TMI Blog2019 (7) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... ect from 01.06.1997 (Special Provisions) to achieve an object. If any other view is taken, then the Special Provisions under Chapter XIV would become redundant and it would be opening a pandoras box. Breach of principles of natural justice - HELD THAT:- Admittedly, a notice dated 21.11.2017 was issued to the petitioner calling for details and meetings were convened, in which, indisputably, the officials of the petitioner Company participated and a detailed note explaining the various provisions of the Act have been given to them. It is pertinent to note that the object and purpose of issuing show cause notice is to put on notice to the proposed action to be initiated by the Officials and nothing else. But, a curious stand is taken by the petitioner that the letter dated 21.11.2017 cannot be construed as a showcause notice and the informal discussion cannot be substituted for a proper show-cause notice with a chance of reply and an opportunity of hearing, hence, I find no substance in the said submission. AO is prohibited from issuing the impugned order in the light of the bar prescribed in Section 245 RR - petitioner approached the Authority for Advance Rulings only on 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to streamline ownership structure by purchasing its own shares from minority shareholders holding less than 25% of the issued, subscribed and paid up share capital; (iii) to serve the shareholders more efficiently and optimize the overall capital structure; and (iv) to reduce foreign currency fluctuation risk in respect of rupee funds in India. 3. The petitioner filed C.P.No.102 of 2016 before this Court for approval of the Scheme to buy back a maximum of 94,00,534 equity shares from its shareholders for a total consideration of ₹ 19,080.26 Crores and the Scheme got approved by an order dated 18.04.2016. It is a case of the petitioner that the consideration for such buy-back was paid to the shareholders in May 2016. The gain arising to the shareholders in the course of buy-back was offered to taxation as capital gain subject to applicability of treaty relief and a total of ₹ 898.01 Crores was paid as capital gain to the respondent-Department by the petitioner. 4. The petitioner would allege that during the year 2017, the I.T. Department attempted to tax the 2013 buy-back as an income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. It is stated that the Department has clearly explained and communicated to the assessee regarding the tax liability under Section 115 O of the Act, provided ample opportunity, and proceeded with necessary action, by observing requisite formalities. 7. It is further stated in the counter that a letter dated 21.11.2017 was issued to the assessee calling for various details regarding remittances made to the shareholders of the petitioner Company during FY 2015-16 and 2016-17 and their tax payment. It is a case of the respondent that by virtue of first proviso to Section 245R (2) of the Act, the Authority for Advance Rulings shall not take cognizance on the application filed under Section 245Q of the Act as the issue raised in the application is already pending before the Income Tax Authority and the application was filed only to circumvent the proceedings. 8. The respondent has further stated that the buy-back of share under Section 391 of the Indian Companies Act is nothing but the distribution of accumulated profit and it has to be treated as dividend under Section 2(22)(d) of the Act and Dividend Distribution Tax at 15% is required to be paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 115QA of the Act was amended with effect from 01.06.2016 . Post amendment, the Companies, which purchase their own share are liable to pay the additional income tax at the rate of 20% on the distributed income. It is urged by the learned Senior Counsel that prior to the amendment, the petitioner bought back its own shares under the Scheme of Arrangement and Compromise under Sections 391 to 393 of the Companies Act. As per Section 46A of the Act, the buy-back of shares shall be deemed to be capital gain and the shares purchased by the petitioner would not come under Distribution of Dividend under Section 2(22) of the Act. Hence, the demand of tax under Section 115QA of the Act retrospectively is not permissible in law. 12. It is next contended that admittedly the petitioner filed an application under Section 245Q of the Act before the Authority for Advance Rulings for quantitative judicial pronouncement and during the pendency of the application, the respondent is barred from issuing the impugned notice in view of Section 245 RR of the Act. It is further contended that the impugned order was passed without any notice and enquiry and in gross viol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard both and perused the materials placed on record. 17. In view of the above said rival contentions, the following points arise for consideration:- (i) Whether Section 115 O of the Act mandates issuance of show-cause notice, enquiry before passing a final order? (ii) Whether there is any breach of principles of natural justice? (iii) Whether the Assessing Officer is prohibited from issuing the impugned order in the light of the bar prescribed in Section 245 RR of the Act? (iv) Whether the Writ Petition is maintainable? Point No.(i) 18. This is purely a question of law and for better appreciation, the relevant provisions are extracted hereunder:- Section 115-O - Tax on distributed profits of domestic companies. [(1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (3) of that section, he or it shall be liable to pay simple interest at the rate of [one] per cent for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid. Section 115 Q - When company is deemed to be in default. If any principal officer of a domestic company and the company does not pay tax on distributed profits in accordance with the provisions of section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply. S ection 1 15QA - Tax on distributed income to shareholders:- (1) Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares (not being shares listed on a recognised stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act have been given to them. It is pertinent to note that the object and purpose of issuing show cause notice is to put on notice to the proposed action to be initiated by the Officials and nothing else. But, a curious stand is taken by the petitioner that the letter dated 21.11.2017 cannot be construed as a showcause notice and the informal discussion cannot be substituted for a proper show-cause notice with a chance of reply and an opportunity of hearing, hence, I find no substance in the said submission. Point No.(iii) 22. It is not disputed that the respondent by the letter dated 21.11.2017 sought for furnishing informations with regard to remittance made to the shareholders of the petitioner-Company during the financial year 2015-16 and 2016-2017. It is an admitted fact that no provision of law has been quoted in the letter particularly Section 2(22) of the Act, but a cursory perusal of the letter would show that the respondent had sought for payment details to ascertain the tax liability of the petitioner. 23. It is equally not disputed that the petitioner approached the Authority for Advance Rulings only on 20.03.