Income Tax Appellate Tribunal - Mumbai
Goldman Sachs (India) Securities ... vs Assessee on 10 October, 2015
आयकर अपील य अ
धकरण "L"
यायपीठ मब
ुं ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "L" BENCH, MUMBAI
ी ए.डी. जैन, या यक सद य एवं ी जी.एस. प नू लेखा सद य ।
BEFORE SHRI A.D. JAIN, JM, AND SHRI G.S. PANNU, AM
SA No. 190/Mum/2015
Arising out of ITA No. 3726/Mum/2015
Assessment Year 2011-12
Goldman Sachs (India) Income Tax Officer (International
Securities Private Limited, Taxation) - TDS -3,
951-A, Rational House, Mumbai.
Appasaheb Marathe Marg, Vs.
Prabhadevi,
Mumbai - 400 025.
PAN AAFCA6819F
Applicant Respondent
Applicant by Shri Ajit Kumar Jain
Respondent by Shri Akhilendra Yadev
Date of Hearing : 10-07-2015
Date of Pronouncement : 10-07-2015
ORDER
PER A.D. JAIN, J.M. :
ए.डी. जैन, या यक सद य By this Stay Application, the assessee is seeking stay of outstanding demand of Rs. 6,62,02,560/- for A.Y. 2011-12.
2. We have heard the arguments of both the sides and also perused the relevant material placed on record. It is observed that the impugned outstanding demand has arisen as a result of various additions made to the total income of the assessee which mainly includes disallowance u/s 201(1) and 201(1A) r.w.s. 195 of the Income tax Act, 1961. All these additions are disputed by the assessee in the appeal filed before the Tribunal and as 2 SA No.190/Mum/2015 explained by the ld. Counsel for the assessee, the assessee has a good prima facie arguable case to succeed on merit in its appeal before the Tribunal. He has also submitted that the original demand raised against the assessee for was Rs. 10,90,39,520/- and after adjustment of refunds for the earlier years, the balance demand outstanding is now only Rs. 6,62,02,560/-. Although the ld. D.R. has strongly opposed this stay application filed by the assessee, the ld. Counsel for the assessee has contended that Goldman Sachs (India) Securities Private Limited ("GSISPL" or 'the applicant') is an Indian Company incorporated under the provisions of Companies Act, 1956 ('the Companies Act'). It is a subsidiary of Goldman Sachs (Mauritius) LLC ('GS Mauritius') which is a company registered and operating in accordance with the laws of Mauritius. The applicant, having headquarters in Mumbai, is, inter alia, engaged in the financial services business related to brokerage, investment banking services, etc. During the Financial Year ('FY') 2010-11, the applicant proposed to reduce the share capital of the company, since the company possessed capital in excess of its requirement. Accordingly, a scheme of buyback of securities was implemented by the Company. The decision to implement the scheme of buyback was duly approved by the shareholders of the Company. Pursuant to the approval from shareholders, the applicant bought back 4,03,93,199 equity shares from GS Mauritius after making a payment of Rs 1,88,99,97,781 as consideration for the buyback. On May 05, 2013, the learned AO issued a notice to the applicant, calling for certain details in connection with the remittance, in response to which, the applicant submitted the Chartered Accountant's certificate, copy of the letter of offer and the letter of acceptance by the shareholders, on the basis of which, remittance was made and the reason for non-deduction of tax at source ("TDS"). Post the completion of the proceedings, the AO passed an order dated January 27, 2014, under section 201 (1) and section 201 (1A) read with section 195 of the Act. It was concluded that the buyback was a colourable transaction undertaken by the applicant to avoid payment of Dividend Distribution Tax (DDT). The AO also held that buyback was a form of capital reduction and hence, the payment would be 3 SA No.190/Mum/2015 taxable as dividend under section 2(22)@) of the Act notwithstanding the specific exclusion for distribution by way of buy back as contained in section 2(22) of the Act. As a consequence of the above, an amount of Rs. 148,60,65,751/- (i.e. the amount paid on buy-back less the cost of acquisition of shares bought back) was treated as dividend and tax at the rate of 5% under the provisions of Article 10(4) of the India-Mauritius Double Taxation Avoidance Agreement (DTAA) was demanded from the applicant for the failure to deduct tax at source. Aggrieved by the above order, the applicant preferred an appeal with the CIT(A). The ld. CIT(A) in the order dated March, 16, 2015 upheld the order of the A.O. but deleted the levy of surcharge and education cess. Being aggrieved by the above order of the learned CIT(A), the applicant has filed an Appeal before the Tribunal on June 17, 2015. The hearing is scheduled on February 22, 2017.
3. The ld. Counsel for the assesse argued that the applicant believes that buyback of shares from non-resident shareholders is not chargeable to tax in India. In this respect, the applicant submitted as under:
• The applicant bought back its shares under a scheme of buyback in accordance with the provisions of section 77A of the Companies Act. Section 77A of the Companies Act is a specific section carved for the purpose of allowing companies to buy back their own shares from shareholders. The section also entails certain conditions and thresholds with respect to extent of buyback. Therefore, it may be noted that section 77A of the Companies Act is a distinct code in itself.
• Similarly, the Companies Act also facilitates reduction of capital in specified manner envisaged under section 100 to 104 of the Companies Act. The process of capital reduction entails the Hon'ble High Court's approval and essentially constitutes an arrangement/compromise between the shareholders and the company undertaking such capital reduction.4 SA No.190/Mum/2015
• Given the above, there is a clear differentiation between a scheme of buyback and a scheme of capital reduction and to that effect, both have to be read independently and not in conjunction with each other.
- Reliance is placed on the Hon'ble Bombay High Court's judgment in case of Capgemini India Private Limited (Company Scheme Petition No 434 of 2014 connected with Company Summons for Direction No. 396 of 2014), wherein, the Hon'ble High Court held that a company cannot be compelled to follow a method for repatriation that results in payment of Income-tax.
• Section 2(22)(d) of the Act states that any distribution made to shareholders by the company on reduction of its capital is deemed to be dividend. The deeming fiction applies only when the distribution is underlined with capital reduction. Further, the said section specifically excludes from its ambit the payment made to shareholders pursuant to a scheme of buyback under section 77 A of the Companies Act.
• The exception (iv) to section 2(22)(d) was included vide Finance Act, 1999 and the memorandum to the Finance Bill, 1999. It explains that the intention of legislature in specifically excluding the payments to shareholders pursuant to a buyback made in accordance with section 77 A of the Companies Act is to mitigate the issue of deemed dividend applying to a scheme of buyback, caused by section 2(22)(d) of the Act.
4. After considering the rival submissions and having regard to all the relevant aspects of the matter, we are of the view that the assessee has a prima facie good case; the balance of convenience clearly lies in favour of the assessee and it is a fit case to grant stay of outstanding demand. Accordingly, the stay is granted for a period of six months, i.e., 9th January, 2015 or the date of passing of order by the Tribunal, whichever is earlier. The Registry is directed to fix the said appeal of the assessee for hearing out of turn on 07-10-2015, as 5 SA No.190/Mum/2015 announced in the open court and taken note of by the ld. Representatives of both the sides.
5. In the result, the Stay Application filed by the assessee is allowed as indicated above.
Order pronounced in the open court on 10th July, 2015..
Sd/- sd/-
(G.S. PANNU) (A.D. JAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, 10-7-2015.
RK
copy to...
1. The appellant
2. The Respondent
3. The CIT(A) - Concerned, Mumbai
4. The CIT- Concerned, Mumbai
5. The DR Bench, L
6. Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI