TMI Blog2018 (1) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolve the foreign AEs. The fact and evidence about the terms of arrangements of this transaction being decided, in substance, by the foreign AEs is something which is in exclusive knowledge domain of the assessee and its group entities and when the assessee decide not to share it and the circumstances are such that the terms of the transactions are established to not at all justified by the known commercial considerations of the assessee, the assessee cannot blame the revenue authorities for not brining on record the evidence of the terms of arrangement being decided by the foreign AE. In these peculiar facts, which are very unsusal facts by any standards, even in the absence of such an evidence, the terms of arrangements being decided by the foreign AE can be reasonably accepted. In view of these discussions, the arrangement, understanding and action in concert, with respect to framework agreement and termination thereof, is an international transaction under section 92B(2) as well. In other words, while foreign AE and parent company of the assessee is not only a party to the agreement but the terms of the agreement, in substance, are being decided by the foreign AE. The argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in main provision of Section 2(14), as long as it meets the test laid down in Explanation to Section 2(14), it is to be treated as a ‘Capital Asset’ nevertheless. Thus the right to nominate the assignee of the option rights, which was exercised by the assessee during the relevant previous year, was a capital asset. Whether there was any transfer of capital asset in the relevant previous year? - Held that:- As the assessee had exercised the right of nomination, which could have been done only once, the right of nomination came to end, and was thus, in terms of Explanation 2 to Section 2(47), this was covered by the definition of ‘transfer’. Whether, even if there is a capital asset and it was transferred, such a capital asset had any cost of acquisition? - Held that:- Cost of acquisition in this case is clearly identifiable and, therefore, the provisions for computations of capital gain are workable. The law laid down by Hon’ble Supreme Court in the case of B C Srinivas Shetty (1981 (2) TMI 1 - SUPREME Court) does not come to the rescue of the assessee. Whether there is no consideration for the transfer and, for this reason, the computation of capital gains in not possib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question, it does not cease to be relevant in determination of ALP as long as, in substance, and in effect, things are comparable- though, depending upon the facts of the case, adjustments will be justified. - Decided against assessee Denying depreciation on goodwill on account of its amortization - Held that:- Goodwill in question forms an intangible asset u/s.32(1)(ii) of the Act or not to be entitled for depreciation relief is no more res integra as hon’ble apex court’s land mark judgment in Smiffs Securities Ltd. case [2012 (8) TMI 713 - SUPREME COURT]. We see no substance in the instant argument since there is no change so far as all facts pertinent to this issue vis-a-vis those involved in preceding assessment years are concerned. The authorities below have already adopted the very reasoning as in said earlier years to reject assessee’s instant claim. It is not clear as to what is the fate of these assessment years before this Tribunal. Learned counsel at this stage submits that assessee’s appeal for the said earlier assessment year 2011-12 is pending but the position of the earlier years is not clear. In any event, there is no independent adjudication on this issue by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arm s length price adjustment of ₹ 1,588.85 crores made by the Assessing Officer- which covers almost 99% of the disputed tax demand in this case, and that is the grievance we will take up first. Grievances raised by the appellant, with respect to this arm s length price adjustment, are as follows: 2. That in the facts and circumstances of the case and in law, the AO, Transfer Pricing Officer ( TPO ) and Dispute Resolution Panel ( DRP ) [collectively hereinafter referred to as Lower Authorities ] erred in assuming jurisdiction under Chapter X of the Act in the absence of an international transaction, rendering the exercise of jurisdiction by Lower Authorities over a domestic transaction as invalid and bad in law. 3. That in the facts and circumstances of the case and in law, the Lower Authorities erred in carrying out an adjustment of ₹ 1588,85,55,303/- to the income of the Assessee vide order dated 17.01.2017 ( Assessment Order ) by treating the termination of Option rights under the IDFC Agreement as a deemed international transaction under section 92B(2) of the Act, between the Assessee, VIHBV and the IDFC Investors. 4. That the Lower Authorities i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent parties. 10. The alleged international transaction pertains to extinguishment/ relinquishment of only 2.52% (not 3.15%) options in favor of an AE, and the ALP must be restricted to only 2.52% and not the entire 3.15%. 11. The Lower Authorities erred in benchmarking the alleged international transaction without informing or issuing a show cause notice to the Assessee as to the method and/or comparable on the basis of which benchmarking was to be done. 12. Without prejudice to the aforesaid, the Lower Authorities erred in extrapolating the amount paid by the Assessee to IDFC Investors for assignment of cashless option in AY 2008-09 (FY 2007-08, pertaining to shares in Vodafone India Ltd.) to the alleged international transaction executed in AY 2012-13 (FY 2011-12) in complete violation of Rule 10B (4) of the Income Tax Rules 1962, under which only present year data could be used for benchmarking the alleged international transaction of extinguishment/relinquishment of options; in any event, data for AY 2008-09 could not be used for benchmarking the alleged international transaction, since it was more than 3 years old. 13. Without prejudice, the Lower Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese entities or with the fine points about the structures and inter se relationships of these entities. All these companies, along with their associate entities will henceforth be collectively be referred to as Vodafone Group. 5. While Vodafone- India is a telecommunication giant with largest market share in cellular communications business in India and quite unlike what present name of the assessee company may subliminally suggest to a layman, the assessee before us is a small unlisted private company with an authorised capital of ₹ 3 crores, its entire paid up capital, at the relevant point of time, was ₹ 2.32 crores, and its annual turnover was ₹ 288.81 crores, out of which only ₹ 5.71 crore was from independent enterprises, and the remaining over ₹ 283 crores of turnover was generated from associated enterprises, on account of shared services. The assessee company has, as is put in the balance sheet, non-current investments aggregating to ₹ 1606.65 crore, certainly the most significant asset reflected in its balance sheet. The importance of the assessee company is thus not in its independent business operations but perhaps in the strate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is termination, vide termination deed dated 24th November 2011, of the agreement dated 6th June 2007 (Framework Agreement 2007 or FA 2007, in short), and payment of ₹ 21.25 crores by the assessee as termination fees. The termination agreement, a copy of which is placed before us at pages 1291-1307 of the Paperbook Volume IV, lists out the following, at pages 1292 and1293, as parties thereto: 1) India Development Fund (acting through IDFC Private Equity Company Limited) 2) Infrastructure development Finance Company Limited 3) IDFC Private Equity Fund II (acting through IDFC Private Equity Company Limited) 4) SMMS Investments Private Limited 5) Hutchinson Telecommunications (India) Limited, Mauritius 6) Vodafone India Services Private Limited (formerly known as 3 Global Services Pvt Ltd, i.e. the assessee before us) 7) Omega Telecom Holdings Private Limited 8) Vodafone International Holdings B.V. The Netherlands 8. While we will deal with this termination deed, and all other related aspects a little later, a few facts may be taken not of at this stage. This termination deed, inter alia, noted that all the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee was to pay marginally more money for buying these shares worth ₹ 1,500+ crores. By no stretch of logic, such an option cannot be said to be anything less than a highly profitable proposition for the assessee. 10. Ironically, however, in consideration of giving up, under termination deed dated 24th November 2011, these highly advantageous call options under the Framework Agreement 2007, the assessee entitles itself to a negative consideration of ₹ 21.25 crores i.e. the amount the assessee has to pay, under the said framework agreement, to IDFC Investors at the time of termination of call options. There are many other compliances and conditions attached to the termination deed but, as on now, it is sufficient to take note of the fact that the assessee s giving up the call options, which are highly advantageous to the assessee, under this multilateral arrangements, the assessee paid ₹ 21.25 crores. It is this transaction which has triggered the impugned arm s length price adjustment of ₹ 1588. 85 crores. In effect, thus, short case of the revenue, underlying this ALP adjustment of ₹ 1,588.85 crores, is that rather than paying ₹ 21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties to the IDFC Shareholders Agreement dated 24 November 2011, between IDFC, SMMS and TII, TII subscribed to 75 percent stake in SMMS. Further, through buy back of investors share by SMMS, TII s stake increased to 100 percent. Thus, by the virtue of termination agreement and share subscription and shareholder agreement dated 24 November 2011, SMMS became 100 percent subsidiary of TII. Accordingly, the 3.15 percent indirect equity interest in HEL now came to be held by TIOI. VIH-BV, directly and indirectly, held 79.98 percent equity in TII. Thus by virtue of SMMS becoming subsidiary of TII, VIH BVs equity interest in VIL increased by 2.52 percent 13. The TPO took note of the above explanation, as also of the copies of certain agreements, connected with the above transaction, filed by the assessee. The TPO also noted the explanation of the assessee that the IDFC also held 3.15% stake in Vodafone India, as on 1st April 2011, whereas the IDFC, as on 31st March 2012, did not have any stake- apparently justifying the payment of ₹ 21.25 crores to the IDFC. The diagram submitted by the assessee, which was duly noted and reproduced in the TPO s order, showing the IDFC hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties to the IDFC Shareholders Agreement, mutually terminated the IDFC Agreement. Vide Share subscription and Shareholders Agreement dated 24 November 2011, between IDFC, SMMS and TII, TII subscribed to 75 percent stake in SMMS. Further, through buy back of investors share by SMMS, TII s stake in SMMS increased to 100 percent. Thus, by virtue of the Termination Agreement and Share subscription and Shareholders Agreement dated 24 November 2011, SMMS became 100 percent subsidiary of TII. Accordingly, the 3.15 percent indirect equity interest in HEL came to be held by TT. VIH-BV directly and indirectly held 79.98 percent equity interest in TII. Thus, by virtue of SMMS becoming subsidiary of TII, VIH-BV s equity interest in VIL increased to 2.52 percent. 17. The TPO noted that by the mechanism of these call and put options the direct and indirect shareholding of Vodafone Group plc UK has gone up by 2.6%. It was in this backdrop, and having noted the facts with respect to the payment of ₹ 21.25 crores and the related issues, that the TPO proceeded to examine the issue of applicability of Chapter X of the Act related to the aforesaid transaction . 18. However, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... X of the Act are not attracted in the present case . As regards the payment of ₹ 21.25 crores as termination fees, it was stated that this was ascertained mutually amongst the parties, as liable to be paid by the assessee to the investors and that no income arose in the hands of the assessee, by the virtue of such payment , and, therefore, the transfer pricing provisions do not apply. It was further stated that any tax liability in relation to such payment was bound to be discharged by the recipient thereof and is not income exigible to tax in the hands of the assessee, or in any manner being brought in the ambit of Chapter X of the Act . A reference was then also made to the judgement of Hon ble Delhi High Court, in the case of Maruti Suzuki India Ltd Vs CIT (381 ITR 117), in support of the proposition that transfer pricing provisions are intended to substitute ALP for the price charged in an international transaction, which is otherwise chargeable to tax, and not to create international transactions where none exist. As regards the TPO s requisition for complete details about the exercise of put options by the IDFC, the assessee stated as follows: 53. Regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derstand the termination agreement dated 24th November 2011, the various agreements/documents relevant to this transaction and the rights/ benefits to the assessee company as per these agreements/documents are discussed hereafter . The TPO analysed these documents and agreements in great detail, noted that, over a period from of 2008-2015, the direct and indirect shareholding of Vodafone Group plc in Vodafone India Limited has increased from 51.58% to 100% , that the understanding between VIH BV and the assessee is clearly a transaction as per section 92F(v) of the Act which includes an arrangement, understanding or action in concert- (a) whether or not such arrangement, understanding or action is formal or in writing; or (b) whether or such arrangement, understanding or action is intended to be enforceable by legal proceeding, and that the transaction is completely based on a prior agreement (IDFC FWA of 2007) whereby VIH-BV guaranteed to IDFC Investors and other parties due and punctual performance by GSPL, or any assignee of the GSPL, of all the obligations of the GSPL under this agreement . The TPO further noted as follows: As per the FWA of 2007, the assessee company had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, it appears to be a transaction between the assesse and investors of SMMS (both being domestic/ resident companies), however, after analyzing the history of the case as well as various agreements entered into by the parties involved in these agreements, it is clear that the terms of the transaction in essence are being decided by the AEs of the assesse company, ie VIH BV and/or its affiliates, wherein the assesse company has lost substantial income which would have accrued / arisen to the assesse company. Thus the contention of the assessee that the termination of options is not an international transaction is rejected and the same is held to be an international transaction. 23. The TPO then elaborately discussed the matter from the perspective of capital loss, on account of the value of his call options being terminated without any compensation and by rather charging a termination fees, but as finally no addition was made to the returned income by making an adjustment on account of capital gains but rather, as it appears to us, as in the revenue field, it may not be really necessary to deal with that aspect of the matter in much detail at this stage. However, for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. The assessee has contended that there has been no exercise of options by the assessee company and has also relied upon the judgements in its own case given by the Hon'ble Bombay High Court in ITA No. 82/2015 for AY 2008-09 wherein it held that pending exercise, options are not property rights and therefore not capital assets for the purposes of Section 2(14) of the Act. The observation of the Hon'ble Bombay High Court in ITA No. 82/2015 for AY 2008-09 is distinguishable from the facts of the present case. There was no expressed Termination of option rights by the assessee in AY 2008-09. In the present case the assessee has entered into a Termination Agreement to terminate its rights in option. Termination is same as extingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital asset: any rights in or in relation to an Indian Company .. or any other rights whatsoever . The contention of the appellant relying upon the decision of the Hon'ble Supreme Court is that the option rights are in the nature of contractual rights and contractual rights do not constitute property. However, the retrospective amendment to section 2(14) specifically includes any rights in an Indian Company, or in relation to an Indian company. The observations of the hon'ble Supreme Court are distinguishable on the fact that there was no expressed Termination of option rights by the assessee in AY 2008-09. In the present case the assessee has entered into a Termination Agreement which resulted in termination of its rights in option. The options have been exercised and thus even going by the ratio of Hon'ble Supreme Court, the options are capital assets as per facts of the instant case. After the Hon'ble Supreme Court's judgment the Hon'ble Bombay High Court had an occasion to examine whether Option Rights are property rights in view of the amended definition of the section 2(14) of the Act. After considering the judgement of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. 12. The computation of arm's length price for termination of call option is computed as under: Percentage of Option assigned Value of Option (Rs.) 0.1234% 62,24,27,849 3.15% (62,24,27,849*3.15)/0.1234 =1588,85,55,303 In view of the above, the arm's length price for extinguishment/ relinquishment of option rights is determined as ₹ 1588,85,55,303 and adjustment of the same is made to the international transaction of the assessee. 25. It was in this backdrop that the Assessing Officer proposed an addition of ₹ 1588,85,55,303, in respect of termination of call options under the Framework Agreement 2007, aggrieved by which assessee raised an objection before the Dispute Resolution Panel but without any success. The DRP reiterated, in broad terms, the observations made by the TPO. The Assessing Officer, therefore, proceeded with the said ALP adjustment. The assessee is not satisfied and is in appeal before us. 26. When this appeal came up for hearing, which was spread over several sessions, learned Departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) 385 ITR 169 (Bom)], but by Hon ble Supreme Court s judgment in the case of Vodafone International Holdings BV (supra). He submits that in both of these judgments, it has been categorically held that the call options cannot be treated as capital assets, and, as such, there cannot be any question of capital gains in respect of such call options. He laboriously takes us through these judgments to make his point. As for the observations made by the DRP to the effect that observations made by Hon ble Bombay High Court in the aforesaid case are distinguishable on the facts of the present case as there was no express termination of option rights by the assessee .. whereas .. (in the present case), the assessee has entered into a termination agreement to terminate its options , learned counsel submits that nothing turns upon the express termination of options since, termination or no termination, option rights are not capital assets, and once the option rights are not capital assets, the compensation on termination of option rights cannot be treated as capital gains at all which is the case of the assessee. As for the addition being made to the returned income in revenue field, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of arm s length price. However, since there is no taxable income as a result of the termination of call options, the arm s length provisions do not come into play. 29. When learned counsel s attention is invited to the fact that the assessee has debited the profit and loss account by ₹ 21.25 crores on account of compensation paid at the time of termination of option, and the profits and losses of the assessee are thus affected by termination of options, he clarifies that the assessee did not claim any deduction, in computation of taxable income, for the payment of termination fees. Therefore, according to the learned counsel and on the facts of this case, the payment of termination fees did not have any impact on taxable income of the assessee. 30. Learned counsel then submits that in the present case, there is no international transaction at all inasmuch as the transaction is between two domestic entities, i.e. the assessee and the IDFC. The assessee has paid the termination fees to a resident entity, i.e. IDFC, and, therefore, the payment of termination fees to IDFC is not covered by the definition of international transactions which cover only such transaction as b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was engaged in the business of entering into call options or of dealing in shares. It is contended that the assessee was not a trader in shares or call options, and that, by no stretch of logic, the income or losses on termination of call options can be said to be in the revenue field affecting profits and losses of the assessee. That is the reason, according to the learned counsel, that loss on termination of option was treated as one of the extra ordinary items in the profit and loss account and not claimed as deduction in computation of taxable income. He submits that even shares held by the assessee were held as investments, and even if the assessee was to acquire any shares as a result of these call options, such shares would not have been trading assets of the assessee. Under these circumstances, the payment on account of termination of call options, according to the learned counsel, cannot be said to be in revenue field as it had nothing to do with the revenue gains or losses. He argues at length as to how the assessee cannot be said to be trading in options, and, that, for this reason, the gains, even if there be any, in respect of the options cannot be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id judgment to the present case, we are of the view that, in this case, the Assessing Officer had granted depreciation in respect of 42,000 bottles out of the total number of bottles (5,46,000), by reason of the impugned judgment. That benefit is sought to be taken away by the Department, which is not permissible in law. This is the infirmity in the impugned judgment of the High Court and the Tribunal . 