IT/ILT : Where assessee, an Indian company, acquired 100 per cent stake in a foreign company and consequently, Indian subsidiary of said foreign company came to be merged with assessee, Assessing Officer observed that income had accrued to foreign company from indirect transfer of shares of subsidiary and it was taxable under section 9(1)(i) Commissioner (Appeals) could not entertain additional evidence without confronting it to Assessing Officer
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[2013] 33 taxmann.com 342 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'L'
Income-tax Officer (International Taxation) TDS - 3, Mumbai
v.
Infomedia India Ltd.*
R.S. SYAL, ACCOUNTANT MEMBER
AND VIVEK VARMA, JUDICIAL MEMBER
AND VIVEK VARMA, JUDICIAL MEMBER
IT APPEAL NO. 3152 (MUM.) OF 2009
[ASSESSMENT YEAR 2006-07]
[ASSESSMENT YEAR 2006-07]
MARCH 15, 2013
Section 9, read with section 195, of the Income-tax Act, 1961, read with article 13 of DTAA between India and UK - Income - Deemed to accrue or arise in India [Capital gains] - Assessment year 2006-07 - Assessee, an Indian company, acquired 100 per cent stake in a foreign company - Consequently, Indian subsidiary of said foreign company came to be merged with assessee - Assessing Officer observed that income had accrued to foreign company from indirect transfer of shares of subsidiary and it was taxable under section 9(1)(i) and since assessee did not deduct TDS from said payment, he made addition to assessee's income - However, Commissioner (Appeals) entertained additional evidence produced by assessee and deleted said addition - Whether since Commissioner (Appeals) relied upon additional evidence without confronting it to Assessing Officer, said order could not be sustained and matter was to be remitted back to Assessing Officer - Held, yes [Para 4] [Matter remanded]
FACTS
| ■ | The assessee, an Indian resident company, acquired 100 per cent stake in a foreign company and, consequently, got acquisition over Indian subsidiary of said foreign company in which the foreign company was holding 49 per cent equity shares. | |
| ■ | The Assessing Officer observed that from indirect transfer of shares of subsidiary, income had accrued to the foreign company which was taxable under head 'Capital gain' and since assessee did not deduct tax at source from said payment, it was liable to be treated as assessee-in-default under section 201 and made addition to income of the assessee. | |
| ■ | Before the Commissioner (Appeals), the assessee submitted additional evidence on basis of which the Commissioner (Appeals) deleted said addition. | |
| ■ | On second appeal: |
HELD
| ■ | It is manifest that the assessee has clearly mentioned that all these documents were submitted before the Commissioner (Appeals) only. As it is patent that the Commissioner (Appeals) entertained additional evidence and deleted the liability of deducting tax at source by relying on such additional evidence without confronting it to the Assessing Officer, his order cannot be sustained. Therefore, the impugned order was to be set aside and the matter remitted to the file of Assessing Officer for deciding the issue afresh as per law after allowing a reasonable opportunity of being heard to the assessee. [Para 4] |
CASES REFERRED TO
Aditya Birla Nuvo Ltd. v. Dy. DIT (International Taxation) [2012] 342 ITR 308/[2011] 200 Taxman 437/12 taxmann.com 141 (Bom.) (para 4).
Ms. Neeraja Pradhan for the Appellant. Milind Kothari for the Respondent.
ORDER
R.S. Syal, Accountant Member - This appeal by the Revenue arises out of the order passed by the Commissioner of Income-tax (Appeals) on 13.03.2009 in relation to the assessment year 2006-2007.
2. The only issue raised in this appeal through various grounds is against the direction of the ld. CIT(A) in not taking cognizance of the income under the head 'Capital Gains' of Rs. 1,28,37,866/- arising to the non-resident from the indirect transfer of 49% share in the India Company, embedded in the sale consideration for acquisition of 100% shares of the foreign company and thereby directing the Assessing Officer not to treat the assessee in default under section 195 of the Act read with sections 201(1) and 201(1A) of the Act.
