaid order of the AO before the Tribunal. The Tribunal vide its order dated 10th December, 2014 accepted the appellant s contention that section 92B(2) of the Act is inapplicable on the facts and circumstance of the case i .....

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stomer care BPO" segment and that the TPO had selected data of companies which functioned in an entirely different segment and which was not comparable with the appellant s case. A copy of the Tribunal s order dated 18th February, 2010 passed in the appellant s case for AY 2004- 05 is Annexure ZZZ to this appeal paper-book. 52 To the best of appellant s knowledge, the said decision of the Tribunal for AY 2004-05 has been accepted by the Department and no appeal has been filed in this Hon bl .....

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ed 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 a .....

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ld be determined in accordance with internationally accepted arm s length standard. 55 The appellant along with its return of income furnished a report in Form 3CEB dated 30th September, 2008, in respect of the International transactions entered into by it with its Associated Enterprises. The said report set out the details of the various International transactions and certified that they were at arm s length. The appellant had also prepared a detailed Study Note justifying the arm s length pric .....

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specified in the Act for being treated as a comparable (Annexure IV of this note). The appellant adopted the Transactional Net Margin Method ( TNMM") and computed the arithmetic mean of the PBIT: operating cost of the said 11 companies at 3.51%. The appellant computed its own effective PBIT as a percentage of operating cost at 7.12% (Annexure V of this note). As the appellant s PBIT to operating cost was higher than that of the comparables, the appellant concluded that the price charged by .....

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ed from international transactions was at arm s length. Thereafter, the appellant was further asked by the TPO to conduct a fresh search based on the data available on the PROWESS database, pursuant to which the NCP mark-up earned by the comparables for the contact centre services was 0.99 percent. Accordingly, a computation was submitted before the TPO using the current year s data also which further evidenced that the price charged by the appellant was at arm s length. 58 However, without appr .....

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panies; - 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 .....

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gin computed by the TPO. 62 Being aggrieved by the said order of the respondent, the appellant filed its objections before the DRP. The DRP vide order dated 30th September, 2012, allowed partial relief to the appellant by removing some of the comparables from the list of comparables selected by the TPO, which reduced the NCP margin to 19.21% based on a set of 10 comparables. 63 The AO in pursuance to the aforesaid DRP directions, passed the final assessment order dated 31st October, 2012, under .....

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t the following companies are comparable to the appellant: a) Infosys BPO Ltd. b) WIPRO Ltd. (seg) c) HCL Comnet Systems and Services Ltd. (seg) d) E4e Healthcare Solutions Ltd. 65 It may be pertinent to mention here that while the TPO had used segmental financial information of Wipro Ltd. and HCL Comnet Systems and Services Ltd. called upon by issuing notice under section 133(6) of the Act, this information was not made available to the appellant inspite of request for the same. This fact that .....

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, 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 ma .....

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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 by the ITAT is perverse inasmuch as the materials which were relevant have either been overlooked or omitted from consideration. This has led to the Tribunal rendering inconsistent and contradictory conclusions. The Tribunal, in a very lengthy order, has failed to note the fundamental controversy and by losing sight of a legal submission canvassed through .....

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e is seeking to impose tax on capital gains arising on the transfer of an asset. Hutchison group (Hutchison Telecommunication International) sold a company CGP Investments (Cayman Island company) to VIH BV. On account of transfer of the share, a company called 3 Global Services Private Limited became a subsidiary (direct of VIH BV). 3GSPL is now known as the appellant. The appellant had entered into three Framework Agreements under which it had call options and obligations by way of put options. .....

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alve then extensively referred to the first case in which this transaction was the subject matter. He submitted that the Revenue contended in this first case that the revised Framework Agreements were a part of the overall transaction and the consideration for these revised Framework Agreements was also inbuilt into the amount paid by Vodafone to Hutchison for acquisition of the CGP share. Mr. Salve submits that the Revenue's stand and which was accepted by this Court in the first case, late .....

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its 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 sub .....

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discovered from the documents filed another agreement which was entered into between the shareholders of the appellant CGP (Mauritius) and AG and AS in their companies which allegedly had another set of call options in favour of CGP. The Tribunal arrived at the conclusion that the call options contained in this shareholders agreement rendered the call options contained in the Framework Agreements nugatory. On this basis, the Tribunal concluded that the shareholders agreement, therefore, results .....

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enue. He contended that the Revenue never urged that the shareholders agreement of 2007 to which CGP was a party and to which the appellant was not a party resulted in any assignment of the appellants' call options. Had such a case been put to the appellant, it would have pointed out that even in 2006 prior to the Vodafore taking over there was always in place a similar shareholders agreement. Mr. Salve contended that the Tribunal rendered contradictory finding and while it accepted the case .....

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ibunal so as to render complete justice. 72 Alternatively, Mr. Salve would submit that the entire matter stands covered and in favour 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 referr .....

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ent. 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 put option in this case was exercised in later years and in that regard, our attention is invited to the law report in which the first Vodafone judgment is reported viz. .....

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ect set of affairs. That is how Revenue's case and which was consistent with the stand taken by it throughout was allowed to be raised and the Tribunal has gone ahead and accepted it. It is in this backdrop that Mr. Salve would submit that the Revenue should be consistent in its stand or version. No shifting or adopting conflicting stands is permissible. With the aid of the ownership structure and the chart in that regard Mr. Salve has urged that if the appellants are not a party to the July .....

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that course, still it should not allow the Revenue to raise the plea noted by us hereinabove. This Court, therefore, should hold that the matter is squarely covered in favour of the assessee by the judgment of the Hon'ble Supreme Court. 73 Mr. Salve then submits that even on merits there are alternate pleas and which proceed as follows. The options are not interest in property. The Tribunal would conclude that an important aspect of the case has been missed by the Hon'ble Supreme Court .....

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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 eve .....

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im are inapplicable. 74 Further alternate submission of Mr. Salve is that there is a difference between assignment of options and an option having potential of assignment. That it is capable of being assigned or has the potential of being assigned would not make the act an assignment of call options. He relied upon pages 152 and 164 of the paper-book. In other words, Mr. Salve read out paragraphs after paragraphs from the impugned order to urge that the Tribunal has mixed up the issues, lost sig .....

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The 2006 FWA with AG group of companies is at page 299 of Volume 1. (B) The FWA of 2006 conferred upon Goldspot ( Tier 1 company ) the right to require 3GSPL/appellant or its nominee to purchase all the Plustech shares ( Tier 2 company ). The 'put' option was contained in Clause 4.3 of the FWA. The 'put' option could be exercised in 2 situations : (a) 3GSPL/appellant or CGP India Investment Limited ( CGPM ) acquired or became eligible to acquire subscription shares (present appe .....

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option; or (b) 3SGPL/appellant became eligible under Indian laws to hold sufficient shares under the subscription route, whereby it could have more than 50% effective control of either Centrino or TII. On account of the second condition, until such time as the FDI ceiling of 74% 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 .....

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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 sense that companies of Hutchison .....

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acquire the shares of the two Tier II companies (Goldspot and Scorpios) (b) The shares of Goldspot and Scorpios derive value from the downstream shares of the Tier III companies (NDC or Centrino), which in turn derived value from the shares of TII (which also derived value from the shares of HEL / VIL). (c) Once Goldspot and Scorpios were acquired, the value and indirect equity interest in HEL would have already been available to HTIL (or after the sale, VIL). (d) Exercising the shareholder agre .....

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right to require 3GSPL/appellant or its nominated person to buy Goldspot (renamed AG Mercantile) shares i.e. the Tier 1 company shares. b) There were 3 situations in which this 'put' option could be exercised : i) when the sectoral cap was eased, and to the extent of the increase of the sectoral cap; ii) even if the sectoral cap was not eased, after the 5th anniversary of the FWA; iii) if there was a default notice from the financing institution who had paid for the TII shares (there was .....

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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 .....

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BV. (M) The SHA contained a 'put' option by which NDC or Centrino (Nadal) could require CGPM or its nominated person to purchase the shares held by it in TII (this put option was subject to the limitation in the FWA, i.e. it was subservient to the call option - thus it could only be a measure of restructuring after the appellant had become the parent company). (N) This SHA also had a call option like the previous SHA. CGPM could compel Centrino (Nadal) and/or NDC to sell their shares hel .....

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ii) ⬇Goldspot iv) ⬇Plustech v) ⬇Centrino/NDC (1) TII This would be the structure once the call options under the FWAA were exercised. 76 Thus, Mr. Salve emphasised that the Tribunal proceeded on an erroneous assumption that for the first time an option was exercised in favour of CPGM by way of 2007 TII SHA. Mr. Salve submits that the Tribunal's order fails to note as to how the option contained in the document referred by the Tribunal could confer the right and as conclu .....

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regime allowed the appellant to acquire more shares indirectly. The appellant nominated CGPM to discharge the obligation on its behalf and it was pursuant to that nomination that CGPM acquired these shares. The call options under the FWA 2007 which could have been assigned were never actually assigned. (A) Finally the 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 .....

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rcantile 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 pri .....

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er X machinery to arrive at an arms 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. (A) There are restrictions under Foreign Exchange Management Act, 1999 ( FEMA ) on a foreign company directly (without an intermediate Indian company) by way of a business transfer. (B) Section 6 of the FEMA restricts all Capital Account Tra .....

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practical difficulties of doing so even if such approval could be obtained, it was decided that the Call Centre business would be acquired by an Indian subsidiary of the HWL group. It is common practice for most multinational companies to do business in India through an Indian subsidiary rather than a branch of a foreign company. Merely because such a business arrangement does not fall in Chapter X as an international transaction (at the material time) does not for that reason render it a sham o .....

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ring 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 .....

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(a non-resident entity being the ultimate parent of HWP India) thus falling within the scope of setion 92B(1) of the Act. The DRP also held that HWP India was interposed only to evade tax by avoiding transfer-pricing compliance. The DRP upheld the valuation based on the PE multiple methodology adopted by the TPO/AO but reduced arm's length price of the Call Centre business. The AO passed the final assessment order dated 31st October, 2012 in pursuance of directions of DRP inter alia, determi .....

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9 of its order (page 230) the fact that owing to the difficulties in obtaining regulatory approval to run a Call Centre business in India by an Indian branch of non-resident company, together with the legal and practical difficulties of doing so even if such approval could be obtained, it was decided that the Call Centre business would be acquired by an Indian subsidiary of the HWL group. It should be noted that it is common practice for most multinational companies to do business in India throu .....

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the same bank account on the same day 30th April 2007. The Tribunal has completely disregarded the fact that HWP India raised the ₹ 64 crores for acquisition of the Call Centre business by way of issuance of preference shares to its immediate parent company HWP Investments Holdings (India) Limited, Mauritius. A copy of a preference share certificate issued by HWP India and Foreign Inward Remittance Certificate ( FIRC ) is at pages 4741 to 4743. This FIRC was in fact filed by the income ta .....

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ed 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 t .....

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nected transaction was required to be on normal commercial terms and at arm's length. (L) The appellant submits that in the present case, the corporate veil of HWP India i.e. purchaser of the Call Centre business is lifted, merely on the premise that it raised funds by way of preference shares from its parent company HWP Mauritius and used the same for acquisition of the Call Centre business. This reasoning is perverse on its face. (M) It is submitted that in the instant case, the transactio .....