94. Following the MCorp judgment (supra), the Assessee has submitted (relying on Appeal Ground no.25) that where the AO has erred in bringing the Assessee to tax under the head of Business Income, whereas the AO was bound by the TPO order (correctness of which is assailed by the Assessee), the AO was bound to rectify the Assessment Order, and the Tribunal has no power to enhance the assessment through concluding that the Assessee is exigible to tax on Business Income. MCorp has been followed in Fidelity Shares Securities Ltd v. Deputy Commissioner of Income-tax (2017) 390 ITR 267 (Guj.), wherein it has been held that the Tribunal has no power under the Act to enhance the assessment in appeal. 95. As to whether the Assessee earned Business Income on the alleged exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of buying and selling options. 100. Further, options being merely contractual rights to potential shares are not capable of being traded by the Assessee, whether as stock-in-trade, or at all, and there is no material relied upon by Revenue to establish such assertion of trading by the Assessee reliance upon other investments by the Assessee in preference share capital does not constitute evidence of trading activity, due regard being had inter alia to the duration of the investment. 101. The audited financial statements of the Assesee reflect, in any event, the preference share capital to which the Assessee has subscribed, in the Assessee s balance sheet as investments again, this position has hitherto not been assailed by Revenue. 102. Again, examining those investments from the standpoint of frequency of transactions in preference shares, no basis arises to conclude that the Assessee is in the business of dealing in shares. 103. The audited financial statements inter alia establish that following the exercise of put option in relation to preference shares, by the IDFC Investors, the Assessee discharged the obligation to purchase su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; (iii) receipt of consideration on transfer of capital assets; and (iv) application of machinery provisions for computing the capital gains. None of these conditions, according to the learned counsel, are satisfied on the facts of the present case. Leaned counsel then once again takes us through the judgment of Hon ble Supreme Court in the case of Vodafone International Holdings BV (supra). He invites our attention to the observation made by Hon ble Supreme Court, at page 29 of Income Tax Report Volume 341, to the effect that On June 6, 2007, a framework agreement was entered into among IDF, IFDC, SMMS, IDFC PE, HTIL Mauritius, GSPL, Omega and VIH by which GSPL (i.e. the assessee before us now) had the call option to purchase entire equity shares of SMMS . He does so with a view to highlight that the very call options, which are subject matter of consideration by us, were subject matter of consideration before Hon ble Supreme Court. He then takes us through the observations of Hon ble Supreme Court to the effect that this framework agreement is required to be treated as an agreement between the independent entities, starting with the observation, at page 45, that on the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares, but, as he puts it, not an interest in the shares. 35. Learned counsel contends that, hypothetically speaking, even if these call options are treated as capital assets, the transfer of such rights, even if such a surrender can be treated as transfer, does not result in any capital gains as there is no cost of acquisition of such purported capital assets. A reference is then made to Hon ble Supreme Court s judgment in the case of CIT Vs B C Srinivas Shetty [(1981) 128 ITR 294 (SC)]. It is then pointed out that in order to compute the capital gains, cost of the asset should be determinable, and such a cost has to be real cost rather than a notional or hypothetical cost. As the authorities below have not even attempted to, leave alone establishing, the actual cost of acquisition of what has been termed as capital asset , according to the learned counsel, computation mechanism must fail. The cost of acquisition has not been, as is contended before us, at all identified. 36. It is pointed out that in order to compute capital gains on transfer, there has to be a consideration, but then it is an undisputed position that the assessee did not receive any consideration, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment would presuppose capital investment. 37. Learned counsel then takes us through the judgement of Hon ble Bombay High Court, in the case of Vodafone India Services Pvt Ltd Vs Additional Commissioner of Income Tax [(2014) 368 ITR 1 (Bom)]. He submits that this judgment, in assessee s own case, holds that unless transaction is taxable in domestic law, no arm s length price adjustments can be made, and the law so laid down by Hon ble Bombay High Court has been accepted by the Union Cabinet. Our attention is also invited to the wording of the press release about Union Cabinet accepting the aforesaid judgment, wherein it is, inter alia, stated that The Cabinet came to this view as this is a transaction on the capital account and there is no income to be chargeable to tax. So applying any pricing formula is irrelevant . Learned counsel submits that it is undisputed position, as noted by the TPO himself, that this transaction is also on capital account, and, therefore, application of transfer pricing provisions on the facts of this case is wholly irrelevant. He submits that when such are the views of the Union Cabinet, and to this extent judgment of Hon ble Bombay High Court sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of SMMS Investment shareholdings, and, to put in the words of the learned counsel, having not assailed the share subscription and/ or buyback price of ₹ 15 per equity shares of SMMS, in any event, estopped from attributing any other price for the SMMS Shareholdings which is claimed to be the subject matter of an alleged call option exercised or extinguished/relinquished by the assessee . It is then argued that by adopting the value of 2007 cashless option exercise, which consisted of 0.1234% equity in Vodafone India Limited, the TPO has acted contrary to rule 10B(4) of the Income Tax Rules which bars use of data pertaining to a transaction more than two year old, in ascertaining the ALP. Learned counsel also points out, in the written submissions, following additional errors in benchmarking the alleged international transaction and ascertaining the arm s length price: 126. The transaction of exercise/assignment of Cashless Option between the Assessee and IDFC Investors has been held to be an external CUP from AY 2008-09, for the purposes of benchmarking the alleged assignment of call options by the Assessee. 127. Therefore, a transaction in the present AY betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and things incidental thereto. As a matter of fact, at one stage, we did toy with the idea of calling an expert witness to understand the true nature of these transactions and the bigger picture thereof. While learned senior counsel for the assessee vehemently opposed it on the basis of elaborate legal submissions, Ms Sethna, his junior colleague, was visibly irritated when she spoke out of the turn to point out that when Hon ble Supreme Court has heard the matter for three months and decided all the issues comprehensively in favour of the assessee, what is left for the experts to throw light on. Ms Sethana, at this stage, has a very unusual plea. She submits that since related facts have been thrashed out by Hon ble Bombay High Court, and the appeal is now pending before Hon ble Supreme Court, any parallel factual findings by this Tribunal may prejudice the case of the assessee and that it is for this reason that Mumbai bench of the Tribunal has adjourned similar cases of the assessee. She urges us not to tinker with the well settled facts of the case and adjourn the hearing till Hon ble Supreme Court disposes of the appeal. Learned senior counsel, though on a different note and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the SPA, reflects inter alia that SMMS is a company incorporated in India, with direct equity interests held in Omega. 5. The AY 2012-13 Structure Chart, in relation to the transaction(s) during the relevant AY, depicts inter alia the share ownership pattern of SMMS, i.e. the 100% equity interests of IDFC Investors at the beginning of the relevant FY (2011-12), and the 100% equity interest of TII in SMMS at the end of the relevant FY (2011-12). 6. After the grant of FIPB approval (on 7 May 2007), consequent upon invocation of Change of Control provisions in the FWA 20068 by the IDFC Investors in around March 2007, a Transaction Agreement dated 5 June 2007 9( TRA 2007 ) was entered into inter alia between the IDFC Investors and the Assessee, relating to exercise of Cashless Option n relation to 0.1234% interests of Omega in Hutchison Essar Limited by the IDFC Investors. 7. A Framework Agreement dated 6 June 200711 ( FWA 2007 ) was entered into inter alia between the Assessee and the IDFC Investors, in essence, constituting re-writing of inter se call and put options, relating to the 100% equity and preference shareholding interests of the IDFC Investors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Drag Along rights, etc. Both the subscription and buyback price of equity shareholding in SMMS were agreed at ₹ 15/- per equity share, i.e. at a premium of ₹ 5/- per equity share. 13. In order to effectuate the SSSA 2011, the Assessee executed a Termination Agreement on 24 November 2011 ( TA 2011 ), which had the legal effect of bringing all rights and obligations qua IDFC Investors ensconced within FWA 2007 and SHA 2007 to an end, since TII simultaneously with execution of the SSSA 2011 subscribed to 75% equity interests in SMMS. As part of the termination arrangements arrived at between the Assessee and the IDFC Investors, a negotiated Termination Fee of ₹ 21.25 crores was payable to the IDFC Investors; which was suo motu disallowed in the Assessee s computation of total income, thereby not giving rise to any implication to the taxable income of the Assessee. Tax jurisprudence is concerned with exigibility of income in the hands of the Assessee to tax; in this case, the Assessee paid a termination fee, rather than received any income. 14. After TII subscribed to 60,00,000 equity shares of SMMS (for an aggregate ₹ 9 crores at the rate of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utchison Group structure) entered into three separate and distinct arrangements with independent, unrelated groups of Indian investors, viz. Analjit Singh Group, Asim Ghosh Group and IDFC Group. At the material time, the India-based Essar Group controlled ~33.01% equity interests in HEL, through both foreign and Indian shareholding interests. 22. Accordingly, three independent agreements were entered into by the Assessee, documented in Framework Agreements ( FWAs ), aimed to preserve the priority rights vested in, and accorded to the Assessee, to acquire equity interests of the counter-party, in anticipation of revised FDI sectoral caps and/or until Change of Control through securing a Call Option for the Assessee. Parallel put option rights were granted to counter-parties relating to such equity interests. The arrangements arrived at around price, exit, etc., were captured within FWAs. Corollary Shareholders Agreements ( SHAs ) regulated inter se arrangements between the shareholders. 23. The pattern of ownership, and corollary interests of Hutchison Group, in HEL, which were the subject-matter of negotiation by Vodafone, are described thus, in 341 ITR 1, pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the owner may enter into the transactions with a third party. Shareholders' right to transfer the shares is not totally prevented, yet a shareholder is obliged to offer the shares first to the existing shareholders. Consequently, the other shareholders will have the privilege over the third parties with regard to purchase of shares. reproduced from 341 ITR 1, page 87. 27. Another commercially well recognized form of restriction on transferability of shares was that contained in the subject FWA 2007, of call and put options, inherent to which is a RoFR, and through which a multitude of rights inter alia in a group holding structure are capable of being preserved. 28. The use of call and put options globally, for securing priority rights in relation to the acquisition or sale of shareholding interests, is in force globally, as a commercially well-recognized practise. Over the course of pursuing matters before the FIPB, a letter dated 25 January 2010 issued by J P Morgan23 was relied upon by VIHBV, copy whereof has been placed by the Assessee, into the record of the present proceedings. 29. The mechanism of Call and/or Put Options fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in parallel with cessation of corollary rights under SHA 2007. The Assessee was a proper and necessary party to the TA 2011. 34. The basis on which the Termination Fee was paid to the IDFC Investors, was not queried by the TPO, AO and/or DRP. Firstly, this was a payment by and not to the Assessee; next, this was a negotiated arms-length commercial consideration agreed to be paid by the Assessee to the IDFC Investors, with FWA 2007 obligations agreed to be brought to an end; and, finally, this was a sum paid on account of a multitude of factors, including the slight delay (August- November 2011), and there is no scope for correlating such payment with potential contractual liability if a call option or put option were exercised, moreover when the Revenue has not questioned the SMMS share valuation of ₹ 15/- per equity share for purposes of share subscription or buyback. B. MATERIAL CLAUSES OF RELEVANT AGREEMENTS: 1. FWA 2007: 35. PUT OPTION: Vide clause 5.1, a Put Option was granted to each of the IDFC Investors (defined, as India Development Fund, Infrastructure Development Finance Company Limited, IDFC Private Equity Fund II) to require t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer price. 2. TA 2011: 43. DISCHARGE OF OBLIGATIONS: Clause 2 recorded a mutual release of their duties and obligations under the Framework Documents (defined therein as the Framework Agreement and the Shareholders Agreement), consequent whereupon the Framework Documents shall cease to apply and be in force with effect from the Termination Date (defined therein as the date on which closing under the Share Subscription and Shareholders Agreement entered into by IDF and SMMS with Telecom Investments India Private Limited dated on or around the date hereof occurs and consequently IDF ceases to hold 51% (fifty one percent) or more of the paid up equity capital of SMMS ), based on which the parties acknowledge and agree that none of them have any outstanding liabilities or claims against each other with respect to the Framework Agreement ; 44. CONSIDERATION PAYABLE TO IDFC INVESTORS: Vide clause 5, that the Assessee shall pay ₹ 21.25 crores to IDF, upon being provided evidence to its satisfaction that IDF has ceased to hold 51% or more of the paid-up capital of SMMS; 45. INDEMNITIES RELATING TO BREACHES OF FDI POLICY: Vide clause 6, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the SPA, the FWAs (including with Analjit Singh and Asim Ghosh), SHAs, TRA 2007 and TA 2007 (the Agreements ), read in tandem with corollary approvals granted by the relevant regulatory and statutory authorities, were extensively examined by the Hon ble Supreme Court of India. The interpretation of Agreements by the Hon ble Supreme Court of India, including as to the scope, amplitude and legal effect, is binding on this Hon ble Tribunal under Article 141 of the Constitution of India. 52. The attempts by Revenue to assail the judgment reported in 341 ITR 1, on grounds that the Hon ble Supreme Court erred in concluding that VIHBV was not a Confirming Party to certain agreements, etc., are not matters that fall within the jurisdiction of this Hon ble Tribunal, and the invitation of Revenue to embark on such an exercise will be contrary to the binding mandate of Article 141 of the Constitution of India. 53. While the Dispute Resolution Panel has aimed to distinguish the judgment reported in 341 ITR 1, purporting to carve out the facts of the present case from those before the Hon ble Supreme Court of India, is erroneous, since the purported distinction stems from a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y interests of the counter party, in anticipation of revised FDI sectoral cap and/ or until change of control , through securing a call option for the assessee . While the Hutchinson held 52% shareholding in Hutchinson India Limited/ Vodafone India Limited, 15% shareholding was held by these three partners and the remaining 33% was held by Essar India Limited. These entities continued to hold their shareholdings, even after the sale of business, and there was no change of control. It is then submitted that the use of call and put options is a commercially well recognized practice and it facilitates coming together of independent, not hostile shareholders. He adds that there is nothing wrong in the preference of the majority shareholders for minority shareholders not being hostile. Learned counsel submits that, under the Framework Agreement 2007, the assessee did enter into a call and put option with IDFC Investors, and the assessee had a right to buy the entire equity capital of SMMS Investments at an agreed price, and, correspondingly, the assessee had an obligation to buy the entire share capital of SMMS Investments when IDFC Investors so requisitions. It was explained that SMMS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court s observation, at page 47, to the effect that It is important to note that even in the fresh agreement the call option remained with GSPL and that the said agreement did not confer any rights on VIH . It is submitted that since these are transactions are, as categorically held by the Supreme Court, transactions between the independent transactions, without any influence of VIH-BV, there is no occasion for application of transfer pricing provisions. In any event, the case of the revenue hinges on taxation as capital gains but then, as categorically held by Hon ble Supreme Court, Call and put options are contractual rights and donot sound in any property and hence they cannot be, in the absence of any statutory stipulation, considered as a capital asset . Once the call and put options are not capital assets, there cannot be any question of taxation of capital gains, on exercise of these options. He, however, hastens to add that there was no exercise of option on this case. At best what the assessee had done is decided not to make money by exercising the option but can a gift, even if that be so, taxed as capital gains. Learned counsel once again takes us through his com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant. The remaining 33% equity was being held by the other partner Essar Group. The appellant was holding option rights to the extent of 15.03% through AS, AG and IDFC. The issue involved in this AY is only concerning the option rights held by the appellant with IDFC Investors which was 3.15%. Learned Departmental Representative points out that the shareholdings in HEL/VIL, as at time of the related Framework Agreement, was as follows: 48. It is then pointed out that remaining 62..25% stake in TII and 54.21% stake in Omega, the two companies directly holding equity capital of HEL/VEL, was held by three domestic entities on the strength of financial backing of the Vodafone Group. These three Indian entities, in turn, had executed call options in favour of the assessee to acquire entire indirect stake held by them at any time at the agreed amount. The structure of holdings by these domestic entities- namely Analjit Singh Group, Asim Ghosh Group and IDFC Group, according to the learned Departmental Representative, was as follows: 49. As we reproduce the above chart, we may add that there appears to be a slight mistake in the above chart inasmuch as the cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ). As of the date of this Agreement, the issued subscribed and paid-up share capital of the Company is ₹ 1,958,784,650 being 195,878,465 equity shares of face value of Rs. (10/-) each. C. As of the date of this Agreement, the Vendor is the legal and beneficial owner of 93,811,513 fully paid up shares, representing 47.89% of the issued and outstanding equity share capital of the Company (such Shares, the Sale Shares ). D. At the request of the Purchaser, the Vendor has agreed to sell to an Indian Nominee of the Purchaser before the Long Stop Date and the Purchaser shall guarantee that the Indian Nominee shall purchase from the Vendor, the Sale Shares, on the terms and subject to the conditions contained in this Agreements. Share Purchase Agreement dated 30 June 2006 between Hinduja TMT Ltd and Hutchison Telecommunications (I) Ltd for purchase of 47.89% equity in ITNL (now known as Omega) for US$ 193.38 million which were acquired by SMMS on 7Aug 2006. As per the agreement, the shares were to be purchased from Hinduja by an Indian nominee of Hutchison. 