3. Briefly stated the facts of the case are that the assessee is a resident Indian company which was incorporated in 1955 as Tata Press Limited. The assessee acquired 100% stake in a company called M/s. Keyword Group Limited, a U.K. based publishing company. Equity shares of Keyword Group Limited were held by two U.K. resident citizens, namely, Mr. Alan Rodwell (700 shares holding to 70% stake) and Mr. Stephen Johnson (300 shares holding to 30% stake) who sold it for an agreed consideration of $3.35 million dollars through agreement dated 13.01.2006. With the acquisition of Keyword Group Limited, its Indian subsidiary company, namely, M/s. Cepha Imaging Private Limited also came to be acquired by the assessee as Keyword Group Limited held 49% equity shares of Cepha Imaging Private Limited with voting rights. Apart from that the assessee further directly acquired 41% of the equity shares of Cepha Imaging Private Limited from two resident Indians. The Assessing Officer observed that 49% shares of Cepha Imaging Private Limited were acquired by Keyword Group Limited in the financial year 2004-2005. Since such shares represented an asset or source of income or a capital asset of Keyword Group Limited situated in India, the same was indirectly transferred to the assessee through sale of 100% equity shares of the holding company in U.K. The A.O. held that the income accrued in India to Keyword Group Limited from the indirect transfer of shares in India of Cepha Imaging Private Limited, which was taxable as per section 9(1)(i) of the Act covering even indirect accrual of income. Resultantly the capital gain on account of indirect transfer of 49% shares by Keyword Group Limited was held to be chargeable to tax for assessment year 2006-2007 as the transfer was effected through agreement dated 13.01.2006. The assessee's contention about non-chargeability did not find favour with the A.O., who held that the primary motive for acquisition of Keyword Group Limited was acquisition of shares of Cepha Imaging Private Limited. The A.O. also called for the balance sheet of Keyword Group Limited and noticed that it was incurring heavy losses. But for the investments held in Cepha Imaging Private Limited, the business of Keyword Group Limited was found to be loss making and liability imposing. In this background of facts, the A.O. reached the conclusion that the assessee acquired the shares of Keyword Group Limited mainly to acquire the stake in Cepha Imaging Private Limited. In the order passed u/s 201 read with section 195, the Assessing Officer held that since the assessee-company failed to deduct tax at source from income chargeable to tax from indirect payment to non-resident, namely, Keyword Group Limited falling under the head "capital gains", it was liable to be treated as the assessee-company in default u/s 201 for payment of tax to the extent of Rs. 1,32,12,381 from indirect payment to Keyword Group Limited made through the erstwhile shareholder of that company as no proof of payment of tax on this capital gain was placed. The assessee challenged the order u/s 201 read with section 195 before the ld. CIT(A) by filing various documents in support of its contention that there was no liability to deduct tax at source and hence the assessee should not be treated as assessee in default. Based on such additional evidence placed before the learned CIT(A), he disagreed with the A.O. on the question of chargeability of capital gain on transfer of capital asset thereby absolving the assessee from liability to deduct tax at source.
4. The learned Departmental Representative strongly relied on the judgment of the Hon'ble jurisdictional High Court in Aditya Birla Nuvo Ltd. v. Dy. DIT (International Taxation) [2012] 342 ITR 308/[2011] 200 Taxman 437/12 taxmann.com 141 (Bom.) and thus opposed the CIT(A)'s decision in vacating the A.O.'s order u/s 201. She submitted that the learned CIT(A) relied on the additional evidence without confronting it to the Assessing Officer or calling for any remand report. On a pertinent query from the Bench, the learned AR was fair enough to accept that the additional evidence filed before the learned CIT(A) was not sent to the A.O. for his comments. From the paper book filed before us consisting of 73 pages, it is manifest that the assessee has clearly mentioned that all these documents were submitted before the learned CIT(A) only. As it is patent that the learned CIT(A) entertained additional evidence and deleted the liability of deducting tax at source by relying on such additional evidence without confronting it to the Assessing Officer, we are of the considered opinion that his order cannot be sustained. We, therefore, set aside the impugned order and remit the matter to the file of A.O. for deciding the issue afresh as per law after allowing a reasonable opportunity of being heard to the assessee. Needless to say the assessee will be at liberty to lead any fresh evidence in its defense before the Assessing Officer in such de novo proceedings.
5. In the result, the appeal is allowed for statistical purposes.
POOJA*Matter remanded.
Regards
Prarthana Jalan
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