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Ltd. vs. Union of India (2013) 359 ITR 133 (Bom) (iii) Vodafone India Services Pvt. Ltd. vs. Unionof India & Ors. (2014) 368 ITR (Bom) (iv) Rambaran Prosad vs. Ram Mohit Hazra & Ors. (1967) 1 SCR 293. (v) J. Saisbury Plc. vs. O'Connor (Inspector of Taxes) (1991) 1 W.L.R. 963. (vi) PNB Finance Ltd. vs. Commissioner of Income-tax (2008) 307 ITR 75(SC) (vii) Mrs. Bacha F. Guzdar vs. Commissioner of Income-tax, Bombay 1955 27 ITR 1. 79 On the other hand, Mr. Setalvad, the learned senior .....

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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 traditiona .....

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TIL 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 of capital asset. In this connection, the Hon'ble Supreme Court held that u/s. 9, only direct transfers are covered. (A) Subsequent to the Hon'ble Supreme Court's decision, through Finance Act, 2012, the provisions of section 9 along with section 2(14) and section 2(47) were amended with re .....

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) The subject matter of dispute in this case is whether the call option rights held by the appellant is a capital asset. In order to determine whether this constitutes a capital asset reference is made to the provisions of Section 2(14). The newly introduced Explanation to section 2(14) is as under: Explanation to Sec. 2(14) - 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, inc .....

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pany, is in the nature of a capital asset as defined in section 2(14) of the IT Act 1961. Once it is established that the option rights held by the assessee is property, any interest created therein is also in the nature of property and falls within the ambit of section 2(14) read with Explanation thereto, which was introduced by virtue of amendment to the I. T. Act after the Supreme Court judgment. (D) The contention of the appellant relying upon the decision of the Hon'ble Supreme Court is .....

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n 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 difficul .....

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ce in other countries for many years whereas India was a late entrant. (A) The Transfer Pricing (TP) provisions were enacted in India in 2001 and the same was first applicable for assessment year 2002-03. The object of these provisions is to prevent erosion of tax base from the country. The Indian TP provisions enact that income arising from an international transaction should be determined having regard to the Arm's Length Price (ALP). The taxable income is computed by substituting the ALP .....

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le 9 of OECD Model Convention as under - Where a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State or b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and in either case conditions are made or imposed between the two enterprises in their commercial or fina .....

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ice at which a similar transaction is undertaken by unrelated parties under similar conditions. 83. Reverting to the options, Mr. Setalvad submits 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. .....

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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 underlying share goes up, in this example beyond 715 or else the option holder will allow the option right to expire without actual purchase of share. (b) Similarly, a Put O .....

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rofitable for Mr. A to exercise the option as he would earn profit of ₹ 5 (option price 690-cost of option ₹ 5- prevailing market price). Therefore, a put option is exercised only when the market price of the underlying share goes down, in this example beyond 685 or else the option holder will allow the option right to expire without actual sale of share. 84. It has been the contention of the appellant that call options were never transferred by it and they remain vested in the appel .....

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cluded in the term 'Options' which clearly demonstrates that they are the two sides of the same coin. (b) As per clause 3.1 of the FWA 2007, AS/AG have to ensure that the entire issued and paid up capital of the Group companies are held by them respectively. Thus, it is ensured that AS and AG cannot bring new shareholders into their company. As per clause 4.1 of this agreement, there is a complete embargo on AG and AS from issuing any further shares in their companies which would alter t .....

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uished. (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 .....

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the terms of the Option, it is also clear that both Call Option and the Put Option can be effectively exercised only when the sectoral CAPS are relaxed. 86. Thus from a reading of the FWA, 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. 87. In this case, VISPL had a Call option to ask AS/AG to sell shares of SBP/AG Mercantile shares while AS and AG had so called put option to ask VISPL .....

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ed by VISPL to AS/AG, the optiion holders are AS/AG, while the option writer is VISPL. There is no premium paid by the AS/AG to VISPL. This clearly shows that the option given to the AS/AG are not classic put options but only an exit route provided to AS/AG. iii. It is seen that there is no expiration date of Call Options in the FWA. Therefore, one of the essential conditions of Call Option is missing. Similarly, for Put Option, on expiry of 5 years, another party can step into the shoes of AS/A .....

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ut options, the delivery of shares is mandatory to VISPL. Thus, both so called Call and Put Options are not option contracts as per the definition of Forward or Future contract discussed above, the call and put option in the Framework Agreement are more akin to 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 trans .....

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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 for AS and AG to exercise put options early as the con .....

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rcise their put option as they would be in a great loss by exercising the same. Hence, it may be seen that the argument of the appellant on this account are not based on the facts and are misleading. (c) In this regard, the appellant at para 24 of the note regarding assignment of options has contended that nominating a buyer in relation to a put option is not an assignment for the reason that an obligation simplicitor cannot be assigned and that the call options under FWA's of 2007 which cou .....

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nsfer Pricing Provision are : (i) There must be a transaction . The term transaction is defined in section 92F(v) and Rule 10A(d). (ii) The transaction should be between 2 or more persons who are Associated Enterprise of one another. The relationship of associated enterprise is defined in Section 92A. (iii) The transactions between these two persons should be in the nature of an international transaction. To qualify as international transaction, the transaction should be between one or more asso .....

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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 aspec .....

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es a number of closely linked transactions. 92. The legislature has provided an inclusive definition of the term 'transaction'. It is a word of widest import. Thus the term transaction not only includes a sale, purchase, lease, mortgage, pledge, rent or hire but also any other dealing or course of dealings undertaken in the normal course. In the specific context of T.P. Provisions, it includes any arrangement or undertaking, or action in concert. Further, there is no necessity that such .....

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enterprises out of which at least one is non-resident. This section further provides that the transaction should be in the nature of : purchase / sale / lease of tangible or intangible property; Provisions of services; Lending or borrowing money; Any other transaction having a bearing on the profits, incomes, losses or assets of such enterprise. The term 'associated enterprises' has been defined in section 92A. 94 All the conditions contained in section 92B(1) are fulfilled in this case. .....

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he arrangement, understanding or action in concert resulting in the creation of interest in favour of CGP Mauritius in the option rights held by the assessee under the 2007 FWA by virtue of 2007 TII SHA, falls in the category of any other transaction having a bearing on the income, profits, losses or assets of the enterprise. The 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 .....

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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 e .....

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ts judgment. It has held that the assessee was a associated enterprise of both HTIL and VIH BV during the previous year in terms of section 92A(2). Thus, once two enterprises are associated enterprise at any time during the previous year they shall be deemed to be the associated enterprise for the purpose of section 92A(1). Similarly at Para 128, it has been held that HWP (India) is an associated enterprise of the assessee for the year under consideration, therefore, the provisions of section 92 .....

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e has to see firstly whether there is a 'transaction', if yes, whether it is entered into between 'associated enterprise'. The words 'at any time during the year' were introduced in the Act to overcome a situation where the assessee would contend that although it was an AE at the time when the transaction was entered into, but was not an AE either at the beginning of the year or at the end of the year, and hence the TP provision would not apply. The relationship of associ .....

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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 .....

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the year'. The object of using these words is only to ensure that a transaction which in fact was undertaken between parties who fulfilled the conditions contained in Section 92A at the time when the transaction was undertaken, does not escape the applicability of the TP Provisions. However, the purpose of the words at any time during the year cannot be extended to such an extent that transactions that were undertaken at a time when the parties did not fulfil any of the conditions contained .....

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of SPA on 08.05.2007. Relying upon this clause, the ITAT has concluded that the call centre business has therefore been transferred by the assessee before the execution of the SPA on 08.05.2007. Once it was held that the call centre business was transferred prior to the execution of the SPA, the ITAT held that the assessee and HWP India being associate enterprises, section 92B(2) will have no application. Clause 8.8. of the SPA can be referred to at page no.469/Vol.II of appellant paper book. F .....

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ong after the execution of SPA on 08.05.2007. 104 The following clauses of the SPA are relevant for this purpose. (Vol.II / Pgs. 447 to 566 of the appellant):- a. Clauses 1.1 - Definition of Call Centre Disposal (Pg. No.451) which shows that the transaction contemplated is disposal and the disposal occurred on 4th December, 2007. b. Clauses 1.1 - Definition of Completion (Pg. No.452) - Completion means sale and purchase of share and the loans. c. Clause 1.1 - Closing Period (Pg. No.452) is the p .....

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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 Submissi .....

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ce with BTA as mentioned in Clause 6.1 (Page No.4513/Vol.XIII). As per Clause 6.1, the sale and purchase of the business shall be completed on the third business day after the closing conditions are fulfilled as per Clause 5 of the BTA. The closing date as declared in financial of the appellant for the F.Y. 2007-08 is 4th December,2007. ii. As per Clause 2.1 of the BTA, the appellant shall transfer and the purchaser shall purchase the business at the closing date (Pg.4509/Vol.XIII). iii. As per .....

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ed in clause 5.1 are satisfied. Thus, the transfer could only take place on 4th December, 2007. vi. It was the responsibility of the appellant to submit a certificate to the purchaser on the closing date certifying that the Board of Directors have passed resolution authorising the sale of the business, the execution of BTA and consummation of BTA (refer to Clause 6.2.1 on Pg.4513/Vol.XIII). Similarly, the purchaser also will provide similar certificate under Clause 6.3.1 (Pg.4514/Vol.XIII). The .....

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(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 appella .....

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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 liabilities. Thereafter, the nominee share in 3 GSPL was transferred. This clearly shows that 3 GSPL became a wholly owned subsidiary of Vodafone group on 8th May before BTA was entered. The signing of the BTA has been shown at sr.no.78. Thus, as per VIH BV's own list of dates the BTA was signed after the CGP .....

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Hutch group company (GSPL) to another Hutch group company (HWP India), there would have been no need for such a termination clause. This proves that the call centre was to be transferred by Vodafone group to Hutch group with adequate safeguards built in. For example, the SPA provides that the call centre business could only be transferred to an affiliate of HWL. Even the Draft BTA has been made a part of SPA. Similarly, the clause 13(c) (Pg.No.505) ensures that the directors are not changed till .....

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bly positive evidence of call centre being part of Vodafone Group for the period from 11.2.2007 to 4.12.2007 is the fact that in its financials for the year ended 31.3.2008, the appellant has not only shown its business being running of call centre (ITES) and holding of investment in call options but has also included the income from call centre business in its hands till the date of transfer. This proves that the transfer took place on 4 December, 2007. 107 After examining the above clauses of .....

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andra & 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 whic .....

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had already taken effect and the assessee was part of the Vodafone Group and HWP India was not an associate enterprise of the assessee. The revenue submits that it was not only the intention of the parties to transfer the call centre business only after fulfilment of various conditions specified in the BTA, but the transfer in fact took place on 04.12.2007. In this connection, it may not be out of place to mention that in the context of the transfer of shares, the relevant date considered for t .....

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. That is involving an issue whether a transaction of acquisition of share and undertaken and completed overseas can be subjected to Indian tax laws and particularly levying a tax on income. In that writ petition, the original petitioner lost before a Division Bench of this Court and which in a detailed judgment held that the transaction has a nexus or connection with the Indian tax law and, therefore, can be subjected to Income Tax Act, 1961. Being dissatisfied with this judgment and order, the .....

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e added with retrospective effect. We must further clarify that the parties have proceeded on the basis that these retrospective amendments are constitutionally legal 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&# .....

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on. 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 incorporated in Cayman Islands with limited liability as an exempted company its sole shareholder being Hutchison Telecommunications Limited, H .....

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L / HEL was effected. Consequently, all operating companies below HEL were held by one holding company HMTL / HEL. There were Indian Tier I companies above HMTL / HEL. The consolidation was first noted as early as July, 2003. On 28th October, 2005, VIH agreed to acquire 5.61% shareholding in Bharti Televentures Ltd. On the same day, Vodafone Mauritius Limited subsidiary of VIH agreed to acquire 4.39% shareholding in Bharti Enterprises Limited which indirectly held shares in Bharti Televentures L .....

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under which the share holding of HEL was restructured through TII, an Indian company in which Analjit Singh and Asim Ghosh acquired shares through their group companies with the credit support provided by HTIL. In consideration of credit support, the parties entered into framework agreements under which call options were given to GSPL to buy from AG and AS companies, the entire share holding in TII and consequently indirect holding in HEL. The shareholding of HEL underwent a change in August, 2 .....

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rolling 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 frame .....

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through share transfer agreement (STA) and in consequence the framework agreements of 2006 were re-written as framework agreement 2007 under which the assessee was holding option rights indirectly of 12.25% equity interest in HEL / Vodafone India Ltd. (VIL) through Asim Ghosh and Analjit Singh Group companies under the identical framework agreements. 113 Then, the Tribunal proceeded to deal with the issue whether recasting of framework agreement in 2007 tantamounts to assignment of option rights .....

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nd the issue is based on the judgment and order of a Division Bench of this Court in a Writ Petition which was filed by one of the parties post the Supreme Court judgment (supra). The Division Bench which delivered the judgment and reported in 359 ITR 133, according to the Tribunal, notes not only the Supreme Court judgment (supra) but the amendments brought in the Act post that decision and with retrospective effect. That changes the nature and colour of the controversy according to the Tribuna .....

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nd record brought before it are relevant. The argument of the assessee was that there was no transfer or assignment of call option in the present case as no call options were transferred in the framework agreements of 2007. The assessee continued to hold these rights. Reliance was placed, according to the Tribunal, on clause 4.4 of the framework agreements and it was urged that it is identical to or substantially similar to the counterpart clause of the 2006 framework agreement though the langua .....

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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 .....

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VIH BV by virtue of share transfer agreement and not in the context of transfer of option rights by the assessee to its affiliate. The understanding of the Tribunal of this judgment and which has been heavily criticised needs to be noted and in the words of the Tribunal itself : Therefore, at the first place the judgment of Hon'ble Supreme Court is not based on the finding of facts as examined and investigated by any of the fact finding authority and consequently it is binding on all subordi .....

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text of limited facts and documents considered therein and therefore, so far as the applicability of amended provisions of section 2(47) to the facts including new facts of the case are concerned, the judgment of Hon'ble Supreme Court would not be regarded as binding precedent. However if the amended provisions of section 2(47) are not found to be applicable on the facts of the case in hand then, the judgment of the Hon'ble Supreme Court to the extent of interpretation of the agreements .....

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t 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 .....

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on was not exercised and never exercised. A put option is not the same as call option. That there is no fraud and perpetrated on the Revenue by the assessee inasmuch as the essential difference between these two options has been lost sight of. One is to get hold and the other is to go out. At best, the put option is exercised in later years. There is an extensive reference made by Mr. Salve to the ownership chart. In such circumstances and when this is the sweep of the arguments, it would be fut .....

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e we have heard both sides on this aspect extensively and are considering their arguments, all the more the first contention of Mr. Salve on the matter going back must be rejected. It is, accordingly, rejected. 119 One more reason for rejecting the same is that Mr. Salve has taken us not only through the judgment of the Hon'ble Supreme Court extensively, but the Tribunal's order impugned in this case and urged that some of the findings in the impugned order of the Tribunal are in favour .....

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hat the Tribunal never put the case noted by it in paragraphs 40, 41 and 42 of its order to the assessee, then, the request that the matter must go back could have been considered favourably. However, Mr. Salve has also addressed us in the alternative on the nature of the options, their implications and consequences in law. Once having addressed us and in this manner, we do not deem it fit and proper to accede to his request of sending the matter back. That will not serve any fruitful purpose. O .....

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n 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, consumab .....

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tinum or any other precious material or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stone, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; (iii) agricultural land in India, not being land situate - (a) in any area which is comprised within the jurisdiction of a municipality .....

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ed to in item (a) as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. The following item (b) shall be substituted for the existing item (b) of sub-clause (iii) of clause (14) of section 2 by the Finance Act,20123, w.e.f. 1.4.2014 : (b) in any area within the distance, measured aeirally, - (I) not being more than two kilometers, from the local limi .....

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s 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 ½ 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. E .....

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ndian 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 assessee whether or not connected with his business or profession and which is not covered by the exceptions or the exclusionary part. The term 'transfer' is defined in section 2(47) and reads as under : 2. In this Act, unless the context otherwise requires, - (47) transfer in relation to a capital asset, includes, - (i) the sale, exchange .....

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erformance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in a co-operative society company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsover) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation 1 - For the purposes of sub-clauses (v) and (vi) .....

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otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India; 122 Heavy reliance is placed on both explanations and, therefore, we have reproduced the entire section. The term 'transfer' has been defined in an inclusive manner. It includes the sale, exchange or relinquishment of a capital asset or extinguishment of the rights there .....

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e 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 o .....

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on is taken to have included and always included any rights in or in relation to an Indian company as explained by the explanation inserted in section 2(14) of the Income Tax Act, 1961, with retrospective effect. 124 The arguments and which revolve around the two Explanations are essentially that given the nature of the transaction covered by the Supreme Court judgment the definition and with the wide Explanations will or will not make a difference. The assessee submits given the nature of the t .....

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ions. 125 Mr. Salve would urge that everything that is decided in this case by the Tribunal and by the impugned order in elaborate details has been already considered and gone into by the Hon'ble Supreme Court. The Hon'ble Supreme Court has already held that at best there is transfer of a share but not an asset. That is not a conclusion according to Shri Salve in abstract, but after analysing all the transactions in great depth. Several facets thereof have been noted by the Hon'ble S .....

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07 but prior thereto, it took note of the shareholding pattern 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. Th .....

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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 the Hon'ble Supreme Court of India would not be of assistance in resolving the controversy. Mr. Salve, however, has urged to the contrary and for that purpose, we must first refer to the Supreme Court judgment for what it considered a .....

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unal ordinarily should not venture to chart a course of getting over or brushing aside the ratio in the judgment of a superior court on a issue arising before it once it is admitted that it is identical. The word precedents is understood as under : In law a precedent is an adjudged case or decision of a Court of justice, considered as furnishing a rule or authority for the determination of an identical or similar case afterwards arising, or of a similar question of law. The only theory on which .....

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dendi which alone has the force of law as regards the world at large. JOHN SALMOND, Jurisprudence 191 (GLANVILLE L., WILLAMS ed., 10th ed. 1947) A binding precedent being applied to the same or similar set of facts and issues and following it ensures and guarantees certainty, finality and discipline all of which are necessary for the proper functioning of judiciary. Not adopting such an approach on the specious plea that a different argument is canvassed and all aspects or facets of the issue in .....

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hat 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 stat .....

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the same i.e., the general reasons, or the general grounds upon which, the decision of the court is based, or on the test or abstract, of the specific peculiarities of the particular case, which finally gives rise to the decision. (Vide: Smt.Somavanti & Ors. v. The State of Punjab & Ors., AIR 1963 SC 151; Ballbhdas Mathuradas Lakhani & Ors. v. Municipal Committee, Malkapur, AIR 1970 SC 1002; Ambika Prasad Mishra v. State of U.P. & Ors., AIR 1980 SC 1762; and Director of Settlemen .....

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is on this point by the Constitution Bench is well founded, and a judgment given by a competent court on merits must bind all parties involved until the same is set aside in appeal, and an attempted change in the form of the petition or in its grounds, cannot be allowed to defeat the plea. (See also: Daryao & Ors. v. State of U.P. & Ors., AIR 1961 SC 1457; and Forward Construction Co., & Ors. v. Prabhat Mandal (Regd.), Andheri & Ors. AIR 1986 SC 391). 129 The Supreme Court noted .....

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67% interest but not controlling interest in HEL. VIH BV contended that CGP held indirectly through other companies 52% shareholding interest in HEL as well as options to acquire further 15% shareholding interest in HEL subject to relaxation of FDI norms. Thus, the Supreme 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 .....

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ts 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 Limited. GSPL was an Indian company un .....

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ht upto paragraph 23 which indicated Vodafone's acquisition of controlling interest in HEL via its subsidiary VIH and companies which control 67% interest in HEL. We find that there is a reference made to the indirect holding in HEL. Thereafter, there is a letter addressed by Asim Ghosh to HEL confirming that he through his 100% Indian companies, owned 23.97% of a joint venture company TII which in turn owned 19.54% of HEL and, accordingly, his indirect interest in HEL worked out to 4.68%. H .....

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hat by a letter dated 14th March, 2007, addressed by VIH to the FIPB, it stood confirmed that VIH's effective shareholding in HEL would be 51.96%. Following the completion of acquisition of HTIL's shares in HEL, the ownership of HEL is then what is set out by the Hon'ble Supreme Court in paragraph 33. VIH would own 42% direct interest in HEL through its acquisition of 100% CGP. Through CGP, VIH would also own 37.25% in TII which in turn, owns 19.54% in HEL and 38% in Omega which in t .....

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oup 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 .....

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of companies held 23.97% in TII, AS group held 38.78% in TII whereas SMMS held 54.25% in Omega. The holdings of AG, AS and SMMS came under the option route. The Court noted that GSPL is an Indian company indirectly owned by CGP. It held call options and subscription options to be exercised in future under circumstances spelt out in TII and IFDC framework agreements (keeping in mind the sectoral cap of 74%). Then, the several tests and the distinction between look at and look through tests are re .....

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highlighted and one of them was that the 2006 shareholders / framework agreements had to be continued upon transfer of control of HEL to VIH so that VIH could step into the shoes of HTIL. Such continuance was ensured by payment of money to AS and AG by VIH failing which AS and AG could have walked out of those agreements which would have jeopardised VIH's control over 15% of the shares of HEL and consequently stake of HTIL in TII would have stood reduced to minority. 131 Then, in paragraph 7 .....

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as under : 74. Be that as it may, did HTIL possess a legal right to appoint directors onto the board of HEL and as such had some "property right" in HEL? If not, the question of such a right getting "extinguished" will not arise. A legal right is an enforceable right. Enforceable by a legal process. The question is what is the nature of the "control" that a parent company has over its subsidiary. It is not suggested that a parent company never has control over the .....

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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 .....

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nce, take the case of a one-man company, where only one man is the shareholder perhaps holding 99% of the shares, his wife holding 1%. In those circumstances, his control over the company may be so complete that it is his alter ego. But, in case of multinationals it is important to realise that their subsidiaries have a great deal of autonomy in the country concerned except where subsidiaries are created or used as a sham. Of course, in many cases the courts do lift up a corner of the veil but t .....

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es). The fact that the parent company exercises shareholder's influence on its subsidiaries cannot obliterate the decision-making power or authority of its (subsidiary's) directors. They cannot be reduced to be puppets. The decisive criteria is whether the parent company's management has such steering interference with the subsidiary's core activities that subsidiary can no longer be regarded to perform those activities on the authority of its own executive directors. 133 In para .....

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s, the need for SPA arose to readjust the outstanding loans between the companies; to provide for standstill 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, .....

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or 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 vote would fall in the category of a persuasive position / influence rather than having a power over the subsidiary. In this connection, the following facts are relevant. 76. Under the Hutchison structu .....

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was one of the main reasons for entering into separate Shareholders and Framework Agreements in 2006, when Hutchison structure existed, with AS, AG and IDFC. HTIL was not a party to the agreements with AS and AG, though it was a party to the agreement with IDFC. That, the ownership structure of Hutchison clearly shows that AS, AG and SMMS (IDFC) group of companies, being Indian companies, possessed 15% control in HEL. Similarly, the term sheet with Essar dated 5.07.2003 gave Essar the RoFR and r .....