2. Agreement to Sell and Purchase Shares 2.1 Purchase and Sale of Sale shares. Subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestors bought the shares as financial investors who were only interested in earning a decent return on their investment and were not holding the shares as owners in their own right. This is so because if any person is investing in the shares of any company, the price at which the shares are being bought as well as the other terms and conditions associated with the transaction would form the basis of entering into a transaction which is not the case here. In this case all the terms as well as the price had already been decided by the HTIL on its own right and thereafter the IDFC Investors were asked to hold the shares on behalf of HTIL. 52. Learned Departmental Representative then points out that on the same date, i.e. 30 June 2006, one more Share Purchase Agreement was entered into between In Network Entertainment ltd. and Hutchison Telecommunications (I) Ltd for purchase of 6.32% equity in ITNL for USD 25.51 million which were subsequently acquired by SMMS on 7 Aug 2006. As per this agreement also, the shares were to be purchased from Hinduja by an Indian nominee of Hutchison. Our attention was then invited to related observations in the said agreement, which are as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Sale Shares, Sell, assign, transfer and deliver the sale shares to the Purchaser, and the Purchaser shall purchase and acquire from the vendor, the sale shares together with all rights, including without limitation, all ancillary rights now or hereafter attaching thereto, free and clear from any and all Encumbrances before the Long Stop Date. Provide that the Vendor acknowledges that the Purchaser is free to nominate the Indian Nominee on its behalf to undertake the rights and obligations of the Purchaser under this Agreement and the Vendor acknowledges and agrees that the performance of the Purchaser s obligations under this Agreement shall discharge the Purchaser s obligation in that regard but such right of nomination shall not in any way release the purchaser from any of its obligation under this Agreement. 3. Purchase Consideration 3.1 Purchase Consideration Amount. The consideration for the purchase of the Sale Shares by the Purchaser or the Indian Nominee (the Purchase consideration Amount ) shall be Rs. Equivalent of US$25,508,553 (Twenty five million and five hundred and eight and five hundred and fifty three U.S. Dollars) converted in Rupees at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquired under the arrangement. Learned DR then points out that a shareholders agreement was also entered into between the parties to manage the affairs of Omega (placed at page numbers 1416 to 1449 of the PB-4) and that HTIL is a confirming party to this agreement as it is not a shareholder of Omega. 55. It is then pointed out that Vodafone International Holdings B.V., a company incorporated in the Netherlands (VIHBV) entered into a Share purchase agreement (SPA) with HTIL for procuring the purchase of the equity share capital of CGP Investments Holdings Ltd., a Cayman Islands Company (CGP) to acquire HTIL s telecom business in India. VIHBV acquired 66.98% equity interest in the Indian operating company. 42.34% interest was direct in VIL through 100% wholly owned subsidiaries (Mauritius Companies), 9.62% indirectly through TII and Omega Telecom Holdings Pvt. Ltd. (Omega)(i.e. pro rata route) and 15.03% through VISPL, which held the call options under the FWAs with AG, AS and IDFC. After the completion of this transaction on 8th May 2007, the Vodafone group stepped into the shoes of Hutchison. 56. Learned Departmental Representative points out that on 5th June 2007, Transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted the Original Investors an option to purchase HEL shares by way of cashless exercise (the cashless option) which option can on GSPL s request be assigned to GSPL or to nominee (ii) the original investors have granted to GSPL the right to exercise an option to purchase the entire issued equity share capital of SMMS and (iii) GSPL has granted the original investors an option to purchase the entire issued equity share capital of SMMS and (iii) GSPL to purchase the entire issued equity share capital of SMMS (the 2006 Put Option) (D) Vodafone and HTL have entered into an agreement dated 11February 2007 under which HTL has agreed to sell and Vodafone has agreed to purchase a controlling interest in CGP Investments (Holdings) Ltd., the indirect holding company of CGP and GSPL (the Acquisition Agreement) (E) On Acquisition Completion there was a change in control of HT India for the purposes of the Framework Agreement the Original Investors to exercise the 2006 Put Option and the Cashless Option. (F) The original investors and GSPL have agreed that the Original Investors may exercise the Cashless Option conditional on Acquisition Completion on the terms and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssar Limited (HEL), a license of cellular mobile telephone services in respect of telecommunications circles in India. (B) Vodafone and Hutchison Telecommunication International Limited entered into an agreement dated 11.02.2007 pursuant to which Vodafone agreed to acquire a controlling interest in CGP India Investments (Holdings) Limited, the indirect holding company of HT India and GSPL ( the acquisition agreement ). On the completion date HT India and GSPL became wholly owned subsidiaries of Vodafone. (C) Pursuant to an agreement dated on or around 05.06.2007 between the parties hereto and SSKI and HTL (the Transaction Agreement ) (i) IDF agreed to acquire the equity shares in SMMS held by IDFC and SSKI (ii) IDFC, IDFC PE and Vodafone agreed to subscribe or procure that another member of the Vodafone Group subscribe for preference shares in SMMS (iii) SMMS agreed to repay loans under the Loan Agreements and redeem the Old Preference Shares (iv) SMMS agreed to subscribe for 37,695,443 Omega Shares (the New Omega Shares ) (D) Immediately following completion of the transaction described in Recital (D), Omega s issued share capital will consist of 233,574, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each of the Investors shell, subject to the conditions set out In this Clause 5, have the right (the 'Put Option') to require GSPL or Its nominee to purchase all or part of the SMMS Shares held by the respective Investor(s) (the 'Put Shares') on one or more occasions for an amount equal to the Transfer Price attributable to such Put Shires on the terms of this Clause 5 and Clause 9, subject to a maximum aggregate amount of ₹ 15 billion. Save as expressly stated, the Put Option shall be exercisable by an investor In whole but not in pan in respect of any Put Shares held by it Implemented in a phased manner In accordance with the provisions of this Clause 5. 5.2 Exercise The Put Option is exercisable by notice in writing from the relevant investor(s) to GSPL, such notice lobe given: 5.2.1 In the case of the IDFC Fund II Preference Shares, at any time after the second anniversary of the investment Date in respect to all (but not part only) of the IDFC Fund II Preference shares; 5.2.2 In the case at the SMMS Ordinary Shares, at any time after the third anniversary of the Investment Date In respect of all (but not part only) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SMMS Shares held by the Investors, in the event of the Vodafone Group ceasing to hold a minimum aggregate Interest (direct or indirect) in HT India's issued equity capital of 50.1% or HT India ceasing to hold a minimum aggregate interest (direct or Indirect) in Omega s issued equity capital of 38.4%. whereupon the relevant investor(s) shall sell and GSPL or such person as It may nominate shall purchase the relevant Put Shares. A notice under this sub-clause shall be Irrevocable. GSPL agrees to abide by the directions of the Investors in connection with the Transfer of the Put Shares le GSPL or any person that GSPL nominates as its nominee and undertakes to do or procure ail necessary things and execute at necessary forms, documents and agreements to implement such directions. 6 Call Option 6.1 The Call Option With effect from Investment Completion, GSPL shall, subject to the conditions set out in this Clouse 6, have an option (the 'Call Carton') to purchase at (but not part only) of the SMMS Shares held by the investments (the 'Call Shares') from the investors for an amount equal to the Transfer Price attributable to such Call Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ault remains un-remedied for 15 days after the due date specified in the notice referred to in Clause 9.1 for payment, than the investors and SMMS Directors in Omega shall have the right to require Omega to sell sufficient of the HEL Shares and/or SMMS to sell sufficient of the Omega Shares held by it to relies an amount sufficient for Omega and/or SMMS, as relevant, to transfer to the Investors an amount equivalent to the amount which GSPL is required to pay to the relevant Investor(s) under the Default Option (after taking into account any amounts received from other security available to the Investors and SMMS in respect of GSPL's obligations In respect of the Options). Upon receipt of such amounts from Omega and/or SMMS, as relevant, the Investors shall Immediately transfer all the SMMS Shares to GSPL or such person as it may direct and thereafter GSPL shall be liable to Omega and/or SMMS for the amount paid to the Investors by Omega and/or SMMS. 7.4 If at any time at which the Investors are permitted under the (arm s of this Agreement to exercise an Option and at such time: 7.4.1 the relevant investor(s) is prevented from exercising such Option due to restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riction arising as a result of any action or inaction on the part of GSPL or any member of its group or its direct or indirect shareholders); or 7.5.2 GSPL has received a written direction from the Government of India or has obtained a written opinion from Indian legal counsel addressed to and acceptable to the Investors acting reasonably, to the effect that it is so prevented; and GSPL has notified the relevant inventor in writing of its desire to exercise such Option and has provided with the notice, a copy of such direction or legal opinion to the relevant Investor, GSPI shall pay to the relevant Investor(s) within 30 days from the date of such notification an amount equivalent to the amount which GSPL would have been required to pay to the relevant investor(s) on exercise of such Option and upon receipt by the relevant investor(s) of the amounts referred to in this Clause 7.5, the relevant Investor(s) shall immediately Transfer the SMMS Shares which would have been the subject of the relevant Option to GSPL or such parson as it may direct in accordance with such instructions as may be given in this regard by GSPL and, following the Transfer of all of the SMMS Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later than 30 days from the date of the relevant notice under Clause 9, or if later, within five Business Days after written notice of the determination of the Fair Market Value pursuant to Schedule 1. 9.3 The investors shall deliver to GSPL a duly executed transfer form for the transfer of the Put Shares, the Call Shares and/or the Default Shares, as relevant, the subject of the Option Notice against payment of the Transfer Price by GSPL. 9.4 The Investors shall procure the passing of a board resolution of SMMS. Inter all, approving the transfer of the Put Shares, the Call Shares and/or the Default Shares, as relevant, which are the subject of the Option Notice to GSPL or such person as it may direct and the entering of GSPL s name or the name of its nominee in the register of holders of members in respect thereof and the delivery to GSPL of proof of the same. 9.5 Any Transfer of the Put Shares, Call Shares and/or Default Shares shall be subject to the approval of any competent regulatory agencies and shall be completed within the periods stipulated by Clause 9.2 or such other extended time as GSPL and the transferring party(s) may agree is required to comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Transaction Agreement, Vodafone holds and will hold (directly or indirectly) a minimum interest of 50.1% of the issued equity share capital of HT India, and HT India holds and will hold (directly or indirectly 38.4% of the issued equity share capital of Omega, representing an indirect interest in 1.96% of HEL; and 12.7.3 immediately following the subscription by SMMS of the New Omega Shares in accordance with the terms of the Transaction Agreement, assuming compliance by IDF with Clause 12.4.2, HEL will not be in violation (either through direct or indirect ownership) of Foreign Direct Investment Guidelines . 12.9 Vodafone Undertakings 12.9.1 Vodafone undertakes to procure the due and punctual performance by GSPL, or any assignee of GSPL, of all the obligations of GSPL under this Agreement and in accordance with this Agreement and in the event of failure of such performance by GSPL, Vodafone shall itself (or through a nominee agent) perform such obligations. The obligations of Vodafone under this clause shall be the same and in no event greater than any obligation of GSPL under this Agreement and Vodafone may assume and rely upon such rights of set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the Indemnified Parties or Omega arising out of any transaction undertaken by Omega on or after Investment Completion. 58. It is then pointed out that in terms or the above agreement, there was a complete prohibition on transfer and issue of shares of SMMS otherwise then as provided in this agreement or the transaction agreement either by SMMS or Investors. The other notable aspects of this agreement were explained as follows. The assessee had granted put option to the investors for equity shares as well as the preference shares and the investors have given the appellant call options to purchase all shares of the SMMS. The Transfer Price was determined as per Schedule 1 of this agreement, as per which, it was 2 crore plus interest @17.5% per annum compounding annually or ₹ 7.6 million whichever is higher. The other condition of FMV of VIL being more than USD 15 Billion has not reached therefore, this is not applicable. The Transfer price as per this formula works out to ₹ 4.13 crores on the date of termination of this agreement. The default option is given in Clause 7 of the agreement wherein in case of default, the either party is required to pay 115% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) ITSL (in its capacity as trustee for Mr. Satish Mandhana ) holding 10 (ten) equity shares of ₹ 10/- (Indian Rupees Ten only) each in SMMS. (B) SMMS is a shareholder in Omega holding 143,881,525 ( One hundred forty three million eight hundred eighty one thousand five hundred and twenty five) equity shares of ₹ 10/- (India Rupees Ten only) each in Omega. In addition (i) Ms. Rupa Vora Holds one equity share of ₹ 10 in Omega jointly with SMMS ; and (ii) Mr. Satish Mandhna holds oe equity share of ₹ 10 in Omega Jointly with SMMS. (C) IDF, IDFC, IDFC PE, SMMS, VTIL, VISPL, Omega and Vodafone are all parties and subject to the term of a framework agreement dated June 6, 2007 ( Framework Agreement ) and SMMS, VTIL, Omega and Vodafone are all parties to a shareholder agreement dated June 6, 2007 ( Shareholders Agreement ). (D) Under the Framework Agreement, certain rights, duties, benefits and / or obligations have been made available to or imposed upon the parties in accordance with its terms. After detailed discussions, the parties have agreed that in consideration of the mutual release of their respective duties and obligations under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preference shares as well as equity shares to IDFC Investors. All the put options of preference shares were exercised by the investors wherein the appellant subscribed to the preference shares as provided in Clause 5 of the FWA and paid a premium of ₹ 178 crores over and above the issue price. However, in case of equity shares, which were to be acquired by the appellant for a sum of 4.13 crores as per schedule 2 of the FWA of 2007, the appellant terminated the FWA and paid a compensation of ₹ 21.25 crores. It is submitted that when the appellant could have acquired the equity shares for a meager sum of ₹ 4.13 crores only why any prudent businessman would pay a compensation of ₹ 21.25 crores for the so called default. Learned DR points out that even as per the default clause of the FWA 2007 the maximum liability of the appellant was 4.75 crores (4.13 crore transfer price multiplied with 115% to arrive at the default price). It is once again pointed out that VIHBV is the controlling party which took upon itself to subscribe to Vodafone Preference Shares with IDFC Investors. Learned DR s contention is that it is clearly been provided in this agreement that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and IDFC investors which is quite evident from the transaction agreement of 2007, FWA of 2007 as well as the termination agreement which has been made subject to the share subscription and shareholder agreement. This transaction would clearly fall under any transaction having a bearing on the profits, income , losses or assets of the appellant. The appellant has been paying substantial costs for maintenance and acquisition of option rights and have been debiting these expenses in the P and L account though, as extraordinary items. The debiting of these transactions clearly had an impact on the losses as well as assets of the appellant. The shares of SMMS which could have been acquired by the appellant by exercising these options would have given indirect shareholding of 3.15% equity interest in VIL which is worth more than ₹ 1500 crores (as the ALP of the option rights itself was ₹ 1488 crores) which could have been acquired by the appellant by paying a meager sum of ₹ 4.13 crores. This directly had an impact on the profits, income and the assets of the appellant. This clearly goes onto prove that this is a deemed international transaction as per the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Investors getting 5 times the sum which they would have got had the call options were exercised by the appellant. (Payment of ₹ 21.25 cr as termination fees by the appellant) 2. Redemption of preference shares by the appellant by paying a premium of ₹ 178 cr to IDFC Investors as per Clause 5 of FWA 2007 regarding put options. The investors got full value of their preference shares along with premium of ₹ 178 cr. 3. Appellant s agreement not to exercise the call option subject to IDF ceasing to hold 51% or more shares in SMMS and an evidence of the same to the satisfaction of the appellant to be submitted by IDF 2.5 The share subscription agreement has triggered the following events: 1. Payment of ₹ 21.25 cr by the appellant as termination fees 2. Payment of preference shares to the IDF by redemption 3. Buy back of equity shares by TII 4. Appellant s agreement not to exercise the call option. 2.6 It has already been elaborated in the earlier part of these submissions that both these agreements are closely linked agreements and therefore both have to be read together to understand the transaction during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be read together to understand the transaction. Both these agreements are not independent agreements at all as has been claimed by the appellant. The same is not based on the facts of the case. The fact that these two entities are not parties to the share subscription and share holder agreement would not make a difference in the facts of the case as termination agreement would come into effect only after share subscription and shareholder agreement is given effect to. The appellant and VIH BV both are parties to the transaction agreement, FWA of 2007 as well as the termination agreement. The VIH BV had the controlling authority as well as Veto power to direct any of the affiliates to act as per its directions which is clearly stated in these agreements as highlighted in the written submissions. 2.9 It may also be reiterated here that the appellant has granted the put option to IDFC Investors for equity as well as preference shares. The appellant has subscribed to the preference shares completely as per the put option given in Clause 5 of the FWA 2007 and also paid a premium of ₹ 178 cr. However, when the time for exercise of option regarding equity shares came, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe. 3.3. Therefore, the mandate of the Act requires that the TPO would determine the ALP of the transaction by following the most appropriate method once a reference has been made by the AO to the TPO u/s.92C(1) of the Act. Section 92CA(2A)/(2B) empowers the TPO to determine the ALP of the transaction which comes to his notice during the course of such proceedings although reference for the same has not been made by the AO. Thereafter, as per the provisions of Section 92CA(4) of the Act, on receipt of the order of the TPO as provided under sub-section 3, the AO is required to compute the total income of the assessee in conformity with the ALP so determined by the TPO. For clarity sake, the provisions of Section 92CA(4) are reproduced as under :- (4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm s length price as so determined by the Transfer Pricing Officer. 3.4 There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights being held by the appellant are property rights or not. The appellant has filed elaborate submission of these two aspects during the course of TP proceedings and the TPO simply dealt with the submissions of the appellant. It is not the case of the TPO that the income arising from this transaction would be taxable under the head capital gains. This is not in the domain of the TPO as has been elaborated by referring to various provisions of the Act supra. Therefore, there is no force in the arguments of the appellants that the TPO has taxed the transaction under the head capital gains. 