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 (22) dividend includes- (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933 , whether such accumulated profits have been capitalised or not; 26. In Casby CFS (P.) Ltd (supra) the company sought sanction of the proposed Scheme of amalgamation. A notice was issued to the Regional Director under Section 394 and he objected approval of the Scheme contending that the Scheme would circumvent the provisions of Income Tax Act. The High Court of Bombay held that the Regional Director is entitled to object approval of the Scheme and it was his duty to do so. After considering the objections, the Scheme was approved. Relevant paras have been extracted hereunder:- 7. As more particularly set out herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Department will not be bound by the appointed date of 1st April 2008 fixed by the Scheme; (d) the Income Tax Department shall not be bound by the appointed date fixed under the Scheme while carrying out pending and/or future assessments of the Transferor and Transferee companies whether on the basis of the income tax returns already filed or revised returns, if any, that may be filed, or otherwise, and shall carry out such assessments without being influenced by the observations made herein. (ii) The petitioners will pay the Regional Director costs quantified at ₹ 25,000/- each. (iii) The petitioners will pay further amounts of (i) The Scheme of amalgamation as proposed is sanctioned subject to the following conditions:- ₹ 25,000/- each as and by way of costs. However, these amounts be paid to the High Court Legal Services Committee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Law Board to purchase shares of minority shareholders under Section 402(b) (See Companies Act by A Ramaiya (15th Edn) at page 962-963). 18. Thus the company could purchase its shares prior to introduction of Section 77A provided the scheme or arrangement therefore had been sanctioned under Sections 100 to 104. Section 100 does not prescribe the manner in which the reduction of capital is to be effected. Nor is there any limitation or the power of court to confirm the reduction except that it must be first satisfied that all the creditors entitled to object to the reduction have consented or have been paid or secured. Reference in that behalf may be made to Punjab Distilling Industries Ltd. v. Commissioner of Income Tax, Punjab, (1965) Com Cas 641 Hindustan Commercial Bank Limited v. Hindustan General Electrical Corporation (1960) 30 Comp Cas 367 . ...... 24. It is not disputed before us that reduction in the capital can be effected under Sections 77 read with Sections 100- 104 and 391 even in the case of buy-back of shares. However, it is contended that the optional sale by the Shareholders would not amount to arrangement or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all. In this connection we may usefully refer to the decision of the Karnataka High Court where in a judgment in National Products v. Commissioner of Income-tax, Mysore [1977]108ITR935(KAR) . Govind Bhat, C.J., explained the position in regard to the levy of interest under Section 139 and under Section 215. After referring to the earlier gases on the point he observed:- All decided cases except one have uniformly taken the view that levy of interest under Section 18A(6) or Section 18A(8) of the 1922 Act or levy of interest under Section 215 of the Act is not appealable but in the appeal against a regular assessment, it is open to the assessee to take every contention which, if accepted, must result in the Income-tax Officer holding that there was no liability to pay advance tax and, therefore, there was no liability to pay penal interest. In other words, it is open to an assessee to contend in the appeal against an order of assessment that he is not liable to pay any advance tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 114ITR197(Guj) . The only dissent expressed in the matter by the Gujarat High Court arose on the question whether the assessee could challenge in appeal his partial liability to be assessed to interest. In this area of dissent we need not enter. But we have no hesitation in endorsing the legal position which has commonly found favour with the two High Courts. We hold that the question whether a case is made out for waiver or reduction of the interest levied under Sub-section (8) of Section 139 or under Section 215 cannot be the subject of an appeal under Clause (c) of Section 246 of the Income-tax Act. ......... (ii) Commissioner of Income Tax Vs. Angadi Bros. [(1985) 22 Taxman 578 (Karnataka) 24. Section 30 of the Indian Income Tax Act, 1922, contained a similar expression such as denying his liability to be assessed under the Act and the section also provided that such an assessee may appeal to the Appellate Assistant Commissioner against the order of assessment. The Supreme Court, while examining the scope of the expression denial of liability , observed (at p. 229) : Under section 30, an asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take in not only the total denial of liability to be assessed under the Act but also the liability to tax under particular circumstances. The total denial of liability to be assessed appears to mean that where the assessee contends that it is not at all liable to be assessed under the Act which in other words means that the assessee wants to get out of the clutches of the entire Act. Whereas, the denial of liability to tax under particular circumstances may stances may mean, if we may say so, the assessee denies its liability to tax not wholly, but partially. We, therefore, hold that having regard to the contention of the assessee in this case, the assessee must be held to have a right to appeal against the order of the Income Tax Officer. (iii) Commissioner of Income Tax Vs. Daimler Benz, A.G. [(1977) 108 ITR 961 (Bom.) (FB) 26. Having regard to the aforesaid discussion of the decided cases it appears to us clear that the correct position would be that the assessee will have no right of appeal to the Appellate Assistant Commissioner merely against the quantum of penal interest charged, that is to say, merely for the purpose of raising a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt question is whether the said option is given only to the Income-tax Officer and is denied to the Appellate Assistant Commissioner and the Appellate Tribunal. Under the Act the Income-tax Officer, after following the procedure prescribed, makes the assessment under s. 23 of the Act. Doubtless in making the assessment at the first instance he has to exercise the option whether he should assess the association of persons or the members thereof individually. It is not because that any section of the Act confers an exclusive power on him to do so, but because it is part of the process of assessment; that is to say, he has to ascertain who is the person liable to be assessed for the tax. If he seeks to assess an association of persons as an assessable entity, the said entity can object to the assessment, inter alia, on the ground that in the circumstances of the case the assessment should be made on the members of the association individually. The Income-tax Officer may reject its contention and may assess the total income of the association as such and impose the tax on it. Under s. 30 an assessee objecting to the amount of income assessed under s. 23 or the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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