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subsidiaries did comply with the arrangement suggested by the Group holding company in the matter of voting, failing which the smooth working of HEL generating huge revenues was not possible. In this case, we are concerned with the expression "capital asset" in the income tax law. Applying the test of enforceability, influence/ persuasion cannot be construed as a right in the legal sense. One more aspect needs to be highlighted. The concept of "de facto" control, which exist .....

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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, Ce .....

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y shareholder, enable the minority to overcome the presumption of consolidation of operations or assets by the controlling shareholder. These participative rights in certain instances restrict the powers of the shareholder with majority voting interest to control the operations or assets of the investee. At the same time, even the minority is entitled to exit. This "exit right" comes under "protective rights". On examination of the Hutchison structure in its entirety, we find .....

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spect to a shareholder" inter alia as substitution of limited or unlimited liability company, whether directly or indirectly, to direct the policies/ management of the respective shareholders, viz., Centrino, NDC, Omega. Thus, even without the SPA, upon substitution of VIH in place of HTIL, on acquisition of CGP share, transition could have taken place. It is important to note that "transition" is a wide concept. It is impossible for the acquirer to visualize all events that may t .....

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ent not to amend, terminate, vary or waive any rights under the Framework/ Shareholders Agreements during the said period, provisions regarding running of business during the said period, assignment of loans, consequence of imposition of prohibition by way of injunction from any court, payment to be made by VIH to HTIL, giving of warranties by the Vendor, use of Hutch Brand, etc. The next point raised by the Revenue concerns termination of IDFC Framework Agreement of 2006 and its substitution by .....

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ing 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 th .....

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fer any rights on VIH. One more aspect needs to be mentioned. The conferment of call options on GSPL under the Framework Agreements of 2006 also had a linkage with intra-group loans. CGP was an Investment vehicle. It is through the acquisition of CGP that VIH had indirectly acquired the rights and obligations of GSPL in the Centrino and NDC Framework Agreements of 2006 [see the report of KPMG dated 18.10.2010] and not through execution of the SPA. Lastly, as stated above, apart from providing fo .....

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which rights existed even in the Hutchison structure as it stood in 2006. It was next contended that the 2003 Term Sheet with Essar was given effect to by clause 5.2 of the SPA which gave Essar the Right to Tag Along with HTIL and exit from HEL. That, the Term Sheet of 5.07.2003 had legal effect because by a specific settlement dated 15.03.2007 between HTIL and Essar, the said Term Sheet stood terminated which was necessary because the Term Sheet bound the parties in the first place. We find no .....

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o 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 .....

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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 through the investment vehicle CGP. Therefore, there was no extinguishment of rights as alleged by the Revenue. 135 Then, the Supreme Court referred to the role of CGP in the transaction and this reference is made in paragraph 79 and in paragraph 83, the Court concluded as under : 83. According to the Revenue, the en .....

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by these gentlemen of the HEL shares through financing of loans. Further, in the Term Sheet dated 15.03.2007, that is, between VIH and Essar, VIH had a right to nominate 8 directors (i.e. 67% of 12) and Essar had a right to nominate 4 directors which, according to the Revenue, evidences that VIH had acquired 67% interest in HEL and not 42%/52%, as sought to be propounded by it. According to the Revenue, right from 22.12.2006 onwards when HTIL made its first public announcement, HTIL on innumerab .....

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a without control over 25% in HEL. We find no merit in the above submissions. At the outset, it may be stated that the expression "control" is a mixed question of law and fact. The basic argument of the Revenue is based on the equation of "equity interest" with the word "control". On perusal of Hutchison structure, we find that HTIL had, through its 100% wholly owned subsidiaries, invested in 42.34% of HEL (i.e. direct interest). Similarly, HTIL had invested through .....

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s 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 pre .....

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shareholding of 51.96% in HEL. 136 The Hon'ble Supreme Court has thus concluded that the Hutchison Structure denotes that shares of Plustech in the AG group, shares of Scorpio 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. The Hon'ble Supreme Court concluded that till date .....

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Investments to Vodafone International Holdings BV. On account of transfer of the share, a company called 3GSPL became an indirect subsidiary of VIH BV. 3GSPL is now known as Vodafone India Services Private Limited i.e. the appellant. The appellant had entered into three framework agreements under which it had call options and obligations by way of put options. Two of the call options were with AG and AS. The target of these call options was a downstream company called TII Pvt. Ltd. which, in tu .....

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d by Vodafone to Hutchison for acquisition of the CGP share. The appellant urges that this Court in the first case found that there was assignment of call options held by the appellant and that call options were 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 rever .....

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f 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 aspect a little later. The Revenue contended that the judgment of the Hon'ble Supreme Cour .....

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rds the Hon'ble Supreme Court considered as to whether this Court was right in applying the nature and character of transaction test. Then, in paragraph 88, the Hon'ble Supreme Court concluded : 88. We have to view the subject matter of the transaction, in this case, from a commercial and realistic perspective. The present case concerns an offshore transaction involving a structured investment. This case concerns "a share sale" and not an asset sale. It concerns sale of an enti .....

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of a controlling interest in the management of the company. A controlling interest is an incident of ownership of shares in a company, something which flows out of the holding of shares. A controlling interest is, therefore, not an identifiable or distinct capital asset independent of the holding of shares. The control of a company resides in the voting power of its shareholders and shares represent an interest of a shareholder which is made up of various rights contained in the contract embedde .....

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e 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 ind .....

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ourt has analysed the transactional documents in detail, it has missed out this aspect of the case. It has failed to notice that till date options have remained un-encashed with GSPL. Therefore, even if it be assumed that the options under the Framework Agreements 2006 could be considered to be property rights, there has been no transfer or assignment of options by GSPL till today. Even if it be assumed that the High Court was right in holding that the options constituted capital assets even the .....

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ptions (contractual rights), would not make the transfer of the CGP share taxable in India. Acquisition of the CGP share which gave VIH an indirect control over three genres of companies evidences a straightforward share sale and not an asset sale. There is another fallacy in the impugned judgment. On examination of the impugned judgment, we find a serious error committed by the High Court in appreciating the case of VIH before FIPB. On 19.03.2007, FIPB sought a clarification from VIH of the cir .....

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est in HEL. According to the said letter, the above elements together equated to 67% of the economic value of HEL. This sentence has been misconstrued by the High Court to say that the above elements equated to 67% of the equity capital (See para 124). 67% of the economic value of HEL is not 67% of the equity capital. If VIH would have acquired 67% of the equity capital, as held by the High Court, the entire investment would have had breached the FDI norms which had imposed a sectoral cap of 74% .....

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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, .....

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ng items, namely, non-compete agreement, control premium, call and put options, consultancy support, customer base, brand licences etc. On facts, we are of the view that the High Court, in the present case, ought to have examined the entire transaction holistically. VIH has rightly contended that the transaction in question should be looked at as an entire package. The items mentioned hereinabove, like, control premium, non-compete agreement, consultancy support, customer base, brand licences, o .....

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for the entire package. The parties to the transaction have not agreed upon a separate price for the CGP share and for what the High Court calls as "other rights and entitlements" (including options, right to non-compete, control premium, customer base etc.). Thus, it was not open to the Revenue to split the payment and consider a part of such payments for each of the above items. The essential character of the transaction as an alienation cannot be altered by the form of the considera .....

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would not mean that the parties had agreed for the price payable for each 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 .....

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oidant 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, the Indian authority had no territorial tax jurisdiction to tax the offshore transaction. On that reasoning, the Hon'ble Supreme Court allowed VIH BVs appeal. 140 Even in the concurring judgment from paragraph 100 onwar .....

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India or through or from any asset or source of income in India or through the transfer of a capital asset situate in India. Therefore, in paragraph 260, the learned Judge held the meaning that will have to be given to the expressions either directly or indirectly , transfer , capital asset and situated in India is of prime importance so as to get a proper insight on the scope and ambit of section 9(1)(i) of the Income-tax Act. Then, the unammended definition of the term transfer as appearing i .....

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agraph 271 that on transfer of shares of a foreign company to a non-resident offshore, there is no transfer of shares of the Indian company, though held by the foreign company and in such a case, it cannot be contended that the transfer of shares of the foreign holding company results in extinguishment of the foreign company control of the Indian company and it also does not constitute an extinguishment and transfer of an asset situate in India. Transfer of the foreign holding company's shar .....

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ghts 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 .....

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transferred its 67% VIL shares to VIH BV. As HTIL was a non resident, the Hon'ble Supreme Court was considering the applicability of section 9 in the case of indirect transfer of capital asset. That is how by referring to section 9 and interpreting it, the Hon'ble Supreme Court held that only direct transfers are covered. However, the amendment to this section changes the colour of the controversy. The amendment to sections 9, 2(14) and 2(47) ensures that any transfer affected by creatio .....

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e. That explanation clarifies the doubts and states that property includes and shall be deemed to have included any rights in or in relation to an Indian company, including rights of management of control or any other rights whatsoever. 143 Applying this to the facts of the present case it is urged that the options relate to shares of an Indian company viz. Scorpios Beverages Private Limited and AG Mercantile Company Private Limited. This in turn entitles the option holder to a 12.25% equity int .....

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e wording of the explanation is very wide and to include any right whatsoever. Reliance is placed upon certain provisions of similar nature inserted in the tax legislation of some foreign countries. 144 The similarity in the terms and conditions 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 t .....

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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 compensated at all for the transaction although substantia .....

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ion was not before it. However, the Income Tax Appellate Tribunal has considered several documents and these documents would evidence that options have been exercised in April 2009 and August 2009 to the extent of 49%. This resulted in the option reducing by 6% out of the 12.25% in VIL held originally. Subsequently the FWA with AG group of companies was terminated during the financial year 2010-11 relevant to the assessment year 2011-12. The option further reduced during this assessment year. Th .....

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it Singh and CGP India has accepted the nomination; (iii) 'Supplement to the Framework Agreement' dated 7th April 2009 (Vol.VIII, Pg. 3239/A) amongst others, Analjit Singh, Neelu Analjit Singh, the Appellant as also VIH BV; (iv) Letter dated 7th April 2009 (Vol.IX, Pg. 3518/A) from the Appellant to Analjit Singh and Neelu Analjit Singh notifying of CGP India to purchase the said 4900 shares; (v) Letter dated 21st August 2009 (Vol.X, Pg. 3527/A) addressed by Asim Ghosh to the Appellant an .....

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(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 Framew .....

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tifying nomination of CGP India to purchase the said 1,95,005,079 shares. These documents individually and collectively demonstrate that the options under the 2007 Framework Agreements were exercised in 2009 itself; (xii) The Shareholder's Agreement dated 7th April 2009 (Vol. VIII, Pg.3183/A) between Analjit Singh, Neelu Analjit Singh, SBP and CGP India; (xiii) The Shareholder's Agreement dated 27th August 2009 (Vol.VIII, Pg.3144/A) between Asim Ghosh, Sanjikta Ghose, SG Mercantile and C .....

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econd Supplement to the Framework Agreement dated 10th May 2010 (Vol.V, Pg.6091/R) AS, SBP, MVH,VISPL, NDC, AG Mercantile, Plustech, Nadal and VIH BV; 147 In this regard we must refer to the findings of the Tribunal and with regard to which there is a serious debate before us. The Tribunal reproduced relevant clauses of the FWA 2006 as well as 2007 in a tabulated form side by side. This is done in paragraph 32. From paragraph 33 onwards, what has been done is to refer to the clauses of the FWA 2 .....