3.6 The following facts also prove that the income arising from this transaction would be taxable as Profits and Gain of Business and Profession: (1) The appellant has not challenged the action of the AO of taxing this transaction as business income at all in any of the grounds taken before the Hon ble ITAT. If no specific ground has been taken by the appellant, it shows that the appellant has accepted the treatment given by the AO of treating the ALP of this transaction as business income. The only ground taken by the appellant is a miscellaneous ground (which is ground No.25) in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of VIL is taken at 11 Billion dollars on the date of acquisition which was paid by Vodafone for 67% stake) so the total commitment by the appellant was to this extent. Even if the appellant has to pay 10% of this amount for securing these option rights, it would amount to ₹ 1150 crores. However, the total shareholders funds of the appellant were only ₹ 45.6 crores as on 31/03/2007. Therefore, by no stretch of imagination, the same can be termed as investment as appellant has no source for this kind of investment. Therefore, the transaction of acquiring option rights is clearly in the nature of adventure in the nature of trade. The Balance sheet of 2007-08 is placed on page no. 810 of PB 6 of Revenue. One the principles enunciated by various courts is whether the investment made by the appellant is from readily available funds, or within financial capability of the assessee or otherwise. Since it is clearly demonstrated here that the appellant did not have the financial capability as well as readily available funds for this kind of investment, the same would be an adventure in the nature of trade and assessable as profits and gains business or profession. (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the F.Y. 2006-07. (PB 6 page no 814) ii. The aseesee also invested 170 crores in preference shares of Jaykay fin, a subsidiary of TII iii. The appellant also invested 129.7 crores in the preference shares of TII (Same page on PB 6) ( 8) This also shows the financial role played by the appellant from day one which resulted in regular investment activity by the appellant. The appellant also made the following payments over the years: (a) Payment of ₹ 62.23 Cr. To IDFC Investor for assignment of cashless option. However, no shares of HEL came to assessee though it was entitled to acquire 0.123% of Vodafone India Limited share from Omega. (b) Part payment of 4.73 crores to AS towards the annual option fee during F.Y. 2011-12 and charged it to its Profit Loss account. (c) The IDFC Framework Agreement dated 6th June 2007 was terminated during F.Y. 2011-12 vide Termination Agreement dt. 24/11/2011 and assessee has paid ₹ 21.25 cr. for which it has not received a single share. (d) Assessee paid ₹ 68.41 crores to AS towards option fee in F.Y. 2012-13 and charged it to Profit Loss account. (e) Assessee paid ₹ 11.28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Courts that if the investments have been made with a view to earn dividend, the same would qualify as capital asset, whereas if an investment has been made not for earning dividend, the same would qualify as business income. Admittedly, the appellant had made an investment of ₹ 1361 crores in 0.1% redeemable preference shares of SMMS Investments Pvt. Ltd. Therefore, it can clearly be concluded that investments has not been made for earning dividends at all. (4) For this proposition, the revenue relies on the following judgments: (i) Sutlej Cotton Mills Supply Agencies [No. (1975) 100 ITR 706 (SC)] (ii) G. Venkatswami Naidu Co. [No. (1959) 35 ITR 594 (SC)] (iii) CIT vs. Raja Jagdish Pratap Sahi [No. (1971) 79 ITR 235 (ALL.)] 4. Whether option rights are property rights/ capital assets and exercise/ termination would amount to transfer Without prejudice to the stand of the Revenue that the transaction in question is in the nature of business income and therefore, the same should be taxable as business income as has rightly been taxed by the AO and accepted by the appellant (as the appellant has not challenged the finding of the AO in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty is also applied to every kind of valuable right and interest that can be made the subject matter of ownership. Indian Courts have therefore interpreted the term property by giving it the widest meaning, having regard to the use of the suffix of any kind in the definition of capital asset in section 2(14) of Act and asset in section 2(e) of the Wealth Tax Act,1957. (iii) The Hon ble Supreme Court, while interpreting the scope of the term asset under the Wealth Tax Act held the right of an assessee to receive a specified share of the net income from an estate in respect of which Wakf Allal Aulad In the case of Ahmed G H Arif Others vs. CWT (1969) 2 SCC 471 has been created, to be in the nature of property. (iv) As per the terms of FWA 2007, entered into with IDFC investors, the assessee had two rights namely a right to buy the entire share capital of SMMS which is termed as the call option. The assessee further has a right to assign these Call Options to any of the person nominated by it. While the assessee may not be entitled to hold the shares in its own name by exercising the option before the regulatory cap is removed, the assessee at all times was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state where the actual economic nexus of income is situated has a right to tax the income irrespective of the place of residence of the entity deriving the income. Where corporate structure is created to route funds, the actual gain or income arises only inconsequence of the investment made in the activity to which such gains are attributable and not the mode through which such gains are realized. Internationally this principle is recognized by several countries, which provide that the source country has taxation right on the gains derived of off shore transactions where the value is attributable to the under lying assets. Section 195 of the Income tax Act requires any person to deduct tax at source before making payments to a non-resident if the income of such non-resident is chargeable to tax in India. Person , here, will take its meaning from section 2 and would include all persons, whether resident or non-resident. Therefore, a non-resident person is also required to deduct tax at source before making payments to another non-resident, if the payment represents income of the payee non-resident, chargeable to tax in India. There are no other conditions specified in the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident has:- (a) a residence or place of business or business connection in India; or (b) any other presence in any manner what so ever in India. These amendments will take effect retrospectively from1st April, 1962 and will accordingly apply in relation to the assessment year 1962-63 and subsequent assessment years. (ii) In the original Vodafone dispute [341 ITR 1(SC)], the subject matter was purchased by VIHBV, of the entire share capital i.e. one share held by CGP Investment Holdings Ltd., Cayman Islands [ CGP ]and SC considered the nature of right of management and control of a holding company over its subsidiary companies. The Hon ble SC considered the issue in para 72 to 77 of its judgment and held that the right of a holding company to exercise control over its subsidiaries is not a property right and it is not a capital asset. It has also held that the various rights to exercise managerial authority over the subsidiaries emanated from shareholder agreement and therefore the management rights was in the nature of a contractual right not amounting to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a property right is to be determined only after evaluation of various terms and conditions contained in the arrangement between the parties. The fact that the right emanates from a contractual arrangement does not determine the right to be just a contractual right. The distinguishing feature between a contractual right and a property right is based on the doctrine of privity of contract i.e. only the parties to the contract may sue or be sued upon the contract. However, there are a number of exceptions to this Rule wherein a contractual arrangement also results in creating rights in favour of third parties. Therefore the line of demarcation between the two is becoming lesser and lesser obvious. (iii) A number of property rights have their origin in contractual arrangements. In this connection, reference is made to the commentary Athiyas s Introduction to the Law of Contract Claridon Law Series, 6th Edition, Page No. 337, where the relationship between contractual rights and property rights are explained in the following. Third parties and property law There are other kinds of contracts that appear to bridge the gulf between contract and property, especially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly, insurance contracts are examples of instances where a third party who is a beneficiary is entitled to enforce a contractual arrangement between the insurer and insurance company. Further law of trusts which is closely associated with law of property is not subject to the restriction of privity doctrine even though the rights under the trust are created out of contractual arrangements. Various statutes confer rights or enforce liabilities on third parties in India. In this connection, reference may be made to the following text from the commentary of Pollock Mulla the Indian Contract and Specific Relief Acts 14thEdn., Page 108. A policy of insurance effected by any married man on his own life, and expressed on the face of it to be for the benefit of his wife, or children, shall be deemed to be a trust for the benefit of his wife or such children. An insurer issuing a policy under the Motor Vehicles Act, 1988 covering third party liability is liable to satisfy any judgment or decree which may be passed in favour of the third party against the insured in respect of compensation for loss to the third party arising in an accident involving a motor vehicle. Where an ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose refers to page 1051 of volume III of the Paper Book filed by the assessee before the Hon'ble High Court. Page 1051 of volume III of the Paper Book is the submission made by the revenue before SC in the Original Vodafone dispute [341 ITR 1(SC)] on capital gains. Revenue s submissions as contained in page 1051 of Vol. III filed before the High Court is extracted below for ready reference: In fact, the transaction documents itself demonstrate the steps to ensure that these rights were transferred to VIHBV. As IDFC was an independent third party, a fresh framework agreement is contemplated as part of the Transaction Documents. Therefore, to contend that GSPL is a subsidiary of CGP and therefore, once the CGP share is sold, the call option rights that vest in GSPL automatically fall into Vodafone s hands is not correct. In fact, those call option rights need to be secured for Vodafone s benefit and that require something more than the transfer of the CGP share. It requires the representations in the Share Purchase and Loan Assignment Agreement that no rights under the framework agreement will be exercised (clause 6.1 (d)(ix)). And as is evident from the documents sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 109 For the definition of property under the head HELD on page no. 238 as well as para numbers 8, 9, 10, 11, 18 para 26 for meaning of transfer. 4. SC judgment in the case of Ahmed G.H. Arif V CWT 76 ITR 471 (SC) revenue relies on para 3 onwards under the head Held on page no. 249 of PB and last para of page no. 252. 5. Hon ble ITAT Mumbai in the case of Siemens Nixdorf Information System GMBH Vs DDIT (IT) 2(1), Mumbai Revenue relies on para 3 onwards under the head Held on page no. 255 till the last para under the same head on page no. 256 and the findings in para 7 8 on page numbers 257 258. 6. Anarkali Sarabhai Vs. CIT (SC) 90 Taxman 509(SC) - For the proposition of extinguishment as transfer. Revenue relies on the Facts and Held on page nos. 260 261 as well as the findings on paras 21 22 on page no. 265. 7. CIT Vs Vijay Flexible Containers Bombay High Court 48 Taxman 86 - For the proposition of capital asset as well as transfer. Revenue relies on FACTS and HELD on page no. 266 and 267 as well as para 14 of the judgment. 8. CIT vs. Rasiklal Maneklal 95 ITR 656 (Bombay) Revenue relies for the proposition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 stating that the fund had not exercised any option asking Vodafone India Services Pvt. Ltd to purchase equity shares of SMMS. One more letter is placed on page no 1631 of PB4 received from IDBI Trusteeship services ltd dated 19/01/16. In this letter also, it has categorically been stated that in our capacity of being erstwhile trustee of the fund, we submit that the fund had taken a commercial decision for not exercising the right available with it. Clearly, according to the learned Departmental Representative, conduct of the assessee was not above board. 65. It is then pointed out that though the assessee was holding call options to the equivalent of 15.4% shareholding in VIL, the same has been transferred over the years to the other AEs of VIHBV, without any consideration, even as the assessee has spent considerable sums of money for these options although the appellant has spent crores of rupees for these options. It is then submitted that over the years, as per the sectoral limits fixed by FIPB for the telecommunication sector in India, the Vodafone Group has been increasing its direct and indirect shareholding in Vodafone India Limited which can be analyzed from the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption if he anticipates the market to go up. For example, if the prevailing price of ABC Corporation (ABC Corp) is ₹ 700. If A has bought a call option to buy the shares of ABC Corp at 710 say for a premium of ₹ 5 from B, then A would be known as option holder and B would be option writer. Now, if the price of ABC Corp goes to 720, it would be profitable for Mr. A to exercise the option as he would earn profit of ₹ 5 (720 market price - 710 strike price +5 option premium paid). Therefore, a call option is exercised only when the market price of the 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. (ii) A Put Option provides the holder with a Right to sell but not the obligation to sell, at a known price (strike price) and date. A person buys a Put Option if he anticipates the market to go down For example, if the prevailing price of ABC Corporation (ABC Corp) is ₹ 700. If A has bought a Put Option to sell the shares of ABC Corp at 690 say for a premium of ₹ 5 to B, then A would be known as option holder and B would be option writer. Now, if the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... February 11, 2007, whose stated aim, according to the Revenue, was acquisition of 67 per cent. Controlling interst in HEL , being a company resident for tax purposes in companies which in turn controlled a 67 per cent. interest, but not controlling interest, in Hutchison Essar Ltd. ( HEL for short). Accordingly to the appellant, CGP held indirectly through other companies 52 percent. Shareholding interest in HEL as well as options to acquire a further 15 per cent. Shareholding interest in HEL, subject to relaxation of FDI norms. In short, the Revenue seeks to tax the capital gains arising from the sale of the share capital of CGP on the basis that CGP, whilst not a tax resident in India, holds the underlying Indian assets. 12.1.2 The Hon'ble Supreme Court has summarized the facts of the dispute in this case in the last two lines of this para in which it has been stated that in short the revenue seeks to tax the capital gains arising from the sale of the share capital of CGP on the basis that CGP, whilst not a tax resident in India, holds the underlying Indian assets. The facts in the present case are absolutely different and deals with income arising from an Internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition, HTIL s existing Indian partners AG, AS and IDFC (i.e., SMMS), who between them held a 15 per cent interest in HEL (i.e. option route), agreed to retain their shareholdings with full control, including voting rights and dividend rights. In other words, none of the Indian partners exited and, consequently, there was no change of control. 12.3.1 However, in this year, the IDFC investors exited from the Framework agreement and therefore, there is a change in control. Hence, the facts in this year, are different. 12.4. The Hon'ble Supreme Court has also discussed the reconciliation whether the holding of HTIL was 67% or 52% in that year. The relevant paras i.e. para Nos.39, 40 and 42 on page No.27 of the order are being reproduced as under: On March 19, 2007, a letter was addressed by the FIPB to VIH asking VIH to clarify as to under what circumstances VIH agreed to pay US $11.07 bn. for acquiring 67 per cent. Of HEL when the actual acquisition is only 51.96 per cent. This query presupposes that even, according to the FIPB, the actual acquisition was only 51.96 per cent. (52 percent approx.) On the same day, VIH replied that VIH has agreed to acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is being reproduced as under:- To explain the GSPL route briefly, it may be mentioned that on February 11, 2007, the AG group of companies held 23.97 per cent in TII, AS group of companies held 38.78 per cent in TII whereas SMMS held 54.21 per cent in Omega. Consequently, holding of AG in HEL through TII stood at 4.68 per cent whereas holding of AS in HEL through TII stood at 7.577 per cent and holding of SMMS in HEL through Omega stood at 2.77 per cent which adds up to 15.03 per cent in HEL. These holdings of AG, AS and SMMS came under the option route. In this connection, it may be mentioned that GSPL is an Indian company indirectly owned by CGP. It held call options and subscriptions options to be exercised in future under circumstances spelt out in TII and IDFC framework agreements (keeping in mind the sectoral cap of 74 per cent). 12.6 The Hon ble Supreme Court has further held that the call options remained with GSPL and they did not confer any rights on VIH. This clearly shows that at the impugned time, the call options remain with the appellant. However, in the present year, the same have been exercised in favour of VIH BV and the appellant no more holds thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case, the change in the investors, after completion of acquisition on May 8, 2007, under which SSKI and IDFC exited leaving behind IDF alone was a situation which was required to be addressed by execution of a fresh framework agreement under which the call option remained with GSPL. Therefore, the June, 2007 agreements relied upon by the Revenue merely reiterated the rights of GSPL which rights existed even in the Hutchison structure as it stood in 2006. 12.6.1 It has clearly been held by the Hon'ble Supreme Court even after the Vodafone International Holdings BV coming on board and being the stake from HTIL, the call option remain with GSPL and the said agreement did not confirm any rights on VIH. In the present case the call option rights of the appellant has been exercised in favour of VIH thereby VIH is now holding indirect interest to the extent of 3.15 per cent of share holding in VIL. Before the present transaction, the VIL was only holding indirectly the option rights through GSPL. Therefore, the facts of the present transaction are absolutely difference and hence the judgement of Hon'ble Supreme Court has no applicability. 12.7 It has clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er observed in para 88 that till date options have remained un-encashed with GSPL. It has further been held by Hon'ble Supreme Court that this option have not been transferred till date. Call and put options were not transferred vide SPA dated February 11, 2007, or under any other document whatsoever. However, in the present transaction, the call options have been exercised by the appellant in favour of VIH BV and this option rights no more remained unencahsed with the appellant. Therefore, observations of the Hon'ble Supreme Court are not applicable to the facts of the case. 12.9 The Hon'ble Supreme Court has observed that in FWA of 2006, the HTIL was only a conforming party in para 65 on page 101. However, it has been demonstrated by the Revenue before the Hon'ble ITAT that this observation of Hon'ble Supreme Court is not based on the facts of the case. As per the FWA of 2006 HTIL was also a party to the agreement. 12.10 In para 235 on page 116, it has been observed by the Hon'ble Supreme Court that the call and put options were in favour of 3GSPL and were continued to be so even after entry of Vodafone International Holdings BV. However, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minated by it and/or any of the affiliate/subsidiary company of Vodafone PLC. (emphasis supplied). The relevant clause (clause 4.4 of FWA 2006) is placed at page 10 of Vol 2 of Revenue and clause 4.4 of FWA 2007 is placed at page no 292 of Vol 2 of Revenue. It has also been reproduced on page no 6 of the list of dates and events submitted during the course of hearing. Accordingly, the dispute in the impugned year was whether by including any affiliate or subsidiary of Vodafone PLC for the call options, any rights have been created/diluted in favour of Vodafone PLC and/or affiliate/subsidiary of Vodafone PLC by the assessee company or not. Therefore, the issue before the Hon ble Bombay High Court was whether inclusion of affiliate/subsidiary of Vodafone PLC along with the appellant as a call option holder would amount to creation of any rights in favour of Vodafone PLC by the assessee or not in the case of AS and AG. 13.3. It is again reiterated that as far as the IDFC group of investors were concerned, there was no change whatsoever between the FWA of 2006 and FWA of 2007 entered into at the time of HTIL for 2006 and Vodafone in 2007. Hence no transfer pricing adjustment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements. 13.6.2 Para-4 on page 3 of the Impugned Order The Tribunal held that the inclusion of a prospective nominee did not amount to assignment/transfer of the call option rights by the assessee. However, even after rendering the above finding in law that no transfer can take place unless an actual nomination happens, the Tribunal held that the call option rights had been transferred and vested in VIH BV by virtue of the TII Shareholders' Agreement. Further the Tribunal held that the Supreme Court judgment was not binding on the issue of assignment of call options as the issue of assignment of call options was not before the Supreme Court and that the Supreme Court, according to the Tribunal, proceeded on undisputed facts. From the above facts, it is crystal clear that the Hon ble Bombay High Court has not dealt with the FWA 2007 with IDFC Investors as these clauses are not present in the call options of IDFC Investors. This also abundantly makes it clear that the judgment of Hon ble High Court was given in the context of AS AG FWA of 2007 and that too whether the inclusion of any of the subsidiary/affiliate of Vodafone PLC would amount to creation/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghtly so, as it was a part of the cost of acquisition of a capital asset, that the activities of the assessee were not driven by the desire to earn dividend as evident from the fact that the assessee invested ₹ 1,360 crores in 0.1% redeemable cumulative preference shares of SMMS Investments, and that the assessee was clearly engaged in the business of making and holding investments. Learned Departmental Representative once again referred to and relied upon oft quoted Supreme Court decision in the case of CIT Vs Sun Engineering Works Pvt Ltd (198 ITR 297). He also referred and relied upon OECD Transfer Pricing Guidelines and BEPS documents to justify the adoption of cashless options assigned to the assessee as a valid comparable but submitted that nothing really turns on this because if this comparable is to be discarded, the assessee will be worse off, and that it is not open to this Tribunal to make an enhancement in income of the assessee- which is inevitable in such a situation. Learned Departmental Representative then referred to several judicial precedents in support of the proposition that when there are several interconnected transactions, as in this case, all these tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Indian Income Tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies and other entities subject to income-tax. Companies and other entities are viewed as economic entities with legal independence vis- -vis their shareholders/participants. It is fairly well accepted that a subsidiary and its parent are totally distinct tax payers. Consequently, the entities subject to income-tax are taxed on profits derived by them on standalone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders/participants. Furthermore, shareholders/participants, that are subject to (personal or corporate) income-tax, are generally taxed on profits derived in consideration of their shareholding/participations, such as capital gains. Now a days, it is fairly well settled that for tax treaty purposes a subsidiary and its parent are also totally separate and distinct taxpayers. (paragraph 66) It is generally accepted that the group parent company is involved in giving principal guidance to group companies by providing general policy guidelines to gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot, 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 subsidiary. For example, in a proper case of lifting of corporate veil , it would be proper to say that the parent company and the subsidiary form one entity. But barring such cases, the legal position of any company incorporated abroad is that its powers, functions and responsibilities are governed by the law of its incorporation. No multinational company can operate in a foreign jurisdiction save by operating independently as a good local citizen . A company is a separate legal persona and the fact that all its shares are owned by one person or by the parent company has nothing to do with its separate legal existence. If the owned company is wound up, the liquidator, and not its parent company, would get hold of the assets of the subsidiary. In none of the authorities have the assets of the subsidiary been held to be those of the parent unless it is acting as an agent. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity of business is one of the important tell-tale circumstance which indicates the commercial/business substance of the transaction. Thus, the need for SPA arose to re-adjust the outstanding loans between the companies; to provide for standstill arrangements in the interregnum between the date of signing of the SPA on 11.02.2007 and its completion on 8.05.2007; to provide for a seamless transfer and to provide for fundamental terms of price, indemnities, warranties etc. As regards the right of HTIL to direct a downstream subsidiary as to the manner in which it should vote is concerned, the legal position is well settled, namely, that even though a subsidiary may normally comply with the request of a parent company, it is not just a puppet of the parent company. The difference is between having the power and having a persuasive position. A great deal depends on the facts of each case. Further, as stated above, a company is a separate legal persona, and the fact that all the shares are owned by one person or a company has nothing to do with the existence of a separate company. Therefore, though it may be advantageous for a parent and subsidiary companies to work as a group, each sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidiary owns a controlling interest in another company, thus becoming its parent company. (paragraph 150) Legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. In Bacha F. Guzdar v. CIT AIR 1955 SC 74, this Court held that shareholders' only rights is to get dividend if and when the company declares it, to participate in the liquidation proceeds and to vote at the shareholders' meeting. Refer also to Carew Co. Ltd. v. Union of India (1975) 2 SCC 791 and Carrasco Investments Ltd. v. Special Director, Enforcement Directorate (1994) 79 Comp. Cas. 631 (Delhi). (paragraph 151) Holding company, of course, if the subsidiary is a WOS, may appoint or remove any director if it so desires by a resolution in the General Body Meeting of the subsidiary. Holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue to seek to treat the Assessee as a conduit of VIHBV. 138. IDFC Investors and/or AS and/or AG, who held 15.03% stake in VIL, were mere shell structures or conduits to overcome FDI Policy: RESPONSE OF ASSESSEE: 139. The submission of the Revenue that matters concerning options relating to AS 7.577%, AG 4.68% IDFC Investors via SMMS 2.77%, before the Hon ble Supreme Court, in the case reported in 341 ITR 1, were in the nature of a mere passing reference, is both erroneous and misleading, for the following reasons: 139.1. the 2010 judgment of the Bombay High Court64 in the VIHBV case squarely put the IDFC options into contention - the Assessee has relied upon paragraphs 28, 31, 33, 41, 107, 121, 124, 141, 147, 152 to 155, 158, 160 and 161; 139.2. the Supreme Court judgment in 341 ITR 1- the Assessee has relied upon paragraphs 2,9, 10, 16, 48, 49,50, 51, 55, 66, 67, 74, 72, 75, 76, 77, 83, 88, 133, 149, 150, 151, 152, 225, 235, 238 and 239, independently of laying emphasis on paragraphs 83 and 235, for the proposition that distinctly emerges, viz. that pending exercise options are potential shares, i.e. a contractual right, and no m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s independent stand-alone rights; 144. In the circumstances, since rights in relation to the options vested in the Assessee, and not in any holding company within the Vodafone Group, when the right was terminated vide TA 2011, there was no scope for any international transaction . 145. To the extent that the Revenue sought to rely upon TRA 2007 to assert that prior VIHBV permission should be obtained in relation to exercise of options- which would not be unreasonably withheld, this was at best an administrative exercise, with nothing more, and intended to hinder commercial risks of any dealings by investors with a competitor of VIHBV, and thus a perfectly reasonable clause, conferring no rights upon VIHBV independent of the Assessee, in whom, as held by the Hon ble Supreme Court, the options lay vested (by virtue of FWA 2007). 146. Grant of a protective covenant in relation to an investment cannot alter the de facto ownership of shareholding (of such Investor), so as to deprive the investor of ownership rights in respect of such shareholding. There are no covenants in the Agreements that would be capable of being reasonably construed as a consent of the investor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of shares are only but one element of a share which does not alter component elements of its ownership, since a share is comprised of a congeries of rights68, inter alia conferring right to dividend, right to management, right to vote, right to seek winding-up, relief in the case of mismanagement, relief in the case of oppression and share in the surplus on winding up, all of which will continue to be enjoyed by the legal de facto owner of the share until it is transferred. There is no material placed on record by Revenue to establish that IDFC Investors stood denuded of their rights as shareholders or that beneficial ownership in the shareholding of the IDFC Investors lay with any person or entity, much less the Assessee. 150. All of the shareholding owned in SMMS by IDFC Investors, continued to remain reflected in their respective audited financial statements, as an investment of IDFC Investors, until the exercise of put options insofar as relates to the preference shareholding interests in SMMS, and the buyback insofar as relates to the equity shareholding interests in SMMS. 151. In the circumstances, to ascribe to the IDFC Investors the role of mere benami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestors in relation to the SMMS equity, save and except that around unhindered rights of transfer . In effect, the tests relating to the rights secured by the Assessee under the FWA 2007, must necessarily yield the conclusion that the FWA 2007 neither restricted the IDFC Investors right to receive dividend, if declared, by SMMS, nor the IDFC Investors right to vote or manage their interests in SMMS, including but not limited to negotiating a Termination Fee, etc. 153. A perusal of the statutory records of SMMS, available in public domain, through the web portal maintained by the Ministry of Corporate Affairs, Government of India, will establish that all directors appointed to the board of SMMS were nominees of the IDFC Investors, and not appointees of the Assessee and/or any affiliate of VIHBV or any other Vodafone group company. 154. Similarly, there was no scope for any Vodafone company to take any decisions in relation to SMMS shareholding- thus, the TA, under which SMMS shareholders, i.e. IDFC Investors negotiated a Termination Fee of ₹ 21.25 crores was negotiated by those IDFC Investors, and not by a Vodafone nominee or company. 155. That the investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot constitute funding of such investor by Vodafone. In any event, these were matters examined by the Hon ble Supreme Court in 341 ITR 1, and no such contention of Revenue was entertained, and on the contrary, the Hon ble Supreme Court upheld and sanctified the arrangements in the form of the FWAs executed between the Assessee and the three Indian partners. 159. Even if VIHBV may have undertaken facilitation of funding by IDFC Investors, these were matters strictly between VIHBV and the IDFC Investors, which: 159.1. cannot equate with funding of the IDFC investment in SMMS; 159.2. even if granted, could at best have merely secured advantageous funding terms for IDFC Investors again, not a matter within the knowledge of the Assessee, or a matter on the record of this appeal; 160. To the best knowledge of the Assessee, the holding of legal and beneficial interests in shareholding in SMMS by IDFC Investors has never been put into dispute by the Revenue or any other Indian statutory or regulatory authority; indeed, arrangements between the Assessee, VIHBV and the IDFC Investors enjoyed full sanction by the FIPB, and the entities have each been accorded corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon tax treatment of a Termination Fee paid by the Assessee to the IDFC Investors73, in relation to the TA 2011. 165. Significantly, the TA 2007 executed by the IDFC Investors, was not rendered exigible to any transfer pricing adjustment, which only establishes that the Revenue is adopting an ad hoc and arbitrary approach to matters concerning IDFC rights juxtaposed with those of the Assessee. 166. IDFC exercised put options in relation to its preference shareholding in SMMS, in manner stipulated in clause 5 of the FWA 2007, based on which the Assessee purchased the put preference shareholding interests of the IDFC Investors during FY ended 31.3.2008 (Rs.200 crores, so as to reduce the IDFC Investors preference shareholding to ₹ 400 crores), FY ended 31.3.2009 (Rs.185 crores, so as to reduce the IDFC Investors preference shareholding to ₹ 215 crores) and the balance during FY ended 31.3.2010. 167. Options were capable of exercise by payment of meager amount, and were purely financial investors, since return on investment was fixed: RESPONSE OF ASSESSEE: 168. Firstly, the terms agreed with IDFC Investors were approved by the FIPB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich options have been exercised/transferred and/or extinguished and/or relinquished, and therefore constitutes gain . 177. It is not available to the Revenue to rely on the error of the AO, which was the subject-matter of a rectification application, for which over six months have elapsed, but remains unrectified. 178. The Assessee asserts the settled legal position that options are mere contractual rights, and do not constitute property , and further that options constitute rights as to potential shares , rather than constituting rights in shares , as held by the Hon ble Supreme Court of India. 179. Also, the Hon ble Bombay High Court74, in the AY 2008-09 assessment proceedings of the Assessee, has held that the Assessee in not exercising options, had no exigibility to capital gains tax. 180. As to alleged trading in options, the Assessee relies on submissions in the foregoing. 181. By virtue of the FWA 2007 granting a right of assignability of the options , conferred upon the Assessee an interest in the SMMS shares. RESPONSE OF THE ASSESSEE: 182. There is no assignability of options , but rather the Assessee has a right to nominat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of a capital asset in generic terms, but rather is strictly concerned with the cost of acquisition of the capital asset. 192. In computing capital gains the actual cost has to be considered, and not notional cost77. 193. None of the three sums advocated by Revenue as constituting the cost of acquisition can be allocated/applied, since cost has to be ascertained at the time of acquisition, whereas the sums relied on by Revenue are notional costs purportedly arising at the time of alleged transfer of asset, and/or entirely extraneous by virtue of constituting a price at which an independent June 2007 transaction between the IDFC Investors and the Assessee occurred. 194. As far the sum of ₹ 21.25 crores is concerned, this was the sum paid by the Assessee to IDFC Investors in 2011 by way of Termination Fee to bring an end to contractual obligations, and not to acquire any capital asset, it was not paid in 2007 when the FWA was executed by the Assessee, and therefore it is not a cost of the acquisition of the option. 195. As far as the ₹ 62.24 crores is concerned, it was the subject matter of a separate and distinct transaction, i.e. the Cashless O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a taxable transfer, i.e. provisions of section 45 would not be applicable. 201. In the circumstances, no income is received in the hands of the Assessee that is exigible to tax.78 202. For reasons stated above, the TA 2011 was executed to terminate FWA 2007 and SHA 2007; no income can arise under the head capital gain as argued by the Assessee, much less Business Income - as argued by Revenue. SECTION 5. OTHER SUBMISSIONS OF REVENUE AND RESPONSE OF THE ASSESSEE: 203. The Revenue relies upon FWA 2007, TRA 2007 and SHA 2007 to submit that it was VIHBV who was directing the Assessee, who was a mere dummy entity. RESPONSE OF THE ASSESSEE: 204. The approach of Revenue to attribute, based on the TRA 2007, and in particular relying on recitals therein and clauses 2.1 to 2.6, 4.1 to 4.3, 6.1 6.2, 8.3, 10.1, that the Assessee s role in SMMS was an activity performed at the direction of VIHBV, and that the Assessee was therefore a dummy entity, overlooks established commercial means through which multi-national companies conduct investments and business activities generally. Similar misinterpretation of covenants, rights, duties and obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DFC Investors (to be apportioned in manner set forth in Schedule 6 thereto) simultaneously with redemption of preference shares of the original IDFC Investors, without the original IDFC Investors being first required to exercise the Put Option (as contemplated in FWA 2006) and waiving rights thereto. Accordingly, the Cashless Option was treated as terminated, and the Assessee treated as having discharged in full its FWA 2006 obligations 208. SALE OF SMMS SHARES: Vide clause 3, following the assignment of the Cashless Option, both Infrastructure Development Finance Company Limited and SSKI Corporate Finance Private Limited were at liberty to sell their SMMS equity interests; and had thus irrevocably agreed to sell their equity shareholding of SMMS shares to IDFC Investors, at par, on investment completion, such that IDFC Investors would not insist on registration of transfer until after procuring repayment in full of amounts due under loan agreements. 209. SUBSCRIPTION OF VODAFONE PREFERENCE SHARES: Vide clause 4, VIHBV would seek allotment of preference shares in SMMS, either to it or such other Vodafone Group company nominee as it may procure such application by, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were examined by the Hon ble Supreme Court in 341 ITR 1. TERMINATION AGREEMENT 2007: OBJECT OF THE AGREEMENT: 216. By virtue of the transaction recorded in the SPA dated 11 February 2007, between Hutchison group and Vodafone group, entailing change of control , in turn triggering clause 5.3 of the FWA 200683, the IDFC Investors exercised the Cashless Option, which had, in turn, led to execution of the TRA 200784. 217. Consequent upon invocation of the Cashless Option, the parties to the FWA 2006, i.e. IDFC Investors and the Hutchison Group companies agreed to discharge inter se of all rights and obligations under FWA 2006 and under SHA 2006, which were brought to an end by TA 2007. 218. Materially, no line of argument analogous to that now advanced by Revenue in AY 2012-13, to the effect that the termination has led to foregone income in the hands of the Assessee in relation to the IDFC Investors options during AY 2008-09, was raised by Revenue. This new argument is fraught with inconsistency, when Revenue s interpretation of TA 2007 (in AY 2008-09) is juxtaposed with Revenue s interpretation of TA 2011. 219. In AY 2008-09, Revenue accepted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 225. RESIDENT INDIAN CITIZENS: Vide Clause 3.3, it was undertaken by SMMS that its entire equity share capital is, and shall remain held by IDFC Investors, and it was represented by SMMS that not less than 88 percent of the total issued equity capital is and will be held either directly or indirectly by Resident Indian Citizens (again, a means to ensure that the rigors of the FDI Policy were strictly observed). 226. RESTRICTIONS ON TRANSFER: Vide Clause 4.1, it was stipulated that all share transfers shall accord with the FWA, in matters of legal or beneficial interest therein. 