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wned subsidiary of Vodafone PLC the third option was also provided under FWA 2007 whereby the assessee could nominate a person other than the wholly owned subsidiary of Vodafone PLC for purchase of all but not part only of the shares held by AS and AG group of companies. The Tribunal in paragraph 33 holds that there is difference between the 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 .....

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tion 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 .....

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th any interest in an asset. The means and methods of disposal or creation apart such disposal or parting with or creating interest in an asset must exist and be borne out from the arrangement or transfer. Making the provision of one of the prospective nominees would not amount to creating any interest in the asset in the shape of right to acquire the shares held under the call option. Under the FWAs of 2007 , any of the wholly owned subsidiary of Vodafone PLC is a prospective nominee. It would .....

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re that any wholly owned subsidiary of Vodafone PLC purchases the shares held under the call option. From a comparative study of the relevant clauses of the two FWAs, by change of prospective nominee, it does not amount to transfer or creating any right in favour of the said prospective nominee until the actual nomination is made. 149 In paragraph 35 the Tribunal refers to the shareholder's agreement dated 5th July, 2007 and concludes that a rewriting of the FWA in the year 2007 stand alone .....

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ments 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 .....

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call options in the financial year 2007-08 by rewriting the FWAs in July, 2007. The alternate contention of the assessee has also been noted and which is that TII shareholder's agreement has no relevance or bearing on the issue. That agreement was entered into between Nadal, ND Callus Info Services Pvt. Ltd. and CGP India Investment Ltd. to confirm the understanding regarding regulation of affairs of TII. As per clause 4.2 of this agreement the right to exercise put options was conferred upo .....

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eference is extensively made to the Hon'ble Supreme Court judgment. The argument was that TII shareholders agreement has no relevance or bearing on the issue of assignment of call options under the 2007 FWA and it relates to shares of different company viz. TII. The option rights under TII shareholders agreement are inchoate as they are conditional upon the exercise of option rights under the 2007 FWA. The Tribunal then proceeds to analyze these contentions further and from paragraph 37 onwa .....

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iterated that the issue of assignment of call option by the assessee was not before the Hon'ble Supreme Court and, therefore, to the extent of the assignment / transfer of call options by the assessee to its associated enterprise, the judgment of the Hon'ble Supreme Court will have no bearing. Thereafter, the Tribunal refers to the relevant clauses of the FWA 2006, FWA 2007 and shareholder's agreement dated 5th July, 2007. In paragraph 39 of its judgment, the Tribunal concludes that .....

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f 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 un .....

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rtue of the shareholder's agreement. The shareholder's agreement is executed pursuant to the FWA and that conclusively shows that the shares of TII held by AS and AG would be transferred in favour of CGP or its nominee as and when the call / put option rights are exercised by the respective parties. 150 In furtherance of such conclusion, the Tribunal in paragraph 41 holds that from the share purchase agreement between HTIL and VIH BV, FWAs and TII shareholders agreement as well as surrou .....

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eat extent by this intention of parties as also the background and surrounding circumstances. The Tribunal's final conclusion is that the Framework Agreements as well as the shareholders agreement were signed in the backdrop of the purchase agreement, share transfer agreement between HTL and VIH BV and further with intention to keep the 12.25% shareholding in HEL indirectly through AG and AS so that the assessee could acquire the same whenever it is permissible and as per the FDI limit relax .....

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nts of section 2(47) as amended are satisfied. If the deal was indirect, circuitous and to take place in future, then, on the basis 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 broug .....

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reements 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 Supreme Court is not possible and rather impermissible. Our conclusion is reinforced by the observations of the Hon'ble Supreme Court in the case of Director of Settle .....

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w like facts may have no binding force as the facts of two cases may not be similar. But what is binding is the ratio of the decision and not any finding on facts. It is the principle found our upon a reading of a judgment as a whole, in the light of the questions before the Court that forms the ratio and not any particular word or sentence. To determine whether a decision has declared law it cannot be said to be a law when a point is disposed of on concession and what is binding is the principl .....

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an obiter may not have a binding effect as a precedent, but it cannot be denied that it is of considerable weight. The law which will be binding under Article 141 would, therefore, extend to all observations of points raised and decided by the Court in a given case. So far as constitutional matters are concerned, it is a practice of the Court not to make any pronouncement on points not directly raised for its decision. The decision in a judgment of the Supreme Court cannot be assailed on the gro .....

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t 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 ad .....

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ubsidiary as to the manner in which it should vote. According to the Revenue, this right was property right and not a contractual right. It vested in HTIL as HTIL was a parent company, i.e. a 100 per cent shareholder of the subsidiary; (ii) According to the Revenue, the 2006 shareholders/framework agreements had to be continued upon transfer of control of HEL to VIH could step into the shoes of HTIL. According to the Revenue, such continuance was ensured by payment of money to AS and AG by VIH f .....

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as given effect to by clause 5.2 of the SPA which gave Essar the right to tag along with HTIL and exit from HEL. That, by a specific settlement agreement dated March 15, 2007, between HTIL and Essar, the said term sheet agreement dated July 5, 2003, stood terminated. This, according to the Revenue, was necessary because the term sheet bound the parties; (v) the SPA ignores legal entities interposed between HTIL and HEL enabling HTIL to directly nominate the directors on the Board of HEL; (vi) Qu .....

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rights qua the CGP and the HEL shares directly, ignoring all the intermediate subsidiaries which are 100 per cent held and which are non-operational. According to the Revenue extinguishment took place de hors the CGP share. It took place by virtue of various clauses of 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 mat .....

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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 extinguishment of rights as alleged by the Revenue .....

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ch decisions also, the holding units or companies have their authoritative say. In paragraphs 84 and 85 of this judgment, on which reliance is placed before us, the Hon'ble Supreme Court has has held as under : 84. As regards the term sheet dated March 15, 2007, it may be stated that the said term sheet was entered into between VIH and Essar. It was executed after February 11, 2007 when SPA was executed. In the term sheet, it has been recited that the parties have agreed to enter into the te .....

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ering 12). We must understand the background of this term sheet. Firstly, as stated the term sheet was entered into in order to regulate the affairs of HEL and to regulate the relationship of the shareholders of HEL. It was necessary to enter into such an agreement for smooth running of the business post acquisition. Secondly, we find from the letter addressed by HEL to FIPB dated March 14, 2007, that articles of association of HEL did not grant any specific person or entity a right to appoint d .....

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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 .....

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ncome or receipt. In this case, we are not concerned with tax on income/profit arising from business operations but with tax on transfer of rights (capital asset) and gains arising therefrom. In the latter case, we have to see the conditions on which the tax becomes payable under the Income Tax Act. Valuation may be a science, not law. In valuation, to arrive at the value one has to take into consideration the business realities, like the business model, the duration of its operations, concepts .....

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which in turn controlled a 67 per cent interest in HEL and its subsidiaries. Valuation is a matter of opinion. When the entire business or investment is sold, for valuation purposes, one may take into account the economic interest or realities. Risks as a discounting factor are also to be taken into consideration apart from loans, receivables, options, RoFR/ TAR, etc. In this case, enterprise value is made up of two parts, namely, the value of HEL, the value of CGP and the companies between CGP .....

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re 67 per cent, as they were not subject to the limitation of sectoral cap, and, therefore, would have immediately encashed the call options. The question still remains as to from where did this figure/expression of 67 per cent of equity interest come ? The expression equity interest came from US GAAP. In this connection, we have examined the notes to the accounts annexed to the annual report 2006 of HTIL. According to note 1, the ordinary shares of HTIL stood listed on the Hong Kong Stock Excha .....

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ts 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 .....

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ourt about the nature of the deal and transaction cannot be revisited or reconsidered, then, the conclusions of the Tribunal are wholly unsustainable and difficult to uphold. 157 Mr. Setalvad, learned senior counsel, however, would submit that the Tribunal's order does not go contrary to the judgment of the Hon'ble Supreme Court of India in the first Vodafone case. He submits that the Tribunal was required to decide as to how post this judgment and when the law itself is amended can the .....

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the company and not to the shareholders. Therefore, the asset vested with the company would remain vested, albeit the transfer of ownership. The further conclusion of the Tribunal is that the Hon'ble Supreme Court judgment only deals with the question of transfer between HTIL and VIH BV by virtue of the share transfer agreement and not in the context of transfer of option rights by the assessee to its affiliate. It is unfortunate that the Tribunal makes a casual remark in paragraph 31 that .....

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ia particularly in further litigation 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 i .....

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gments 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 Supreme Court is based on unamended provisions of section 2(47) of the Income Tax Act. That was in the context of limited facts and documents. Therefore, after the law has been amended the Tribunal can find out whether the amended provisions will govern the controversy or n .....

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hts are held by the assessee under the Framework Agreement of 2006 in consideration of arrangement of funds and with a view to acquire the shareholding to the extent of 15.03% in future with an anticipation of relaxation of sectoral cap /ceiling on FDI and telecom sector. That is why the assessee paid hefty sum of US $10.2 million and US $6.3 million per annum to AS and AG. They would pay this only to keep the call options alive under the FWA. It is this line of reasoning coupled with the fact t .....

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these conclusions we will have to look at the agreements themselves. This will have to be looked at in the backdrop of the ownership chart tendered and which is undisputed. 161 The Centrino Framework Agreement, copy of which is at Annexure-C page 299 of the paper-book, is dated 1st March, 2006. It is among AG and Goldspot and Plustech and 3 GSPL and Centrino Trading Pvt. Ltd. The recitals are that AG is an Indian based professional with wide experience in the management of various businesses wor .....

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SPL 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 w .....

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of Plustech. That is how the further recital H reads. Clause 1 of this agreement contains definition and the word Change of Control which is defined at page 303. At page 304, the word TII Shareholders Agreement is defined to mean the share holders agreement to be entered into as of the same date between Centrino, ND Callus Info Services Pvt. Ltd., CGP and TII. Then, under clause 4 which is entitled Subscription and Transfer of Shares , clause 4.1 sets out the restrictions on subscription or tra .....

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Goldspot may exercise the Put Option at any time after: (a) GSPL or its nominee issues the Subscription Notice for subscribing to such number of Subscription Shares which would result in GSPL or its nominee holding more than 50% of the issued share capital of Centrino; or (b) CGP or its nominee issues a notice to subscribe to or purchase the shares in TII pursuant to the subscription right or call option, as the case maybe, available under the TII Shareholders Agreement ( TII Option ) which woul .....

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Clause 4.6 below prior to the aforesaid subscription to/purchase of the shares in TII; or (c) GSPL becomes eligible under all applicable Indian laws and regulations to hold all 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 .....

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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 between the Parties; and if the Parties fail to reach agreement within 30 days of the date of the Transfer Notice, then; (b) such fair market value as may be determined .....

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ransferred without the prior written consent of GSPL. The change of control is dealt with by clause 5.3 and clause 6.2 deals with termination. 163 The Framework Agreement copy of which is at Annexure-D Page 323 is between Analjit Singh and Scorpios Beverges Pvt. Ltd. and MV Healthcare Services Pvt. Ltd., 3 Global Services Pvt. Ltd. and ND Callus Info Services Pvt. Ltd.. Analjit Singh also is styled as an Indian based entrepreneur with diversified interests and investments in various sectors. Hut .....

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t or procure assistance for AS in obtaining such financing and to provide guarantees required by any lenders providing such financing. Since in the past AS has been associated with a joint venture partner with the Hutchison Group in HEL and with a view to enter into strategic alliances with the Hutchison Group in other sectors such as real estate etc. where foreign direct investment is being liberalized, AS agreed to invest in TII. That is how the 2063250 ordinary shares of par value of ₹ .....