227. APPOINTMENT OF DIRECTORS: Amongst key rights exercised by a shareholder, is the right to appoint directors, which in the case of Omega, as captured in the SHA (clause 6.1.1, read with clause 6.1.6), reflected proportionate representation of each shareholder, through SMMS being vested with the right to appoint three directors commensurate with its 61.6% equity interests in Omega, and two directors to be appointed by the non-resident Vodafone Group entity - HutchisonTelecommunications (India) Limited, Mauritius ( HTM , was part of the Hutchison Group structure, at the time of the 11 February ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... multitude of factors, including the slight delay to the proposed exercise of put option by IDFC Investors and there is no scope for correlating such payment with potential contractual liability if a call option or put option was exercised, moreover when the Revenue has not questioned the SMMS share valuation of ₹ 15/- per equity share for purposes of share subscription or buyback; 232.4. fourthly, it is pertinent that the transaction of assignment of cashless option between the Assessee and IDFC Investors has been held to an external CUP from AY 2008-09 for the purposes of benchmarking the alleged assignment of call options by the Assessee therefore, a transaction in the present AY between the Assessee and the IDFC Investors cannot be treated as a transaction between the associated enterprises; 232.5. lastly, the mere fact of making a payment cannot be construed as an international transaction warranting transfer pricing adjustment. At best, the Revenue could have sought disallowance of such expenditure, if the Assessee had made a claim in this regard however, since the Assessee has not claimed deduction for this amount and the payment does not have an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same. The expression was thus corrected and the word legitimate withdrawn. Be that as it may, learned senior counsel proceeded with his highlighting the main planks of his arguments, and submitted that the call options cannot be considered in put options and the assessee did not simply have a right under the options agreement but he had an obligation as well. As we assign the value to the right, we must also not ignore the obligations. He also read out observations of Hon ble Supreme Court holding that VIH-BV did not have any right in respect of call options. He once again submitted that there is nothing like a factual control, as held by Hon ble Supreme Court, and that the very distinction between de facto control and de jure control, is, therefore, meaningless. If the VIH BV did not have any legal rights, it cannot be inferred that the VIH-BV had any rights at all, and VIH-BV did not have any rights, that was the end of the matter and the transaction in question cannot be an international transaction. The very foundation of the case of the Revenue, therefore, unsustainable in law. It is then contended that TII, the entity to which the assignment rights were assigned, is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Telecom Policy of 1994, and, thereafter, the policy on private participation and foreign direct investment has been evolving. The foreign direct investment limit in the telecommunication sector, which now stands at one hundred percent, has reached this level by slow and gradual increase at different points of time. Vide Press Note No 2 (2000 Series) dated 11th February 2000, and attached sector specific guidelines for foreign direct investment, the FDI limits in the telecommunication business was stated to be as follows: i. In basic, cellular mobile, paging and value added service, and Global Personal Mobile Communication by Satellite, FDI is limited to 49% subject to grant of license from Department of Telecommunications and adherence by the companies (who are investing and the companies in which investments are being made) to the licence conditions for foreign equity cap and lock in period fir transfer and addition of equity and other licence provisions 77. On 3rd November 2005, however, there was a relaxation in foreign direct investments in the telecommunication sector. Vide Press Note No. 5 (2005 series), the FDI limit was enhanced to 74%, and, announcing this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign investment in the licensee company shall be counted for the purpose of FDI ceiling. Foreign Investment shall include investment by Foreign Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entity. Indirect foreign investment shall mean foreign investment in the company/companies holding shares of the licensee company and their holding company/companies or legal entity (such as mutual funds, trusts) on proportionate basis. Shares of the licensee company held by Indian public sector banks and Indian public sector financial institutions will be treated as 'Indian holding'. In any case, the 'Indian shareholding will not be less than 26 percent. (iii) FDI upto 49% will continue to be on automatic route. FDI in the licensee company/Indian promoters/investment companies, including their holding companies, shall require approval of the Foreign Investment Promotion Board (FIPB) if it has a bearing on the overall ceiling of 74%................... 79. With the passage of time, however, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rth, of ITNL was in its direct shareholding in, what is now known as, Vodafone India Ltd. 82. A common clause, appearing in both these agreements- copies of which are placed at pages 1491- 1512 and 1513-1528 of the paper-book IV reads as follows: At the request of the purchaser, the vendor has agreed to sell to an Indian nominee of the purchaser before the Long Stop Date (i.e. the date on which 60 days from the date on which the agreement is executed, and, if such a day is not a business day, the next business day), and the purchaser shall guarantee that the Indian nominee shall purchase from the Vendor, the Sale Shares, on the terms and subject to the conditions in this Agreement. 83. Clearly, therefore, the Hutchinson Telecommunications (India) Ltd Mauritius had all the rights, and rather unfettered rights, to nominate the Indian nominee to which 54.21% shareholdings in ITNL are to be transferred by Hinduja Group entities, namely Hinduja TMT Limited and In Network Entertainment Ltd. 84. On 7th August 2006, SMMS Investments Pvt Ltd, obviously as a result of its nomination by Hutchinson Telecommunications (India) Ltd Mauritius, acquired this 54.21% shareholding in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SERVICES PRIVATE LIMITED and OMEGA TELECOM HOLDINGS PRIVATE LIMITED and IDFC PRIVAGE EQUITY COMPANY LIMITED acting for IDFC PRIVATE EQUITY FUND II and VODAFONE INTERNATIONAL HOLDINGS B.V. AGREEMENT In relation to Omega Telecom Holdings Private Limited This agreement (the Agreement ) is made on 5 June 2007 (1) India Development Fund ( IDF ) is a unit scheme of IDFC Infrastructure Fund, a trust created under the Indian Trusts Act, 1882, which is a venture capital fund registered under the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, having its office at 17, Vaswani Mansion, 3rd Floor, Dinshaw Vachha Road, Churchgate, Mumbai 400 020, State of Maharashtra, of which IDBI Trusteeship Services Limited is the trustee, acting through its investment manager IDFC Private Equity Company Limited, a company incorporated under the Companies Act, and having its Registered Office at 17, Vaswani Mansion, 3rd Floor, Dinshaw Vachha Road, Churchgate, Mumbai 400 020. (2) Infrastructure Development Finance Company Limited, a company registered under the Companies Act, 1956 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HEREAS (A) Omega is an infrastructure holding company engaged in the business of investing in securities of telecommunication companies in India and holds 21,163,258 ordinary equity shares (the HEL Shares ) in Hutchison Essar Limited ( HEL ), a licensee of cellular mobile telephone services in respect of telecommunications circles in India. (B) The original investors through SMMS, an infrastructure holding company which is in the business of investing in securities of infrastructure holding companies which invest in telecommunications companies in India, hold 64.21% of the issued equity share capital of Omega of 106,165,064 ordinary shares of per value ₹ 10 each in Omega (the Old SMMS Omega shares) subject to the terms of a framework agreement dated 7 August 2006(the 2006 Framework Agreement) between the original Investors, SMMS, HT India, GSPL Omega and Hutchison Telecommunications International Ltd. (HTL) and a share holder agreement dated 17 August 2006 (the 2006 Shareholder Agreement) between SMMS, HT India Omega and HTL. (C) Under the terms of the 2006 Framework Agreement (i) GSPL has granted the Original Investors an option to purchase HEL share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and which expression unless repugnant to the context, be deemed to include its successor and assigns) a unit scheme of IDFC Infrastructure Fund, a trust created under the Indian Trusts Act, 1882, which is a venture capital fund registered under the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, having its office at 17, Vaswani Mansion, 3rd Floor, Dinshaw Vachha road, Churchgate, Mumbai 400 020, State of Maharashtra (of which IDF is a unit scheme) acting through its trustee for the time being viz. IDBI Trusteeship Services Limited, acting through IDFC PRIVATE EQUITY COMPANY LTD, a company incorporated under the Companies Act, 1956 and having its Registered Office at 17, Vaswani Mansion, 3rd Floor, Dinshaw Vachha road, Churchgate, Mumbai 400 020 ( IDFC PE ); (2) INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED, a company registered under the Companies Act, 1956 and having its registered office at ITC Centre, 760 Anna Salai, Chennai 600 002 and its office at Ramon House, 2nd floor, HT Parrekh Marg, 169 Backbayt Reclamation, Churchgate, Mumbai 400 020 (hereinafter referred to as IDFC which expression unless repugnant to the context, be deemed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly referred to as the Parties , and severally as a Party .) WHEREAS A. ITNL is an infrastructure holding company engaged in the business of investing in securities of telecommunication companies in India and holds 21,163,258 ordinary equity shares (the HEL Shares ) in Hutchison Essar Limited ( HEL ), a licensee of cellular mobile telephone services in respect of telecommunications circles in India. B. The shareholders of ITNL wish to sell their shares in ITNL and the Investors were offered the opportunity to purchase the controlling stake in ITNL. The Investors are willing to take up such controlling stake in ITNL provided HTL and GSPL provide assistance in obtaining the financing necessary to make such investment. C. As a precursor to the investment by the Investors, HTL and GSPL, have agreed to assist or procure assistance for the Investors in obtaining such financing and to provide necessary and adequate guarantee required by any lenders providing such financing. D. Consequently, the Investors, through JVC, an infrastructure holding company which is in the business of investing in securities of telecommunications companies in India shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing its registered office at 4th Floor, Les Cascades Building, Edith Cavell Street, Port Louis, Mauritius (hereinafter referred to as HTIL which expression unless repugnant to the context hereof be deemed to include its successors and permitted assigns), of the SECOND PART; INDUSIND TELECOM NETWORK LIMITED, a company incorporated under the Companies Act 1956 and having its registered office at Hinduja House, 171 Dr Annie Besant Road, Worli, Mumbai 400 018, India (hereinafter referred to as the Company which expression unless repugnant to the context hereof be deemed to include its successors and permitted assigns) of the THIRD PART; AND HUTCHISON TELECOMMUNICATIONS INTERNATIONAL LIMITED, a f company incorporated under the laws of the Cayman Islands, having its registered office at 22/F Hutchison House, 10 Harcourt Road, Central, Hong Kong (hereinafter Preferred to as HTL. which expression unless repugnant to the context hereof be deemed to include its successors and permitted assigns) of the FOURTH PART. (JVC and HTIL are hereinafter collectively referred to as the Parties , and severally as the Party ) WHEREAS: A. The Company is engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Purchaser ) We refer to : (a) the me agreement entered into between the vendor and the purchaser on 11 February, 2007('the SPA ) for the sale and purchase of certain shares and loans representing our interests in Hutchison Essar Limited HEL ); and (b) the release and waiver provided by the Purchaser in favour of the Vendor under the Purchaser s Deed of Waiver dated 15 March, 2007 (the Deed of Waiver ). 1. Analjit Singh, Asim Ghosh, the Vendor and the Purchaser have agreed ( FMV Agreement ) that on an assumed future equity valuation of US$ 25 billion for HEL, the equivalent fair market value for (i) the equity shares of ND Callns (or MV healthcare or Scorpios Beverages Private Limited) or the direct and indirect holdings of Analjit Singh and his wife in Telecom Investment India Private Limited ( TII ) (the AS Stake ) and 9ii) the equity shares in Centrino (for Phusteeh Mercantile or Goldspot Mercantile Company Private Limited) or the direct and indirect holdings of Asim Ghosh in TII (the AS Stake ) is the Indian rupees equivalent to US$266.25 million and US$165.51 million respectively. The Purchaser has imposed as a condition for proceeding to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 164.51. 2.2 Upon the earlier of (i) the Options Exercise resulting in the purchase of the whole of the AS and AG Stakes, and (ii)the tenth anniversary of the Completion Date, the Purchaser shall, within fourteen (14) days of such purchase or date, return of procure that there is returned to the Vendor (in such bank account as ft may direct in writing) that part of the Retention Amount that has not been retained in accordance with clause 2.1 above (the Returned Retention Amount ) (together with interest on the Returned Retention Amount from (and including) the date of Completion to (but excluding) the date of return of the Returned Retention Amount at LIBOR (compounded and with the rate reset both on the first London business day of each month) calculated by reference to the actual number of days elapsed and on the basis of a 360-day year). 3. The reference to 30 May 2007 in Clause 2.3 of the Deed of Waiver being Inappropriate, the parties thereto now agree to delete or 30 May 2007 if earlier with effect from the date hereof, and references herein to Deed of Waiver shall mean references to such documents as amended. 4. Without prejudice to the release ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on behalf of Hutchison Telecommunication International Limited Executed and delivered as a deed for an on behalf of Vodafone International Holdings B.V. 90. Quite clearly, therefore, irrespective of whether the VIH-BV had the legal right over the exercise of options by the assessee- which is a question we will deal with at a later stage, VIH-BV even retained the amount, payable on exercise of options, from the sale consideration of solitary share in CGP- Cayman Islands. We may also add that this retention does not include any amounts payable to IDF that we are dealing with at present but then, unlike AS and AG, IDF was a purely financial services entity and it had a small investment of ₹ 2 crores in equity shares of SMMS Investments (apart from the investments in preference shares of SMMS Investments- which were redeemed anyway at substantial premium), which was compensated, inter alia, for by the cashless options being assigned to the assessee by the IDFC Investors for ₹ 62.24 crores- options which were not exercise anyway, by the payment of ₹ 21.25 cores as compensation for termination of options. 91. The new Framework Agreements were then ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which IDBI Trusteeship Services Limited is the trustee, acting through its investment manager IDFC Private Equity Company Limited, a company incorporated under the Companies Act, and having its Registered Office at 17, Vaswani Mansion, 3rd Floor, Dinshaw Vachha Road, Churchgate, Mumbai 400 020, India. (11) Infrastructure Development Finance Company Limited, a company registered under the Companies Act, 1956 and having its registered office at ITC Centre, 760 Anna Salai, Chennai 600 002 and its office at Ramon House, 2nd floor, HT Parrekh Marg, 169 Backbay Reclamation, Churchgate, Mumbai 400 020, India ( IDFC ) (12) IDFC Private Equity Fund II ( IDFC PE ), a unit unit scheme of IDFC Infrastructure Fund 2, a trust created under the Indian Trusts Act, 1882, which is a venture capital fund registered under the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, having its office at 17, Vaswani Mansion, 3rd Floor, Dinshaw Vachha Road, Churchgate, Mumbai 400 020, State of Maharashtra, IDBI Trusteeship Services Limited is the trustee, acting through its investment manager IDFC Private Equity Company Limited, a company incorporated under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Vodafone Group subscribe for preference shares in SMMS, (iii) SMMS agreed to repay loans under the Loan Agreements and redeem the Old Preference Shares and (iv) SMMS agreed to subscribe for 37,695,443 Omega Shares (the New Omega Shares ). (L) Immediately following completion of the transactions described in Redial (D), Omega s issued share capital will consist of 233,574,587 Omega Shares, 69,693,060 of which HT India will hold (38.4% of Omega s issued share capital) and 143,881,527 of which SMMS will hold (61.6% of Omega s issued share capital). (M) In mutual consideration of the foregoing, the parties have agreed (i) to enter into this Agreement pursuant to which the investors have agreed to grant to GSPL an option to purchase the entire issued share capital of SMMS and GSPL have agreed to grant the Investors an option to require GSPL to purchase the entire issued share capital of SMMS and (ii) to enter into a shareholder agreement to confirm their understanding regarding the regulation of the affairs of Omega and the terms and conditions governing their relationship as shareholders of Omega. 93. The accompanying shareholder agreement referred to above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture Development Finance Company Limited and IDFC PE (the Transaction Agreement ), Vodafone, the Company, HT India and SMMS agreed to enter into this agreement on the Investment Completion Date to confirm the Shareholders understanding regarding the regulation of the affairs of the Company and the terms and conditions governing their relationship as shareholders. D. On the Investment Completion Date SMMS subscribed for 37,695,443 now equity shares of ₹ 10 each in the Company. E. Following the subscription referred to in Recital (D), HT India holds 89,693,060 equity shares of par value and ₹ 10 in the Company representing 38.4 percent of the issued equity share capital of the company at such time and SMMS holds 14,38,81,527 equity shares of par value ₹ 10 in the company representing 61.6% of the issued equity share capital of the company at such time. F. The Company is executing this Agreement as a confirming party, inter alia, as the matters contained in this Agreement materially affect the administration of the Company. G. Vodafone is executing this Agreement as a confirming party as it is the parent company of HT India. 94. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 10 in Omega jointly with SMMS; and (ii) Mr. Satish Mandhana holds one equity share of ₹ 10 in Omega jointly with SMMS. (C) IDF, IDFC, IDFC PE, SMMS, VTIL, VISPL, Omega and Vodafone are all parties and subject the terms of a framework agreement dated June 6, 2007 ( Framework Agreement ) and SMMS, VTIL, Omega and Vodafone are all parties to a shareholder agreement dated June 6, 2007 ( Shareholders Agreement ). (D) Under the Framework Agreement, certain rights, duties, benefits and/or obligations have been made available to or imposed upon the Parties in accordance with its terms. After detailed discussions, the Parties have agreed that in consideration of the mutual release of their respective duties and obligations under the Framework Agreement, the Framework Agreement shall stand terminated on the terms and conditions hereinafter contained. (E) As a result of the foregoing the Parties have agreed to enter into this Agreement. It is agreed as follows: 1. Definitions Framework Documents means collectively the Framework Agreement as well as all other deeds, document or other writings entered into by or between any two or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the provisions of Clauses 7, 9, 16.3 to 19.1 of the Framework Agreement which, notwithstanding anything to the contrary in the Framework Agreement, shall stand terminated as on the Termination Date and shall cease to be in force and effect from the Termination Date onwards. It is farther agreed and understood and expressly agreed by the Parties that the indemnities provided to IDF, IDFC, IDFC PE and SMMS under the provisions of Clause 13.1 of the Framework Agreement and the indemnities provided by each Party under the provisions of Clause 13.2 of the Framework Agreement shall survive termination of the Framework Agreement. 4. It is further agreed by the Parties that notwithstanding the termination of the Framework Agreement in accordance with the provisions of Clause 2 above, IDF, IDFC and IDFC PE shall have the right to represent themselves before any judicial court, tribunal or other judicial or quasi-judicial forum or body in relation to or for any matter, claim or proceeding that either: (i) has been filed on or prior to the date of execution of this Agreement; or (ii) which may be filed at any time thereafter as a result of either: ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under the foreign direct investment policy of the Government of India ( FDI Policy Event ): or (B) any tax liability imposed upon any direct or indirect shareholder of Vodafone India Limited (other than any Indemnified Party or Omega) to the extent that a Public Authority seeks to recover any such tax liability from any Indemnified Party ( Tax Event , and together with FDI Policy Events referred to as Indemnification Events ). (c) Notwithstanding any other provisions of this Clause 6: (i) the maximum aggregate amount of Vodafone's liability under this Clause 6 is limited to and shall not, under any circumstances, exceed ₹ 1,000,000,000 (Rupees one billion); and (ii) the indemnity granted under this Clause 6 shall be in effect until the expiry of 8 years from the date hereof. (d) Notwithstanding the provisions of Clause 6 (b) above, Vodafone shall not be liable to indemnify the Indemnified Parties (or any of them) for any Losses pursuant to this Clause 6 in the event that such Losses: (i) result from any action or inaction on the part of any person, including but not limited to Vodafone India Limited and its shareholders, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otify Vodafone in writing, with reasons for such consideration and provide Vodafone with all documents and information in relation thereto, including documents and information requested by Vodafone; and (iii) deliver to Vodafone copies of all notices, communications and documents (including court papers and communications with any Public Authority) relating to an Indemnification Event received or submitted by any Indemnified Party promptly after receipt or submission thereof. (f) If any claim is made against any or all of the Indemnified Parties in respect of an Indemnification Event ( Claim ). Vodafone shall be entitled to assume the defence thereof or initiate and control proceedings seeking the refund of any amounts claimed pursuant to such Claim or an order seeking that no such payment need be made ( Refund Proceedings , and each such event, an Assumption ) with counsel selected by Vodafone, in which event each Indemnified Party shall code custody and control and shall take all such actions and do all such things, as Vodafone may request, to assist Vodafone in assuming and maintaining custody and control of such Claim or such Refund Proceedings, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mitigate or resolve any such claim or liability. 