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lthcare 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, .....

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olders thereof. TII joined this agreement as a confirming party, inter-alia, as the matters contained in this agreement affect the administration of TII. This agreement at running page 355 in clauses 4.2 to 4.4 sets out the put option, call option, subscription and transfer procedure. These clauses at pages 355 and 366 read as under : 4.2 Put Option Each of NDC and Centrino shall have the right to require CGP to purchase, or procure the purchase of, all but not part only of the NDC Shares and/or .....

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se 4.5 below. 4.4 Subscription and Transfer Procedure (a) The Subscription Option, Put Option and/or Call Option and/or Default Option, shall be exercised by a written notice ( Transfer Notice ) from the party exercising such Option ( Offeror ) to the applicable counterparty ( Offeree ) and the effective date of its exercise shall be the date of the said written notice. Any resulting issuance, sale or acquisition shall be subject to the approval of any other competent regulatory agencies and sha .....

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hares, NDC Shares and/or the Centrino Shares. (c) Any issuance of Subscription Shares or Transfer of the Put Shares or Call Shares or Default Shares and payments in consideration thereof shall, subject to any agreement in writing between the Parties to the 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 Right .....

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g 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 assessee or its nominees whereas the call option under the Framework Ag .....

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Framework Agreements of 2006 and 2007 reveals that there is only one difference under the Framework Agreements of 2007 regarding call option and that is including any wholly owned subsidiary of Vodafone PLC can exercise the call option. The finding is that the inclusion of a probable assignee in clause 4.4. of Framework Agreement of 2007 alone would not tantamount to assignment or transfer of call option. In that regard, the Revenue's reference to section 2(47) has been considered and there .....

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SPL. The Hon'ble Supreme Court further held that even if the option rights are considered to be property rights, there has been no transfer or assignment of options by GSPL till today. The Revenue submits that these two conclusions have also been arrived at by examining the SPA and the 2006 Framework Agreements. After the amendment brought in to the definition, it is not necessary that options become property when they are exercised. Since definition of property has also been amended with re .....

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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 .....

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009, 27th August, 2009. These documents were not before the Hon'ble Supreme Court and though the assessee submitted that VIH BV was a party to the dispute before the Hon'ble Supreme Court, it admitted certain averments in this regard. Thus, there is evidence that options rights were, in fact, exercised. The option rights would not have been exercised unless an interest in the same could have been created in assessment year 2008-09. In any view and without prejudice, the case of the Reven .....

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of 2007. Even if those are taken into consideration and as vehemently urged what we find is that the term transfer is in relation to a capital asset and includes what is enumerated under clauses (i) to (vi) and by explanation 2 what has been clarified is 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 unconditionally .....

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thods a disposal or parting with or creating any interest in an asset must exist and be borne out from the arrangement or transfer. Making the provision of one of the prospective nominees would not amount to creating any interest in the asset in the shape of right to acquire the shares held under call option. Analyzing the Framework Agreement and particularly clause 4.4 read with clause 4.10, the Tribunal concluded that the right to acquire shares remains with the assessee till the assessee exer .....

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f 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 optio .....

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olders agreement of 5th July, 2007. The distinction has been brought about and thereafter what the Tribunal finds is that some clauses of the agreement styled as shareholders agreement dated 5th July, 2007, which was signed in pursuance and in furtherance of the Framework Agreement of 2007 and not as an independent distinct agreement having no connection with the option rights under the Framework Agreements, enables the Tribunal not to agree with the contentions of the assessee that shareholders .....

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ders agreement and the background development as well as surrounding circumstances, then, by such intention alone we do not find any justification for reaching the conclusion that option rights including the call option held by the assessee under the Framework Agreement stand transferred / assigned in favour of CGP India Investment by virtue of TII shareholders agreement. This round about or circuitous mode may be depicting a intention of the parties but whether the ingredients of section 2(47) .....

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g paragraphs 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 .....

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cate 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 option rights had been created in the assessment year 2008-09. Apart therefrom, heavy reliance is placed on the amendments. It is also argued that the appellant has acquired 15.4% option rights through a Framework Agreement of 2006 with AS, AG and IDFC group of companies. The payment have been m .....

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1-12 vide termination agreement dated 23rd November, 2011 and the appellant has paid ₹ 2.2.50 million for which it has not received a single share. Thus, the payments have been made from time to time but no benefit has been received by the appellant on creation of interest in the option rights in favour of its Associate Enterprise or at the time of exercise of option rights. As on date, there is no option right existing in the hands of the appellant. Thus, the assessee which held valuable .....

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reement dated 5th July, 2007, that the option rights held by the assessee were to be transferred / assigned only to CGP India and none other. This finding is rendered after concluding that the role of the assessee ceased to exist the moment the shareholders agreement was signed. It was then held that it is manifest from these agreements that the intention of the parties to the Framework Agreements was that the option rights held by the assessee were to be transferred / assigned only to CGP India .....

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ntile 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 nam .....

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epeatedly emphasised and by virtue of the explanation 2 which has been inserted by Finance Act of 2012 with retrospective effect from 1st April, 1962. The word 'transfer' in relation to a capital asset includes the sale, exchange or relinquishment of the asset or the extinguishment of any right therein or the compulsory acquisition thereof under any law or in a case where the asset is converted by the owner thereof into or is treated by him as a stock-in-trade of a business carried on by .....

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ction involving the allowing of possession of any immovable property to be taken or retained, any transaction which has the effect of transferring or enabling the enjoyment of any immovable property. 175 By explanation 2, the doubts have been clarified and it is indicated that transfer would include 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, absol .....

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that transfer would also include and shall be deemed to have included the acts specified in explanation 2. Even there it must be a disposal or parting with an asset or any interest therein or 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 expla .....

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ith 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 telecommunication business of HEL in India through the TII and downstream companies. All this even after the amendment has .....

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enue. The Revenue's contentions either canvassed mainly or alternately or without prejudice would not enable us to hold that section 2(47) would be attracted and even to the situation noted post the judgment of the Hon'ble Supreme Court. It is very clear that the Revenue's arguments take into consideration the explanation which has been inserted in section 2(14) and once again that is to remove doubts and clarify that property includes and shall be deemed to have always included any .....

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nd shall be deemed to have always included any right in or in relation to an Indian company, including rights of management or control or any other rights whatsoever. Therefore, option and which is relation to shares of an Indian company namely Scorpios Beverages Private Limited and AG Mercantile Company Pvt. Ltd. are referred to by the Revenue. According to it, these options in turn entitle the option holder to a 12.25% equity interest in VIL(HEL). Thus, the right of the appellant to subscribe .....

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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 .....

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1051 of Volume III of the paper-book. We see some substance in the contentions and to this effect. 177 Therefore, we are of the view that none of these amendments and post the Supreme Court judgment would enable the Revenue to urge that the position as noted in the Supreme Court judgment no longer subsists. Even if there was a change therein on the basis of the Revenue's stand itself the Tribunal concluded quite contrary to what is now urged before us. Apart therefrom, we find that the essen .....

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the call options contained in this Shareholders Agreement rendered the call options contained in the Framework Agreements nugatory. It then concluded that this Shareholders Agreement results in an assignment of the call options of the appellants and the beneficiary of the assignment was not VIH BV but CGP. The assessee rightly contended that the submissions filed by the Revenue asserted that the assignment was by virtue of the Framework Agreements to VIH BV but the Tribunal holds that the option .....

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n the earlier paragraph that a revised Framework agreement which recognised the same options did not constitute a transfer. Therefore, the case that the Shareholders Agreement of 2007 constituted an assignment of the call options is a case put to the assessee by the Tribunal. Even in relation to that we have found that the Tribunal does not conclude that section 2(14) and section 2(47) of the IT Act as amended would be attracted. We have found from a reading of the Tribunal's order that it h .....

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007 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 CG .....

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ed, even according to the Tribunal, into anything beyond what is concluded by the Tribunal and to be termed as a transfer. 179 Then, as far as the issue of international transaction as per the transfer pricing provisions of the Income-tax Act, 1961 is concerned, the Tribunal noted the rival contentions and particularly the arguments of Mr. Setalvad in paragraphs 44 and 45. The Tribunal then noted the contentions of the assessee to the contrary and in paragraph 51 it reproduces the definition of .....

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2E and 92F(v). In paragraph 53 the Tribunal's understands an international transaction to mean a transaction including an arrangement or action in concert between two or more associated enterprise in the nature of purchase, sale, lease of tangible or intangible property or provision of services or lending or borrowing money or any other transaction having a bearing on the profits, income, losses or asset of such enterprise. The same also includes a mutual agreement or arrangement between two .....

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n 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 .....

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derstanding 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 mutual understanding and arrangement as well as action in concert between the assessee and VIH BV will certainly have a bearing on the profits, income,losses or asset of the associated enterprise. Hence the grant of call option under Framework Agreement 2007 against the consideration is an international transaction as per the .....

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High Court while considering the binding nature of the SPA has observed in para 150-152 that the transaction should be of composite nature where performance of mother agreement may not be feasible without the aid, execution and performance of the supplementary or ancillary agreements for achieving the common object and collectively having bearing on the dispute. In the case in hand the entire transaction under SPA and other supplementary / ancillary agreements is one package / composite transact .....

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ok place on 08/05/2007. Therefore during the year under consideration both HTIL and VIH BV are the associate enterprise of the assessee as per section 92A(2) of IT Act. SPA and FWAs constitute an arrangement, understanding or action in concert among the assessee, HTIL and VIH BV for grant of Call Option by Asim Ghosh and Analjit Singh to assessee against the agreed consideration paid by the VIHBV. This mutual understanding and arrangement as well as action in concert between the assessee and its .....

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gument 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. .....

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on 92B applies only for purpose of computation. 181 Mr. Setalvad had in his oral arguments and the written note submitted that the 2007 Framework Agreement and particularly clause 4.4. thereof as held by the Tribunal does not in itself result in assignment of an option in favour of VIH BV. However, the Tribunal has thereafter considered the terms of TII Shareholders Agreement dated 5th July, 2007 entered into between Nadal, ND Callus and CGP Mauritius a Vodafone Group company. The Tribunal concl .....

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s of no relevance. Therefore, ITAT concluded that the intention of the parties all along was to transfer the stake in TII to CGP Mauritius only. In arriving at this conclusion the Tribunal has noted that the 2007 Framework Agreement and 2007 TII shareholders Agreement were two connected documents as both of them regulated the option rights held by the assessee. It was further noted that AS and AG were party to the 2007 Framework Agreement, they were bound by the 2007 TII Shareholders Agreement a .....

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ho are non residents. Further, the understanding or arrangement has resulted in creation of an interest in the option rights held by the assessee in favour 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 in .....

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mplications 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 Nadal only after the options were fully exercised under the 2007 Framework Agreements. While the put options can be exercised by ND Callus and Nada .....

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ions contained therein are satisfied and fulfilled is the submission. 182 We are unable to accept it for the edifice is built on the applicability of the amended provisions and really the definition of the term capital asset and transfer . 183 Section 92-B of the Income Tax Act, 1961, reads as under : 92B. (1) For the purpose of this section and section 92, 92C, 92D and 92E, international transaction means a transaction between two or more associated enterprises, either or both of whom are nonre .....

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ty provided or to be provided to any one or more of such enterprise. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered 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 su .....

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on 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 rec .....

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assets of such enterprise at the time of the transaction or at any future date; (ii) the expression intangible property shall include - (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos; (b) technology related intangible assets, such as process patents, patent applications, technical documentation such as laboratory notebooks, technical know-how; (c) artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyr .....

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(g) contract related intangible assets, such as, favourable supplier, contracts, licence agreements, franchise agreements, non-compete agreements; (h) human capital related intangible assets, such as,trained and organised work force, employment agreements, union contracts; (i) location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights; (j) goodwill related intangible assets, such as,institutional goodwill, professional pract .....

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Chapter X entitled Special Provisions Relating to Avoidance of Tax . Section 92B defines international transaction and for the purposes of section 92B, the prior section 92 and the following sections 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 beari .....

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rises, 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 computation of income from international transaction having regard to arm's length price is a matter dealt w .....

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international transaction under section 92B read with section 92F(v). The assessee, on the other hand argued that VIH BV is only a confirming party and not a party to the agreement and relied upon the judgment of the Hon'ble Supreme Court in the first Vodafone case. Thus, once the Supreme Court concludes that there was no assignment of call option in the Framework Agreements of 2007 in the light of the same, the jurisdictional and threshold requirement of existence of a transaction including .....

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e, the inevitable conclusion is that there has been no transaction whatsoever as an assignee which would mandatorily require a volitional factual act, usually involving a document by the assignor to at least one other party who is the assignee. If the Department is unable to point out any such volitional act save and except the 2007 Framework Agreements, then, that argument or stand has been rejected Hon'ble Supreme Court and equally by this Court. 186 In the first place, one cannot ignore t .....

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ted 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 .....

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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 will have to draw an inference but without some concrete primary facts being establishe .....

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any of the Framework Agreements in exercise of their options under such agreements. HTIL also provided several warranties to VIH BV as set out in Schedule 4 to the SPA which included that HTIL was the sole beneficial owner of the CGP share. The transaction and purchase of share of CGP under SPA took place on 8th May, 2007. We do not see how the Tribunal then contradicts itself when in paragraph 54 it only takes up the agreement where VIH BV is a confirming party. It holds that even if it is acc .....

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section 92F are fulfilled according to the Tribunal because the 2007 Framework Agreement is 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. If that is how the matter is approached, then, we do not see any basis for the subsequent observations. These are on the footing that consideration for purchase of single share of CGP was determined on the basis of 67% of .....

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f 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 confusin .....

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to be enforceable by legal proceedings. 187 A bare reading of clause (v) would indicate that the same defines transaction to include an arrangement, understanding or action in concert whether or not such arrangement, understanding or action is formal or in writing or whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings. We also find that during the course of arguments, another facet was tried to be introduced before us and that is that the a .....

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of a wholly owned subsidiary of Vodafone group PLC. Then, reliance is placed on clause 4.4 of the Framework Agreement of 2006 and corresponding clause 4.4 of the Framework Agreement of 2007. It is urged that the exclusive right of the appellant under the Framework Agreement of 2006 no longer survives under the Framework Agreement of 2007. Under the 2007 Framework Agreement, the appellant had agreed that any wholly owned subsidiary of Vodafone group PLC can exercise a right by virtue of the inte .....

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ption 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 int .....

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hich 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 transferred. This arrangement between the appellant and other wholly owned subsidiaries of Vodafone group PLC is an arrangement between the associated enterprises out of which one or more are nonresidents. As per section 92B(1) there can be two or more than two parties to the transaction. There is no requirement that there has to be only one assig .....

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al transaction has to be computed having regard to the arm's length price. It is not clarified throughout as to what is the income arising from the international transaction which is to be brought to tax. The Hon'ble Supreme Court has categorically held that there is no capital gain which can be taxed in terms of Indian tax regime. This is as far as the transfer of a share. The Court holds that there is no transfer of asset. As far as the above transactions are concerned, that is termed .....

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ontention that section 92B(2) is not applicable to the instant case (paragraph 128 of the impugned order). (b) However, the Tribunal upheld the alternate contention of the Revenue as noted by the Dispute Resolution Panel that transaction of call centre business was an international transaction under section 92B(1) of the Income Tax Act, 1961. Thus, Mr. Salve's contention is that the Tribunal firstly considered whether the transaction of sale of call centre business by the assessee to HWP (In .....

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e 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. Sa .....

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e for the year under consideration. Therefore, the provisions of sub-section (2) of section 92B are not attracted. 191 We have already reproduced these two sections and what we find is that the assessee in this case had contended that the business was transferred to an India related party. Therefore, both sub-sections (1) and (2) of section 92B are not attracted and consequently, it does not fall under the realm of international transaction. On the other hand, the Revenue's case was that HWP .....

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nature of purchase, sale or lease of tangible or intangible property. The associated enterprise is defined by section 92A to mean in relation to another enterprise, an enterprise which participates directly or indirectly or through one or more intermediaries in the management or control of capital of the other enterprise or in respect of which one or more persons would participate directly or indirectly or through one or more intermediaries in its management or control of capital, are the same p .....

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cability of Chapter X. Secondly, whether the finding that the transfer of an asset from one Indian subsidiary of Hutch 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 hurd .....

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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 loans. The further argument is that it was agreed upon between HTIL and VIH BV at the time of entering into SPA that the call centre business will not be acquired by VIH BV. Pursuant to th .....

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held that the sale of call centre business is an international transaction under section 92B(1) of the Income Tax Act, 1961. The DRP upheld the method introduced by the TPO for valuation of the call centre. The assessee neither filed the documents in time nor did it file the complete documents before the TPO. The conduct of the assessee was brought out before the High Court in Writ Petition No. 488 of 2012 by filing an affidavit in reply. The assessee filed copy of the BTA after one and half mo .....

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TPO or the Assessing Officer. A copy of this draft was filed on 25th September, 2012, before the DRP for the first time and it could not have looked into it as there were only five days left before the order of the DRP would have become timebarred. Hence this draft was not admitted as additional evidence. The copy of the SPA was also filed after two months that too after issuance of the summons under section 131 of the Income Tax Act,1961, Further, the assessee did not file the signed and dated .....

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e 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 arrangem .....

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ee and HWP (India). The Tribunal reached the conclusion that the payment was made by HWL group company and not by HWP (India), though it was routed through the bank account of HWP (India). 194 As far as the second question about the applicability of section 92B(2) in the Tribunal's order and impugned in the appeal, at paragraph 127, the Tribunal adverted to sub-section (2) of section 92B and in paragraph 128 held that a transaction within the meaning of this sub-section must be entered into .....

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between two or more associated enterprises, either or both of whom are non- residents. The condition of non-residence of associated enterprises is only for bringing a transaction between two associated enterprises under the ambit of international transaction. Pertinently with all this, the Tribunal concluded that HWP (India) is an associated enterprise of the assessee for the year under consideration and, therefore, the provisions of sub-section (2) of section 92B are not attracted. We have ref .....

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ely 7000 employees. At the time of transfer of 67% stake in the telecom business by HTI to VIH BV, it was decided that the call centre business alone will be retained by Hutchison Group. That is why it was sold off as a running business or a going concern by the appellant to Hutchison Whampoa Properties 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. .....

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on 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, .....

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he Act to overcome a situation where an assessee would contend that although it was an associated enterprise at the time when the transaction was entered into but was not an associated enterprise either at the beginning of the year or at the end of the year and hence the transfer pricing provisions would not apply. The relationship of associated enterprise should be considered at the time when the relevant international transaction was entered into and if the interpretation placed by the Tribuna .....

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, been transferred by the assessee before the execution of the SPA on 8th May, 2007. Once it was so transferred, then, assessee and HWP (India) being associated enterprises, section 92B(2) will have no application. Mr. Setalvad submits that this clause refers to events that have taken place after the completion of the share sale and they have been incorrectly assumed to be conditions required to be fulfilled prior to the completion. Mr. Setalvad submits that the call centre transfer was to take .....

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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 .....

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in this case. A very detailed note has been submitted and placed on record to urge that some provisions of the SPA and reproduced at paragraph 22 of this note would show that HWP (India) is a party to the SPA as part of the Vendor group and also as benefits, rights and obligations of the SPA in respect of the transaction involved in the sale of the call centre business will accrue to and bind HWP. In the present case it has been shown that HWP (India) is a party to the SPA thereby fulfilling the .....

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the SPA read with the BTA constitute an arrangement, understanding and action in concert, as per the definition of the transaction given in section 92F(v) read with Rule 10A(d). It is widely worded and covers understanding, arrangement and action in concert. Moreover, the action need not be a single transaction and it can be number of closely related transactions. Thereafter, outlining the details of such transaction and relying on paragraphs 28 and 29 of the written note on this subject so also .....

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n section 92B(1) is satisfied. Further, the transaction involves sale of call centre business which is a capital asset. The capital asset of the assessee is getting transferred which in turn affects the income or profits and assets of the appellant. Hence this transaction of sale of call centre satisfies the condition specified in section 92B(1) and constitutes an international transaction even if the assessee's contention that the BTA was signed before the implementation of the SPA is assum .....

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ection 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 pric .....

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iated enterprises enter into a mutual agreement or arrangement for 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 cost of expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm's length price of such benefit, service or facility, as .....

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such enterprise. By sub-section (2A) any allowance for an expenditure or interest or allocation of any cost or expense or any income in relation to the specified domestic transaction shall be computed having regard to the arm's length price. By sub-section (3) it has been clarified that the provisions of section 92 itself will not apply in a case where the computation of income or the benefit, service or facility or the determination of the allowance for any expense or interest and in terms .....

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tional transaction and by sub-section (2) a transaction entered into 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 .....

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lation 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 explanation. 202 Section 92C enables computation of arm's length price and the methods of such computation are set out therein. By Section 92CA a reference to the Transfer Pricing Officer is contemplated and where the Assessing Officer c .....

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the meaning of international transaction is given for the purposes of the prior section 92 and the following sections 92C, 92D and 92E and section 92F contains the definitions which are relevant for computation of arm's length price. In that regard, we would reproduce section 92F(ii)(iii) and (iiia): 92F. In section 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires,- (ii) arm's length price means a price which is applied or proposed to be applied in a transaction betw .....

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specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights, or the provision of services of any kind, or in carrying out any work in pursuance of a contract or in investment, or providing loan or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, whether such activity or bu .....

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ansaction 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 ag .....

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ween 3GSPL and HWP (India) following which a business transfer agreement was signed between 3GSPL when it was still part of the HWL group. The completion of SPA took place after the business transfer agreement was signed. One of the conditions precedent for closure of the transaction under the SPA was the transfer of business of the call centre. That was transferred on 4th December,2007 on necessary Government approvals being obtained. Pending completion of the sale of this call centre business .....

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s also submitted that HWP has been filing Income-tax returns as an Indian company and not as a foreign company. 205 In that regard, Mr. Salve has relied upon the judgment of this Court in the case of Vodafone India Services Pvt. Ltd. vs. Union of India and that the Division Bench held and in the context of the petitioner which is a wholly owned subsidiary of a non-resident company Vodafone Teleservices (India) Holdings Limited. This latter one is the holding company. The petitioner before this C .....

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lue of the issue of the equity shares at 8509 per share was determined by the petitioner in accordance with the methodology prescribed by the Government of India under the Capital Issue (Control) Act, 1947. However, according 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/ .....

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re 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 section 92A. The issue of shares, the valuation in terms of the Capital Issue (Contro .....

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22nd March, 2013, passed by the Assessing Officer in terms of section 143(3) read with section 144C(1) of the Act relating to assessment year 2009-10. In this background and after extensively referring to the order passed in the Vodafone 3 case, this is what is held in paragraphs 14 and 15 : 14 The impugned order further holds that as a consequence of the Petitioner's not receiving the arm's length price on the issue of shares, resulted in lesser premium being garnered by the Petitioner. .....