96. This termination agreement, as rightly pointed out by the learned Departmental Representative, is required to be read alongwith the shareholders agreement. While it may not be possible, for the sake of brevity, extensively reproduce from all these agreements, and even complete termination deed, it is sufficient to note the undisputed position that the termination was in such a manner so as to virtually ensure the control of SMMS Investments to another Vodafone Group entity and that the control of SMMS Investments does not remain, even for a moment, with the independent investors i.e. IDF Investors. In termination deed also, the smooth transfer of ownership interests in SMMS Investments to another Vodafone Group entity, and complete control of Vodafone Group entity, is ensured. 97. The question that we really need to address ourselves to is whether the above arrangement constitutes an international transaction . However, before we do so, it is only appropriate that we take a look at the relevant definitions under the Income Tax Act, 1961. Section 92 B of the Act, which defines international transaction states as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, or lending or borrowing money, or any other an arrangement, understanding or action in concert having a bearing on the profits, income, losses or assets of such enterprises .. . Therefore, in order to ascertain whether a particular transaction or not is an international transaction or not, the necessary preconditions which are to be satisfied are (a) that it is in the nature an arrangement, understanding or action in concert etc ; (b) that it is between two or more associated enterprises, either or both of whom are non-residents; and (c) that it has a bearing on the profits, income, losses or assets of such enterprises. 100. As we deal with the question whether the payment made on account of termination fees is under an arrangement, understanding or concert etc with two or more associated enterprises, either or both of which are non-residents, it is essential to bear in mind the fact that termination deed is essentially required to be read with the related framework agreements, which has as its integral part the shareholders agreements and transaction agreements, and share purchase agreement between HTIL and TMT Hinduja, as also HTIL and Indusind Network India Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount . However, it is this plea of the assessee which infact demonstrates that the IDFC Investors, who was under an option to sell entire equity of SMMS at an agreed price of 2 crores plus 17.5% interest, was nothing more than a financial investor- something much less than a genuine investor as the connotation of this expression are known in the commercial world. 101. As a plain look at the above facts unambiguously indicates, while the payment is certainly by the assessee to an Indian entity, the payment is under an arrangement and understanding which has several parties acting in concert and many of these parties are non-resident associated enterprises. Can we say that HTIL-M, which is Mauritian parent company of the assessee, is not a party to this understanding when entire edifice of agreements is in respect of certain shares which, at the sweet will of HTIL-M, have been acquired by, and all the arrangements for finance to fund this acquisition have been guaranteed for by another key group entity almost at the top of the pyramid (i.e. CGP Cayman Islands), by an entity shareholding in which is subject matter of the present options i.e. SMMS Investments. The option to purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court s judgment in the case of Vodafone International Holdings BV (supra) and reminded us about article 141 of the Constitution of India. Learned counsel also relies upon certain observations made by Hon ble Bombay High Court, in assessee s own case for the assessment year 2008-09. Learned counsel apprised us on how our treating VIH-BV and HTIL-M as parties to the arrangements will may be seen as contrary to the principles of judicial discipline because Hon ble Supreme Court has categorically held the options agreement are independent agreements between the assessee and the IDFC Investors which is an Indian entity. He submits that all the players in the transaction are Indian entities and, therefore, it cannot be said that any non-resident AE is involved in the transaction, but then even if beneficial ownership of the ultimate parent company is to be taken into account, there is no international transaction since it does not make a difference to the ultimate parent company whether group entity x or group entity y holds these shares because both the entities are only holding it for the same beneficial owner i.e. the ultimate parent company. Viewed thus, even if benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings before Hon ble Supreme Court. Learned counsel submits that it is for this reason that a Mumbai bench of this Tribunal has blocked hearing of one the assessee s appeal on a related issue. We are urged to follow the path so shown by the coordinate bench. On the basis of this line of reasoning, we are urged to hold that non-resident AEs are not part of the transaction of termination of options, and, in the alternative, at least block the hearing till Hon ble Supreme Court takes a call on assessee s case for the assessment year 2008-09 which is pending before Hon ble Supreme Court at the instance of the revenue authorities. As for the plea for adjournment on the ground that some other year is pending before Hon ble Supreme Court, even though the issues in the said case before Hon ble Supreme Court are different because our findings may affect that case as well, it is only fit to be noted and rejected. Let us, therefore, deal with other aspects of the matter before proceeding further. 103. Let us first deal with the judgment of Hon ble Supreme Court in the case of Vodafone International Holdings BV (supra) The backdrop of this decision was that there was sale of share of CG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -compete agreement with the Hutch group, the value of non-voting non-convertible preference shares, various loan obligations and the entitlement to acquire subject to the Indian foreign investment rules, a further 15 per cent, indirect interest in HEL. The transaction in question had a significant nexus with India. The essence of the transaction was a change in the controlling interest in HEL which constituted a source of income in India. The transaction between the parties covered within its sweep, diverse rights and entitlements. VIH BV by the diverse agreements that it entered into had a nexus with Indian jurisdiction. In these circumstances, the proceedings initiated by the income-tax authorities could not be held to lack jurisdiction. 104. Hon ble Supreme Court, inter alia, noted that the basic case of the revenue is that the SPA (Share Purchase Agreement), commercially construed, evidences a transfer of HTIL s property rights by their extinguishment and that HTIL had, under the SPA, directly extinguished its rights of control and management, which are property rights, over HEL and its subsidiaries and, consequent upon such extinguishment, there was a transfer of capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case and that too in the light of the ownership structure of Hutchison, we hold that HTIL, as a Group holding company, had no legal right to direct its downstream companies in the matter of voting, nomination of directors and management rights. (@ page 45; Emphasis, by underlining, supplied by us now) 106. Quite clearly, entire thrust of discussions by Hon ble Supreme Court is on the aspect of legal rights and it was in this context that Hon ble Supreme Court held that It is important to note that even in the fresh agreement, the call option remained with GSPL and the said agreement did not confer any rights on VIH . This observation, given the backdrop discussions above, refers to only the legal rights and not the factual rights. The concluding portion of the lead order, authored by late Hon ble Justice Kapadia (as he then was) and which was concurred with other Hon ble Justices on this bench, was as follows: Summary of Findings 90. Applying the look at test in order to ascertain the true nature and character of the transaction, we hold that the Offshore Transaction herein is a bonafide structured FDI investment into India which fell outside India&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered as capital assets . However, we will come back to this aspect of the matter, in detail, a little later. We may at this stage also take note of the fact that put options, in the present set of facts, are nothing more than exit options from the arrangements. In any case, these put options cannot have any value in the hands of the person exercising the option, beyond as a mode of exit, because put option, in this case, obligates the other party, i.e. the assessee, to buy the entire equity capital in SMMS Investments at a fraction of its intrinsic and fair market value. In a classical sense, a put option provides the option to sell, but not the obligation to sell, at an agreed price. That is not the case here. In the present situation, it is tagged along with the call options and is, in our humble understanding, only an exit option for all practical purposes. 108. Coming back to Hon ble Supreme Court s detailed observations, in the case of Vodafone International Holdings BV (supra), on what constitutes legal rights of the holding company, this is what learned counsel for the assessee puts before us as the foundation of his contention that the termination of framework agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 1 that the Hon ble Supreme Court of India in the course of examining the Hutchison group structure and the Vodafone group structure examined all material details concerning the FWA 2006 and FWA 2007 and related SHAs, concerning the IDFC Investors, and the conclusions around the integrity of the structure are, therefore, binding upon and rendered unassailable by the Revenue. 163. In the circumstances, Revenue is estopped from questioning the good standing of the (three) Indian Investors, in the present AY, or classifying the IDFC Investors as mere benamidaars. 109. In taking this plea, what learned counsel for the assessee essentially ignores us is that unlike, for instance, in taxation of capital gains- as held by Hon ble Supreme Court in the case of Vodafone International Holdings BV (supra), existence of legal rights is not a sine qua non for treating a transaction as an international transaction under section 92B. Since, as Hon ble Supreme Court has categorically observed in so many words, in this case Their Lordships were essentially concerned about legal rights which are enforceable in law , and, to that extent, de facto control or practical situation was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, understanding or action in concert does not give legal rights to the parties to arrangement, understanding or action in concert. 111. The expression acting in concert , in common business parlance, suggests two or more persons acting in coordination or in tandem for a common goal, even if for different purposes. Its dictionary meaning includes (a) agreement of two or more persons in a design or a plan; combined action; accord or harmony ; and (b) to arrange or contrive (a plan) by agreement ; and (c) acting in a coordinated fashion with a common purpose . As the parties to the agreement include the foreign AEs and, leaving aside the question whether such foreign AEs had legally enforceable rights or not, there can hardly be any dispute that all the parties to the agreement are essentially acting in concert . In the absence of a statutory requirement to that effect, legal rights of the parties cannot be inferred to be sine qua non for treating the parties acting in concert as such. Whether persons are acting in concert or not is essentially a question of facts which must be decided in the light of facts of each case. In the case of CIT Vs Jubilee Mills Ltd [(1963) 48 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C and others- including overseas AEs, which was terminated on 24th November 2011 and payment of termination fees by the assessee is triggered. Even as the agreement was terminated, the payment was not only for termination of options agreement but virtually ensuring that the shareholdings in SMMS Investments are transferred to another group entity, i.e. TII Investments- which has the same ultimate parent company as the assessee and the said ultimate parent company is also a part of this entire arrangement. Given these facts, can it be said that the ultimate parent company, a non-resident AE, has not acted in concert in this arrangement? Once again, de horse the question whether there is any evidence to the effect that the assessee and the ultimate parent company has actually acted in concert or not, the circumstances are such that human experience tells us that it can safely be taken that they must be acting together and that is what satisfies the test of acting in concert as laid down by Hon ble Supreme Court. 112. Nothing, therefore, turns on the lack of legal rights to the foreign AEs, under the agreements on termination of which the termination fee of ₹ 21.25 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so laid down by Hon ble Supreme Court, still constitutes good law. He also leans on the observations made by Hon ble Bombay High Court in assessee s own case for the assessment year 2008-09 (reported at 385 ITR 169) to suggest that the law laid down by Hon ble Supreme Court in Vodafone s case still holds good law. In particular, our attention is invited to the observation at page 284 where it is stated that none of these amendments post Supreme Court judgment would enable the revenue to urge that the position as noted in the Supreme Court judgment no longer subsists . It is thus urged that there is no change in the legal position so far as the definition of capital asset and transfer , so far as relevant to Hon ble Supreme Court decision in Vodafone s case (supra), is concerned. 115. Coming back to the definition of international section once again, it is important to note that a transaction can be an international transaction, only when, inter alia, it is established that the transaction is in the nature of (i) purchase, sale or lease of tangible or intangible property, (ii) provision of services, or (iii) lending or borrowing money, or (iv) any other transaction having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the observation of Hon'ble Bombay High Court to the effect that, In this case, the revenue seems to be confusing the measure to a charge and calling the measure a notional income. We find that there is absence of any charge in the Act to subject issue of shares at a premium to tax . Undoubtedly, learned counsel is right in interpreting this decision to the extent that what is not in the nature of income cannot be turned into income so as to make ALP adjustment therein, and then bring the ALP adjustment to tax, since the computation is of income and it is only the price at which transaction is entered into that is to be taken as an arm's length price in computation of that income. The ALP adjustments cannot be treated as income per se. However, the assessee does not derive any support from this decision since consideration for a loan, i.e interest, is inherently in the nature of income. There is no, and there cannot be any, dispute or controversy about this character of income. The point of dispute is whether zero interest, or no interest, is good enough for computing the income or whether an arm's length interest must substitute this zero interest. The answer is obv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise 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 arrangement, understanding or action in concert etc [,-(a) whether or not such arrangement, understanding or action is formal or in writing; or (b) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding] are determined in substance between such other person and the associated enterprise 119. The present transaction before us is that of not only termination of options, but also, as we have seen in our analysis earlier, transfer of the shareholdings in SMMS Investments to of an Indian subsidiary of VIH-BV at a fraction of its market worth, and this arrangement involves an agreement between not only between Indian entities but also foreign AEs of the assessee, i.e. HTIL-M and VIH-BV. There may not be formal, written or legally enforceable arrangement, understanding or action in concert, but applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some other considerations other than normal commercial consideration, and, given the present set of facts, these considerations, as these are not commercial considerations of the assessee, can only be the business considerations of the group as a whole i.e. of the ultimate parent company. In Hon ble Bombay High Court s judgment dated 8th October 2015, in assessee s own case for the assessment year 2008-09, it is specifically noted that the entire arrangement of framework agreement was initiated by Hutchinson Group which was looking for Indian investors, who would be independent, but not hostile, and hold the interests till sector opened up . It is then stated that Hutchinson Group, therefore, identified three investors . . These observations of Hon ble Bombay High Court donot leave anything for imagination so far as brain begind framework agreement is concerned. We may, in this context, refer to the following observations in sixth paragraph of the aforesaid order: 6. The appellant claims that as per the Foreign Direct Investment (for short FDI ) norms in India, the ceiling in the telecom centre was 49% and which was enhanced to 74% in November, 2005. In order to acquire fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t being decided by the foreign AE. In these peculiar facts, which are very unsusal facts by any standards, even in the absence of such an evidence, the terms of arrangements being decided by the foreign AE can be reasonably accepted. In view of these discussions, the arrangement, understanding and action in concert, with respect to framework agreement and termination thereof, is an international transaction under section 92B(2) as well. In other words, while foreign AE and parent company of the assessee is not only a party to the agreement but the terms of the agreement, in substance, are being decided by the foreign AE. 121. As we part with this issue, we may also quickly deal with the statement made by the assessee, in the written submissions, on this aspect of the matter. The stand of the assessee is once again set out as follows: 135. The Assessee is admittedly an indirect wholly owned subsidiary of VIHBV, but that by itself, does not automatically imply, in the absence of cogent material, that VIHBV is the directing mind of the Assessee, so as to obliterate the corporate separateness of VIHBV and the Assessee, each of which are distinct juridical entities. 136. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter in detail in the foregoing paragraphs. Coming to assessee s claim about being distinct juridical and commercial entities, that cannot be a reason enough for non-application of arm s length standards. As a matter of fact, entire purpose of the transfer pricing is to neutralize the impact of intra AE relationships on how separate juridical entities behave commercially. Let us not forget that the assessee is basically involved in intra AE transactions, and its entire turnover with independent enterprises is just ₹ 5.71 crore in the entire year. The fact that the assessee is assessed separately or it has entered into APAs with the CBDT does not in any manner affect its primarily supportive role in the intra group transactions, and that is what facts and circumstances of the case very well demonstrate. In any event, it does not make a difference to our conclusion; even if an assessee has, let us say, 10,000 crores but that assessee does something which is wholly ununderstandable from a commercial perspective, but which can only be justified on account of its relationship with the AE, the same conclusion will be in order. The arguments of the assessee proceed on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestors and taxpayers in respect of possible transfer pricing adjustments in India on transactions related to issuance of shares, and thereby improve the investment climate in the country. The Cabinet came to this view as this is a transaction on the capital account and there is no income to be chargeable to tax. So applying any pricing formula is irrelevant. VISPL is a wholly owned subsidiary of a non-resident company, Vodafone Tele-Services (India) Holdings Limited, Mauritius. On 21.8.2008, VISPL issued shares (at a premium of ₹ 8509/-) which resulted in VISPL receiving a total consideration of ₹ 246.39 crore from Vodafone Mauritius, on issue of shares and this was shown as Capital Receipts in the books of accounts. VISPL reported this transaction as an International Transaction and stated that this transaction does not affect its income. The Transfer Pricing Officer (TPO), vide order dated 28.01.2013, determined the Arm's Length Price of the shares issued by VISPL on the basis of Net Asset Value, at ₹ 53,775/- per share and made an upward adjustment of ₹ 1,308.91 crore. In addition, the difference ₹ 1,308.91 crore between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by Section 56(2)(viib) of the Act. Thus such capital account cannot be brought to tax as already discussed herein above while considering the challenge to the grounds as mentioned in impugned order. e) The issue of shares at a premium is on Capital account and gives rise to no income. The submission on behalf of the revenue that the shortfall in the ALP as computed for the purposes of Chapter X of the Act is misplaced. The ALP is meant to determine the real value of the transaction entered into between AEs. It is a re-computation exercise to be carried out only when income arises in case of an International transaction between AEs. It does not warrant re-computation of a consideration received / given on capital account. The Bombay High Court quashed the reference dated 11.7.2011 by the AO to the TPO, order dated 28.1.2013 of the TPO, draft AO dated 22.3.2013 of the AO and order dated 11.2.2014 of the DRP on the preliminary issue of jurisdiction to tax, setting them aside as being without jurisdiction, null and void. 125. Let us note some of the contentions of the learned counsel once again. Learned counsel contends that it has been decided by the Union Cab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act . It was thus not the fact of non-disclosure of income by the assessee but the fact that the receipts in question, in respect of which ALP adjustments were sought to be made, were inherently incapable of producing the income, that was the crucial factor underlying the principle laid down by the said judgment. Section 92(1) provides that any income arising from an international transaction shall be computed having regard to the arm's length price , and, therefore, the arm s length price has a role to play in computation of income. Its only when the transactions are such that there is no question of an income coming to be determined that the provisions with respect of arm s length pricing will not come into play. Even if a transaction does not report or show any income but application of arm s length prices are to result in an income, the conditions of Section 92(1) will be satisfied. Learned counsel, however, is interpreting the press release as a statute and is seeking a literal implementation of the words in the press rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide right to vote, management or control . It is on the strength of these observations of Hon ble Supreme Court that it is contended that the options are not capital assets, and, therefore, there is no basis of our holding that any income, by way of capital gains, can arise from these options. 130. There is, however, a subsequent amendment to definition of capital asset which neutralizes the impact of above observations of Hon ble Supreme Court, so far as situation before us is concerned. 131. Vide Finance Act 2012, an Explanation was added, with retrospective effect from 1st April 1962, to Section 2(14) which defines the expression Capital Asset . Similarly, Explanation 2 was also added to the definition of Section 2(47) which defines the expression transfer . These Explanations read as follows: Section 2(14) Explanation.-For the removal of doubts, it is hereby clarified that property includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever. Section 2(47) Explanation 2. For the removal of doubts, it is hereby clarified t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right which has been exercised in the present year is the right to nominate the person for assignment of option rights. The question, therefore, is whether the right to nominate a person to enable such a person to buy the entire capital of SMMS Investments, for a consideration of ₹ 2 crores plus interest, constitutes capital asset or not. It is also important to note that transferability of the right to acquire the shares of SMMS is independent of the actual acquisition of shares and it did not require any consent from SMMS. On the other hand, when IDFC Investors were to assign the put options, such an assignment of put option was dependent on the prior written consent of the assessee. Let us is, in this light, look at the definition of Capital Asset under section 2(14). Section 2(14) states that Capital Asset means property of any kind held by the assessee, whether or not connected with his business or profession, and does not include certain items, which are not relevant for our purposes at present. The Explanation to Section 2 (14) explains the scope of expression property used in above definition and states that the scope of expression property includes, and shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Legislature had entirely failed by reason of a slight inexactitude in the language of the section. If we were to adopt this construction, we should be constructing the Act in order to defeat its object rather than with a view to carry its object into effect. Vide also Craies on Statute Law, page 90 and Maxwell on The Interpretation of Statutes, Tenth Edition, pages 236-237. A statute is designed , observed Lord Dunedin in Whitney v. Commissioners of Inland Revenue, to be workable, the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable. 136. In case we are to accept the contentions of the learned counsel, Explanation to Section 2(14) will have to be treated as otiose because if the an asset meets the description of property without taking into the impact of Explanation to Section 2(14), there is obviously no need to look at the Explanation. In our humble understanding, Explanation to Section 2(14) should be read as enlarging the scope of expression property in the main definition clause, and, when such is the position, whether or not the asset in question is a property as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation in which even the Indian company to which they pertain was less than clear and there were, what Their Lordships termed as, contradictory claims made by the Revenue. None of these situations pertain to the case before us. Clearly, given the facts of the case before us, the observations made in the context of issue before Hon ble Bombay High Court will not have application here. As we say so, we are reminded of the words of advice, with respect to binding force of the judicial precedents, contained in Hon ble Bombay High Court s judgment in the case of CIT Vs Sudhir Jayantilalji Mulji [(1995) 214 ITR 154 (Bom)] It is well-settled that the ratio of a decision alone is binding, because a case is only an authority for what it actually decides and not what may come to follow from some observations which find place therein. The legal position in this regard has been summed up in Hon ble Supreme Court s judgment in the case of CIT vs. Sun Engineering Works P. Ltd. (1992) 198 ITR 297 (SC) in the following words It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us disposed of, the assessee had to part with the right to nominate since it could only be exercised only once, and once the right is exercised, the existence of right comes to an end. There cannot be, and there is no, controversy on this aspect of the matter. Clearly, therefore, there was a transfer of the right. 141. As the assessee had exercised the right of nomination, which could have been done only once, the right of nomination came to end, and was thus, in terms of Explanation 2 to Section 2(47), this was covered by the definition of transfer . 142. The next issue is that we have to decide is whether, even if there is a capital asset and it was transferred, such a capital asset had any cost of acquisition. 143. The legal position is fairly well settled that in the absence of a cost of acquisition, gains on transfer of capital asset can not be brought to tax. In the case of CIT vs B C Srinivas Shetty [(1981) 128 ITR 294 (SC)], Hon ble Supreme Court has, inter alia, observed as follows: 11. What is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 45, and, therefore, its transfer is not subject to income-tax under the head Capital gains . 144. In effect, thus, all that is needed is to ascertain the cost of acquisition of an asset, in order to being its transfer resulting in a capital gain which can be charged to tax under section 45. Let us revert to the facts of the case in this light. There is no dispute that all the related agreements, i.e. framework agreement, shareholders agreements, and transaction agreements etc are to be read together to understand the transaction. We have noted that under clause 2 of the Transaction Agreement dated 5th June 2007, a copy of which was placed before us at pages 202-240 of the paper-book volume 2 filed by the Revenue, the assessee paid ₹ 62.24 crores towards assignment of right to buy 0.1234% equity in VIL for a consideration of ₹ 50 crores. This right, however, was never actually exercised by the assessee, and this payment was in terms of the obligations under the same framework agreement which gave him a right to buy entire equity of SMMS Investments for a nominal consideration of ₹ 2 crore plus interest. This payment of ₹ 62.24 crores cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of B C Srinivas Shetty (supra) does not come to the rescue of the assessee. 146. The next point made by the assessee is that there is no consideration for the transfer and, for this reason, the computation of capital gains in not possible. 147. It is true that the consideration in this case is zero but then that precisely is the be a zero consideration for transfer of this valuable right in an arm s length situation, and, therefore, while computing the income of the assessee, arm s length consideration should be taken into. The plea of the revenue authorities is indeed well taken. Once we come to the conclusion that an income, which essentially includes a capital gain, has arisen on account of an international transaction, such an income has to be computed on the basis of an arm s length price. Section 92(1) categorically states that any income arising from an international transaction shall be computed having regard to the arm's length price . Therefore, even when there is a zero consideration in fact but application of arm s length principle results in a consideration being assigned, the income, i.e. capital gain in this case, is to be computed on the basis of arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of investments . Here comes the enigma. It is easier to understand when the section speaks of a company having the business of dealing in investments though to say that the company is dealing in investments may, at first sight, look somewhat incongruous. When the legislature spoke of dealings in investments, it meant dealing in shares, stocks and securities, etc. But when a person invests in the shares of some of the companies, it is difficult to say that his business is one of investing. In commercial circles investing is not considered as business. An investor may feel perplexed if he is called a businessman. This court in Bengal and Assam Investors Ltd. v. Commissioner of Income-tax [1966] 59 ITR 547 ; [1966] 2 SCR 471 (SC)came to the conclusion that an individual who merely invests in shares for the purpose of earning dividend, does not carry on a business and that the only way he can come under section 10 of the Act is by converting the shares acquired by him into stock-in-trade, i.e., by carrying on the business of dealing in stocks and shares. In that case this court was considering whether the dividend income of the assessee-company therein could be considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary pre-conditions are fulfilled, continue to be capital asset nevertheless. However, what is important is that by the virtue of Section 28(iv), the value of any benefit or perquisite, whether convertible or not, arising from the exercise of business or profession also partakes the character of business income. In other words, any benefits accruing or arising from the conduct of such business of investments - whether part of the business or incidental thereto, become taxable- either as profits or gains of business under section 28(i) or as perquisite or benefits incidental thereto under section 28(iv). This fine distinction between the business of dealing in shares and business of investing in shares, in our considered view, merits being accepted particularly in the context of taxation of incidental benefits, if the right to options and right to nominate for the benefits of options, are treated as incidental benefits and not income liable to be taxed as capital gains. The benefit that the assessee had by the virtue of holding the option rights and by the virtue of holding right to nominate a Vodafone Group entity to buy the entire equity of SMMS Investments at a price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has accepted the treatment of the income arising from the transaction as business income as has been specifically been assessed as such by the AO as per the computation of income on the last page of the Assessment Order. Therefore, there is no dispute on this issue as there is no specific ground raised by the appellant before the Hon ble ITAT. (2) The appellant has paid an amount of ₹ 21.25 crores as Termination fees which has been debited in the Profit Loss Account as an extraordinary item. However, on perusal of Column 17(a) of 3CD Report prepared by the appellant for the impugned year does not show this payment on Capital Account which is placed on Page No.65 of the PB-1 of the appellant. This also proves that the alleged payment of ₹ 21.25 crores has been shown by the appellant on account of revenue. (3) As per the balance sheet of F.Y. ending on 31/03/07, the appellant s total share capital and reserves and surplus (shareholders funds) was ₹ 45.60 crores. Out of which, the investment in the fixed assets was to the tune of ₹ 40.84 crores (net). The current assets of the appellant was 45.67 crores whereas the current liabilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been made for earning dividends the same would qualify as investment. The appellant had made an investment of ₹ 1360 crores in 0.1% redeemable preference shares of SMMS Investments Pvt. Ltds as on 31/03/2011 which is evident from the balance sheet placed on page no.1035 of PB-7 of the Revenue. Therefore, it can clearly be concluded that investments has not been made for earning dividends at all. (7) The appellant has carried out Systematically subscribing to the preference shares almost every year. The details of the Preference Shares acquired by the appellant as per the Put options given to IDFC Investors are as under : 6. IDFC fund II purchase of 1,00,000 pref shares worth 100 crores at ₹ 145 crores on 29/04/2009 (PB 7 of Revenue page no 1000) 7. Purchase of 85000 preference shares of SMMS seriesA2 series for ₹ 107.95 crores (purchase price of ₹ 85 crores + premium of 22.95 crores on 22/06/09 ( PB vol 7 page no 1000) 8. Purchase of 2,00,000 preference shares of SMMS seriesA1 series for ₹ 251.6 crores (purchase price was 200 crores + premium of ₹ 51.6 crores on June 2008 (PB 7 of Revenue page no 976) 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gth price of nominating a Vodafone Group entity as recipient of right to purchase capital of the SMMS Investments for a nominal price of ₹ 2 crores plus interest particularly when admittedly intrinsic worth of these shares, because of the assets held by the company, was several hundred times higher than such a consideration. The question that one has to consider in this case is that if the assessee was to nominate a person as such, what should have been arm s length consideration of this nomination, and whatever be such arm s length consideration, business profits are required to be computed essentially on that basis. When a transaction entered during the course of business results in a capital gain, it can only be taxed as such, and that s is the reason why income on alienation of investments, even when assessee is engaged in the business of investments in shares, is treated as capital gain. However, when business is of trading in shares etc, there is no occasion to treat the same as capital gain because by the virtue of investments forming part of stock in trade, it ceases to be a capital asset under section 2(14). In any case, the Assessing Officer has treated the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SMMS Investments, we reject this plea as well. 156. Learned counsel s next point is that the lower authorities erred in accepting the assignment of cashless options to Vodafone as a comparable case since this event took place more than three years ago, and, since, going by the stand of the revenue, it was an intra AE transaction anyway. Learned counsel has also pointed out several distinguishing features in the international transaction in question vis- -vis the comparable adopted by the TPO as also the transaction between ETHL Communications Holdings Ltd and Piramal Healthcare Limited. In view of these distinguishing features, which are admittedly in respect of form rather than substance, we are urged to discard the comparables. 157. We are unable to see as to, given the facts of this case, what benefit will be derived by the assessee from this plea. It is only elementary that the onus of benchmarking the transaction is on the assessee but the assessee has not discharged the same as all along he has persisted with his plea that there is no international transaction at all. Yet, when comparables are adopted by the TPO, all sort of hyper technical objections are raised about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly academic and does not deserve any adjudication by us at this stage. As for issues raised by the learned counsel with respect to dissimilarities between the nomination rights exercised by the assessee and the transactions compared with, all we can say is that even if the comparable transaction is not a mirror image of the international transaction in question, it does not cease to be relevant in determination of ALP as long as, in substance, and in effect, things are comparable- though, depending upon the facts of the case, adjustments will be justified. 158. Keeping in view the above discussions, as also entirety of the case, we reject all the pleas of the assessee so far as transfer pricing provisions are concerned. 159. We may, however, add that even as we uphold the ALP adjustment, the manner in which income is computed is something which is clearly contrary to the scheme of the Act. The Assessing Officer has simply added the entire amount of ALP as income in the hands of the assessee- something which is clearly impermissible. Once a stand is taken that the ALP determination is in respect of a capital gain, the natural corollaries have to follow. To this extent, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order in view of his corresponding findings in all preceding assessment years right from 2009-10 onwards disallowing the very claim as reproduced in assessee s written submissions before us. 163. Learned senior counsel vehemently contends that the issue as to whether the goodwill in question forms an intangible asset u/s.32(1)(ii) of the Act or not to be entitled for depreciation relief is no more res integra as hon ble apex court s land mark judgment in Smiffs Securities Ltd. case (2012) 348 ITR 302 (SC) has settled the law in assessee s favour. We see no substance in the instant argument since there is no change so far as all facts pertinent to this issue vis-a-vis those involved in preceding assessment years are concerned. The authorities below have already adopted the very reasoning as in said earlier years to reject assessee s instant claim. It is not clear as to what is the fate of these assessment years before this Tribunal. Learned counsel at this stage submits that assessee s appeal for the said earlier assessment year 2011-12 is pending but the position of the earlier years is not clear. In any event, there is no independent adjudication on this issue by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. Without prejudice, that the AO and DRP erred in disallowing expenditure of ₹ 8,30,32,750/- while computing book profits under Section 115JB of the Act without appreciating that no such adjustment was permissible under Section 115JB of the Act. 166. Suffice to say, the lower authorities fail to dispel assessee s basic plea of having not derived any exempt income in the impugned assessment year. Hon ble jurisdictional high court s recent judgment in CIT Vs Corrtech Energy (P) Ltd. [(2015) 372 ITR 97 (Guj)] holds that such a disallowance under section 14(A) is not sustainable in absence of any exempt income having been derived in the relevant previous year. We therefore accept the plea of the assessee and delete the impugned disallowance of ₹ 8,30,32,750. 167. In the result, Ground Nos. 17 to 21 are allowed. 168 This leaves us with assessee s last grievance in grounds no. 22 to 24 challenging the lower authorities action disallowing club membership expenditure of ₹ 53,82,480/- incurred towards entrance fee, subscription fee, processing fee and annual game fee of Puna Club Ltd. and Karnavati Club Ltd. by holding that the same provided enduring bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleading to the effect that it has filed a rectification application dated 13.02.2017 before the Assessing Officer raising the following substantive contentions:- 25. The Assessee has, on 13 February 2017, filed a rectification application inter alia highlighting the mistakes apparent on record which are enumerated in detail as under: a) Disallowance on account of club expenditure of ₹ 53,82,480/- in the assessment order. In this regard, as submitted earlier vide rectification application dated 13 February 2017 (which is pending for disposal), the actual disallowance of club expenses would amount to ₹ 34,70,100/-. b) The Assessee for the captioned AY had computed and reported book loss under Section 115JB of the Act amounting to ₹ 9,94,13,659/- in the return of income. However, the AO has erroneously considered the book profit of ₹ 40,06,45,113/- under Section 115JB of the Act and accordingly, worked out the total book profit of ₹ 48,36,77,863/- post-adjustment under Section 14A of the Act c) The AO erred in computing tax payable on the alleged transfer pricing adjustments at the rate of 30%, i.e. treating the adjustment a ..... 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