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sion, the impugned order at paragraph 44 holds as under:- In the light of the elaborate discussion above, the directions given by the Hon'ble Bombay High Court in its order dated 29.11.2013, stands disposed off. The Dispute Resolution Panel's findings are summarized as under: a. On a broader and harmonious construction of the term income in Section 92(1), Assessing Officer has jurisdiction to invoke Chapter X as share premium is an income arising from issue of shares (para 21) b. Even if .....

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d 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. Thi .....

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ng either by itself or through its subsidiaries or joint venture companies. These multinational enterprises had transaction between themselves and these transactions not being subject to market forces, the consideration were fixed within the group to ensure transfer of income from one tax jurisdiction to another as appeared profitable to them. Thus, the new Sections 92 to 92F of the Act were introduced with effect for A. Y. 2002-03 as a part of Chapter X of the Act. The aim being to have well de .....

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tax in India. In the case of such multinational enterprises, the Act has substituted section 92 with a new section and has introduced new sections 92A to 92F in the Income-tax Act, relating to computation of income from an International Transaction having regard to the arm's length price, meaning of associated enterprise, meaning of International Transaction, computation of arm's length price, maintenance of information and documents by persons entering into International Transactions, f .....

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a manufacturer, for example, the provisions will apply to exports made to the associated enterprise as also to imports from the same or any other associated enterprise. The provision is also applicable in a case where the International Transaction comprises only an outgoing from the Indian assessee. 55.5:- The new section further provides that the cost or expenses allocated or apportioned between two or more associated enterprises under a mutual agreement or arrangement shall be at arm's len .....

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hich 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 regu .....

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either showing lesser consideration or higher expenses between associated enterprises than would be the consideration between two independent entities, uninfluenced by relationship. It did not replace the concept of Income or Expenditure as normally understood in the Act for the purposes of Chapter X of the Act. The objective of Chapter X of the Act is certainly not to punish Multinational Enterprises and/or associated enterprises from doing business inter se. However, we are conscious of the fa .....

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guage employed . The above principle was restated by Justice J. C. Shah (as he then was) in Sales Tax Commissioner v/s. Modi Sugar Mills AIR 1961 page 1047 in following words:- In Interpreting a taxing statute, equitable consideration are out of place. Nor can a taxing statute be interpreted or any presumption or assumptions. It must interpret a taxing statute in the light of what is clearly expressed..... Thus, we would examine the provisions of Chapter X of the Act with the aid of the submissi .....

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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 .....

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ed on application of arm's length price. Therefore, absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. This is settled by the decision of this Court in Cadell Weaving Mill Co. vs. CIT 249 ITR 265 was upheld by the Apex Court in CIT vs. D.P. Sandu Bros. Chember (P) Ltd. 273 ITR 1. This Court has in Cadell Weaving Mills Co. (supra) inter alia, observed as under:- It is well settled that all receipts are not taxab .....

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nly capital gains chargeable under Section 45 which has been treated as income under Section 2(24). If the argument of the Department is accepted then all capital gains whether chargeable under section 45 of not, would come within the definition of the word income under section 2(24). Further, under section 2(24)(vi) the Legislature has not stated that any capital gains will be covered under the word income. On the contrary, the Legislature has advisedly stated that only capital gains which are .....

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a whole is inclusive and not exhaustive. In the present case, the words chargeable under section 45 are very important. They are not being read by the Department. These words cannot be omitted. In fact, the prior history shows that capital gains were not chargeable before 1946. They were not chargeable between 1948 and 1956. Therefore, whenever an amount which is other wise a capital receipt is to be charged to tax, section 2(24) specifically so provides. In view of the above, we find considerab .....

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ions. 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 n .....

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sion Bench referred to the principles of interpretation to be applied while interpreting a fiscal / taxing statute and held thus : 28 We shall first deal with the grounds recorded in the impugned order to justify the conclusion that the Revenue has jurisdiction to apply Chapter X of the Act to the transaction of issue of shares by the Petitioner to its holding company. This conclusion has been reached on application of Section 92(1) of the Act. Section 92 of the Act provides for computation of i .....

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meaning of the word Income to include all incomings. This is sought to be supported by the intent/object of Chapter X of the Act, particularly the definition of International Transaction given in Section 92B of the Act. The impugned order in support of interpretation on the basis of purpose/intent of the legislation relies upon the decision of the Supreme Court in Maulai Hussain Haji Abrahim Vs. State of Gujarat and ors. 2004 AIR (SC) 3946 rendered in the context of Prevention of Terrorist Acti .....

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le construing it. The Supreme Court in Mathuram 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 .....

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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 matter. 30 In view of the above, it is clear that it was not open to Dispute Resolution Panel to seek aid of the supposed intent of the Legislature to give a wider meaning to the word 'Income'. 31 Similarly, the reliance by the revenue upon the definition o .....

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capital account or on account of restructuring would become taxable to the extent it impacts income i.e. under reporting of interest or over reporting of interest paid or claiming of depreciation etc. It is that income which is to be adjusted to the arm's length price. It is not a tax on the capital receipts. This aspect appears to have been completely lost sight of in the impugned order. 32 The other basis in the impugned order is that as a consequence of under valuation of shares, there is .....

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rking out the income after arriving at the arm's length price of the transaction. This is only to ensure that there is no manipulation of prices / consideration between associated enterprises. The entire consideration received would not be a subject-matter of taxation. It appears for the above reason that the learned Solicitor General did not seek to defend the conclusion in the impugned order on the basis of the reasons found therein, but sought to support the conclusion with new reasons. 3 .....

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e 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 .....

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t dated 9 September, 2014 in the following manner:- (a) Cost incurred by Petitioner for a corresponding benefit to holding company i.e. it gets shares worth ₹ 53,775 each at a price of ₹ 8519/- each; and (b) The valuation of holding company goes up in International Market due to holding of undervalued shares of the Petitioner. In support the learned Solicitor General wanted us to read Section 92(2) of the Act in the following manner:- 92(2) Wherein an International Transaction..., tw .....

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Section. This manner of reading a provision by ignoring/rejecting certain words without any finding that in the absence of so rejecting, the provision would become unworkable, is certainly not a permitted mode of interpretation. It would lead to burial of the settled legal position that a provision should be read as a whole, without rejecting and/or adding words thereto. This rejecting of words in a statute to achieve a predetermined objective is not permissible. This would amount to redrafting .....

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d on by an associated enterprises for the benefit of three associated enterprises, then the cost will be distributed i.e. allocated, apportioned or contributed depending 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 subst .....

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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 territories carries an business with a person resident in the taxable territories, and it appears to the Income Tax Officer that owing to the close connect .....

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urpose of this Act, the assessee in respect of such income tax. (emphasis supplied) 38 If the above provision is contrasted with the provisions of Chapter X of the Act and in particular Section 92 thereof, it would be noticed that the crucial words shall be chargeable to income tax which are found in Section 42(2) of the 1922 Act are absent in Chapter X of the Act. We pointed out this difference in the two provisions to the learned Solicitor General and he agreed that the above difference exists .....

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the Act could be invoked. Sections 4 and 5 of the Act brings /charges to tax total income of the previous year. This would take us to the meaning of the word income under the Act as defined in Section 2(24) of the Act. The amounts received on issue of shares is admittedly a capital account transaction not separately brought within the definition of Income, except in cases covered by Section 56(2) (viib) of the Act. Thus such capital account transaction not falling within a statutory exception ca .....

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bove. 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 .....

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al account transaction and not income. The classical distinction between income and capital is that which exists between fruits and tree. Income is a flow while capital is a fund. The Privy Council in CIT v/s. Shaw Wallace & Co., Ltd. 6 ITC 178 (PC) has colourfully stated Thus income has been likened pictorially to the fruit of a tree or the crop of a field. It is essentially the produce of something which is often loosely spoken of as capital. 40 It was contended by the Revenue that in view .....

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is absence of any charge in the Act to subject issue of shares at a premium to tax. 208 In paragraph 44, a similar contention as raised by Mr. Setalvad before us is negatived. In paragraphs 45 and 46 the Bench held as under : 45 Chapter X of the Act is a machinery provision to arrive at the arm's length price of a transaction between associated enterprises. The substantive charging provisions are found in Sections 4, 5, 15 (Salaries), 22 (Income from house property), 28 (Profits and gains o .....

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here can be no dispute. However, as observed by the Supreme Court in CIT v/s. B. C. Srinivasa Shetti 128 ITR 294, there is a qualitative difference between the charging provisions and computation provisions and ordinarily the operation of the charging provisions cannot be affected by 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/ s .....

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lf 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 inapplicable. Mr. Setalvad& .....

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lusion on the applicability of the two provisions, namely, sections 92B(1) and 92B(2). In any event, the Tribunal committed a basic and fundamental 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 do .....

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and followed it. Mr. Salve's reliance on this judgment, therefore, need not be considered in further details. 213 Then, Mr. Salve relied upon the order passed in the case of this very assessee reported in (2013) 359 ITR 133. There, this Court considered a challenge to the order passed by the Additional Commissioner of Income Tax, Transfer Pricing to the extent that it relates to the addition of ₹ 84,34,39,52,555/- on account of its unreported international transaction and a draft asse .....

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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 .....

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immovable property. At best, it creates a right to apply for a consequence or transfer in terms of the contract and thus a suit for specific performance of the contract for sale can be laid in the competent court. The very principle has been relied upon in the subsequent judgments. 218 As far as the judgment of the Court of Appeals reported in 1991 (1) WLR 963 J. Sainsbury Plc. vs. O'Connor (Inspector of Taxes), Mr. Salve submits that as far as the beneficial ownership is concerned, that is .....

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as far as assisting the contentions of the Revenue before us. 220 The judgment relied upon by Mr. Setalvad may now be noticed. If we find from his written notes, Mr. Setalvad essentially relies upon the judgment of the Hon'ble Supreme Court in the case of M/s. A.R. Krishnamurthy & Anr. vs. Commissioner of Income-tax, Madras, (1989) 1 SCC 754. 221 The judgment of the Hon'ble Supreme Court relied upon by Mr. Setalvad must be read in the backdrop of the facts. There the assessee was a .....

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nsferring a leasehold interest in the land and came to the conclusion that the transfer was assessable to capital gain tax. The assessee preferred an appeal to the Appellate Assistant Commissioner who rejected the argument of the assessee that the cost of acquisition of assets could not be determined. Then, the assessee approached the Tribunal in further appeal which held that the entire ownership of the property means the ownership of a bundle of rights and a limited interest which can be sever .....

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ted 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. Salv .....

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nt in A.R. Krishnamurthy requires no consideration simply because we are not determining the questions as raised before the Hon'ble Supreme Court in this judgment. Whether the cost of acquisition in the leasehold rights would take within its import the cost of the right to excavate clay in the land in terms of money is an issue which must be answered as held by the Hon'ble Supreme Court in each cases on the basis of evidence. It is a question of fact. In these circumstances, we do not th .....

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tion of the same need not detain us. 224 As far as the valuation of ITES is concerned, the Tribunal has followed its earlier order and for the assessment year 2007-08. Both sides conceded that a substantive appeal in that regard is pending against the same and in this Court. We would, therefore, prefer not to express any opinion on the rival contentions in that regard. It would be thus open for the parties to raise them in the pending appeal as also in an appropriate case. We keep that controver .....

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get over the binding judgment of the Hon'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 ver .....

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